The purport of the proviso of Article 122(1)2 of the former Enforcement Decree of the Corporate Tax Act, which has special cases concerning the calculation of acquisition value of combined stocks, etc. added to the amount of liquidation income due to merger, and the meaning of “shareholders of the merged corporation” under Article 122(1)2(b) of the former Enforcement Decree of the Corporate Tax Act.

Article 80 of the former Corporate Tax Act (amended by Act No. 9898 of Dec. 31, 2009); Article 122 (1) 2 of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 20619 of Feb. 22, 2008) (current deletion)

Blum Co., Ltd. (Law Firm Grandmark, Attorney Kim Jae-hun, Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

Seoul High Court Decision 2009Nu27499 decided May 14, 2010

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

The grounds of appeal are examined.

1. According to Article 80(1) of the former Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; hereinafter the “Act”), where a domestic corporation is dissolved due to a merger, the liquidation income amount by the merger shall be the total amount calculated by subtracting the total amount of equity capital as of the date of the registration of the merger of the merged corporation from the total amount of the cost of the merger received by the stockholders, etc. of the merged corporation from the merged corporation. According to Article 80(2) of the same Act, in calculating the total amount of the cost of the merger, where the merged corporation acquires stocks, etc. of the merged corporation (hereinafter “combined stocks, etc.”) within two years before the date of the registration of the merger and delivers stocks, etc. to the combined stocks, etc., the amount of the liquidation income by the merger shall be added.

However, the proviso of Article 122 (1) 2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20619, Feb. 22, 2008; hereinafter “Enforcement Decree”) pursuant to the delegation of Article 80 (4) of the Act shall not be the merged corporation and the extinguished corporation as at the time the merged corporation acquires the combined stocks, etc. from stockholders, etc. of the extinguished corporation under Article 80 (2) of the Act [Article 80 (2) (a) of the Act]; (2) The merged corporation shall acquire stocks (referring to the stocks newly issued by the merged corporation) equivalent to 95/100 or more of the transfer value of the combined stocks, etc. by adding the acquisition value to the merged corporation [Article 44 (1) 1 and 2 of the Act]; (3) The requirements of Article 44 (1) 1 and 2 of the Act are that the merged corporation may use the value of the stocks, etc. of the merged corporation for at least 40/10 of the acquisition value of the merged corporation.

As such, there is a special exception to the calculation of acquisition value of combined stocks, etc. added to the amount of liquidation income due to a merger under the proviso of Article 122(1)2 of the Enforcement Decree. In a case where a stockholder of a merged corporation newly acquires the stocks issued by the merged corporation in return for the transfer of stocks prior to the merger, it is reasonable to calculate the value of stocks of the merged corporation, which is the same as the method of calculating the liquidation income at the time of the merger, in view of the fact that there is no factual difference between the stocks

In light of the contents and purport of the aforementioned relevant laws and regulations, the term “shareholders of the merged corporation” as stipulated in the instant provisions refers to “shareholders of the merged corporation who transfer combined stocks to the merged corporation,” and cannot be seen as including “merged corporation” in this case.

2. (1) In light of the relevant provisions (Article 80(2) of the Act and Article 122(1)2(a) of the Enforcement Decree, it is natural to view that the “shareholders of the merged corporation” under the provisions of this case refers to the “shareholders of the merged corporation that has transferred combined stocks to the merged corporation.” (2) In light of the purport of the above special exception, it is reasonable to view that the merged corporation’s shareholders proposed a case where the merged corporation newly acquires shares issued by the merged corporation in return for the transfer of shares before the merger. (3) It cannot be readily concluded that the stockholders of the merged corporation cannot acquire shares newly issued by the merged corporation within seven (7) days of the transfer of shares to the merged corporation before the merger. (4) The taxation on the transfer margin of combined stocks and liquidation income can be deemed as separate from each other in terms of taxation purpose and tax liability. Even if double taxation is problematic, this is merely a matter requiring legislative improvement in the liquidation income tax due to the merger, and the Plaintiff’s acquisition price cannot be deemed legitimate after the merger of shares at least 90 percent (70).

In light of the records, the judgment of the court below is consistent with the above legal principles, and there is no error of law by misunderstanding the legal principles as to the special exception of the acquisition value of combined shares when calculating the liquidation income amount due to the merger, including the interpretation of the "shareholders" and "transfer" under the provisions of this case as alleged in the grounds of appeal.

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

Justices Shin Young-chul (Presiding Justice)