The early trial of 2013 also 4915 ( February 20, 2014)

Where treasury stocks acquired for the purpose of stock retirement are retired, it shall be deemed to constitute the fictitious dividend.

Where stocks are retired as part of the acquisition procedure of treasury stocks for stock retirement, the amount of money acquired by the stockholder in excess of the amount necessary for the acquisition of the stocks shall be deemed deemed dividend.

Article 17 of the former Income Tax Act

Seoul Administrative Court 2014Guhap8742 global income and revocation of disposition

JO

The director of the tax office.

September 5, 2014

September 26, 2014

1. The plaintiff's claim is dismissed.

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

1. Details of the disposition;

A. On July 25, 2008, the Plaintiff (hereinafter “AA”) transferred the shares AA 193,050 shares (hereinafter “instant shares”) to the OO members by exercising the appraisal rights under Article 341-2 of the Commercial Act. The Plaintiff reported and paid the capital gains tax to the Defendant.

B. From July 20, 201 to August 28, 2011, the director of the Central Regional Tax Office determined that “the amount obtained by subtracting the acquisition value from the price received by shareholders, such as the plaintiff, etc., at the time of the reduction of the capital for consideration (the first: December 3, 2007; the second: February 23, 2009) of the A” constituted the deemed dividend income.

C. Accordingly, on October 1, 2013, the Defendant issued a notice of correction and notification of the global income tax global income tax amount (including additional tax) to the Plaintiff on October 1, 2013, by adding the Plaintiff’s constructive dividend income (i.e., the transfer value OO-Acquisition) to other income amount.

D. The Plaintiff appealed and filed an appeal on November 14, 2013, but was dismissed by the Tax Tribunal on February 20, 2014.

E. On the other hand, the Defendant revoked ex officio the transfer income tax amount paid on or around March 2014, and deducted the amount of the amount calculated by adding the additional amount to the additional amount for refund as the already paid tax amount, and corrected the amount of the additional amount for refund from the global income tax in 2009 (hereinafter “the disposition of this case”).

[Reasons for Recognition] Facts without dispute, Gap evidence 1-1, 2, 4, 5, 11, 2, 3-1 through 5, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Considering the following circumstances, the instant disposition is unlawful and should be revoked.

(1) The instant stock transaction is based on the Plaintiff’s exercise of appraisal rights, and the price was determined by the Plaintiff’s free will. In addition, whether the Plaintiff and AA held the instant stocks without disposing of them by the end of the pertinent business year, or whether AA decided to retire them after the end of the pertinent business year, and thus, the instant stock transaction is an asset transaction (transfer income) and does not constitute capital transaction (Fictitious dividend income).

(2) The income acquired through the instant stock transaction was realized in the taxable period from January 1, 2008 to December 31, 2008, and thus, it constitutes a defect in the period to which the income tax is to accrue if a comprehensive income tax was imposed in 2009 on the ground of a decision on stock retirement (board decision) made on February 23, 2009, which occurred after the end of the taxable period. In addition, the instant disposition, which was made differently from the global income tax year, type of income and amount of income on February 23, 2009 due to the following reasons such as stock retirement in 2008, was made impossible for the Plaintiff to estimate the scope of its tax liability. Furthermore, it violates the principle of no taxation without law, since the Plaintiff was not in the shareholder’s status at the time of stock retirement on February 23, 2009.

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

(1) The Plaintiff joined A and retired from office on December 31, 2007, when he was a director from June 19, 2004 to December 31, 2007, from December 7, 2004 to September 28, 2005, from August 25, 2006 to June 1, 2007.

(2) On July 25, 2008, the Plaintiff entered into a share purchase agreement with A as follows. On August 4, 2008, A paid OOOE to the Plaintiff on August 4, 2008. A and the Plaintiff agreed to sell and purchase the Plaintiff’s stocks issued by A to A, and entered into the following contracts:

Article 1 (Subject Matter of Sale)

-Name of issuing company: AA

-type of shares: common shares;

-OOOO

-number of shares: 193,050 shares;

Article 2 (Sales Price)

The purchase price shall be the KRW OO equivalent to the KRW OO per share.

