Seocho 2013west 1580 ( October 26, 2014)

Where executive officers and employees of a specialized investment company have paid money for the congratulatory money for listing to be paid by them from a acquiring company, etc., this does not constitute losses

The Plaintiff’s certificate of listing congratulatory money paid is a debt that the original acquiring company or other shareholders bear to the employees of the acquiring company in the course of labor-management consultation. Thus, it is difficult to view that the corporate repayment of another’s debt is ordinary expenses, and it is difficult to view it as expenses directly related to profit and loss under the Corporate

2014Guhap57393 Disposition of revocation of refusal to correct corporate tax

AAA Private Equity Fund

Seoul Regional Tax Office

August 22, 2014

October 24, 2014

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The defendant's refusal of correction against the plaintiff on December 21, 2012 shall be revoked.

1. Details of the disposition;

(1) The plaintiff is a 10-capital invested company, including the Korea Development Bank, which is established on September 27, 2006 based on Article 114-2 of the former Indirect Investment Asset Management Business Act (amended by Act No. 8635, Aug. 3, 2007; hereinafter referred to as the "Indirect Investment Asset Management Business Act"). The plaintiff is a 20-capital invested company that purchases stocks of the 10-capital invested company, 10-capital invested company, 200-capital invested shares of the 20-capital invested company (hereinafter referred to as "OB 9-capital invested company"), 3. Investment securities other than the total number of issued stocks or shares of the 19-capital invested company, 4. Investment shares issued by the 20-capital invested company (hereinafter referred to as "OB 9-capital invested company"), 7. Investment in the 9-capital invested company or investment shares issued by the 20-capital invested company, and 7.

2. Investment amount:OOO personnel, but the shares ratio of the Plaintiff’s BB is below the shares ratio ofCC Construction and its specially related persons (CC); 3. Investment structure: WhereCC exercises a preferential right for purchase against DD, the Plaintiff directly takes over BB’s shares from DD (only if the Plaintiff is unable to take over BB’s shares directly from DD, theCC sells the relevant shares at the same price as the exercise price of preferential right for purchase to the Plaintiff).

4. Management right:CC shall cooperate to the maximum extent possible with the exercise of voting right (election of officers, etc.) so that it may exercise its management right against BB, and all matters concerning the management of BB shall be exercised byCC: Provided, ThatCC shall make prior agreements or consultations with the Plaintiff with respect to important management matters affecting the interests of stockholders.

3. Put listed goods;

(a) Requirements for occurrence: The Plaintiff shall hold the PutO in the event that the IPO of BB is not possible within three years from the date of the termination of transaction, or that the IPO public offering conducted within three years from the date of the termination of transaction does not exceed a certain amount.

(b) Time of event: The IPO shall exercise the PutO for three months from the time one month has elapsed after listing, for three years from the time when the requirement of exercise arises, and for six months from the time when the requirement of exercise arises, and for three years from the date when the transaction is closed.

4. Sock UP:CC is obligated to maintain its largest shareholder for a period of four years from the date of termination of transactions, and the Plaintiff is prohibited from selling its stocks until the date when three years elapsed from the date of termination of transactions or the date of listing BB, whichever comes earlier.

5.CC shall do its best to promote IPs within 3 years. Within 3 years, IPs are not possible, and where the Plaintiff does not exercise the right to make a PE, the Plaintiff may demand a reasonable allocation of dividends, and CC shall actively accept it.

D. The plaintiff agreed to purchase 6,098,292 shares totaling 81.9% of the total issued shares from DD and B shareholders of DD to purchase OOOO on January 28, 2008, 208." The management rights of 1.B should be exercised by the CC shareholders.

2. The Plaintiff, EE, F shall not transfer B’s shares held by the date three years have elapsed from the date of entry into force of this Annex, or B’s shares are listed on the Korea Securities and Futures Exchange or on the foreign Stock Exchange, whichever comes first: Provided, That this shall not apply in the case of a public offering for listing B’s shares, where the shares are sold through old subscription sale, and where the prior written consent ofCC stockholders is obtained.

