No loss carried forward shall be succeeded unless all the requirements for succession to the loss carried forward prescribed by the former Corporate Tax Act are satisfied.

In the case of a merger between complete subsidiaries, where a merged corporation merges with a merged corporation by allocating one share of new shares of the merged corporation to the whole of the stocks of the merged corporation, the initial disposition that does not meet the requirements for succession to losses under the former Corporate Tax

2014Guhap52671 Revocation of Disposition of Corporate Tax Imposition

AAA Corporation

○ Head of tax office

April 18, 2014

June 13, 2014

1. All of the plaintiff's claims are dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposing corporate tax of KRW 172,462,880 (including additional tax), corporate tax of KRW 265,76,410 (including additional tax), corporate tax of KRW 265,76,410 (including additional tax), and corporate tax of KRW 161,329,160 (including additional tax) for the business year 2009 against the Plaintiff on May 2, 2013 is revoked.

1. Details of the disposition;

A. On June 12, 2009, the Plaintiff (formerly, Company BB; hereinafter referred to as the “merged Corporation”) acquired the entire shares of AAA Co., Ltd. (hereinafter referred to as the “Merger Corporation”) in a state of complete capital erosion, and on July 31, 2009, assigned one share of new shares (5,000 won) of the merged corporation to the merged corporation for all of the shares of the merged corporation without fixing the price for the merger, and changed the trade name to the “AAA Co., Ltd.” (hereinafter referred to as the “merger”).

B. Next, the Plaintiff deducted the total amount of KRW 2,289,686,450 out of the total amount of KRW 2,320,752,301, and reported the corporate tax base for the business year from 2009 to 2011.

C. On May 2, 2013, the Defendant denied all of the losses carried forward of the merged corporation that the Plaintiff deducted from the Plaintiff on the ground that the one share of new shares issued by the Plaintiff (the shares received from the merged corporation by the shareholders, etc. of the merged corporation) does not fall under at least 10/100 of the total number of issued shares or total amount of investment as of the date of the registration of the merger of the merged corporation as of December 31, 2009 (amended by Act No. 9898, Dec. 31, 2009; hereinafter referred to as the “former Corporate Tax Act”) and corrected and notified the Plaintiff of the corporate tax of 265,76,410, corporate tax of 2010 for the business year 205,76,410, corporate tax of 161,329,160 (hereinafter referred to as the “disposition”).

D. On August 5, 2013, the Plaintiff appealed and filed a petition for a trial with the Tax Tribunal. However, the said petition was dismissed on November 21, 2013.

[Reasons for Recognition] Facts without dispute, Gap evidence 1 through 5 (including each number, hereinafter the same shall apply), Eul evidence 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Corporate Tax Act separates qualified mergers from qualified mergers and non-qualified mergers; tax benefits for qualified mergers;

The reason is that the qualified merger is due to the same economic substance before and after the merger, and the merger between the complete parent company is due to the change of the shares of the subsidiary company held by the parent company as the assets held by the subsidiary company, and the economic substance of the merger before and after the merger is the same. The merger between the complete parent company is made in large number in order to avoid an ambiguous formal procedure; the current Corporate Tax Act also reports the qualified merger between the complete parent company in consideration of these circumstances; the Corporate Tax Act was amended by Act No. 9267 of Dec. 26, 2008, which allows the consolidated tax payment between the complete parent company and the complete parent company, so the reason to restrict the succession of the loss brought forward between the complete parent company is extinguished; since the Corporate Tax Act was amended by Act No. 9267 of Dec. 26, 2008 to deduct the loss brought forward of the merged corporation and the merged corporation from the income amount generated from each business after the merger, it is reasonable to view the complete merger requirement as a complete merger requirement even if it fails to meet the requirement.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Prohibiting taxation requirements, non-taxation requirements, or tax reduction requirements under the principle of no taxation without law.

The interpretation of tax laws and regulations shall be interpreted as the text of the law, and shall not be extensively interpreted or analogically interpreted without reasonable grounds, barring any special circumstances. In particular, it accords with the principle of equity in taxation to strictly interpret the provision that is obviously preferential in terms of the requirements for reduction and exemption (see Supreme Court Decision 2008Du11372, Aug. 20, 200).