§ 3. (Date of Share Trading, Delivery)

The date of sale of shares shall be July 25, 2008, and AA shall pay the purchase price under Article 2 to the plaintiff in cash.

(3) On July 21, 2008, AA held a board of directors on July 21, 2008 and resolved on the acquisition or retirement of its own shares as follows.

Date of meeting

Details of resolution

April 24, 2007

Acquisition and retirement of treasury stocks.

Purchase of 1,875,000 POO (acquisition value)

Above May 7, 2007: From May 7, 2007

September 12, 2007

Cases of acquisition of treasury stocks.

Acquisition of 1,290,900 POO

Date of purchase of stocks: September 13, 2007

December 3, 2007

In case of retirement of one’s own stocks,

- Registered common shares 2,670,290

Scheduled date of retirement: December 18, 2007

April 11, 2008

Cases of acquisition of treasury stocks.

Acquisition of 65,000 POO (acquisition value)

Date of purchase of stocks: April 15, 2008

July 21, 2008

Cases of acquisition of treasury stocks.

Purchase of 250,000 POO (acquisition value)

Above July 21, 2008: Above July 21, 2008

September 8, 2008

The cases of convening an extraordinary general meeting of shareholders.

F. Date and time of call: 10:0 am on October 28, 2008

F. Bill: Cases of the retirement of treasury shares (cases of the reduction of capital);

- Voluntary incineration of common shares 297,300 (OOOO on par value)

November 14, 2008

The cases of convening an extraordinary general meeting of shareholders.

F. Date and time of call: 10:00 am on January 6, 2009

F. Bill: Cases of acquisition and retirement of treasury stocks (cases of reduction of capital)

- Voluntary incineration of common shares 800,000 (acquisition value OOOO)

- Acquisition period: January 12, 2009 to January 16, 2009

February 23, 2009

In case of retirement of one’s own stocks,

Retirement of 510,500 common shares (OOO per share)(6 January 2009)

The number of shares of shareholders consenting to the sale of shares out of the shares to be retired approved*

The scheduled date of retirement: February 27, 2009

* From April 15, 2008 to January 22, 2009, AA was subject to 510,500 shares (including the shares of this case) acquired from 18 employees or general shareholders, including the Plaintiff.

(4) AA held a temporary general meeting on January 6, 2009 and resolved on the acquisition and retirement of its own shares as follows.

Date of meeting

Details of resolution

June 1, 2007

Acquisition and retirement of treasury stocks.

Purchase of 1,875,000 Won per share (OOO, 1,600 won per share)

January 6, 2009

Acquisition and retirement of treasury stocks.

Acquisition and incineration of 800,000 POO (acquisition value)

The acquisition period: January 12, 2009 to January 16, 2009

Methods of incineration: Voluntary incineration;

· Other: The total number of shares to be acquired and retired shall be the number of shares held by shareholders who expressed their intent to sell during the period of stock acquisition.

(5) (A) On January 6, 2008, at the newspaper, AA made a resolution to voluntarily retire 500 won per share on the case concerning the acquisition and retirement of treasury shares on August 1, 2007, and on December 3, 2007 at the meeting of the board of directors on September 12, 2007, and on December 3, 2007, AA announced that “the creditor who has an objection to the decrease in assets shall make an objection as the shipment within one month from the date following the date of publication.”

(B) On January 21, 2009, AA announced on January 21, 2009 that “one share of 500 won and 510,500 shares of retired shares shall be retired arbitrarily at a temporary general meeting of shareholders on January 6, 2009. Any creditor who has an objection to the reduction of capital shall be entitled to the shipment of the objection within one month from the date following the date of the publication of this public notice.”

(6) AA, around January 2009, intended to temporarily withhold shareholders from submitting a preliminary examination application for COSO. In order to compensate for losses of the investment period, AA intended to repurchase shares of shareholders who wish to sell shares, and entered into a sales contract at a designated place.”

