Supreme Court-2014-Du-47693 ( December 22, 2017)

It is reasonable to calculate net profit and loss in proportion to only new contract expenses that are incurred later according to the basic rules of the Corporate Tax Act.

Pursuant to Article 43 of the former Corporate Tax Act, in order to be the basis for attribution of profits and losses under the Corporate Tax Act by performing complementary functions of tax laws, it is generally recognized. As such, the new contract expenses that were paid before the formulation of the general provisions of the Corporate Tax Act, which are the same as the contents of the new contract expenses of this case, may not be divided and depreciated

Article 43 (Application of Corporate Tax Accounting Standards and Practices)

Article 55 (Method of Calculating Value of Net Assets)

2017Nu90195 Revocation of Disposition of Imposition of Gift Tax

- Appellants

○○ and 2 others

○ Head of tax office et al.

Supreme Court Decision 2014Du47693 Decided December 22, 2017

1. All appeals filed by the plaintiffs and the defendants are dismissed.

2. The total costs of the lawsuit after each appeal shall be borne individually by each party.

1. Purport of claim

The imposition of gift tax of KRW 4,243,669,420 (including additional tax), gift tax of KRW 3,378,900,610 (including additional tax) imposed on Plaintiff OO on January 2, 2012 by the director of the tax office, and the imposition of gift tax of KRW 4,173,303,140 (including additional tax) imposed on Plaintiff OOO on January 2, 2012 by the director of the tax office, shall be revoked.

2. Purport of appeal

A. The plaintiffs

The part against the plaintiffs in the judgment of the court of first instance shall be revoked. The imposition of gift tax of KRW 4,243,669,420 against the plaintiff's OO on January 2, 2012, KRW 3,298,653,856 (including additional tax of KRW 1,551,115,259), and KRW 2,62,21,934 (including additional tax of KRW 1,251,847,849), among the imposition of gift tax of KRW 3,378,90,610 (including additional tax of KRW 1,551,15,259), imposed on the plaintiff's OO on January 2, 2012, the imposition of KRW 4,173,303,140 among the imposition of gift tax of KRW 3,289,134,69,695 (including additional tax of KRW 1,596,95) shall be revoked.

B. The Defendants

The part against the Defendants in the judgment of the first instance is revoked, and the plaintiffs' claims corresponding to the revoked part are dismissed.

1. Quotation, etc. of judgment in the first instance;

The reasons why the court shall explain this part of the judgment of the court of first instance are as follows.

In addition to the revision of the attached Form 2 of the judgment of the court of first instance and the attached Form 2 of this judgment is the same as the attached Form 2 of this judgment (including the attached Form 1, but excluding the part of '3. conclusion'). Therefore, it shall be accepted in accordance with Article 8(2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

2. Parts to be corrected;

○○ 4th parallel of claims by the plaintiffs are "A. The plaintiffs' assertion" (the plaintiffs, after remanding, withdrawn all the existing arguments inconsistent with them on May 16, 2018 other than the following arguments at the date of pleading of May 16, 2018).

○ 4 5 to 5 00 .0 .0 .00 .0 .0

6) The enforcement decree of the 5th 9th 9th eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth e.g.

○ 5 The following shall be added to the nine below:

2) Article 31 of the Rules on Accounting of Insurance Business (amended by Presidential Decree No. 1998, Dec. 10, 1998) provides that new contract expenses and other assets shall be treated as expenses equally during the maintenance period (seven years in cases where the period exceeds seven years). This constitutes "general fair and reasonable business accounting standards" under Article 43 of the former Corporate Tax Act (amended by Act No. 7838, Dec. 31, 2005; hereinafter the same shall apply). Therefore, in calculating the net profit and loss of the company from 2002 to 2004, the new contract expenses that were disbursed from 1998 to 2004 should be included in deductible expenses, and the Defendants were to calculate the total amount of the new contract expenses that were disbursed from 1998 to 204 to 104 to 2004 to 203.5.100 to 2005.

3) In assessing the business rights of the instant company, the Defendants’ equity capital shall be calculated as incidental to the instant company’s equity capital.

In the case of this case, although it is assessed as zero won under the principle of limited liability of shareholders, it is assessed as an incidental as it is different from the tax practice, etc., so the disposition of this case is unlawful as it is in calculating the tax base.

○ 5. The following shall be deleted from 8 to 6.

○ From 4 up to 15 eths below the 7th page.

○○ 15th 10th 15th 10th m6th m) judgment on the fifth argument is “1) judgment on the first argument.”

○ 16 2 o.b. “I.........” on the right side of the 16th “n..........”

