Whether a corporation established by a domestic corporation in a large city which has engaged in business for at least five consecutive years is excluded from the subject of registration tax pursuant to Article 102 (6) of the former Enforcement Decree of the Local Tax Act (affirmative)

In light of the legislative purport and form of Article 138(3) of the former Local Tax Act (amended by Act No. 7332 of Jan. 5, 2005) and Article 102(6) of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 18669 of Jan. 5, 2005), “B” under Article 102(6) of the above Enforcement Decree refers to “B” or “the establishment of the relevant divided corporation”. The above provision refers to “B” or “the establishment of the relevant divided corporation” with respect to a corporation established by a domestic corporation that has engaged in business for not less than five years in a large city as of the date of registration of the division, which is not subject to heavy taxation, and thus, it does not constitute a violation of the principle of no taxation without law as well as the registration of the establishment of the newly established corporation after the registration of the establishment.

Articles 112(1) and 138 of the former Local Tax Act (amended by Act No. 732 of Jan. 5, 2005); Article 102(6) of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 18669 of Jan. 5, 2005); Article 82(3) of the Enforcement Decree of the Corporate Tax Act; Article 41-2 of the Enforcement Rule of the Corporate Tax Act

Plaintiff Co., Ltd. (Law Firm Dongin, Attorneys Lee Han-jin et al., Counsel for the plaintiff-appellant)

The head of Gangdong-gu Seoul Metropolitan Government (Law Firm New century, Attorneys Yang Ho-Gyeong et al., Counsel for defendant-appellant)

July 24, 2007

1. The part of the disposition imposing registration tax of KRW 858,019,050 against the Plaintiff on December 10, 2005, exceeding KRW 6,114,150, and the part of the disposition imposing local education tax of KRW 1,132,830, which exceeds KRW 158,973, and KRW 810, respectively, shall be revoked.

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

The same shall apply to the order.

1. Details of the disposition;

The following facts are not disputed between the parties, or are recognized by Gap evidence 1, Gap evidence 2-1, 2-1, 3-3, Gap evidence 4-1, 2, Eul evidence 1-1, 2-2, Eul evidence 6-1 through 3, and Eul evidence 7, respectively.

A. On January 23, 1997, when the incorporation registration was completed on August 20, 1958, the non-party 1 corporation was settled in bankruptcy on January 23, 1997, and was decided to authorize the reorganization plan by the Seoul District Court on November 19, 198, and was again decided to authorize the reorganization plan by the same court on November 27, 2002.

B. The non-party 1 corporation divided the construction sector on December 5, 2002 in accordance with the above amendment plan of the company reorganization plan, and established the plaintiff (the plaintiff omitted from the process of mutual change).

C. On April 27, 2004, the Plaintiff purchased from Nonparty 2 the Gangdong-gu Seoul Metropolitan Government (Land Number 1 omitted), 914.7 square meters and (Land Number 2 omitted), 404.7 square meters and their respective above-ground buildings (hereinafter collectively referred to as the “instant real estate”) in price of 10.3 billion won, and completed the registration of ownership transfer on June 29 of the same year.

D. On June 29, 2004, the Plaintiff reported and paid the registration tax and local education tax, etc. calculated by applying the general tax rate under Articles 112(1) and 131(1) of the former Local Tax Act (amended by Act No. 7332, Jan. 5, 2005; hereinafter “former Local Tax Act”) to the Defendant regarding the acquisition of the instant real estate.

E. On December 14, 2005, when the Plaintiff reported and paid the acquisition tax, registration tax, etc. on the instant real estate to the Plaintiff, the Defendant omitted KRW 150,00,000,00, which is incidental expenses for the acquisition of the relevant real estate. The registration of the relevant real estate shall not be deemed to fall under the real estate register acquired within five years after the establishment of the corporation in a large city, but shall not be deemed to fall under the registration tax under Article 102(6) of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 18669, Jan. 5, 2005; hereinafter “former Enforcement Decree”), and shall not be deemed to fall under the corporate division under Article 82(3) of the Enforcement Decree of the Corporate Tax Act, and shall be deemed to fall under the acquisition tax, registration tax, etc. (10,450,000,000 +150,000,000,000).

F. On March 13, 2006, the Plaintiff dissatisfied with the instant disposition and filed a request with the Minister of Government Administration and Home Affairs for the examination of local taxes, but was dismissed on June 27, 2006.

