The case holding that the object exempted from the acquisition tax and registration tax when transferring into the corporation by contribution in kind cannot be limited to the fixed assets for business.

Under the principle of no taxation without law, the interpretation of tax-related Acts must be strict, and it is not allowed to reduce or interpret the provisions that benefit taxpayers unless there is a reasonable ground, and even if such provisions seem to have been merely due to the absence of legislation, they cannot impose a burden on taxpayers. In full view of the contents of Article 119(1)4, Article 120(1)3, and Article 32 of the Restriction of Special Taxation Act and the related provisions, the legislative process, legislative intent, etc., the object of the tax and registration tax exemption when a company is converted into a corporation by an investment in kind shall not be limited to all the business property and fixed assets for business as prescribed by the law.

[1] Articles 32, 119(1)4, and 120(1)3 of the former Restriction of Special Taxation Act (amended by Act No. 6762 of Dec. 11, 2002)

A Co., Ltd. (Law Firm White, Attorney Gyeong-soo et al., Counsel for defendant-appellant)

Pakistan Market (Attorney Professional Young-young et al., Counsel for the plaintiff-appellant)

1. The imposition of acquisition tax of 167,926,640 won, registration tax of 251,889,960 won, education tax of 50,377,90 won, special rural development tax of 16,792,660 won, and the imposition of acquisition tax of 486,987,250 won, and the imposition of acquisition tax of 513,957,990 won, special rural development tax of 47,112,810 won against the plaintiff on December 9, 200, and the imposition of 561,070,80 won shall be revoked, respectively.

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

The same shall apply to the order.

1. Details of the disposition;

[Reasons for Recognition] Evidence No. 1-2, Evidence No. 2-9, Evidence No. 1-8, Evidence No. 1-8, whole purport of oral argument

(a) Nonparty C and D, who operated B as an individual business, was a corporation at the time of May 19, 199, converted the above individual business into a corporation by investing in kind an amount equivalent to KRW 31,341,786,90 in total the sum of the 12,876.52 square meters of the E-owned housing unsold in lots (hereinafter referred to as “the instant real estate”) and the 101 piece of land for landscaping construction (hereinafter referred to as “the instant item”) on land located in Gyeyang-gu, Seoyang-gu, Seoyang-gu, Yangyang-gu, and KRW 101.

B. On May 31, 1999, the plaintiff called "investment in kind of business property following the conversion of a private company into a corporation," and applied for exemption of acquisition tax of 167,926,640 won, registration tax of 251,889,960 won, education tax of 50,377,990 won, special rural development tax of 16,92,660 won, and special rural development tax of 486,987,250 won pursuant to the provisions of Articles 119 (1) 4 and 120 (1) 3 (hereinafter "the Act of this case") of the Restriction of Special Taxation Act. On the other hand, with respect to the trees of this case, the plaintiff did not apply for exemption of acquisition tax under the provisions of Articles 119 (1) 4 and 120 (1) 3 (hereinafter "the Act of this case").

C. On December 9, 200, the Plaintiff issued a disposition to again impose and notify 486,987,250 won in total, including acquisition tax, registration tax, etc., which was exempted on the ground that the Plaintiff’s initial application for exemption was accepted, and the Plaintiff’s investment in kind was also subject to acquisition tax, etc., and the Plaintiff’s investment in kind was also subject to imposition of 21,414,916,750 won in the region under its jurisdiction, including acquisition tax, registration tax, etc. (hereinafter “acquisition tax”). In addition, on January 15, 2001, on the ground that the Plaintiff’s investment in kind was also subject to acquisition tax, etc., and the Plaintiff’s investment in kind was also subject to imposition of 513,957,90 won in total, special rural development tax, 47,12,810 won in total, 5610 won in total, 700 won in each of the above cases (hereinafter “acquisition tax”).

