Incheon District Court 2012Guhap106 (2012.08.30)

early 2010 Heavy2041 ( October 18, 2011)

Since it is confirmed that treasury shares have been acquired for the purpose of stock retirement, the acquisition of treasury shares is valid.

The acquisition of treasury shares for the purpose of stock retirement is effective in view of the fact that the shareholders acquired treasury shares in accordance with the request for the return of investment funds by shareholders and acquired shares in the minutes of the board of directors, explicitly stated the retirement of shares externally, and completed the retirement of shares through a temporary general meeting of shareholders.

Article 341 of the Commercial Act

2012Nu2881 Revocation of Disposition of Corporate Tax Imposition

Appellant and Appellant

AACoa Ltd.

- Appellants

O Head of tax office

Incheon District Court Decision 2012Guhap106 Decided August 30, 2012

November 29, 2013

January 10, 2014

1.The judgment of the first instance shall be modified as follows:

The imposition disposition of each corporate tax listed in attached Form 1 [Attachment 1] against the plaintiff by the defendant shall be revoked.

2. All costs of the lawsuit shall be borne by the defendant.

The latter part of Paragraph 1 of the Disposition is as follows (the plaintiff revised the purport of the claim in the trial as above according to the defendant's re-disposition on the additional tax portion among the corporate tax belonging to year 2008).

Purport of appeal

The part against the defendant in the judgment of the court of first instance shall be revoked, and the corresponding plaintiff's claim shall be dismissed.

Purport of Incidental Appeal

The portion of the judgment of the first instance court against the plaintiff shall be revoked. The imposition of each corporate tax listed in [Attachment 2] Nos. 1 and 2 against the defendant shall be revoked.

1. Details of the disposition and related statutes;

"The details of the disposition of the first instance judgment, except for amendments or additions as follows: (a) and (b) as stated in the circumstances of the disposition and 2-B. related Acts and subordinate statutes"; (a) the amended parts.

Part 2 of the judgment of the court of first instance is that "the former Commercial Act (amended by Act No. 10696, May 23, 201; hereinafter the same shall apply) of the Act No. 15 (amended by Act No. 10696, May 23, 201)" is the former Commercial Act (amended by Act No. 10600, Apr. 14, 201; hereinafter the same shall apply). Part 1, 2, 3, 2, 3, 2, 2, 2, 2, 2, 2, 2, 2, 3

The third part of the judgment of the court of first instance is as follows. The defendant revoked the part of the additional tax OOOO out of the corporate tax attributed to November 2008, 208, and imposed additional tax on November 22, 2013 on the plaintiff by imposing the additional tax on the aggregate of the OOOO and the OOO out of the additional tax under-reported return on November 22, 2013, and imposed each corporate tax listed in attached Table 1 [Attachment 1] (hereinafter the details of each disposition] on the plaintiff."

“A. The Plaintiff acquired shares in its name (hereinafter “instant shares”) from GBB, teaCC, and DaD for the purpose of stock retirement through lawful procedures. As such, the instant contract is valid pursuant to subparagraph 1 of Article 341 of the former Commercial Act. Therefore, the instant disposition based on the premise that the instant contract is null and void.” (B) The instant contract is an act conducted by the company for its business purposes, and is a commercial activity, and is a commercial claim, and the right to claim the return of the instant money due to the invalidation of the instant contract is also a commercial claim, and the five (5) years extinctive prescription applies. The Plaintiff’s payment of the instant money to GBB, tea, and DaD was completed on December 21, 2005, and the refund claim of the instant money and its interest claim were extinguished. Accordingly, the imposition of the instant money upon the completion of the extinctive prescription period for the instant disposition was unlawful from 206 to 206 years to 200 to 206.

3. Determination

A. Relevant legal principles

The acquisition of treasury stocks by a stock company on its own account may cause various harm, such as undermining the interests of the company, shareholders, and creditors, impairing the principle of shareholder equality, and causing unfair control by the representative director, etc. Thus, in principle, the former Commercial Act uniformly prohibits it from uniformly for preventive purposes, and exceptionally classified cases where the acquisition of treasury stocks is exceptionally permitted, and thus, it is not possible to exceptionally allow the acquisition of treasury stocks in cases where the company gratuitously acquires treasury stocks or harms the interests of shareholders, etc., such as where it is apparent that it is impossible to endanger the company’s capital foundation or to harm the interests of shareholders, etc., even in other cases, even if there are unavoidable circumstances to avoid serious damage without knowledge that it might occur to the company, shareholders, creditors, etc., even if it is inevitable to avoid the above prohibition provisions (see, e.g., Supreme Court Decision 201Da41019, May 16, 2003).

