Seocho-2017- Busan District Court-171 ( April 24, 2017)

Whether the difference between the book value and the market value of the shares issued for the amount of debt converted into investment according to the rehabilitation plan plan can be deducted from bad debts.

Although the shares issued to the debt-to-equity swap should be evaluated as the market price, it is illegal to evaluate the market price of new shares as a supplementary assessment method under the Inheritance Tax and Gift Tax Act.

Bad debt tax deduction under Article 45 (1) of the Value-Added Tax Act

2017Guhap22368 Disposition of revocation of Value-Added Tax Imposition

Section 30,000,00

bb. Head of the Tax Office

November 3, 2017

November 24, 2017

1. The Defendant’s imposition of value-added tax of KRW 20,060,480 against the Plaintiff on November 10, 2016 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff is a company established for the purpose of selling and manufacturing construction materials in the Gangseo-gu Busan Metropolitan Government 1 Dong.

B. On February 5, 2013, the Plaintiff filed an application for commencement of rehabilitation procedures with the Changwon District Court and filed for rehabilitation on April 1, 2013.

The commencement decision was made on December 16, 2013, and the authorization was made on December 16, 2013 (the Changwon District Court 20ccifies

(d) Sub-paragraph (d) and (hereinafter above authorized rehabilitation plan is referred to as "the rehabilitation plan of this case").

C. The main contents of the instant rehabilitation plan are as follows.

The aggregate of the principal of the bonds to be repaid prior to the change of rights

169,139,819 - 169,139,139,8199

The aggregate of interest accrued prior to the commencement of the principal of bonds to be repaid prior to the change

Pdd Business, et al. 104 3,107,367,735 335,834,712 3,443,202,448

The aggregate of the principal of the bonds to be repaid prior to the change of rights

Pdd Co., Ltd. and 104 699,157,732 75,562,811 774,720,544

3) The details of rehabilitation security rights to be repaid by the debtor after the alteration of rights are as follows.

2. Transactions on rehabilitation claims;

(1) Particulars of bonds

The details of the obligations of commercial transactions that will be repaid prior to the change of rights as of the basic date of the rehabilitation plan are as follows:

(2) Method of change and performance of rights

(1) Principal and interest prior to commencement

2.5% of the principal and interest prior to commencement shall be paid in cash, but in the first year (2014), the repayment shall be deferred, in the second year (2015), 15% of the amount to be paid in cash shall be paid in the second year (2015), 10% of the amount to be paid in cash shall be paid in the third year (2016), 5% of the amount to be paid in cash shall be paid in the fourth year (2017) through the 9th year (2022) and 45% of the amount to be paid in the first year (2023) shall be paid in the amount to be paid in cash. The remaining principal and interest prior to commencement of the 77.5% of the amount to be paid in full, other than the amount to be paid in cash, shall be paid in the amount to be paid in accordance with the change of the rights of the shareholders

(3) The particulars of claims to be satisfied after the change of rights are as follows.

3. Effects of stock retirement;

The effect of stock retirement shall take effect on the authorization date of the rehabilitation plan.

Section C. Issuance of New Stocks by debt-equity swap

1. Principles for issuance of new stocks following debt-equity swap;

In cases where rehabilitation security rights and rehabilitation claims are converted into investments without paying new shares for shares, following the change of rights for obligations, new shares shall be issued as follows and the repayment shall be substituted by the effective date of issuance of new shares:

2. A company intends to convert its equity into equity for claims, other than rehabilitation security rights and cash repayments, among rehabilitation claims, and the details thereof are as follows:

(a) Class of stocks: Registered ordinary stocks; and

2. Par value of one share: 10,000 won;

3. Price per stock: 10,000 won in gold;

(d) The number of stocks to be issued: 1,102,805 shares in total (excluding free retirement for a fraction of less than one share in that time); and

7) The effective date of issuance of new stocks: The rehabilitation court shall take effect on the day following the date on which the rehabilitation plan is authorized.

4. Reduction of capital by consolidation of stocks;

1. Methods of consolidating stocks;

Pursuant to common shares and changes in rights after the retirement of shares to existing shareholders, for common shares resulting from the conversion of the amount of claims for rehabilitation security rights and rehabilitation claims into investments, the common share of 20,000 won per par value shall be combined into one share per common share of 1,00 won per share.

D. In accordance with the instant rehabilitation plan, the Plaintiff converted 39,674,772 out of 208,814,591 won into equity security rights for SDD business (hereinafter referred to as "Sgggggggs"), and issued new shares 163,541 out of 2,059,023,950 won as rehabilitation claims 2,59,059,023,743,561 won (total amount of debt converted into investment KRW 1,635,418,333) into equity investment (total amount of debt converted into investment), but delivered 8,178 shares to Tgggs after the process of the 200-1 consolidation.

