Seoul High Court 2007Nu21633 (Law No. 11, 2008)

National High Court Decision 2005Du1408

investment securities disposal loss in a process shall not be succeeded to the merged corporation.

The term "amount not included in the calculation of earnings or losses of the extinguished corporation" under the provisions of Article 40 of the Corporate Tax Act refers to the amount not included in the calculation of earnings or losses of the extinguished corporation due to the difference between tax accounting and corporate accounting in the business year to which profits or losses belong, and therefore investment securities disposal losses of processing are not succeeded to the merged corporation.

Article 40 of the former Corporate Tax Act

208Du12931, revocation of revocation of a request for rectification of tax base and amount

○○ Co., Ltd.

○ Head of tax office

The Seoul High Court Decision 2007Nu21633 Decided July 11, 2008

April 28, 2011

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. The lower court determined that the Plaintiff’s disposal of △△△△△ 20,000, 700, 200, 200, 17, 200, 17, 200, 40, 200, 17, 200, 17, 200, 40, 70, 200, 17, 40, 207, 17, 40, 207, 70, 40, 70, 200, 17, 40, 70, 40, 200, 70, 200, 200, 40, 70, 200, 40, 207, 17, 206, 30, 207, 206, 207, 207, 30, 201, 40, 7, 207, etc.

2. However, it is difficult to accept the above determination by the court below for the following reasons.

Article 40 (1) of the former Corporate Tax Act (amended by Act No. 9898 of Dec. 31, 2009) provides that "the business year to which earnings and losses of a domestic corporation accrue shall be the business year which includes the date on which the earnings and losses are finalized" while Article 49 provides that "where a domestic corporation merges or divides itself, the disposal of earnings or losses of the merged corporation, the divided corporation, or the counterpart corporation to the division and merger (hereinafter referred to as "merged corporation") shall be included in deductible expenses in the calculation of the income amount and tax base of the extinguished corporation, and the amount which are not included in deductible expenses in the calculation of earnings or losses of the merged corporation shall be prescribed by Presidential Decree." In addition, Article 85 (1) of the former Enforcement Decree of the Corporate Tax Act provides that "the amount of earnings or losses of the merged corporation shall be included in deductible expenses in the calculation of the income amount and losses of the extinguished corporation for each business year" and Article 85 (2) of the former Corporate Tax Act provides that "the amount succeeded to deductible income or losses of the extinguished corporation shall be included in deductible expenses" in the following business year:

However, 1,724,827,01 won of the above investment securities disposal loss, which the director of the National Tax Service disposed of as non-deductible losses and retained earnings, is not included in deductible expenses on the ground that △△△ has appropriated as deductible expenses, and cannot be viewed as an amount not included in deductible expenses due to the difference between the tax accounting and corporate accounting for the business year to which profits and losses accrue. Thus, the succession clause of this case cannot be deemed to be succeeded to the plaintiff, who is the merged corporation, under the succession clause of this case. However, it can be

Nevertheless, the court below judged that the above investment securities disposal loss 1,724,827,001 won falls under the "amount not included in the calculation of earnings or losses of the merged corporation" because the business year to which the profit or loss under Article 40 of the Act belongs has not yet arrived, and thus the plaintiff is succeeded to the merger. Such judgment of the court below is erroneous in the misunderstanding of legal principles as to the scope of the tax adjustment amount succeeded due to the merger, which affected the conclusion of the judgment. The ground of appeal pointing this out has merit.

3. Therefore, without examining the remaining grounds of appeal, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.