Cho Jae-2015- Daejeon-5789 ( October 17, 2016)

The plaintiff is not a small or medium enterprise because it fails to meet the standards for the scale of related enterprises, and the grace is not applied.

Since the Plaintiff failed to meet the standards for the size of related enterprises in 2012, it shall not be deemed small and medium enterprises, and the grace period shall not apply.

Article 2 of the Enforcement Decree of the Restriction of Special Taxation Act

2016Guhap1143 Revocation of Disposition of Imposing corporate tax, etc.

】 】

○ Head of tax office

December 15, 2016

January 26, 2017

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

On September 1, 2015, the Defendant’s each disposition of imposition or collection as stated in the attached tax assessment statement against the Plaintiff shall be revoked.

1. Details of the disposition;

(a) Revised the Enforcement Decree of the Restriction of Special Taxation Act;

The former Restriction of Special Taxation Act (amended by Act No. 11614, Jan. 1, 2013; hereinafter the same shall apply)

Chapter II, Section 1 of Article 2 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22583, Dec. 30, 2010) provides for the requirements of business type, size, independence, etc. of small and medium enterprises subject to delegation by Article 5 of the former Restriction of Special Taxation Act (amended by Presidential Decree No. 22583, Dec. 30, 2010). Article 2(2) provides for a grace period for a small and medium enterprise to be regarded as a small and medium enterprise for the first taxable year in which the first reason arises and for the following three taxable years in which the first three taxable years are included (hereinafter referred to as "the grace period for a small and medium enterprise"). Article 2(1) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22583, Dec. 30, 2

Meanwhile, Article 2 subparag. 2(c) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 23590, Feb. 2, 2012) (amended by Presidential Decree No. 23590, Dec. 2, 2012) provides for "company belonging to a related company (the name of the related company is changed; hereinafter referred to as "related company for convenience") under Article 3 subparag. 2(c) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 23412, Dec. 28, 2011); Article 7-2 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 2015, Dec. 28, 2011; Presidential Decree No. 20150, Feb. 1, 2015).

B. The status and sales of the Plaintiff and Ga corporation A (hereinafter referred to as “Ga”) are corporations established on March 30, 2002 and mainly engaged in the manufacture and sales of mixed feed. The Plaintiff, a company subject to external audit, owns 480,000 shares out of 80,000 shares issued by the Plaintiff from the time of the establishment of the Plaintiff (hereinafter referred to as “Ga”) until then. The Plaintiff and Ga (hereinafter referred to as “Ga”) share 480,000 shares out of the total number of shares issued by the Plaintiff from 2009 to 2013 are as follows.

Omission of the Table

C. Plaintiff’s report of corporate tax, etc. and Defendant’s disposition

1) The Plaintiff reported and paid the tax amount reduced or exempted by applying the minimum tax rate on the standards of small and medium enterprises from 2012 to 2015, research and human resources development expenses, tax credit, constructive input tax credit for value-added tax, and reduction and exemption rate of income tax for employed youth from 2012 to 2015 by deeming that the grace period is applied pursuant to the main sentence of Article 2(2) of the former Enforcement Decree of the Restriction of Special Taxation Act and the relevant taxable year and the following three taxable years.

2) Accordingly, on September 1, 2015, the Defendant: (a) deemed excluded from small and medium enterprises and excluded the application of the grace period, on the premise that the Plaintiff, a related company, and a family member’s total sales in the 2012 business year exceeded KRW 100,000,000; and (b) accordingly, (c) rendered each disposition of imposition or collection (hereinafter “instant disposition”) indicated in the details of the attached taxation disposition to the Plaintiff.

[Grounds for Recognition] Unsatisfy, entry of Gap evidence 1 to 16 (including each number), the whole purport of the pleading

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant disposition should be revoked because it is unlawful as follows.

1) According to Article 3(1)2(c) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 25302, Apr. 14, 2014; hereinafter the same) in the case of an enterprise belonging to a related enterprise, the total sales calculated pursuant to Article 7-4 of the Enforcement Decree of the same Act shall not exceed KRW 100 billion. However, Article 7-4(3) of the above Enforcement Decree provides that the calculation of the total sales shall be based on the specific period of "business year immediately before the business year in which the business year in which the relevant enterprise belongs to a related enterprise is included." Since Article 7-4(3) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises provides that the Plaintiff and A shall determine whether the relevant enterprise satisfies the criteria of size of the relevant enterprise once every year as of 202, and even if the size of the enterprise meets the said criteria, the entire sales revenue of the relevant enterprise shall be excluded from the relevant enterprise once more than 100 billion won.

