Whether the low-price constitutes gross income from new stocks

Where new stocks are acquired at a low price by participating in the increase of capital of a person with a special relationship, the profits accrued at a low price shall be the gross income regardless of an individual or corporation.

Article 15 of the Corporate Tax Act

2015Guhap107777 Revocation of Disposition of Corporate Tax Imposition

Xxx Stock Companies

Head of Public Tax Office

August 10, 2016

October 26, 2016

1. The plaintiff's claim is dismissed.

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

The rejection of correction against the Plaintiff in the amount of KRW 2,023,660,750 for the business year 201 shall be revoked by the Defendant of the Gu office on July 22, 2014.

1. Details of the disposition;

A. The Plaintiff is a company running a trucking transport business. On February 21, 2011, the Plaintiff acquired KRW 200,000 shares of KRW 10,000 (hereinafter “the shares of this case”) in consideration of the shares of KRW 200,00,000 in the capital increase shares of KRW 10,000 (hereinafter “the shares of this case”) by participating in the Plaintiff’s in the capital increase for shares issued by a Aa Service Co., Ltd. (the former trade name: AAD Co., Ltd.; hereinafter “BB”); and as at February 21, 201, the Plaintiff acquired shares of KRW 20,000 in the shares of KRW 20,00,00.

B. On April 19, 2013 and February 27, 2014, the Plaintiff reported and paid KRW 2,023,660,750 of the corporate tax by including the capital transaction increase income (7,197,540,000) from the acquisition of the instant shares in the gross income after filing a revised return of corporate tax for the business year of 2014. On June 3, 2014, the Plaintiff: (a) filed a claim for the refund of KRW 2,023,660,750 of the corporate tax; (b) on June 3, 2014, the Plaintiff: (c) filed a revised return, claiming that the capital increase income from the acquisition of the instant shares does not fall under the income that should be included in the gross income pursuant to Article 11 subparag. 9 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 12589, Feb. 2, 2012; hereinafter referred to as “the Plaintiff”).

D. The Plaintiff, who was dissatisfied with the instant disposition, requested for adjudication against the Director of the Tax Tribunal, but the said request was dismissed on December 19, 2014.

[Grounds for recognition] Gap evidence Nos. 1 through 6, 10, Eul evidence No. 1, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The Defendant: (a) deemed that the Plaintiff’s acquisition of the instant shares constitutes Article 11 subparag. 9, Article 88(1)8(b) or 8-2 of the former Enforcement Decree of the Corporate Tax Act; and (b) rendered the instant disposition. However, Article 88(1)8(b) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 888(1) of the Corporate Tax Act concerning the case where the existing shareholders who renounced their preemptive rights

2) In addition, "capital transactions" under Article 88 (1) 8-2 cited in the latter part of Article 11 (9) of the former Enforcement Decree of the Corporate Tax Act refers to "capital transactions where it is deemed that a corporation distributes profits through transactions such as increase or decrease of the corporation's capital by acquiring stocks through capital increase, etc." other than subparagraph 8 of Article 88 (1) of the former Enforcement Decree. Therefore, capital transactions where it is deemed that an individual's profits have been distributed do not constitute "capital transactions" under Article 88 (1) 8-2 of the former Enforcement Decree. The acquisition of the shares in this case by the Plaintiff cannot be deemed to have received a share of profits of the corporation as a share distribution by

3) Therefore, capital increase benefits from the acquisition of the instant shares do not constitute the interest under Article 11 subparag. 9 of the former Enforcement Decree of the Corporate Tax Act, and thus is not subject to corporate tax. Nevertheless, the instant disposition rejecting the Plaintiff’s request for correction is unlawful

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Article 11 subparag. 9 of the former Enforcement Decree of the Corporate Tax Act provides for "profit received by distribution from a specially related person due to capital transactions under any item of Article 88(1)8 of the former Enforcement Decree of the Corporate Tax Act and Article 88(1)8-2 of the former Enforcement Decree of the Corporate Tax Act, with the profit to be included in gross income." In the meantime, it is examined as to whether the profit gained by the Plaintiff from the acquisition of the instant stocks constitutes the profit received by distribution from a specially related person due to capital transactions under Article 88(1)8(b) or

