Seoul High Court Decision 200Na1448 delivered on August 1, 200

The head of Gangnam-gu Seoul Metropolitan Government and one other (Law Firm Han-ro, Attorneys Hai-ju, Counsel for the defendant-appellant)

August 9, 2017

1. All of the plaintiff's claims are dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The imposition of acquisition tax of 197,50 won, registration tax of 445,458,550 won, special agricultural and fishing villages tax of 19,750,410 won, and local education tax of 83,97,660 won, and acquisition tax of 4,860,090 won, registration tax of 10,94,640 won, special rural development tax of 485,990 won, and special rural development tax of 2,063,250 won, each of which is imposed by the head of Gangdong-gu Seoul Metropolitan Government against the Plaintiff on December 10, 2014 by the head of Gangdong-gu Seoul Metropolitan Government.

1. Details of the instant disposition

A. Samang Co., Ltd. (hereinafter referred to as the “Tang king”) was a company established on January 6, 1966 for the purpose of manufacturing and selling bottles, printing and selling metals, etc., and on August 20, 2009, the Samang Co., Ltd. (hereinafter referred to as the “Tang king”) established a three-dimensional assets company by dividing the investment and leasing business sector by human division (hereinafter referred to as the “instant division”).

B. The reason for the instant partition on September 4, 2009: (a) 3,757 square meters on the ground of the instant partition; (b) 8,772 square meters on the ground of ○○ building on the ground of 3,757 square meters in Gangnam-gu Seoul ( Address 1 omitted); and (c) 1,354 square meters in the parking lot of Gangdong-gu ( Address 2 omitted); and (d) 10 buildings and land (hereinafter collectively referred to as “instant real estate”) other than 8/1,00 square meters in the 1,354 square meters in the 1,354 square meters in the parking lot of Gangdong-gu, Seoul; and (b) trilable assets acquired ownership of the instant building and land (hereinafter referred to as “instant real estate”). For the reason that the instant partition constitutes qualified division meeting the requirements under each subparagraph of Article 46(1) of the former Corporate Tax Act (amended by Act No. 9924, Jan. 1, 2010; hereinafter the same) exempted from acquisition tax under Articles 1119 and 10

C. The Plaintiff, on December 4, 2009, was dissolved on the same day after absorbing the Crified Assets (hereinafter “instant merger”). On December 21, 2009, the Plaintiff acquired the ownership of the instant real estate on the ground of the instant merger.

D. Around April 2014, the Seoul Special Metropolitan City Mayor conducted a local tax investigation with respect to the Plaintiff, and determined that the trilified assets were not subject to exemption from acquisition tax and registration tax on the instant real estate because it did not meet the requirement that “a corporation established by division will continue to engage in business succeeded from a divided corporation by the last day of the business year in which the registration date of the division falls,” under Article 46(1)3 of the former Corporate Tax Act, as it was merged on December 4, 2009 after the instant division was newly established on August 20, 209.

E. Accordingly, on September 11, 2014, the head of Gangnam-gu Seoul Metropolitan Government imposed acquisition tax of 197,50,260, registration tax of 445,458,550, special rural development tax of 19,750,410, and local education tax of 83,977,660 on the Plaintiff on December 10, 2014, after notifying the Plaintiff of the pre-announcement of taxation. The head of Gangdong-gu Seoul Metropolitan Government imposed imposition of acquisition tax of 4,860,090, registration tax of 10,94,640, special rural development tax of 485,90, local education tax of 2,063,250, respectively (hereinafter “instant disposition”). The head of Gangdong-gu Seoul Metropolitan Government imposed imposition of acquisition tax of 4,860,090, registration tax of 10,94,640, special rural development tax of 90, local education tax of 2,25063,250 (hereinafter “instant disposition”).

