Whether it constitutes a small or medium enterprise engaging in manufacturing business subject to tax reduction or exemption

Whether it constitutes "small and medium enterprises engaged in manufacturing business" or not shall not be determined by the Korea Standard Industrial Classification only, but shall not be determined by taking into account the purport of the Act prescribing the special cases of tax reduction and exemption for small and medium manufacturing business, relationship with the relevant statutes, equity between the tax payers, etc.

Article 7 (Special Tax Abatement or Exemption for Small or Medium Enterprises)

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. Each disposition of the Defendant imposed corporate tax of KRW 62,626,080 for the Plaintiff on April 5, 2007, corporate tax of KRW 15,490,050 for the year 2004, corporate tax of KRW 36,264,170 for the year 205 shall be revoked.

The court's explanation of this case is identical to the entry of the cause column of the judgment of the court of first instance, except for the dismissal of the cause column of the judgment of the court of first instance as follows. Thus, it is acceptable in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

ｏ 제2쪽 10번째 줄의 "'소외 회사들'라 한다" ⇒ "'소외 회사들'이라 한다"

ｏ 제6쪽 10번째 줄의 말미에 다음 기재를 추가함

Article 7 (1) of the former Regulation on Tax Reduction and Exemption (amended by Act No. 5584 of Dec. 28, 1998) which provides for special cases of tax reduction and exemption similar to the provision on tax reduction and exemption in this case, "The Supreme Court Decision 2002Du4181 of Sept. 24, 2002 and Supreme Court Decision 2002Du9483 Decided Dec. 26, 2002 are also the same purport)"

ｏ 제9쪽 5번째 줄의 "(제조업과 유사한 사업으로서 재정경제부령이 정하는 사업을 포함한다. 이하 같다)" ⇒ "(소득세법시행령 제31조의 규정에 의하여 제조업으로 보는 업종을 포함한다. 이하 같다)"

Therefore, the judgment of the first instance court is legitimate, and the plaintiff's appeal is dismissed. It is so decided as per Disposition.

[Seoul Administrative Court 2007Guhap42041, 2008)]

1. The plaintiff's claim is dismissed.

2. The costs of litigation shall be borne by the plaintiff.

The defendant's disposition of imposition of corporate tax of 62,626,080 won for the year 2003 against the plaintiff on April 5, 2007, corporate tax of 15,490,050 won for the year 2004, corporate tax of 36,264,170 for the year 205 is revoked.

1. Details of the disposition;

A. The plaintiff was established on October 22, 199 for the purpose of "the manufacturing, export and import business, the miscellaneous export and import business, the trade business, etc., of the Mali-gu, Seoul 00-dong 000-00, the head office of which is located.

B. On May 2, 200, the Plaintiff invested 100% of the 100% of the shares and established '00000 '00000000000' at 00000. After November 8, 2005, the Plaintiff invested 100% of the shares and established '000 '0000 '000000000000' at 000 '00000' (hereinafter the above 'foreign companies'). Since then, the Plaintiff provided the non-party companies, a Chinese local subsidiary, to manufacture and process them by providing raw materials, etc. to the non-party companies, which are located in China, to acquire them in the name of the Plaintiff and engaged in business activities in the way of exporting them to third countries, such as Germany.

C. The Plaintiff: (a) deemed that the above business activity constituted a manufacturing business subject to corporate tax reduction or exemption under Article 7 of the former Restriction of Special Taxation Act (amended by Act No. 7003 of Dec. 30, 2003 and Article 7322 of the Act on Dec. 31, 2004; hereinafter the same shall apply); (b) Article 2(1) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 19329 of Feb. 9, 2006; hereinafter referred to as the “instant reduction or exemption provision”); and (c) applied the above reduction or exemption provision, and filed a corporate tax for each business year by deducting the tax reduction or exemption amount of KRW 47,167,072 in the business year of 2003, KRW 12,691,564 in the business year of 204; and (d) 32,707,262 in the business year of 2005.

