A. Whether the capital reserve or the face value of gratuitous stock acquired by capitalizing the revaluation reserve among the stocks of a company extinguished by merger is included in the “amount required for acquiring the stocks of an extinguished corporation” under Article 26(1)4 of the former Income Tax Act (amended by Act No. 4281, Dec. 31, 1990) (negative)

B. In calculating the amount of deemed dividend income, whether the face value of gratuitous stock acquired by capitalizing the earned surplus reserve shall be deemed as “amount required to acquire stocks of extinguished corporation” under the above paragraph (a) and shall be deducted from the acquisition cost of old stock (affirmative), and the circumstances where the income of deemed dividend is not separately imposed on the value of gratuitous stock

A. The phrase “amount required for acquiring stocks of an extinguished corporation” under Article 26 (1) 4 of the former Income Tax Act (amended by Act No. 4281 of Dec. 31, 1990) refers to the amount actually paid to acquire stocks of the extinguished corporation. The capital reserve or revaluation reserve is granted to the owner of stocks without compensation who acquired stocks by capitalizing the capital reserve or revaluation reserve. The acquisition value of the stocks previously held is also included in the acquisition value of the previous stocks. Thus, the face value of the gratuitous share is not “amount required for the acquisition of stocks of the extinguished corporation.”

B. In the case of gratuitous taxation acquired following the capital transfer of earned surplus reserve, the face value of such gratuitous taxation should be deducted as the acquisition cost in calculating the constructive dividend income in calculating the amount of the merger, and this does not change because the tax authority did not separately impose the constructive dividend income tax on the value of gratuitous taxation. Thus, even if new stocks are issued after the merger, the face value of such gratuitous taxation has already been determined as the income amount on the date when capital transfer was decided in accordance with the main sentence of Article 26(1)2 of the same Act and Articles 50(1)1 and 57(2)3 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 13194, Dec. 31, 190).

A. (b) Article 26 (1) 2 and 4 (b) of the former Income Tax Act (amended by Act No. 4281 of Dec. 31, 1990) (amended by Presidential Decree No. 13194 of Dec. 31, 1990)

A. Supreme Court Decision 90Nu2154 delivered on February 28, 1992 (Gong1992, 1202), 91Nu9824 delivered on March 31, 1992 (Gong1992, 1462), 92Nu397 delivered on June 26, 1992, and 92Nu468 delivered on November 10, 1992 (Dong)

Plaintiff

Head of the tax office

Seoul High Court Decision 90Gu17981 delivered on February 18, 1992

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

We examine the grounds of appeal.

1. According to the reasoning of the judgment below, when the non-party promotion company (hereinafter referred to as the "merger company") merged the non-party promotion company corporation (hereinafter referred to as the "merged company") on December 31, 1986, the court below determined that the defendant did not acquire the same number of new shares of the merged company for the purpose of acquiring the new shares of the merged company for the purpose of acquiring the new shares of the merged company's stock price (500 won for face value; hereinafter referred to as the "former shares") on December 31, 1986, since it issued and delivered one share of the shares of the merged company to the shareholders of the merged company (e.g., 500 won for face value; hereinafter referred to as 50 million won for face value; hereinafter the same shall apply). Accordingly, the plaintiff also owned 320,000 shares of the former share and received the same number of new shares from the merged company without compensation by capitalizing the retained shares or revaluation reserve fund, and that the defendant did not consider the above amount exceeding the total share price of the new shares of the merged.

2. However, "the amount required for acquiring the stocks of an extinguished corporation" under Article 26 (1) 4 of the former Income Tax Act refers to the amount actually disbursed to acquire the stocks of the extinguished corporation, and the gratuitous acquisition price of the stocks acquired through the capital transfer of capital reserve or revaluation reserve is actually included in the acquisition price of the stocks of the extinguished corporation without paying the stock price. Since the acquisition price of the stocks acquired through the capital transfer of capital reserve or revaluation reserve is actually included in the previous acquisition price of the stocks, the face value of the capital without compensation cannot be deemed as "the amount required for acquiring the stocks of the extinguished corporation" (see Supreme Court Decision 90Nu2154 delivered on February 28, 1992; Supreme Court Decision 91Nu1462 delivered on March 31, 192; Supreme Court Decision 92Nu397 delivered on June 26, 2006

Therefore, the court below did not err by misapprehending the legal principles on the calculation of the amount of deemed dividend at the time of corporate merger, and did not err in misapprehending the legal principles on the calculation of the amount of deemed dividend.

3. However, in the case of gratuitous taxation acquired through capital transfer of earned surplus reserve, since the face value of such gratuitous taxation has already been determined as income from deemed dividend on the date when the capital transfer was decided pursuant to the main sentence of Article 26 (1) 2 of the Income Tax Act, and Articles 50 (1) 1 and 57 (2) 3 of the Enforcement Decree of the same Act, and the face value of such gratuitous taxation is subject to taxation. Accordingly, even if new stocks are issued through the merger are issued for the gratuitous owner, in calculating the amount of deemed dividend income from the merger, the face value of this gratuitous taxation should be deducted from the acquisition cost of the principal, and such legal principle does not change because the tax authority did not impose a separate constructive dividend on

Therefore, in calculating the amount of income from constructive compensation for merger of this case, the face value of the free share among the above free share owned by the plaintiff among the above free share, should be deducted from the acquisition cost. Therefore, although the reasoning of the court below in this part is not appropriate, the decision of the court below that the acquisition cost should be recognized as the acquisition cost only with respect to the face value of the free share.

4. The arguments are reasonable to the extent that they are accepted in the above 2 paragraphs.

Therefore, the judgment of the court below shall be reversed and remanded, and it is so decided as per Disposition by the assent of all participating Justices.