2. Determination on this safety defense

According to the plaintiff's request for examination of local education tax only for the portion of the disposition of this case, the defendant sought revocation of the local education tax only with the disposition of revocation of the registration tax imposed by the lawsuit of this case. The part of the lawsuit of this case is an illegal lawsuit filed with the lapse of 90 days from the delivery date of the disposition. However, according to the plaintiff's request for examination of local education tax evidence No. 7, the plaintiff prepared and submitted a request for examination of local tax on March 13, 2006, "tax imposed on real estate" 1,021,372,860 won (this case's total amount of the acquisition tax, rural education tax, rural education tax, and local education tax) 20: 400 won (the total amount of the registration tax, acquisition tax, rural education tax, and local education tax) and 500 won (the total amount of the registration tax, 30 won, 400 won and 400 won, 400 won and 50 won, respectively).

Furthermore, according to the statements in the evidence Nos. 4-1 and 2, the Minister of Government Administration and Home Affairs may acknowledge the fact that the plaintiff's above request for review was rejected on June 27, 2006 and that the Minister notified the plaintiff of the decision on July 10, 2006. Meanwhile, it is obvious that the lawsuit in this case was filed on September 29, 2006 because it is reversely apparent that the lawsuit in this case was filed within 90 days from the date of delivery of the disposition, and therefore, the defendant's defense of safety is without merit.

3. Whether the instant disposition is lawful

A. The parties' assertion

(1) The plaintiff's assertion

The Plaintiff is a company that established a construction business division by dividing the construction business division for five consecutive years or more at the time of division. The registration under Article 102(6) of the former Enforcement Decree of the Local Tax Act shall be deemed to include not only the registration of establishment of a corporation but also the registration of real estate acquired after its establishment. As such, the registration tax, etc. following the Plaintiff’s acquisition of the instant real estate shall be deemed to be excluded from the subject of heavy taxation pursuant to Article 102(6) of the former Enforcement Decree of the Corporate Tax Act. Therefore, the part that exceeds the registration tax amount of KRW 6,114,150 and the local education tax amount of KRW 1,830,000,000 omitted by the Plaintiff among the disposition of this case is unlawful.

(2) The defendant's assertion

Article 102 (6) of the former Enforcement Decree of the Local Tax Act provides that where a domestic corporation in a large city which has operated a business for not less than five consecutive years as of the registration date of the division establishes a corporation due to the division of a corporation (limited to the case meeting the requirements under Article 82 (3) 1 through 3 of the Enforcement Decree of the Corporate Tax Act), it shall not be deemed subject to heavy taxation. This is excluded from subject matter of heavy taxation for the registration of real estate acquired due to the registration of the incorporation (including the establishment) of a corporation due to the division and the establishment of the division (the establishment). It is limited only at the time of the division, and it is not excluded from subject matter of heavy taxation for the registration of real estate acquired by the newly incorporated corporation after the establishment. In addition, the plaintiff does not meet the requirements for corporate division under Article 82 (3) 1 through 3 of the Enforcement Decree of the Corporate Tax Act and thus does not constitute the subject matter of Article

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Facts of recognition

Each of the evidence mentioned above may be acknowledged as follows in full view of Gap evidence Nos. 5, 6-1, 2, 7-1 through 4, 8-1 through 3, 9-1, 9-1 through 10, 10-1 through 4, 3-5, and 5-1 through 5, and the whole purport of the pleading:

(1) On October 7, 1997, the non-party 1 was ordered to commence the company reorganization procedure from the Seoul District Court, and after receiving the decision to approve the company reorganization plan on November 19, 198, it was impossible for the non-party 1 corporation to pay normally the principal and interest pursuant to the reorganization plan only with operating profits since 2000 while the company reorganization procedure was in progress in accordance with the company reorganization plan. On November 27, 2002, the non-party 1 corporation sold the steel business sector to the non-party 3 corporation through transfer of business, and the construction business sector established the new company by division and selling all of its shares to the non-party 4 corporation with the consent of the reorganization creditors, and obtained the approval from the Seoul District Court on the same day through a resolution at the meeting of interested persons on November 27, 2002.

(2) According to the construction project division plan of the above company reorganization plan, the main contents are as follows.

