Korea Technology Investment Corporation (Attorney Lee Jae-soo, Counsel for the plaintiff-appellant)

Samsung director of the tax office (Attorney Lee Jae-ok, Counsel for defendant-appellee)

March 11, 2005

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 25,72,08,682 against the Plaintiff for the business year of April 1, 2003 in excess of KRW 15,654,078,754 of the imposition disposition of KRW 25,72,08,682 shall be revoked.

1. Details of the disposition;

A. On May 7, 1996, the Plaintiff was a company that mainly engages in investment in, and financing to, small and medium venture businesses, and was established in Malaysia, a tax avoidance area, as an Malaysia, on May 7, 1996, as a part of the AP AI (hereinafter referred to as Asia Pcific APAI), and on February 28, 200, as an Malaysia’s UV Investment (hereinafter referred to as “Innove Investment Ld.”), respectively.

B. Meanwhile, on June 21, 1999, the Plaintiff and Nonparty 1, Nonparty 2 et al. jointly invested and established the Main Company (hereinafter referred to as the “State”).

C. On March 20, 200, IIL participated in the subscription for new shares issued on March 20, and accepted forfeited 70,000 shares at KRW 158,000 per share. Of forfeited shares 70,000, 7 persons, including Nonparty 1, etc., who are shareholders of KRW 63,333.33 of forfeited shares, are in the position of a person having a special relationship under Article 52 of the Corporate Tax Act with the Plaintiff and Article 87 of the Enforcement Decree of the Corporate Tax Act (hereinafter “specially related persons”).

D. On January 18, 2002, the Defendant: (a) deemed that the Plaintiff acquired the forfeited share as above; (b) assessed the value per share of 43,200 won per the above forfeited share; and (c) the Plaintiff acquired the forfeited share of 70,00 won by dividing the profits of the above specially related person [158,000 won-43,250 won x 70,000 won x 363636,36536,305,3636,365 of the Enforcement Decree of the Corporate Tax Act excluding the difference between the Plaintiff and the above appraised share of 70,00 won among the forfeited share of 70,00 won; (b) deeming the difference to be subject to rejection as it falls under the wrongful calculation under Article 88(1) Subparagraph 8 (b) of the Enforcement Decree of the Corporate Tax Act; and (c) increased corporate tax by disposing other than the forfeited share of 36,360,36365,536,3636,365 shares (excluding the remaining assessed of the forfeited share of the Plaintiff and non-party 363636,3636.

E. Meanwhile, on July 21, 1999, APAI acquired shares of KRW 1,33,33 of the Asia Net Co., Ltd. (hereinafter “ Asianet”) in KRW 2,390,200,00. On December 20, 199, the above shares were divided into face value of KRW 1/2,66,666,666 shares, and the shares owned at KRW 2,00,00 among 2,60 on February 28, 200, KRW 666,6666,68,198, and KRW 208,67,000 shares issued by the Plaintiff at the rate of KRW 66,666,19,198,145, the Plaintiff acquired shares at KRW 208,67,000,000 from the Plaintiff’s 260,67,000 shares issued shares at the rate of 20,000 Asia’s shares.

F. The Defendant also accepted the Plaintiff’s 200,952 shares of the Asianet on July 22, 200, instead of retiring 2,66,666 shares (i.e., 285,714 +95,238 shares) from “APAI” on July 21, 200 and received 380,952 shares (i.e., 285,714 +95,238 shares) from “APAI 20,360,300 shares (i.e., 108,50 shares) at the time of July 21, 200, 38,943,092,00 won per share (i.e., 380,952, 333,292,200,000 shares) to the Plaintiff’s 206,3606,3606,306,306,296,2,2000 shares of the Plaintiff’s shares.

[Ground of Recognition] A. 2, 3, 4-1 to 13, 6-1 to 5.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

(1) As to the wrongful calculation part

Article 72 (1) 5 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17826, Dec. 30, 2002; hereinafter the same shall apply) states that the Plaintiff’s acquisition price of forfeited stocks shall be the market price at the time of acquisition, and Article 72 (3) of the same Act stipulates that the market price of the forfeited stocks shall be an example of the representative case where the initial price is not included in the acquisition price. Thus, even though the above difference should be included in the calculation of losses and disposed of as retained earnings, the Defendant’s disposition imposing corporate tax on the portion of the unrealized profits for the business year 2000 shall be deemed unlawful.

(2) As to the constructive dividend amount

① The Plaintiff merely exchanged the shares of “Anet” with “Anet” and “APT” and it is unlawful to regard the same as the fictitious dividend. ② Even if it is to be included in the amount of fictitious dividend, 80% of the shares of “APT” issued by the Plaintiff cannot be traded for 180 days from the date of acquisition without prior consent of “APAI” and thus, the value shall be assessed as of January 22, 2001, when 180 days have elapsed from the date of acquisition by the Plaintiff. ③ Since APAI is a separate corporation from the Plaintiff, it is unlawful to vest the amount of fictitious dividend on 95,238 shares issued by APAI to the Plaintiff.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) As to the wrongful calculation part

Article 88(1)3 of the Enforcement Decree of the Corporate Tax Act (hereinafter referred to as the “Enforcement Decree”) provides that a corporation which distributes profits in case of wrongful calculation under the provisions of Article 88(3)1 of the former Enforcement Decree shall include the difference between the market price under the provisions of Articles 89(5) and 106(1)3(i) of the Enforcement Decree of the Corporate Tax Act and the amount of income for each business year of the relevant corporation and dispose of it as other outflow of income under the provisions of Article 89(1)1 of the former Enforcement Decree. In light of the above provision of Article 72(3)3 of the former Enforcement Decree of the Corporate Tax Act, the acquisition price of the new stocks shall not be included in deductible expenses at the lowest acquisition price of the assets under the provision of Article 72(1)3 of the former Enforcement Decree, and thus, the provision of Article 88(2)1 of the former Enforcement Decree of the Corporate Tax Act provides that the acquisition price of the new stocks shall not be included in deductible expenses and thus, it shall not be included in the acquisition price of the new stocks.

(2) As to the constructive dividend amount

① On July 22, 200, “Anet” collected the entire shares of “Anet” and decided to issue them to shareholders at a certain rate. Accordingly, as seen earlier, the Plaintiff and APAI received shares of “APAI” as prescribed by Article 16(1)1 of the Corporate Tax Act. As such, the Plaintiff’s 380,952 shares issued from “Anet” assessed on the assessment value of “Anet” 38,966,00 won, which exceeds the acquisition value of “2,66,66 shares,” and the Plaintiff’s 38,943,00,00 won was distributed from “Anet,” and this part of the Plaintiff’s assertion is without merit, and Article 13 of the Enforcement Decree of the Asia provides for the difference in the Plaintiff’s shares at a general meeting of shareholders, general meeting of shareholders, or meeting of the board of directors, and thus, it cannot be asserted that the Plaintiff’s 80% of the Plaintiff’s shares were not subject to the Plaintiff’s “Anet”’s share distribution date.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.

[Attachment Omission of Related Acts]

Judges Lee Jung-young (Presiding Judge) (Presiding Justice)