Busan District Court 2013Guhap308 (Law No. 13, 2013)

Cho High Court Decision 2012 Deputy 3129 ( November 26, 2012)

It is reasonable to view that the instant shares were purchased for the purpose of retiring shares, and therefore, it constitutes income from constructive dividend.

It cannot be viewed that the acquisition of the instant shares was not for the purpose of retirement solely on the ground that the acquisition of the instant shares did not go through the formalities for the retirement of treasury shares, and it is reasonable to view that the instant shares constitute the income

Article 17 of the Income Tax Act, Article 341 of the Commercial Act (Acquisition of Treasury Stocks)

2013Nu2013. Detailed and revocation of disposition of dividend income

AAA, Inc.

Head of Suwon Tax Office

Busan District Court Decision 2013Guhap308 Decided June 13, 2013

December 6, 2013

January 10, 2014

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

1. Purport of claim

The Defendant’s imposition of dividend income tax for the Plaintiff on May 8, 2012 is revoked on March 5, 2013 as the principal OOO for the dividend income tax for the year 2007 and the additional OOO for the dividend income tax for the year 2007 against the Plaintiff.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

"A. The plaintiff is a company established for the purposes of export and import business, export and import agency business, etc., the largestB, the lowestCC, the lowestD, and the lowest E (hereinafter referred to as the "minimum BB et al.") are the shareholders of the plaintiff, who were the shareholders of the plaintiff and left over from the largest FF, which is the major shareholders of the plaintiff." "B et al. b. and 3 others sell the plaintiff's shares (hereinafter referred to as "the shares in this case") owned as follows on April 27, 2007 to the plaintiff, and each transfer income tax was reported and paid on June 30, 2007."

Number of shares (shares)

The sales price per share of the sales price;

Total (won)

LB

219,016

OOO

OOO

LCC

69,574

OOO

OOO

MaximumD

49,810

OOO

OOO

Maximum E

49,810

OOO

OOO

Consolidateds

388,210

OOO

OOO

C. However, on May 8, 2012, the Defendant: (a) deemed that the instant stock transaction between the Plaintiff and the Plaintiff and three parties, including the largestB, were deemed deemed as fictitious dividend due to the retirement of stocks or the reduction of capital; and (b) issued a disposition imposing dividend income tax for the Plaintiff in 2007 (i.e., the principal tax OOwon + additional OOO won).

D. The Plaintiff was dissatisfied with the foregoing disposition and filed an appeal with the Tax Tribunal on May 30, 2012, but was dismissed on November 26, 2012.

E. Meanwhile, on March 5, 2013, when the instant disposition was pending, the Defendant revoked ex officio the portion of the penalty tax in the instant disposition, and imposed the same amount again by specifying the type of, and the basis for calculation of, the penalty tax. On May 1, 2013, the Defendant deemed that 41,743 shares of the instant shares were owned by KimG, the mother of at least BB and three other parties, and accordingly, the principal tax during the said disposition was corrected as at OO, and the penalty tax was corrected as at OO, respectively (hereinafter the foregoing revised disposition was referred to as the “instant disposition”), “The imposition of the principal tax on dividend income tax on May 8, 2012 and the imposition of the penalty tax on March 5, 2013,” and “The grounds for recognition, including the number of pleadings number, number Nos. 1 through 3,8,10, 13, 18, 18, 1, 6, and 9 (hereinafter the same shall apply).

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) On May 8, 2012, when the Defendant imposed dividend income tax on the Plaintiff on May 8, 2012, the Defendant only stated the total tax base and the calculated tax amount with respect to the principal tax in the tax payment notice, but did not state the basis and tax rate for the calculation, and did not attach the separate tax calculation statement, etc. Therefore, the disposition of imposition of principal tax in the instant disposition

2) The Plaintiff first lent the instant shares as collateral upon receiving the claim for purchase of the instant shares from the largestB and three other shareholders. However, the Plaintiff intended to recover the said loan by deeming that it does not constitute the grounds for claim for purchase of shares. However, as the collection was difficult, it was an inevitable acquisition of the company’s own shares to achieve its purpose in exercising the company’s rights, and it was not acquired for the purpose of stock retirement. Thus, the instant disposition was unlawful.

3) If the above inevitable reasons are not acknowledged, the Plaintiff’s acquisition of the instant shares is invalid since it is the acquisition of treasury shares that are not permitted under the Commercial Act. Thus, the instant disposition is unlawful.

