Even if a corporation established through division is dissolved after being merged with a merged corporation before the end of the business year in which the registration date of the division falls, where the merged corporation succeeds to the succeeded business from the divided corporation and continues to operate the succeeded business by the end of the business year which includes the registration date of the division, whether the requirements for deferment under Article 46(1)3 of the former Corporate Tax Act can be deemed to have been satisfied (affirmative)

Articles 119(1)10 and 120(1)9 of the former Restriction of Special Taxation Act (amended by Act No. 9921, Jan. 1, 2010) provide that exemption from acquisition tax on the registration of property acquired due to the “personal division meeting the requirements under each subparagraph of Article 46(1) of the Corporate Tax Act” and that exemption from acquisition tax on the acquisition thereof shall be granted in accordance with the same standard as the special case of corporate tax.

The provisions on taxation deferment for corporate division were prepared in the introduction of corporate restructuring tax system, such as merger and division, by the amendment of the Corporate Tax Act on December 28, 1998. The purpose of the former Corporate Tax Act is to support corporate restructuring through corporate division without regard to the existence of a structural change in which part of the existing business is separated from a separate company, but there is no substantial change in the interests of the company, including the relationship of shares, if there is no substantial change in the interests of the company. The former Corporate Tax Act and subordinate statutes stipulate the requirements for continuation of business among the standards for substantial identity as follows.

Article 46(1)3 of the former Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; hereinafter the same) provides that “a corporation established by division shall continue to conduct business succeeded from a divided corporation by the end of the business year which includes the registration date of the division.” The latter part of Article 46(2) provides that “where a corporation established by division succeeds to a business succeeded from a divided corporation again with a corporation that merges with a corporation that succeeds to a business succeeded from a divided corporation, such business shall not be deemed a discontinuance of business,” and Article 46(4) of the former Corporate Tax Act provides that matters necessary to determine the criteria for determining the continuation or discontinuance of the succeeded business shall be prescribed by Presidential Decree when applying the above Article 46(1)3 of the former Corporate Tax Act (amended by Presidential Decree No. 22184, Jun. 8, 2010; hereinafter the same shall apply).” The former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 82180, Jun. 8, 2010) provides that “where a corporation succeeds directly succeeds.

In full view of the language, structure, legislative purpose, etc. of these regulations, where a corporation established through division succeeds to a business succeeded from a divided corporation to a merged corporation, it cannot be deemed as “where a corporation established through division disposes of fixed assets for business succeeded from a divided corporation or does not directly use them for the relevant business” under the main sentence of Article 80(3) of the former Enforcement Decree of the Corporate Tax Act. Therefore, even if a corporation established through division was dissolved after being merged with a merged corporation before the end of the business year in which the registration date of the division falls, it is reasonable to deem that the corporation established through division satisfies the requirements for continuation of the business prescribed in Article 46(1)3 of the former Corporate Tax Act where the merged corporation succeeds to a business succeeded from a divided corporation and continues to operate

Articles 119(1)10 and 120(1)9 of the former Restriction of Special Taxation Act (Amended by Act No. 9921, Jan. 1, 2010; see current Article 57-2(3)2 of the Restriction of Special Local Taxation Act); Article 46(1)3 of the former Corporate Tax Act (Amended by Act No. 9898, Dec. 31, 2009; see current Article 46(2)3); Article 46(2)(3) and (4) (see current Article 46(3)); Article 80(3) (see current Article 80-2(7) and (4) of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 22184, Jun. 8, 2010; see current Article 46(2))

Seoul High Court Decision 200Na1488 delivered on August 1, 200

The head of Gangnam-gu Seoul Metropolitan Government and one other (Law Firm Han-ro, Attorneys Hai-ro, Counsel for defendant-appellant)

Seoul High Court Decision 2017Nu79990 decided March 30, 2018

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Articles 119(1)10 and 120(1)9 of the former Restriction of Special Taxation Act (amended by Act No. 9921, Jan. 1, 2010; hereinafter the same) provide that a person shall be exempted from registration tax and acquisition tax on the registration of property acquired due to a human division meeting the requirements under each subparagraph of Article 46(1) of the Corporate Tax Act, thereby granting benefit from corporate tax exemption in accordance with the same standard as the special case of corporate tax.

The provisions on taxation deferment for corporate division were prepared in the introduction of corporate restructuring tax system, such as merger and division, by the amendment of the Corporate Tax Act on December 28, 1998. The purpose of the former Corporate Tax Act is to support corporate restructuring through corporate division without regard to the existence of a structural change in which part of the existing business is separated from a separate company, but there is no substantial change in the interests of the company, including the relationship of shares, if there is no substantial change in the interests of the company. The former Corporate Tax Act and subordinate statutes stipulate the requirements for continuation of business among the standards for substantial identity as follows.

