Daegu District Court 2009Guhap1749 ( November 25, 2009)

early 209Gu0189 ( October 28, 2009)

Application of the supplementary measures to determine the scope of small and medium enterprises under the Restriction of Special Taxation Act

With regard to the provision on reduction or exemption for small and medium enterprises, the transitional measure is applied only when an enterprise falling under a small and medium enterprise at the time of the enforcement of the Decree on the Amendment of the Techniques does not fall under a small and medium enterprise due to the enforcement of the Decree without changing other requirements.

The contents of the decision shall be the same as attached.

【○ Industries】

Racing Head of the Tax Office

1. The plaintiff's appeal is dismissed.

2. Costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance shall be revoked. The defendant's rejection of a claim for the correction of corporate tax in 2006 and 2007 against the plaintiff on November 11, 2008 shall be revoked.

1. Circumstances of dispositions;

A. The Plaintiff is a company with the purpose of manufacturing and selling general plastic plastic goods from 12-16 ○○○○○○○○-Eup ○○○○○○○○○○○○-si. On December 1, 2006, the Plaintiff owned 100% of the Plaintiff’s issued stocks. Around 2006, the Plaintiff reported corporate tax for the business year and 2007 business year, and applied temporary tax credit for investment to small and medium enterprises as stipulated in Article 26 of the Restriction of Special Taxation Act (hereinafter “Special Taxation Act”).

B. On April 7, 2008, the Plaintiff amended Article 3 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises (the Presidential Decree of the Framework Act on Small and Medium Enterprises amended by Presidential Decree No. 19189, Dec. 27, 2005; hereinafter referred to as the "Decree of the Framework Act on Small and Medium Enterprises") to "a corporation with total assets of at least 500 million won is not a small and medium enterprise which owns at least 30/100 of the total number of outstanding stocks." However, the previous provision of Paragraph 2 of the Addenda of the Decree of the Decree on the Amendment of the Technology refers to a small and medium enterprise for 3 years after the enforcement date." Thus, the Plaintiff constitutes a small and medium enterprise until December 27, 2008. Accordingly, the Plaintiff claimed that the special tax reduction and exemption for the small and medium enterprise under Article 7 of the Restriction of Special Taxation Act should be applied to the corporate tax for the business year 2006 and 207 business year."

C. Accordingly, the defendant rejected the plaintiff's request for correction on the ground that "if a non-listed corporation whose total amount of assets is more than 500 million won after the enforcement date of the Decree on Nov. 11, 2008, comes to own more than 30% of the total number of issued and outstanding shares, it shall not be subject to the grace period of the Addenda to the Decree on the Amendment of the Heavy Technology (hereinafter "the disposition in this case")."

D. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on January 4, 2009, but the Tax Tribunal dismissed the Plaintiff’s appeal on April 28, 2009.

[Ground of recognition] Facts without any dispute, Gap evidence 1-2, Gap evidence 3-4, the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1)The transitional provision of Paragraph (2) of the Addenda to the Decree on the Amendment of the Technology shall be deemed to apply to all cases where a company recognized as a small and medium enterprise prior to the enforcement of the Decree is excluded from a small and medium enterprise in the future. Thus, the transitional provision shall also apply to the Plaintiff newly excluded from a small and medium enterprise after the enforcement of the Decree, and the disposition of this case on a different premise is unlawful.

(2) In the official answer to the electronic civil petition, the Small and Medium Enterprise Administration interpreted that "the same applies not only to a company belonging to a small and medium enterprise at the time of the enforcement of the amendment order, but also to a corporation established after the enforcement of the amendment order, as well as to a corporation established at the time of enforcement of the amendment order." The special taxation policy of the Ministry of Finance and Economy refers to an enterprise whose total assets amount to not less than 500 million won hold not less than 30 million won of issued stocks of the unlisted corporation and whose public opinion is expressed (Article 2 (1) 3 of the Enforcement Decree of the Restriction of Special Taxation Act for three years from the enforcement date of the amendment order of the mid-term Special Taxation Act)." Thus, the instant disposition rejecting the plaintiff's request for correction, which trusted the above public opinion, was unlawful as it violates the principle of good faith and respect for tax practice.

(3) Even if a company's business year is excluded from other small and medium enterprises under the Restriction of Special Taxation Act before the end of the company's business year, the income accrued until the company was operated as a small and medium enterprise shall be applied without any condition of reduction or exemption for small and medium enterprises. Thus, the disposition of this case which did not apply the

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(i)whether paragraph 2 of the Addenda to the Decree on the Amendment to the Heavy Techniques is applied;

(A) According to Article 7(1) of the Restriction of Special Taxation Act, with respect to an enterprise operating a type of business (manufacturing business, etc.) from among small and medium enterprises, the amount of tax reduction or exemption calculated by applying the reduction or exemption rate to income tax or corporate tax on income accrued at the relevant workplace until the taxable year ending on or before December 31, 2008 is stipulated as a special reduction or exemption for the small and medium enterprise. Article 2(1) of the Enforcement Decree of the Restriction of Special Taxation Act provides that the scope of the small and medium enterprise is below the scope of the Enforcement Decree of the techniques among the categories of business, and the actual independence of the small and medium enterprise meets the requirements of subparagraph 2 of Article 3 of the Enforcement Decree of the Enforcement Decree of the Technology among the categories of business, and Article 3(1) of the Enforcement Decree of the Restriction of Special Taxation Act provides that the standard of substantial independence by Article 3(2) of the Decree on the Regulation of Special Taxation does not belong to the small and medium enterprise for 50 million won or more of total number of issued stocks.