B. Relevant statutes

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

C. Determination

1) Determination as to whether a principal tax payment notice on dividend income exists

Article 9(1) of the former National Tax Collection Act (amended by Act No. 11605, Jan. 1, 2013) provides that the head of a tax office shall issue a taxpayer a tax notice stating the taxable year, tax item, amount of national tax, grounds for calculation, deadline for payment and place for payment of national tax in order to grant a fixed number of national taxes." The above provisions of the National Tax Collection Act accept the principles of due process under the Constitution and the basic principles of the Administrative Procedures Act in the area of taxation disposition, as they are, in the area of taxation disposition. The above provisions of the National Tax Collection Act accept the principles of due process under the Constitution, and the basic principles of the Administrative Procedures Act, while allowing the tax authority to take careful and reasonable taxation, thereby ensuring the fairness of tax administration, and to ensure the taxpayer’s convenience in determining whether to object to taxation

Therefore, barring any special circumstance, if a tax notice does not properly state the tax base of the principal tax and the basis for calculation of the amount of tax, the said tax disposition is unlawful. Even if there is no separate provision on the individual tax payment notice, the said tax disposition is unlawful and thus, is subject to revocation if it does not meet the requirements for the same tax payment notice as prescribed by the National Tax Collection Act (see, e.g., Supreme Court Decisions 2000Du7957, Jun. 12, 2001; 201Du12347, Oct. 18, 2012).

In full view of the purport of the argument as to this case based on the legal principles, the notice of tax payment issued by the Defendant to the Plaintiff on May 8, 2012 includes each taxable year, tax item, amount of tax, deadline for payment, and place of payment as to the principal tax, and the notice column is confirmed as at the time of investigating the Plaintiff’s stock change, and it can be recognized that the basis for calculation is stated as “the profit acquired by the Plaintiff’s transfer of the stocks to third parties on April 27, 2007”. According to the above facts, the above notice of tax payment contains all the matters required by the National Tax Collection Act, and the degree of the statement is sufficient to determine whether the Plaintiff is dissatisfied with the foregoing notice, and there is no other evidence to prove that there is any other defect in the notice of tax payment.

Therefore, this part of the plaintiff's assertion is without merit.

2) Determination as to whether the acquisition of shares for the purpose of stock retirement

A) Facts of recognition

(1) On June 28, 2006, the Plaintiff concluded a monetary loan agreement on each of the instant shares as collateral with the largestB and three other parties, and thereafter lent OOOOOO to the OOOO, the largestCC on December 31, 2006, respectively, to the OOOO, the OOOO, and the PE.

(2) In 2006, the Plaintiff paid a total of approximately KRW OOO's cash dividends to shareholders. A total of the dividend dividends to the largestB and three others was partly appropriated for the principal and interest of each of the above loans.

(3) After that, on April 27, 2007, the Plaintiff purchased the instant shares from the largestB and three other parties, and paid the difference between the purchase price and the balance after deducting the balance of the principal and interest of the instant loans. The deduction details and the paid difference are as listed below.

LB

LCC

MaximumD

Maximum E

Total

Loan Balance

OOO

OOO

OOO

OOO

OOO

Difference

OOO

OOO

OOO

OOO

OOO

(4) At the time of the Plaintiff’s purchase of the instant shares, the Plaintiff owned the property of approximately KRW 00, KRW 100, KRW 100, KRW 100, KRW 100, KRW 200, KRW 10,000, KRW 10,000, KRW 10,000, KRW 20,000, KRW 10,000, KRW 20,000, KRW 20,000, and KRW 20,000.

(5) There are two minutes of the board of directors related to the Plaintiff’s acquisition of the instant shares on March 13, 2007 and March 12, 2007. The main contents are as follows.

Minutes of the Council on March 13, 2007

(b)be omitted;

Bill No. 5: Cases of purchase of treasury stocks

(c) Omission; and

Minutes of the Council on March 12, 2007

(b)be omitted;

Bill No. 5: Purchase and retirement of common shares by profits (case of purchase of private shares)

The shareholder who requested the disposal of shares and the third party's shares are approved to purchase and retire the shares as follows at the 43th profit of the year 2006.

1. Class and total number of shares to be purchased: 388,210 common shares;

2. Total acquisition value of stocks to be purchased: OO won;

(The total value of shares to be purchased may be changed depending on the actual price of acquisition)

3. The price of stocks to be acquired for retirement: OO won;

4. Period during which it may be purchased: From April 1, 2007 to June 30, 2007.

(c) Omission; and

“(6) The minutes of the ordinary shareholders’ meeting as of March 29, 2007 concerning the Plaintiff’s acquisition of the instant shares have two notarized minutes of the general shareholders’ meeting as of April 16, 2007 and July 10, 2007 (hereinafter the above minutes of the general shareholders’ meeting as of April 16, 2007).

