[1] Where a corporate shareholder acquires new stocks issued by another corporate entity as a specially related person at a price higher than the market price, whether the corporate shareholder can make a wrongful calculation by applying Article 88(1)1 of the former Enforcement Decree of the Corporate Tax Act or Article 88(1)9 of the former Enforcement Decree of the Corporate Tax Act to the case where the corporate shareholder purchases assets at a price higher than the market price (negative)

[2] In a case where a tax investigation was conducted on a specific item in a specific taxable period of a certain tax item, whether conducting a tax investigation again for the same taxable period of the said item constitutes a reinvestigation prohibited under Article 81-3(2) of the former Framework Act on National Taxes (affirmative), and whether the same applies to cases where the content of a tax investigation overlap by conducting a tax investigation again only for other items except for the specific items originally conducted (affirmative) / Cases where conducting a tax investigation again for other items except for those initially conducted a tax investigation does not constitute a reinvestigation

[1] Article 52(1) and (4) of the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 2010); Article 88(1)1 and 9 of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 19328, Feb. 9, 2006) / [2] Article 81-3(2) (see current Article 81-4(2)) of the former Framework Act on National Taxes (Amended by Act No. 8139, Dec. 30, 2006)

[1] Supreme Court Decision 2012Du23488 Decided June 26, 2014 (Gong2014Ha, 1495) / [2] Supreme Court Decision 2014Du12062 Decided February 26, 2015 (Gong2015Sang, 557)

Hyundai Heavy Industries Co., Ltd. (Attorneys Lee Jae-red et al., Counsel for the plaintiff-appellant)

The Head of Dongsan District Office (Law Firm, Kim & Lee LLC, Attorneys Cho Il-young et al., Counsel for the defendant-appellant)

Busan High Court Decision 2011Nu693 decided February 15, 2013

The part of the judgment below against the plaintiff is reversed, and that part of the case is remanded to Busan High Court. The defendant's appeal is dismissed.

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. Article 52(1) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter the same) provides that “Where a domestic corporation’s tax burden on its income is deemed to have been unjustly reduced due to transactions with a person with a special relationship, the tax authority may calculate the amount of income for each business year of the corporation, regardless of the act or calculation of the amount of income of the corporation (hereinafter “Calculation”),” and Article 88(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19328, Feb. 9, 2006; hereinafter the same) upon delegation of Article 8(4) of the same Act provides that “where the domestic corporation purchases assets at a price higher than the market price” under subparagraph 1 of Article 52(1)9 of the same Act provides that “other acts or calculations corresponding to subparagraphs 1 through 8 and distribution of profits of the corporation is recognized.”

B. In full view of the contents of the provisions of such statutes and the contents and purport of Articles 15, 17, 19, and 20 of the former Corporate Tax Act that provide that the increase or decrease in net assets due to capital transactions shall not be included in gross income or deductible expenses, even if a corporate shareholder acquired new stocks at a price higher than the market price of the new stocks issued by another corporate entity, which is a specially related person, the corporate shareholder shall not be deemed to fall under “the purchase of assets at a price higher than the market price” or “cases equivalent thereto” and shall not be deemed to fall under “where assets are purchased at a price higher than the market price” (see, e.g., Supreme Court Decision 2012Du23488, Jun. 26, 2014).

Therefore, the Plaintiff’s acquisition of each new shares at a price higher than the market price of the new shares in this case from Hyundai Space Aviation Co., Ltd. (hereinafter “Mos Space Aviation”) does not constitute the subject of the avoidance of wrongful calculation under Article 88(1)1 of the former Enforcement Decree of the Corporate Tax Act or similar acts.

The judgment below to the same purport is just, and contrary to the allegations in the grounds of appeal, the court below did not err by misapprehending the legal principles on the object of wrongful calculation avoidance.

In addition, on the premise that the Plaintiff’s acquisition of each new shares of this case constitutes subject to the avoidance of wrongful calculation under Article 88(1)1 of the former Enforcement Decree of the Corporate Tax Act or acts corresponding thereto, the Plaintiff’s acquisition of the new shares of this case shall be included in the gross income of the Plaintiff in excess of the market price to acquire each new shares of this case, and the Plaintiff’s calculation of the Plaintiff’s income shall not be accepted

C. In full view of the adopted evidence, the lower court determined that the market price per share of each of the instant new shares was KRW 0,000 immediately after the first capital increase, and KRW 24,00 immediately after the second capital increase.

Examining the relevant provisions, legal principles, and records, the lower court’s determination is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the computation of the market price in the wrongful calculation panel

2. Plaintiff’s ground of appeal

A. Comprehensively taking account of the evidence adopted by the lower court: (i) the financial status of Hyundai Space 1 around 1997; (ii) around 1998, it was scheduled to consolidate Samsung Group, Treatment Group, and Hyundai Group’s aviation sectors in the process of industrial structure adjustment; and (iii) the Nonparty, who was an shareholder and executive of Hyundai Space 2,107 billion won for Hyundai Space 1 around July 1999; and (iv) the Nonparty, upon offering new stocks, ordered 90 billion won to take measures to repay the entire debt of Hyundai Space 1 to the same level as the assets and liabilities of Hyundai Space 100 billion won; and (v) the Nonparty, upon offering new stocks and liabilities of the said 190 billion won, participated in the 205 billion won total of the outstanding stocks and liabilities of the said Hyundai Space 190 billion won, and (v) during the 2005 billion won total of the outstanding stocks and liabilities of the said Hyundai Space 100 billion won, including the Plaintiff, to have been apportioned 1500 billion won.