The issue of interpreting a juristic act is whether a sale of stocks falls under the transfer of stocks which are assets transaction, or the retirement of stocks or the refund of capital which are capital transaction, and should be determined based on the contents and the intent of the parties concerned. However, in light of the substance over form principle, the entire process of transaction should be grasped and determined in addition to the contents and form of the contract in question, such as the parties’ intent and the process of concluding the contract, the method of determining the price, and the progress of the transaction (see Supreme Court Decision 2001Du6227, Dec. 2

B. Determination of the case

1) Facts of recognition

The following facts may be admitted if there is no dispute between the parties, or if the testimony of the E witness of the first instance court stated in evidence Nos. 3, 4, 12, 13, 15, and 17 (including the serial number) is added to the purport of the entire pleadings:

A) ADD acquired the instant shares by participating in capital increase with consideration in 1972, which was currently in office as the Plaintiff’s regular director. ParkB and KoCC acquired the instant shares in 1983 as the senior mother and senior mother of the former representative director of the Plaintiff.

B) On December 200, around the time of the conclusion of the instant contract, around December 200, the Plaintiff’s shares were owned by GG Cultural Foundation 31.11%, 32.22%, and 8.33%, by the next JJ, and ParkB, teaCC, and SD owned the remainder of the instant shares.

C) The Plaintiff only distributed dividends once in 1993, but did not pay dividends to shareholders until the conclusion of the instant contract, and reserved operating profits in the company. DoD, ParkBB, and teaCC requested the Plaintiff’s management to return its investment funds. On December 6, 200, the Plaintiff entered into the instant contract with ED, ParkB, and teaCC to purchase the instant shares from Edd, ParkB, and CarCC.

"D) The plaintiff's minutes of the board of directors dated December 6, 200, stated that since the plaintiff expressed the intention to sell the shares held by the plaintiff, the plaintiff did not comply with the other shareholders, the plaintiff shall acquire the shares held by the above shareholders in accordance with Articles 341 and 342 of the Commercial Act." (e) After entering into the contract of this case, the plaintiff prepared a balance sheet stating that the plaintiff shall appropriate the shares of this case to the capital adjustment account as treasury shares and deduct them from the capital. (K Accounting Corporation purchased and held the shares of this case from 2000 to 2009 in the audit report on the plaintiff's financial statements from 200 to 2009. (f) The plaintiff did not request the plaintiff to attend the shareholders' meeting after entering into the contract of this case or did not request the plaintiff to distribute the shares of this case to the shareholders' meeting after the conclusion of the contract of this case.

G) On September 27, 2010, when a review by the Tax Tribunal on the imposition of each corporate tax as stated in [Disposition] is ongoing, the Plaintiff shall hold a temporary general meeting on September 27, 2010 and resolve to retire the shares of this case and reduce the capital. The Plaintiff completed the registration of capital reduction on December 9, 2010, after the dismissal of a request for a trial.

H) As of December 31, 1999, the total amount of the Plaintiff’s assets is limited to OOO directors, total amount of liabilities is OOO directors, capital stock is OOO directors, assets revaluation reserves for land, buildings, etc. among capital surplus is OO directors, OOO directors among earned surplus, investment reserves for small and medium enterprises are OO directors, and OO directors for technology development. Corporate rationalization reserves, investment reserves for small and medium enterprises, and technology development reserves are limited to dividends pursuant to Articles 145 and 4, 9 of the former Restriction of Special Taxation Act (amended by Act No. 6273 of Oct. 21, 200), and dividends should be excluded from distributable profits since assets revaluation reserves are unrealized profits. At the time of conclusion of the contract of this case, profits available for dividends should be excluded from OO directors (OOO directors - - O00 - - O00 - - O00 - - - O00

2) Whether there was the purpose of stock retirement to the Plaintiff at the time of concluding the instant contract

As seen above, it is recognized that the Plaintiff’s distributable profits were less than the purchase price of the instant shares as an OOO member at the time of entering into the instant contract, and that the Plaintiff failed to implement the procedures for the invalidation and reduction of capital of the instant shares for about nine years from the time of entering into the instant contract.

However, in full view of the following circumstances revealed in the above facts, i.e., ① the Plaintiff acquired the instant shares for the purpose of stock retirement upon request for the return of investment funds from MaD, ParkBB, and NextCC, and ② the minutes of the board of directors contain the statement that the Plaintiff acquired the instant shares for the purpose of stock retirement; ② the fact that the Plaintiff prepared a balance sheet to include the instant shares in the capital adjustment account as treasury shares, and indicated the fact that the Plaintiff would retire the instant shares in the future; ③ the Plaintiff did not pay dividends to the instant shares from the time the Plaintiff entered into the instant contract to the time the stocks were retired; ④ the Plaintiff did not exercise shareholder’s rights; ④ the Plaintiff completed the procedure for stock retirement by completing the registration of change of the company decrease through a temporary general meeting of shareholders; and accordingly, the instant contract is valid pursuant to subparagraph 1 of Article 341 of the former Commercial Act, and thus, the preemptive disposition of this case is unlawful.

4. Conclusion

The plaintiff's claim is reasonable, and the judgment of the court of first instance is unfair with some different conclusions, so the plaintiff's incidental appeal is accepted and the judgment of the court of first instance is modified as ordered.