[1] Method of assessing "value of assets received without compensation" under Article 12 (1) 6 of the former Enforcement Decree of the Corporate Tax Act, and market price of stocks which is the basis for calculating increase in profit from free acquisition of preemptive rights (=value of stocks immediately after the payment of increased interest)

[2] The meaning of and criteria for determining the denial of wrongful calculation under Article 52 of the Corporate Tax Act

[3] The case holding that the act of transferring stocks to the lower price according to the existing share ratio does not constitute wrongful calculation in order to recover the rights infringed upon by the existing shareholders of the above issuing company by transferring only the preemptive right to new stocks from the company with warrant to acquire the preemptive right without compensation from the issuing company

[1] Article 12 (1) 6 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15797 of May 16, 198) provides that "the value of assets received without compensation" shall be determined at the normal price as of the time of acquisition pursuant to Article 37 (1) 3 of the former Enforcement Decree of the Corporate Tax Act. Here, "market price" refers to the exchange value, which is in principle an objective exchange price formed through normal transactions, but if there is no exchange price formed through transactions, the appraisal value of the reliable appraisal institution may be deemed to be the market price. If it is difficult to calculate the market price, the value shall be appraised at an objective and reasonable method in lieu of the market price. In this case, the price of new stocks shall be determined by applying Article 16-2 of the former Enforcement Rule of the Corporate Tax Act (amended by Presidential Decree No. 15797 of March 21, 1998) to the general method of appraisal of new stocks and the value of new stocks acquired at the time of acquisition without compensation under Articles 16 through 19 through 50 or 197 of the former Enforcement Decree.

[2] The rejection of unfair act and calculation under Article 52 of the Corporate Tax Act is a system that makes it difficult for a corporation to unjustly avoid or reduce tax burden by abusing various types of transactions listed in each subparagraph of Article 8(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17457, Dec. 31, 2001) without using a reasonable method of a person with a special relationship with the person with a special relationship, and is deemed to have income objective and reasonable by the method stipulated in the laws and regulations. In a case where a corporation’s act and calculation of unfair act and calculation of unfair act is deemed to have neglected the economic rationality. The determination of whether an economic rationality exists shall be made based on whether the transaction lacks economic rationality in light of sound social norms and commercial practice, and shall also be made in consideration of special circumstances such as the transaction price between a person with a special relationship and the non-specially related parties at the time of the transaction.

[3] The case holding that the act of transferring stocks to the lower price according to the existing share ratio does not constitute wrongful calculation in order to recover the rights infringed upon by the existing shareholders of the above issuing company by transferring only the preemptive right from the company with warrant to acquire the preemptive right without compensation from the issuing company

[1] Article 12 (1) 6 (see current Article 11 subparagraph 5) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15797, May 16, 1998); Article 16-2 (see current Article 89 (2) of the Enforcement Decree of the Corporate Tax Act) of the former Enforcement Rule of the Corporate Tax Act (amended by Presidential Decree No. 17457, Dec. 31, 2001) / [2] Article 52 of the Corporate Tax Act; Article 88 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17457, Dec. 31, 2001) / [3] Article 52 of the Corporate Tax Act; Article 88 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17457, Dec. 31, 2001)

[1] Supreme Court Decision 93Nu2233 delivered on December 22, 1994 (Gong1995Sang, 710), Supreme Court Decision 2002Du4440 Delivered on October 23, 2003 (Gong2003Ha, 2263), Supreme Court Decision 2002Du7005 Delivered on February 13, 2004 (Gong2004Sang, 481) / [2] Supreme Court Decision 97Nu13184 Delivered on February 11, 200 (Gong200Sang, 716), Supreme Court Decision 2006Du13909 Delivered on February 22, 2007

Acretain Investment Co., Ltd. and one other

Plaintiff 3 (Law Firm Rate, Attorneys So-young et al., Counsel for the plaintiff-appellant)

Head of the District Tax Office and one other

The Director of Gangnam District Office

Seoul High Court Decision 2004Nu4583 delivered on October 12, 2005

Each appeal is dismissed. The costs of appeal are assessed against each party.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to whether a person constitutes an increase in free capital

Examining the reasoning of the judgment below in light of the records, the court below was justified in holding that Seoul Telecommunication Co., Ltd. (hereinafter “Seoul Telecommunication”) acquired the bonds with warrants in accordance with the prior agreement between Seoul Telecommunication Co., Ltd. (hereinafter “Dong Fire Marine Insurance”) and transferred them to the Plaintiff without compensation, taking into account various circumstances revealed in its judgment, namely, the purpose and details of the issuance of the bonds with warrants in this case, the situation that the company took over the bonds with warrants in accordance with the prior agreement between Seoul Telecommunication Co., Ltd. (hereinafter “Dong Fire Marine Insurance”) and immediately transferred the bonds to the Plaintiff, the method of raising funds used by the Plaintiff Co., Ltd to exercise the preemptive rights, transaction practices related to the acquisition of bonds, and the appraised value of the preemptive rights in this case, Seoul Telecommunication Co., Ltd. (hereinafter “Seoul Telecommunication”) through the East Fire Marine Insurance Co., Ltd. (Seoul Telecommunication Co., Ltd.). (hereinafter “Seoul Telecommunication Co., Ltd.).

