Stock option shall be deemed as Class B employment income.

It is reasonable to view that the exercising profit of stock options is in a quid pro quo relationship or economic rationality with the labor provided by an employee. The exercising profit of stock options is not the market price of the stock options, but is wholly reverted to the Plaintiff at the time of exercising the

Article 20 of the Income Tax Act

Article 38 (Scope of Labor Incomes)

1. The plaintiff's appeal is dismissed.

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

The decision of the first instance shall be revoked. The defendant shall revoke the disposition of imposition of KRW 144,470,150 on June 11, 200 against the plaintiff on June 11, 200.

1. Details of the disposition;

A. The plaintiff worked as the representative director of the ○○○○○○○○○○○○○○○ (hereinafter referred to as “○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○, hereinafter referred to as “○○○○○○○○○○”) and received the difference compensation from the U.S.○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○”).

B. On April 5, 200, by exercising part of the stock options as listed in the table below, the Plaintiff acquired the profits from exercising the stock options (the profits from deducting the exercise price from the market price as of the date of the exercise, and USD 327,125 converted USD 302,784,962 from USD 302,78,962 converted into the base exchange rate).

Number of shares (number of shares)

The value of the event (US$)

Market price (US$)

Exercising profit ($$)

13,500

5.15

18.62

181,575

9,000

4.79

18.62

124,470

2,000

8.075

18.62

21,080

Total

327,125

C. The Plaintiff did not report and pay the global income tax base and tax amount on the gains from exercising the stock option of this case. However, the Defendant, on June 11, 2004, determined and notified the Plaintiff of KRW 153,057,601 as global income tax for the year 200 and decided to reduce the amount of KRW 8,587,442, which remains reduced as above in the disposition of June 11, 2004 (hereinafter “instant disposition”).

Facts that there is no dispute over Gap's evidence 1, Gap's evidence 2-1, 2, Gap's evidence 3, Gap's evidence 4-1, 2, Eul's evidence 1, 2-2, and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The plaintiff asserts that the disposition of this case is unlawful for the following reasons.

(1) ① The instant stock option was granted by the Plaintiff in a mutually beneficial or beneficial sense with respect to the Plaintiff’s service in the ○○○○○○○○○. As such, there was no legal employment relationship or business direction system based on the instant stock option between the Australia subsidiaries and the Plaintiff, and there was no other form of the Plaintiff’s provision of labor between the Plaintiff and the Australia subsidiaries. ② Article 38(1)17 of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 38(1)17 of December 302, 2002, “the provision of profits accruing from exercising the stock option granted by the corporation in a special relationship as earned income” so that it can be taxed from November 2003. The imposition of profits from exercising the stock option as earned income goes against the clarity and strictness of the principle of no taxation without the law, and thus, the Australia subsidiaries that granted the Plaintiff a stock option does not meet the requirements, ③ the Plaintiff’s right to choose stocks that did not meet the requirements of the stock option itself at the time of exercising the stock option.

(2) If the act of granting stock option itself is the cost of labor, the time when the wage and salary income is reverted pursuant to the provisions of the Income Tax Act is not the year belonging to the date when appraisal rights are exercised, but the date when such rights are granted or transferred, so the period of exclusion may not be imposed

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) Judgment on the Plaintiff’s first assertion

(A) As to the assertion that "no employment relationship exists with the company granting stock options, no labor has been provided, and no special relationship exists with the employment company."

"Earned income" in Article 20 of the Act refers to "wages paid for services provided by an employer according to an employer's command and order based on causes similar to employment contracts, such as employment contracts, delegation contracts, etc., and when such wages are received from foreigners or foreign corporations located overseas (excluding domestic branches or domestic business offices), they shall be subject to imposition of income tax as Class B earned income.

