Whether the provisions governing the addition of combined shares to the cost of merger are unconstitutional when calculating the amount of liquidation income;

It is reasonable to deduct a loss carried forward from the surplus at the time of calculating the amount of liquidation income, and to include the acquisition value of combined stocks acquired within two years before the date of registration of the merger in the cost of merger.

Article 80 (Calculation of Liquidation Income Amount due to Merger of Corporate Tax Act

1. The plaintiff's claim is dismissed.

2. Litigation costs shall be borne by the plaintiff.

The defendant's disposition of imposition of corporate tax of KRW 3,175,137,150 against the plaintiff on May 17, 2004 shall be revoked.

1. Details of the disposition;

The following facts are not disputed between the parties:

A. On July 4, 1998, the ○○ Group, in which the ○○ Company (hereinafter referred to as “○○○”) belongs, was selected as the object of corporate improvement work, and each affiliate took an equal reduction of capital on February 27, 1997 in accordance with the “corporate improvement work agreement”, and on March 12, 1999, the Plaintiff merged ○○ and the ○○○○ Co.,, Ltd. (hereinafter referred to as “○○○”) with the Plaintiff on December 28, 2001, and was divided into ○○○○ (hereinafter referred to as “○○○”).

B. On June 11, 1999, ○○ calculated corporate tax on the liquidation income of ○○ upon the merger between ○○ and ○○○ through the merger between ○○○○ and ○○○○○, as the merger cost, KRW 26,942,785,00 in total amount of equity capital, and KRW 26,942,785,00 in total amount of equity capital, and filed a report on the corporate tax on the liquidation income to the Defendant.

C. After conducting a tax investigation, the Defendant determined that ○○ did not add KRW 12,66,775,95 of the acquisition value of the combined shares as stipulated in Article 80(2) of the Corporate Tax Act when calculating the liquidation income, it omitted KRW 18,285,514,384 of the liquidation income amount, and rendered a disposition imposing corporate tax on the Plaintiff on May 17, 2004, imposing KRW 10,205,672,160 of the liquidation income.

D. On March 10, 2006, the National Tax Tribunal rendered a decision that the respondent does not constitute the acquisition of the combined shares of KRW 8,705,50,955 out of the amount initially determined as acquisition value of the combined shares. On March 17, 2006, the defendant revoked the amount equivalent to KRW 7,030,535,016 out of KRW 10,205,672,672,166, which is the previous tax amount imposed, and made a decision to reduce corporate tax to KRW 3,175,137,150 (hereinafter referred to as the "disposition in this case").

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

(1) Article 79(4) of the former Corporate Tax Act

The above provisions violate Articles 11, 23(1), 37(2), and 59 of the Constitution for the following reasons:

(A) The corporate tax on liquidation income shall be imposed only when the value of residual assets does not exceed the paid-in capital. Article 79(4) of the former Corporate Tax Act provides that if there is a loss carried-over not deducted in calculating the amount of liquidation income, it shall be offset not only by the total amount of the equity capital but also by the capital surplus of the nature of the paid-in capital. Accordingly, the amount of liquidation income is different in the case of issuing capital at par with the issue of capital increase and the issue of premium increase. In addition, even if the economic substance is the same as that of the paid-in capital increase, the amount of liquidation income is calculated differently, and

(B) Although the amount of loss carried forward offset by the surplus must be reflected in the amount of loss brought forward on the financial statements, Article 79(4) of the former Corporate Tax Act does not reflect it, and thus, the amount of loss brought forward from the surplus is offset by the amount of loss brought forward from the surplus in calculating the amount of loss brought forward from the surplus.

(C) In calculating the tax base on liquidation income, Article 79(4) of the former Corporate Tax Act provides that a loss carried forward should be deducted as at the time of calculating the tax base on the income for each business year, thereby undermining equitable taxation and resulting in the result of imposing tax without any income.

(2) Article 80(2) of the Corporate Tax Act

The above provisions violate Articles 11, 23(1), 37(2), and 59 of the Constitution for the following reasons:

(A) Article 80(2) of the Corporate Tax Act provides that if a merged corporation acquires combined shares within two years prior to the date of the registration of the merger, it would not include the acquisition value in the cost of the merger, it would prejudice the legal stability and predictability of economic activities by imposing the acquisition value on the merged corporation, including the unconditioned cost of the merger.

(B) Article 80(2) of the Corporate Tax Act does not stipulate any provision regarding dividend tax deduction, etc., unlike the case where a merger price received by the stockholders of a merged corporation is imposed as deemed dividend income, in the event that the acquisition price of the combined stocks is added to the price for the merger, the total tax burden of the parties concerned is increased.