2. Whether the instant disposition is lawful

A. The legal provisions of this case and relevant statutes

[The Restriction of Special Taxation Act (hereinafter referred to as the "Act")]

Article 119 (Exemption, etc. from Registration Tax) (1) Registration falling under any of the following subparagraphs shall be exempted from registration tax:

4. Registration of the business properties acquired through investment in kind under Article 32;

Article 120 (Exemption, etc. from Acquisition Tax) (1) Acquisition tax on the acquisition of property falling under any of the following subparagraphs shall be exempted:

3. Properties for business acquired following an investment in kind under Article 32;

Article 32 (Carryover Taxation of Transfer Income Tax for Conversion into Corporation) (1) Where a resident engaged in a manufacturing business, mining, construction business, or other business prescribed by the Presidential Decree (hereafter referred to as "manufacturing business, etc." in this Article) is converted into a corporation engaged in the manufacturing business, etc. by investing in kind fixed assets for business or by taking over the business prescribed by the Presidential Decree, the said fixed

(2) The provisions of paragraph (1) shall apply only where the capital of a corporation to be newly established is above the amount prescribed by the Presidential Decree.

(3) A resident who intends to be subjected to paragraph (1) shall apply for the carryover taxation under the conditions as prescribed by the Presidential Decree.

(4) The provisions of Article 31 (4) through (6) shall apply mutatis mutandis to a corporation to be established under paragraph (1).

B. The parties' assertion and the issues of this case

The real estate of this case and the trees of this case constitute inventory assets for business purposes are not disputed between the parties. In full view of the provisions of this case and Article 32 of the cited Act, the defendants asserted that the acquisition tax and registration tax are not exempted for the real estate of this case as inventory assets for business purposes and the item of this case's item of this case's item of investment in kind.

On the other hand, the plaintiff argues that the disposition of this case, based on the premise that the inventory assets for business are not subject to exemption from acquisition tax and registration tax, is illegal, considering the following: (a) the object of taxation of acquisition tax and registration tax is not limited to the original fixed assets for business; and (b) the object of taxation of acquisition tax and registration tax differs from the original fixed assets for business; and (c) the object of taxation of acquisition tax and registration tax are not limited to the original fixed assets for business; and (d) the object of taxation of transfer income tax and registration tax are not limited to the original fixed assets for business.

Therefore, the issue of this case is whether the object of this case's legal provision is limited to the fixed assets for business subject to exemption from acquisition tax and registration tax when transferring the individual company into a corporation by investment in kind, or whether this case's real estate and inventory assets for business such as the trees of this case are included.

(c) Markets:

(1) The legal provisions of this case and Article 32 of the Act cited here stipulate the carried-over taxation of transfer income tax, acquisition tax, and registration tax exemption in the event of the conversion of an individual company into a corporation by investment in kind. In the event that a certain person operates a business in the form of an individual company and is converted into a corporate business, the same business owner is changing only the business operation form, and thus, the individual's business owner's investment has become owned as an investment asset as a result of the change in the form of a corporation. However, as the owner's investment is converted into an individual company, there is a problem of taxation of transfer income tax, acquisition tax, registration tax, etc., since the owner's investment is converted into a corporation. Thus, the provisions are established to facilitate the conversion into an individual company by reducing these tax burdens, thereby promoting the rational improvement of the quality of the company and promoting the

(2)On the other hand, examining the changes in the legal provisions of this case and in Article 32 of the Act, the following matters are examined (on the other hand, the provisions concerning the property subject to tax reduction and exemption at the time of conversion into a corporation by investment in kind, which is the issue

(a)The first provision was made in the former Tax Reduction and Exemption Control Act, amended by Act No. 3481 of Dec. 31, 1981, with respect to the reduction and exemption of capital gains tax, acquisition tax, registration tax, etc. at the time of the conversion of an individual entrepreneur into a corporation by investment in kind, and Article 45 of the former Tax Reduction and Exemption Control Act, before the amendment by Act No. 4666 of Dec. 31, 1993, provides for the exemption of capital gains tax on the income accruing from the investment in kind of the assets if the resident engaged in the manufacturing business, etc. is converted into a corporation by investing in kind the "business assets as prescribed by the Presidential Decree", and Article 84 (1) 4 and Article 85 (1) 3 of the same Act provide for the "property acquired by investment in kind under Article 45 of the former Tax Reduction and Exemption Control Act, and the "property acquired by investment in kind under Article 45 of the Enforcement Decree of the same Act" and the "property acquired by investment in kind 130 or more than 194.138.

