2012 Middle 3513

2012 Middle 3513

Aggregate taxation of global income tax on constructive dividend income;

In order to refund the contribution to the non-party company by retiring shares pursuant to Article 341 subparagraph 1 of the former Commercial Act, it is legitimate to impose global income tax on the non-party company by deeming that the gains from acquiring the shares of this case and paid by the non-party company as income

Article 17 of the Income Tax Act

2013Guhap371 Disposition of revocation of imposition of global income tax, etc.

LAA

Head of Namyang District Tax Office

December 3, 2013

January 28, 2014

1. All of the plaintiff's claims are dismissed.

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

Cheong-gu Office

The Defendant’s imposition of OOO (this tax) on the global income tax for the year 2007, which was made on May 8, 2012 against the Plaintiff and the imposition of OOO tax on the global income tax as of April 3, 2013 is revoked.

1. Details of the disposition;

"A. The non-party BB (hereinafter referred to as "non-party BB") is a company established for the purpose of export and import business, export agency business, etc., and the plaintiff and non-party largestCC, MaximumDD and Maximum EE (hereinafter referred to as "the plaintiff et al.") are the shareholders of the non-party company who were the major shareholders of the non-party company and were the largest FF of the non-party company." "B. The plaintiff et al. sold the shares of the non-party company (hereinafter referred to as "the shares of this case") held as follows on April 27, 2007, and reported and paid each transfer income tax on June 30, 2007."

C. On May 8, 2012, the Defendant deemed that the instant stock transaction by Nonparty Company and the Plaintiff, etc. was deemed as fictitious dividend due to the retirement of stocks or the reduction of capital, and imposed an additional tax on the Plaintiff on May 8, 2012.

D. After that, according to the Supreme Court’s judgment that the imposition of penalty tax without specifically stating the legal basis is unlawful, the Defendant revoked the part concerning the imposition of penalty tax in the disposition imposing global income tax, and imposed penalty OOOO again on April 3, 2013, with the content that specific legal grounds are indicated.

E. In addition, as the judgment on the purport that 41,743 shares (6,957 shares out of the Plaintiff’s shares) out of the instant shares are owned by Nonparty KimGG becomes final and conclusive on December 13, 2012 in civil cases concerning the instant shares (Supreme Court Decision 2012Da8237, 2012Da82244, a consolidation) with respect to the instant shares, the Defendant calculated the constructive dividend income of the Plaintiff on May 7, 2013 and deducted and corrected the amount of KRW OOOOOOO of global income tax (hereinafter referred to as “the disposition of imposition of penalty tax in total after cancelling the imposition of penalty tax on May 8, 2012”), “The grounds for recognition”, “A, 12, 10, 101 through 3 evidence, and each of subparagraphs 1 and 3 (including the purport of the entire pleadings).”

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) While rendering the instant disposition, the Defendant merely stated the total tax base and the calculated tax amount with respect to the principal tax in a tax payment notice, but did not state the grounds for calculation or the tax rate, and did not attach a separate statement of calculation, etc. Therefore, the instant disposition is unlawful by unlawful tax payment notice.

2) The non-party company received a claim for purchase of the instant shares from the Plaintiff, etc., who is a shareholder, and first lent the instant shares as collateral. However, the non-party company intended to recover the said loan because it was determined that it does not constitute the grounds for claim for purchase of shares, but it was difficult to recover the loan, and thus, it did not have acquired the company’s own shares inevitably to achieve its purpose in exercising the company’s rights, and

3) If the above inevitable reasons are not recognized, the acquisition of the instant shares by the non-party company shall be deemed null and void by the acquisition of treasury shares that are not permitted by the law. Thus, the instant disposition is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Determination as to whether a tax payment notice has a defect

Article 9(1) of the National Tax Collection Act provides that the head of a tax office intends to collect national taxes shall issue a taxpayer a tax payment notice stating the period for taxation, tax item, amount of tax, and basis for calculation thereof, and place of tax payment. The provisions on the tax payment notice under the National Tax Collection Act and the individual tax-related Acts accept the principles of due process and the basic principles of the Administrative Procedures Act in the area of taxation disposition, as they are, and allow the tax authority to render a careful and reasonable taxation disposition, thereby ensuring fairness in tax administration, and at the same time giving the taxpayer a detailed notice of the details of the taxation disposition, and allowing the taxpayer to raise convenience in filing an objection. Therefore, this provision ought to be deemed as mandatory provisions. Thus, barring any special circumstance, barring any special circumstance, it is unlawful for the Plaintiff to determine the tax base and calculation basis of the principal tax amount. Furthermore, even if the tax payment notice does not provide for separate provisions on individual tax payment notice as stated in the tax collection notice, it is not reasonable for the Defendant to determine the tax payment notice to the extent that it does not meet the requirement of tax payment notice under Article 10(2).