D. However, since the purport of the provision of this case is to support the small and medium manufacturing enterprises in Korea, the plaintiff, who manufactures products in the form of manufacturing process by entrusting manufacturing to a foreign subsidiary, does not fall under the "small and Medium Enterprises that operate manufacturing business" under the provision of this case, and its substance constitutes "market business (trade)", on April 5, 2007, the plaintiff issued a disposition of imposing corporate tax of 62,626,080 won as corporate tax for the year 2003, 15,490,050 won as corporate tax for the year 2004, and 36,264,170 won as corporate tax for the year 205 (including additional tax; hereinafter referred to as "the disposition of this case").

E. The plaintiff filed an appeal with the National Tax Tribunal on June 5, 2007, but was dismissed on September 6, 2007.

F. On the other hand, the Commissioner of the Statistics Korea publicly announces and announces "Korea Standard Industrial Classification" in accordance with Article 17 of the Statistics Act for the purpose of securing accuracy and comparison of statistical data related to industry, and on the top of "Korea Standard Industrial Classification", the products to be produced are planned (a) directly (b) the products to be manufactured, (c) the raw materials purchased from his account are supplied to the contractor, (d) the products are manufactured in his/her own name, and (d) the products are directly sold to the market under his/her own responsibility.

Facts without any dispute, Gap's evidence 1-1 to 4, Eul's evidence 1-2 to 3-2, and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) The plaintiff intentionally deleted the part of "(limited to domestic companies)" among "other manufacturers (limited to domestic companies) defined in the previous general rules of the Restriction of Special Taxation Act", which intentionally deleted the part of "(limited to domestic companies)" as stipulated in the previous basic rules of the Special Taxation Act, because it falls under small and medium enterprises which meet all the requirements of manufacturing industry (the planning of products, purchase and supply of raw materials to their own account, manufacture under their own name, and sale under their own responsibility) and fall under "small and Medium Enterprises engaged in manufacturing business" as stipulated in Article 7 (1) of the Restriction of Special Taxation Act, and the plaintiff's manufacturing company is located in a foreign country. However, the purport of this case's tax reduction and exemption in relation to corporate tax of each business year of this case is to exclude the existing position of domestic companies which recognized as manufacturing business under Article 7 (1) of the Restriction of Special Taxation Act only when the trustee company is a domestic company and granted tax benefits, regardless of whether domestic companies will be subject to restriction or not."

(2) Ultimately, the Defendant’s disposition of imposing the instant case that the Plaintiff did not constitute a “small and medium enterprise operating a manufacturing business” under Article 7 of the former Restriction of Special Taxation Act solely on the ground that the Plaintiff requested the manufacturing of the relevant product to a business located in a foreign country is unlawful in violation of the principle of prohibition of retroactive taxation, and

B. Relevant statutes

The entries in the attached statutes are as follows.

C. Determination

(1) Although Article 2(3) of the Restriction of Special Taxation Act adopts the Korean Standard Industrial Classification as the classification criteria of the business type applied in the above Act, if there are special provisions in this Act, the Korean Standard Industrial Classification shall not apply. Article 4 of the former Restriction of Special Taxation Act (amended by Act No. 8827 of Dec. 31, 2007) and Article 2 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Act No. 8827 of Dec. 31, 2007) provide that the concept of the "small and Medium Enterprises" under this Act shall include the manufacturing industry (including the business similar to the manufacturing industry as prescribed by the Ordinance of the Ministry of Finance and Economy)........