E. The non-party 3 purchased BB shares on January 28, 2008 as shown in the following table 1, and the shareholders composition of BB after the completion of subscription is as listed in Table 2:

3. Shares acquired in the table 1.

Name of shareholders

Number of acquired shares

Sharing Ratio

Investment amount (cost)

CC Construction

611,903

1.35%

OOO

EE

2,234,000

41.43%

OOO

1,653,000

30.66%

OOO

FFrust

7,143

14.41%

OOO

GG Invement

15.857

2.15% by mass

OOO

Total

5,391,903 note

100%

OOO

F. Meanwhile, on March 5, 2008, the president of theCC Group agreed to pay 50 shares of BB per person to the employees of BB on the listing date for the purpose of resolving the national metal trade union and labor-management disputes.

G. Since then, B agreed that 30 shares per employee on August 13, 2008 and 20 shares per head on September 1, 2009 (in total, 100 shares per head on August 13, 2008) shall be additionally paid in the course of wage negotiations.

H. BB conducted 1.17 times free of charge on December 2009, and the number of BB shares in the Plaintiff’s possession increased from 1,653,00 to 3,587,010 shares. Accordingly, the number of shares per employee increased from 367,530 to 797,540 shares.

I. The Plaintiff newly established a provision that if BB pays shares or shares to its employees in cash, it is anticipated that public offering will decline or delay of listing due to the reduction of net income for BB’s current net income at the expense, the Plaintiff would change the shareholder agreement of BB on January 1, 2010, and if shares are listed, the parties should pay to the specific executives and employees of B the amount of money stipulated in the certificate of listing congratulatory money.

(j) BB listed shares issued on the securities market on May 19, 2010 through a public offering offer made as an OOO per share for two days from May 11, 2010 to May 12, 201.

C. The Plaintiff paid KRW 1,288,006 of shares held on May 17, 2010 to the employees of BB among KRW 106,904,498,000, the sales price of KRW 1,288,000, which was 36% of the shares held on May 17, 2010, and paid KRW 106,904,498,00, out of the sales price of KRW 106,90,498,00, and recognized KRW 00 as net profit after deducting fees and expenses from the remaining amount.

E. The Plaintiff, on August 20, 2010, obtained net profit of KRW 2,299,000 of the remaining shares of KRW 2,204, which were held by BB, after deducting fees and expenses from the sales price of KRW 00,000 per share, by recognizing the amount of KRW 0,000 as net profit.

(m) On March 31, 2011, when the Plaintiff filed a tax base return of corporate tax for the business year 2010, it included the listed congratulatory money and OE paid to the employees BB in deductible expenses as expenses unrelated to business, and disposed of it through other outflow. On the other hand,CC construction, which is the other shareholders ofCC consortium, paid OOO and EE, to the employees of B as the certificate of listing congratulatory money, but all of them were paid as the certificate of tax base return for the business year 2010, but was excluded as expenses irrelevant to business and disposed of as other outflow.

(n) On October 25, 2012, the Plaintiff filed a request for correction with the head of Yeongdeungpo-gu Tax Office to include the OOO of the certificate of listing congratulatory money in the deductible expenses as indicated below. However, on December 21, 2012, the Defendant rejected the Plaintiff’s request for correction (hereinafter “instant refusal disposition”) on December 21, 2012,” [Attachment 3] comparison of the tax base before and after the application for correction, the tax base amount after the

Classification

(1) The first report

(2) Claim for rectification

Difference (1-B)

Tax Base

OOO

OOO

OOO

calculated tax amount

OOO

OOO

OOO

Deduction and Tax Abatement or Exemption

OOO

OOO

-

Amount of payable tax

OOO

OOO

OOO

(o) The Plaintiff appealed and filed an appeal with the Tax Tribunal on March 18, 2013, but the Tax Tribunal dismissed the Plaintiff’s claim on March 26, 2014.

Facts that there is no dispute over recognition, entries in Gap evidence 1 through 20 (including both natural disasters) and the purport of the whole pleadings.

2. The plaintiff's assertion

The purpose of the Plaintiff is to increase the company's value as a specialized investment company and realize investment profits, so long as it has paid the certificate of listing congratulatory money in order to prevent the decline in the public offering during the listing process of the invested stocks, it is recognized that business relations is recognized, and in general, private investment companies in the same situation as the Plaintiff appear to have paid the certificate of listing congratulatory money. In addition, although the Plaintiff has paid the certificate of listing congratulatory money, it is recognized that profit-relatedness is recognized because B has obtained more profits by selling BB stocks at a higher price than the share price at the time when B directly pays the certificate of listing. Therefore, the above certificate of listing congratulatory money is recognized as deductible expenses as prescribed by Article 19 of the Corporate Tax

3. Relevant statutes;

m. Corporate Tax Act

Article 19 (Scope of Losses)

(1) Deductible expenses shall be the amount of losses incurred by transactions which reduce the net assets of a corporation, excluding return of capital or financing, disposition of surplus funds, and what is provided for in this Act.