On the other hand, Article 3 subparagraph 2 of the former Enforcement Decree of the former Enforcement Decree of the Technology Act prior to the amendment by Presidential Decree No. 19189 of December 27, 2005 provides that "the corporation whose total amount of assets is not less than 500 million won as a stock-listed corporation or an Association-registered corporation under Article 2 of the Securities and Exchange Act shall not own not less than 30 percent of the total number of stocks issued."

(B) Comprehensively taking account of the aforementioned evidence and the purport of the entire pleadings, the Plaintiff was initially owned by the largestA and six others, and the Plaintiff was found to have owned 100% of the shares issued by the Plaintiff by △W of a foreign corporation, the total amount of assets of which is more than 500 million won due to the change of the owner on December 1, 206. The Plaintiff’s 2006 business year’s 118 and 1 billion won was the Plaintiff’s 2006 business year’s 2006 business year’s 134 and 1.0 billion capital’s 2007 business year’s 2007 business year’s 134.

(C) As to whether the transitional provision of Paragraph 2 of the Addenda to the Decree on the Amendment of the Heavy Techniques applies, the transitional provision of the Addenda is a system that benefits companies in accordance with the existing laws and regulations for the purpose of preventing unexpected disadvantages due to institutional changes following the amendment of the Enforcement Decree. According to Article 2 Paragraph 2 Item 3 of the Enforcement Decree of the Restriction of Special Taxation Act, where a small or medium enterprise becomes a company with no substantial independence and is no longer a small or medium enterprise, the grace period shall not apply. In light of the above transitional provision, the above transitional provision applies only to a case where a company belonging to a small or medium enterprise at the time of the amendment of the Decree on the Amendment of the Technology does not fall under a small or medium enterprise due to the enforcement of the Decree on the Amendment without any change in other requirements. Since a foreign corporation of KRW 500,000,000 after the enforcement of the Decree on the Amendment of the Technology, which owns more than 30% of the total number of issued and outstanding stocks after the enforcement of the Decree on the amendment, it is reasonable to apply the above provision.

(2) Whether the principle of good faith and respect for tax practice has been violated

(A) Comprehensively taking account of the aforementioned evidence and the overall purport of the arguments, it can be acknowledged that the Small and Medium Business Administration respondeds to the electronic question civil petition on April 23, 2008 that the provision of the rule applies not only to the case where the company at the time of the enforcement of the Decree on the Regulation of Special Taxation, but also to the corporation established after the enforcement of the Decree on the Regulation of Special Taxation, as well as to the case where the company at the time of the enforcement of the Decree on the Regulation of Special Taxation at the time of the enforcement of the Ordinance on the Regulation of Special Taxation.

(b)However, the answer to the electronic civil petition by the Small and Medium Business Administration cannot be deemed as a public statement of the tax authority, and the response to the policy on the special taxation of the Ministry of Finance and Economy is merely interpreted as a small and medium enterprise under the transitional provisions of the Addenda to the Decree on the Restriction of Special Taxation, which is regarded as a small and medium enterprise under the Act on the Restriction of Special Taxation. The plaintiff does not express his opinion that a non-listed corporation whose total assets are more than 500 million won after the implementation of the Decree on the Amendment of the Framework Act on Special Taxation should be regarded as a small and medium enterprise under the Restriction of Special Taxation, even if the non-listed corporation newly holds more than 30% of the total number of issued and outstanding shares. Therefore, there is no reason for the plaintiff

(3)Until November 30, 206 whether the special tax amount on the income has been reduced or exempted;

(A) The special tax reduction system for a small or medium enterprise under Article 7(1) of the Restriction of Special Taxation Act requires that a national operating a small or medium enterprise operate the relevant business at the end of the taxable period subject to the special tax reduction or exemption (see Supreme Court Decision 2005Du685, Jan. 13, 2006) in order to be subject to the special tax reduction or exemption under Article 7(1) of the same Act, in view of the fact that the special tax reduction or exemption system is designed to support the improvement of the financial structure and the investment in facilities of a small or medium enterprise so that it can be smoothly implemented by means of a temporary reduction or exemption of income tax and corporate tax to protect and foster the small or medium enterprise in Korea with weak competitiveness, and it is stipulated that the capital should be determined as the balance sheet as of the end of the taxable year concerned as of the end of the taxable year.

(B) The Plaintiff asserts that the special tax reduction should be made on income until November 30, 2006, while considering the purport of the special tax reduction system for small and medium enterprises and the purport of Article 2(2) grace period of the Enforcement Decree of the Restriction of Special Taxation Act, the Plaintiff needs to be a small and medium enterprise as prescribed by the Act at the end of the taxable period subject to the special tax reduction for small and medium enterprises. Therefore, the Plaintiff’s assertion is without merit.

3.In conclusion

The judgment of the first instance is just, and the plaintiff's appeal is dismissed as there is no ground.