However, in order to constitute a wage and salary income, it can be said that the difference between the wage payer and the employer should be considered in the calculation of the amount of income, the application of tax rate, etc. However, Article 20 (1) 1 (a) of the Act only provides that the wage, salary, remuneration, annual wage, bonus, bonus, allowance, and other benefits of a similar nature that are received due to the provision of labor generated in the relevant year is the wage and salary income, and the wage payer is not restricted to the employer as a premise for constituting the wage and salary income. ② Under the Act, the income is classified into interest income, dividend income, real estate rental income, business income, wage, temporary property income, pension, other income, retirement income, forestry income, by classifying it according to the nature of the source, and thus, it can not be deemed that there is a difference between the nature of the income or the ability to pay it according to the person who pays the wage, and ③ Article 38 (1) 17 of the Enforcement Decree of the Act provides that the relevant corporation’s wage and salary income should be paid.

However, the circumstance that ○○○○○○○○ is not in accord with the employer, can be considered as a basis for determining whether “the salary is paid for work or for work.” However, in this case, the Plaintiff worked as the representative director of ○○○○○○○○○○○○○○○○○○○○○○, and the fact that ○○○○○○○○○○○○○○○ was granted stock option to the shares of the subsidiary, a separate subsidiary of the American parent company, in the difference compensation method, as seen earlier. In full view of the overall arguments and arguments, ○○○○○○○○○○ is a parent company holding 10% of the shares of ○○○○○○○○○○○○○○○○○, a special relationship with the head of Australia, and there is no other counter-proof. However, according to the above recognition, it cannot be deemed that there is a legal employment relationship between ○○○○○○○○○○○○○○○○, a separate relationship with the Plaintiff’s shares.

Therefore, the Plaintiff’s assertion that the instant stock option company is a head of Australia, not a U.S. parent company, and the Plaintiff does not constitute earned income because it was granted by “a company that is not in an employment relationship with the head of the U.S. parent company or that it did not provide labor.”

(B) Whether the instant stock option profit constitutes the price for labor

In order to recognize that any economic profit received by an employee has a quid pro quo relationship with the work provided by the employee, it shall not be limited to a close proportion relationship between the quality and quantity of the work provided by the employee, but it shall be sufficient to have a quid pro quo relationship based on the economic rationality or a certain correlation with the work provided by the employee.

An employee who has been granted a stock option acquires stocks by exercising the stock option, i.e., economic benefits equivalent to the difference between the market price of the relevant stocks and the exercising price of the stock option, i.e., the gain from the exercise price of the stock option. Therefore, the granting of the stock option is not determined or realistic, but can only be determined or realistic when acquiring stocks through exercising the stock option. This is an essential element inherent in the stock option system. An employee who is also an employee is expected to exercise the stock option and provide his labor to an employment company. In addition, an employee who has been granted the stock option provides his labor for a certain period as stipulated in the contract for granting the stock option until it is possible, and the transfer is prohibited, and where an employment contract is terminated, such as the termination of the stock option or the exercise period is limited. As a result, the stock option can be exercised only when the stock price increases during the exercise period, and the economic benefits equivalent to the exercise price of the stock option are granted to an employee who has made an economic sacrifice and sacrifice equivalent to the exercise price of the stock option.

In full view of the above points, it is reasonable to view that the exercising profit of stock option exists in a quid pro quo relationship or economic rationality with the labor provided by an employee, and that the occurrence of the exercising profit of stock option is uncertain aspects merely an incidental factor in determining whether the exercising profit of stock option is the labor cost, but cannot be viewed as a critical factor.

Therefore, the plaintiff's assertion on different premise is without merit.

(C) Whether it violates the principle of no taxation without law

The scope of employment income subject to income tax shall be determined under Article 20 of the Act.

In addition, although Article 38(1) of the Enforcement Decree of the Act provides that the scope of earned income under Article 20 of the Act provides that "the following income shall be included in the wage and salary income," it is only a fundamental list of wage and salary income to be included in the wage and salary income, and it cannot be viewed as the purpose of limited list of wage and salary income.