A new tax law after establishment is applied retroactively to the established facts of taxation, which results in disadvantage to taxpayers, and which results in contravention of the principle of retroactive taxation as provided by the Constitution and the Framework Act on National Taxes.

○ The last 16th assessment is that “it is not possible to evaluate” the last 16th assessment is that it is not permissible as an extended or abstract interpretation contrary to the principle of no taxation without law.

○ 17 2 to 18 - the 17th parallel parallels are as follows:

2) Determination on the second argument

A) Article 40(1) of the former Corporate Tax Act provides that “A domestic corporation’s gross income and deductible expenses for each business year”

The business year of accrual of earnings and losses shall be the business year which includes the date on which the concerned earnings and losses are determined. Article 68 through 71 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18945, Jul. 15, 2005; hereinafter the same shall apply) provides that "the matters necessary for the scope, etc. of the business year of accrual of earnings and losses under the provisions of paragraph (1) shall be determined by Presidential Decree" in paragraph (2) shall be the business year which includes the date on which the concerned earnings and losses are determined. In addition, Articles 68 through 71 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18945, Jul. 15, 2005; hereinafter the same shall apply) provide that "where a domestic corporation applies the corporate accounting standards which are generally recognized as fair and reasonable in calculating the income amount of a domestic corporation for each business year, it shall not apply to the case where the corporation continues to apply the concerned corporate accounting standards or practices."

Article 40 of the former Corporate Tax Act (amended by Act No. 4065, Oct. 23, 1992; Act No. 1485, Jan. 23, 1992; Act No. 2014; Act No. 2010, Apr. 2, 2011; Act No. 2010, Jan. 29, 2011; Act No. 2010, Jan. 22, 2011; Act No. 20130, Jan. 22, 2011; Act No. 2010, Jan. 2, 2012; Act No. 20130, Jan. 2, 2012; Act No. 20130, Feb. 3, 2011).

B) In light of the above legal principles, the new contract of this case on December 10, 1998

Although the provisions were enacted, every insurance company including the instant company filed multiple civil petitions against the said provisions on the ground that, according to the new contract expense clause in this case, it cannot be recognized as losses in excess of the deductible period of the loss carried forward (five years) even if it would incur enormous amount of new contract expenses in the early stage due to the characteristics of the insurance business.

In addition, even if an insurance company returns and pays corporate tax prior to the enactment of the General Rules of Corporate Tax Act, which is identical to the contents of the new contract clause of this case on May 10, 2003, prior to the enactment of the General Rules of Corporate Tax Act, it has been entirely depreciated for the business year in which new contract expenses are paid in accordance with the principle of confirmation of rights and obligations, and the tax authorities have imposed tax on this premise. Therefore, it is difficult to conclude that the new contract clause of this case was a fair and reasonable corporate accounting standard even if there is room to deem that the new contract clause of this case was a fair and reasonable corporate accounting standard in connection with the standards for attribution of profits and losses under the Corporate Tax Act. Ultimately, the new contract clause of this case cannot be deemed to have satisfied the requirements under the Corporate Tax Act on May 10, 2003, and thus, it is difficult to

3) Judgment on the third argument

A) The term “business right” means an intangible asset value, namely, excess profit-making capacity, which can enable a person to enjoy higher profits than ordinary profits of other companies engaged in the same kind of business due to business functions or characteristics such as the tradition, social credibility, location conditions, existence of special manufacturing technology or transactional relationship (see, e.g., Supreme Court Decisions 95Nu18697, May 28, 1997; 2003Du7804, Apr. 9, 2004). Under Article 59(2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, the amount equivalent to 50/100 of the average net profit-making value of the company for the latest three years (where the period is less than three years, the period is the same as the date of appraisal x one-year maturity time deposit interest rate as determined by the Ordinance of the Ministry of Finance and Economy) is to be converted by the method prescribed by Ordinance of the Ministry of Finance and Economy under Article 59(2) of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act.

B) In light of the above legal principles of goodwill and the language and text of the pertinent statutes, the records can be seen.

In full view of the following circumstances, it is reasonable to view that the equity capital of the company of this case cannot be assessed as zero won in assessing its goodwill, and this part of the plaintiffs' assertion cannot be accepted (the defendant's assertion that this part of the lawsuit should be asserted by the court after the remand of the plaintiffs since it constitutes an actual time attack and defense to delay the lawsuit. It is obvious that the plaintiff added the above argument regarding the evaluation of goodwill only in the preparatory documents dated March 2, 2018 after the remand of the plaintiffs. Even if the defendant's assertion that it constitutes a means of attack and defense, it is necessary to continue the date, or it is possible to complete the deliberation of the method of attack and defense within the scope of its continuation, or it is included in the method of attack and defense within the scope of litigation materials which have already been examined, it cannot be viewed as delaying the conclusion of the lawsuit, and thus, the defendant's assertion that this part of the lawsuit of this case should not be dismissed within the scope of the legal reasoning of the judgment of this case, including the continuation of evidence examination, is not justified (see this part of this case's argument).

