Whether Article 120(6)8 of the former Restriction of Special Taxation Act applies to private equity funds or special purpose companies under the former Indirect Investment Asset Management Business Act, which are not subject to the provisions on holding companies of the Monopoly Regulation and Fair Trade Act (negative)

Articles 38-2, 119(7) (see current Article 119(6)), 120(6)8 (see current Article 120(6) of the former Restriction of Special Taxation Act (Amended by Act No. 9272, Dec. 26, 2008); Article 2 subparag. 1-2 of the Monopoly Regulation and Fair Trade Act; Article 2(1) and (2) of the Enforcement Decree of the Monopoly Regulation and Fair Trade Act; Article 2 subparag. 4-2 (see current Article 9(18)7 of the Financial Investment Services and Capital Markets Act); Article 14-2 (see current Article 28(6)8 of the Financial Investment Services and Capital Markets Act; Article 14-14(1)7 of the Financial Investment Services and Capital Markets Act; Article 2 subparag. 4-2 (see current Article 7(1) and (2) of the Financial Investment Services and Capital Markets Act; Article 14-2 (see current Article 7(1) and (2)4) of the current Financial Investment Services and Capital Markets Act);

Egynin loan Co., Ltd. (Law Firm Bocheon, Attorneys Lee Jong-deok et al., Counsel for the plaintiff-appellant)

Chungcheong Market

Daejeon High Court (Cheongju) Decision 2010Nu826 decided July 20, 201

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

The grounds of appeal are examined.

1. Under the principle of no taxation without law, the interpretation of tax laws shall be interpreted in accordance with the text of the law unless there are special circumstances, and shall not be extensively interpreted or analogically interpreted without reasonable grounds. However, where it is necessary to clarify the meaning through the interpretation between the laws and regulations, it shall be inevitable to make a combined interpretation with the purpose of considering the legislative purport and purpose within the scope that does not undermine the legal stability and predictability pursued by the principle of no taxation without law (see Supreme Court Decision 2007Du4438, Feb. 15, 2008, etc.).

2. Article 120(6)8 (hereinafter “instant legal provision”) of the former Restriction of Special Taxation Act (amended by Act No. 9272, Dec. 26, 2008; hereinafter “the former Restriction of Special Taxation Act”) provides that “Where a holding company under the Monopoly Regulation and Fair Trade Act (including a financial holding company; hereinafter the same shall apply) becomes an oligopolistic stockholder under subparagraph 2 of Article 22 of the Local Tax Act due to the acquisition of stocks of its subsidiary under the same Act or the Financial Holding Companies Act, the provisions of Article 105(6) of the Local Tax Act (hereinafter the same shall apply) shall not apply to the relevant oligopolistic stockholder.” Article 2 subparag. 1-2 of the former Restriction of Special Taxation Act (amended by Act No. 9272, Dec. 26, 2008; hereinafter the “former Restriction of Special Taxation Act”) provides that the domestic company’s total assets amount shall be converted into a domestic company’s business as of the date of the immediately preceding business year’s incorporation or its incorporation.

Meanwhile, Article 144-17(1) of the former Indirect Investment Asset Management Business Act (repealed by Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, enacted by Act No. 8635, Aug. 3, 2007; hereinafter “former Indirect Investment Act”) provides that “Where a private equity fund or a special purpose company satisfies the requirements under Article 144-7(1)1 or 2, the provisions governing holding companies under the Fair Trade Act shall not apply to such private equity fund or special purpose company until the tenth anniversary of the day on which the requirements are satisfied.” Here, “private equity fund” refers to a company established as a limited partnership for the purpose of raising the value of the company invested in stocks or shares by investing its assets in the management right, improvement of its business structure, or governance structure, and distributing profits therefrom to its employees, it refers to a private equity fund that is established for the purpose of subparagraph 4-2, Article 144-2(1) and (2) of the former Indirect Investment Services and Capital Markets Act, and “the entire method or partner is the same for the purpose of subparagraph 14-1 through asset management”.

The legislative intent of the instant legal provision, which excludes holding companies from the imposition of deemed acquisition tax, is to support corporate restructuring for the rationalization of ownership and management by granting tax benefits on the establishment of holding companies or conversion of holding companies. However, the purpose of the former Indirect Investment Act is to increase the corporate value of invested companies and distribute profits generated from the investment companies to investors, and its establishment purpose or function is completely different from the holding companies established under the Fair Trade Act with the aim of continuously controlling their subsidiaries’ business through a vertical investment structure in order to promote the rationalization of their ownership and management. For this reason, in the case of private equity funds and special purpose companies under the former Indirect Investment Act, it is inappropriate to apply the provisions on holding companies under the Fair Trade Act by treating all of them, even if they meet the requirements of holding companies under Article 2 subparag. 1-2 of the Fair Trade Act in the form of a private equity fund or special purpose company, and thus, it is inappropriate to apply the provisions on various restrictions on acts under the Fair Trade Act by treating them. As seen earlier, Article 144-17(1) of the

In addition, the main text of Article 144-17 (3) of the former Indirect Investment Act provides that "a private equity fund or a special purpose company shall not be deemed a financial holding company under the Financial Holding Companies Act until the tenth anniversary of the day on which the requirements are satisfied, where it satisfies the requirements under Article 144-7 (1) 1 or 2." In light of the language and text of the Act and the legislative intent of the legal provision of this case, it shall be reasonable to deem that the legal provision of this case shall not apply to private equity funds or special purpose companies under the former Indirect Investment Act which are not deemed a financial holding company in accordance with the above provision, and there is no reasonable ground to distinguish the application of the legal provision of this case depending on

In addition, in addition to the legal provisions of this case, there is a special taxation for the establishment or conversion of stock investment in kind (see Article 38-2 of the former Restriction of Special Taxation Act), and the exclusion system from taxable income for revenue dividends (see Article 18-2 of the Corporate Tax Act). On the other hand, with respect to private equity funds or special purpose companies under the former Indirect Investment Act, there is a difference between the income deduction system for dividends for payment (see Article 51-2 (1) 2 of the former Corporate Tax Act before amended by Act No. 9267 of Dec. 26, 2008) and the registration tax exclusion system (see Article 119 (7) of the former Restriction of Special Taxation Act).

In full view of the language and purport of the relevant provisions, legislative intent and system, differences between private equity funds or special purpose companies and holding companies, and the purpose and function of the pertinent provisions in the Restriction of Special Taxation Act amended by Act No. 6045 of Dec. 28, 1999 (Article 120(5)8 at the time of the establishment), it is reasonable to interpret that the instant provisions do not apply to private equity funds or special purpose companies under the former Indirect Investment Act, to which the provisions on holding companies of the Fair Trade Act are not applicable, in full view of the fact that the provisions on private equity funds or special purpose companies under the former Indirect Investment Act are not yet introduced.

3. Nevertheless, on the grounds indicated in its reasoning, the lower court determined that the instant disposition imposing deemed acquisition tax, etc. on the Plaintiff was unlawful, on the ground that Article 144-17(1) of the former Indirect Investment Act applies to the Plaintiff, who is a special purpose company to which the provisions on holding companies of the Fair Trade Act are not applicable pursuant to the said Act. In so doing, the lower court erred by misapprehending the legal doctrine on the legal provisions of this case and Article 144-17(1) of the former Indirect Investment Act, thereby adversely affecting the conclusion of the judgment. The

4. Therefore, 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 Lee Sang-hoon (Presiding Justice)