2) Even if the Plaintiff failed to meet the relevant enterprise size criteria, the Plaintiff’s 2012

In addition, it cannot be deemed that a large-scale parent company has avoided the system of special taxation for small and medium enterprises through a subsidiary company, as the sales revenue of A, a parent company, rather than the Plaintiff, is less than the Plaintiff’s sales revenue, as the sole sales revenue of A, which exceeds KRW 100 billion, and thus does not fall under a small and medium enterprise. As such, in cases where the total sales revenue of A, among related companies, exceeds KRW 100 billion, the main sentence of Article 2(2) of the former Enforcement Decree of the Restriction of Special Taxation Act concerning the application of the grace period, the grace period should be applied first to the Plaintiff, so that the grace period should be applied to the Plaintiff.

3) Furthermore, even if the Plaintiff did not meet the relevant business size standards and the main sentence of Article 2 of the former Enforcement Decree of the Restriction of Special Taxation Act does not take precedence over the proviso, the time of

Article 3 Subparag. 2(c) of the Enforcement Decree of the former Enforcement Decree of the Restriction of Special Taxation (amended by Presidential Decree No. 23412, Dec. 28, 201) was newly established on March 25, 2009 by Presidential Decree No. 21368, and came into force on January 1, 2011. Since the said provision was implemented from 2012 on the basis of the relevant company size standard, the Plaintiff’s new company size standard came into effect from 2012 and thus, the period of grace should be applied to the Plaintiff pursuant to Article 2(5) of the former Enforcement Decree of the Restriction of Special Taxation

B. Relevant statutes

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

C. Determination

1) Whether the Plaintiff constitutes a small or medium enterprise under Article 2(1) of the former Enforcement Decree of the Restriction of Special Taxation Act

A) Article 2 of the former Framework Act on Small and Medium Enterprises (amended by Act No. 12240, Jan. 14, 2014); Article 3 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises provides for the standards of business type subject to measures to foster small and medium enterprises; however, the former Restriction of Special Taxation Act and its Enforcement Decree provide for the requirements and scope of small and medium enterprises differently from the Framework Act on Small and Medium Enterprises (main sentence of Article 2(1) of the former Enforcement Decree of the Restriction of Special Taxation Act) by stipulating the requirements of small and medium enterprises under some provisions of the Framework Act on Small and Medium Enterprises, but limiting the application of special taxation in consideration of tax policy to a specific type of small and medium enterprise (see Article 2(2) and (5) of the former Enforcement Decree of the Restriction of Special Taxation Act). In addition, the former Restriction of Special Taxation Act and its Enforcement Decree separately provide for the deferment of small and medium enterprises for a certain period of time due to expansion of size or revision of statutes (see Article 2(2) and (5) of the former Enforcement Decree of the Restriction of Special Taxation Act).

B) Although there is no separate provision in the Enforcement Decree of the Restriction of Special Taxation as to the standard point of time for determining whether the Plaintiff is a company belonging to a related company that is excluded from the scope of a small or medium enterprise, in light of the following circumstances, whether the Plaintiff is a company belonging to a related company that is excluded from the scope of a small or medium enterprise and its sales should be determined as of December 31, 2012, which was the end of the pertinent taxable year after January 1, 2012, which was introduced and implemented under the proviso of Article 1 of the Addenda of the Enforcement Decree of the Restriction of Special Taxation Act (Presidential Decree No. 2583).

① In light of the legislative intent of the Restriction of Special Taxation Act to promote the sound development of the national economy through fair taxation and efficient implementation of tax policies by prescribing matters concerning special cases of taxation and the restriction thereof, it is reasonable to determine the application of tax benefits under the Restriction of Special Taxation Act by examining whether the sales are calculated as of the end of the pertinent taxable year in which the imposition of corporate tax, etc. and the scope of tax liability are determined, and whether the relevant business size meets the standards.