Therefore, even if the provision of Article 38(1)17 of the Enforcement Decree of the Act, which provides as one of the earned income from exercising the stock option, was newly established by Presidential Decree No. 17825 only on December 30, 202, such circumstance constitutes Class B earned income under the Income Tax Act enforced in December 2000, which is the taxable period against the Plaintiff, the Plaintiff’s benefit from exercising the stock option constitutes Class B earned income. The conclusion cannot be affected by the conclusion. The former Enforcement Decree of the Tax Reduction and Exemption Act (amended by Presidential Decree No. 5402 and Act No. 5584 of Aug. 30, 1997) includes “the former Enforcement Decree of the Tax Reduction and Exemption Control Act (amended by Act No. 5402 and Act No. 5584 of Dec. 29, 200) and the former Restriction of Special Taxation Act (amended by Act No. 6297 of Dec. 29, 200).”

Therefore, even if the above amendment was made on December 30, 2002 in accordance with the Enforcement Decree of the Act prior to the amendment, the Plaintiff is liable to pay income tax on the profits from exercising the stock option. Therefore, the Plaintiff’s above assertion contrary to this is without merit.

(D) Whether the instant stock option profit constitutes the earned income at the time of the exercise

The plaintiff asserts that "stock option should be viewed as taxable value at the time it is granted."

However, there is room to see that the stock option itself has a certain economic value as a future expectation right or a formation right.

However, in order to determine that economic benefits fall under earned income as stipulated in Article 20(1) of the Act, such economic benefits should be the economic benefits that are prescribed in the Act, i.e., increase the capacity to pay for the stock. (1) The stock option is not the right to pay for the stock itself, but the right to claim for the transfer of stocks as its own, and there is no possibility of realization because the transfer is prohibited. (2) The benefit of exercising the stock option is equivalent to the difference between the stock price at the time of exercising the stock option and the price of the exercise, and it is transferred from the granting company at the time of exercising the stock option as seen earlier, and thus, it cannot be deemed that the gain of the exercise of the stock option itself is more likely to be transferred to the granting company at the time of exercising the stock option than that at the time of exercising the stock option, and thus, it cannot be deemed that the price of the exercise of the stock option itself is merely an increase in the price of the stock option and the price of the stock option itself, and it can be deemed that it belongs to the final profit within 19 years.

Therefore, the plaintiff's assertion that the exercising profit of the stock option of this case does not constitute taxable income is without merit on different premises.

(2) Judgment on the second assertion by the Plaintiff

As above, the interest in exercising the stock option should be deemed to be attributed to the Plaintiff at the time of the Plaintiff’s exercise. As such, the fact that the Plaintiff did not file a tax base return regarding the above exercise interest as seen earlier, the exclusion period for imposing income tax is for seven years from June 1, 2001, which is the day on which the income tax can be imposed, and it is apparent that the Defendant rendered the instant disposition within the exclusion period.

Therefore, the plaintiff's second assertion that the profit from exercising the stock option of this case belongs to the time when the plaintiff was granted the stock option is without merit.

3. Conclusion

Therefore, the judgment of the first instance court is legitimate, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.

[Supreme Court Decision 2007Du1415 ( October 25, 2007)]

The appeal is dismissed.

The costs of appeal are assessed against the Plaintiff.

The grounds of appeal are examined.

1. As to ground of appeal Nos. 1 through 3

The earned income under Article 20 (1) of the Income Tax Act, regardless of the form or name of payment, shall include not only all economic benefits which are related to the provision of labor and the payment of labor, but also those which form the contents of working conditions closely related to the provision of labor on the premise of labor.

According to the reasoning of the lower judgment and the record, the Plaintiff worked for the representative director of ○○○○○ Co., Ltd. (hereinafter referred to as “○○○○○○○○”) from March 1, 1993 to May 31, 200, while holding 100% of the shares issued by ○○○○○○○, a corporation located in the United States, which is a parent company of ○○○○○○○○○○○○○○, and continued to work for ○○○○○○○○○○○○○, and the stock option is prohibited from transferring the shares, on condition that the Plaintiff should exercise its rights within 10 years, and thereafter, he was granted three times more times on July 5, 196, and thereafter, on April 5, 200, he exercised part of the shares and acquired profits equivalent to the difference between the market price and the actual purchase price at the time of the exercise (hereinafter referred to as “the benefits entitled to exercise the stock option”).

