A. Requirements for non-taxation of special surtax under Article 59-3 (1) 7 of the former Corporate Tax Act (amended by Act No. 3577 of Dec. 21, 1982)

B. Whether a corporation’s property held in title by a third party may be deemed a corporation’s own property in applying Article 59-3(1)7 of the Corporate Tax Act (affirmative)

A. Article 59-3 (1) 7 of the former Corporate Tax Act (amended by Act No. 3577 of Dec. 21, 1982) is subject to the non-taxation of special surtax under Article 59-3 (1) 7 of the former Corporate Tax Act, since it is a site and building of a factory operated for not less than two consecutive years retroactively from the date of transfer from among the business assets owned by the corporation, ownership of such site and building should also be owned by the corporation continuously

B. It is reasonable to view assets that a corporation has entrusted only the title of its ownership to a third party as assets owned by the corporation under the principle of substantial taxation. Therefore, in applying Article 59-3 (1) 7 of the former Corporate Tax Act, it shall be deemed that such assets are owned by the corporation.

A.B. Article 59-3(1)7 of the former Corporate Tax Act (amended by Act No. 3577 of Dec. 21, 1982)

Supreme Court Decision 84Nu321 Delivered on September 11, 1984

Dong-dong Co., Ltd., Counsel for the plaintiff-appellant

Head of Chungcheong Tax Office

Seoul High Court Decision 83Gu940 delivered on April 12, 1984

The judgment below is reversed and the case is remanded to Seoul High Court.

The Plaintiff’s attorney’s ground of appeal is examined.

1. According to Article 59-3 (1) 7 of the Corporate Tax Act (amended by Act No. 3577, Dec. 21, 1982) which was in force at the time of the instant case, the special surtax shall not be imposed on any income accruing from the transfer of land, etc. within the scope prescribed by the Presidential Decree for the purpose of transferring a factory which has been operated for more than two consecutive years, as prescribed by the Presidential Decree

The object of non-taxation of special surtax under the above provision is the site and building of a factory operated for not less than two consecutive years retroactively from the date of transfer from among the business assets owned by the corporation, and the ownership of the site and building is also required to be owned by the corporation for not less than two consecutive years retroactively from the date of transfer (see Supreme Court Decision 84Nu321, Sept. 11, 1984; Supreme Court Decision 84Nu321, Sep. 11, 1984; Supreme Court Decision 84Nu321, Sep. 11, 1984). Therefore, it is reasonable to regard the assets trusted only to a third party in the name of the corporation as the assets owned by the

2. According to the records, it is recognized that the plaintiff purchased from April 29, 1970 to April 16, 1971, and continuously operated a tobacco manufacturing plant in the above ground building after completing each registration of ownership transfer, and sold it to Non-Party 1, etc. on October 6, 1980 and completed the registration of ownership transfer as of October 10 of that year. In the middle, it is recognized that on July 12, 1976, the above land was transferred to Non-Party 2 and two others on December 30, 1978 and completed the registration of ownership transfer by returning it to the plaintiff's name.

However, the court below affirmed the defendant's disposition imposing the special surtax of this case on the ground that the transfer margin following the transfer does not constitute non-taxable income under Article 59-3 of the Corporate Tax Act, since the plaintiff's transfer of ownership to non-party 2, etc. from July 12, 1976 to December 28, 1978 is limited to the method of protecting property for joint and several sureties by the representative director of the plaintiff corporation, and that the title trust is a title trust, as alleged by the plaintiff.

However, as seen earlier, the assets held in title under the substance over form principle should be deemed as the assets owned by the trust owner. As such, if the Plaintiff’s registration of ownership transfer to Nonparty 2 and two other persons is merely a title trust under the Plaintiff’s assertion, the period registered in the name of the above Nonparty should be included in the period for holding the Plaintiff’s ownership. If so, it is apparent that the Plaintiff continues to hold the instant land ownership for more than two years retroactively from the date of transfer.

3. Ultimately, the lower court should have deliberated whether the Plaintiff’s assertion on title trust was justifiable and should have calculated the Plaintiff’s ownership holding period. However, the lower court erred by disregarding the principle of substantial taxation on the assets held in title and failing to exhaust all necessary deliberations. Therefore, the argument on this point is reasonable.

Therefore, the judgment of the court below shall be reversed, and the case shall be remanded to the court below for a new trial. It is so decided as per Disposition by the assent of all participating judges.

Justices Lee Lee Sung-soo (Presiding Justice)