Busan High Court (Chowon) 2013Nu10383 (Law Firm 014.19, 2014)

The issued stocks of the merged corporation do not constitute combined stocks when calculating liquidation income.

Since the merger of this case is substantially or procedurally effective, the plaintiff, a corporation surviving the merger, succeeds to the liability to pay corporate tax on the liquidation income, but the issue of the issued stocks of the merged corporation does not constitute the combined stocks whose acquisition value is added to the total price of the merger when calculating the liquidation income.

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

2014Du39142 Revocation of Disposition of Imposing Corporate Tax

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Busan High Court (Chowon) Decision 2013Nu10383 Decided June 19, 2014

The judgment below is reversed, and the case is remanded to Busan High Court.

The grounds of appeal are examined.

1. Article 80 of the former Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; hereinafter the same shall apply) provides that "where a domestic corporation is dissolved due to a merger, the amount of liquidation income shall be the total amount of the cost of merger that the stockholders, etc. of the extinguished corporation receive from the merged corporation minus the total amount of equity capital as of the date of the registration of the merger of the extinguished corporation" in paragraph (1) and Paragraph (2) of the same Article provides that "in the calculation of the total cost of merger under paragraph (1), where the merged corporation has acquired stocks, etc. of the extinguished corporation (hereinafter referred to as "combined stocks, etc.") within two years before the date of the registration of the merger, where the merged corporation does not deliver stocks, etc. of the merged corporation to such combined stocks, etc., the total cost of the merger shall be the amount calculated by adding

2. The court below found that ① the Plaintiff’s representative director, EA and his wife KimB acquired all outstanding stocks of ○ Metal Co., Ltd. (hereinafter “○○ Metal”) on May 2, 2008, and ② thereafter, the Plaintiff entered into an agreement on the merger with ○ Metal on May 27, 2008 and completed the merger registration on July 11, 2008, and ③ Meanwhile, this case’s payment of ○○○ billion won to Periodical on four occasions from December 18, 2007 to March 14, 2008, and determined that the disposition of this case’s total amount including the acquisition price of the above stocks was lawful.

Furthermore, the court below rejected the Plaintiff’s assertion that the disposition of this case imposing corporate tax on the Plaintiff on liquidation income belonging to ○ Metal or ○○ Metal’s shareholders due to dissolution of ○ Metal solely focusing on the form of the merger of this case and disregarding its substance violates the principle of substantial taxation under Article 14 of the former Framework Act on National Taxes (amended by Act No. 911, Jan. 1, 201; hereinafter the same), on the grounds that the instant merger is substantially or procedurally effective, and thus, the Plaintiff, a corporation which continues to exist after the merger, should succeed to corporate tax liability on liquidation income under Article 23 of the former Framework Act on National Taxes.

3. A. Examining the relevant provisions, legal principles, and records, the lower court is justifiable to have rejected the Plaintiff’s assertion that the instant disposition violates the principle of substantial taxation, and contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal doctrine on the principle of substantial taxation

B. However, it is difficult to accept the judgment of the court below that the calculation of the liquidation income amount due to the merger of this case is lawful for the following reasons.

(1) According to the evidence duly admitted by the lower court, the following facts are revealed.

① On December 18, 2007, thisA entered into the instant agreement with PCC, which is a director of ○ Metal, with the effect that ○○ Metal will succeed to the management right of ○○ Metal by taking over the entire amount of ○○○○○○ issued stocks from PCC, and that ○○○○○ billion shall be paid to YCC. (2) Accordingly, thisA had paid ○○○ billion won on December 18, 2007, 2008, 00 billion won on February 28, 2008, 00 billion won on March 10, 2008, 00 billion won on March 14, 2008, and 00 billion won on March 14, 2008, 3, 2000, 2000 million won on each of ○○○ 20 billion shares issued and transferred to ○○○ 2,000 shares issued and sold to ○○ 208.

④ On May 27, 2008, the Plaintiff entered into a merger contract with ○ Metal to absorb ○ Metals, and the Plaintiff issued ○○○○ Shares to be delivered to the shareholders of ○ Metals. On July 10, 2008, the Plaintiff agreed from the Plaintiff on July 10, 2008, that the shareholder of ○ Metals issued the Plaintiff’s shares with respect to ○ Metals issued.

⑤ On June 9, 2008, the Plaintiff and the ○ Metal made a merger announcement, and completed the merger registration on July 11, 2008.

(2) Examining the above facts in light of the aforementioned provisions, since the person who acquired ○○○ stocks issued by Masan from PCC and MaD is not the Plaintiff but the Plaintiff and KimB, the said ○○○○○○○○ (○○○○○)’s outstanding stocks does not constitute “compet stocks” which are acquired by the merged corporation within two years prior to the date of the registration of the merger, and the acquisition value of KRW 00 billion is not included in the total amount of the merger cost following the merger of this case. In addition, as at July 10, 2008, the shareholders of ○○ Metal, an extinguished corporation, of ○○ metal as of July 10, 2008, who were the merged corporation, are not EA and KimB, the price that the shareholder of ○○ Metal, a merged corporation, received from the Plaintiff, which was the merged corporation, due to the merger of this case, shall be deemed to be Plaintiff ○○○○ (○○) stocks issued by the merged corporation.

C. Nevertheless, the lower court determined that the instant disposition, which calculated the amount of liquidation income of ○ Metal by the merger of the instant case, including the total cost of the merger, was lawful on the premise that the ○○○○○○○○ Shares of ○ Metal Stocks acquired by thisA and KimB were combined shares, was lawful, and that such determination was made by misapprehending the legal doctrine on the calculation of the amount of liquidation income by the merger.

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.