Seoul High Court 2009Nu11289 (Law No. 2011.07)

Where there is a justifiable reason not listed in the corporation which has conducted asset revaluation, corporate tax shall not be imposed on the revaluation spread.

Even if a corporation which has conducted a revaluation of assets pursuant to Article 56-2 (1) of the former Regulation of Tax Reduction and Exemption Act fails to list stocks by December 31, 2003, if the cause is attributable to the corporation due to a justifiable cause not attributable to the corporation, corporate tax shall not be levied on the revaluation difference.

2011Du27131 Revocation of Disposition of Imposing Corporate Tax, etc.

AAA Insurance Corporation

The director of the tax office

Seoul High Court Decision 2009Nu11289 Decided September 7, 2011

February 28, 2013

The appeal is dismissed.

The costs of appeal are assessed against the defendant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Article 56-2 (1) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 4285, Dec. 31, 1990; hereinafter the same) provides that "a corporation which intends to list its stocks for the first time to the Korea Stock Exchange may conduct revaluation under the Assets Revaluation Act by treating the first day of each month as the revaluation date, notwithstanding the provisions of Articles 4 and 38 of the Assets Revaluation Act," and Article 15 (1) 5 of the former Corporate Tax Act (amended by Act No. 4803, Dec. 22, 1994); however, Article 23 (1) of the Addenda of the Regulation of Tax Reduction and Exemption Act (amended by Act No. 4285, Dec. 31, 1990; hereinafter the same) provides that "the revaluation spread under the Assets Revaluation Act shall not be included in the gross income in calculating the income amount for the pertinent business year". Article 23 (1) of the former Enforcement Decree of the Restriction of Tax Reduction and Exemption Act (amended by Presidential Decree No. 130) shall be included within the new Act.

The legislative purport of each of the above provisions is to induce the listing of stocks by excluding the revaluation difference from the taxable object of corporate tax even though a corporation which conducted a revaluation of assets on the premise of stock listing for the purpose of revitalizing the stock market, and to prevent any abuse by depriving of such special taxation in the event that the relevant corporation is negligent in listing stocks. Thus, even if a corporation which conducted a revaluation of assets under Article 56-2 (1) of the former Regulation of Tax Reduction and Exemption Act fails to list stocks by December 31, 2003, even if the relevant corporation did not list stocks by December 31, 2003, if the cause arises from a justifiable cause not attributable to the relevant corporation, corporate tax shall not be imposed on the revaluation difference (see Supreme Court Decision 2009Du3842, Apr. 28, 2011).

2. The court below acknowledged the facts as stated in its reasoning based on adopted evidence, and found the listing requirements of this case to the effect that the Government and the Korea Stock Exchange supervised by the Government shall distribute the listing profits to policyholders in order to limit the listing of stocks of life insurance companies, and have an institutional obstacle to listing of stocks of life insurance companies until April 30, 207. However, since the listing requirements provisions of this case are not adequate legal basis, the government and the Korea Stock Exchange should have removed such institutional obstacle by revising the listing requirements provisions of this case so that stocks can be listed under the same conditions as other stock companies, it is reasonable to view that the failure to list stocks by December 31, 2003, which the Plaintiff listed as life insurance companies, was arising from justifiable reasons not attributable to them. In light of the above legal principles as to taxation or revaluation spread of securities, the court below's determination that there were no errors in the misapprehension of legal principles as to taxation or evaluation provisions of this case, which are legitimate grounds and the record, as seen in the grounds for appeal.

3. In addition, a refund of revaluation tax already paid by the Plaintiff was made on the ground that the revaluated of this case does not constitute revaluation under the Assets Revaluation Act due to the Plaintiff’s failure to list the Plaintiff’s stocks, and thus, a refund was made by deeming that the grounds for taxation of revaluation tax originally paid by the Plaintiff have disappeared. Therefore, the Plaintiff’s dispute over the disposition of this case cannot be deemed as violating the good faith principle solely on the ground that the Plaintiff received revaluation tax originally paid by the Plaintiff. Accordingly, the allegation in the other grounds of appeal cannot be accepted.

4. 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.