(2) Therefore, in light of the following: (a) the principle of no taxation without the law, or the principle of no taxation without the law, or the interpretation of tax laws and regulations shall not be extensively interpreted or analogically interpreted without any justifiable reason, barring any special circumstance; (b) however, within the legal framework that does not undermine the legal stability and predictability pursued by the principle of no taxation without the law, it shall not be permitted to do so; (c) although the purpose of Article 7 of the former Restriction of Special Taxation Act does not explicitly stipulate the scope of manufacturers requested to manufacture products under the provision of tax reduction and exemption, the purpose of Article 7 of the former Restriction of Special Taxation Act is to maintain and develop the production basis of domestic small and medium manufacturing enterprises with relatively weak competitiveness, thereby promoting a balanced growth and stability of national economy through employment creation, etc. by protecting and fostering the domestic small and medium manufacturing enterprises with relatively weak competitiveness, it does not conform with the purpose of Article 7 of the former Restriction of Special Taxation Act, which maintains and develops the production basis of domestic manufacturing enterprises, and it does not accord the benefit of entrustment to this case to the above domestic manufacturing enterprises.

(3) In addition, the General Rules of the Ministry of Finance and Economy, on March 24, 2003, continued to exist as standards for interpretation and enforcement of tax-related Acts without abolition of the provision of this case even after it was newly established, and the Minister of Finance and Economy or the Commissioner of National Tax Service, who is the person having the authority to enact the provision of this case, has consistently interpreted and applied the provision of this case as not including the case of manufacturing a product by requesting a business located in a foreign country, and Article 2(1) of the Enforcement Decree of the Restriction of Special Taxation Act includes the "type of business to be regarded as manufacturing business under Article 31 of the Enforcement Decree of the Income Tax Act" as well as the "type of business to be defined as manufacturing business under the provision of Article 31 of the Enforcement Decree of the Income Tax Act" with regard to the "type of business to be newly established in the Republic of Korea as well as the provision of Article 31 subparagraph 2 of the Enforcement Decree of the Income Tax Act, which is not included in the scope of the amendment of the Special Taxation Act.

(4) Therefore, the Defendant’s disposition of this case, which deemed that the Plaintiff did not constitute a “small and medium enterprise operating a manufacturing business” under the provision on reduction and exemption of this case, is legitimate, and the Plaintiff’s assertion on a different premise is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.

Relevant statutes

former Restriction of Special Taxation Act (amended by Act No. 6538 of Dec. 29, 2001 and amended by Act No. 8387 of Apr. 27, 2007)

Article 2 (Definitions)

(3) Except as otherwise expressly provided for in this Act, the classification of types of business used in this Act shall, except as otherwise expressly provided for in this Act, be subject to the application of special taxation under this Act due to a change in the Korea Standard Industrial Classification publicly announced by the Commissioner of the National Statistical Office pursuant to Article 22 of the Statistics Act, be subject to special taxation pursuant to the

former Restriction of Special Taxation Act (amended by Act No. 8827 of Dec. 31, 2007)

Article 4 (Contribution of Investment Reserves for Small and Medium Enterprises to Losses)

(1) Where a national operating a small or medium enterprise as prescribed by the Presidential Decree (hereinafter referred to as the “small or medium enterprise”) appropriates the investment reserves for expenses in order to appropriate for the funds required for replacement or new acquisition of the assets falling under any of the following subparagraphs (hereafter in this Article referred to as the “business assets, etc.”) not later than the taxable year ending on or before December 31, 2003, such reserves shall be included in the expenses in calculating the income amount for the relevant taxable year within the limit of the amount calculated by multiplying the value of the business assets, etc. as of the end of relevant

former Restriction of Special Taxation Act (amended by Act No. 7003 of Dec. 30, 2003)

Article 7 (Special Tax Abatement or Exemption for Small or Medium Enterprises)

(1) With respect to an enterprise engaged in the business of reduction or exemption under subparagraph 1 among small or medium enterprises, an amount equivalent to the tax amount calculated by applying the reduction or exemption rate under subparagraph 2 to the income tax or corporate tax on income accrued from such business not later than the taxable year ending on or before December 31,

1. Types of reduction or exemption;

(a) Manufacturing business;

(g) Wholesale business;

former Restriction of Special Taxation Act (amended by Presidential Decree No. 17829 of Dec. 30, 2007)

Article 2 (Scope of Small and Medium Enterprises)