F. On February 25, 2015, the Plaintiff filed an appeal with the Tax Tribunal on February 25, 2015, but the Tax Tribunal dismissed the request with the head of Gangnam-gu Seoul Metropolitan Government Office on December 5, 2016, and decided to dismiss the request with the head of Gangdong-gu Seoul Metropolitan Government Office on December 27, 2016.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, Eul evidence Nos. 1, 2, 3, Eul evidence Nos. 1, 2 and 3 (including each number), and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

In the event that three-dimensional assets, a corporation established through division, are merged with the plaintiff before the end of the business year in which the date of the registration of the division falls and the plaintiff succeeds to the business succeeded to from the Sejong Hall, it cannot be deemed as violating the requirements of Article 46 (1) 3 of the former Corporate Tax Act that "the corporation established through division shall continue to conduct the business succeeded to from the divided corporation by the end of the business year which includes the date of the registration of the division," and thus, the disposition

1) Article 46(1)3 of the former Corporate Tax Act does not require the existence of a corporation established by division, but requires a continuous operation of the business. In a case where a surviving corporation continues to operate the business succeeded from a divided corporation through qualified mergers, the surviving corporation’s continuation and identity of the business should be deemed to be maintained.

2) According to the latter part of Article 46(2) of the former Corporate Tax Act, which is a provision on the special taxation for qualified division under Article 46(1) of the former Corporate Tax Act, where a corporation established through division succeeds to a business succeeded from a divided corporation, such business shall not be deemed a discontinuance of business. Thus, the continuity of business under each subparagraph of Article 46(1) of the former Corporate Tax Act shall be equally interpreted.

3) In a case where a corporation established through division succeeds to a business succeeded from a divided corporation again, it is improper to impose taxes on the grounds that the corporate tax satisfies the eligibility division requirement and the acquisition tax and registration tax are not satisfied.

4) The legislative intent of Article 46(1) of the former Corporate Tax Act, Article 119(1)10 of the former Restriction of Special Taxation Act, and Article 120(1)9 of the former Restriction of Special Taxation Act is to provide support for corporate restructuring, such as qualified mergers and qualified mergers, and thus, it is unreasonable to interpret it in the direction of restricting

5) The exemption of acquisition tax and registration tax varies depending on whether the qualified merger was made before or after the last day of the fiscal year in which the registration of division was made violates the tax neutrality and the principle of tax equity.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

According to the facts acknowledged earlier, and the overall purport of the statements and arguments by Gap evidence Nos. 2 and 7 through 12 (including each number), it is recognized that the purpose business is real estate leasing business, etc. in the corporate register of third-party assets is real estate leasing business, and the third-party assets are real estate leasing business with respect to the real estate in this case, there is real estate leasing business with respect to the purpose business in the corporate register of the plaintiff, and the plaintiff succeeded to the lessor status of each lease contract concluded with the lessee with respect to the real estate in this case and engages in the real estate leasing business until the end of the business year 2009, which is the registration date of the establishment

D. Determination

1) Articles 119(1)10 and 120(1)9 of the former Restriction of Special Taxation Act (amended by Act No. 921, Jan. 1, 2010) provide for exemption from registration tax and acquisition tax on the registration of property acquired due to division satisfying the requirements under each subparagraph of Article 46(1) of the Corporate Tax Act. Meanwhile, Article 46(1)3 of the former Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009) provides that “a corporation established through division shall continue to engage in business succeeded from a divided corporation by the end of the business year in which the date of the registration of the division falls.” Article 119(1)10 and 120(1)9 of the former Enforcement Decree of the Corporate Tax Act provides for one of the requirements for “where the merged corporation succeeds to the business of the divided corporation by the end of the business year in which the date of the registration of the merger falls, the former Enforcement Decree of the Corporate Tax Act shall not be applied mutatis mutandis.

In light of the language and text, structure, etc. of these regulations, if a corporation established by division disposes of at least 1/2 of the value of fixed business assets succeeded from a divided corporation before the end of the business year to which the date of the registration of the division belongs, or is not used directly for the relevant business succeeded, it shall not be deemed that the succeeded business continues to be operated, and thus, registration tax and acquisition tax pursuant to Articles 119 and 120 of the former Restriction of Special Taxation Act shall not be exempted (Supreme Court Decision 2014Du36235 Decided August 18,

On the other hand, the interpretation of tax laws under the principle of no taxation without law shall be interpreted as a legal interpretation, barring any special circumstances, which prevents the requirements for tax exemption or tax exemption, and shall not be extensively interpreted or analogically interpreted without reasonable grounds. In particular, it accords with the principle of fair taxation (see, e.g., Supreme Court en banc Decision 82Nu221, Nov. 23, 1982; Supreme Court Decision 2002Du9537, Jan. 24, 2003).

