[1] The case holding that it is reasonable to assess the value at the time of acquisition of stocks, even if there is an agreement restricting disposal of stocks acquired by a stockholder due to the retirement of stocks under Article 16 (1) 1 of the Corporate Tax Act

[2] In case of acquisition of forfeited stocks at a higher price, the date when the excess market price subject to rejection of unfair calculation belongs to the gross income (=the business year in which stocks are transferred and the proceeds are settled

[1] The case holding that it is reasonable to assess the value of stocks acquired by a stockholder due to the retirement of stocks under Article 16 (1) 1 of the Corporate Tax Act, even if there is an agreement restricting the disposal of stocks so acquired, as at the time of acquisition of stocks

[2] Article 68(1)3 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19358, Feb. 9, 2006) provides that “The business year in which earnings and losses accrued from the transfer of assets, other than commodities, etc., accrue shall be the date of settlement of the price.” In addition, the acquisition of stocks issued by another person for tax accounting constitutes the purchase of investment assets, and the time when profits and losses accrued from such investment assets are transferred and settled is the business year in which the price is settled. Therefore, in cases of acquisition of forfeited high-priced stocks as stipulated under Article 52 of the Corporate Tax Act and Article 8(1)8(b) of the former Enforcement Decree of the Corporate Tax Act, the amount in excess of the market price subject to rejection does not have any influence on the corporate tax base of the business year which includes the date on which the stocks are acquired, but the tax base equivalent to the same amount shall be increased because the stocks are transferred and the price is reverted to the business year which includes the date of settlement.

[1] Article 16(1)1 of the Corporate Tax Act, Article 13 subparag. 1 and Article 14(1)1(c) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19358 of Feb. 9, 2006) / [2] Article 52 of the Corporate Tax Act, Article 68(1)3 and Article 88(1)8(b) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19358 of Feb. 9, 2006)

[3] Supreme Court Decision 88Nu7255 delivered on December 22, 1989

Korea Technology Investment Co., Ltd. (Attorney Lee Im-soo et al., Counsel for the defendant-appellant)

Samsung Head of Samsung Tax Office (Attorney Lee Jae-ok, Counsel for defendant-appellee)

Seoul High Court Decision 2005Nu10349 delivered on January 25, 2006

The judgment below is reversed and the case is remanded to Seoul High Court.

1. As to the ground of appeal on constructive dividend, including misapprehension of legal principles

A. Article 16(1)1 of the Corporate Tax Act provides that “The total amount of funds and other assets acquired by a stockholder due to the retirement of stocks exceeds the amount required for the acquisition of the stocks from the corporation shall be deemed the amount of profit dividends received from the corporation.” Article 16(2)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19328, Feb. 9, 2006; hereinafter the same) delegated by Article 16(2) of the Corporate Tax Act provides that “The date on which profits are received pursuant to Article 16(1) of the Act shall be the date on which the general meeting of stockholders or the board of directors resolves to retire stocks (referring to the date determined pursuant to Article 461(3) of the Commercial Act in cases of a resolution by the board of directors).” Article 14(1)1(c) of the former Enforcement Decree of the Corporate Tax Act provides that “Where the assets acquired pursuant to Article 16(1)1 of the Act are stocks at the time of their acquisition, the market price shall conform to Article 52 of the Act.”

Comprehensively taking account of its adopted evidence, the lower court determined that: (a) on July 22, 200, the Asianet Co., Ltd. (hereinafter referred to as “APAI”) decided to retire 60,762,265 shares, including 66,66 shares owned by the Plaintiff and 66,66 shares owned by the Plaintiff; (b) on the same day, the Plaintiff’s shares issued by the Plaintiff at the time of the retirement of the shares and the price for the retirement of the shares was 285,714 shares, and 95,238 shares, issued to the APAI; (c) on July 21, 200, the market price of the shares at the LPAI was 108,50 shares per share at the time of the acquisition of the shares, and (d) based on the Plaintiff’s provision on the acquisition of shares at the time of the Plaintiff’s disposal of the shares, the Plaintiff’s claim that the shares were acquired by the Plaintiff and the APAI No. 163, supra’s.

Examining the above facts in light of the relevant Acts and subordinate statutes and the records, the court below's above fact-finding and determination is justified, and there is no error of law by misunderstanding the legal principles as to constructive dividend resulting from the retirement of shares under Article 16 (1) 1 of the Corporate Tax Act, contrary to the allegations

B. Article 14(1) of the Framework Act on National Taxes provides that “If the ownership of the income, profit, property, act or transaction subject to taxation is nominal and there is a separate person to whom such income, profit, act or transaction belongs, the person to whom such income, profit, or transaction belongs shall be liable to pay taxes.” Article 4(1) of the Corporate Tax Act provides that “Where the corporation to which all or part of the income, profit, property, act or transaction, which belongs to an asset or business, and the corporation to which such income, actually belongs

According to the reasoning of the judgment below and the evidence duly examined by the court below, around August 2000, APAI disposed of all the remaining shares held in its own name 5,00 shares and 5,000 shares in its own name on July 2001. The plaintiff who established APAI recognizes that all the assets held in its name were the plaintiff's assets and the sales price was attributed to the plaintiff's gross income for the pertinent business year. In light of the relevant provisions as seen above, it is reasonable to view that the actual owner of the AP AI acquired shares in its own name is the plaintiff.

The judgment of the court below to the same purport is correct, and there is no error in the misapprehension of the legal principles as to the attribution of income, etc. as alleged in the grounds of appeal.

2. As to the ground of appeal on the misapprehension of legal principle as to the denial of wrongful calculation

The main text of Article 68(1)3 of the former Enforcement Decree of the Corporate Tax Act, upon delegation of Article 40(2) of the Corporate Tax Act, stipulates that “The business year of accrual of earnings and losses from the transfer of assets other than commodities, etc. shall be the date of settlement of the price.” In addition, the acquisition of stocks issued by another person for tax accounting constitutes the purchase of investment assets, and the time when the profits and losses from such investment assets accrue is the business year in which the assets are transferred and the price is settled (see Supreme Court Decision 88Nu7255 delivered on December 22, 198, etc.).

Therefore, Article 52 of the Corporate Tax Act and Article 88 (1) 8 (b) of the former Enforcement Decree of the Corporate Tax Act, even in cases of acquisition of forfeited stocks, the excess amount subject to rejection of the acquisition price does not have any influence on the corporate tax base of the corporation for the business year to which the date of acquisition of the stocks belongs. However, it is reasonable to view that the transfer of the stocks and the settlement of the price is attributed to the business year to which

Nevertheless, the court below held that the disposition of this case was lawful on the premise that the amount in excess of the market price for the forfeited stocks of this case is attributed to the business year to which the date the plaintiff acquired the forfeited stocks of this case at high price. The court below erred in the misapprehension of legal principles as to the business year of accrual of profit and loss of the assets under Article 40 (2) of the Corporate Tax Act and Article 68 (1) 3 of the former Enforcement Decree of the Corporate Tax Act, and such

The ground of appeal pointing this out is with merit.

3. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Jeon Soo-ahn (Presiding Justice)