A) Whether Article 88(1)8(b) of the former Enforcement Decree of the Corporate Tax Act falls under Article 88(1)8

(1) Article 88(1)8(b) of the former Enforcement Decree of the Corporate Tax Act only provides that "a case where a person, other than a shareholder of the pertinent corporation, waives all or part of the right to receive new shares in the increase of capital of the corporation," but does not provide that "a case where a person, other than a shareholder of the relevant corporation, directly receives new shares from the relevant corporation pursuant to Article 418(2) of the Commercial Act." Thus, the case where a person, other than a shareholder of the pertinent corporation, directly acquires new shares from a corporation which is a specially related person does not fall under Article 88(1)8(b) of the former Enforcement Decree of the Corporate Tax Act (see Supreme Court Decision 2011Du2979, Mar. 29, 2012). The criteria for distinguishing the method of shareholders from the method of issuing new shares, etc. from the method of issuing new shares, etc. are not objectively determined depending on whether a company has given shareholders an opportunity to receive new shares, etc. from the existing board of directors, without being given an opportunity to receive new shares.

(2) As to this, the Defendant asserts that the articles of incorporation of aa logistics does not provide for cases where new shares can be allocated directly to a third party, and that aa logistics does not fall under cases where shares can be allocated to a third party pursuant to Article 418(2) of the Commercial Act. Thus, the Plaintiff’s acquisition of the shares of this case should be deemed to have been made by the existing shareholders of aa logistics who renounced acceptance of the shares

In light of the overall purport of the arguments in the statements in Gap evidence Nos. 6, 9 through 12, and Eul evidence No. 4, a logistics company decided to obtain 200 million won from the plaintiff for the purpose of meeting the minimum capital requirements for the registration of international logistics brokerage business in accordance with Article 43 (3) of the former Framework Act on Logistics Policies (amended by Act No. 11473, Jun. 1, 2012). A logistics company's articles of incorporation do not provide for cases where new shares can be directly allocated to a third party; however, Article 37 of the Addenda of the articles of incorporation provides that matters not provided for in the articles of incorporation shall be governed by the resolution of the general meeting of shareholders, the Commercial Act, and other Acts and subordinate statutes; a logistics company's shareholder at the time of the board of directors resolution for the increase of capital; a logistics company's shareholder at the time of January 27, 201, which had not been held on January 27, 2011.

According to the above facts, Aa logistics may allocate shares to a third party in accordance with the resolution of a general meeting of shareholders and the provisions of the Commercial Act and other Acts and subordinate statutes. A logistics resolution is for the business purpose of a company that is registered as an international logistics brokerage business, and although A logistics did not hold a general meeting of shareholders, a logistics was not for the business purpose of a company that was registered as a shareholder of Aa logistics, but as a result, the resolution of a general meeting of shareholders was made by the board of directors on the capital increase in the method of direct allocation by the board of directors. Thus, the defendant's assertion on the premise that A logistics distributes new shares to the plaintiff as a third party is unlawful is without merit.

B) Whether Article 88(1)8-2 of the former Enforcement Decree of the Corporate Tax Act is applicable

The latter part of Article 11 subparag. 9 of the former Enforcement Decree of the Corporate Tax Act provides that "for profits received by distribution from a specially related person due to capital transactions pursuant to Article 88(1)8-2" shall be included in gross income. Article 88(1)8-2 of the former Enforcement Decree of the Corporate Tax Act provides that "for reasons other than subparagraph 8, the distribution of profits of a corporation was made through the increase or decrease of corporate capital through the increase of capital." However, considering that the latter part of Article 11 subparag. 9 of the former Enforcement Decree of the Corporate Tax Act does not limit "the specially related person" to "the capital transaction under Article 8-2 of the former Enforcement Decree of the Corporate Tax Act" and "the capital transaction under the latter part of Article 11 subparag. 9 of the former Enforcement Decree of the Corporate Tax Act, which was made by a person with a special interest under Article 10 subparag. 2 of the former Enforcement Decree of the Corporate Tax Act for the pertinent business year, it is reasonable to view that "the capital transaction under Article 88-19-2 of the former Enforcement Decree of the Corporate Tax Act is not subject to taxation.

