early 209 Heavy2396 (Law No. 111.05, 02)

Prior to the temporary tax credit for investment, etc., foreign investment reduction or exemption should be applied first.

Where foreign investment reduction or exemption is simultaneously applied to temporary tax credit, etc. to which minimum tax provisions apply, or foreign investment reduction or exemption, prior to the temporary tax credit, etc., it shall be applied first.

2011Revocation of revocation of disposition imposing special rural development tax, etc.

XXJhem Co., Ltd.

O Head of the tax office and one other

June 23, 2011

August 18, 2011

1. The imposition of each special rural development tax listed in the separate sheet No. 1 that Defendant XX head of the tax office made against the Plaintiff and the imposition of each corporate tax listed in the separate sheet No. 1 that Defendant XX head of the tax office made against the Plaintiff shall be revoked.

2. The costs of lawsuit are assessed against the Defendants.

The same shall apply to the order.

1. Basic facts

A. Merger between XX Estiia and the Plaintiff

PSE Co., Ltd. (hereinafter referred to as "SSE") is a foreign-invested corporation with 95% foreign investment shares established on April 25, 2002, with the primary purpose of manufacturing and selling L CD-related local instruments, and was merged on December 1, 2005 with the Plaintiff, who is engaged in the manufacturing and selling of semiconductors and TFT-L chemical products.

B. Details of reduction and exemption of corporate tax for XX Estiia and reporting and payment of the corporate tax, etc. thereof;

1) PSE receives from the Minister of Finance and Economy at the time of September 4, 2002 the corporate tax reduction or exemption (hereinafter “foreign investment reduction or exemption”) for a foreign-invested corporation pursuant to Article 121-2 of the former Restriction of Special Taxation Act (amended by Act No. 7003, Dec. 30, 2003; hereinafter “former Restriction of Special Taxation Act”) from the Minister of Finance and Economy at the time, for seven years from the taxable year in which the first income is generated from the business of manufacturing and selling TR-L CD type writing (hereinafter “instant reduction or exemption business”), the full amount of the amount calculated by multiplying the corporate tax amount equivalent to the corporate tax on the income by the ratio of foreign investment, and 50% of the amount calculated as above for three years thereafter, was reduced or exempted.

2) In order of application of tax reduction or exemption and tax credit under Article 59(1) of the former Corporate Tax Act (amended by Presidential Decree No. 18176 of Dec. 30, 2003 and Act No. 9898 of Dec. 31, 2009 hereinafter referred to as the “Corporate Tax Act”) to each report and pay corporate tax and special rural development tax for the business year 2003 business year in which the first income was generated from the instant tax reduction or exemption business, and then calculated by applying the tax rate of 20% to all or part of the above tax credit amount as prescribed by the Special Rural Development Tax Act.

(2) The following table details are omitted:

C. The Plaintiff’s corporate tax return and payment details

The Plaintiff reported and paid the corporate tax for the business year from 205 to 2008 after the merger of XXE, on the premise that the Plaintiff succeeded to the aggregate of 11,212,717,178 won (hereinafter “the carried-over deductible tax amount”) of the corporate tax calculated for each business year under the premise that the Plaintiff succeeded to the carried-over deductible tax amount, such as temporary tax credit, from the above merger.

D. Defendant’s imposition of special rural development tax and corporate tax

1) However, at the time of reporting and paying the corporate tax, etc. for the business year from 2003 to 2005, the Defendant: (a) considered Article 132(1) of the former Restriction of Special Taxation Act as a special provision on Article 59(1) of the Corporate Tax Act at the time of reporting and paying the corporate tax, etc. for the business year from 2003 to 2005; and (b) based on the special provision on Article 59(1) of the former Restriction of Special Taxation Act on the minimum tax amount, the Defendant first calculated the tax amount of the corporate tax and the special rural development tax for each business year from the calculated amount of the special rural development tax, and then deducted the special rural development tax, which is paid by x ASEAN, from the calculated amount of the special rural development tax, by deducting the special rural development tax for each business year from the calculated amount of the tax.

(The following table omitted):

2) Furthermore, under the premise that the Defendant did not have the carried-over deductible tax amount of XXSia succeeded to the Plaintiff following the above merger, the instant carried-over deductible tax amount of the Plaintiff deducted at the time when the Plaintiff filed a return of corporate tax belonging to the business year 2005 through 2008 is deemed to have been unfairly deducted, and that the Defendant corrected and notified the corporate tax belonging to the Plaintiff for each business year as shown in the attached Table 1 (in addition to the above disposition imposing corporate tax and the disposition imposing special tax prior to the above disposition, hereinafter referred to as the “each of the instant dispositions”).

E. Implementation of the pre-trial procedure

The Plaintiff, who was dissatisfied with each of the instant dispositions, lawfully filed a tax appeal, but the claim was dismissed on May 1, 201, which was subsequent to the filing of the instant lawsuit.

