2014 High Court Decision 361 (No. 14, 2014)

Where an enterprise whose period of deferment of small and medium enterprises falls under a related company, whether the existing grace period of small and medium enterprises may continue to be applied.

A company subject to the grace period for small and medium enterprises is a related company under the Enforcement Decree of the Restriction of Special Taxation Act.

Article 2 (2) of the Restriction of Special Taxation Act

2014Guhap2870 Revocation of Disposition of Imposing corporate tax

AAA, Inc.

O Head of tax office

April 8, 2015

April 22, 2015

1. The plaintiff's claim is dismissed.

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

The imposition of corporate tax of 206,817,180 won (including additional tax) made against the plaintiff on November 5, 2013 by the defendant of the Gu office on November 5, 2013 shall be revoked.

1. Details of the disposition;

A. The Plaintiff is a plastic manufacturer established on May 15, 2003 and settled accounts each year on December 31, 2003, and was not a small or medium enterprise for the first time in 2010 business year, but did not constitute a small or medium enterprise exceeding KRW 100 billion. However, pursuant to Article 2(2) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22583, Dec. 30, 201; hereinafter “former Enforcement Decree of the Restriction of Special Taxation Act”) (hereinafter “former Enforcement Decree of the Restriction of Special Taxation Act”).

The grace period has been applied to small and medium enterprises.

B. The Enforcement Decree of the Restriction of Special Taxation Act applies mutatis mutandis to the requirements for small and medium enterprises.

The Enforcement Decree of the Framework Act on Small Enterprises amended by Presidential Decree No. 21368 on March 25, 2009 (hereinafter referred to as the "Enforcement Decree of the Act on Small and Medium Enterprises") provided that companies belonging to "related companies" should meet the standard of size of small and medium enterprises by adding item (c) to the requirements of substantial independence of small and medium enterprises from January 1, 201.

C. Since then, the former Enforcement Decree of the Restriction of Special Taxation Act was amended by Presidential Decree No. 22583, Dec. 30, 2010; Article 2(1)3 of the Enforcement Decree of the Act on the Restriction of Special Taxation provides that where the total sales amount, etc. of relevant companies meet the exclusion criteria of small and medium enterprises, the relevant year and the subsequent three years shall not apply to the small and medium enterprise meeting the exclusion criteria; however, the amended provisions of Article 2(1)3 of the Addenda of the Act on the Restriction of Special Taxation enacted from January 1, 2012.

D. The Plaintiff’s dominant company BB Holdings (hereinafter “BB Holdings”) owns 70% of the Plaintiff’s shares ofCC (CC) Investment Company (hereinafter “CC) as a company subject to external audit, and holds 76.8% of the Plaintiff’s total shares, along withCC (CC). The Plaintiff constitutes a related company under the Enforcement Decree of the Heavy Technology Act. The Plaintiff and each of the above companies’ annual sales amount to KRW 100 billion exceed the total sales amount of 2012.

E. On April 1, 2013, the Plaintiff reported corporate tax for the business year 2012 to the Defendant on April 1, 2013, and filed a return on the amount of tax subject to special tax reduction and exemption and tax credit for research and human resources development expenses pursuant to Articles 7 and 10 of the former Restriction of Special Taxation Act (amended by Act No. 11614, Jan. 1, 2013; hereinafter the same)

F. In accordance with Article 2(1)3 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 24271, Dec. 28, 2012; Presidential Decree No. 24271, Jan. 1, 2013; hereinafter “Enforcement Decree of the Restriction of Special Taxation Act”), the Defendant determined that the Plaintiff cannot be subject to the grace period since it does not fall under the small and medium enterprises according to the standards of related enterprises and cannot be subject to the application of the grace period. On November 5, 2013, the Defendant corrected and notified the Plaintiff of corporate tax of KRW 206,817,180 (including additional tax) (hereinafter “instant disposition”).

G. The Plaintiff served a written notice as above on November 19, 2013, and filed a request for review with the Board of Audit and Inspection on February 13, 2014, but the Board of Audit and Inspection dismissed the decision on August 14, 2014. The fact that there is no dispute over the grounds for recognition, Gap evidence 1, Eul evidence 1, and Eul evidence 1, and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

In 2010, the Plaintiff had already caused reasons for not being a small and medium enterprise in excess of 10 billion won in sales in the year of 2010, but it was only subject to the grace period, and therefore, the Plaintiff is a medium enterprise.

The introduction of the standards for related enterprises under the Enforcement Decree of the Restriction of Special Taxation Act and the Enforcement Decree of the Restriction of Special Taxation Act does not constitute small and medium enterprises. Therefore, the Plaintiff does not constitute “a case where a person becomes not a small and medium enterprise due to any of the following reasons” under the proviso of Article 2(2) of the Enforcement Decree of the Restriction of Special Taxation Act. Nevertheless, on a different premise, the Plaintiff

The defendant's disposition of this case which did not apply the grace period for small enterprises is unlawful.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) Whether the Plaintiff constitutes a small and medium enterprise

Articles 7 and 10 of the former Restriction of Special Taxation Act provide for special tax reduction and exemption and tax credit for research and human resources development expenses as special cases for small and medium enterprises, and Article 2 of the Enforcement Decree of the amended Special Support Act stipulates that "any enterprise that is engaged in manufacturing business, etc. as its main business by embodying the scope of small and medium enterprises and satisfies all of the following requirements," and subparagraph 3 of Article 3 of the Enforcement Decree of the Special Support Act stipulates that "the substantial independence of small and medium enterprises conforms to Article 3 (1) 2 of the Enforcement Decree of the Technology

In addition, according to the proviso of Article 2 (1) 3 of the Enforcement Decree of the Restriction of Special Taxation Act, Article 3 (1) 2 (c) of the Enforcement Decree of the Restriction of Special Taxation Act, and the proviso of Article 2 (1) of the amended Enforcement Decree of the Restriction of Special Taxation Act, "for a company belonging to the related company, the total annual sales of the related company shall not exceed 100 billion won."