According to Articles 45(2) and 44(1) of the former Corporate Tax Act, a merger is made between domestic corporations which have been engaged in business continuously for at least one year as of the date the merger is registered. ② Where stockholders, etc. of an extinguished corporation receive the price for the merger from the merged corporation, the value of stocks, etc. is at least 95/100 of the total amount of the price for the merger is at least 95/100, ③ the surviving corporation continues to engage in business succeeded from the extinguished corporation until the end of the business year to which the date the merger is registered; ④ the surviving corporation succeeds to the assets of the extinguished corporation at the book value of the extinguished corporation; ④ the surviving corporation’s stockholders, etc. received from the merged corporation from the merged corporation are at least 10/100 of the total number of stocks issued by the merged corporation or the total amount of investment in the merged corporation as of the date the merger is registered, the loss carried forward of the extinguished corporation at the time of the merger registration is deducted in calculating the tax base of the merged corporation for each business year.

2) As to this, even under the former Corporate Tax Act, the merger between the complete parent subsidiaries is at least 10%.

It argues to the effect that it is reasonable to view a qualified merger even in a case where the requirements for stock issuance are not satisfied. Considering the following circumstances revealed by adding the aforementioned evidence and the overall purport of the pleadings, it cannot be viewed as a qualified merger in a case where a merger between a complete parent company and a complete parent company fails to meet the requirements for stock delivery even if it is a merger between the complete parent company under the former Corporate Tax Act, and the above argument by the

A) Article 45(2) of the former Corporate Tax Act clearly provides for the requirements for succession to carried-over losses, and it cannot be deemed that Article 45(2) of the former Corporate Tax Act is unclear or that it conflicts with other provisions, and there is no circumstance to deem that Article 45(2) of the former Corporate Tax Act does not delete the requirements for issuance of stocks more than 10%.

B) The Plaintiff asserts that the complete parent corporation and the complete subsidiary corporation may deduct the losses carried forward of the consolidated tax return system without limit as it applies to the complete parent corporation and the complete subsidiary corporation, while the complete parent corporation and the complete subsidiary corporation can deduct the losses carried forward of the consolidated subsidiary corporation only within the scope of income amount from the business succeeded to by each corporation, so it is more favorable for taxpayers to apply the consolidated tax return system in terms of the scope of succession to the losses carried forward, so it is more favorable for them to apply the consolidated tax return system to the extent of the scope of succession to the losses carried forward, so there is no reason to restrict the succession to the losses carried forward between the complete parent corporation as long as the consolidated parent corporation is allowed to pay taxes. However, the former Corporate Tax Act stipulates that the losses incurred before applying the consolidated tax return system of the consolidated corporation shall be included in the losses carried forward of the consolidated corporation before the application of the consolidated tax return system of the consolidated corporation, and therefore, it is difficult to readily conclude that it is more favorable for a merger between the taxpayers to apply the consolidated subsidiary corporation at all times.

C) In addition, the purport of Article 45(1) of the former Corporate Tax Act provides that the merged corporation shall prevent the merger of corporations with excessive losses with the aim of reducing corporate tax by using the deficits of the merged corporation. Since the Corporate Tax Act was amended by Act No. 9267 on December 26, 2008, which shall be deducted within the scope of income amount generated from each business after the merger, the requirements for stock transfer by 10% or more have lost its existence. However, prior to the amendment by Act No. 9267 on December 26, 2008, Article 45(1) of the former Corporate Tax Act provides that "the losses carried forward of the merged corporation as of the date of registration of the merger shall be deemed the losses of the merged corporation and shall be deducted in calculating the tax base of the merged corporation for each business year, it shall not be concluded that the losses carried forward of the merged corporation shall be deducted within the scope of 20% of the income amount succeeded to by Act No. 9267, Dec. 26, 2008.

D) The Plaintiff asserts to the purport that, in the event that a complete parent company (merged corporation) merges with a subsidiary company (merged corporation), the merged corporation shall be deemed to have issued new stocks for merger and may succeed to the merged corporation’s losses carried forward. Thus, the Plaintiff asserts to the purport that the merger between the complete parent company and the complete parent company shall be deemed to have satisfied the requirements for issuance of 10% or more stocks even if the merger between the complete parent company and the complete parent company did not issue new stocks for merger.

