Seoul Administrative Court-2017-Gu Partnership-57 ( November 03, 2017)

Seoul High-2015-947 ( October 20, 2016)

A shareholder who has underwritten new shares cannot be deemed to have distributed profits to the issuing corporation.

Article 88 (1) 8-2 of the Enforcement Decree of the Corporate Tax Act is difficult to regard it as a provision applicable to deeming that a shareholder who has underwritten new stocks distributes profits to the issuing corporation.

Article 88 (1) 8-2 of the Enforcement Decree of the Corporate Tax Act

Seoul High Court 2017Nu82712 Revocation of Disposition of Imposing Corporate Tax

○○ Co., Ltd.

○ Head of tax office

Seoul Administrative Court Decision 2017Guhap51457 decided November 3, 2017

May 30, 2018

August 22, 2018

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The disposition of imposing corporate tax of 000 won (including additional tax) imposed on the Plaintiff on August 8, 2014 by the Defendant on the Plaintiff on August 8, 2014 shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Details of dispositions taken by this court;

The court's explanation on this part is identical to the corresponding part of the reasoning of the judgment of the court of first instance. Thus, it is citing this in accordance with Article 8 (2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act.

2. Relevant statutes;

It is as shown in the attached Table related statutes.

3. Whether the instant disposition is lawful

A. The defendant's assertion

Since the Plaintiff did not acquire shares by participating in the capital increase with new shares, the shares in this case do not constitute "property purchased from another person" under Article 72 (1) 1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22951, Jun. 3, 2011; hereinafter the same) and "property acquired by any other means" under Article 72 (1) 6 of the same Act, its acquisition value shall be deemed "0 won at the time of acquisition". Furthermore, the Plaintiff's participation in the capital increase with new shares in this case is an act of lacking economic rationality and included losses in the deductible expenses for the capital increase with new shares in this case, which is subject to the avoidance of wrongful calculation in accordance with Article 88 (1) 8-2 of the former Enforcement Decree of the Corporate Tax Act (hereinafter "the provision in this case").

B. Determination

1) Facts of recognition

The court's explanation on this part is identical to the corresponding part of the reasoning of the judgment of the court of first instance. Thus, it is citing this in accordance with Article 8 (2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act.

2) Determination

A) The acquisition price of the instant shares

Article 41(1)1 of the former Corporate Tax Act (amended by Act No. 11128, Dec. 31, 201; hereinafter the same) provides that "property purchased from a third party (excluding financial assets prescribed by Presidential Decree) shall be the acquisition value; subparagraph 2 provides that "the amount calculated by adding incidental expenses to the purchase value;" subparagraph 3 provides that "property acquired by a third party manufactured, produced, or constructed by a third party or by any other similar method shall be the acquisition value; and subparagraph 1 and 2 provides that "property, other than subparagraphs 1 and 2, shall be the amount prescribed by Presidential Decree at the time of acquisition". As such, in principle, Article 72(1)3 through 5 of the former Enforcement Decree of the Corporate Tax Act provides that "the acquisition value of the new shares at the time of acquisition shall not be determined as the acquisition value of the new shares at the time of acquisition." Article 72(1)6 of the former Enforcement Decree of the Corporate Tax Act provides that "The acquisition value of the new shares at the time of the Plaintiff is not the market value of the new shares."

B) Whether the provision of this case is applicable

Article 52 (1) of the former Corporate Tax Act provides that "the case of distributing profits of a corporation through capital increase, reduction, merger (including division and merger), division, and conversion, acquisition, exchange, etc. of stocks by convertible bonds, etc. under Article 40 (1) of the Inheritance Tax and Gift Tax Act (including the amount of investment)" shall be one of the cases where "the tax burden is deemed to have been reduced unreasonably" under Article 52 (1) of the former Corporate Tax Act, and the case of issuing stocks by exercising stock options among stock options, etc. falling under the part other than each item of Article 20 (1) 3 shall be excluded.

In full view of the following circumstances, it is difficult to view the provision of this case as a provision that can be applied by deeming that a shareholder (the Plaintiff in this case) who acquired new shares at a high price (the Plaintiff in this case) distributed profits to a issuing corporation (000).

① It is apparent that Article 88(1)8 of the former Enforcement Decree of the Corporate Tax Act is a provision on the allocation of profits among stockholders. However, the provision of this case is a provision on the first head of the first head, which covers capital transactions in which the capital of a corporation is increased or reduced, such as merger, capital increase, capital increase, capital reduction, merger, division, and stock conversion by new type bonds, in addition to capital increase, capital increase, capital increase, capital reduction, merger, division, and stock conversion by new type of bonds, etc. As such, the provision of this case seems to be aimed at coping with new types of acts that are not provided for in subparagraph 8 by comprehensively stipulating the types of capital transactions (see, e.g., Supreme Court Decision 2007 amended Tax Act, Mar. 31, 2017).

(2) Where profits are distributed to a person with a special relationship pursuant to Article 88(1)8 and 8-2 of the Enforcement Decree of the former Corporate Tax Act, Article 39 of the Inheritance Tax and Gift Tax Act shall apply mutatis mutandis to the calculation of the amount to be included in gross income pursuant to paragraph (5). Article 39(1)1 and 2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201; hereinafter the same shall apply) provides for the issuance of new shares by shareholders allotment method and donation of profits in the case of issuance of new shares by a third party allotment method. As above, in light of Article 89(6) of the former Enforcement Decree of the Corporate Tax Act and Article 39(1)1 and 2 of the former Inheritance Tax and Gift Tax Act, it is natural to interpret the above Article 89(1)8 and 8-2 of the former Inheritance Tax and Gift Tax Act to the same purport.

(3) Even if an issuer issued new shares by raising the issue price in light of the legal nature of the issuance of new shares, which is a capital transaction, it is difficult to view that the underwriter of new shares distributes profits to the issuer in principle due to the relationship with the issuer.

④ In the case of a corporation whose capital is impaired or whose financial status has deteriorated, the market price of the stocks may decline above or above the market price. In such a case, the corporation is bound to issue stocks at a price much higher than the market price. In such a case, it is deemed that a shareholder distributed profits to a corporation issuing new stocks by acquiring new stocks at a higher price, and in applying the instant provision, which is the provision that is the unfair calculation panel, the corporation is virtually unable to raise additional funds, and thus, the corporation is deprived of an opportunity to continue business activities.

4. Conclusion

If so, the plaintiff's claim of this case is justified, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed. It is so decided as per Disposition.