Early High Court Decision 2014J 3364 ( November 20, 2014)

Method of evaluating listed stocks owned by an unlisted corporation under the Corporate Tax Act

It is reasonable to evaluate the method of appraisal of listed stocks owned by an unlisted corporation as the final market price.

Article 52 of the Corporate Tax Act

Suwon District Court 2015Guhap61437 ( October 20, 2015)

Columno** Company

00. Head of tax office

August 18, 2015

o October 20, 2015

1. The Defendant’s imposition of corporate tax amounting to KRW 3,942,329,120 against the Plaintiff on April 24, 2014 exceeds KRW 2,315,020,230 (including additional tax) of the imposition of corporate tax amounting to the Plaintiff for the business year 2009.

The same shall apply to the order of the Gu office.

1. Details of the disposition;

A. On September 1, 2007, the Plaintiff, a business of manufacturing and selling automobile parts, manufacturing and processing fibers, etc., was established by spin-off between the original parts sales sector and the original parts processing sector among the Plaintiff’s business, and transferred 2,800,000 shares of the non-listed corporation (hereinafter “instant shares”). In this case, the Plaintiff transferred 2,80,000 shares of 2,80,000 shares of the non-listed corporation (hereinafter “the instant shares”).

B. On August 3, 2008, 200 Coropulum Co., Ltd. (hereinafter referred to as “Coopulum”) (hereinafter referred to as “Coopul”) merged 000, a non-listed corporation, the subsidiaries of which are 100% of Coopulum, Ltd. (hereinafter referred to as “Coopul”) with the assessment base date as 6,533 and 4,570 won, and assessed each merger rate as 1:0.695255. Meanwhile, 000 and 000 calculated by adding the value of the shares of this case as at the time of the merger to 2000 won prior to and after the assessment base date as at May 31, 2008, as at 6,533 and 4,570 won, respectively, as at 1:00 and 200 won each of the largest shareholders publicly announced under Article 63 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9269, Dec. 26, 2008).

D. As a result of the stock change investigation on 000 shares, the Central and Medium Enterprise Tax Office assessed the shares of this case held by 000,000, a merged corporation, according to the former Inheritance Tax and Gift Tax Act without evaluating the final market price at the Korea Exchange on the appraisal base date, and determined that the merger ratio of 00 was excessive, and thereby, determined that the Plaintiff, a shareholder of the extinguished corporation, who was the shareholder of the extinguished corporation, was divided a profit of 4,83,00,000, and notified the Defendant thereof.

E. Accordingly, on April 24, 2014, the Defendant issued a disposition to increase corporate tax for the business year 2009 from the initial 2,315,020,230 to the 3,942,329,120 won against the Plaintiff for the reason that the Plaintiff, a shareholder of Htex, included the profit distributed as above in gross income for the business year 2008, and increased the tax base by reducing the loss attributed to the business year 2009, and that the loss brought forward for the business year 2009 has ceased to exist (hereinafter “disposition of the instant disposition”). [Grounds for recognition] The Defendant issued a disposition to impose corporate tax for the business year 2009, which reverts to the Plaintiff as the initial 2,315,020,20,329,120 won (hereinafter “the disposition of the instant case”), without any dispute, the evidence Nos. 1 through 5, 6-1, 2-1, 2-1, and 2-2

(a) Relevant statutes;

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

B. Determination

1) In applying Article 52(2) of the former Corporate Tax Act (amended by Act No. 9267, Dec. 26, 2008; hereinafter the same) to the provisions on the denial of wrongful calculation, it shall be based on sound social norms and commercial practice, and the prices applied or deemed applicable to normal transactions between persons without a special relationship. Article 52(4) of the same Act provides for necessary matters concerning the types of wrongful calculation and the assessment of market prices.

Accordingly, Article 88(1)8(1)8(a) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 21025, Sep. 22, 2008; hereinafter the same) provides for the case where a corporation, such as a stockholder, etc., distributes profits to other stockholders, etc., who are specially related parties by evaluating stocks, etc. at a higher or lower market price in a merger between corporations, which are specially related parties, according to the type of wrongful calculation. In applying Article 52(2) of the Corporate Tax Act, Article 89 of the former Enforcement Decree of the Corporate Tax Act provides for the case where there is a price generally transacted between third parties who are not specially related parties (in case where stocks issued by a stock-listed corporation and KOSDAQ-listed corporation are traded at the Korea Securities and Futures Exchange under the Korea Securities and Futures Exchange Act, the market price of the relevant stocks shall be deemed the market price on the date of such transaction), and in case where the market price is unclear, the appraised value under the Public Notice of Values and Appraisal of Real Estate Act shall apply mutatis mutandis Articles 38 through 39(2).

Meanwhile, Article 63(1)1 (a) of the former Inheritance Tax and Gift Tax Act provides that the stocks of a stock-listed corporation traded at the Korea Exchange shall be assessed on the basis of the average daily market value of the Exchange during two months before and after the base date of appraisal. Article 63(1)1 (c) of the former Inheritance Tax and Gift Tax Act and Articles 54(4)2 and 54(2) and 55(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 21214, Dec. 31, 2008; hereinafter the same) shall not apply to the case where the former Enforcement Decree of the Corporate Tax and Gift Tax Act (amended by Presidential Decree No. 21214, Dec. 1, 2008; hereinafter the same) shall be calculated on the basis of a 00-day method of calculating the market value of the stocks of the non-listed corporation, which is an unreasonable method of calculating the market value of the stocks of the merged corporation.

Therefore, the market value per share of 000 stocks, an unlisted corporation less than three years after the commencement of the business, shall be deemed the amount appraised by applying mutatis mutandis the provisions of the Inheritance Tax and Gift Tax Act pursuant to Article 89(2)2 of the former Enforcement Decree of the Corporate Tax Act. According to Article 63(1)1 (c) of the former Inheritance Tax and Gift Tax Act, and Articles 54(4)2 and 55(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the net asset value of the assets held by 00 as of the base date of appraisal minus the liabilities from the net asset value assessed pursuant to the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the base date of appraisal, shall be the market value per share of 000 stocks. Therefore, the market value of the stocks of this case among the assets held by Dox shall also be deemed the market

Article 89(1) of the former Enforcement Decree of the Corporate Tax Act shall not apply to the case where the Plaintiff assessed the above stocks by applying Article 89(1) of the former Enforcement Decree of the Corporate Tax Act at the time of transferring the pertinent stocks to the Korea Exchange on September 1, 2007, solely on the ground that the instant stocks are listed stocks, and thus, they cannot be evaluated as the average market value of the Korea Exchange once every two months before and after the appraisal base date. This does not change even if there are circumstances under which the Plaintiff assessed the above stocks by applying Article 89(1) of the former Enforcement Decree of the Corporate Tax Act at the time of transferring the instant stocks to 000. Meanwhile, the Enforcement Decree of the Corporate Tax Act amended by Presidential Decree No. 24357, Feb. 15, 2013 (the latter part of Article 89(2) subparag. 1(c) of the Inheritance Tax Act and Article 54 of the Enforcement Decree of the Corporate Tax Act (limited to the stocks issued by a stock-listed corporation).

4) Therefore, the Defendant’s instant disposition, based on the premise that the market price of the instant shares should be assessed as the final market price on the appraisal base date pursuant to Article 89(1) of the former Enforcement Decree of the Corporate Tax Act

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is decided as per Disposition.