However, the inquiry of the Ministry of Finance and Economy or the National Tax Service’s established rules cannot be bound by the court because of its legal effect (see, e.g., Supreme Court Decision 80Nu47, Sept. 9, 1980). The inquiry of the Ministry of Finance and Economy invoked by the Plaintiff is related to the so-called “an unissued merger” in which the merged corporation does not issue the new stocks of the merged corporation to the stockholders of the merged corporation. Thus, the inquiry of the Ministry of Finance and Economy, which is invoked by the Plaintiff, cannot be applied to the merger of merged

E) In the case of a qualified merger that has the same economic substance before and after the merger, even if there is a need to recognize the succession of the deficit brought forward even in the case of a merger between the complete parent company in light of the purport of the provision of the Corporate Tax Act that grants various tax benefits, it

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

▣ 구 법인세법(2009. 12. 31. 법률 제9898호로 개정되기 전의 것)

Article 44 (Inclusion of Amount equivalent to Merger Evaluation Marginal Profit in Calculation of Losses)

(1) Where a merged corporation succeeds to evaluation of and succession to the assets of a merged corporation, an amount equivalent to the evaluation marginal profit from merger of the relevant assets (limited to assets prescribed by Presidential Decree) may be included in deductible expenses in calculating the income amount for the business year which includes the date of the merger registration, as prescribed by Presidential Decree:

1. A merger shall be between domestic corporations which have continued to conduct business for not less than one year as of the date of merger registration;

2. Where stockholders, etc. of an extinguished corporation receive the price for merger from the merged corporation, the value of the stocks, etc. shall be 95 percent or more of the total amount of the price for the merger;

3. The merged corporation shall continue the business succeeded from the extinguished corporation by the end of the business year in which the merger is registered.

(2) Where the merged corporation which has included the amount equivalent to the merger evaluation marginal profit under the provisions of paragraph (1) in the calculation of losses discontinues the business succeeded from the extinguished corporation within three years from the beginning date of the business year following the business year in which the merger registration falls, the amount included in the calculation of losses shall be included

(3) A merged corporation which wishes to be subjected to paragraph (1) shall submit a detailed statement on merger evaluation marginal profit under the conditions as prescribed by the Presidential Decree.

(4) In applying the provisions of paragraphs (1) and (2), matters necessary for the criteria for judging the continuation or discontinuance of succeeded business, amounts to deductible expenses or inclusion in the gross income, and the method of inclusion thereof shall be prescribed by Presidential Decree.

Article 45 (Succession to Losses Carried Forward Following Merger)

(1) Where a domestic corporation merges with another domestic corporation, the losses under subparagraph 1 of Article 13 as of the date on which the merger is registered shall not be deducted within the scope of the income (where a surviving corporation does not keep separate accounts because it falls under the proviso to Article 113 (3), the amount shall be calculated in proportion to the asset value prescribed by Presidential Decree; hereafter the same shall apply in this Article) accruing from the business succeeded to from the merged

(2) In cases of a merger meeting the following requirements, the losses under subparagraph 1 of Article 13 of an extinguished corporation as of the date the merger is registered shall be deemed the losses of the merged corporation and be deducted when the tax base for each business year of the merged corporation is calculated, as prescribed by Presidential Decree, within the scope

1. It is required to fall under each subparagraph of Article 44 (1);

2. The merged corporation shall succeed the assets of the merged corporation at the book value;

3. Stocks, etc. received by stockholders, etc. of an extinguished corporation from a merged corporation shall be not less than 10/100 of the total number of issued stocks or total amount of investment as of the

(3) Where a merged corporation, which deducts losses of an extinguished corporation pursuant to paragraph (2), discontinues business succeeded to from an extinguished corporation within three years from the commencement date of the business year following the business year in which the merger registration falls, the total amount of deducted losses shall be included in gross income in calculating the income amount for the

(4) Matters necessary for the criteria for judging the discontinuance of succeeded business under paragraphs (1) through (3), calculation of losses to be deducted in calculating the tax base for each business year, inclusion of deducted losses in the gross income, etc. shall be prescribed by Presidential Decree.