[Request Number] Trial 2015 Do1136 ( November 27, 2015)

[P] Revocation of Acquisition (type of Decision)

[Determination] Since the homogeneity between the previous three individual business places and the requesting corporation are maintained, it is difficult to view that it is reasonable to exclude the subject of exemption from acquisition tax on the ground that even in such a case, it is less than the total net asset value of the three business places due to the simple disposal of the simple disposal.

[Related Acts and subordinate statutes] Articles 32(1) and 120(5) of the Restriction of Special Taxation Act (amended by Act No. 11614, Jan. 1, 013)

[Reference Decision] High Court Decision 2014No1425

The imposition of OO shall be revoked.

1. Summary of disposition;

(a) the applicant firm was incorporated on December 27, 201 as the OO;

B. The applicant corporation is exempted from acquisition tax, etc. by filing an application for reduction or exemption on the grounds that the disputed real estate falls under real estate acquired by investment in kind in accordance with Article 120(5) of the Restriction of Special Taxation Act (wholly amended by Act No. 11614, Jan. 1, 2013; hereinafter the same shall apply) when filing a report on acquisition with the disposition authority for the real estate invested in

(c)The disposal authority confirms that investors fall short of the net asset value of a private workplace extinguished at the time of transfer of the value acquired by the conversion into a corporation, and imposes an assessment and notice on the applicant corporation on June 18, 2015, on the basis that the requirements for reduction and exemption under Articles 32(1) and (2), 120(5) of the Restriction of Special Taxation Act and Articles 28 and 29 of the Enforcement Decree of the same Act are deemed not satisfied, and that acquisition taxO calculated based on the acquisition value of the outstanding real estate located within the disposal authority,

D. The applicant filed an appeal on August 10, 2015.

2. Opinion of the requesting corporation and the disposition agency;

A. The claimant corporation's assertion

The agency imposed acquisition tax, etc. on the basis of the fact that the value of the shares acquired by individual entrepreneurs after conversion to a corporation falls short of the net asset value of individual establishments;

At the time of investment in kind, the investors received an appraisal for each kind of asset invested in kind and carried out registration procedures separately to the court and the tax authorities by attaching each appraisal report, the table of commencement and financial status, and the contract for investment in kind. It is more reasonable to treat the difference between the net asset value and the capital value of each kind of asset invested in kind and the amount of investment in kind, which is prohibited to be issued below par value, as the amount of investment in kind by each investor is complicatedly described in the above document and the amount of investment in kind by each investor.

In the case of conversion into a corporation following investment in kind, the requirements for exemption from acquisition tax under Articles 32 and 120 (5) of the Restriction of Special Taxation Act shall be met, which shall not be less than the net asset value of the place of business in which the value of the stocks acquired by the business operator invested in kind is extinguished. However, in cases where the amount below the face value of each share out of the net asset value is inevitably short of the net asset value due to the impossibility of issuing stocks under Articles 329 (3) and 330 of the Commercial Act due to the impossibility of issuing stocks under Articles 329 (3) and 330 of the Commercial Act, it shall be recognized as subject to exemption from acquisition tax

The legislative intent of Article 32 of the Restriction of Special Taxation Act is to encourage the corporate conversion of a private company in order to ensure the integrity of the company and transparency of transactions, and to prevent the unfair reduction of the amount of investment by a private business operator in the process of corporate conversion, and there is no substantial difference with the OO in the process of corporate conversion. As such, it would be unreasonable in the legislative purpose to view that the disposal agency unfairly invested less than the net asset value of the OO because there is a difference between OO due to the simple disposal in the process of investment. Therefore, the disposition imposing acquisition tax, etc. should be revoked unfairly.

(b) Opinions of disposition agencies;

In principle, the requirements for exemption from acquisition tax under Article 120 (5) of the Restriction of Special Taxation Act shall be deemed to be met when an entrepreneur of a place of business which ceases to exist due to the conversion of a corporation into an investment in kind reaches the net asset value of a place of business where the value of stocks or shares acquired by the conversion of a corporation becomes extinct due to the incorporation of a corporation. However, where an entrepreneur of a place of business which ceases to exist due to the conversion of a corporation falls short of the net asset value of a place of business where the value of stocks or shares acquired by the conversion of a corporation becomes extinct due to the incorporation of a corporation cannot be issued pursuant to the Commercial Act as to the amount falling short of the face value of each share among the net asset value of an individual investor in kind, there is

The provisions of Article 32 (1) and (2) of the Restriction of Special Taxation Act, Articles 28 (1) 2 and 29 (5) of the Enforcement Decree of the same Act, and Article 32 (1) of the same Act, and Article 28 (1) 2 of the same Act, and Article 29 (5) of the Enforcement Decree of the same Act, when converting into a corporation by investing several fixed assets for business in a business place, do not provide for exceptions to determine the net asset value for each individual business entity and the capital amount of the corporation to be established, but the applicant corporation voluntarily determined and allocated shares to each business

3. Hearing and determination

(a) Points in dispute;

Since the value of stocks acquired by three individual business operators in the course of incorporation of a claim corporation through investment in kind falls short of the net asset value of the individual business place, whether the disposition of imposing acquisition tax, etc. is legitimate because the real estate investment in kind does not constitute reduction

(b) Relevant Acts;

(1) Restriction of Special Taxation Act (amended by Act No. 11614, Jan. 1, 2013)

Article 32 (Carryover Taxation of Transfer Income Tax for Conversion into Corporation) (1) Where a resident makes an investment in kind in fixed assets for business or converts such fixed assets into a corporation (excluding a corporation operating consumptive service business prescribed by Presidential Decree) by the method of business transfer or acquisition prescribed by Presidential Decree, the said fixed assets for business may be subject to carryover taxation. (2) Paragraph (1) shall apply only where the capital of

(5) Acquisition tax on property for business acquired no later than December 31, 2014 by investment in kind, transfer or acquisition of business under Article 32 shall be exempted: Provided, That where the relevant business is closed within two years from the date of acquisition without justifiable grounds prescribed by Presidential Decree, or the relevant property is disposed of (including lease), the reduced or exempted tax amount shall be collected as a penalty.

(2) Enforcement Decree of the Restriction of Special Taxation

Article 28 (Carryover Taxation, etc. of Transfer Income Tax on Consolidation between Small and Medium Enterprises) (1) "Consolidation between small and medium enterprises operating the type of business prescribed by Presidential Decree" in Article 31 (1) of the Act means a consolidation that satisfies the requirements of the following subparagraphs, by a small and medium enterprise owner (referring to a small and medium enterprise owner under the Framework Act on Small and Medium Enterprises; hereafter the same shall apply in this Article) who runs a business except the consumptive service business (limited to the case where the amount of revenue by project of consumptive service business in the business year immediately preceding the business year in which the date of real estate transfer falls, in cases where both the consumptive service business and the consumptive service business are concurrently operated) under Article 29 (3) succeeds to all the principal assets concerning the relevant business at each business place of the relevant enterprise and maintains the identity of the relevant business. In this case,

2. The value of the stocks or shares acquired by the small and medium enterprise owner of the place of business to be extinguished due to the consolidation shall not be less than the net asset value of the place of business to be extinguished due to the consolidation (referring to the total amount of assets appraised as the market value of the consolidation date less the total amount of liabilities including the allowances;

(2) "Method of transfer or acquisition of business prescribed by Presidential Decree" in Article 32 (1) of the Act means that a person who has engaged in the relevant business becomes a promoter and establishes a corporation by investing more than the amount referred to in paragraph (5) and comprehensively transfers all rights and obligations concerning the relevant corporation within three months from the date of incorporation. (5) "amount prescribed by Presidential Decree" in Article 32 (2) of the Act means the amount calculated by applying Article 28 (1) 2 mutatis mutandis to the net asset value of the place of business converted into a corporation by investing in kind or transferring fixed assets for business.

(3) Commercial Act

Article 289 (Preparation of Articles of Incorporation and Absolute Matters to be Stated therein) (1) The promoters shall prepare the articles of incorporation, state the following matters, and each of the promoters shall affix his/her name and seal or sign thereon:

Article 290 (Matters to be Irregulared) The following matters shall become effective upon entry in the articles of incorporation:

2. Name of the persons who are to make a contribution in kind and the kind, quantity and price of property subject to the contribution in kind and the class and number of shares to be given therefor;

(3) The amount of shares shall be equal. (3) The amount of shares shall be equal.

Article 330 (Restrictions on Issuance of Shares at Price below Par) shall not be issued at a price below par value: Provided, That the same shall not apply to the case of Article 417.

C. Facts and determination

(1) The review materials submitted by the agency and the requesting corporation are as follows:

(A) On November 22, 201, the applicant corporation and investors drafted a comprehensive business transfer/acquisition agreement (investment in kind) and the main contents thereof are as follows.

Article 1(Purpose)The purpose of this Agreement is to comprehensively succeed to all rights and obligations concerning the projects operated by “A (Contributors)” and to make an investment in kind in respect of all property added thereto to “B (Claimants)” and to continue to operate the project without interruption as a juristic person pursuant to the provisions of Article 32 of the Restriction of Special Taxation Act.

Article 2 (Reference Date for Investment in Kind) "A, etc.", etc. shall make an investment in kind with the total amount of assets and liabilities of "A, etc." as of the same date on which the base date for investment in kind is the same as the date of investment in kind.

Article 3 (Value of Investment in Kind and Evaluation) "A, etc." shall be the value equivalent to the balance calculated by subtracting total liabilities from total assets for the present business as of November 22, 201 in order to exempt or reduce capital gains tax, value-added tax, acquisition tax, etc. following the conversion into a corporation;

1. Tangible fixed assets, such as land, buildings, machinery, etc. shall be the appraised value of a certified appraiser;

2. The value of assets and liabilities excluding the broken assets under paragraph (1) above shall be the value recognized by an inspector among the value based on audit certification by a certified public accountant.

3. The total amount of liabilities less than the total amount of assets for business shall be the balance of liabilities with the certification of debts by creditors as of November 17, 2011.

Article 4 (Types and Number of Shares to be Issued to Contribution in Kind) “B” shall deliver to “A”, etc., common shares of a par value equivalent to the amount calculated by the method prescribed in Article 3.

(B) In accordance with the above investment-in-kind agreement, an appraisal of the property invested in kind shall be conducted, and the net asset value after deducting the debts (rental deposit and loan) from the appraised amount shall be as calculated as shown in the attached Table 2>

(C) In registering incorporation on December 27, 201, the applicant corporation is confirmed as the certified transcript of corporate register that registered the incorporation of the head office as an OO, and that investors as an intra-company director.

(D) The applicant corporation's issuance of the shares to the investors who are the investors in kind shall be treated as short of the par value per share and the delivery of the following

(E) The requesting corporation is different in the administrative district where the asset invested in kind is located, so it appears in the review data submitted to the effect that it allocates stocks corresponding to the net asset value for each place of business and allocates stocks in a manner of single disposal by issues investors (referring to attached Table 4>.

(2) We examine the above facts and relevant laws and regulations comprehensively.

In full view of Articles 32(1) and 120(5) of the Restriction of Special Taxation Act (wholly amended by Act No. 11614, Jan. 1, 2013) and Articles 28(1)2 and 29(5) of the Enforcement Decree of the same Act, where a resident’s business fixed assets are converted into a corporation by investing in kind the fixed assets for business in kind, if the capital of the newly established corporation is more than the net asset value of the place of business converted into a corporation by investing in kind, the fixed assets for business shall

Since the above provision provides that the fixed assets for business shall be invested in kind in the place of business to be converted into a corporation above the net asset value of each business establishment, if the assets are invested above the net asset value of each business establishment, it shall be deemed that the requirements for exemption from acquisition tax are satisfied. In the case of a requesting corporation, the number of stocks to be allocated according to the net asset value of each three rental businesses and the amount of stocks shall be equal in the course of calculating the number of stocks to be distributed according to the net asset value of each three rental businesses and then distributing them to each investor in proportion to the ratio of shares by each investor, and the stocks shall not be issued below the par value, so it is difficult to view that the corporation's capital, which has been established, falls short of the net asset value of the net asset value, is difficult to view that it falls short of the net asset value of each investor.

The purpose of legislation is to make investments more than the net asset value of each place of business in case of conversion into a corporation through investment in kind, so that the homogeneity of the business can be maintained. In light of such purpose of legislation, since it is evident that investors comprehensively transferred the assets and liabilities used as a personal place of business to the requesting corporation, the former three individual business places and the requesting corporation are maintaining homogeneity of the business, it is not reasonable to exclude the assets from the acquisition tax exemption because the assets and liabilities of the former three business places are less than the total net asset value of the three business places due to the single disposal in such cases.

Therefore, it is judged that the disposition office did not meet the requirements for exemption from acquisition tax for the real estate at issue, and the disposition of acquisition tax on this case is erroneous.

4. Conclusion

This case shall be decided as ordered in accordance with Article 123(4) of the Framework Act on Local Taxes and Articles 81 and 65(1)3 of the Framework Act on National Taxes, because the petition for a trial is well-grounded as a result of the review.