US concrete Co., Ltd. (Law Firm LLC, Attorneys Jeong Jae-ro et al., Counsel for the plaintiff-appellant)

The head of Dobong-gu (Law Firm Co-ownership, Attorneys Gyeong-seok et al.)

August 22, 2017

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s imposition of acquisition tax of KRW 942,932,070 and special rural development tax of KRW 38,629,810 shall be revoked on January 20, 2015.

1. Details of the disposition;

A. On April 30, 2013, the Plaintiff entered into an integrated contract with the Nonparty (hereinafter “instant integrated contract”). The Plaintiff and the Nonparty concluded an integrated contract with the Plaintiff that combines “○○○○○○○○, an individual company operated by the Nonparty, the Plaintiff’s major shareholder, into with the Plaintiff (hereinafter “instant integrated contract”). The Plaintiff and the Nonparty considered the net asset value of “○○○○○○,” as KRW 12,072,40,79,794 (i.e., assets KRW 19,437,161,64,64,751,846), - the Plaintiff’s assets of the Nonparty (○○○○), 2631.1㎡ and its ground buildings (hereinafter “each of the instant real estate”), including the Nonparty’s assets and business assets of “○○○○○○○○,” and agreed to jointly issue and deliver new shares,51,463 (13,438,439,4136,4136,437,439,47).

Afterward, the Plaintiff and the Nonparty: (a) KRW 11,725,212,94 of the net asset value of “○○○○○” (i.e., KRW 19,437,161,640 of assets - KRW 7,711,948,696 of debts); (b) KRW 3,410,474 of new stocks to be issued by the Plaintiff to the Nonparty; (c) on June 20, 2013, the date of integration was revised (as for 3,410,474 of each stock) (as for 3,410 x 3,474 x 3,438 won = 11,725,725,612 won; (c), 11,725,212,944 won; and (d) KRW 3,320 of the difference between the issuance of new stocks to the Seoul Northern District Court on June 5, 2013.

B. On June 24, 2013, the Seoul Northern District Court decided to authorize the Plaintiff to issue an ordinary share of 58,802 shares (i.e., the appraised value of each of the instant real estate at KRW 202,161,640 per share) (Seoul Northern District Court 2013 non-conforming10). On June 26, 2013, the Plaintiff issued 58,802 common shares to the Nonparty and completed the registration of ownership transfer on each of the instant real estate on July 2, 2013.

C. The Plaintiff and “○○○○○○” integrated around June 30, 2013, and the net asset value of “○○○○○○” as of the date of the integration was KRW 11,847,64,277 (i.e., the net asset value of “○○○○○○○” in the instant consolidated contract (i.e., the net asset value of “○○○○○○○○” in the instant integrated contract) + KRW 11,725,212,944 + the value of the structures and power facilities additionally succeeded in addition to those subject to succession under the instant integrated contract + KRW 28,687,967 + the decrease of the liabilities subject to consolidation between the date of debt calculation and the date of actual integration under the instant integrated contract + KRW 93,743,366). The Nonparty reported the closure of business on September 25, 2013.

D. The Plaintiff accounts for the duty to issue 3,351,672 shares (i.e., KRW 3,410,474 stated in the instant consolidated contract - KRW 58,802 already issued) to the Nonparty in accordance with the instant integrated contract (i.e., KRW 11,645,482,637 of the integrated deposit (i.e., KRW 11,847,644,277 of the net asset value of the “○○○○○” as of the date of the integrated contract (i.e., KRW 58,802,161,640).

E. On January 6, 2014, the Plaintiff held a temporary general meeting of shareholders and issued 3,351,672 shares, which have not yet been issued among 3,410,474 shares to the Nonparty pursuant to the instant integrated contract, to additionally issue 11,523,048,336 shares (=3,572 shares x 1 share x 3,438 shares). If the Plaintiff paid to the Nonparty in cash, the Nonparty decided to immediately participate in capital increase with the Plaintiff’s capital increase. On January 6, 2014, the Plaintiff decided to hold a board of directors and issue 3,351,672 shares to 601,672 shares to be issued to the Nonparty as KRW 3,438 shares.

