Cho High Court Decision 2010Du3347 ( October 10, 2011)

(1) The fact that the acquisition of shares does not constitute a case where the acquisition of shares is exceptionally permitted.

The acquisition of treasury shares in this case is null and void, and the price of treasury shares is paid without legal grounds, since there is no evidence to deem that the acquisition of treasury shares constitutes the acquisition of treasury shares exceptionally permissible under the Commercial Act or the Securities and Exchange Act.

2011Revocation of revocation of disposition of imposing corporate tax;

XX Co., Ltd

Head of Ansan Tax Office

March 8, 2012

March 29, 2012

1. All of the plaintiff's claims are dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s imposition of KRW 00 of corporate tax for the year 2005, KRW 00 of corporate tax for the year 2006, KRW 000 of corporate tax for the year 2007, KRW 000 of corporate tax for the year 2007, KRW 000 of corporate tax for the year 2008, and KRW 000 of corporate tax for the year 2008, and KRW 000 of corporate tax for the year 2009.

1. Details of the disposition;

The following facts may be acknowledged, either in dispute between the parties or in full view of the respective descriptions of Gap evidence of Nos. 1 through 4, 6 through 11, 13, 14 (including each number), Eul evidence of Nos. 1 through 5, and 7 (including each number), and the whole purport of the pleadings.

A. The Plaintiff was established on April 1, 1997 and operated the business of manufacturing gold-type and automation equipment for automobiles. On May 6, 2004, the Plaintiff purchased 00,000 shares of the Plaintiff’s holding a temporary shareholders’ meeting (the share ratio of 35.86%; hereinafter referred to as “instant shares”) from May 2004 to May 2004, and decided to retire the instant shares at the time of termination of the purchase of shares of the Plaintiff.

B. Accordingly, the Plaintiff purchased 00,000 shares of the Plaintiff, which were held by thisA, on a total of four occasions as indicated below, at KRW 000 (hereinafter “instant share price”).

C. After that, on February 17, 2012, the Plaintiff owned the instant shares as its own shares without undergoing the procedures for retiring the shares by the end of January 2012, the Plaintiff held a temporary shareholders’ meeting to retire the instant shares and made a special resolution to reduce the capital from KRW 000 to KRW 000. On February 21, 2012, the Plaintiff announced the reduction of capital and the creditor’s objection.

D. Meanwhile, the director of the Central Regional Tax Office of China found that the Plaintiff acquired and held the shares as above, and that the Plaintiff acquired the shares of this case to the Defendant is invalid transactions that lack the requirements for acquiring the shares as stipulated in Article 341 of the Commercial Act, and thus, the stock price of this case paid to EA, a person with a special relationship, as the Plaintiff’s shareholder, shall be deemed as a provisional payment to EA without any legal cause, and shall include an amount equivalent to the recognized interest and an amount equivalent to the interest paid related to the share price in the calculation of losses.

E. Accordingly, the Defendant determined that the share price of this case constitutes a provisional payment unrelated to business, and included the recognized interest amount in the gross income. The paid interest related to the provisional payment was excluded from the deductible expenses, and rendered each of the dispositions of this case where the Plaintiff corrected and notified the corporate tax of 2006, the corporate tax of 2006, the corporate tax of 000, the corporate tax of 2007, the corporate tax of 2007, the corporate tax of 000, the corporate tax of 2008, the corporate tax of 2008, and the corporate tax of 000, the corporate tax of 2009, respectively.

F. On October 21, 2010, the Plaintiff appealed to each of the instant dispositions, and filed an appeal with the Tax Tribunal, but was dismissed on March 10, 201.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff acquired the instant shares from thisA to retire upon receiving a request for purchase of the instant shares, which is valid as it constitutes an exception to the prohibition of acquiring treasury shares as stipulated in Article 341 subparagraph 1 of the Commercial Act. Even if the acquisition of the instant shares is null and void under the Commercial Act, it cannot be deemed as a provisional payment in relation to the instant shares under the principle of substantial taxation.

Therefore, each disposition of this case should be revoked as it is illegal.

B. Relevant statutes

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

C. Determination

1) The validity of acquiring the instant shares

A) In principle, the Commercial Act prohibits the acquisition of a company’s own shares on its own account from uniformly preventing various harm, such as undermining the interests of the company, shareholders, and creditors, undermining the interests of the company, undermining the principle of equality of shareholders, undermining the principle of equality of shareholders, and undermining the control of an unfair company by the representative director, etc., and thus, the Commercial Act uniformly prevents them from uniformly prohibiting them for general preventive purposes (see, e.g., Supreme Court Decision 341, 341-2, 342-2, and 342-2 of the Commercial Act, and the Securities and Exchange Act explicitly permits the acquisition of a company’s own shares in cases where it is evident that the acquisition of a company’s own shares cannot be deemed as endangering the company’s capital foundation or undermining the interests of shareholders, etc., such as where the company gratuitously acquires a company’s own shares or undermining another’s account, even in other cases, even if there are unavoidable circumstances to avoid serious damage that may arise to the company, shareholders, or creditors, etc.).

