Case Number of the previous trial
Cho Jae-chul2010 Before 335 (Law No. 23, 2011)
Title
In the case of capital increase or decrease in a true meaning due to managerial needs, capital transfer resources shall be excluded from the taxable objects of dividend income tax because the capital reserve is the capital reserve.
Summary
The instant disposition taken in view of the capital transfer of excess stocks solely on the ground that the issuance of the instant stocks is attributable to the purpose of security, even though the capital transfer of excess stocks in the capital surplus account satisfies the requirements under the proviso to Article 17 (2) 2 (a) of the former Income Tax Act and Article 459 (1) 1 of the Commercial Act by capitalizing the excess stocks of the capital surplus account, constitutes an unlawful disposition in violation of the tax law
Related statutes
Article 17 of the Income Tax Act
Cases
2011Gu Joint 3915 Dividend Income and Revocation of Disposition
Plaintiff
XX Co., Ltd
Defendant
The Director of the National Tax Service
Conclusion of Pleadings
January 11, 2012
Imposition of Judgment
February 8, 2012
Text
1. The Defendant’s disposition of imposition of KRW 330,163,260 against the Plaintiff on July 1, 2010 shall be revoked.
2. The costs of the lawsuit are assessed against the defendant.
Purport of claim
The same shall apply to the order.
Reasons
1. Details of the disposition;
A. The Plaintiff, a company established around January 14, 2004 and established around 1998, issued new shares of 20,000 shares (hereinafter “instant shares”) with a total of 10,000 shares (10,000 won per share, and 5,000 won per share) for the purpose of manufacturing automatic heat machinery and appliances (hereinafter “the instant shares”) as well as 1,90,000 won for each of the instant shares (hereinafter “the instant shares”) and allocated all the instant shares to thisA. The Plaintiff received 2,00,000,000,000 won for capital increase from thisA and received 1,90,000,000,000,0000 won for the total of the issued price and face value less the direct expenses related to capital increase, such as registration tax, etc., (1,897,534,000,000 won for each of the instant shares).
B. On August 1, 2008, the Plaintiff: (a) capitalizing the balance of issued stocks in the capital surplus account in excess of KRW 1,897,490,000; and (b) accordingly, issued 379,49,498 share free of charge as of October 23, 2008 and allocated it in proportion to the number of existing shareholders’ shares; and (c) on this basis, the Defendant deemed the constructive dividend under the main sentence of Article 17(2)2 of the former Income Tax Act (amended by Act No. 11146, Jan. 1, 2012; hereinafter referred to as the “former Income Tax Act”) as the constructive dividend under the main sentence of Article 17(2)2 of the former Income Tax Act (hereinafter referred to as the “instant disposition”). On July 1, 2010, the Plaintiff imposed a tax withholding amount of KRW 330,163,260 (including additional taxes) for dividend income tax in 208.
C. The Plaintiff appealed and filed an appeal with the Tax Tribunal on October 8, 2010, but was dismissed on August 23, 201.
[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 3, 9, 10, 12, 13, Eul evidence No. 1 (including each number), witness testimony, and the purport of the whole pleadings
2. Whether the instant disposition is lawful
A. The parties' assertion
1) The plaintiff's assertion
Since capital increase around January 2004 and capital increase for consideration around June 2005 had both increased and decreased a genuine meaning due to business necessity, it should be viewed that capital increase around August 2008 would have become capital reserve under the proviso of Article 17 (2) 2 (a) of the former Income Tax Act and Article 459 (1) 1 of the Commercial Act and be excluded from taxation subject to dividend income tax. Nevertheless, the defendant's capital increase for consideration at the time of capital increase constitutes loans to the plaintiff of this case, and the above capital increase for consideration constitutes capital increase for the purpose of transfer to the plaintiff of this case, and it is merely distorted that capital increase for consideration was made formally for repayment of the loan, and thus, it should not be revoked on August 27, 2008, on the premise that the capital increase for consideration means the difference between the issue amount of stocks and the face value of the stock, and thus, it should be revoked on August 27, 2008.
2) The defendant's assertion
In relation to the shares at issue of this case, the share price paid by thisA and the repayment paid by the Plaintiff to thisA is limited to the payment of loans pursuant to a monetary loan for consumption and the return of principal and interest thereof, and the substance of the amount in excess of shares issued following the issuance of the instant shares for securing the loan is deemed to be only the earned surplus, not the capital surplus. Ultimately, around August 2008, the capital transfer at the time of capital increase without consideration is deemed to be the capital transfer of earned surplus, not the amount in excess of issued shares, and thus, it is subject to dividend income tax because it falls under the constructive dividend under Article 17
B. Relevant statutes
It is as shown in the attached Form.
