[1] The meaning of "business transferee" who is subject to secondary tax liability under Article 24 of the Local Tax Act

[2] The meaning of "amount paid or payable by the transferee" under Article 7 subparagraph 1 of the Enforcement Decree of the Local Tax Act

[3] The method of determining the scope of the secondary tax liability of the transferee where the transferee comprehensively succeeds to the transferor's business through the procedure of voluntary auction and the separate transfer contract

[1] "A transferee of a business" who is subject to secondary tax liability pursuant to Article 24 of the Local Tax Act refers to a person who is comprehensively transferred an enterprise as an independent business unit by legal act with a transferor. In such a case, the comprehensive transfer of an enterprise refers to not only a business facility but also a person who succeeds to the previous legal status of the transferor by taking over all human and material rights and obligations, such as business rights and claims and obligations pertaining to the business.

[2] The term "amount paid or payable by the transferee" under Article 7 subparagraph 1 of the Enforcement Decree of the Local Tax Act refers to the amount paid or payable by the transferee as the price for active property among the acquired assets, not to the amount paid or payable by the transferee, but to the amount paid or payable as the price for business transfer by evaluating the economic value of the business, including all human resources, such as business facilities, goodwill, bonds, debts, etc., and material rights

[3] In a case where the transferee acquires part of the business assets through a voluntary auction procedure with the intention to comprehensively transfer or acquire the business, and the transferor comprehensively succeeds to the transferor's business by acquiring all the rights and obligations related to the remaining business assets and its business through a separate transfer contract with the transferor, there is a lack of comprehensive evaluation of the economic value of the business. Thus, barring any special circumstance, the auction price or each transfer price stipulated in the contract for the transfer of the remaining business assets cannot be deemed as the "amount paid or to be paid by the transferee" under Article 7 subparagraph 1 of the Enforcement Decree of the Local Tax Act. Thus, in such a case, the value of the acquired property shall be calculated pursuant to Article 7 subparagraph 2 of the Enforcement Decree of the Local Tax Act, barring any special circumstance.

[1] Article 24 of the Local Tax Act / [2] Article 7 subparagraph 1 of the Enforcement Decree of the Local Tax Act / [3] Article 24 (1) and (3) of the Local Tax Act, Article 7 subparagraph 1 and 2 of the Enforcement Decree of the Local Tax Act

[1] Supreme Court Decision 2000Du4095 decided Jun. 14, 2002 (Gong2002Ha, 1696)

Plaintiff Co., Ltd. (Attorney Lee Dong-dong et al., Counsel for the plaintiff-appellant)

[Defendant-Appellee] The Head of Simsan-do (Law Firm Han field, Attorneys Kang Byung-jin et al., Counsel for defendant-appellee)

Daejeon High Court Decision 2004Nu1757 decided Dec. 8, 2005

The judgment of the court below is reversed, and the case is remanded to Daejeon High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplement submitted after the expiration of the period).

1. On the first ground for appeal

In accordance with the provisions of Article 24 of the Local Tax Act, “the transferee of a business” refers to the person who has received a comprehensive transfer of an enterprise as an independent business unit by legal acts with the transferor, and at this time, the “comprehensive transfer” refers to the transferee’s succession to the previous legal status by taking over not only business facilities but also all personal and material rights and obligations, such as goodwill and bonds, debts, etc. pertaining to the business. Therefore, even if the transferee acquired a part of the business property through a voluntary auction, even if the transferee acquired it through a successful bid, it may be deemed as the comprehensive succession of the business in cases where the transferor succeeds to the previous legal status of the transferor as it is, as a whole, by acquiring the remaining assets for business and goodwill, and all rights and obligations related to the business as a whole, under the agreement that the transferor should comprehensively take

In the same purport, the court below's decision that the plaintiff is the business transferee liable for the secondary tax liability under Article 24 of the Local Tax Act is acceptable, and there is no error of law such as misunderstanding of legal principles as to the business transferee.

2. On the second ground for appeal

Article 24 (1) of the Local Tax Act provides that "if the impositions levied by a local government on the business for which the transferor's tax liability becomes final and conclusive prior to the date of transfer in cases of transfer or acquisition of a business, is insufficient to cover the shortage with the transferor's property, the transferee shall be subject to secondary tax liability to the extent of the value of the property acquired by transfer, and Article 24 (3) of the Local Tax Act provides that "the value of the property acquired by transfer under the provisions of paragraph (1) shall be determined by the Presidential Decree," and Article 7 of the Enforcement Decree of the Local Tax Act provides that "the value of the property acquired by transfer shall be determined by the Presidential Decree, if there is any amount paid or to be paid by the transferee," and subparagraph 2 provides that "if there is no value under the provisions of subparagraph 1 or is remarkably lower than the market price, the value of the acquired property and liabilities shall be evaluated by applying mutatis mutandis the provisions of Articles 60 through 6

In light of the language and purport of the above provision and, in particular, Article 7 subparagraph 2 of the Enforcement Decree of the Local Tax Act provides for the value of assets acquired by transfer, which is the value of assets acquired by transfer, which is the amount paid or to be paid by a transferee as consideration for active property among assets acquired by transfer, rather than the amount paid or to be paid by a transferee as consideration for business facilities, goodwill, bonds, debts, etc., and the economic value of the business, including all human rights and obligations, should be evaluated as a whole between a transferee and a transferor, and paid or to be paid as consideration for a transfer of business. However, if a transferee acquired part of the business assets with the intent of a transferee to comprehensively transfer or acquire through a voluntary auction procedure and acquired part of the business assets through a separate transfer contract with a transferor, it is difficult to assess the economic value of the business, and thus, it cannot be said that the amount paid or to be paid by a transferee under Article 7 subparagraph 1 of the Enforcement Decree of the Local Tax Act, unless there are special circumstances.

Nevertheless, in determining the scope of secondary tax liability to be borne by a business transferee, the court below held that the above auction price or transfer price falls under the “amount paid or to be paid by a business transferee” under Article 7 subparag. 1 of the Enforcement Decree of the Local Tax Act, and further held that the disposition of this case is lawful on the premise that the total amount of the auction, public auction, and transfer price is “the value of the acquired property” under the premise that it refers only to the value of the active property acquired by transfer. In so doing, the court below erred by interpreting and applying Article 24 of the Local Tax Act and Article 7 of the Enforcement Decree of the Local Tax Act, and the grounds for appeal

3. Conclusion

Therefore, without examining the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Cha Han-sung (Presiding Justice)