For the same reason, the exercising profit of the instant stock option is the parent company of ○○○○○○, which directly or indirectly affects the management and performance of duties of ○○○○○○○○○○○○○○○ and the Plaintiff. As such, it is reasonable to deem that there exists a quid pro quo relationship based on a certain correlation or economic rationality with the labor provided by the Plaintiff to ○○○○○○○○○○○○○○○○○○, and thus, the exercising profit of the instant stock option falls under Class B earned income as provided in Article 20(1)2(b) of the Income Tax Act, and the Plaintiff and the U.S. ○○○○○○○○○○○○○○○

The judgment of the court below to the same purport is justifiable. The court below did not err in the misapprehension of legal principles as to the legal nature and scope of the exercise of stock option interest, and no taxation without

2. As to the fourth ground for appeal

Since exercising the stock option profit is actually realized or at least possible at the time of exercising the stock option, if an employee, etc. exercises the stock option, he/she shall report the exercising profit within the reporting period of the income tax, and if he/she fails to report it, the exclusion period shall be seven years from the day following the expiration date of the reporting period under Article 26-2(1)2 of the Framework Act on National Taxes.

Based on its adopted evidence, the court below recognized that the plaintiff did not submit a tax base return by May 31, 2001, which was the expiration date of the reporting period, on the profits acquired by the plaintiff by exercising the stock option of this case on April 5, 200, and rejected the plaintiff's assertion on the ground that it is apparent from June 1, 2001, the exclusion period of imposition, the defendant's disposition of this case was rendered within 7 years from June 1, 2001, is just in light of the above legal principles. The court below did not err in the misapprehension of legal principles as to the exclusion period of imposition, as

3. Conclusion

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

Relevant statutes

/ Income Tax Act

Article 20 (Earned Income) (1) Earned income shall be the following incomes earned in the corresponding year:

1. Class A:

(a) Salary, salary, remuneration, remuneration, annual allowance, wage, bonus, allowance, and other benefits of a similar nature, which are received due to the provision of labor;

2. Class B:

(b) Pay received from a foreigner or foreign corporation located abroad (excluding a domestic branch or foreign corporation); and

【The Income Tax Act

Article 38 (Scope of Earned Incomes) (1) The scope of the employment incomes as prescribed in Article 20 of the Act shall include the following incomes:

17. Profits (referring to the difference between the market price and the actual purchase price at the time of exercising the stock option, and the stock includes the preemptive right) (Newly Inserted by Presidential Decree No. 17825, Dec. 30, 2002; Presidential Decree No. 17825, Dec. 30, 2002; Presidential Decree No. 17825, Dec. 30, 2002>

Addenda (Presidential Decree No. 17825 delivered on December 30, 2002)

Article 1 (Enforcement Date) This Decree shall enter into force on January 1, 2003: Provided, That the amended provisions of Articles 38(1), 62(2)2, 63, 64 (excluding subparagraph 5 of paragraph (1)), 143(3)1, 146-2, and 208-2(4) shall enter into force on the date of its promulgation.

Article 5 (Application to Scope of Earned Income) The amended provisions of Article 38 (1) shall apply to the portion of income generated in the taxable period to which the date of promulgation belongs.

【National Tax Basic Act

Article 26-2 (Period for Excluding Assessment of National Taxes) (1) National taxes may not be levied after the expiration of the period as provided in the following subparagraphs:

2. If the taxpayer fails to file a written tax base return within the legal return term, for seven years from the day on which the national tax is assessable;

3. If it does not fall under subparagraphs 1 and 2 above, for five years from the day on which the national tax is assessable; and