Cho High Court Decision 2013 Deputy 4380 ( December 18, 2013)

In the event that a transaction of acquiring treasury shares is invalid, the purchase price of treasury shares paid to persons with a special relationship constitutes a provisional payment in office.

Where the acquisition of treasury stocks is invalidated due to violation of Article 341 of the Commercial Act, it is reasonable to view that the amount paid as the acquisition price of treasury stocks to the shareholders who are the persons related to the special case is paid without any legal grounds, and if the person fails to recover or delays collection without any justifiable grounds, it shall be deemed that

Article 52 of the Corporate Tax Act: Denial of wrongful calculation, and acquisition of treasury shares under Article 341 of the Commercial Act

2014Guhap20521 Revocation of Disposition of Corporate Tax Imposition

AA Industry Corporation

Head of Seogsan Tax Office

July 17, 2014

September 4, 2014

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The Defendant’s imposition of corporate tax for the year 201 and the corporate tax for the year 2012 against the Plaintiff on July 8, 2013 (the date on July 10, 2013 stated in the Director seems to be erroneous) shall be revoked, respectively, (including additional tax).

1. Details of the disposition;

A. On May 27, 1993, the Plaintiff is a company established for the purpose of the business of manufacturing and selling oil pressure tanks for ships and piracy. On December 22, 201, the Plaintiff decided to hold a temporary general meeting of shareholders and purchase 1,240,000 shares issued by the Plaintiff’s representative director and the rightB, the controlling shareholder, for the purpose of preparing for the exercise of stock options and the exercise of employee stock options, for the total purchase of OO members from December 22, 201 to January 31, 2012.

B. According to the above resolution, the plaintiff acquired 1,240,00 shares of the plaintiff 4,240,80 shares issued on December 27, 200 (the share ratio 29.24%; hereinafter "the shares of this case") from OB, a controlling shareholder, to 200,000 shares of the plaintiff 4,240,80 shares issued by 1,270,000 shares. (c) The plaintiff found that the plaintiff acquired the shares of this case and owned it in Busan regional tax office, and the plaintiff acquired the shares of this case to 10,000 shares of this case to 20,000 shares of this case to 30,000 shares issued by 10,000 shares of this case, which were held by 20,000 shares of this case, which were not related to 10,0000 shares paid to 20,0000 shares of this case to 10,000 shares of this case.

Facts that there is no dispute over the basis of recognition, Gap evidence 1 through 4, 13, Eul evidence 1 and 6, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The Plaintiff acquired the instant treasury stocks to prepare for the exercise of stock options according to the time when the stock options previously granted to KimCC, a managing director, and the decision to grant employee stock options to the Plaintiff’s employees. This constitutes an exceptional case where the acquisition of treasury stocks is allowed under Article 341-2(1) of the former Commercial Act and Article 39 of the Framework Act on Labor Welfare.

2) Since the amendment of the Commercial Act on April 14, 2011 permits a stock company to acquire treasury stocks within the limits of surplus funds, the acquisition of treasury stocks in this case is also permissible pursuant to the amended Commercial Act.

3) Therefore, the instant share price is paid as a legitimate purchase price, and the Plaintiff’s acquisition of the instant shares is null and void, and the Defendant’s disposition of this case, premised on the premise that the instant share price paid by the Plaintiff to the rightB constitutes a provisional payment irrelevant to business, should be revoked as unlawful.

4) Meanwhile, while the Defendant issued the instant disposition on the ground that the acquisition of its own shares is null and void, it did not refund the securities transaction tax paid by the Plaintiff with the acquisition of its own shares, and the Defendant’s disposition of this case is unlawful in that the above Defendant’s attitude is inconsistent with each other.

B. Relevant statutes

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

C. Determination

1) Whether the acquisition of the instant treasury shares is permitted under the Commercial Act

A) In principle, the former Commercial Act prohibits the acquisition of treasury stocks in a case where the acquisition of treasury stocks by a stock company’s own name and its own account may endanger the company’s capital foundation, undermine the interests of shareholders and creditors, undermine the principle of equality of shareholders, and cause unfair corporate control by the representative director, etc., and thus, in an exceptional case where the acquisition of treasury stocks is exceptionally permitted, it shall be exceptionally allowed in a case where the acquisition of treasury stocks is not permitted in a case where the company gratuitously acquires treasury stocks, or where it is not possible to harm the interests of shareholders, etc. in a case where it is evident that the acquisition of treasury stocks cannot be permitted in a case where the company’s acquisition of treasury stocks without consideration, or where treasury stocks is acquired by another person’s account. In other cases, even if there are inevitable circumstances to avoid serious losses that may arise to shareholders, creditors, etc., even if the acquisition of treasury stocks is not allowed in violation of the prohibition provisions as above (see Supreme Court Decision 201Da4169, Apr. 16, 2016).

B) In light of the above legal principles, comprehensively taking account of the following circumstances that can be acknowledged in light of the evidence as seen earlier, evidence Nos. 1 through 7, evidence Nos. 2 through 6, and the purport of the entire pleadings, it is difficult to view that the Plaintiff’s acquisition of the instant treasury stocks from the authorizedB constitutes the acquisition of treasury stocks for the purpose of granting stock options pursuant to Article 341-2 of the former Commercial Act and Article 39 of the Framework Act on Labor Welfare, and there is no other evidence to deem that the Plaintiff’s acquisition of the instant treasury stocks constitutes the acquisition of treasury stocks exceptionally permitted pursuant to the former Commercial Act and

① On March 31, 2010, the Plaintiff granted 400,000 stock options to KimCC, a managing director, during the period for exercising the stock options from January 1, 2012 to March 31, 2022. However, no circumstance exists to deem that the Plaintiff exercised the stock options at the time of acquiring the instant treasury shares, or that the exercise of options was imminent.