[Ground of recognition] Facts without dispute, Gap evidence 1-1 to 4, Gap evidence 2-1 to 4, Gap evidence 7, Eul evidence 1-1 to 4, and the purport of the whole pleadings

2. The parties' assertion

A. The plaintiff's assertion

The Defendant’s provision of Article 132(1) of the former Restriction of Special Taxation Act, based on each of the dispositions of this case, is merely a provision on calculating the limit of application of reduction, exemption, deduction, etc., which is subject to the minimum tax, and does not constitute a special provision that sets the order of reduction, exemption, and deduction different from Article 59(1)

Therefore, where the provisions on the reduction and exemption of corporate tax and the provisions on tax credits are applied simultaneously as in this case, temporary tax credit for investment falling under the carried forward tax credit under subparagraph 3 should be applied first to the foreign investment reduction and exemption falling under subparagraph 1 under Article 59(1) of the Corporate Tax Act.

B. Defendant’s assertion

Article 132 (1) of the former Restriction of Special Taxation Act applies to special provisions under Article 59 (1) of the Corporate Tax Act, and according to this, reduction or deduction, which is subject to the minimum tax, should be applied preferentially to reduction or deduction, not subject to the minimum tax

This is also confirmed in that Article 132 (3) of the Enforcement Rule of the Corporate Tax Act (attached Form 3) provides that "the tax base and adjusted account statement of corporate tax" (attached Form 4), "Adjusted account statement of the minimum tax" (attached Form 8), and "the list of tax reductions and exemptions" (attached Form 8) shall be applied prior to reduction and exemption or deduction which is not subject to the application of the minimum tax.On the other hand, Article 132 (3) of the former Act on Special Cases concerning Tax Restriction (amended by Act No. 9924, Jan. 1, 2010; hereinafter referred to as the "amended Restriction of Special Taxation Act") which was newly established on January 1, 2010 shall be applied first if both reduction and exemption, deduction, etc., which are subject to the minimum tax, and reduction and deduction, etc., which are not subject to the application of the former Act.

3. Related statutes;

Attached Form 2 is as shown in the relevant Acts and subordinate statutes.

4. Determination

A. Key issue

The key issue of this case is the temporary tax credit to which the minimum tax under Article 132 (1) of the former Restriction of Special Taxation Act applies and the foreign investment reduction or exemption that is not applicable to the above minimum tax should be applied first.

B. As to the order of reduction and exemption under Article 59(1) of the Corporate Tax Act

According to Article 59(1) of the Corporate Tax Act, where the provisions on the reduction or exemption of corporate tax and the provisions on tax credits are applied simultaneously, such application shall be made in the order of the reduction or exemption of income for each business year (paragraph 1), the tax credits for which carried-over deduction is not granted (paragraph 2), and the tax credits recognized to be carried-over (paragraph 3) except as otherwise provided.

Therefore, the foreign investment reduction or exemption equivalent to the tax reduction or exemption under subparagraph 1 should be first made prior to the tax credit for temporary tax credit falling under the carried-over tax credit under subparagraph 3 as prescribed by Article 59 (1) of the Corporate Tax Act.

C. Regarding the minimum tax under Article 132(1) of the Restriction of Special Taxation Act

1) According to Article 132(1) of the former Restriction of Special Taxation Act, in calculating corporate tax that is not listed in Article 132(1)3 and 4 of the same Act (i.e., tax credit, tax exemption, and reduction and exemption not subject to the minimum tax), in cases where the tax amount after the reduction and exemption, etc. under subparagraphs 1 through 4 of the same paragraph is applied (i.e., tax credit, tax exemption, and reduction and exemption) is below the tax amount calculated by multiplying the tax base by 15/100 if the business, industry, income deduction, etc. under subparagraphs 1 and 2 of the same paragraph is not made.

2) As such, Article 132(1) of the former Restriction of Special Taxation Act only prescribes the limit of reduction and exemption, etc. that is subject to the minimum tax under subparagraphs 1 through 4, but does not stipulate the limit, such as reduction and exemption not subject to the minimum tax. Furthermore, there is no express provision regarding the order of application, such as reduction and exemption, etc., subject to the minimum tax, and the order of reduction and exemption, etc. not subject to the application

3) However, Article 132(1) of the former Restriction of Special Taxation Act provides that when determining whether the limit of reduction, etc. subject to minimum tax exceeds the limit of reduction, etc., the comparative tax with the minimum tax shall not be subject to the minimum tax, "the tax amount after reduction, etc., is subject to the minimum tax," and there is no doubt as to whether the method of calculating the comparative tax is not explicit, but it does not determine the order of application, such as reduction, etc., subject to the minimum tax, and exemption,

However, considering the following various circumstances, it shall not be construed that the provision on the calculation of comparative tax in Article 132(1) of the former Restriction of Special Taxation Act provides the order of application such as reduction or exemption subject to the minimum tax and exemption not subject to the application.