① The term “equity capital” is a separate concept from “capital stock” (Article 451 of the Commercial Act), which is a fund raised from a shareholder who owns a company, and means an amount obtained by deducting another’s capital from the total assets under the accounting principle. Meanwhile, the net asset value means the amount obtained by subtracting the liabilities from the assets of a corporation pursuant to Article 55(1) of the former Inheritance Tax and Gift Tax Act. As such, the two are substantially the same concept. However, in the supplementary valuation method of unlisted stocks, Article 55(1) of the Enforcement Decree, which provides for the method of calculating the net asset value, does not explicitly state that “the net asset value is below zero won.” Thus, unless the amended Enforcement Decree provides for the foregoing provision, it shall not be evaluated as zero won even if the net asset value is calculated as incidental (-) (see Supreme Court Decision 2014Du4847, Dec. 22, 2017); Article 59(2) of the Enforcement Decree also provides for a separate assessment of the equity capital as incidental (i.e.

② The value of shares itself cannot be assessed as a negative number pursuant to the principle of limited liability (Article 331 of the Commercial Act) that a shareholder is held liable for the value of shares to the extent of the value of shares he/she holds, but this is the same as the value of shares finally calculated. Therefore, it is difficult to readily conclude that equity capital can be assessed as an incidental number based on the shareholder’s limited liability from the stage of seeking equity capital, which is the interim stage of assessing business rights to seek the value of shares.

③ In assessing the goodwill, the Plaintiffs asserted that the equity capital serves as an element of deduction in cases where calculating the amount of excess profit calculated in accordance with the aforementioned formula. As such, if the equity capital is assessed as an incidental (-) and the equity capital is assessed as an incidental (i.e., the acquisition + the value of the transfer. Therefore, it would result in unreasonable consequences that the insolvent company’s equity capital is assessed as much as its goodwill compared with the company that did not. However, in view of the comparative situation in which the business rights are compared on the premise that the companies operating the same net profit and loss as the company that did not operate the same type of business are to gain the same amount of profit and loss, in view of the fact that the equity capital has the same net profit and loss as the company that was not calculated as incidental (-), notwithstanding the interest expense that would have been disbursed as a result, the business rights are relatively superior to the company that did not be assessed as its equity capital, and that the method of calculating the excess profit and loss should also be considered not only as the factor of assessing the goodwill, but also as other factors.

④ Even if the Commissioner of the National Tax Service has authoritative interpretation that the substance of Article 59(2) of the Enforcement Decree of the Inheritance Tax Act and Article 5(4)1 of the former Enforcement Decree of the Inheritance Tax Act (amended by Presidential Decree No. 12993, May 1, 1990) practically identical to that of the former Enforcement Decree (amended by Presidential Decree No. 12993, May 1, 199), when the equity capital is incidental to the equity capital or when the net asset value of the relevant corporation is assessed as 0 won in accordance with subparagraph 1 of Article 5(5) of the former Enforcement Decree of the Inheritance Tax Act (amended by Presidential Decree No. 12993, Apr. 363, 192; Presidential Decree No. 19894, Nov. 29, 1989) is assessed as 0 won when the net asset value of the relevant corporation is assessed as 0 won, it can not be determined as 2014,207.

⑤ Supreme Court Decision 200Du7766 Decided April 12, 2002, which held that since the business right of the company run by the predecessor was assessed as an incidental (-) in the course of determining the inheritance tax amount, it shall not be deemed as a passive property, and thus, it shall not be deducted from inherited property because it is difficult to view it as an incidental concept. Thus, in case where equity capital is assessed as an incidental (-) in the interim stage of assessing the value of the stocks of this case as a subject of gift tax, when it is assessed as an incidental (-) on the premise of calculating the value of the stocks of this case, it is inappropriate to invoke this case, since there are different factual relations

3. Conclusion

Therefore, it is reasonable to accept the plaintiffs' claim of this case within the scope of the above recognition, and to dismiss all of the remaining claims as it is without merit. The judgment of the first instance court with the same conclusion is just, and the appeal by the plaintiffs and the defendants is without merit, and all of them are dismissed.