② At the time of December 22, 2011, the Plaintiff, who granted employee stock options, was suspended from listing due to decline in sales, etc. In such circumstances, it is difficult to view all of the employees as exercising the employee stock options even if granting 840,000 shares to employees. Nevertheless, the Plaintiff acquired the instant treasury stocks on December 28, 201, immediately after granting the employee stock options, and there is no evidence as to whether the Plaintiff investigated the possibility of exercising the employee stock options in advance during the process of acquiring the instant treasury stocks.

(3) Rather, according to the evidence evidence Nos. 2 through 4, the rightB is acknowledged that the Plaintiff purchased 720,800 shares issued by the non-party company on November 28, 201 with DD Investment Securities Co., Ltd. (hereinafter referred to as "non-party company") for the reason of withholding the Plaintiff's listing, and paid the above purchase price on December 27, 201. The Plaintiff's acquisition of shares is the same as the payment date of DB's purchase price; the Plaintiff's purchase price of shares paid by the Plaintiff and its payment method; the Plaintiff's rightB's acquisition of shares at the time of acquiring the Plaintiff's own shares is the representative director and controlling shareholder; it is reasonable to view the Plaintiff's acquisition of shares from D Investment Securities Co., Ltd. for the purpose of preserving the acquisition price of shares that the Plaintiff would have to purchase from the non-party company, regardless of the amendment of the Commercial Act No. 14, the amended Commercial Act No. 14, Dec. 14, 2019>

2) Whether the instant share price constitutes a wrongful calculation as a business-related provisional payment) and Article 28 of the Corporate Tax Act and Article 53 of the Enforcement Decree of the same Act include not only purely meaningful loans but also loans corresponding to loans given the nature of bonds such as indemnity bonds, etc. (see Supreme Court Decision 2005Du1558, Oct. 26, 2006). If a sales contract becomes null and void from the beginning or is cancelled later, etc., the sales price received by the transferor should be returned to the transferee, in principle, to the original state, and thus, it cannot be deemed as taxable object of capital gains tax (see, e.g., Supreme Court Decision 010Du25152, Aug. 25, 2011). Thus, if a corporation’s provisional payment for acquisition of treasury stocks falls under a business-related special payment under Article 28(1)4(b) of the Corporate Tax Act, the determination of the invalidity of treasury stocks should be made on the premise that the acquisition of treasury stocks is not in principle void.

In addition, Article 52(1) of the Corporate Tax Act and Article 88(1)6 of the Enforcement Decree of the same Act provide that where a corporation is deemed to have unjustly reduced its tax burden on the corporation's income by lending or providing money to a related party without compensation, the tax authority may deny it by deeming it as a wrongful calculation. The calculation of wrongful calculation in this context refers to the calculation of an act by a taxpayer to reduce or exclude the tax burden incurred when a taxpayer takes a passive transaction form, a multi-stage act and other abnormal transaction form, instead of a normal economic person's reasonable transaction form. The determination of whether such economic rationality exists shall be based on whether the transaction is abnormal in light of sound social norms or commercial practices (see, e.g., Supreme Court Decision 2002Du1479, Feb. 13, 2004).

B) We examine the instant case in light of the aforementioned legal principles. As seen earlier, it is reasonable to deem that the rightB constitutes the Plaintiff’s representative director and the controlling shareholder as the controlling shareholder, and that the Plaintiff’s acquisition of the Plaintiff’s own shares constitutes null and void as an act of acquiring shares in violation of the prohibition provisions on the acquisition of treasury shares under the former Commercial Act. Therefore, the share price paid by the Plaintiff to the rightB is not paid as the price for acquiring the instant treasury shares, but paid without any legal cause. Accordingly, the share price should be deemed as the provisional payment paid regardless of the business affairs of the

In addition, even though the plaintiff should immediately recover the stock price of this case from the rightB, the plaintiff's act of avoiding or giving up the recovery without any justifiable reason by asserting the validity of the acquisition of the stock price of this case constitutes an abnormal act contrary to the economic rationality in light of sound social norms and commercial practice, which constitutes "a case where monetary and other assets or services are lent or provided at a rate, rate, or rent lower than the market price" under Article 88 (1) 6 or 9 of the Enforcement Decree of the Corporate Tax Act, or "an act equivalent thereto", and (iii) Meanwhile, as alleged by the plaintiff, the transaction tax, etc. due to the acquisition of the stock price of this case was paid by the plaintiff, and it is difficult to deem that the defendant recognized the acquisition of the plaintiff's stock price of this case as legitimate merely because the defendant did not refund it. Thus, the plaintiff's allegation in this part of this case is without merit.

4) Sub-committee

Therefore, the share price paid by the Plaintiff to the competentB, who is a person with a special relationship, constitutes a provisional payment regardless of the business. Based on this, the tax base and tax amount of each corporate tax for the Plaintiff from the year 2011 through 2012, computed the interest rate recognized as a basis and included in the gross income, and excluded the interest interest from the deductible expenses, are the same as the corporate tax base and tax amount that are the premise of the disposition of this case. Accordingly, the Defendant’s disposition based on

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.