(B)However, Article 32 of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5584 of Dec. 28, 1998) amended by Act No. 4666 of Dec. 31, 1993 (amended by Act No. 5584 of Dec. 28, 1998) provides that where a resident engaged in a manufacturing business, etc. is converted into a corporation engaged in a manufacturing business by investing in kind the fixed assets for the business, the fixed assets for the business shall be exempted from the transfer income tax or the special exception of the transfer value (after that, the above provision on the carried-over taxation system of the transfer income tax as of Dec. 13, 1997 was introduced at the time of partial amendment of the Regulation of Tax Reduction and Exemption Act). On the other hand, Article 32 of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5584 of Dec. 28, 198) provides that the acquisition tax and the registration tax shall be exempted.

(c)After that, as the above Regulation of Tax Reduction and Exemption Act was amended by Act No. 5584 on December 28, 1998, it was defined as the provision of this case and Article 32 of the Act. Article 32 of the Act, which provides for carrying forward taxation of capital gains tax, provides that the object is "fixed assets for business like previous ones", and Article 32 of the Act, which provides for exemption from acquisition tax and registration tax, provides that "property for business acquired by investment in kind in accordance with the provisions of Article 32 of the Act, and the registration thereof shall be exempted from acquisition tax and registration tax."

(iii)In light of the above legislative intent and progress, the issue of whether to recognize special taxation within the scope of one of the individuals' corporate conversion is merely the issue of legislative policies to be determined by the legislative purpose of encouraging the conversion of individuals' corporate conversion, and it is not logically and inevitably determined by the nature of assets such as fixed assets for business or inventory assets for business, or by the method of conversion into corporations, or by the object of taxation of capital gains tax, acquisition tax, registration tax, etc.

Therefore, the scope of business property exempted from acquisition tax and registration tax when transferring a private company by investment in kind to a private company should be reasonably interpreted by considering the legislative progress and purpose of the above legislation, focusing on the contents of the law and the system of the provisions. Under the principle of no taxation without law, the interpretation of the tax law should be strict, and there is no reasonable ground to interpret the provisions that benefit taxpayers should be reduced or exempted, and even if such provisions seem to be due to the mere lack of legislation, it should be taken into account in the interpretation.

(4)In this regard, first of all, it is clear that the legal provisions of this case and Article 32 of the Act stipulate the carryover taxation of the transfer income tax at the time of the conversion into a corporation by investment in kind, it is the "fixed assets for the business", but in this case, it is clear that the acquisition tax and registration tax exemption are stipulated as the acquisition of the "business property" and its registration in this case, provided that it is only the provision of Article 32 of the Act concerning the investment in kind, which is the basis for the acquisition of the business property.

Therefore, in the above provision on exemption of acquisition tax and registration tax, it is reasonable to interpret that the object of investment in kind is "property for business" which is specified as the object of exemption of acquisition tax and registration tax within the same provision, and it cannot be interpreted that the object of investment in kind is limited to "fixed property for business" like Article 32 of the Act which limits the object of taxation carried forward of transfer income tax itself to "fixed property for business". Therefore, in the above provision on exemption of acquisition tax and registration tax, the "investment in kind pursuant to Article 32" means an investment in kind by a resident who engages in the manufacturing business, etc. to convert into a corporation (Article 32 (1)), and the capital of the newly established corporation is above the amount as determined by the Presidential Decree (Article

(5)This case's legal provisions and adjacent articles related to article 32 of this case's law are supported by the following articles' systems or examples:

(A) According to Article 31(1) of the Act, the term "fixed business assets" means only the fixed business assets prescribed by the Presidential Decree, and Article 28(1) of the Enforcement Decree of the Act stipulates the tangible or intangible assets (excluding certain assets prescribed by the above Enforcement Decree) used directly for the pertinent business as the fixed business assets, while there is no special definition provision regarding "business property", "business property" means all the assets used for the pertinent business including fixed business assets. However, according to the provisions of each subparagraph of Article 119(1) of the Act stipulating registration exempted from the registration tax and each subparagraph of Article 120(1) stipulating the acquisition of the assets exempted from the acquisition tax, it is directly defined as "business property" or "property exempted from the registration tax," and Article 28(1) of the Enforcement Decree of the Act stipulating that "the fixed business assets shall be acquired from the business or acquisition of the assets, merger between small or medium enterprises, consolidation between the small and medium enterprises, change in the organization, etc., and Article 120(1) of the Act can be applied to "the fixed business assets subject to the taxation."