2) In light of the above legal principles, as seen earlier, insofar as trilified assets, which are established through division, are merged with the Plaintiff before the end of the business year which included the registration date of the division, and dissolved, even if the Plaintiff succeeded to the business that was succeeded by the Samlsan, it does not constitute reduction and exemption of registration tax and acquisition tax on the following grounds. Accordingly, the Plaintiff’s assertion is not acceptable.

A) According to Article 104 Subparag. 8 of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010), “acquisition” means sale, exchange, inheritance, donation, contribution, investment in kind to a corporation, construction, repair, reclamation of public waters, creation of land through reclamation, and any other similar acquisition, regardless of whether it is an original acquisition, acquisition by succession, or free of charge. In addition, in the case of corporate division under Article 46(1)2 of the former Corporate Tax Act, the property acquired through division by a corporation established through division is an acquisition with compensation and subject to acquisition tax as a matter of principle, since it transfers the stocks issued by a corporation established by a divided corporation to its shareholders in return for property succession. Accordingly, Articles 119(1)10 and 120(1)9 of the former Restriction of Special Taxation Act provide that acquisition tax on the property acquired by division meeting the requirements under each subparagraph of Article 46(1) of the Corporate Tax Act shall be construed as a strict provision for tax exemption and exemption.

B) Article 46(1)3 of the former Corporate Tax Act provides that “A corporation established by division or counterpart corporation to a division and merger shall continue to conduct business succeeded by a divided corporation or extinguished counterpart corporation to a division and merger until the end of the business year in which the date of the registration of the division falls.” Thus, it is interpreted that the term “corporation established by division” continues to exist until the end of the business year in which the date of the registration of the division falls. However, in the instant case, trilified assets which are corporations established by division are dissolved on December 4, 2010, which is the date of the registration of the division, prior to the end of the business year in which the date of the registration of the division falls.

C) In addition, the transfer of the ownership of the instant real estate, which is a business asset succeeded from Samsan, as a result of the merger with the Plaintiff before the end of the business year in which the registration date of the division falls, to the Plaintiff is entirely disposed of, or not used directly for the pertinent business. Therefore, in accordance with the former part of Article 80(3) of the former Enforcement Decree of the Corporate Tax Act stipulating the criteria for determining whether a corporation established through division continues to conduct the business succeeded to, the transfer of the instant real estate to the Plaintiff

D) On the other hand, Articles 119(1)10 and 120(1)9 of the former Restriction of Special Taxation Act only apply mutatis mutandis to the requirements for reduction and exemption of registration tax and acquisition tax, and Article 46(1) of the former Corporate Tax Act does not apply mutatis mutandis to the main sentence of Article 46(1) and Article 46(2) of the former Corporate Tax Act concerning the deferment of corporate tax. Since registration tax and acquisition tax are different items from the subject, object and contents of taxation, registration tax and acquisition tax are different items, and thus, Article 46(2) of the latter part of Article 46(2) of the former Corporate Tax Act “where a corporation established by division or a counterpart corporation to a division and merger succeeds to a business succeeded to by a merged corporation or a counterpart corporation to a division and merger, the provision

E) Although the purpose of legislation is to provide tax support for corporate restructuring, such as qualified division, registration tax and acquisition tax reduction and exemption system under Articles 119(1)10 and 120(1)9 of the former Restriction of Special Taxation Act, the recognition of registration tax and acquisition tax reduction and exemption, even though a corporation established by division failed to continue to engage in its business by absorbing and dissolved before the end of the business year in which the registration date of the division falls, are not allowed as an extended interpretation beyond the scope of literal interpretation. Rather, Article 46(1)3 of the former Corporate Tax Act, which applies mutatis mutandis Articles 119(1)10 and 120(1)9 of the former Restriction of Special Taxation Act, provides for the minimum period of time to be recognized as qualified division subject to the reduction and exemption of registration tax and acquisition tax, and thus, it may be avoided if interpreted by the Plaintiff

F) Strict interpretation of the requirements for reduction or exemption is rather consistent with the principle of tax equity. As such, it cannot be deemed that imposing registration tax and acquisition tax is contrary to the principle of tax neutrality or the principle of tax equity by deeming that it does not fall under the reduction or exemption of registration tax and acquisition tax as it is dissolved by absorption before the last day of the business year in which the registration date of the division falls.

3. Conclusion

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

[Attachment]

Judges Kim Jong-Un (Presiding Judge)