F. On January 21, 2014, the Plaintiff filed an application with the Seoul Northern District Court for authorization to issue the remaining 2,750,000 shares (i.e., 3,410,474 shares as stated in the instant integrated contract - 58,802 shares issued on January 6, 2014 - 601,438 shares) to the Seoul Northern District Court. On February 10, 2014, the Seoul Northern District Court authorized the Plaintiff to issue 2,750,000 shares of common shares of KRW 5,750 per share with the minimum issue value of KRW 3,438 shares (Seoul Northern District Court Decision 2014,672 shares).

G. Accordingly, from February 12, 2014 to February 21, 2014, the Plaintiff issued 2,750,000 new shares to the Nonparty at KRW 3,438 per share. In relation to the instant integrated contract, the details of shares issued by the Plaintiff to the Nonparty are as follows.

A person shall be appointed.

H. On June 28, 2013, the Plaintiff reported exemption from acquisition tax on the following grounds: (a) each of the instant real estate constitutes “the pertinent business property acquired by a corporation established by, or surviving after, consolidation between small and medium enterprises under Article 31” under Article 120(1)2 of the former Restriction of Special Taxation Act (amended by Act No. 12853, Dec. 23, 2014; hereinafter “Special Taxation Restriction Act”).

I. On January 20, 2015, the Defendant: (a) deemed that the number of shares acquired by a small and medium enterprise owner (O○○○) of a place of business (O○○○) extinguished by the instant integrated contract was 58,802 shares issued by the Plaintiff until the date of acquisition of each of the instant real estate (hereinafter July 2, 2013) by the Plaintiff; (b) deemed that the value of shares acquired by a small and medium enterprise owner (O○○○○) extinguished by the instant integrated contract was 202,161,276 shares acquired by the said integrated contract (i.e., 58,802 shares x 3,438 won per share) was reduced to 11,847,64,277 won; and (c) did not satisfy the requirements for imposition of acquisition tax under Article 120(1)2, 31, 21, 280, 289, 289, 289, etc. of the Enforcement Decree. of the Special Taxation Act.

[Reasons for Recognition] Unsatisfy, Gap evidence Nos. 1 through 21, Eul evidence Nos. 1, 2 and 6, the purport of the whole pleadings

2. Related statutes;

It is as shown in the attached Table related statutes.

3. Whether the instant taxation disposition is legitimate

A. The plaintiff's assertion

Article 63 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 1357, Dec. 15, 2015); Article 54(1) proviso of the Enforcement Decree of the same Act provides, “The number of shares acquired by a small and medium enterprise owner (○○○○) due to the consolidation of real estate and multi-corporate entities is 3,410,474 shares issued by the Nonparty.” Meanwhile, even though the Plaintiff is a real estate and multi-corporate entity, the Plaintiff calculated the value per share of new shares by 2:3,438 won by adding the ratio of asset value and profit value to 2:3,438 shares; however, the Plaintiff’s acquisition tax and profit value per share of the Plaintiff’s new shares acquired due to the consolidation of real estate and multi-corporate entities is 3:2 weighted average real estate and the ratio of asset value and profit value per share to 3:3:4,349 won, and thus, the value of shares acquired by the Nonparty’s consolidation of real estate is 14,832,41,47,4,74,74, and1.