(B) According to Article 32 of the Act, the method of applying the carried-over taxation of capital gains tax to an individual entrepreneur is the method of investment in kind and the method of transferring business as determined by the Presidential Decree. However, according to Article 29 (2) of the Enforcement Decree of the Act which provides the method of transferring business, the person subject to the said restriction is not limited to fixed assets for business (this restriction cannot be compatible with the concept of the transfer of business itself). Nevertheless, in Article 32 of the Act, the object subject to the carried-over taxation of capital gains tax is limited only to the "fixed assets for business" regardless of the method of investment in kind and the method of transfer, while the object subject to the carried-over taxation of capital gains tax is limited to the "fixed assets for business" regardless of the method of acquisition in kind and the method of transfer, the acquisition tax and the registration tax exemption is not limited to the "fixed assets for business acquired by the transfer of business under Article 32" and the interpretation of Article 119 (4) and Article 120 (5) of the Act which provide for the exemption of capital gains tax.

(C) According to Article 32(2) of the Act, the carried-over taxation of capital gains tax on the conversion into a corporation shall apply only to cases where the capital of the newly established corporation is more than the amount determined by the Presidential Decree regardless of the cases of investment in kind and the cases of transfer and takeover of business. Article 29(4) of the Enforcement Decree of the Act stipulating the scope of capital does not limit the object of investment in kind to the "net asset value of the business place converted into a corporation by investing in kind or transfer and takeover of business." Thus, Article 32(1) of the Act stipulating the object of investment in kind as fixed assets for business is merely limited to the object itself subject to the carried-over taxation of capital gains tax, and it does not mean that the investment in kind itself only plans the investment in kind of fixed assets for the first time of business.

(6)On the other hand, in light of the legislative intent and progress as mentioned above, the "property for business" under the legal provisions of this case does not have any ground to reduce the legal provisions to the "fixed property for business" which is disadvantageous to taxpayers.

First of all, in the legislative purport, the necessity to reduce the tax burden of the assets acquired by the corporation in order to encourage the conversion of a corporation into a corporation by investment in kind is the same as that of the business property subject to investment in kind, and in particular, the investment in kind of the fixed assets for business is more necessary than the investment in kind of other business property (the defendant asserts that the fixed assets for business is used directly for the relevant business without the initial sales purpose, so long as the fixed assets for business are used directly for the relevant business without the initial sales purpose, the need to be exempted from the acquisition tax, etc. However, since the conversion of the individual business is merely a change only in the operational form of the business, the necessity of the acquisition tax is less required and further, it is not reasonable ground to be treated differently from the current assets due to its nature as the fixed assets for business).

Furthermore, even if the Regulation of Tax Reduction and Exemption Act was amended by Act No. 4666 of Dec. 31, 1993 and changed from the ‘business assets used for more than one year' to the ‘fixed assets for business', the acquisition tax and registration tax exemption has been maintained as it is, and the same applies when it was revised by Act No. 5584 of Dec. 28, 1998. If it was intended to limit it to the ‘fixed assets for business' such as acquisition tax and registration tax exemption to the ‘fixed assets for business' such as capital gains tax and registration tax exemption to the ‘fixed assets for business', the ‘property for business' should have been changed to the ‘fixed assets for business', and even if it was merely merely legislative expenses, so long as the taxpayer cannot be charged with the burden, the ‘property for business' in the above regulation can not be interpreted as ‘fixed assets for business'.

(7) In full view of the above provisions of the law of this case and the provisions of the adjacent articles, the legislative process, legislative intent, etc., the subject of exemption from acquisition tax and registration tax when transferring an individual company into a corporation by investment in kind cannot be deemed to be limited to all property for business and fixed property for business in accordance with the provisions of the law. Thus, the disposition of this case based on the premise that the business inventory assets such as the real estate of this case and the trees of this case do not belong to the subject of exemption from acquisition tax and registration tax are unlawful, and the plaintiff's assertion pointing this out is

3. Conclusion

Therefore, the plaintiff's claim of this case seeking the cancellation of the disposition of this case is justified and it is so decided as per Disposition.

Judges Mag-Jon (Presiding Judge)