(a)a fact of recognition;

(1) On June 28, 2006, between the Plaintiff, etc. and the Plaintiff, etc., on December 31, 2006, the non-party company loaned OOOOOO to the Plaintiff, the largest E, the OOOOOO, the OOOOOO, and the largest D respectively.

(2) On April 27, 2007, the non-party company purchased the instant shares from the Plaintiff, etc., and paid the difference between each purchase price and the balance after deducting the balance of each of the above loans. The deduction details were Plaintiff OOO, MaximumOOOO, MaximumCCOOOO, and Maximum DOOOOO.

(3) At the time of the purchase of the instant shares by the non-party company, the Plaintiff owned the property of approximately KRW OOO, least OOOOOO, and least DAOOOO. However, the non-party company did not take specific measures for recovery of claims, such as creating a security on its property or enforcing compulsory execution, to collect loans from the Plaintiff, etc. until the purchase of the instant shares.

(4) The annual interest, cost, and net income (loss) of the non-party company are as listed below (unit: million won). Meanwhile, the non-party company paid a total of approximately KRW OOO members to shareholders at early 2007.

See 6 pages of the judgment

(5) There are two minutes of the board of directors related to the acquisition of the shares of the non-party company of this case (No. 6) and March 12, 2007 (No. 4). The main contents are as follows.

Minutes of the Council on March 13, 2007

(b)be omitted;

Bill No. 5: Cases of purchase of treasury stocks

(c) Omission; and

Minutes of the Council on March 12, 2007

(b)be omitted;

Bill No. 5: Purchase and retirement of common shares by profits (case of purchase of private shares)

The shareholder, etc. who requested the disposal of shares, shall purchase shares of the Plaintiff, etc. with the profits of the 43th of the year 2006 and approve the retirement of them as follows:

1. Class and total number of shares to be purchased: 388,210 common shares;

2. Total acquisition value of stocks to be purchased: OO won;

(The total value of shares to be purchased may be changed depending on the actual price of acquisition)

3. The price of stocks to be acquired for retirement: OO won;

4. Period during which it may be purchased: From April 1, 2007 to June 30, 2007.

(c) Omission; and

(6) The minutes of the ordinary shareholders' meeting of the non-party company on March 29, 2007 related to the acquisition of the shares of the non-party company have two certified by the notary public on April 16, 2007 (No. 7) and July 10, 2007 (No. 5) respectively, and the minutes of each ordinary shareholders' meeting (hereinafter the above regular shareholders' meeting minutes of the general shareholders' meeting of April 16, 2007).

The main contents of the minutes of the General Meeting certified on July 10, 2007 are as follows, and the minutes of the General Meeting of Shareholders (certified on April 16, 2007) shall be as follows:

(b)be omitted;

Bill No. 5: Cases of purchase of treasury stocks

The Speaker, while the shareholders of the plaintiff et al. have requested the company to dispose of their shares held by them, the company will purchase the shares during the gold year after confirming the objection and legal review, and the shareholders will have passed a resolution on the full issuance of the shares.

(c) Omission; and

Minutes of the General Meeting of Shareholders (No. 10, 2007)

(b)be omitted;

Bill No. 5: Purchase and retirement of common shares by profits (case of purchase of private shares)

The Chairperson explains that the company should purchase and retire shares of the Plaintiff et al. that requested the disposal of shares with the profits of the 43th of the year 2006, and provides sufficient questions and discussions among the shareholders present and then approves the purchase and retirement of shares as follows without all of them:

1. Class and total number of shares to be purchased: 388,210 common shares;

2. Total acquisition value of stocks to be purchased: OO won;

(The total value of shares to be purchased may be changed depending on the actual price of acquisition)