(c) Fact of recognition;
1) On January 9, 2004, the Plaintiff drafted a monetary loan agreement with thisA. Upon the resolution of each board of directors, the Plaintiff allocated shares to thisA on January 14, 2004 through a third party allotment method, and allocated shares on January 30, 2004 in consideration of forfeited shares. However, in the above monetary loan agreement, “A” lends 2 billion won to the Plaintiff under a monetary loan agreement for consumption with a view to resolving the light of operating funds incurred from additional collection of taxes against the Plaintiff, and the Plaintiff borrowed 2 billion won (Article 1) and interest rate shall be 7% per annum (Article 2). The Plaintiff’s new shares issued 20,000 won per share as security for the loan is 10,000,000 won per share, and the loan can be used only for the purpose of repayment of operating funds or loans, and the Plaintiff’s new shares may demand that the Plaintiff to repay funds (Article 3) for purposes other than the purpose of redemption of borrowed funds (Article 52A).
2) On May 9, 2005 with respect to the acquisition of the instant shares and the retirement of shares, the Plaintiff acquired the instant shares from thisA on May 27, 2005 and conducted reduction of capital for consideration on June 28, 2005, after going through a temporary shareholders’ meeting on May 25, 2005, respectively.
3) The director of the Gangnam Tax Office: (a) deemed that the Plaintiff-existing stockholders who renounced the preemptive acquisition of the instant shares were to donate it to thisA (the difference between the appraised value and the acceptance value after capital increase), and determined and notified thisA in 289,000,000 gift tax in 204; and (b) thisA filed a request for a national tax trial on the ground that the substance of dissatisfied with this determination and allocation of the instant shares constitutes a monetary loan; (c) the National Tax Tribunal issued the instant shares on September 14, 2007 by the National Tax Tribunal constitutes the issuance of new shares for the purpose of collateral; and (d) can be confirmed that the Plaintiff’s issuance of the instant shares constitutes the issuance of new shares for the purpose of collateral; and (e) after the Plaintiff paid interest to thisA before the gift tax was imposed, the acquisition of the instant shares in this case appears to be the substance of the transaction transfer; and therefore, (e) it is determined that the disposition of disposition of capital increase under Article 39(1) of the Inheritance Tax and Gift Tax Act was revoked.
[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 7, 8, 12, 16 (including each number), the purport of the whole pleadings
D. Determination
1) The purpose of Article 17 (1) 3 of the former Income Tax Act is to make a constructive taxation of dividends in light of the principle of tax equity in cases where the profit reserved in the company in the form of legal reserve, earned surplus reserve, other voluntary reserve, is reverted to stockholders or investors for the reasons prescribed in each subparagraph of Article 17 (2) of the former Income Tax Act, and actually reverts to such stockholders or investors. However, the main text of Article 17 (2) 2 of the Income Tax Act provides that “the value of stocks or investment acquired by transferring all or part of a corporation’s surplus to capital or financing shall be deemed as dividends in capital transfer, even though the proviso provides that “the capital reserve under Article 459 of the former Income Tax Act and revaluation reserve under the Assets Revaluation Act shall not be included in capital transfer, and it shall be deemed that the amount of dividend should not be deemed as capital transfer when capital transfer and capital reserve under Article 97 (2) 2 of the former Income Tax Act is not limited to the value of stocks that shareholders, etc. receive according to capital transfer in such case, but to Article 97 (2) of the former Income Tax Act.
2) In light of the above legal principles and the facts acknowledged earlier, it can be deemed that there was an increase or decrease in the Plaintiff’s capital on the ground that the instant shares were issued, and that there was an increase or decrease in capital solely because the shares were issued for the purpose of securing collateral. ② There was no limit on the exercise of shareholder rights due to the holding of the instant shares, and it is interpreted that the interest clause on the cash consumption loan contract (Article 2), and the loan repayment clause (Articles 4 and 5) were a kind of option. Thus, it cannot be deemed that the Plaintiff did not constitute capital increase of the company. 3) The determination that the Plaintiff’s capital increase or decrease in the capital increase constitutes a violation of the proviso to Article 7 of the Income Tax Act for the purpose of tax evasion on the ground that there was no possibility that the Plaintiff could not be subject to taxation on dividend income for the reason that there was no change in the amount of capital increase or decrease in the amount of capital increase due to the capital increase in the substance of the transaction (where the amount equivalent to interest is included in the total sale price, taxation on the amount equivalent to the interests).
3. Conclusion
Therefore, the plaintiff's claim of this case is reasonable, and it is decided as per Disposition by admitting it.