[1] In a case where accepting forfeited shares at a high price, where the value per share of the forfeited shares held by the forfeited shareholders is assessed as a negative number, but only the absolute decrease in such a negative value, whether the forfeited shareholders may be deemed to have received benefits, and thus, may be deemed as subject to the avoidance of wrongful calculation (negative)

[2] In a case where a corporation for the purpose of sale, purchase, sale, and acquisition of securities purchased forfeited stocks at KRW 5,00 per share of the person with a special relationship but the losses of the person with a special relationship at that time were accumulated, and it is evident that the appraisal value per share of the forfeited stocks at that time is at least before and after the issuance of new stocks, the case affirming the judgment below that such act does not become subject to the avoidance of wrongful calculation under Article 52(4) of the Corporate Tax Act and Article 88(1)8(b) of the former Enforcement Decree of the Corporate Tax Act on the ground that there is no profit to distribute to the forfeited stockholders

[1] Article 52(4) of the Corporate Tax Act and Article 88(1)8(b) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19328, Feb. 9, 2006) stipulate that where a corporation, which has renounced all or part of the right to receive new shares in the capital increase of a corporation, acquires the relevant new shares at a price higher than the market price and distributes profits to forfeited shareholders, such new shares shall be subject to the avoidance of wrongful calculation. Here, where profits are distributed to forfeited shareholders, the case refers to an increase in the price per share of the shares held by forfeited shareholders due to high-priced acquisition of new shares. Even if the high-priced acquisition of new shares is conducted by the forfeited shareholders, if the value per share of the shares held by the forfeited shareholders is evaluated as the negative number and the absolute decrease in that number is merely a decrease, the price of the shares shall not be deemed to have increased. Accordingly, this case shall not be deemed to have received at least the forfeited shareholders' profits due to the high-priced acquisition of new shares.

[2] In a case where a corporation for the purpose of selling, buying, selling, or acquiring securities purchased forfeited stocks at KRW 5,00 per share of a person with a special relationship but the losses of the corporation, which is a person with a special relationship at that time, were accumulated, and the appraised value per share of the relevant stocks at that time, is obviously negative before and after capital increase, the case affirming the judgment below that such act does not become subject to the avoidance of wrongful calculation under Article 52(4) of the Corporate Tax Act and Article 88(1)8(b) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19328, Feb. 9, 2006) on the ground that there is no profit in distributing the forfeited stocks to the forfeited stockholders who are a person with a

[1] Article 52(4) of the Corporate Tax Act, Article 8(1)8(b) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19328 of Feb. 9, 2006), Article 39(1) and (2), and Article 63(1)1(a) and (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5582 of Dec. 28, 1998), Article 39(1) of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 29780 of Dec. 18, 2002), Article 29(2) and 58(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 19328 of Dec. 31, 198), Article 29(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 2981 of Dec. 28, 2009)

[1] Supreme Court Decision 2003Du4249 decided Nov. 28, 2003 (Gong2004Sang, 76)

Plaintiff (Law Firm Rate, Attorneys So-young et al., Counsel for the plaintiff-appellant)

Head of Yeongdeungpo Tax Office

Seoul High Court Decision 2007Nu27280 decided May 14, 2008

All appeals are dismissed. The costs of appeal are assessed against each appellant.

The grounds of appeal are examined.

1. Plaintiff’s ground of appeal

In determining whether a new shares constitutes high-priced acquisition subject to the avoidance of wrongful calculation under the Corporate Tax Act, the market price refers to the objective exchange value formed through the general and normal transaction. Thus, barring any special circumstance, it is difficult to deem that the face value determined as the issue price by the corporation at the time of issuing new shares is a market price reflecting the reasonable exchange value (see Supreme Court Decision 2006Du8648, May 17, 2007).

After finding the facts as stated in its holding, the court below determined that the value of the new shares of the non-party 1 corporation cannot be viewed as the market price of the new shares of the non-party 1 corporation, on the following grounds: (a) considering the fact that at the time the plaintiff acquired the new shares of the non-party 1 corporation at a par value of KRW 5,000 per share, the old share price of the non-party 1 corporation was traded at the Association brokerage market; and (b) there is no special circumstance to deem that the value of the new shares exceeds the market price of the Association brokerage market; and (c) there is no inevitable circumstance to take over the new shares of the non-party 1 corporation at a price higher than the market price of the Association brokerage market; and (d) it is not different on the ground that the new

Furthermore, the court below held that the act of acquiring new shares of the non-party 1 corporation, which was traded in the Association brokerage market at the time, is an act of lacking economic rationality when considering that the transaction price per share of the non-party 1 corporation, which was merely 60% of the Plaintiff’s acceptance price per share of the Plaintiff. The court below held that the same applies to the case where the Plaintiff acquired considerable profits by disposing of the new shares due to changes in circumstances after the Plaintiff acquired new shares of the non-party 1 corporation as a result of the alteration of circumstances after the Plaintiff acquired them.

In light of the above legal principles and records, the above fact-finding and judgment of the court below are just, and there is no error of law such as misunderstanding of legal principles as to market price and economic rationality in the wrongful calculation panel, as otherwise alleged in the

2. As to the Defendant’s ground of appeal

Article 52(4) of the Corporate Tax Act and Article 88(1)8(b) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19328, Feb. 9, 2006; hereinafter the same) provide that where a corporation having a special relationship with a stockholder who has renounced all or part of the right to receive new stocks in relation to the increase of corporate capital, acquires the new stocks at a price higher than the market price and distributes profits to forfeited stockholders, it shall be subject to the avoidance of wrongful calculation.

In this context, the case of distributing profits to forfeited shareholders means an increase in the value per share of the forfeited shares held by the forfeited shareholders due to the high-priced acquisition of new shares. Even if there is an elevated acquisition of new shares, if the value per share of the forfeited shares held by the forfeited shareholders before and after such an increase is assessed as a negative number and the absolute decrease in such a number, the value of the shares shall not be deemed to have been the value of the shares (see Supreme Court Decision 2003Du4249, Nov. 28, 2003, etc.). Therefore, in such a case, the value of the shares cannot be deemed to have increased, as long as the general shareholders' interests were distributed by the forfeited shareholders due to the high-priced acquisition of new shares, it cannot be said that at least the forfeited shareholders have received the profits, regardless of the fact that the general shareholders

Based on the evidence of employment, the lower court determined that the Plaintiff’s act was not subject to the avoidance of wrongful calculation under Article 52(4) of the Corporate Tax Act, and Article 88(1)8(b) of the former Enforcement Decree of the Corporate Tax Act, on the ground that there is no benefit in allocating forfeited stocks to the forfeited stockholders who are related parties, even if the Plaintiff acquired forfeited stocks at a high price since it is apparent that the assessed value per share of the non-party 2’s shares would be equal to that of both before and after the issuance of new shares, and that there is no benefit in allocating forfeited stocks to the forfeited stockholders who are related parties, even if the Plaintiff acquired forfeited stocks at a high price.

In light of the above legal principles and records, the above fact-finding and judgment of the court below are just, and there is no error in the misapprehension of legal principles as to the requirements for denial of wrongful calculation as otherwise alleged in the ground of appeal.

3. Conclusion

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

Justices Shin Young-chul (Presiding Justice)