The meaning of "acquisition of business" under Article 12 (1) 1 of the Enforcement Rule of the Corporate Tax Act, which is a provision on business rights as depreciable assets.

Article 12 (1) 1 of the Enforcement Rule of the Corporate Tax Act

[Plaintiff-Appellant] Plaintiff 2006Du12722 decided Nov. 13, 2008 (Gong2008Ha, 1687)

Newcheon Subdivision Co., Ltd. (Law Firm Barun, Attorneys Kim Young-hoon et al., Counsel for the plaintiff-appellant)

Head of Chungcheong Tax Office

Daejeon High Court (Cheongju) Decision 2010Nu550 decided April 13, 2011

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

Article 12(1)1 of the Enforcement Rule of the Corporate Tax Act (hereinafter “the provisions of subparagraph 1”) provides that “the amount acquired at a price in accordance with the appropriate evaluation methods by taking into account the legal status of the transfer business, such as permission and authorization, business convenience given to the transfer business, geographical circumstances, business secret method, credit, reputation, transaction lines, etc., separate from the transfer and acquisition assets in the process of transfer and acquisition of the business,” as one of the assets included in the goodwill, which is a depreciable asset, shall be the amount acquired at a price.” The acquisition of the business here refers to the transferee’s succession to the legal status to the extent that it is identical with the transferor by taking over the transferor’s all personal, physical rights, and obligations, such as business rights and obligations, as well as all business facilities (see Supreme Court Decision 2006Du12722, Nov. 13, 2008).

The lower court, citing the reasoning of the first instance judgment, acknowledged the facts as indicated in its reasoning. Then, based on the following: ① the Plaintiff was not directly awarded a bid for 249 square meters and above-ground buildings (hereinafter “instant real estate”) owned by South Korea Development Co., Ltd. (hereinafter “Seoul Korea Development”), which constitute the site of the instant golf course, in a voluntary auction procedure; rather, the Korea Asset Management Corporation acquired ownership in the auction procedure; ② the Plaintiff succeeded to the title of the instant golf course in South Korea’s development and the instant golf course’s facilities and equipment; ③ the Plaintiff did not have prepared a contract for transfer and acquisition of the instant golf course; ③ the Plaintiff did not have any personal rights and obligation to return the instant golf course from South Korea’s existing members (hereinafter “existing members”) and competent administrative agencies to the extent that it did not have any obligation to return the previous golf course from South Korea’s development; and determined that the Plaintiff cannot be seen as having consistently filed a claim for the Plaintiff’s transfer of ownership rights and obligation to return the instant golf course from South Korea’s establishment to the extent that it did not have any existing members’ rights and obligation to return.

In light of the above provisions, legal principles, and records, the above judgment of the court below is just, and there is no error in the misapprehension of legal principles as to business rights under subparagraph 1.

2. Regarding ground of appeal No. 2

Article 12(1)2 of the Enforcement Rule of the Corporate Tax Act (hereinafter “Article 12(1)2”) provides that “Fund, admission money, etc. borne in connection with the authorization for establishment, license for a specific project, commencement of a project, etc. shall be included in the goodwill, which is a depreciable asset, and shall not be claimed for return, and donations, etc.

Recognizing the reasoning of the judgment of the court of first instance, the court below acknowledged the facts as indicated in its holding. The court below rejected the Plaintiff’s assertion that “the Plaintiff acquired the obligation to return the instant golf course in accordance with the changed registration conditions of the Cheongbuk-do Governor in the course of commencing the instant golf course business after obtaining registration of the change from the Cheongbuk-do Governor, and even if not, the Plaintiff guaranteed the existing members the right to use the instant golf course facilities (such as the right of reservation and preferential treatment) in accordance with the changed registration conditions of the Cheongbuk-do Governor, and the burden of such obligation should be assessed as the principal amount of the existing members’ membership fees, and thus, the amount equivalent to the obligation to return the instant membership fees should be recognized as the Plaintiff’s business right pursuant to subparagraph 2.” In addition, the Plaintiff did not take over the obligation to return the instant membership fees in the course of commencing the instant golf course business, and the business right under subparagraph 2 should be specified in terms of its language and purport, but the amount of the right to use the instant golf course claimed by the Plaintiff cannot be assessed in detail amount.

In light of the above provisions and records, the judgment of the court below is just, and there is no error of law by misapprehending the legal principles as to the business rights under subparagraph 2 or by exceeding the bounds of the principle of free evaluation of evidence.

3. Conclusion

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

Justices Lee Sang-hoon (Presiding Justice)