Seoul Administrative Court 2010Guhap3777 ( October 30, 2011)

early 209west3546 (28. 2010.06)

Merger evaluation marginal profit shall not be included in deductible expenses unless it is appropriated as the reserve fund.

Where a merger evaluation marginal profit is not appropriated as a lump sum depreciation reserve or as a compressed account reserve, the merger evaluation marginal profit shall be included in the calculation of earnings, and the amount equivalent thereto shall not be deemed unlawful on the ground that it is not included in the calculation of losses. However, the merger price paid in excess of intangible property value shall be the business

2011Nu26284 Revocation of Disposition of Corporate Tax Imposition

Appellant-Appellants

AAAAA

Appellant-Appellant

Head of Guro Tax Office

Seoul Administrative Court Decision 2010Guhap37377 decided June 30, 201

October 27, 2011

December 15, 2011

1. All appeals filed by the plaintiff and the defendant are dismissed.

2. The costs of appeal shall be borne by each party.

1. Purport of claim

The defendant revoked the disposition of taxing KRW 1,065, 374, 00 for corporate tax of 2004, corporate tax of 272,407, and 200 for corporate tax of 2005, corporate tax of 90,353,930 for corporate tax of 2006, corporate tax of 309,037, and050 for the plaintiff on June 1, 2009.

2. Purport of appeal

In the judgment of the court of first instance, the part against the plaintiff shall be revoked. On June 1, 2009, the imposition of KRW 490,273 and 253 shall be revoked among the imposition of KRW 1,065,374, and 00 for the plaintiff.

Defendant: The part against the Defendant in the judgment of the first instance court shall be revoked, and the Plaintiff’s administrative Gu corresponding to the revoked part shall be dismissed.

1. Details of the disposition;

A. On May 3, 1991, the Plaintiff (BBC Co., Ltd.) was established on October 1, 2004 and engaged in the electronic component manufacturing business, and was merged on August 9, 2004, on September 28, 2006, on the 2006, with the CE Co., Ltd., Ltd. (hereinafter referred to as “CC Rouritius”).

B. The defendant assessed and succeeded to the land and buildings on the date ofCC as of 2,032,107,729 (2,343,836,480 won for land, -31,728,751 won for merger evaluation of buildings, - 311,728,751 won for the following reasons: (a) the plaintiff did not include the above amount in the gross income in the calculation of earnings for the business year 2004; (b) it calculated the tax base for the above taxable period as of 2004 through 2007; and (c) on June 1, 2009, the defendant calculated the tax base for the above taxable period as of 204 through 2007; and (d) calculated the tax base for the non-paid labor expenses in the calculation of the deductible expenses for the business year 204, 065, 3740, 200, 207, 207, 2005, and 309.37.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 4, each entry of Eul 1 to 9, and the purport of whole pleadings

2. Whether each of the dispositions in this case is minor;

A. The parties' assertion

(1) The plaintiff's assertion

(A) At the same time, the merger evaluation marginal profit of this case is subject to inclusion in the calculation of earnings, but at the same time, the requirements for inclusion in the calculation of losses under Article 44(1) of the former Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; hereinafter the same shall apply), regardless of whether it was before or after the amendment, were met, but the Plaintiff tax agent’s mistake omitted the tax adjustment of the above amount in the calculation of earnings and the tax adjustment of inclusion in the calculation of losses. Therefore, where the Defendant included the combined marginal profit of this case in the calculation of earnings, the amount should be included in the calculation of losses again through the tax adjustment, but the Defendant calculated the corporate tax base for the business year of 2004 without including the instant merger marginal profit of this case in the calculation of losses. In particular, the merger evaluation marginal profit of this case constitutes an increase in the value of land and constitutes the advanced depreciation reserve fund, and the tax office’s obligation to submit the documents cannot be determined as necessary for inclusion in the calculation of losses.

