Seoul High Court-2017-Nu-38685 (2018.07)

Cho Jae-2013-west-2718 (2015.09)

The goodwill appropriated by the merged corporation shall be limited to the payment for the value of business.

The business rights appropriated by the merged corporation shall be deemed depreciable assets only where the merged corporation evaluates and succeeds to the evaluation of the assets of the merged corporation and pays compensation due to the trade name, etc. of the extinguished corporation

Article 17(1) of the Corporate Tax Act

Articles 15(2) and 12(1) of the Enforcement Decree of the Corporate Tax Act

All appeals are dismissed.

Costs of appeal shall be borne by 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 the Defendant’s ground of appeal

A. The former Corporate Tax Act (amended by Act No. 9267, Dec. 26, 2008; hereinafter the same shall apply) imposes tax [Article 17(1)3 proviso; Articles 15(2) and 12(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22184, Jun. 8, 2010; hereinafter the same)] on the portion exceeding the book value of the extinguished corporation in the value of the assets appraised and succeeded from the extinguished corporation [Article 17(1)3 proviso; Articles 15(2) and 12(1)1 of the former Corporate Tax Act (amended by Presidential Decree No. 22184, Jun. 8, 2010; hereinafter the same shall apply]. In the case of a merger, the business right appropriated by the merged corporation shall be depreciable assets only where the merged corporation evaluated the assets of the extinguished corporation and received compensation for business

B. According to the relevant Acts and subordinate statutes, in order to impose the value of business rights as a merger evaluation marginal profit in the case of a merger of corporations, the merged corporation is deemed to have paid compensation by evaluating its business value by recognizing the trade name, etc. of the merged corporation as an intangible asset value that can obtain excess profits from the merged corporation. In this context, the evaluation of business value shall be objectively determined by comprehensively taking into account various circumstances, such as the details and motive of the merger, the current business status of the merged corporation and the merged corporation at the time of the merger, and the details of tax return after the merger, etc., and it shall not be inferred solely on the basis that the business right is calculated in accordance with the corporate accounting standards (see Supreme Court Decision 2015Du4

C. citing the reasoning of the judgment of the court of first instance, the court below recognized the fact that AA travel presses (hereinafter referred to as “AA”) were merged (hereinafter referred to as “instant merger”) with a non-listed corporation (hereinafter referred to as “BB benefit presses”) as an unlisted corporation, based on the facts stated in its reasoning. On the following grounds, on the premise that the instant business rights included in the account book by AA in relation to the instant merger among the instant disposition are business rights under the laws and regulations of the corporation, the portion which confirmed the said business rights as depreciable assets after including the amount equivalent to the above business rights as profits under the premise that they are business rights under the laws and regulations of the corporation.

(1) The amount appropriated by A as a goodwill in an account book is only deemed to be in accordance with the relevant corporate accounting standards, and it is difficult to deem that BBS framework, a merged corporation, as an intangible asset value with excessive profits, and that it is difficult to deem that BBS framework, trade secrets, and other business secrets, etc. are recognized as an intangible asset value and paid the consideration by evaluating business value. As such, in the case of a corporate merger of corporations, it cannot be deemed that the requirements for recognition of business goodwill are satisfied. Therefore, it is not allowed to impose tax on the accounting

(2) Generally, in a lawsuit seeking revocation of a tax imposition disposition, the tax authority bears the burden of proving the tax requirement. In the instant case where the merged corporation does not have the business right appropriated as the asset subject to depreciation, the merged corporation cannot be held to have satisfied the taxation requirement solely on the basis of the fact that the merged value exceeds the net asset value of the merged corporation.

D. Examining the aforementioned legal principles and records, the lower court did not err in its judgment by misapprehending the legal doctrine on goodwill under tax law, contrary to what is alleged in the grounds of appeal.

2. Plaintiff’s ground of appeal

Article 45 (1) of the former Corporate Tax Act provides that "If the merged corporation succeeds to the assets of the merged corporation at the book value as of the date of the merger registration, the loss carried forward of the merged corporation as of the date of the merger registration shall be deemed the loss of the merged corporation and shall be deducted when calculating the tax base of the merged corporation for each business year

The lower court, citing the reasoning of the judgment of the first instance, recognized the facts as indicated in its holding, and determined that the BB interest presses could not be deducted when calculating the tax base for the business year of 2007 and 2008 on the ground that the BB interest presses could not be deemed to have succeeded to the assets of the BB interest presses, an extinguished corporation.

Examining the record in light of the aforementioned provisions and relevant legal principles, the lower court did not err by misapprehending the legal doctrine regarding the requirements for deduction of losses carried forward, as otherwise alleged in the grounds of appeal

3. Conclusion

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