(A) Method of division: The construction sector among the division of the non-party 1 corporation shall be divided to incorporate the new company; the newly incorporated company due to division shall be a physical division that becomes the stockholder of the newly incorporated company, and the surviving company and the newly incorporated company shall be a reorganization company that is subject to the amendment plan of the reorganization plan.

(B) Criteria for division

(1) Division of assets: All assets subject to subdivision, which are directly related to business activities among the assets in the construction business sector, shall revert to a new company and the remaining assets which have no direct relation with business activities shall revert to the surviving company.

(2) Final burden of public-interest claims: The newly established company succeeds to those arising from the business activities in the construction sector from among public-interest claims that the newly established company is obliged to repay, and public-interest claims that are not directly related to business activities are not exempt from joint and several liability with respect to public-interest claims that are liable for repayment between the surviving company in division, and obligations, security obligations and reorganization claims of the construction mutual-aid association shall be exempted from liability, such as taxes, etc., and security obligations and reorganization claims, except

(c) Division balance sheet (unit: million won);

본문내 포함된 표 구 분 총 계 신설회사 존속회사 건설관련 조세채무관련 합계 〈자산〉 ？ ？ ？ ？ ？ 당좌자산 190,204 22,313 42,338 64,652 125,552 재고자산 28,627 178 10,581 10,759 17,868 투자자산 41,936 25,266 3,433 28,699 13,237 유형자산 10,856 237 4,964 5,201 5,655 자산총계 271,623 47,995 61,316 109,311 162,312 〈부채〉 ？ ？ ？ ？ ？ 유동부채 188,185 33,412 ？ 33,412 154,773 고정부채 578,564 13,583 61,316 74,899 503,665 부채총계 766,749 46,995 61,316 108,312 658,438

(3) On the other hand, on August 20, 202, before the above division, Nonparty 1 entered into a contract for the takeover of business with Nonparty 4 on the construction sector of Nonparty 1 corporation. The main contents are as follows.

(a) Subject to transfer: The following assets and liabilities belonging to the construction sector of the sub-committee; (1) any assets and liabilities subject to division; (2) the rights and obligations of the construction in progress; (3) the defect repair obligation of the construction in the warranty period; and (4) the joint and several sureties obligation and goodwill related

(b) Transfer exclusion: Assets and liabilities subject to exclusion from division such as securities and reorganization claims under the Company Reorganization Program;

(c) Transfer method: Transfer by transferee after the incorporation of a newly incorporated company by division of the construction sector; and

(d) Settlement of Accounts for Transfer: The above transfer proceeds shall be the same amount as assets and liabilities to be divided; (1) If assets exceed liabilities, the excess amount shall be paid to the transferor separately from the transfer proceeds; and (2) if liabilities exceed assets, the amount equivalent to liabilities - the amount equivalent to the minimum statutory capital of the stock company and the addition of assets equivalent to the assets

(4) On November 30, 2002, Nonparty 1 Co., Ltd.: (a) divided the construction sector in accordance with the Seoul District Court’s decision to authorize the alteration plan of the company reorganization plan; (b) established the Plaintiff by the company; and (c) applied for permission to establish a new company and to request registration on December 3, 2002 by dividing all the shares of the newly incorporated company into a physical division by allocating them to Nonparty 1 Co., Ltd.

(5) On December 23, 2002, Nonparty 1 Co., Ltd.: (a) pursuant to the Seoul Central District Court’s decision to authorize the revision plan of the company reorganization plan; (b) applied for the division of property of the newly incorporated company; and (c) obtained the permission on December 24, 2002, to transfer the property of the newly incorporated company to the Plaintiff by dividing it as follows.

(unit: million won)

본문내 포함된 표 구분 변경계획 분할기준일 존속회사 신설회사 자산 150,752 273,124 225,129 47,995 부채 705,866 816,448 769,453 46,995 부산제강소 246,836 233,207 233,207 ？ 자본 -308,278 -310,117 -311,117 1,000

(6) After physical division, the non-party 1 corporation changed all the licenses related to the construction business in the name of the Plaintiff, and accordingly, did not engage in the construction business after physical division.