In accordance with the provisions of the articles of incorporation, the retirement of shares under the Commercial Act is a case where all shares are distributed equally (proviso of Article 343(1) of the Commercial Act), a case where profits are available by a special resolution of a regular general meeting of shareholders (Article 342-2 of the Commercial Act), and a case where redemption of redemption shares is made in accordance with the provisions of capital reduction (main sentence of Article 343(1) of the Commercial Act) except for a case where redemption of redemption shares is made (Article 345(1) of the Commercial Act). Thus, even in a case where a company’s disposal of shares is made with its capital at a cost, a shareholder who retires shares under the principle of equality of shareholders without impairing creditors’ interests is not treated unfairly. Therefore, even if a company acquires shares as a prior procedure for the retirement of shares, there is no risk of harm thereby even if it acquires shares, the Commercial Act permits the company to temporarily acquire shares for the retirement of shares (Article 341 subparag. 1 of the Commercial Act). 342 of the Commercial Act).

On the other hand, capital reduction under the Commercial Act is ① in excess of the current capital in terms of the business size of the company, and is made for the purpose to return it to the shareholders, ② the purpose to anticipate dissolution and make liquidation procedures convenient, ③ the purpose to reduce the shares of shareholders of the extinguished company prior to the merger, ④ the purpose of capital loss to access the net property.

B) On the basis of the following circumstances revealed as to the instant case, i.e., ① the Plaintiff at the time of acquiring the instant shares, i.e., for the purpose of returning the Plaintiff’s excessive capital to shareholders at the time of acquiring the instant shares, i.e., for the purpose of facilitating dissolution or merger, and for the purpose of meeting the company’s net property, etc. ii) there is no circumstance to deem that this case’s shares were acquired for the purpose of acquiring the Plaintiff’s net property. Inasmuch as this case’s shares were purchased for the purpose of acquiring the Plaintiff’s shares from May 31, 2004 to April 30, 2008, the Plaintiff cannot be deemed to have acquired the Plaintiff’s shares for the purpose of acquiring the Plaintiff’s shares on the ground that the Plaintiff’s management aggravation, aggravation of relationship with the Plaintiff’s representative director, and real estate investment, etc., the Plaintiff’s shares were not subject to a special resolution of 200,000 won for the purpose of acquiring the Plaintiff’s shares, and were not subject to retire the Plaintiff’s shares.

2) Whether the share price of this case constitutes a provisional payment unrelated to business

A) Article 28 of the Corporate Tax Act and Article 53 of the Enforcement Decree of the same Act include not only purely meaningful loans, but also loans corresponding to the nature of claims such as indemnity bonds (see Supreme Court Decision 2005Du1588, Oct. 26, 2006). If a sales contract becomes null and void, even if the sales price was paid to the transferor, it cannot be deemed as a transfer of assets subject to capital gains tax or an income from the transfer of assets (see, e.g., Supreme Court en banc Decision 95Nu18383, Mar. 20, 197). In determining whether the sales price of stocks paid by a corporation for the acquisition of treasury stocks falls under the provisional payment under Article 28(1)4 (b) of the Corporate Tax Act, the sales price of stocks should be determined on the premise that the acquisition price of treasury stocks is not paid as a consideration for the acquisition of stocks.

B) As seen earlier, thisA constitutes a shareholder of the Plaintiff’s specially related person. Since the Plaintiff’s acquisition of the instant shares is null and void, the Plaintiff’s payment of the instant shares to thisA is not paid as the price for the acquisition of the instant shares, but is paid without any legal cause, and thus, the Plaintiff is obligated to recover the instant shares from thisA immediately. Nevertheless, as the Plaintiff asserts the validity of the acquisition of the instant shares and evades or renounces the collection without justifiable grounds, it is reasonable to deem the instant shares payment to be the provisional payment that the Plaintiff paid to this Party regardless of its business affairs.

3) Sub-determination

Therefore, the share price paid by the Plaintiff to EA, a person with a special relationship, falls under the provisional payment paid without relation to the business, and based on this, the tax base and tax amount of each corporate tax in the year 2005 through 2009 for the Plaintiff from the calculation of the recognized interest rate based on the calculation of the gross income amount and the non-deductible of the interest paid to the Plaintiff is the same as the tax base and tax amount of each corporate tax in the year 2005 through 2

3. Conclusion

Therefore, the plaintiff's claim of this case is without merit, and all of them are dismissed. It is so decided as per Disposition.