In case where corporate tax is not imposed on the constructive dividend income due to the application of Article 49(1) of the Restriction of Special Taxation Act, the method of calculating the acquisition value of new stocks through merger.

In light of the purport or language of Article 72(1)4 of the Enforcement Decree of the Corporate Tax Act and Article 49(1) of the Restriction of Special Taxation Act, which provides for the acquisition value of assets by delegation of Article 41 of the Corporate Tax Act, and Article 72(1)4 of the Enforcement Decree of the Corporate Tax Act, and Article 49(1) of the Restriction of Special Taxation Act, if the income amount by deemed dividend is not added to the acquisition value of new stocks by merger, the effect of non-taxation of corporate tax does not occur if the income by deemed dividend is not added to the acquisition value of the

Article 41 of the Corporate Tax Act; Article 72(1)4 of the Enforcement Decree of the Corporate Tax Act; Article 49(1) of the Restriction of Special Taxation Act

Hyundai Industrial Development Co., Ltd. (Law Firm Rate, Attorneys So-young et al., Counsel for the plaintiff-appellant)

Head of the District Tax Office

Seoul High Court Decision 2002Nu18045 delivered on December 24, 2004

The appeal is dismissed. The costs of appeal are assessed against the defendant.

We examine the grounds of appeal.

Article 72(1)4 of the Enforcement Decree of the Corporate Tax Act, which provides for the acquisition value of assets by delegation of Article 41 of the Corporate Tax Act, provides that the acquisition value of stocks acquired by stockholders, etc. by a merger shall be the value calculated by adding the amount of deemed dividend under Article 16(1)5 of the Corporate Tax Act to the previous book value. Article 49(1) of the Restriction of Special Taxation Act provides that where a financial institution under the Act on the Structural Improvement of the Financial Industry under the Act on the Structural Improvement of the Financial Industry merges before December 31, 199, a corporate tax shall not be levied on the amount of deemed dividend under Article 16(1)5 of the Corporate Tax Act,

In light of the purport or language of the above provisions, if the income amount of the fictitious dividend is not added to the acquisition value of new stocks through merger, the effect of corporate tax exemption does not actually occur. Therefore, the acquisition value of new stocks through merger shall be calculated by adding the income amount of the fictitious dividend to the previous book value, regardless of whether corporate tax has been imposed on the income of the fictitious dividend.

In the same purport, the court below is just in holding that even if corporate tax on the constructive dividend income is not levied on the acquisition of new stocks through the merger in this case, the acquisition value shall be calculated by adding the amount of deemed dividend to the previous book value, and there is no error in the misapprehension of legal principles as to the method of calculating the acquisition value of non-taxation or new stocks for deemed dividend income as otherwise alleged in the ground of

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.

Justices Lee Hong-hoon (Presiding Justice)