(d) Markets:

(1) Interpretation of Article 102(6) of the former Enforcement Decree of the Local Tax Act

Article 138 of the former Local Tax Act (amended by Presidential Decree No. 138, Dec. 3, 2006) provides that the scope of heavy registration tax and applicable standards and other necessary matters shall be delegated to the Presidential Decree. Accordingly, Article 102 of the former Enforcement Decree of the Local Tax Act provides that "the scope of and applicable standards for heavy taxation on corporations, etc. in a large city" shall be included in the registration of each subparagraph of Article 138 (1) of the Act. Article 138 (6) of the former Enforcement Decree of the Local Tax Act provides that "if a domestic corporation which has been engaged in a business in a large city for not less than five years on the date of registration of the division of a corporation (limited to cases where the requirements under Article 82 (3) 1 through 3 of the Enforcement Decree of the Corporate Tax Act are met) is not subject to heavy taxation." Article 102 (2) of the Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 138 (1) 3), Article 138 (1) and 38 (1) of the Local Tax Act.

In light of the legislative purport of the above provision and Article 138 of the former Local Tax Act, “B” under Article 102(6) of the former Enforcement Decree of the Local Tax Act means “B” or “the establishment of the divided corporation” under Article 102(6) of the former Enforcement Decree of the Local Tax Act. The meaning of Article 102(6) of the Enforcement Decree of the Local Tax Act is deemed not to be subject to heavy taxation in the application of each subparagraph of Article 138(1) of the Corporate Tax Act to a corporation established by a corporation that meets the requirements under the Enforcement Decree of the Corporate Tax Act established by a domestic corporation that has engaged in business for not less than five years in a large city as of the registration date of the division. Thus, registration not subject to heavy taxation includes not only the registration of establishment of a corporation established by a division but also the real estate registration acquired by a corporation established after the registration of its incorporation. Such interpretation does not constitute a expanded interpretation contrary to the principle of no taxation without law

(2) Whether the instant division constitutes Article 102(6) of the former Enforcement Decree of the Local Tax Act

(A) On the other hand, the division of a corporation under Article 102(6) of the Enforcement Decree of the Local Tax Act refers to a case where the requirements under Article 82(3)1 through 3 of the Enforcement Decree of the Corporate Tax Act are met. Article 82(3)1 of the Enforcement Decree of the Corporate Tax Act provides, “Separately dividing a business into an independent business division possible to operate a business,” and Article 82(3)2 of the Enforcement Decree of the Corporate Tax Act provides, “The assets and liabilities of the divided business division shall be comprehensively succeeded to: Provided, That this shall not apply to the case of assets jointly used, liabilities not to be changed by the debtor, etc., as prescribed by the Ordinance of the Ministry of Finance and Economy.” Article 102(3)3 provides, “The division of a corporation shall be divided

As seen above, as to this case, the non-party 1 corporation established the plaintiff by dividing the construction sector, which is an independent business division that can be operated separately, and the assets subject to division, among the assets of the construction business sector, belong to the plaintiff, which is the new company, and the remaining assets which are not directly related to business activities, belong to the non-party 1 corporation, the surviving company, and the non-party 1 corporation succeeds to the public interest bonds that the new company should pay, and the public interest bonds that are not directly related to business activities are not directly related to business activities, and the liabilities such as taxes, etc., the newly established company succeeds to the liabilities of the construction mutual aid association, the guaranteed liabilities of the construction mutual aid association, and the reorganization claims and the reorganization claims are distributed to the newly established company, and all of them are divided by the investments of the non-party 1 corporation, the divided corporation. Thus, the plaintiff satisfies the requirements for division of the corporation under Article 82 (3) 1 through 3 of the former Enforcement Decree of the Corporate Tax Act.

(B) On this issue, the Defendant asserts that “The transfer of this case’s business shall be made by dividing the construction business sector and establishing a new corporation and acquiring it by the transferee. In this case, the assets of the newly incorporated company shall be divided so that they may exceed the minimum statutory capital than the liabilities of the company,” which ultimately does not meet the requirements of comprehensive succession under Article 82(3)2 of the former Enforcement Decree of the Corporate Tax Act.

In light of the facts stated in Eul evidence No. 4, the above transfer agreement is deemed to have a provision that the assets of a newly incorporated company should be divided into more than the legal capital of the corporation than the liabilities as alleged by the defendant under Article 2 of the acquisition agreement. On the other hand, Article 1 of the contract provides that all assets and liabilities belonging to the construction business which is the object of the acquisition shall be succeeded to the plaintiff. Articles 4 and 5 (1) provide that the total transfer price shall be KRW 777,700,000 on the premise that the assets and liabilities belonging to the divided company shall be the same amount. If the assets exceed the liabilities or exceed the liabilities, the above transfer price shall be determined on the premise that the plaintiff comprehensively succeeds to the assets and liabilities of the construction business division of the non-party 1 corporation, and the result of settlement after the transfer shall be clearly defined that the assets and liabilities should be settled after the transfer, and therefore, the defendant's assertion is without merit.