Minutes of the General Meeting No. 10 of July 10, 2007, the main contents of which are as follows, and the minutes of the General Meeting No. 43 (No. 16 of April 2007) shall be as follows:

(b)be omitted;

Bill No. 5: Cases of purchase of treasury stocks

The Chairperson has requested the most BB and three shareholders of the company to dispose of their shares held by them, but the company will purchase the shares during this year after the confirmation of objection and legal review, as the shareholders were absent at the regular shareholders' meeting once, and the shareholders have passed a resolution on the sole issuance of shares.

(c) Omission; and

Minutes of the General Meeting of Shareholders (No. 10, 2007)

(b)be omitted;

Bill No. 5: Purchase and retirement of common shares by profits (case of purchase of private shares)

The Chairperson explains that a company should purchase and retire the shares of the largestB and three other shareholders who requested the disposal of the shares with the profits of the 43th period of 2006, and after being given sufficient questions and discussions among the shareholders present, the Chairperson approves the purchase and retirement of shares without any objection by all the following:

1. Class and number of shares to be purchased: 388,210 common shares;

2. Total acquisition value of stocks to be purchased: OO won;

(The total value of shares to be purchased may be changed depending on the actual price of acquisition)

3. The price of stocks to be acquired for retirement: OO won;

4. Period during which it may be purchased: From April 1, 2007 to June 30, 2007.

(b) Omission; or

(7) The status of the Plaintiff’s shareholder as of December 29, 2004, prior to the Plaintiff’s acquisition of the instant shares, is as follows.

Stockholders

Number of shares held

Ratio of Shares

MaximumF

2,856,991

83.51%

G Kim GG

79,740

2.32% by mass

H Kim H

96,068

2.81% by mass

LB and 3 others

388,210

1.45%

Total

3,421,009

100%

(8) On the other hand, KimGG, the mother of the largestB outside three and the largestF, filed a lawsuit seeking confirmation of shareholder rights against the Plaintiff and the largestF in around 2005, asserting that according to the “the “the actual shareholder of 1,441,517 shares (42.13%) of the Plaintiff’s total shares 3,421,009 shares of the Plaintiff’s 3,421,009 shares,” and that the said lawsuit was final and conclusive on December 13, 2012 through the process of destroying, returning, returning, and sending the shares.” (9) On May 30, 2012, the Plaintiff filed a request for a trial with the Tax Tribunal, as follows.

① In order to avoid involvement in the inheritance-related share disputes raised by KimGG, the largestB and three other parties were to dispose of the instant shares, but they were not active in the transaction of unlisted shares, and they were not able to sell to a third party due to the said dispute, thereby exercising the appraisal right.

② The Plaintiff inevitably purchased the instant shares with a view to ensuring the stability of management in the share disputes related to inheritance. The Plaintiff determined that it would be helpful for the resolution of the lawsuit and the stabilization of management, which would be early to limit voting rights by purchasing shares from the largestB and three other parties.

③ On March 29, 2007, the Plaintiff was notarized on April 16, 2007 by the minutes of the general shareholders’ meeting, but after several months, the said minutes were urged on July 10, 2007 by a certified judicial scrivener’s office to the effect that the amount of purchase, purchase price, etc. should be specified, and received a notarized authentication on July 10, 2007.

[Grounds for recognition] Class A’s evidence Nos. 3, 5 through 8, 10, 14, 23, 24, 28, 29, Eul’s evidence Nos. 4, 7, and 8, and the purport of the whole pleadings

B) Determination

(1) Article 17 (2) 1 of the former Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007) provides that "the value of money and other property acquired by a stockholder due to the retirement of stocks or the reduction of capital shall be deemed to have been distributed to the relevant stockholder"; and "the former Commercial Act (amended by Act No. 10600 of Apr. 14, 201; hereinafter the same) provides that "the company shall not acquire stocks on its own account except for the retirement of stocks (amended by Act No. 1060 of Apr. 14, 201; hereinafter the same shall apply)"; Article 343-2 (1) and (2) provides that "the company may retire stocks upon a special resolution of the general meeting; the kind and total number of stocks to be purchased, total acquisition value, and the period for purchasing stocks shall be determined in a resolution of the general meeting; on the other hand, the contents of a contract or the method of calculating the total amount of stocks shall not be determined in accordance with 20.

(2) In light of the following circumstances acknowledged based on the aforementioned relevant provisions and legal principles, it is reasonable to view that the Plaintiff acquired the instant shares from the least BB and third parties to retire shares pursuant to Article 341 subparag. 1 of the former Commercial Act and refund investments to the Plaintiff, in light of the following circumstances.