Then, the court below determined to the effect that the Plaintiff’s participation in each of the new shares issued by Hyundai Space Aviation, a person with a special relationship, accepted each of the new shares issued by the Plaintiff at a price higher than the market price, and that the Nonparty, a person with a special relationship, exempted the obligee from the guaranteed obligation to the creditors of Hyundai Space Aviation by having the Plaintiff repay the obligee’s debt due to new shares acquired by the Plaintiff, etc., constitutes a series of acts in which the Nonparty, a person with a special relationship, apportioned the obligee’s guaranteed obligation to the obligee of Hyundai Space Aviation, and constitutes the subject of the

In light of the relevant provisions, legal principles, and records, although the judgment of the court below is somewhat insufficient, its conclusion is justifiable. Contrary to the allegations in the grounds of appeal, the court below did not err by misapprehending the legal principles on the subject of wrongful calculation avoidance under Article 88(1)9 of the former Enforcement Decree of the Corporate Tax Act, which affected the conclusion

B. Meanwhile, the lower court calculated the Plaintiff’s profit-sharing amount as KRW 74,571,707,224 solely on the premise that Hyundai Space Aviation’s acquisition price for new stocks issued with capital increase in the instant case was resolved solely by the Nonparty’s guaranteed liability.

However, according to the evidence duly admitted by the court below, Hyundai Space Aviation has been able to know the fact that it has held sales proceeds exceeding KRW 13.2 billion on October 1, 199 and at least KRW 109.33 billion on February 16, 200 after it acquired 33.33% shares by investing it in kind in the Korea Aerospace Industry Co., Ltd., and transferred it to approximately KRW 96.4 billion on February 16, 200, and established the Korea DDR on December 28, 199 after dividing it into the commercial and mid-term changeing technology sector, and transferred its shares to approximately KRW 1.3.2 billion on February 1, 200, and the satellite business sector on April 6, 200. The court below should have further deliberated on whether such sales proceeds, etc. were used as financial resources to resolve the Nonparty’s guaranteed debt together with the purchase price of new shares.

Nevertheless, without examining the above, the lower court erred by misapprehending the legal doctrine on the calculation of distribution profit in the calculation of the calculation of the profit by wrongful calculation, thereby failing to exhaust all necessary deliberations. The allegation contained in the grounds of appeal on this point is with merit.

C. Article 81-3(2) of the former Framework Act on National Taxes (amended by Act No. 8139, Dec. 30, 2006; hereinafter the same) provides that “Where there is clear evidence to prove a suspicion of tax evasion, where it is necessary to investigate the other party to the transaction, where there is errors related to the other party to the transaction for more than two business years, or where there are other similar cases as prescribed by the Presidential Decree, a re-investigation of the same item and the same taxable period shall not be conducted.”

In cases where a tax official has conducted a tax investigation over a certain taxable period for a certain item, as well as for a tax investigation for only a specific item in the said taxable period, conducting a tax investigation again for the same taxable period of the said item constitutes a reinvestigation prohibited under Article 81-3(2) of the former Framework Act on National Taxes. It does not mean that the content of a tax investigation overlap by conducting a tax investigation again only for other items except the specific items originally conducted by a tax official. Provided, That it is unreasonable to conduct a tax investigation over all other items at the time of the initial tax investigation, such as where it is deemed that it is unreasonable to conduct a tax investigation over the same tax item or taxable period as the scope of a tax investigation is extended due to the extension of the scope of a tax investigation for the said items, if there are special circumstances, such as where a tax official conducted a tax investigation again on the remaining items except for those initially conducted tax investigation, it does not constitute a reinvestigation prohibited under Article 81-3(2) of the former Framework Act on National Taxes (see Supreme Court Decision 2014Du126262, Feb. 26, 2015).

According to the evidence duly admitted by the court below, the following facts are revealed: ① the tax items to be investigated against the plaintiff from February 20, 2001 to June 29, 2001; ② the investigation period from February 20, 2001 to June 29, 2001 to be “non-corporate tax”; ② a regular tax investigation to be conducted for the taxable period from 1996 to 1998; and the taxable period was “from 1996 to 2000; and notified that the corporate tax was scheduled to be imposed KRW 1.243 million for the business year 200 to 2000; ② the defendant again conducted the tax items to be investigated against the plaintiff as “corporate tax, etc.”; and ② the investigation period as “200 business year”; and the reason was “verification of the change in the present space air stocks”; and thereafter, conducted the tax investigation based on the result of the instant case.

Examining these facts in light of the legal principles as seen earlier, the instant tax investigation constitutes a reinvestigation prohibited under Article 81-3(2) of the former Framework Act on National Taxes, barring any special circumstances, and it cannot be deemed that the subject of the tax investigation conducted earlier was excluded from the part on “the details of changes in the stocks in the modern space aviation.” Thus, the instant corporate tax disposition was conducted based on an illegal reinvestigation, and thus, it is unlawful without any need to further examine it.

Nevertheless, the lower court rejected the Plaintiff’s assertion that the instant tax investigation constitutes an illegal reinvestigation, on the grounds that it does not constitute a reinvestigation prohibited under Article 81-3(2) of the former Framework Act on National Taxes, in cases where the investigation conducted again for the same tax items and taxable periods does not overlap. In so doing, the lower court erred by misapprehending the legal doctrine on the scope of reinvestigation prohibited under Article 81-3(2) of the former Framework Act on National Taxes, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on

3. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal by the Plaintiff, the part against the Plaintiff is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. The Defendant’s appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young (Presiding Justice)