(1) The term "small and medium enterprises prescribed by the Presidential Decree" in Article 4 (1) of the Restriction of Special Taxation Act (hereinafter referred to as the "Act") means enterprises engaged in manufacturing (including business similar to manufacturing business, which are prescribed by the Ordinance of the Ministry of Finance and Economy; hereinafter the same shall apply) and .... The main business, which meet all the requirements of the following subparagraphs (hereinafter referred to as "small and medium enterprises"): Provided, That if the number of regular employees is at least 1,00,000 won, equity capital is at least 1,000 won, or sales amount is at least 1,000

former Restriction of Special Taxation Act (amended by Presidential Decree No. 19329 of Feb. 9, 2007)

Article 2 (Scope of Small and Medium Enterprises)

(1) The term "small and medium enterprises prescribed by the Presidential Decree" in Article 4 (1) of the Restriction of Special Taxation Act (hereinafter referred to as the "Act") means enterprises engaged in manufacturing (including business similar to manufacturing business, which are prescribed by the Ordinance of the Ministry of Finance and Economy; hereinafter the same shall apply) and .... The main business, which meet all the requirements of the following subparagraphs (hereinafter referred to as "small and medium enterprises"): Provided, That if the number of regular employees is at least 1,00,000 won, equity capital is at least 1,000 won, or sales amount is at least 1,000

Enforcement Decree of the Income Tax

Article 31 (Scope of Manufacturing Businesses)

In applying the provisions concerning business income pursuant to Article 19 of the Act, in the following cases, it shall be deemed the manufacturing industry pursuant to the provisions of Article 19 (1) 4 of the Act:

2. Where entrusting other manufacturers to do the manufacturing instead of directly manufacturing by himself, and where the following requisites are satisfied:

(a) If he personally plans (including the idea, design, sample making, etc.) the product to be manufactured;

(b) If he manufactures the product under his own name; and

(c) He shall accept the products and sell them directly under his responsibility; and

former Restriction of Special Taxation Act (amended by Ordinance of the Ministry of Finance and Economy No. 504 of March 24, 2003) (amended by Ordinance of the Ministry of Finance and Economy No. 504 of April 17, 2006)

Article 2 (Scope of Small and Medium Enterprises)

(1) "Projects prescribed by Ordinance of the Ministry of Finance and Economy" in the main sentence of Article 2 (1) of the Enforcement Decree of the Restriction of Special Taxation Act (hereinafter referred to as the "Decree") means projects for manufacturing products by entrusting other manufacturers to do not directly remaking products, and which meet the following requirements:

(a) If he/she personally plans (referring to the idea, design, sample making, etc.) the product to be manufactured;

(b) If he manufactures the product under his own name; and

(c) He shall accept the products concerned and sell them directly under his responsibility; and

Enforcement Regulations of the Restriction of Special Taxation Act (amended by the Ordinance of the Ministry of Finance and Economy No. 504 on April 17, 2004)

Article 2 (Scope of Small and Medium Enterprises)

(1) "Projects prescribed by Ordinance of the Ministry of Finance and Economy" in the main sentence of Article 2 (1) of the Enforcement Decree of the Restriction of Special Taxation Act (hereinafter referred to as the "Decree") means projects for manufacturing products by entrusting other manufacturers to do not directly remaking products, and which meet the following requirements:

(a) If he/she personally plans (referring to the idea, design, sample making, etc.) the product to be manufactured;

(b) If he manufactures the product under his own name; and

(c) He shall accept the products concerned and sell them directly under his responsibility; and

General Provisions of the Restriction of Special Taxation

4-24 【Scope of Manufacturing Business】

In the application of the provisions of Article 2 (1) of the Decree, where entrusting other manufacturers (limited to domestic enterprises) to do the manufacturing instead of directly manufacturing the products, and the following requirements are met, it shall be deemed that the manufacturing business is operated:

1. If he/she personally plans (referring to the idea, design, sample making, etc.) the product to be manufactured;

2. If he manufactures the product under his own name; and

3. He shall accept the products, and directly sell them under his own responsibility.