① The Plaintiff asserted that “the Plaintiff’s acquisition of the shares was inevitable to collect the loans to the least BB and third parties, not to acquire the shares of this case for the purpose of retiring the shares, and it is necessary to achieve its purpose in exercising the company’s rights.” However, in executing the company’s rights as stipulated in Article 341 subparag. 3 of the former Commercial Act, “when it is necessary to achieve its purpose,” it shall be interpreted that the company may acquire its own shares by auction, payment in substitutes, etc. only when the obligor does not have any property other than the company’s shares.” However, at the time of the Plaintiff’s acquisition of the shares of this case, the Plaintiff did not take any measures to recover the claims against the least BB and third parties, while the Plaintiff did not disclose the balance of each loan to the least B and third parties after acquiring the entire shares of this case, and paid a total amount of OO.O. in addition.

In addition, the reason why the plaintiff submitted to the Tax Tribunal was stated to the effect that he purchased the shares of this case for the purpose of securing stable management rights in equity disputes.

Therefore, the process of acquiring the shares of this case asserted by the Plaintiff is difficult to be ALE easily.

② Meanwhile, the minutes of the general assembly authenticated on April 16, 2007 only contain the “case of purchase of treasury shares” in relation to the acquisition of the instant shares, but it cannot be readily concluded that the acquisition of the instant shares does not have been acquired for the purpose of retiring shares.” Furthermore, the minutes of the general assembly authenticated on July 10, 2007 cannot be deemed to violate the contents of the authenticated general assembly minutes as of April 16, 2007. Rather, in light of the contents of the grounds for a request for a trial submitted by the Plaintiff to the Tax Tribunal, the minutes of the general assembly authenticated on July 10, 2007 are deemed to have been prepared more concrete than the contents of the authenticated general assembly minutes of the general assembly as of April 16, 2007.

③ In addition, in the case of inheritance-related lawsuits filed by KimG from the standpoint of the Plaintiff and its major shareholder, the largest FF will have 53.87% (1,842,896 note/3,421,009 note) and the shares of KimG will have 42.13% (1,441,517 note/3,421,09 note) and the largest FF will have a significant threat to the management right.

"In this situation, the plaintiff and the largestF have a high need to acquire the shares of this case, which amount to 11.35% (38,210 shares/3,421,09 shares) of the total issued shares in order to secure the stable management right, and in fact, the plaintiff purchased the shares of this case from 11.35% (38,210 shares/3,421,009 shares) and decided that restricting voting rights would be helpful for the stabilization of management right by purchasing the shares of this case from 3 other than 1B and 3 others in a written request for a trial submitted to the Tax Tribunal." Therefore, it is reasonable to view that the plaintiff and the largestF had the intention to retire the shares for the purpose

④ In the petition for adjudication submitted to the Tax Tribunal, the Plaintiff stated that “The largestB and three other parties were to dispose of the instant shares in order to avoid involvement in the inheritance-related share dispute raised by KimG.” In addition, the Plaintiff loaned the instant shares to the largestB and three other parties as collateral, and then lent the cash to the largestB and the third parties, including the Plaintiff, to make a set-off against the loans of the OOOOO in total, in return for the acquisition of the instant shares, and to lend money to the leastB and the third parties, which have a substantial property and wanting to purchase the shares. Therefore, it is reasonable to view that this is a series of process to refund the investment to the largestB and the third parties.

⑤ Furthermore, in light of the fact that the Plaintiff acquired the instant shares and did not go through the retirement procedure until the date, the Plaintiff’s acquisition of the instant shares did not constitute the purpose of retiring the instant shares solely on the ground that the Plaintiff did not formally go through the procedures for the retirement of the shares in light of the fact that the Plaintiff’s lawsuit, such as the verification of shareholder rights against the Plaintiff around December 13, 2012 against KimG, became final and conclusive on December 13, 2012, and that the Plaintiff acquired the instant shares and acquired the same effect as the retirement of shares, such as the restriction

(3) Therefore, since the transfer marginal profit of the instant shares constitutes an income from deemed dividend, the instant disposition is lawful, and the Plaintiff’s assertion in part is without merit.

3) Determination as to whether the acquisition of the instant shares is null and void

As seen earlier, the Plaintiff’s acquisition of the instant shares constitutes “the time to retire shares as stipulated in Article 341 subparag. 1 of the former Commercial Act,” and thus, the instant share transaction between the Plaintiff and the largestB and the third parties is deemed valid.” Therefore, the Plaintiff’s assertion that the instant shares transaction is null and void is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and the judgment of the court of first instance with different conclusions is unfair, and the plaintiff's claim is dismissed, and it is so decided as per Disposition.