Article 46(1)3 of the former Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; hereinafter the same) provides that “a corporation established by division shall continue to conduct business succeeded from a divided corporation by the end of the business year which includes the registration date of the division.” The latter part of Article 46(2) provides that “where a corporation established by division succeeds to a business succeeded from a divided corporation again with a corporation that merges with a corporation that succeeds to a business succeeded from a divided corporation, such business shall not be deemed a discontinuance of business,” and Article 46(4) of the former Corporate Tax Act provides that matters necessary to determine the criteria for determining the continuation or discontinuance of the succeeded business shall be prescribed by Presidential Decree when applying the above Article 46(1)3 of the former Corporate Tax Act (amended by Presidential Decree No. 22184, Jun. 8, 2010; hereinafter the same shall apply).” The former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 82180, Jun. 8, 2010) provides that “where a corporation succeeds directly succeeds.

In full view of the language, structure, legislative purpose, etc. of these regulations, where a corporation established through division succeeds to a business succeeded from a divided corporation to a merged corporation, it cannot be deemed as “where a corporation established through division disposes of fixed assets for business succeeded from a divided corporation or does not directly use them for the relevant business” under the main sentence of Article 80(3) of the former Enforcement Decree of the Corporate Tax Act. Therefore, even if a corporation established through division was dissolved after being merged with a merged corporation before the end of the business year in which the registration date of the division falls, it is reasonable to deem that the corporation established through division satisfies the requirements for continuation of the business prescribed in Article 46(1)3 of the former Corporate Tax Act where the merged corporation succeeds to a business succeeded from a divided corporation and continues to operate

2. Review of the reasoning of the lower judgment and the record reveals the following facts.

A. Samang Co., Ltd. (hereinafter referred to as the “Thangang Hall”) was established on January 6, 1966, and on August 20, 2009, the Samang Co., Ltd. established Samang (hereinafter referred to as the “instant division”).

B. The reason for the instant partition on September 4, 2009: (a) acquired the ownership of 10 buildings and land (hereinafter collectively referred to as the “instant real estate”) out of 8/1,000 square meters in equity among 3,757 square meters in Gangnam-gu Seoul ( Address 1 omitted); and (b) 2,772 square meters in total of 8,772 square meters in 00 square meters in 00 square meters in 1,354 square meters in 1,354 parking lots in Gangdong-gu Seoul ( Address 2 omitted); and (c) trilable assets were exempted from the acquisition and registration taxes for the instant real estate pursuant to Articles 119(1)10 and 120(1)9 of the Restriction of Special Taxation Act on the ground that the instant partition constitutes a qualified division meeting the requirements under each subparagraph of Article 46(1) of the former Corporate Tax Act.

C. On December 4, 2009, the Plaintiff merged the scoo assets (hereinafter “instant merger”), and dissolved on the same day. The Plaintiff acquired the ownership of the instant real estate due to the instant merger on December 21, 2009.

D. The head of Gangnam-gu Seoul Metropolitan Government imposed acquisition tax and registration tax on the Plaintiff on December 2, 2014 on the ground that it does not meet the requirement that “a corporation established by division shall continue to engage in business succeeded from a divided corporation by the end of the business year to which the date of the registration date of the division belongs” under Article 46(1)3 of the former Corporate Tax Act, and on December 4, 2009, it did not meet the requirement that “a corporation established by division shall continue to engage in business succeeded from the divided corporation by the end of the business year to which the date of the registration date of the division belongs,” and on December 2, 2014, the head of Gangdong-gu Seoul Metropolitan Government imposed acquisition tax and registration tax of KRW 197,504,260, registration tax, 445,58,50 on the Plaintiff, and on December 10, 2014, the head of Gangdong-gu Seoul Metropolitan Government imposed acquisition tax and registration tax of KRW 4,860,090,10 (hereinafter referred to as “instant disposition”).

E. However, the purpose business in the corporate register of trilable assets is real estate leasing business, etc., and trilified assets were real estate leasing business with the instant real estate. The business intended in the Plaintiff’s corporate register also has real estate leasing business, and the Plaintiff succeeded to the lessor status of each lease agreement concluded with the lessee with respect to the instant real estate, and run the real estate leasing business by the end of the business year from August 2009, which is the registration date of the transfer of trilized assets.

3. Examining these factual relations in light of the aforementioned provisions and legal principles, although tril asset, which is a corporation established through division, was merged and dissolved with the Plaintiff before the end of the business year 2009, which includes the registration date of the division, was dissolved, the Plaintiff succeeds to the business succeeded from Samlang, a divided corporation, and continued to operate the business until the end of the pertinent business year. Thus, the division of this case satisfies the requirement of Article 46(1)3 of the former Corporate Tax Act that “a corporation established through division, shall continue to operate the business succeeded from the divided corporation by the end of the business year

4. Nevertheless, the lower court determined that the instant real estate acquired through the instant division does not constitute reduction and exemption of the registration tax and acquisition tax, as long as the trilified assets were merged with the Plaintiff and dissolved before the end of the business year in which the date of the registration of the division falls, even if the Plaintiff succeeded to the business that was succeeded by the trilified assets from the trilking, and the Plaintiff did not meet the requirements for the continuation of business under Article 46(1)3 of the former Corporate Tax Act. In so determining, the lower court erred by misapprehending the legal doctrine on the requirements for the continuation of business under Article 46(1)3 of the former Corporate Tax

5. 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 Kwon Soon-il (Presiding Justice)