(B) The costs of mergers paid by the Plaintiff in excess of the net asset value on the date of the date of the CC, 16,315,813, and 095 won, as consideration for business rights under Article 24(4) of the Enforcement Decree of the Act, shall be appropriated as business rights, and shall be treated as the full reduced loss at the time of the settlement of accounts for the business year 2004, and the depreciation costs shall be included in deductible expenses for the business year 2004 and the following business year.

(2) The defendant's assertion

(A) Whether the amount equivalent to the merger evaluation marginal profit of this case is included in the calculation of losses in the business year of 2004, the amount equivalent to the merger marginal profit of this case should be appropriated as the advanced depreciation reserve in order to be reported and adjusted as the reported and adjusted matter. Since the plaintiff did not comply with the above procedures under the Corporate Tax Act, it cannot

(B) It is not possible to recognize the business right of the Plaintiff’s assertion that has not been assessed by appropriate means.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

(c)a recognition;

(1) The Plaintiff, prior to the merger of BB Inteines, was engaged in the manufacturing of key parts, etc. of TV and monitor display equipment, and high-frequency high-frequency voltage power source equipment used for OA equipment, such as reproduction equipment, based on the source technology of high-frequency transformers. On the date of the merger, the Plaintiff was engaged in the manufacturing of semiconductors, L CDs, etc.

(2) In the future, the Plaintiff: (a) pursuant to the expansion of the market in connection with the manufacture of semiconductors and CDs in the Republic of Korea; (b) anticipated that the CC-based business will be brightness; and (c) requested GG accounting corporations to assess the merger ratio between the Plaintiff and the CC-based business on May 15, 2004. At that time, the Plaintiff issued a general share of KRW 500,000, KRW 6600, KRW 500, KRW 374,204, KRW 10,000, KRW 10,000, KRW 204.

(3) GG accounting corporation had 0-2 of the Securities and Exchange Act, Article 84-7 of the Enforcement Decree of the same Act, Article 82 of the Regulations on the Issuance and Public Disclosure of Securities, and Articles 5 through 7 of the Regulations, 3,808, the value per share of the Plaintiff’s issued stocks was 81,24.81, and 1:21.331 of the total cost per share of the 20-year-end 20-year-end 20-year-end 20-year-end 20-year-end 20-year-end 20-year-end 20-year-end 20-year-end 20-year-end 20-year-end 20-year-end 20-year-end 200-year-end 10-year-end 200-year-end 200-year-end 206.

(4) On May 18, 2004, the Plaintiff entered into a merger contract with 1:21.3311 with the content that the Plaintiff issues 500 common shares of 7,982,935 shares of 374, and 204 shares of CC International Stockholders.

(5) At the time of the merger contract, the net asset value of the date the merger was 9,916,111, and 315 won, and the Plaintiff granted to the shareholders of the date the merger was 26,231,924, and 410 won (7,982,935 note per share) as the price for the merger.

(6) The Plaintiff appropriated the amount of KRW 16,315,813,095, which is the difference between the merger cost and the net asset value of theCC on the date of the start-up, in the goodwill account, and then treated the amount as an intangible asset reduction loss on December 2004. On March 2005, the Plaintiff treated the amount as a non-deductible loss and disposed of it otherwise in the process of tax adjustment.

(7) With respect to the portion of the business that succeeded to theCC 204, the Plaintiff obtained approximately KRW 1.5 billion in 2004, approximately KRW 7.6 billion in 2005, KRW 4.4 billion in 2006, KRW 6.1 billion in 2007, KRW 2.6 billion in 2008, KRW 4.2 billion in 2009, KRW 4.2 billion in 2009, and KRW 8.1 billion in 2010.

