(a) Methods to use and additionally collect reserves for corporate rationalization under the former Tax Reduction and Exemption Control Act;

(b) Whether the reserves for business rationalization accumulated before the full amendment of the Regulation of Tax Reduction and Exemption Act on December 31, 1981 are subject to collection in case where they are used for redemption of long-term loans after the full amendment (affirmative)

A. The former Act on the Regulation of Reduction and Exemption of Income Tax provides that the reserves for enterprise rationalization shall be used for the repayment of long-term loans, and at the same time, they shall not be disposed of except for the preservation of carried-over losses or the transfer of capital, and unlike other domestic corporations and residents, the domestic corporation which has accumulated reserves for enterprise rationalization may use reserves for enterprise rationalization in the redemption of long-term loans and dispose of reserves for enterprise rationalization in the amount of compensation of carried-over losses or transfer of capital, and shall be exempted from the collection in the case of using or disposing of reserves for enterprise rationalization in the manner described above.

B. After the full amendment, the Tax Reduction and Exemption Control Act (Act No. 3481, Dec. 31, 1981) provides that only a resident shall use the amount of tax credit or income deduction under the above Act for the redemption of long-term loans, etc., and that a domestic corporation shall not dispose of the amount of tax credit or income deduction as a reserve for corporate rationalization, except where the amount of tax credit or income deduction is accumulated as a reserve for corporate rationalization, and where it is made up for losses carried forward, or where it is converted into capital, and there is no provision that the reserves for corporate rationalization may be used for the redemption of long-term loans, so if a domestic corporation accumulated the reserve for corporate rationalization after the full amendment enters into force of the above Act, even if the reserve for corporate rationalization has been accumulated before the full amendment of the Regulation of Tax Reduction and Exemption

A. Article 17(1)(b) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 3481, Dec. 31, 1981); Articles 91 and 92 of the Regulation of Tax Reduction and Exemption Act

Hanyang Transportation Corporation

Head of Mapo Tax Office

Seoul High Court Decision 85Gu586 delivered on March 26, 1986

The part of the judgment of the court below concerning the 1982 corporate tax shall be reversed, and that part of the case shall be remanded to the Seoul High Court.

The remaining appeals are dismissed.

The costs of appeal dismissed above are assessed against the defendant.

The grounds of appeal are examined.

The provisions of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 3481, Dec. 31, 198) provides for the reduction and exemption of capital and the provisions of subparagraph 1 of Article 4-2 (1) that the amount of income subject to reduction and exemption shall be accumulated as reserves for enterprise rationalization in the disposal of profits in the business year concerned, and the reserves for enterprise rationalization shall be continuously accumulated in the amount of income subject to reduction and exemption for enterprise rationalization other than those prescribed in Article 16 (3) 2, except for the cases where the reserves for enterprise rationalization shall be carried forward or the reserve for enterprise rationalization, and the amount of income subject to reduction and exemption shall not be accumulated in the amount of income subject to reduction and exemption under Article 17 (1) 2, and such deduction shall be made only in the manner prescribed in Article 16 (3) and shall be made available for enterprise rationalization unless the reserves for enterprise rationalization are used in the manner prescribed in Article 16 (1) 3, while such reduction and exemption shall be made in the manner prescribed in Article 15 (15).

However, according to the legal reasoning established by the court below, the plaintiff 10,00,000 capital of the total of 10,000,000 won per July 27, 1978 and the total of 197,000,000 capital was increased in cash, and 8,000,000,000 won at the time of filing a corporate tax return for the business year 1978, and 16,000,000 capital reduction and exemption for the business year 1979 and 16,000,000,000 won as 16,000,000,000 won as 16,000,000,000 won as 20,000,000 won as 9,000,000 won as 16,000,000,000 won as 16,000,000,000.

Therefore, the part of the judgment of the court below against the defendant which revoked the disposition of imposition of 15,500,771 won (82 year portion) is reversed, and that part of the case is remanded to the court below. The defendant's appeal is dismissed with respect to the remaining part (81 year portion revoked the disposition of imposition) and the costs of appeal with respect to the dismissal of the appeal are assessed against the defendant. It is so decided as per Disposition by the assent of

Justices Yoon Il-young (Presiding Justice)