[1] Criteria for determining whether the liquidation income of an extinguished corporation is deemed to be unfairly reduced due to the acquisition of combined stocks under Article 117-2 of the former Enforcement Decree of the Corporate Tax Act

[2] The case holding that the imposition of additional tax is unlawful on the ground that there is a justifiable reason not to cause a neglect of obligation to pay special rural development tax on the taxpayer, in case where the taxpayer has imposed special rural development tax and the additional tax on the unpaid tax after changing the previous position that the taxing authority considered the liquidation income as the object of corporate tax after the judgment that the liquidation income is subject to non-taxation under the former Regulation of Tax Reduction and Exemption Act was included in the liquidation income of the merged corporation

[1] Article 117-2 (see current Article 122) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970, Dec. 31, 1998) / [2] Article 2 subparag. 4 of the Framework Act on National Taxes and Article 11 of the Act on Special Rural Development (amended by Act No. 5581, Dec. 28, 199)

[1] Supreme Court Decision 87Nu55 delivered on July 25, 1989 (Gong1989, 1298) Supreme Court Decision 91Nu8449 delivered on May 26, 1992 (Gong1992, 2050)

dopco Co., Ltd. (Law Firm Rate, Attorneys So-young et al., Counsel for the defendant-appellant)

The Head of Gangnam Tax Office (Attorney Kim Yong-sik, Counsel for defendant-appellant)

Seoul High Court Decision 2006Nu1434 delivered on October 18, 2006

All appeals are dismissed. The costs of appeal are assessed against each party.

The grounds of appeal are examined.

1. Plaintiff’s ground of appeal

Article 117-2 (wholly amended by Presidential Decree No. 15970 of Dec. 31, 198) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) refers to the case where the liquidation income of the merged corporation is deemed to be unfairly reduced due to the acquisition of the combined stocks acquired prior to the merger. The purpose or intent of reducing the liquidation income as a subjective element is not necessarily to be acknowledged, but to be determined by considering a series of transactions and processes from the acquisition of the merged corporation to the merger (see, e.g., Supreme Court Decisions 87Nu55, Jul. 25, 1989; 91Nu8449, May 26, 1992).

According to the reasoning of the judgment of the court of first instance cited by the court below, the court of first instance acknowledged the facts as stated in its decision after compiling the evidence of its employment. The plaintiff's acquisition of the aggregate shares of this case is intended to merge the Korea Oil Pipeline Co., Ltd. (hereinafter "Korea Oil Pipeline"), and if the plaintiff paid the price for acquisition of the aggregate shares of this case to the Korea Petroleum Development Corporation, which is the shareholder, as a merger subsidy, without acquiring the aggregate shares of this case, if the plaintiff paid the price for acquisition of the aggregate shares of this case as a merger subsidy, the merger subsidy would be included in the liquidation income of the Korea Oil Pipeline, but in fact the plaintiff actually reduced the liquidation income by acquiring the aggregate shares of this case in advance before the merger. Thus, in light of the above legal principles and records, the judgment of the court below is just and there is no error of law such as misunderstanding legal principles as to the calculation of liquidation income in the case of merger as alleged in the grounds of appeal.

2. As to the Defendant’s ground of appeal

Under the tax law, where a taxpayer violates various obligations, such as a tax return and tax payment, without justifiable grounds, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, an additional tax is an administrative sanction imposed as prescribed by the law, and it is unreasonable to expect the taxpayer to fulfill the obligation, and where there is a justifiable reason to believe that the failure to perform the obligation is not attributable to the taxpayer (see Supreme Court Decisions 95Nu14602 delivered on May 16, 1997; 2004Du930 delivered on November 25, 2005, etc.).

According to the reasoning of the judgment of the court of first instance cited by the court below, the court of first instance acknowledged the facts as stated in its decision after compiling the evidence of employment. After the plaintiff reported and paid corporate tax by including the acquisition value of the combined shares in the liquidation income of the merged corporation, the liquidation income including the acquisition value of the combined shares in this case is subject to non-taxation under the former Tax Reduction and Exemption Control Act (wholly amended by Act No. 5584, Dec. 28, 1998; hereinafter the "former Tax Reduction and Exemption Control Act"), the court of first instance and the appellate court divided the opinions. This is not merely due to the mistake of facts or legal errors, but due to the difficulty in interpreting tax laws. In this situation, although the acquisition value of the combined shares in this case constitutes liquidation income, the liquidation income is subject to non-taxation under the former Tax Reduction and Exemption Act, and the judgment of the court below that the defendant imposed additional tax on the plaintiff by changing the previous position that the above liquidation income was subject to non-taxation under the former Tax Reduction and Exemption Act without any justifiable reason.

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against each party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Ji-hyung (Presiding Justice)