(C) The Defendant asserts that the Plaintiff, a newly incorporated company, was jointly and severally liable with the divided company with respect to priority claims arising out of business activities of the construction sector, and that this was comprehensively succeeded to the assets and liabilities of the divided business sector, and that the liabilities other than the divided business sector do not meet the requirements for comprehensive succession under Article 82(3)2 of the former Enforcement Decree of the Corporate Tax Act. However, if the assets and liabilities of the construction sector were comprehensively succeeded to the new corporation, such circumstance does not meet the requirements for comprehensive succession under Article 82(3)2 of the former Enforcement Decree of the Corporate Tax Act, even if the liabilities other than the divided business sector were succeeded to the new corporation. Therefore, the Defendant’s assertion on this point is without merit.

(D) According to the division balance sheet (Evidence No. 7-2 and No. 5), the defendant asserts that the division of the company still remains in the remaining company without dividing some assets and liabilities, such as the amount of the construction account out of the current assets item, the completion house of inventory assets among the current assets item, the site, and the land among the current assets item, the long-term completion house of inventory assets among the fixed assets item, the land, the building, the building, the construction loss reserve among the tangible assets item, the defect repair reserve, etc., and the remaining company did not meet the comprehensive succession requirement of Article 82(3)2 of the former Enforcement Decree of the Corporate Tax Act.

According to the statement in the balance sheet (Evidence A-2) prepared by dividing the Plaintiff Company into the part of the outstanding amount of the construction work among the tangible assets ( KRW 9,1563,728,051), ② the completed house ( KRW 1,767,212,580), land ( KRW 18,097,209,165), ③ the long-term unbuilt house ( KRW 13,264,35,256), ④ the land ( KRW 5,268,39,727), building ( KRW 985,025,686), ⑤ the loss reserve of the construction among the tangible assets ( KRW 296,329,792), and the assets and liabilities of the Plaintiff Company were not owned by the Plaintiff Company.

(4) Since Gap evidence 10-1 to 8-14, Gap evidence 16-1 to 2-52, Gap evidence 17-1 to 4, Gap evidence 18-1 to 10, Gap evidence 2-1 to 20, Gap evidence 20-1 to 20, Gap evidence 20-1 to 222-1 to 12, Eul evidence 20-2, non-party 2, non-party 2, non-party 12 were all disposed of as non-party 2, non-party 2, non-party 2, non-party 1, non-party 2, non-party 2, non-party 2, non-party 1, non-party 2, non-party 2, non-party 1, non-party 2, non-party 2, non-party 2, non-party 1, non-party 2, non-party 2, non-party 2, non-party 2, non-party 2, non-party 1, non-party 2, new

(E) Article 82(3)2 proviso of the former Enforcement Decree of the Corporate Tax Act, which provides for the exception of comprehensive succession among the physical division requirements subject to the exemption from heavy registration tax, does not recognize exceptions to the whole assets and liabilities difficult to divide, such as assets jointly used, liabilities of the debtor, etc., but limited exceptions to those prescribed by the Ordinance of the Ministry of Finance and Economy. The defendant asserts that the assets and liabilities excluded from the division of the company in this case are not the assets and liabilities of the company in this case. However, although part of the assets and liabilities related to the construction business in the division balance sheet of the company in this case remains in the non-party 1 corporation, the defendant's assertion on this point is without merit, since all assets and liabilities related to the construction business have been transferred to the newly incorporated company.

(3) Conclusion

Therefore, the plaintiff's registration of the real estate of this case constitutes an exception to the heavy registration tax pursuant to Article 102 (6) of the former Enforcement Decree of the Local Tax Act. Therefore, the plaintiff's assertion is justified.

4. Conclusion

Therefore, the part of the disposition of this case exceeding KRW 6,114,150 and the local education tax amount exceeding KRW 1,132,830 among the disposition of this case is illegal. Thus, the plaintiff's claim of this case seeking revocation is justified and it is so decided as per Disposition by the assent of all participating Justices.

Judges Jeong-hee (Presiding Judge)