E. On October 5, 2015, the Ulsan District Tax Office filed a claim for the rectification of value-added tax on the ground that the difference between the market value of the shares (1,103 shares out of 8,178 shares; hereinafter referred to as the "the shares in this case") issued by the Plaintiff as a debt-to-equity swap among the rehabilitation claims against the Plaintiff and the book value (220,665,332 won) of the rehabilitation claims in this case was assessed as zero won according to the supplementary assessment method under Article 89 of the Enforcement Decree of the Corporate Tax Act and Article 63 of the Inheritance Tax and Gift Tax Act (hereinafter referred to as the "Inheritance Tax and Gift Tax Act"). The Ulsan District Tax Office assessed the market value of the shares in this case as " zero won" based on the difference (20,65,332 won, hereinafter referred to as "the bad debt amount") between the book value of the rehabilitation claims in this case and the bad debt tax amount under Article 45 of the Value-Added Tax Act (hereinafter referred to as "the bad debt amount in this case").

F. U.S.A. notified the Defendant of the bad debt tax deduction data according to the above decision of correction. On November 10, 2016, the Defendant deducted the bad debt tax amount of the instant case from the Plaintiff’s input tax amount, and notified the Plaintiff of the correction and notification of the value-added tax amount of KRW 20,060,480 for the second period of 2013 (hereinafter “value-added tax”).

G. On December 12, 2016, the Plaintiff dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal, but was dismissed on April 24, 2017.

2. Details of the instant disposition

A. The plaintiff's assertion

1) Since a debt-equity swap was conducted in lieu of repayment of the rehabilitation claim according to the rehabilitation claim in accordance with the rehabilitation claim in this case, the creditor acquired the total book value of the claim converted into an investment as an asset, this cannot be viewed as "a claim confirmed as impossible to be recovered according to the decision to grant authorization for the rehabilitation plan". In the end, the disposition in this case is unlawful on the premise that a bad debt equivalent to the amount of the bad debt in this case has occurred at the

2) Even if the market price of the stock converted into investment was calculated on the basis of the “the effective date of issuance of new stocks” and a claim equivalent to the value thereof was repaid, it is unlawful to calculate the market price of the stock in this case as “0 won” according to the supplementary method of assessment pursuant to Article 62(1)2 of the Enforcement Decree of the Value-Added Tax Act, Article 89(2) and (4) of the Enforcement Decree of the Corporate Tax Act, and Article

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether “The book value of the bonds converted” should be deemed as the acquisition value of new shares and whether the bonds have been repaid.

A) The main sentence of Article 45(1) of the Value-Added Tax Act provides that "where an entrepreneur supplies goods or services subject to the imposition of value-added tax and receives all or part of credit sales or other sales claims (referring to those that include value-added tax) from a person who receives the supply due to bankruptcy, compulsory execution or other causes prescribed by Presidential Decree, he/she may deduct the bad debt from the output tax amount for the taxable period in which the bad debt becomes final and conclusive from 10/110 of the bad debt amount." Article 87(1) of the Enforcement Decree of the Value-Added Tax Act provides that "The main sentence of Article 45(1) of the Act provides that "any other causes prescribed by Presidential Decree such as bankruptcy, compulsory execution or other causes recognized as bad debt pursuant to Article 55(2) of the Enforcement Decree of the Income Tax Act and Article 19-2(1)5 of the Enforcement Decree of the Corporate Tax Act provides that "any cause recognized as bad debt under Article 19-2(1)5 of the Enforcement Decree of the Corporate Tax Act can be confirmed as one of the Debtor Rehabilitation and Bankruptcy Act."

In addition, Article 45 (3) of the Value-Added Tax Act provides that where an entrepreneur supplied with goods or services deducts all or part of the bad debt tax amount as an input tax amount under Article 38, and the supplier of the goods or services receives a bad debt tax amount deduction under paragraph (1) before the entrepreneur closes his/her business, the entrepreneur supplied with the goods or services shall deduct the relevant bad debt tax amount from his/her input tax amount in the taxable period to which

However, in a case where an entrepreneur who received the supply does not deduct the amount of bad debts from the amount of bad debts, the head of the tax office having jurisdiction over the entrepreneur shall determine or revise the input tax amount to be deducted as prescribed by the Presidential Decree. Meanwhile, in relation to the acquisition value of assets under Article 41 of the Corporate Tax Act, Article 72(2)4-2 of the Enforcement Decree of the Corporate Tax Act provides that the amount of stocks acquired through a debt-to-equity swap shall be the market price at the time of acquisition, but the amount of stocks acquired through a debt-to-equity swap shall be the acquisition value of assets in a case where a corporation whose rehabilitation plan including the contents of a debt-to-equity swap pursuant to the Debtor Rehabilitation Act conducts a debt-to-equity swap."