(C) Although there may be a change in the value of shares of the merged corporation after the acquisition of shares, Article 80(2) of the Corporate Tax Act does not consider it in calculating the amount of liquidation income, so the liquidation income may increase unfairly by calculating the amount of liquidation income according to the stock value of the extinguished corporation at the time of the merger according to the stock value different from that of the extinguished corporation.

(D) At the time of the merger, the shareholders of the merged corporation have been infringed upon property rights or the freedom of economic activities due to the income generated from the transfer of the combined stocks that are not attributed to themselves, resulting in the increase in the liquidation income tax belonging to them.

(E) Article 80(2) of the Corporate Tax Act provides that the acquisition value of the combined stocks acquired by the merged corporation through the offering of new stocks by the merged corporation shall not be distinguished from the merger cost paid to the stockholders of the merged corporation, but shall be added to all the acquisition value of the combined stocks, so the liquidation income shall be calculated unfairly.

(f) If shares of the merged company are issued for shares of the merged company, the merger cost shall be calculated in a way that would be distorted due to the difference between the stock value of the merged corporation at the time of the merger and the stock value of the merged corporation at the time of

(3) The ○○○ has used 11,467,00,000 won of earned surplus in compensating for losses in the business year ending on December 31, 1998, and prepared the financial statements for each business year as of March 12, 1999, and the Defendant calculated the financial statements for each business year based on the results as of the date of the registration of the merger, and imposed corporate tax on liquidation income by calculating that there is no surplus as of the date of the registration of the merger, which is due to the erroneous accounting of ○○○○○, and is null and void without obtaining approval from the general meeting of shareholders. Thus, in addition to the reserved amount arising from the tax adjustment as of the date of the registration of the merger, the disposition of KRW 21,162,812,15 won and KRW 31,616,846, and KRW 305,000 of earned surplus in the business year ending on March 16, 1999, which was imposed by the Defendant to liquidate the total amount of ○○○○15.

B. Relevant provisions

(1) Article 80 and relevant provisions of the Corporate Tax Act

○ Calculation of the amount of liquidation income due to merger under Article 80 of the Corporate Tax Act

(1) Where a domestic corporation is dissolved due to a merger, the amount of the liquidation income (hereinafter referred to as "settlement income due to a merger") shall be the total amount of the cost of merger received by the stockholders, etc. of an extinguished corporation from the merged corporation minus the total amount of equity capital of the extinguished

(2) In the calculation of the total cost of merger under the provisions of paragraph (1), where the merged corporation has acquired the stocks, etc. of the extinguished corporation (in cases of a newly established merger or a merger of 3 or more corporations, including the stocks, etc. of the extinguished corporation after the acquisition by the extinguished corporation; hereafter in this Article referred to as "stocks, etc.") within 2 years prior to the date of the registration of the merger, and such combined stocks, etc. are not issued to the merged corporation, the total cost of the merger shall be the sum of the acquisition value of the concerned combined stocks, etc. In such cases, where stocks, etc. are delivered, the amount obtained by deducting

(3) Article 79 (3), (4) and (6) shall apply mutatis mutandis to the calculation of the amount of liquidation income due to a merger.

(4) In applying paragraphs (1) through (3), matters necessary for calculating the amount of liquidation income due to the merger, such as the calculation of the total cost of merger, shall be prescribed by Presidential Decree.

Article 122 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 16658 of Dec. 31, 1999) (Calculation of Liquidation Income Amount due to Merger)

(1) The total cost of merger under Article 80 (1) of the Act shall be the sum of the amounts in the following subparagraphs:

1. The total cost of merger under Article 16 (1) 5 of the Act;

2. The amount added up under Article 80 (2) of the Act; and

3. The sum of the amounts falling under any one of the following items paid by the merged corporation:

(a) Corporate tax on liquidation income of an extinguished corporation; and

(b) Resident tax imposed upon the corporate tax under item (a);

(2) In the application of the latter part of Article 80 (2) of the Act, the value of stocks delivered shall be the value calculated under each subparagraph of Article 14 (1).

(2) Article 79 and relevant provisions of the former Corporate Tax Act

○ Calculation of the amount of liquidation income from dissolution under Article 79 of the former Corporate Tax Act

(1) Where a domestic corporation is dissolved (excluding dissolution by merger or division), the liquidation income (hereinafter referred to as "settlement income by dissolution") amount shall be the amount calculated by deducting the sum of the capital, investment and surplus funds as of the date of the date of the registration of the dissolution (hereinafter referred to as "total amount of equity capital") from the value of residual assets from dissolution of the corporation.

