[1] The standard for determining whether the sale of shares constitutes a transfer of shares, which is an asset transaction, or a refund of shares or capital stock which is a capital transaction

[2] The case holding that since the sale and purchase of shares was conducted as part of the capital reduction procedure by means of stock retirement method, not simple transfer of shares, when considering the whole process of transaction, the shareholder's gains thereby constitute the constructive dividend income

[3] Whether the subsequent disposition is unlawful in a case where a number of disposition that is incompatible with the same tax liability overlaps (affirmative with qualification)

[1] Whether a sale of stocks constitutes a transfer of stocks which are assets transaction, or an issue of stock retirement or a refund of capital which is a capital transaction is a matter of interpretation of legal act, and should be determined based on the contents and intent of the parties concerned. However, under the substance over form principle, not simply depends on the contents and form of the contract in question, the entire process of the transaction, such as the process of concluding the contract, the method of determining the price, and the progress of the transaction

[2] The case holding that since the sale and purchase of shares was conducted as part of the capital reduction procedure by means of stock retirement method, not simple transfer of shares, when considering the whole process of transaction, the shareholder's profit thereby constitutes the constructive dividend income

[3] Where a number of dispositions that are incompatible with the same tax liability overlap, the preceding disposition should be deemed null and void as a matter of course, unless there are special circumstances, such as the revocation of the preceding disposition, the latter disposition constitutes a duplicate disposition and is unlawful.

[1] Article 1 (1) 4, Article 1 (2) 5 (see current Article 3 (2) 3, Article 3 (2) 4), and Article 19 subparagraph 1 (see current Article 16 (1) 1), Article 341 of the Commercial Act / [2] Article 1 (1) 4, Article 1 (2) 5 (see current Article 3 (2) 4), Article 19 subparagraph 1 (see current Article 3 (2) 1), Article 341 of the former Corporate Tax Act (wholly amended by Act No. 5581, Dec. 28, 1998); Article 341 of the Commercial Act / [2] Article 1 (1) 4, Article 3 (2) 3, and 5 (see current Article 3 (2) 4), Article 19 subparagraph 1 (see current Article 16 (1) 1), Article 341 of the Commercial Act

Cable Industry Co., Ltd. (Law Firm Name, Attorneys Yoon Jong-tae et al., Counsel for the plaintiff-appellant)

Head of Yongsan Tax Office

Seoul High Court Decision 2000Nu12302 delivered on June 21, 2001

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

1. As to the third ground for appeal

Whether a sale of shares constitutes a transfer of shares, or as a capital transaction, or as a result of the retirement of shares or the refund of capital, should be determined on the basis of the substance of the transaction and the intent of the parties concerned. However, under the substance over form principle, not simply depends on the contents or form of the contract in question, it should be determined on the basis of the actual understanding of the whole process of the transaction such as the parties’ intent and the process of concluding the contract, the method of determining the price, and the progress of the transaction (see Supreme Court Decision 92Nu3786 delivered on November 24,

According to the reasoning of the judgment below, the court below rejected the plaintiff's assertion that the purchase and sale of the shares of this case constitutes a simple transfer of shares, on the grounds that the plaintiff's resolution to reduce capital at a shareholders' meeting prior to the purchase of the shares of this case owned by the non-party, and immediately reduces the difference between the purchase price and the total face value after acquiring the shares of this case from the non-party, the difference between the purchase price and the total face value was accounted as losses from reduction of capital, and the purchase price was determined as KRW 1 million per share without undergoing the procedure for assessing the value of shares in the above reduction of capital, and paid the balance between the plaintiff's loan to the non-party and the amount equivalent to interest to the non-party. At the time of the acquisition of the shares of this case, the non-party paid the balance after deducting the plaintiff's loan to the non-party and the amount equivalent to interest to the non-party at the time of the acquisition of the shares of this case.

In light of the relevant legal provisions and records, the above recognition and decision of the court below is just, and there is no error of law in the misapprehension of legal principles as to the interpretation of the act of acquiring stocks, as otherwise alleged in the ground of appeal by the plaintiff.

2. Regarding ground of appeal No. 1

Where multiple dispositions that are incompatible with the same tax liability overlap, the preceding disposition shall not be deemed to be null and void as a matter of course, unless there are special circumstances, such as the revocation of the preceding disposition, the latter disposition shall be deemed to be unlawful (see, e.g., Supreme Court Decisions 83Nu583, Aug. 21, 1984; 86Nu312, Nov. 11, 1986; 86Nu447, Nov. 20, 1987; 95Nu1051, Jul. 11, 197).

According to the records, with respect to the transfer of the shares of this case to the plaintiff by the non-party who is a shareholder of the plaintiff company, the non-party head of Sung-nam Tax Office imposed capital gains tax on the transfer margin on October 14, 1998, considering the transfer of the non-listed shares, and the disposition became final and conclusive. After which the defendant's transfer of the shares to the plaintiff constitutes a refund of capital through the method of the retirement of shares, and thus the non-party's transfer of the above shares constitutes a constructive dividend income equivalent to the difference between the face value of the shares and the purchase price paid by the plaintiff, but the plaintiff did not perform his duty of withholding taxes. Thus, the above disposition of this case and the disposition of capital gains tax against the non-party are identical to that of a single income arising from the transfer of the shares of this case, and thus it is unlawful for the disposition of this case to be taken later, barring special circumstances such as the cancellation of the first disposition of capital gains tax

Nevertheless, the judgment of the court below which judged otherwise is erroneous in the misapprehension of legal principles as to double taxation, and the plaintiff's ground of appeal is justified in this regard.

3. Therefore, without examining the remaining grounds of appeal, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Song Jin-hun (Presiding Justice)