B. Determination

(1) Article 120(1)2 of the Restriction of Special Taxation Act, Article 31(1)2 of the Enforcement Decree of the Restriction of Special Taxation Act, and Article 28(1)2 of the Enforcement Decree of the Restriction of Special Taxation Act, where a corporation surviving a merger between small and medium enterprises (hereinafter “existing corporation”) acquires the pertinent business property from an extinguished enterprise due to the consolidation (hereinafter “ extinguished enterprise”), a small and medium enterprise owner of the extinguished enterprise is a stockholder of the extinguished enterprise, and where the value of the stocks acquired due to the consolidation exceeds the net asset value of the extinguished enterprise (the sum of assets appraised at the market price as of the date of the consolidation after subtracting the total amount of liabilities including allowances from the total amount of assets appraised as of the date of the consolidation), acquisition tax on the relevant property for business acquired by the surviving enterprise shall be exempted. In order to induce the appropriateness of production or management through the consolidation among the small and medium enterprises, it is necessary to encourage the surviving enterprise to be exempted from acquisition tax on the assets acquired by the extinguished enterprise through exemption from acquisition tax.

Since the aforementioned provision does not impose any limitation on the “stocks acquired by the relevant consolidation,” the term “stocks acquired by the relevant consolidation” should be interpreted as “stocks acquired by the relevant consolidation or cause of consolidation” in good faith (for the Defendant to restrict the time of acquiring the “stocks acquired by the relevant consolidation to the date of acquisition of each of the instant real estate by the date of acquisition of each of the instant real estate, it is unreasonable to establish requirements not prescribed in the aforementioned provision). Furthermore, as the time of establishment of acquisition tax liability, the “stocks acquired by the transaction partner” should be included in “stocks acquired by the relevant consolidation” on the basis of the acquisition date of each of the instant real estate, which is the time of establishment of acquisition tax liability, in determining whether the requirements for acquisition tax reduction or exemption were met, the Plaintiff and the Nonparty should not be deemed to have taken into account the circumstances following the date of establishment of acquisition tax liability for each of the instant real estate acquisition (the “stocks acquired by the relevant consolidation” from around 30 to 4144,201, the Plaintiff’s total net asset value of each of the instant real estate (the instant new stocks issued value of the 430.14.21.

Secondly, the Plaintiff entered into the instant integration contract with the value of new shares as KRW 3,438 per share [If the value of new shares per share is KRW 4,349, as alleged by the Plaintiff, the Plaintiff’s new shares to be issued to the Nonparty in the instant integration contract shall be limited to KRW 2,696,071 (i.e., the net asset value of “○○○○○” / the net asset value of KRW 11,725,212,944 per share / KRW 4,349)]; the court also determined the issue value per share to KRW 3,438 and decided to authorize the issuance of new shares; it is reasonable to acknowledge that the Plaintiff issued new shares to the Nonparty for KRW 3,438,00 per share after the date of acquisition of each real estate of this case and calculated the value per share to KRW 11,523,048,361,672 x 13,438,275,37, etc.

Accordingly, the value of shares acquired by the non-party as a result of the consolidation is 11,725,209,612 won (=3,410,474 note x 3,438 won) and is lower than 11,847,64,277 won from the net asset value of the place of business (○○○○○) extinguished by the consolidation ( even if the value of new shares is recognized by the plaintiff, the integrated price paid by the plaintiff to the non-party is 11,778,778,778,234 won [=25,729,898 won per share x 58,802 note x 4,349 won per share x 58,802 won per new shares x 4,349 won per share). The conclusion is that the consolidation is lower than the net asset value of the business place (○○○) which was extinguished due to the consolidation of new shares).

(v) Ultimately, the Defendant’s acquisition of only 58,802 shares acquired by the Nonparty as of the time of acquisition of each of the instant real estate was erroneous, but the value of the shares acquired by the consolidation falls short of the net asset value of the place of business extinguished by the consolidation, and thus, each of the instant real estate did not meet the requirements for exemption from acquisition tax under Articles 120(1)2, 31(1) and (2) of the Restriction of Special Taxation Act and Article 28(1)2 of the Enforcement Decree of the Restriction of Special Taxation Act, and thus, the instant taxation cannot be deemed unlawful.

4. Conclusion

Thus, the plaintiff's claim of this case is dismissed as it is without merit.

[Attachment]

Judges Kim Jong-tae (Presiding Judge)