Whether or not a small or medium enterprise is subject to special taxation under the former Restriction of Special Taxation Act or is subject to deferment thereof under the former Restriction of Special Taxation Act and the former Enforcement Decree of the Restriction of Special Taxation Act (affirmative)

Article 2(1)3 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Act No. 9272, Dec. 26, 2008; hereinafter “former Enforcement Decree of the Framework Act on Small and Medium Enterprises”) provides that the provisions of Article 2(1)3 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 21307, Feb. 4, 2009; hereinafter “former Enforcement Decree of the Special Act”), Article 19189 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 21368, Dec. 25, 2009; hereinafter “former Enforcement Decree of the Framework Act on Small and Medium Enterprises”), which provides that the provisions of Article 3 subparag. 1(b) and Article 2 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 21501, Dec. 19, 2005) are different from those of the former Enforcement Decree of the Framework Act.

Article 5 of the former Restriction of Special Taxation Act (Amended by Act No. 9272, Dec. 26, 2008); Article 2 (1) 3, (2), and (5) of the former Enforcement Decree of the Restriction of Special Taxation Act (Amended by Presidential Decree No. 21307, Feb. 4, 2009); Article 2 of the former Framework Act on Small and Medium Enterprises (Amended by Act No. 10952, Jul. 25, 201); Article 3 subparagraph 1 (b) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (Amended by Presidential Decree No. 21368, Mar. 25, 2009); Article 3 (1) 2 [see current Article 3 (1) 2 (b) of the former Enforcement Decree of the Restriction of Special Taxation Act); Article 2 (1) 3, (2) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (Amended by Presidential Decree No. 21307, Dec. 1, 2007, 209) [see current Article 207)

Geumho Co., Ltd. (Law Firm the New century, Attorneys O Byung-si et al., Counsel for the plaintiff-appellant)

Head of the North Mine District Tax Office

Gwangju High Court Decision 2012Nu1197 decided April 25, 2013

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

Judgment ex officio is made.

1. Article 2(1)3 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 21307, Feb. 4, 2009; hereinafter “former Enforcement Decree of the Restriction of Special Taxation Act”) provides for the special taxation for small and medium enterprises in Section 1, etc. of Chapter II (hereinafter “Special taxation for small and medium enterprises”). Article 2(1)3 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 21307, Feb. 4, 2009; hereinafter “former Enforcement Decree of the Restriction of Special Taxation Act”) requires that “the de facto independence of small and medium enterprises conforms to the provisions of Article 3 subparag. 2 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises.”

Meanwhile, Article 3 subparag. 2 [Attachment 2] of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 19189, Dec. 27, 2005; Presidential Decree No. 21368, Mar. 25, 2009; hereinafter “former Enforcement Decree of the Framework Act on Small and Medium Enterprises”) provides that one of the standards for actual independence in ownership and management of small and medium enterprises shall not hold at least 30 percent of the total number of issued and outstanding shares of the corporation under Article 3 subparag. 1(b). Article 3 subparag. 1(b) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 19189, Dec. 27, 2005; hereinafter “former Enforcement Decree of the Framework Act on Small and Medium Enterprises”) provides that “the total amount of assets indicated as a stock-listed corporation or Association-registered corporation under Article 2 subparag. 1(b) of the Securities and Exchange Act (hereinafter “former Enforcement Decree”).

In addition, Article 2(2) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 19189, Dec. 27, 2005) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 19189, Dec. 27, 2005) provides that “If an enterprise falling under a small and medium enterprise becomes no longer a small and medium

2. Comprehensively taking account of the adopted evidence, the lower court acknowledged the following facts: (i) the Plaintiff owned 49% of the total number of issued and outstanding shares in Japan, and filed a settlement of accounts for the business year of 2008 as of December 31, 2008 and filed a corporate tax return for the business year of 2008; (ii) applied for the application of special taxation on small and medium enterprises as stipulated in the former Special Taxation Act and received corporate tax reduction or exemption; (iii) the Plaintiff did not meet the requirements for the exemption of the corporate tax under Article 2(1)3 of the former Enforcement Decree of the Special Taxation Act for the business year of 2008, when the total amount of assets indicated in the balance sheet was converted into won on March 31, 2008; and (iii) the Defendant did not meet the requirements for the exemption of the Plaintiff from the corporate tax under Article 2(1)3 of the former Enforcement Decree of the Special Taxation Act for the business year of 2008.

Then, the court below determined that the corporate tax of this case, which was made on a different premise, is unlawful on the ground that the plaintiff should be deemed as a small and medium enterprise by December 26, 2008, under Article 3 subparagraph 2 of the Enforcement Decree of the former Act, since the total amount of assets is not a listed corporation, even if the total amount of assets is at least 500 million won, the plaintiff was not a corporation under Article 3 subparagraph 1 (b) of the former Enforcement Decree of the former Enforcement Decree of the Technology Act, but since the plaintiff was not a small and medium enterprise due to the enforcement of Article 3 subparagraph 1 (b) of the former Enforcement Decree of the Technology Act, since it became invalid due to the enforcement of Article 3 subparagraph 1 (b) of the former Enforcement Decree of the former Enforcement Decree of the Technology Act, which was enforced from December 27, 2005 to December 26, 2008.

3. However, it is difficult to accept such determination by the lower court for the following reasons.

The contents and purport of the aforementioned provision, Article 2 of the former Framework Act on Small and Medium Enterprises (amended by Act No. 10952, Jul. 25, 201); Article 3 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Act No. 10952, Jul. 25, 201); and Article 3 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises only provides for the standards for each type of business subject to policies to foster small and medium enterprises, but does not impose restrictions on the category of business itself. However, the former Act and its Enforcement Decree provide for the requirements and scope of small and medium enterprises, such as setting the requirements of small and medium enterprises under some provisions of the Framework Act on Small and Medium Enterprises, but limiting the application of special taxation from tax policy considerations to a specific type of small and medium enterprise (Article 5 of the former Act and Article 2(1) main text of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises). In addition, the former Act and its Enforcement Decree provide for special taxation under the former Enforcement Decree on Small and Medium Enterprises.

4. Nevertheless, the lower court determined otherwise, that the instant disposition of imposing corporate tax was unlawful on the ground that the Plaintiff was postponed until December 26, 2008 as a small and medium enterprise pursuant to Article 2 of the Addenda to the Enforcement Decree of the former Enforcement Decree of the Jung-gu Technology Act. In so determining, the lower court erred by misapprehending the legal doctrine on the statutes applicable to the determination of small and medium enterprises subject to the application of special taxation under the former

5. Therefore, without further proceeding to decide on the grounds of appeal, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices

Justices Lee Sang-hoon (Presiding Justice)