① First of all, corporate tax which is not subject to the minimum tax under Article 132(1) of the former Restriction of Special Taxation Act is deemed to be only one way to appropriately impose restrictions on reduction, exemption, etc. of the minimum tax only for reduction, etc. subject to the minimum tax. Unlike the foregoing provision, if the tax amount is determined as the comparative tax after the reduction, exemption, etc. of the corporate tax which is not subject to the minimum tax, etc., the degree of actual restriction, such as reduction, exemption, etc. subject to the minimum tax, is inevitably affected depending on the degree of reduction, exemption, etc. not subject to the minimum tax, and thus, it goes against the purport of the minimum tax system to limit reduction, exemption, etc. only for such reduction, exemption, etc., by selecting the minimum tax subject to Article 132(1)1 through 4 of the former Restriction of Special Taxation Act.

(2) In addition, Article 132 of the former Restriction of Special Taxation Act as well as Article 132 of the same Act and Article 132 of the same Act, there is no provision that allows reduction of or exemption from the minimum tax, etc. only from the comparative tax amount where reduction or exemption is limited. It is difficult to see that such interpretation is naturally derived from the relevant provisions.

③ In addition, reduction or exemption, etc. which is not subject to the minimum tax, is excluded from the scope of application because there is no policy necessity to limit it, or there is relatively little need to limit it compared to reduction or exemption subject to the minimum tax. If Article 132(1) of the former Restriction of Special Taxation Act is considered to have decided first prior to the reduction or exemption subject to the minimum tax, etc., it would be possible to grant reduction or exemption, etc. which is not subject to the minimum tax only within the scope of the amount adjusted through the minimum tax, and thus, it would be limited in accordance with the above provision, such as reduction or exemption, etc. which is not subject to the minimum tax. This result goes against the legislative intent of the above provision, excluding

④ Furthermore, in a case where the comparative tax amount after the minimum tax is subject to reduction or exemption under the above provision exceeds the minimum tax, the restriction requirements such as reduction or exemption are not met, and in such a case, it is unreasonable if the calculation result of the comparative tax should be maintained as part of the corporate tax calculation process based on the above provision. This is because, even if it is not necessary to limit the minimum tax subject to reduction or exemption, it would be against the substantial meaning in the legislative intent of the minimum tax.

4) According to the foregoing, Article 132(1) of the former Restriction of Special Taxation Act cannot be deemed as a special provision that sets the order of reduction and exemption and deduction different from Article 59(1) of the Corporate Tax Act.

D. As to the attached Form of the Enforcement Rule of the Corporate Tax Act

Even if the Enforcement Rule of the Corporate Tax Act (attached Form 3) provides that the deduction, reduction, or exemption subject to the minimum tax under Article 132(1) of the former Restriction of Special Taxation Act shall be applied prior to the deduction, reduction, or exemption, not subject to the application thereof, as alleged by the Defendant, the preparation method is merely a mere provision of administrative rules to facilitate the administrative convenience of reporting and paying corporate tax, and thus does not bind the tax authority or the general public. Moreover, it cannot be said that it is a special provision that sets an exception to the order of reduction, exemption, or deduction under Article 59(1) of the Corporate Tax Act, which is a superior law.

E. As to the new establishment of Article 132(3) of the revised Restriction of Special Taxation Act

Article 132(3) of the amended Restriction of Special Taxation Act provides that where both reduction and exemption, etc. of the minimum tax and other reduction and exemption, etc. are applied simultaneously, it shall be applied prior to foreign investment reduction and exemption, etc., to which the minimum tax is applied. Accordingly, the above newly established provision sets the order of reduction and exemption, etc. differently from Article 59(1) of the Corporate Tax Act. In light of the principle of no taxation without law under Article 59 of the Constitution, the above newly established provision can not be deemed as a declared provision prepared in the sense of confirming the order of reduction and exemption, etc. under the premise that the same content as the above newly established provision is naturally derived, and an exception to the order of reduction and exemption, etc. under Article 59(1) of the Corporate Tax Act shall be deemed to be newly prescribed.

F. Sub-decision

In full view of the above various circumstances, if the temporary tax credit, etc. subject to the minimum tax provision of Article 132 (1) of the former Restriction of Special Taxation Act, and the foreign investment reduction or exemption, which is not subject to the above minimum tax provision, are simultaneously applied, prior to the tax credit for temporary investment under Article 59 (1) of the Corporate Tax

Therefore, it is unlawful that the Defendant’s calculation of the corporate tax of XXSia led to each of the instant dispositions under the premise that the temporary tax credit prior to foreign investment reduction and exemption should be made first.

5. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.