① In the rehabilitation procedure of a corporation, an ordinary debt-equity swap has the same effect as the debt-to-equity swap in that there is no outflow of funds for debt-to-equity swap from the standpoint of the debtor, but the debt-to-equity swap can be deferred without immediately including the debt-to-equity swap as well as corporate tax burden. In addition, there is a characteristic that creditors can participate in the management through a general meeting of shareholders even after the rehabilitation procedure is completed as shareholders. In addition, in the case of a debt-equity swap under the rehabilitation plan of this case, some of the rehabilitation claims are converted into equity swap, and the alteration of the rights to commercial transactions and the method of repayment shall be replaced with the repayment of the rehabilitation claim of this case on the date when the new shares take effect of the company's new shares issued by the debt-to-equity swap, and in fact, a part of the rehabilitation claims against the plaintiff of twoggs are converted into a two-ggs meeting to acquire new shares through a two-ggggggs meeting, and the part of the rehabilitation plan of this case was converted into capital-to-to-equity swap.

(2) It is difficult to interpret to the effect that, in case where a corporation, which received an authorization plan to authorize a rehabilitation plan including the contents of converting its liabilities into investments under Article 41 of the Corporate Tax Act and Article 72 (2) 4-2 of the Enforcement Decree of the Corporate Tax Act, conducts a conversion into investments, the book value of the stocks, etc. acquired through such conversion into investments shall be the acquisition value of the assets." It is difficult to interpret to the effect that the creditor would exclude the creditor from the deduction of the bad debt tax amount of output tax even in a case where the "actual exemption of obligations, not ordinary conversion into investments," such as the contents of the rehabilitation plan in this case, as seen earlier, in the instant case where the twogggs plan for the establishment of the rehabilitation plan, from the decision to allow a conversion into investments, would not be deemed to hold the stocks retired without compensation among new stocks issued through a conversion into investments, and thus, the acquisition value of the stocks to be retired without compensation cannot be deemed to be

③ If it is deemed that the book value of the claim, which was issued new shares in accordance with the rehabilitation plan of this case and converted into investments, has expired as alleged by the Plaintiff, it is merely a formal interpretation that emphasizes only the phrase of the rehabilitation plan of this case, and in the event that the rehabilitation plan that was approved to reduce the shares of the claim without compensation after the conversion into investment, the interested parties shall comply with the rehabilitation plan, and the free reduction of shares is merely an act of execution according to the above decision, so the portion of the rehabilitation claim that was not satisfied due to the rehabilitation plan of this case, which stipulated "the exemption of the obligation" as the type of a conversion into investment, should be evaluated as "a claim that cannot be recovered."

④ Furthermore, if twogggs were to have recovered rehabilitation claims through shares acquired through conversion into investment under the instant rehabilitation plan, as alleged by the Plaintiff, the twoggs also bear value-added taxes that have not been collected in transactions with the Plaintiff, in addition to the losses incurred by the reduction of capital and retirement of the shares without compensation. On the other hand, the Plaintiff is not merely entitled to collect value-added taxes, but also has no possibility of collecting value-added taxes, by deducting the value-added taxes that he did not bear from the input tax amount. Accordingly, the equity in tax burden arises.

(2) As seen in the above, the market value of new shares as of the effective date of issuance of new shares is difficult to be substituted for repayment of rehabilitation claims through conversion into investment as seen in the rehabilitation plan 200. 2. The amount of claims equivalent to the appraised value shall be deemed to have been repaid within the extent of the amount to be replaced by the rehabilitation plan, based on the market value of new shares acquired by rehabilitation creditors as of the effective date of issuance of new shares (see, e.g., Supreme Court Decision 2002Da12703, Jan. 10, 2003). The Defendant is not obliged to apply the method of calculating the market value of the shares to the extent that it is difficult for the Defendant to calculate the market value of the shares at 20th anniversary of the issuance of new shares through conversion into investment (see, e.g., Article 89 of the Enforcement Decree of the Corporate Tax Act and Article 63 of the Inheritance Tax and Gift Tax Act).

3) Sub-decisions

Ultimately, the instant disposition based on the premise that the instant bad debt amount equivalent to KRW 220,665,332, which is the difference between the book value of the rehabilitation claim for investment conversion, was incurred to both gggggs, because the market price at the time when the twoggs were 0 won at the time of the entry into force of the issuance of new shares through the conversion of investment from the Plaintiff.

3. Conclusion

Thus, the plaintiff's claim of this case is reasonable, and it is so decided as per Disposition by admitting it.

shall be ruled.