[1] Whether a provision on tax reduction or exemption for a small or medium start-up enterprise under Article 6 of the former Restriction of Special Taxation Act is premised on a small or medium start-up enterprise establishment support Act and its Enforcement Decree (affirmative)

[2] The case holding that the conversion of a private business into a corporation does not fall under the scope of business start-up under the former Support Act for Small and Medium Enterprise Establishment Act, and thus, it does not constitute corporate tax reduction or exemption under Article 6

[1] In full view of the circumstances behind which Article 15 of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 4021 of Dec. 26, 1988) prescribed by the former Support for Small and Medium Enterprise Establishment Act (amended by Act No. 6054 of Dec. 28, 1999), the provision on tax reduction and exemption for small and medium enterprises under Article 6 of the former Restriction of Special Taxation Act (amended by Act No. 6194 of Jan. 21, 200) and its Enforcement Decree (amended by Presidential Decree No. 16806 of May 10, 200), it is reasonable to view that the provision on tax reduction and exemption for small and medium enterprises falling under the premise of the establishment of a small and medium enterprise establishment under Article 15 of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 16821 of Dec. 29, 200) is not different from the former Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act.

[2] The case holding that the conversion of a personal business entity into a corporation is not subject to corporate tax reduction or exemption under Article 6 (2) of the former Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act (amended by Presidential Decree No. 16806 of May 10, 200) since it does not fall under the scope of business establishment since "a small and medium business owner who is a personal business entity continues to conduct the same kind of business as that before the conversion into a corporation" under Article 2 (1) 2 of the former Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act (amended by Presidential Decree No. 16806

[1] Article 6 of the former Restriction of Special Taxation Act (amended by Act No. 6054 of Dec. 28, 1999), Article 2 of the former Support for Small and Medium Enterprise Establishment Act (amended by Act No. 6194 of Jan. 21, 200), Article 2 of the former Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act (amended by Presidential Decree No. 16806 of May 10, 200) / [2] Article 6 (2) of the former Restriction of Special Taxation Act (amended by Act No. 6054 of Dec. 28, 1999), Article 2 subparagraph 1 of the former Support for Small and Medium Enterprise Establishment Act (amended by Act No. 6194 of Jan. 21, 200), Article 2 subparagraph 2 of the former Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act (amended by Presidential Decree No. 16806 of May 10, 200)

Pakistan Co., Ltd. (Law Firm Western, Attorneys Park Man-ho et al., Counsel for the plaintiff-appellant)

Head of Ansan Tax Office

Seoul High Court Decision 2006Nu9650 decided January 26, 2007

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

We examine the grounds of appeal.

Article 25(1) of the former Support for Small and Medium Enterprise Establishment Act (amended by Act No. 3831, May 12, 1986) provides that “The Government may reduce or exempt corporate tax, income tax, property tax, and registration tax for the founders of small and medium enterprises and rural communities under the conditions as prescribed by the Regulation of Tax Reduction and Exemption Act.” However, at the time of the amendment on January 5, 1995, the Government changed the scope of tax exemption for small and medium enterprises under the provisions of Article 25(1) of the former Support for Small and Medium Enterprise Establishment Act (amended by Act No. 3865, Dec. 26, 1986; hereinafter the same shall apply) to those who wish to promote the establishment of small and medium enterprises under the conditions as prescribed by the Presidential Decree by the Regulation of Tax Reduction and Exemption for Small and Medium Enterprise Establishment Act (amended by Act No. 250, Jan. 26, 198; hereinafter the same shall apply) to those who are directly engaged in small and medium enterprises and medium enterprises under the Special Regulation of Tax Reduction and Exemption Act.

In full view of the developments leading up to and changes in the former Regulation of Tax Reduction and Exemption Act, it is reasonable to deem that Article 6 of the former Restriction of Special Taxation Act (amended by Act No. 6297, Dec. 29, 2000) provides for the benefit of tax reduction or exemption for small and medium enterprises under the premise of the establishment of a small and medium enterprise under the former Support for Small and Medium Enterprise Establishment Act and the Enforcement Decree thereof. This does not change even if Article 6(4) of the Restriction of Special Taxation Act (amended by Act No. 6297, Dec. 29, 200) restricts the scope of the same business establishment under the former Support for Small

In the same purport, the court below is just in holding that corporate tax reduction or exemption under Article 6 (2) of the former Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act (amended by Presidential Decree No. 16806 of May 10, 200) is excluded from corporate tax because it does not fall under the scope of business establishment because it is "a small and medium enterprise which is an individual entrepreneur continues to conduct the same kind of business as that before the change is made as a corporation" under Article 2 (1) 2 of the former Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act (amended by Presidential Decree No. 16806 of May 10, 2000).

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Yong-dam (Presiding Justice)