2) Sub-committee

Therefore, the capital transaction revenue earned by the Plaintiff from acquiring the instant shares at a low price is subject to corporate tax by including it in gross income pursuant to Article 11 subparag. 9 and Article 88(1)8-2 of the former Enforcement Decree of the Corporate Tax Act. Thus, the instant disposition based on this premise is lawful.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.

(Attached Form)

Relevant statutes

m. Corporate Tax Act

Article 15 (Scope of Gross Income)

① 익금은 자본 또는 출자의 납입 및 이 법에서 규정하는 것은 제외하고 해당 법인의 순자산(������)을 증가시키는 거래로 인하여 발생하는 수익의 금액으로 한다.

(3) Necessary matters concerning the scope and classification of profits under paragraph (1) shall be prescribed by Presidential Decree. Article 11 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012) (amended by Presidential Decree No. 235

Profit under Article 15 (1) of the Act shall mean that provided for in any of the following subparagraphs, except as otherwise provided for in the Act and this Decree:

9. Profits received by distribution based on capital transactions with a specially related person under any of the items of Article 88 (1) 8 and under subparagraph 8-2 of the same paragraph;

Article 88 (Calculation Type of Wrongful Acts)

(1) Where it is deemed that any tax burden has been reduced unreasonably under Article 52 (1) of the Act means any of the following cases:

8. Where profits are distributed by a corporation which is a stockholder, etc. to another stockholder, etc. who is a person with a special relationship due to capital transactions falling under any of the following items:

(a) Where stocks, etc. are evaluated higher or lower than their market price and a merger is made at an unfair ratio in a merger (including a division and merger) between corporations that are specially related persons: Provided, That this shall not apply to a merger (including a division and merger) under Article 165-4 of the Financial Investment Services and Capital Markets Act;

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(b) Where the right to allot and underwrite new stocks (including convertible bonds, new stocks, corporate bonds, exchangeable bonds, etc.; hereafter the same shall apply in this item) in transactions conducted to increase the capital (including the amount of investments) of a corporation is fully or partially waived (excluding where the waived new stocks are allotted by public offering method under Article 9 (7) of the Financial Investment Services and Capital Markets Act) or bought at a price higher than the market price of the new stocks;

(c) Where stocks, etc. of some stockholders, etc. are retired without ratio of stocks, etc. owned by stockholders, etc. for capital reduction of a corporation;

8-2. Cases other than those falling under subparagraph 8 where profits of a corporation are distributed by means of transactions such as capital increase, capital reduction, merger (including division and merger), division, and conversion, acquisition, exchange, etc. of stocks through convertible bonds, etc. under Article 40 (1) of the Inheritance Tax and Gift Tax Act: Provided, That cases where stocks are issued following the exercise of stock options, among stock options, etc. falling under the part other than the items of Article 20 (1) 3, shall be excluded;

/ Commercial Act

Article 418 (Contents of Preemptive Rights and Designation and Public Notice of Record Date for Allotment)

(1) Shareholders are entitled to receive the allotment of new shares according to the number of shares they hold.

(2) Notwithstanding the provisions of paragraph (1), a company may allocate new stocks to persons other than shareholders in accordance with the articles of incorporation: Provided, That in this case, it shall be limited to cases where it is necessary to achieve managerial objectives of the company, such as introducing new technology

Article 43 (Registration of International Logistics Brokerage Business) of the former Framework Act on Logistics Policies (Amended by Act No. 11473, Jun. 1, 2012)

(3) A person who intends to register under paragraph (1) shall hold capital of at least 300 million won (referring to the amount of 60 million won, in cases of a corporation; 11- the amount of asset valuation), and purchase surety insurance of at least 100 million won, except in any of the following cases: