Cho Jae-2016-China-1726 ( August 23, 2017)

Whether a foreign investment reduction or exemption can continue according to the ratio of foreign investment of an extinguished corporation prior to issuance of exchangeable bonds;

Since it is reasonable to view that the issue portion of exchangeable bonds cannot be deemed to constitute stocks or shares subject to reduction or exemption under the Restriction of Special Taxation Act, the disposition of this case rejecting the Plaintiff’s request for corporate tax revision on this part is lawful.

Article 121-2 of the Restriction of Special Taxation Act

Suwon District Court 2017Guhap70381

Cze00

000 director of the tax office

July 18, 2018

August 29, 2018

1. The plaintiff's claim is dismissed.

2. The litigation costs are revoked by the former Defendant, who was at the office, against the Plaintiff on January 5, 2016, the disposition rejecting correction of KRW 10,589,789,49,496, corporate tax for the business year 2010, corporate tax for the business year 2,968,534,497, and corporate tax for the business year 2012,922,87,326 for the business year 2012.

1. Details of the disposition;

A. Corporate tax reduction or exemption for corporations F0 (hereinafter referred to as "F0") was 1.0% of 20,176,309,537 shares of 2,480,537 shares on December 26, 2005, and 17,695,72 shares issued by F0 on December 27, 2005 were 17,695,481,616,000 won and were 201,03% of the total number of shares issued by F00 shares issued by the Minister of Finance and Economy (hereinafter referred to as "F0") 20,176,309,536,536,000 shares for 69,537,000 shares, and the Plaintiff's tax reduction or exemption was 208,000 shares for 200,000 shares issued by F10,000 shares for 200,000 shares issued by F28,2716.27.27

1) On May 27, 2009, the Plaintiff acquired 12,105,785 shares out of the F0 shares, which were held by T00 before the merger date, and issued the Plaintiff’s convertible bonds to T00 on June 2, 200 (hereinafter “the merger of this case”), to the effect that a foreigner does not own more than 49/100 of the total number of shares issued by a common telecommunications business operator in excess of the limit under Article 6(1) of the former Telecommunications Business Act (amended by Act No. 10166, Mar. 22, 2010; hereinafter the same) and issued the Plaintiff’s convertible bonds to T0 on June 2, 200 (hereinafter “the merger of this case”). The Plaintiff’s 200 shares issued by T0, 8,070, 524 shares remaining after the merger (hereinafter “the Plaintiff’s 206, 300, 309, 3005 shares”) and 3 shares issued after the Plaintiff’s 3 shares issued 2005,5.1.

1) From 2010 to 2012, the Plaintiff calculated the foreign investment ratio of 8.47% (i.e., the foreign investment ratio of 5,804,591 shares of this case + 3.39% of the foreign investment ratio of 8,453,22 shares of this case + 5.08% of the foreign investment ratio of 8,453,222 shares of this case) to the Defendant, and filed a claim for the correction of corporate tax pursuant to the tax reduction and exemption for foreign investment as stated in the following table. 2) The Defendant received a claim for the correction of corporate tax equivalent to 3.39% of the foreign investment ratio of 5,804,591 shares of this case on January 5, 2016, but the claim corresponding to 5.08% of the foreign investment ratio of 8,453,222 shares of this case was rejected (hereinafter referred to as the “disposition”).

3) The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on March 31, 2016, but the Tax Tribunal dismissed the Plaintiff’s appeal on August 23, 2017.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1, 2, 4 through 8, 11, Eul evidence Nos. 1 and 4, the purport of the whole pleadings

2. Relevant statutes;

The entries in the attached statutes are as follows.

3. Summary of the plaintiff's assertion

With respect to the acquisition of the F00 new shares by T0, F00 is legally subject to a decision of tax reduction or exemption, and the Plaintiff succeeds to the effect of F00 tax reduction or exemption by absorbing F00 and combining F00, the Plaintiff also needs to be subject to tax reduction or exemption pursuant to Article 121-2 of the Restriction of Special Taxation Act. Even if T0 shares 12,105,785 shares are transferred to the Plaintiff, it is limited to the transfer of shares by the shareholders of the merged corporation conducted in the process of the merger of this case, and thereby, T00 shares were not recovered from investment in F0, and therefore, it cannot be denied tax reduction or exemption against the Plaintiff on this ground.

the disposition of this case must be revoked in an unlawful manner.

4. The legality of disposition.

A. Relevant legal principles

Article 2(1) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Act No. 1385, Jan. 27, 2016; hereinafter the same) provides that “Foreign investment” shall be construed as a “foreign-invested enterprise” under Article 2(1)1 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Act No. 1385, Jan. 27, 2016; hereinafter the same shall apply) and “foreign-invested enterprise” under Article 2(1)4 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Act No. 106 of Jan. 1, 2010; hereinafter the same shall apply) shall be construed as a “foreign-invested enterprise’s investment ratio” under Article 15 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Act No. 1065, Jan. 1, 2010; hereinafter the same shall apply).

B. Determination

Based on the above legal principles, in full view of the following facts or circumstances, it is reasonable to view that corporate tax equivalent to 5.08% of the foreign investment ratio of 8,453,222 shares of this case is not subject to reduction or exemption under the former Restriction of Special Taxation Act, and thus, the disposition of this case rejecting the Plaintiff’s request for corporate tax correction as to this portion is lawful.

(1) The Plaintiff’s shares owned by a foreigner due to a merger of F00 exceed 49/100 of the total number of the Plaintiff’s issued shares, and thus, likely to cause the Plaintiff’s failure to maintain the status of a key telecommunications business operator. As such, the Plaintiff acquired part of the F00 shares held by T0 during the instant merger process, and issued the Plaintiff’s convertible bonds to T00 in return.

Accordingly, on May 2009, immediately before F0 was merged with the Plaintiff, the ratio of foreign investment to F0 of T00 was 3.39%.

(2) The ratio of foreign investment applicable to the calculation of the tax amount subject to foreign investment refers to the ratio of stocks owned by foreign investors. Thus, as long as the F00 loses the status as a shareholder before the merger with the Plaintiff, and as long as the Plaintiff becomes an convertible bonds, deeming the ratio of stocks already lost to the Plaintiff as the ratio of foreign investment prior to the merger constitutes an extended interpretation or analogical interpretation of the requirements for tax reduction and exemption without reasonable grounds.

(3) The content of a shareholder agreement made between the Plaintiff and T0 and F0 does not include the payment of the price for the entire shares of F00 held by T0 to the Plaintiff’s shares, but also the payment of the price for the shares is guaranteed to enable T00 to acquire a certain number of shares of the Plaintiff, and the portion not paid with the Plaintiff’s shares should be paid as convertible bonds. It is clear that (4) the acquisition of the Plaintiff’s shares by exercising the right to conversion of convertible bonds by exercising the right to conversion on December 2009, after the merger of this case, cannot be deemed as a foreign investment before the merger. Furthermore, it is not recognized that foreign investment is subject to reduction or exemption of corporate tax, etc. under Article 121-2(9) of the former Restriction of Special Taxation Act, Article 6 of the former Foreign Investment Promotion Act, and that the acquisition of T00 after the merger of this case is not the Plaintiff’s new shares, but the old shares.

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