Seoul Administrative Court 201Guhap7410 ( August 26, 2011)

Seocho 2010Ch2877 ( October 16, 2011)

Dispositions that are imposed on the issuance of new shares by deeming the amount in excess of the issuance amount as a discharge profit of liability are illegal.

Even if a non-party corporation acquired new shares issued above par value, this cannot be deemed as giving any benefit to the non-party corporation. The act of the Plaintiff’s act of exempting the account payable to the non-party corporation and the short-term loan from the Plaintiff’s share price paid to the non-party corporation does not immediately constitute a profit obtained by distribution from the profit of debt exemption or a related party

2011Nu30856 Revocation of Disposition of Refusal to Refund Corporate Tax

XX Construction Co., Ltd.

Head of the District Tax Office

Seoul Administrative Court Decision 2011Guhap7410 decided August 26, 2011

March 23, 2012

April 20, 2012

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The defendant's rejection disposition against the plaintiff on June 22, 2010 against the plaintiff shall be revoked for correction of corporate tax of 000 won in the business year 2009.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Quotation of judgment of the first instance;

The reasoning of this court's decision is that "No. 1 of No. 4 of the first instance judgment" and "No. 1 of the second instance judgment" are "No. 1 of the second instance judgment," respectively, and that the defendant added the following judgments as to the allegations made at the court of the first instance, and therefore, it is identical to the part concerning the reasons of the first instance judgment, so it is acceptable in accordance with Article 8 (2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act.

2. Additional judgment;

A. The defendant's assertion

1) Even before the issuance of new shares in this case, the Plaintiff had been exempted from obligations with the non-party corporation under the same law and method, and thus, there is no need to protect the Plaintiff’s trust. The Rules of the Ministry of Finance and Economy (Re-corporation 46012-147) interpreted that the amount in excess of the market price from the transaction of conversion of shares after January 1, 2004 should be regarded as the profit from the exemption of obligations. The Plaintiff was aware of this, and Article 17(1)1 proviso of the Corporate Tax Act is merely a confirmatory provision that clearly supplements the scope of the amount in excess of the issue price by transferring the provision of Article 15(1) of the Enforcement Decree of the Corporate Tax Act to the law, and it does not violate the principle of prohibition of retroactive taxation under Article 18(2) of the Framework Act on National Taxes.

2) The instant disposition of refusal is justifiable on the ground that the instant new stocks transaction falls under Article 11 subparag. 6 and subparag. 9 of the Enforcement Decree of the Corporate Tax Act (the profits received by distribution from a specially related person due to capital transaction under the provisions of each item of Article 88(1)8).

B. Determination

In light of the following circumstances cited above, the Defendant’s above assertion is without merit.

1) As to the capital transaction of the same method prior to the issuance of new shares in this case, the Plaintiff’s winning judgment was rendered and finalized (Supreme Court Decision 2009Du11270) on the ground that “the amount exceeding the par value of new shares issued by the Plaintiff cannot be included in the gross income” (see Supreme Court Decision 2009Du11270), there is no objective evidence to deem that the Plaintiff was aware of the above established rules of the Ministry of Finance and Economy at the time of the transaction of new shares in this case. Moreover, the above established rules of the Ministry of Finance and Economy are merely an administrative rule that issued the tax authority’s internal guidelines for interpretation and enforcement of tax laws, and is not a law that has the effect of binding the court or the people, and it cannot be deemed that the provisions of the proviso of Article 17(1)1 of the Corporate Tax Act and Article 15(1) of the Enforcement Decree of the Corporate Tax Act at the time of the new shares transaction in this case cannot be seen as being the same, and thus, the application of the amended provisions of the Corporate Tax Act and the Enforcement Decree after the amendment cannot be permissible

2) Even if the non-party corporation acquired the instant new shares issued above par value, it cannot be deemed that it gave any benefit to the non-party corporation. The Plaintiff’s act of exempting the account payable to the non-party corporation and the short-term loan from the Plaintiff’s paid share capital constitutes an abnormal act that lacks economic rationality, as alleged by the Defendant, and even if such series of act constitutes an abnormal act that lacks economic rationality, it cannot be deemed that the excess of the face value of the issuance of the instant shares directly constitutes the profit received by distribution from the specially related party under Article 11 subparag. 6 of the Enforcement Decree of the Corporate Tax Act

3. Conclusion

Therefore, the judgment of the first instance court is legitimate, and the defendant's appeal is dismissed as it is without merit. It is so decided as per Disposition.