In applying Article 18-2 (1) of the former Corporate Tax Act, whether the time to determine whether the imported dividends are a holding company that is excluded from taxable income is the end of the business year of the holding company (affirmative

Article 18-2(1) of the former Corporate Tax Act (Amended by Act No. 9267, Dec. 26, 2008); Article 18-2(1) of the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 2010); Article 17-2(1) of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 21302, Feb. 4, 2009); Article 17-2(5)

Domink Holdings Co., Ltd. (Attorneys Choi Young-chul et al., Counsel for the defendant-appellant)

Head of Yeongdeungpo Tax Office

Seoul High Court Decision 2013Nu51710 decided April 30, 2014

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. The main sentence of Article 18-2 (1) of the former Corporate Tax Act (amended by Act No. 9267 of Dec. 26, 2008; hereinafter “former Corporate Tax Act”) provides that a holding company prescribed by the Presidential Decree among holding companies under the Monopoly Regulation and Fair Trade Act (hereinafter “Fair Trade Act”) shall not include a certain amount calculated according to the ratio of investment in its gross income among the dividend amount or surplus distribution amount received from its subsidiaries, and the constructive dividend or dividend amount under Article 16 (hereinafter “dividend dividend amount”) shall not be included in its gross income. The main sentence of Article 17-2 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by the Presidential Decree No. 21302 of Feb. 4, 2009; hereinafter “former Enforcement Decree”) provides that a holding company’s dividends to its subsidiaries shall be calculated at the ratio of 10 percent of its total assets on the date of expiration of the business year, which is reported to the Fair Trade Commission pursuant to the Monopoly Regulation and Fair Trade Act. In this case, a holding company is established at the end of the business year.

However, the main text of Article 18-2(1) of the Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter “amended Corporate Tax Act”) (amended by Act No. 10423, Jan. 1, 2011; hereinafter “amended Corporate Tax Act”) stipulates that a holding company, the import dividend of which is excluded from taxable income, shall not be prescribed by Presidential Decree, and directly stipulates that a holding company, etc. among domestic corporations, shall be “holding companies, etc. under the Fair Trade Act” and accordingly, the Enforcement Decree of the Corporate Tax Act (hereinafter “amended Enforcement Decree”) amended by Presidential Decree No. 21302, Feb. 4, 2009, deleted Article 17-2(1) of the former Enforcement Decree of the Corporate Tax Act.

2. The point of time to determine whether an imported dividend is a holding company subject to non-taxation is a policy issue, taking into account its legislative intent, rather than a logical and inevitable conclusion that may derive. The main text of Article 18-2(1) of the former Corporate Tax Act and Article 17-2(1) of the former Enforcement Decree, to consider the intent of the system to encourage the establishment of a holding company and the conversion of a holding company into a holding company, thereby supporting its smooth operation, shall be understood as the date of the payment of dividends or the receipt of dividends, even if the holding company fails to meet the requirements of the holding company, the “the end of the business year,” which is the date the corporate tax liability is established, to determine whether the holding company is a holding company, in order to grant the profits from the revenue dividend, as “the end of the business year.” Furthermore, Article 18-2(1)3 of the former Corporate Tax Act and Article 17-2(5) of the former Enforcement Decree of the Corporate Tax Act provide that the total amount of assets to be calculated based on

Although the amended Corporate Tax Act and the amended Enforcement Decree deleted the previous provisions on the point of determination of a holding company, they did not have any separate provision on substitution, and in light of the previous provisions on the calculation of interest on borrowings deducted from the gross income amount, it is difficult to view that the amended Corporate Tax Act and the amended Enforcement Decree have any intention to separately determine the point of determination of a holding company. Of course, unlike the main text of Article 18-2(1) of the former Corporate Tax Act and Article 17-2(1) of the former Enforcement Decree, it is not impossible to determine the point of determination of a holding company as the payment date or the receipt date of dividends. However, it is not impossible to determine the point of determination of a holding company based on the subsidiary that is not a holding company. However, in the case of a holding company with multiple subsidiaries, the period of determination of a holding company may vary, and therefore, the requirements for exclusion of income dividends may vary compared to the previous provisions on the date of determination of a holding company as of the end of the holding company’s business year.

Furthermore, the text of Article 18-2(1) of the amended Corporate Tax Act is merely interpreted to the effect that a holding company does not include a certain amount of dividends, etc. received during the pertinent business year in its gross income. It does not necessarily mean to the effect that only where a domestic corporation receives dividends, etc. as a holding company, i.e., the domestic corporation does not include its dividends, etc. in its gross income

In full view of these points, it is reasonable to view that the time of determining whether a holding company is a holding company even when Article 18-2(1) of the amended Corporate Tax Act is applied is the end of the business year of the holding company, which is the date of establishment

3. In the same purport, the lower court is justifiable to have determined that even if the Plaintiff reported to the Fair Trade Commission the establishment of a holding company on January 1, 2009 and received dividends from its subsidiary on or around April 201, 2010, insofar as the Plaintiff was excluded from the holding company on November 1, 2010 and was not a holding company at the time of December 31, 2010, which was the end of the business year 2010, the dividend cannot be excluded from the gross income by applying Article 18-2(1) of the amended Corporate Tax Act in calculating the income amount for the business year 2010, and there is no error of law by misapprehending the legal doctrine on the base point of time to determine whether the holding company is a holding company governed by Article 18-2(1) of the amended

4. 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 Kim Chang-suk (Presiding Justice)