(7) AA’s annual business report and audit report for the fiscal year of 2008 stated that “2,670,290 shares of common shares (OOO or acquisition price per share) acquired during the period of the year was reduced for consideration on February 4, 2008 during the period. In addition, for the purpose of capital reduction, 2,970,30 shares of common shares were acquired in the capital adjustment account for the purpose of capital reduction, and included 213,200 shares for the same purpose after the closing date.”

(8) On August 201, 201, RoO, the representative director of AA, prepared a confirmation letter that "it did not withhold the constructive dividend, including the constructive dividend of the Plaintiff at the time of the reduction of paid capital in 2007 and 2008, from the public official in charge of the Defendant."

(9) On April 30, 2014, the RoO, a representative director of AA, drafted a statement as follows:

In 207, 2,670,290 shares were purchased from 5,949,580 shares and retired on December 3, 2003 for all shareholders who wish to sell shares, but have not listed the shares.

On August 31, 1998, the Plaintiff joined AA and retired from office on December 31, 2007, and claimed for purchase of shares of AA during the period of service for retirement.

○ A shall convene a board of directors on July 21, 2008 after consultation with the Plaintiff on the purchase price, and passed a resolution on the purchase of shares on July 25, 2008, and paid the purchase price on August 4, 2008 after formulating a share sale and purchase contract. At the time, ○A acquired its own shares from four employees other than the Plaintiff at the time.

On January 6, 2009, after the closing date of the settlement of accounts, the shares acquired by exercising appraisal rights should be retired if they are not disposed of within a reasonable time limit.

On February 23, 2009, the board of directors convened and passed a resolution on the retirement of shares with respect to 203,200 shares acquired from an executive officer or employee including the Plaintiff, and 307,30 shares acquired from a general shareholder, and the retirement of shares on February 27, 2009.

In the business report and audit report for the fiscal year 2008, the Plaintiff’s treasury stocks as of December 31, 2008 indicated for the purpose of stock retirement reflects the resolution of a temporary general meeting of shareholders on January 6, 2008. The Plaintiff did not specify the disposal direction (sale or reduction) of the acquired stocks in addition to the fact that it would respond to the request for stock purchase at the time of acquiring treasury stocks from the Plaintiff.

[Ground of recognition] The written evidence Nos. 1-3, 4, 5, 7 through 11, 4, 5, 1-4, 5, 1-4, and 1-4, and the purport of the whole pleadings

D. Determination

(1) Legal provisions, etc.

Article 17 (1) 3 of the Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009) provides that income from constructive dividend shall be one of the dividend income, and Article 17 (2) 1 provides that "the value of money or other property acquired by a stockholder due to the retirement of stocks or the reduction of capital, or the value of money or other property acquired by an employee or investor due to retirement, withdrawal, or reduction of investment, exceeds the amount required for the stockholder, employee, or investor to acquire the stocks or investment," as one of the constructive dividend that is deemed to have been distributed to the relevant stockholder, employee, or investor.

Article 341 of the Commercial Act (amended by Act No. 10600, Apr. 14, 2011; hereinafter the same shall apply) provides that "the company shall not acquire its own shares on its own account except for the retirement of shares (Article 1)" and Article 343-2 (1) and (2) of the Commercial Act provides that "the company may retire shares after purchasing them at a special resolution of the general meeting of shareholders, and the kind and total number of shares to be purchased, the total amount of acquisition and the period during which it may purchase shares shall be determined by a resolution of the general meeting of shareholders."

Meanwhile, whether a sale of shares constitutes a transfer of shares, or as a capital transaction, or as a result of the retirement of shares or the refund of capital is a matter of interpretation of a juristic act, and should be determined based on the substance and intent of the parties. However, in light of the substance over form principle, the entire process of the transaction should be grasped and determined in addition to the content and form of the contract in question, such as the parties’ intent and the process of concluding the contract, the method of determining the price, and the progress of the transaction (see Supreme Court Decision 2012Du27091,

(2) The capital transaction constitutes capital transaction

In light of the following circumstances, AA is reasonable to deem that it acquired the instant shares from the Plaintiff for the purpose of retiring the shares pursuant to Article 341 subparagraph 1 of the Commercial Act. Therefore, the instant stock transaction is capital transaction, and capital gains are deemed income from deemed dividend.