② Article 2(4) of the former Enforcement Decree of the Restriction of Special Taxation Act and Article 2 of the former Enforcement Rule of the Restriction of Special Taxation Act (amended by Ordinance of the Ministry of Strategy and Finance No. 322, Feb. 23, 2013) provide that “the number of employees employed on a regular basis,” “equity capital,” and “total assets” shall be determined on an equal basis and on an equal basis as of the end of the taxable year. It is also to clarify that Article 2(8) of the Enforcement Rule of the Restriction of Special Taxation Act (amended by Ordinance of the Ministry of Strategy and Finance No. 406, Mar. 14, 2014) provides that “The determination of whether a company is a related company is determined on the basis of the end of the taxable year.”

③ As alleged by the Plaintiff, it is possible to determine only once on the basis of the business year in which the relevant company formed the first parent-subsidiary relationship or the sales in the immediately preceding business year, which led to the formation of a parent-subsidiary relationship and the substantial excess of the size of the small and medium enterprises, thereby going against the purport of introducing the relevant company’s standard for size that does not grant any tax benefits as a small and medium enterprise any more even though it actually exceeded the size of the enterprise.

C) However, the fact that the Plaintiff was the largest investor who owned 60% of the Plaintiff’s shares since the establishment of the Plaintiff is as seen earlier. As such, A and the Plaintiff belonged to a parent-subsidiary-subsidiary-subsidiary-subsidiary-related company as of December 31, 2012, which was the end of the pertinent taxable year after January 1, 2012, when the relevant company was introduced and implemented, and according to the proviso to Article 2(2) of the Enforcement Decree of the Restriction of Special Taxation Act, and Article 7-4(1) [Attachment 2] of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises, the Plaintiff directly controls the Plaintiff, who is a subsidiary-subsidiary-subsidiary-subsidiary-subsidiary-subsidiary-subsidiary-subsidiary-subsidiary-subsidiary-subsidiary-subsidiary-subsidiary-subsidiary-subsidiary, and thus, the total sales amount of the relevant company as of the 2012 business year exceeds 10 billion won based on the size of the relevant company. Therefore, the Plaintiff’s assertion on this different premise is without merit.

2) Whether the grace period for small and medium enterprises is applicable

A) As seen earlier, the Plaintiff’s total sales in the 2012 business year related to the company failed to meet the standards for the size of related company in excess of KRW 100 billion. As such, the proviso of Article 2(2) of the former Enforcement Decree of the Restriction of Special Taxation Act provides that the grace period shall not apply to the case of the Plaintiff, barring any special circumstance, the application of the grace period shall be excluded.

B) Whether the main sentence of Article 2(2) of the former Enforcement Decree of the Restriction of Special Taxation Act preferentially applies to the Plaintiff’s sole sales amount exceeding KRW 100 billion in 2012, whether the grace period is applicable to small and medium enterprises.

The following circumstances revealed in light of relevant laws and regulations, i.e., (i) the purport of excluding the grace period in cases of a related company’s size is that it would not give tax benefits to an enterprise group substantially not deemed a small and medium enterprise. (ii) The instant case, where the sales of one of the related enterprises and the total sales of the related enterprises exceed KRW 100 billion, respectively, exceeds the single sales amount of less than KRW 100 billion, the short sales amount of less than KRW 100,000,000, but the total sales of the related enterprises exceed KRW 100,000,000,000, the former Enforcement Decree of the Restriction of Special Taxation Act would rather be against equity in applying the grace period only to the former small and medium enterprise, and (iii) the Plaintiff’s application of the grace period in cases of a grace period of KRW 200,000,000,000,0000,000,000,000.

C) Whether the grace period under Article 2(5) of the former Enforcement Decree of the Restriction of Special Taxation Act is applied

In light of the following circumstances, Article 2(5) of the Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 23412, Dec. 28, 2011); Article 2(5) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 23590, Feb. 22, 2012); Article 3(1)2 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 23590, Feb. 2, 2012); Article 2(5) of the former Enforcement Decree of the Restriction of Special Taxation (amended by Presidential Decree No. 23590, Feb. 2, 2012); Article 3(1) of the former Enforcement Decree of the Restriction of Special Taxation (amended by Presidential Decree No. 23590, Feb. 2, 2012) provides for the grace period for the introduction of the relevant company's new criteria as the Plaintiff.

3. Conclusion

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

(c)