(2) Losses referred to in paragraph (1) shall be losses or expenses incurred in connection with the business of a corporation which are generally accepted as ordinary or directly related to profit, except as otherwise expressly prescribed by this Act and other Acts.

4. Determination

(a) Facts of recognition;

1) In the event that BB directly pays the instant shares or cash (listed congratulatory money) equivalent thereto to the employees of BB following a labor-management consultation, the Plaintiff decided to pay the money for the congratulatory money for listing in person as follows: (a) the amount of net profit and loss has decreased in the year 2009; and (b) while the value of the shares has decreased accordingly, where the member of theCC consortium pays the money for the congratulatory money for listing to the employees of BB, the Plaintiff would directly pay the money for the congratulatory money for listing as follows:

one proposal: The effect of protecting stock value, if paid by B;

Classification

1. At the end of 2009

BB If the payment is made 2

Protection Effect (1-2)

State of stock

(PER 13.47 times)

OOOE

OOOE

OOOE

Shareholders’ Stock Value

(after deduction of a certificate of merit congratulatory money)

OOOE

OOOE

OOOE

Value of shares

(after deduction of a certificate of merit congratulatory money)

OOOE

OOOE

OOOE

2 Bills: Stockholders' expenses if theCC members pay them.

Classification

HaH

CC Construction

EE

FF

GG

Total

Grants

OOOE

OOOE

OOOE

OOOE

OOOE

OOOE

OOOE

Corporate Tax

OOOE

OOOE

OOOE

OOOE

OOOE

OOOE

OOOE

Total

OOOE

OOOE

OOOE

OOOE

OOOE

OOOE

OOOE

2) Meanwhile, the public offering price of BB stocks was determined by the method of the demand forecast under Article 5 of the Regulations on Securities Acquisition Business. ① On May 4, 2010, the public notice of demand forecast was made to institutional investors; ② from April 19, 2010 to May 6, 2010, the company International Investment Association (Investment Promotion Organization, and Investment Promotion Activities to facilitate attracting investments by explaining and promoting the company to investors) was engaged in the business. ③ After receiving the demand forecast from institutional investors, the company was determined to consult and determine the fixed public offering price as an OOOO on the means of Korean investment securities company, such as Korea Securities Company, III, and other securities company, and BB, the issuing company, taking into account the results of the demand forecast and the increase situation, etc.

3) The net income for the year 2010 of BB was OO, the net income for the year 201 was OOO, the net income for the year 201, and the net income for the year 2012 was OO.

Descriptions of the evidence framework adopted before the basis of recognition, Gap 23 to 28

(b) Requirements for losses under the Corporate Tax Act;

1) Article 19(1) of the Corporate Tax Act provides, “The amount of losses shall be the amount of losses incurred by transactions which reduce the net assets of the corporation, except as otherwise provided in this Act or other Acts and subordinate statutes, excluding the refund of capital or financing, disposal of surplus funds, and other transactions.” Article 19(1) of the Corporate Tax Act provides, “The losses under paragraph (2) shall be losses or expenses incurred in connection with the business of the corporation which are generally accepted or directly related to profit.”

"2) In other words, for the purpose of being recognized as losses under Article 19(2) of the Corporate Tax Act, expenses that are generally accepted as ordinary expenses (business relevance and ordinary expenses) or expenses that are directly related to profit. In this case, the meaning of ‘business relevance' or ‘in the course of business' should be interpreted as ‘business relevance' or ‘in the course of business', and its relevance should be objectively determined based on the purpose of business or the contents of business of the relevant corporation (see, e.g., Supreme Court Decision 91NuOOO, Nov. 10, 192). In addition, the "generally accepted expenses" under Article 19(2) of the Corporate Tax Act means expenses that are deemed to have been disbursed under the same situation as those of the taxpayer, and whether it constitutes such expenses should be determined objectively by comprehensively taking into account the process, purpose, type, amount, effect, etc. of the expenditure, but it can be determined as losses directly related to the relevant corporation and related assets (see, e.g., Supreme Court Decision 2009Du127, supra).