[Ground of recognition] Facts without dispute, Gap evidence 4, 5, Gap evidence 6-1 through 7, Gap evidence 9, 10, and 11, and the purport of the whole pleadings

D. Determination on the Plaintiff’s first assertion (1) related statutes

Article 44 (1) of the Act provides that the value of stocks, etc. shall be 95/100 or more of the total cost of merger where stockholders, etc. of an extinguished corporation receive the cost of merger from the merged corporation as of the date of the registration of the merger; 2. Where the merged corporation continues to operate the business succeeded from the extinguished corporation until the end of the business year which includes the date of the registration of the merger; 3. Where the merged corporation evaluates the assets of the extinguished corporation and succeeds to the business of the extinguished corporation, the amount equivalent to the marginal profit from the merger of the assets concerned from among the value of the succeeded assets may be included in deductible expenses in calculating the income amount for the business year which includes the date of the registration of the merger under the conditions as prescribed by the Presidential Decree. In addition, Article 80 (4) of the Enforcement Decree of the Act provides that the amount to be included in deductible expenses shall be included in deductible expenses, and Article 80 (7) of the Enforcement Decree of the Act provides that the domestic corporation which intends to be subject to the application of the provisions of Article 40 (1) of the Act shall submit the depreciation reserve to the tax settlement statement.

(2) Determination

Therefore, the Plaintiff’s assertion that this case’s merger evaluation marginal profit should be included in deductible expenses by means of the merger evaluation marginal profit and the improvement of the financial structure through the merger when it is taxed through the merger evaluation marginal profit. Therefore, if it falls under the requirements for taxation deferment (such as the merger between domestic corporations, the continuation of business and the delivery of stocks to them), it would be possible to include lump sum depreciation reserve funds or the advanced depreciation reserve funds in deductible expenses at the same time as losses in the business year to be included in deductible expenses, and to achieve the effect of deferred taxation by again including them in deductible expenses through the depreciation process and disposal process. However, it is reasonable to view that the Plaintiff’s assertion that this case’s merger marginal profit should be included in deductible expenses as above in the business year to which the merger marginal profit belongs, and that it should be included in deductible expenses in deductible expenses by the method of the merger evaluation marginal profit and the inclusion of the assets in deductible expenses after the above business year should not be included in deductible expenses. In other words, it is difficult to view that the Plaintiff’s inclusion in deductible expenses or depreciation reserve funds should be included in deductible expenses.

E. Judgment on the plaintiff's second argument

Article 23(1) and (2) of the Act, Article 24(1)2 and (4) of the Enforcement Decree of the Act provides that the merged corporation shall include the value of its business as depreciable assets only if the merged corporation succeeds to the acquisition of the assets of the merged corporation due to the trade name, transactional relationship, and other trade secrets of the merged corporation. Article 12(1)1 of the Enforcement Rule of the Act provides that the corporation shall be deemed as a business right only if it acquires for value more than 10 days by considering the legal status, such as permission and authorization for transfer of the business in the process of transfer and acquisition of the business, commercial convenience, geographical circumstances, credit, and business reputation and transactional value of the deceased corporation, and it is recognized as a business right only if it is assessed according to the appropriate method of appraisal that the Plaintiff would have been operating 1 and 20 days before and after the merger and acquisition of the shares. According to the above recognition, it is reasonable to deem that the Plaintiff would have been operating 1 and 3 days after the merger and acquisition of the shares.

(f) Justifiable tax amount;

Accordingly, when calculating reasonable tax amount by adding 16,315,813, and 095 as depreciation costs to deductible expenses (204, 359,651, 091, and thereafter 3,263,162, and 619 won), the corporate tax for the year 2004 shall be 490,273,253, and the corporate tax for the year 2005, 2006, and 207 shall be 1,004 as shown in the separate corporate tax calculation statement. Accordingly, the tax amount for the plaintiff on June 1, 2009 shall be as follows:

3. Conclusion

Therefore, the plaintiff's claim of this case is justified within the scope of the above recognition and the remaining claims are dismissed as it is without merit. The judgment of the court of first instance is just in this conclusion, and the plaintiff and the defendant's appeal are dismissed as they are without merit. It is so decided as per Disposition.