According to the above facts, the Plaintiff’s obligation to pay corporate tax for the business year 2012, which is a settlement corporation on December 31, 2012, is established on December 31, 2012. At the time of December 31, 2012, the Plaintiff’s Plaintiff, BB alone Holdings, andCC Investment constitutes a related company as prescribed by the Enforcement Decree of the Small and Medium Enterprise Act, and the total sales amount of the business year 2012 of the Plaintiff, BB Holdings, andCC Investment exceeds KRW 10 billion. Accordingly, at the time of the establishment of the liability to pay corporate tax for the business year 2012, the Plaintiff does not constitute a small and medium enterprise as prescribed by Article 2(1) of the Enforcement Decree of the Restriction of Special Taxation Act.

2) Article 2(2) of the Enforcement Decree of the Restriction of Special Taxation Act provides that where a small or medium enterprise falls under the requirements for exclusion from a small or medium enterprise under the proviso of paragraph (1) due to its expansion, etc. or fails to meet the standards for size of small or medium enterprise under subparagraph 1, the former shall be deemed a small or medium enterprise for the taxable year including the date on which the first reason occurred and the following three taxable years: Provided, That the proviso provides that a grace period shall not apply where a small or medium enterprise falls under a small or

In light of the following circumstances as to whether the Plaintiff can be subject to the grace period for small and medium enterprises under Article 2 (2) of the Enforcement Decree of the above Act, the above recognition facts, and the relevant statutes, the Plaintiff did not constitute a small and medium enterprise subject to the grace period due to the introduction of related company standards as the requirements for small and medium enterprises under the Enforcement Decree of the Enforcement Decree of the Act on the Restriction of Special Taxation and the revised Enforcement Decree of the Restriction of Special Taxation. Therefore, the grace period provision under Article 2 (2) of the above Enforcement Decree on the premise that the Plaintiff falls under a “small and Medium Enterprise” and thereafter a certain

A) From January 1, 2011, the Enforcement Decree of the Act on the Restriction of Special Taxation introduced the standards for companies related to small and medium enterprises as the requirements for small and medium enterprises. Accordingly, the Enforcement Decree of the Act on the Restriction of Special Taxation also adopted the standards for related companies as the requirements for small and medium enterprises by citing the provisions of the Enforcement Decree of the Act on the Restriction of Special Taxation from January 1, 201 to January 1, 2012. With respect to a company that fails to meet the de facto independence requirement under Article 2(1)3 of the Enforcement Decree of the Act on the Restriction of Special Taxation, even if it

B) Article 2 of the Enforcement Decree of the Restriction of Special Taxation Act and the Enforcement Decree of the Restriction of Special Taxation Act stipulate that the purpose of introducing the standards of companies related to small and medium enterprises is not to grant tax reduction or exemption benefits to a business group substantially not deemed a small and medium enterprise. In accordance with such legislative intent, Article 2 of the Addenda of the Enforcement Decree of the Restriction of Special Taxation Act (Ordinance No. 21368, Mar. 25, 2009) provides that “if an enterprise falling under a small and medium enterprise becomes no longer a small and medium enterprise due to the enforcement of this Decree, it shall be deemed a small and medium enterprise until December 31, 2011

In addition, Article 2 (2) of the Enforcement Decree of the Technical Education Act (amended, Article 2 (3) of the Enforcement Decree of the Act on the Promotion of Small and Medium Enterprises (amended, Article 2 (2) of the Act on the Promotion of Small and Medium Enterprises) provides the grace period for small and medium enterprises, but the proviso (Article

C) As can be seen, it is apparent that the application of the grace period is excluded if a company, which was a small or medium enterprise, does not fall under a small or medium enterprise in accordance with the relevant business standards under the Enforcement Decree of the Restriction of Special Taxation Act. If the grace period is maintained and protected for a company, such as the Plaintiff, that would result in a violation of equity.

D) The Plaintiff cited Supreme Court Decision 2012Du17520 Decided February 14, 2013, and asserts that a company under the grace period is not a small or medium enterprise due to the expansion of the size, etc., and thus, it does not constitute a small or medium enterprise only based on the relevant corporate standards. However, the foregoing precedent states that “If a small or medium enterprise during the grace period is merged with another small or medium enterprise, it shall not be deemed a small or medium enterprise for other reasons, and thus, it shall not be deemed a case that only becomes a small or medium enterprise only due to a merger, and thus, it shall not be deemed a case that does not constitute a small or medium enterprise only due to a merger.” Therefore, it is inappropriate to be invoked in the instant case as amended by the amendment of statutes.

3. Conclusion

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