(2) In the calculation of the liquidation income from dissolution of a domestic corporation, if any loss brought forward to the domestic corporation under the provisions of subparagraph 8 of Article 18 exists as of the date of the date of the registration of the dissolution, the loss brought forward shall be offset by the amount equivalent to the total amount of equity capital of the corporation as of the date of the date of the registration of the dissolution: Provided, That the amount of losses brought forward to offset shall not exceed

shall be deemed to have been made.

Article 18 of the Corporate Tax Act (Non-Inclusion of Evaluation Marginal Profit)

The following profits shall not be included in the gross income in calculating the income amount of a domestic corporation for each business year:

8. An amount appropriated to offset losses carried forward prescribed by Presidential Decree among the value of assets received without compensation and the amount of reduced liabilities due to exemption from or expiration of debts;

Article 18 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17033 of Dec. 29, 2000)

(1) The term “loss carried forward as prescribed by the Presidential Decree” in subparagraph 8 of Article 18 of the Act means the deficit under Article 14 (2) of the Act (excluding the deficit succeeded under the provisions of Article 45 of the Act) that is not deducted in calculation of the tax base for each business year thereafter pursuant to the provisions of subparagraph 1 of Article 13 of the Act.

(2) The provisions of Article 10 (1) and (2) shall apply mutatis mutandis to the calculation of losses carried forward under paragraph (1).

○ Income for each business year under Article 14 of the Corporate Tax Act

(1) The total amount of losses incurred for each business year of a domestic corporation shall be the amount in excess of the total amount of earnings during the business year.

○ Article 13 of the Corporate Tax Act

The corporate tax base on the income of a domestic corporation for each business year shall be the amount calculated by deducting the amount under the following subparagraphs in sequential order from the income of a domestic corporation for each business year:

1. The amount of losses incurred during each business year within five years before the start date of the current business year which were not thereafter deducted in the calculation of the tax base;

C. Determination

(1) Liquidation income of an extinguished corporation;

The corporate tax on liquidation income is a corporate tax which is in the nature of settlement in a case where a dissolved company's property is assessed in the course of a merger, etc. in the course of a merger, etc., and where profits which were in real state under tax law are realized through capital gains, it shall be deemed as liquidation income of the dissolved company. The corporate tax on liquidation income of the extinguished corporation dissolved through a merger shall belong to the merged corporation (the surviving corporation after a merger) who succeeds

In the case of a merger, the liquidation income of an extinguished corporation shall be calculated by deducting the total amount of equity capital as of the date of the registration of the merger from the total amount of the merger price. The total amount of the merger price shall be calculated by adding up the value of stocks received by stockholders, etc. of the extinguished corporation from the merged corporation, the value of money and other assets received in the payment of the merger, the acquisition value of combined stocks (the value of stocks issued by merger) and the corporate tax, etc. on the liquidation income of the extinguished corporation. The total amount of equity capital shall be calculated by deducting the loss carried forward from the

Liquidation income of a merged corporation = Amount of merger [the value of shares issued by merger + amount of merger + (total shares)

- Acquisition value - The value of shares issued by merger for combined shares) + Corporate tax on liquidation income - Equity capital

Total amount [Capital + Surplus - Deficits Carried forward (Limits on surplus)]

The key issue of the instant case is whether adding up the acquisition value of combined stocks in calculating the price for merger and deducting the deficit brought forward within the limits of the surplus in calculating the total amount of equity capital, respectively, are in violation of the Constitution.

(2) Whether the clause against a loss brought forward is unconstitutional

In liquidation income taxation, it is necessary to accurately grasp the ‘realistic increase in value' or ‘an increase in net assets of the merged corporation' in order to satisfy the substance over form principle.The loss brought forward is a loss that occurred in the taxable period that has already passed and is not deducted by the time of merger. Therefore, in order to accurately calculate the net asset size of the merged corporation as of the date of merger registration, it should be deducted from the surplus remaining at

The legislative purpose of the offset clause is to accurately understand the increase in net assets in tax accounting at the stage of liquidation of the merged corporation, so the legislative purpose is justifiable.

Since the offset clause deducts any deficit brought forward without deduction in the tax accounting from any surplus in the tax accounting, it is also appropriate to achieve the legislative purpose. Even if the surplus in this case falls under the capital surplus in the tax accounting of the company, it is not appropriate to distinguish the capital surplus and the earned surplus in the tax accounting for the tax accounting purposes, and to calculate the increase in assets in the tax accounting at the stage of liquidation due to the merger, so it cannot be deemed unfair to deduct the deficit brought forward in the tax accounting from the surplus in the tax accounting.