① The act of retiring shares of AA: From May 7, 2007 to January 16, 2009, AA acquired shares from shareholders, and most of them were retired. The RoO, a representative director of AA stated that “the RoO acquired shares from shareholders in 2007 in order to give the shareholders an opportunity to recover capital,” and that AA has notified shareholders of the fact that “the shareholders would purchase shares again” in 2009, it appears that AA has implemented a series of policies to acquire and retire shares from 2007. In addition, the Plaintiff appears to have been in office as a director or representative director of AA, and attended the board of directors and the shareholders’ general meeting held during the tenure of office, and resolved on the agenda for the acquisition and retirement of shares.

(2) Determination of stock price: AA has acquired stocks from the Plaintiff on a one-stock acquisition date, which is the same as that of other general shareholders, and has not gone through the procedures for appraisal, etc.

③ According to the proviso of Article 341-2(1) of the Commercial Act, the acquisition of shares by a retired director, etc. can be limited to the extent possible to pay dividends, and this means that the requirements for distributable profits should be satisfied based on the period for the settlement of accounts in which the time of retirement falls. However, there is no evidence to determine the extent possible to pay dividends during the period for the settlement of accounts of AA or the period for the settlement of accounts. As alleged by the Plaintiff, it cannot be confirmed whether the instant stock transaction constitutes legitimate transaction by exercising the right to purchase shares under Article 341-2 of the Commercial Act, as alleged by the Plaintiff. The Plaintiff concluded a sales contract for the instant shares from December 31, 2007 to July 25, 2008, which was seven months after the date of retirement (Article 343-2 of the Commercial Act, not "retirement", and it is reasonable to view that the purchase of shares should be completed at least within the period for the settlement of accounts which belongs to the

4. Statement in AA’s business report: The audit and business report for the business year of 2008 of AA shall state that “this case’s stocks are acquired for the purpose of capital reduction for consideration, and shall be included in the capital adjustment account.

⑤ The process of delayed incineration: Although there was a time interval of seven months from July 25, 2008, from February 23, 2009, when the instant stock transaction took place, to February 23, 2009, the actual time of retirement, it appears that the instant stocks were not immediately retired in order to retire 510,500 shares at once, acquired from April 15, 2008 to January 22, 2009.

6. Other: It is not possible to find out the circumstances that AA intended to acquire the instant shares and transfer them to a third party. Rather, in light of the circumstances where A had acquired and retired its own shares since 2007, it is reasonable to deem that A acquired the instant shares with the intent to retire the same as that of its own shares acquired from general shareholders.

(3) Income attribution period, etc.

In light of the following circumstances, it is reasonable to 2009 to view that the time when income accrued from the stock transaction in this case is 209.

(A) Article 46(4) of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 24640, Jun. 28, 2013) provides that "the date of determining the retirement of shares and the reduction of capital" shall be the time of receipt of deemed income. AA passed a resolution to retire the shares of this case and reduce capital on February 23, 2009, so the time when deemed dividend income accrue is February 23, 2009.

(B) In addition, the stock transaction of this case was conducted on July 25, 2008, and the stock price was delivered on August 4, 2008, but as long as the stock price was paid on August 4, 2008, the stock price was merely the advance payment and the dividend was deemed to have been made only on the date of decision on stock retirement. Thus, deemed that the fictitious dividend was made on July 25, 2008, the date of issuance of stock price cannot be deemed to have been made.

(C) In a case where a shareholder’s value of money and other property acquired by the shareholder through the retirement of stocks or reduction of capital exceeds the amount required for the acquisition of the stocks concerned, the difference shall be deemed as an economic profit similar to the cash dividend and thus, deemed as a dividend in light of the principle of equity in taxation (see Supreme Court Decision 2002Du4587, Nov. 28, 2003). Therefore, it cannot be deemed that there exists no profit derived from the fact that the Plaintiff is not in the shareholder’s status on the date when the Plaintiff decided to retire stocks or reduce capital.

3. Conclusion

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

(c)