As to this, the court below did not err in the misapprehension of the legal principle as alleged in the ground of appeal by the plaintiff company.

2. As to the calculation method of benefits obtained without compensation

Article 12 (1) 6 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15797 of May 16, 198) refers to the market price at the time of acquisition pursuant to Article 37 (1) 3 of the former Enforcement Decree of the Corporate Tax Act. The arm's length price refers to the exchange price at the time of acquisition. Thus, if there is no exchange price through ordinary transactions, the appraisal price at the reliable appraisal institution can be deemed to be the market price. If it is difficult to calculate the market price, the value shall be assessed in an objective and reasonable manner in lieu of the market price. In this case, Article 16-2 of the former Enforcement Rule of the Corporate Tax Act (amended by Presidential Decree No. 15797 of March 21, 1998), Article 30 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 5498 of Jan. 8, 1998), and Article 20 through 19415 of the former Enforcement Decree of the Inheritance Tax and Gift Act (amended by Presidential Decree No. 20. 30130

On the other hand, unlike the purchase of general assets whose value is determined at the time of acquisition, when an underwriter acquires new stocks due to a change in the value of the stocks of the immediately issued corporation due to the payment itself of the price of the relevant stocks, the market price of the stocks, which serves as the basis for calculating the profit from free receipt of new stocks, shall also be deemed to be the value of the stocks immediately after the payment of the capital increase (see Supreme Court Decision 2002Du7005 delivered on February 13, 2004).

Examining the reasoning of the judgment below in light of the records and the above legal principles, it is reasonable that the court below acknowledged the facts as stated in its holding, and it is reasonable to view the objective exchange price arising from normal transactions in the shares transaction in Seoul mobile communications before October 13, 1997, 40,000 won per share traded before September 2, 1997 through September 8, 199, and thereafter, the subscription price for new shares (2,00,000, 20,000 won per share) was made on September 26, 1997, and again determined that the Plaintiff Company acquired the new shares of this case on October 15, 1997, 70,000 won per share less the amount of 7,08,318,31,300,000 won per share from the acquisition of the new shares of this case (the new shares of this case) - 15,750,000 won per share from the amount of 7,015,05,075 shares shares shares per share per share.

The judgment of the court below is not erroneous in the misapprehension of legal principles as to the appraisal of the value of preemptive rights as otherwise alleged in the ground of appeal by the plaintiff company and the defendant.

3. As to the denial of wrongful calculation

Article 52 of the Corporate Tax Act provides that a corporation’s wrongful calculation under Article 52 of the Corporate Tax Act is deemed to have avoided or reduced tax burden by abusing various forms of transaction listed in each subparagraph of Article 88(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17457, Dec. 31, 2001) without a reasonable method by a person with a special relationship. It is deemed that the person with a tax authority denies or mitigates the tax burden by using icely using the various forms of transaction listed in each subparagraph of Article 88(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17457, Dec. 31, 2001). In light of the economic person’s perspective, it is limited to cases where it is deemed that the person with a tax authority neglected or reduced the tax burden, and that there was an income objectively and reasonably deemed as objective and reasonable in accordance with the method prescribed by law. Determination of whether the economic rationality exists shall be made based on whether the transaction was unfair in light of sound social norms or commercial practice.

Examining the reasoning of the judgment below in light of the records and the above legal principles, the court below acknowledged the facts as stated in its holding, and held that the non-party 1, the representative director of the Seoul Mobile Communications, and its officers, obtained part of the preemptive rights without compensation to the Plaintiff Company by avoiding the limitations under the Commercial Act guaranteeing the preemptive rights of existing shareholders for the purpose of securing management rights, but agreed to transfer the shares that should have been acquired unfairly by the existing shareholders due to criminal complaints and civil litigation by maintaining the existing shares ratio to the existing shareholders. Accordingly, the previous shareholders of the Seoul Mobile Communications were transferred to the non-party 2, 3, 4, and 3, who are the existing shareholders of the Seoul Mobile Communications, according to the existing shares ratio. The total number of shares transferred as above was less than 10% of the total number of shares transferred to the existing shareholders, and the transfer price was determined by the agreement between the non-party 2, 3, 4, and 3 on March 19, 198. Thus, it was justifiable to have determined that the transfer price of the Plaintiff P&M market was an economic rationality.

The judgment of the court below is not erroneous in the misapprehension of legal principles as to the wrongful calculation omission, as otherwise alleged in the ground of appeal by the defendant of the District Tax Office.

4. Conclusion

Therefore, each appeal is dismissed, and the costs of appeal are assessed against each party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Shin Hyun-chul (Presiding Justice)