Only to the extent of surplus funds, the amount of carried-over losses shall be deducted, and the principle of capital adequacy shall not be deducted in capital, and thus, it can be deemed a minimum measure necessary. Even if the surplus funds in this case constitute capital surplus under corporate accounting, it is different from the capital, and thus, the offset provision in this case may be deemed to contravene the principle of capital adequacy or to impair the

It is difficult to view that set-off clause is inconsistent with the principle of tax equality (the substance over form principle) or excessively infringes on the Plaintiff’s right to equality and right to property.

(3) Whether a joint stock provision is unconstitutional or not

If the merged corporation purchases the stocks of the merged corporation before the merger, the merger price to be paid to the merged corporation will be reduced and the liquidation income amount of the merged corporation will also be reduced accordingly.The provision that the joint stock provision should be added to the acquisition price of the combined stocks acquired within two years before the merger registration is to prevent the merged corporation from unfairly avoiding the corporate tax burden on the liquidation income by acquiring the stocks of the merged corporation before the merger.

In order to achieve the legislative purpose, the provisions on combined stocks stipulate that the acquisition value of combined stocks shall be included in the cost of merger if the merged corporation acquires the combined stocks within two years prior to the date on which the merger is registered. If the merged corporation acquires the stocks of the merged corporation within two years prior to the date on which the merger is registered, it is highly probable that the merged corporation acquired them for the purpose of merger. The acquisition price actually paid is limited to the combined stocks acquired within two years prior to the date on which the merger is registered, and the acquisition price of the merged corporation reflects the net asset value of the merged corporation at the time of acquisition. In addition, in cases where the shares of the merged corporation are issued to the combined stocks, the scope of adding the acquisition price of the combined stocks acquired within two years prior to the date on which the merger is registered shall be included in the cost of merger, and it is difficult to view that the acquisition price of the combined stocks is not in conformity with the substance or unreasonable. It is no different even if the merged

Although deeming the acquisition value as the price for mergers as the price for mergers is not consistent with the substance of deeming the acquisition value as the price for mergers, considering the following: (a) the acquisition value of combined shares increases after acquiring them; (b) the legislative purpose of the provisions on combined shares is to prevent the decrease in liquidation income of the merged corporation by holding combined shares; and (c) where shares of the merged corporation are issued to combined shares, the amount is deducted from the acquisition value of combined shares to the sum of the price for mergers; and (d) the scope of the sum of the price for mergers is adjusted by deducting the amount of the shares issued by the merged corporation from the acquisition value of the combined shares; and (e) the provision on combined shares can be deemed as an appropriate means that can be selected in order to achieve the legislative purpose and promote efficiency of tax collection affairs. Since the combined shares can be deemed to have been acquired in advance for the purpose of the merger, imposing losses incurred by the prior acquisition on the acquisitor

When limiting the scope of application to the combined stocks acquired within two years prior to the date of registration of the merger, the provisions of the combined stocks limited the scope of application to the combined stocks acquired within two years prior to the date of registration of the merger, and limited the value of the combined stocks to be deducted from the acquisition value of the combined stocks and added up to the cost of merger, thereby minimizing the side effects arising from deeming the price of the acquisition of the combined stocks as the cost of merger. Even if the stockholders, etc. of the extinguished corporation who transferred the combined stocks paid capital gains tax on the capital gains from the transfer of stocks of the extinguished corporation,

Ultimately, the joint stock clause cannot be said to be inconsistent with the principle of tax equality (the principle of substantial taxation) or to excessively infringe the plaintiff's right to equality and right to property.

(4) As to the assertion of additional surplus

The gist of the plaintiff's assertion is that ○○○ uses 1,467,00,00 won of earned surplus in the business year ending on December 31, 1998 for compensating for losses, and that the accounting of 41,012,617,620 won of earned surplus and earned surplus surplus in the business year ending on March 12, 1999 for compensating for losses is null and void, the surplus under tax law would increase and the total amount of equity capital of ○○○, an extinguished corporation, does not exist. However, since the liquidation income of the extinguished corporation exceeds the amount of corporate tax for the liquidation income of ○○,00,000,00 won, it would be the premise that the amount of liquidation income of ○○○,000,000 won of earned surplus in the business year ending on December 31, 1998 + Total amount of liquidation income [the amount of surplus surplus + amount of deficit carried forward (the limit of surplus funds) shall be calculated in the above business year without the approval of the amount of losses carried forward.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.