C. Determination

In light of the above-mentioned facts and all the following circumstances revealed in the argument of this case, the plaintiff's assertion that the certificate of listing congratulatory money paid by the plaintiff shall be treated as losses under Article 19 of the Corporate Tax Act, because it is difficult to view it as ordinary expenses generally acceptable or directly related to the plaintiff's profit.

1) The Plaintiff’s certificate of listing congratulatory money paid by BB orCC Construction is a debt owed to the employees of BB in the course of labor-management consultation. In general, it is difficult to deem that the repayment of another person’s debt by the corporation is ordinary expenses, or that the industry to which the person liable for tax payment belongs. In particular, the Plaintiff asserts that the Plaintiff’s certificate of listing congratulatory money is ordinary expenses for investment companies such as the Plaintiff, but it does not submit any data on other cases where a private investment company has paid money as a certificate of listing congratulatory money to its officers and employees. Rather, the Plaintiff, as well as the Plaintiff, deemed the Plaintiff to be a non-designated donation, and filed corporate tax for non-taxation after deeming the certificate of listing congratulatory money as a non-designated donation. The Plaintiff voluntarily acknowledges that the Plaintiff is not obligated to pay corporate tax to the extent that it is determined that the certificate of listing congratulatory money was not included in deductible expenses (Evidence 12).

2) Inasmuch as the listing price actually listed and determined on the market is affected by various factors, it is difficult to view that a public offering of shares is determined solely on the net income per se as the Plaintiff’s assertion. The public offering price of BB was determined by a means of demand forecast under Article 5 of the Regulations on Securities and Exchange Business, as seen earlier, and the process of such determination was conducted through a substantial consultation between the issuing company and the supervising company. In particular, BB and the supervising company determined the fixed public offering price as the KRW O in consideration of the future revenue value, asset value, and stock market situation, which are predicted through BB’s current market or electricity operating profit. As long as it is difficult to conclude that the public offering of net income of B is directly affected by the determination, it is difficult to view that the congratulatory money listed by the Plaintiff paid by the Plaintiff to maximize the net income per se before listing as the expenses directly related to the Plaintiff’s profit.

3) In addition, BB’s shares have increased as an OO on the listing date, and after one week thereafter, even if BB paid the certificate of listing congratulatory money, it is difficult to deem that the share price increase was impeded as much as the effect of payment of such expenses, and the circumstances in which BB orCC Construction decided to distribute shares to the employees of BB are already known to the investors prior to listing.

4) The effect of protecting the value of stocks according to the method of payment of the certificate of listing congratulatory money examined by the Plaintiff is based on the year 2009. Therefore, it is difficult to view that there is a direct relation with the method of calculating the share price of BB listed in the year 2010. In other words, the amendment agreement between shareholders was concluded on February 1, 2010, which became final and conclusive as of February 1, 2009 at that time, and the time when shares were to be paid to BB officers and employees at the time of listing shares, and the time when shares were to be paid to BB officers and employees at the time of listing, it is difficult to affect

5) In addition, the agreement dated March 5, 2008 agreed to pay 50 shares per employee of CC Group to pay 50 shares per employee of B, and the agreement dated August 13, 2008 entered into on September 9, 2009 that the company agreed to pay shares of B and paid cash to a person who does not want such shares, as seen earlier, the fact that CC Construction paid shares held by CC Construction to employees of B or paid shares directly to employees through capital increase procedures, as alleged by the Plaintiff, would have not completed the effect on net income.

6) Although net income is increased in cases where a certain amount of money is donated to black company or a company is repaid on behalf of the company, the amount of corporate tax is increased accordingly, barring any other special circumstance, profits that return to all shareholders due to donation, etc. cannot be less than the amount of donation, etc., and profits that return to a donor, etc. is more likely to be earned when there are other shareholders than a donor. In addition, profits that return to a donor, etc. is affected by the value of assets and continuous business. The share price is affected by the value of assets and future profit value through continuous business. Even if a gift to a company is temporarily affected by the increase of net income, it is the temporary amount of net income so increased, not considered in determining the future profit value through continuous business. Even if the Plaintiff predicted the increase of public offering price higher than the amount of subrogated payment by subrogation as a private investment fund that aims at making profits from investment, this is difficult to view it as an act that misleads the increase of net income due to subrogation to the value of profits arising from continuous business.

5. Conclusion

The plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.