3. The price of stocks to be acquired for retirement: OO won;

4. Period during which it may be purchased: From April 1, 2007 to June 30, 2007.

(c) Omission; and

(7) Meanwhile, in around 2005, KimG filed a lawsuit against the non-party company and the largestF on the grounds that it is the actual shareholder of 1,441,517 shares out of the total shares of the non-party company 3,421,009 (42.13%). The said lawsuit was finalized on December 13, 2012 through the process of reversal and return at two times by the Supreme Court.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 4, 5, 6, 7, 8, 10, 13, Eul evidence Nos. 4, 5 and 6 (including each number), and the purport of the whole pleadings

B) Determination

(1) Relevant legal principles

Article 17 (2) 1 of the Income Tax Act provides that "The amount of money or other property acquired by a stockholder due to the retirement of shares or the reduction of capital exceeds the amount required for the acquisition of the shares shall be deemed to have been distributed to the relevant stockholder." Article 341 of the former Commercial Act (amended by Act No. 10600, Apr. 14, 201; hereinafter referred to as the "former Commercial Act") provides that "the company shall not acquire its own shares on its own account except for the retirement of shares (Article 1)." Article 343-2 (1) and (2) provides that "the company may retire shares after purchasing them at the general meeting's special resolution." Article 343-2 (1) and (2) provides that "the kind, total number of shares to be purchased, total amount of acquisition, and period for purchasing shares shall be determined at the general meeting's resolution." Whether the capital retirement or refund falls under a refund of shares is based on the contents of the transaction and the intent of the parties, but it should be determined based on the conclusion of the parties.

(2) Application of this case

In light of the following circumstances, it is reasonable to view that the non-party company acquired the shares of this case from the plaintiff et al. in order to redeem the contribution to the non-party company by retiring shares pursuant to Article 341 subparagraph 1 of the former Commercial Act, and thus, the transfer margin of the shares of this case constitutes income from constructive dividend. Thus, the plaintiff's assertion on this part is without merit.

① The Plaintiff’s acquisition of the instant shares was an inevitable measure to collect the loans to the Plaintiff, etc., and the Nonparty Company asserted that it acquired the instant shares in order to achieve its purpose not to acquire the instant shares for the retirement of shares. However, in exercising the rights provided for in Article 341 subparag. 3 of the former Commercial Act, “when it is necessary to achieve its purpose” means that the Company may acquire its own shares by auction or by payment in substitutes only when it is subject to compulsory execution, exercise of security rights, etc. to enforce its rights. Therefore, the obligor’s insolvency is a requirement for allowing the acquisition of its own shares (see, e.g., Supreme Court Decision 76Da1292, Mar. 8, 197). The Nonparty Company did not have any evidence to prove that it was insolvent at the time of acquiring the instant shares, and it did not have any specific purpose to collect its shares from Nonparty 2’s meeting minutes on the ground that it did not constitute a total amount of shares acquired by Nonparty 7’s own shares (see, e.g., Supreme Court Decision 20000OO., for its acquisition of shares.

③ The minutes of the General Meeting (Evidence A) authenticated on April 16, 2007 include not only the same as the acquisition of shares, but also the same cannot be readily concluded that the acquisition of shares of this case is not an acquisition for the purpose of the retirement of shares. Rather, the minutes of the General Meeting (Evidence B) authenticated on July 10, 2007 include not only the contents of the minutes of the General Meeting (Evidence B) Certified on March 12, 2007, but also the contents stipulated in Article 343-2 (1) and (2) of the former Commercial Act, which contain not only the contents of the minutes of the General Meeting (Evidence A7), certified on April 16, 207, but also the contents of the minutes of the General Meeting (Evidence A7) certified on April 16, 207, which contain the contents of the minutes of the General Meeting (Evidence B) certified on April 16, 207, which will not be more specific than the details of the minutes of the General Meeting.

⑤ From the standpoint of Nonparty Company and the largestF, in a lawsuit brought by KimGG against the Plaintiff, the largest FF’s share reaches 53.87% (1,842,896 note 3,421,09 note) and the shares of KimGG are 42.13% (1,441,517 note 3,421,009 note) and the largest FG’s management right is considerably threatened. Under these circumstances, Nonparty Company and the largest FF need to acquire and retire the shares of this case that amount to 11.35% (38,210 note 3,421,09 note) of the total shares issued in order to secure the stable management right.

6) The Plaintiff et al. appears to have avoided a dispute over the inheritance-related disputes raised by KimG and sought a refund of their own contributions as soon as possible in the early 2007. Nonparty Company paid cash dividends to shareholders, including the Plaintiffs, for the first time in early 2007, and immediately acquired the instant shares and paid the Plaintiff et al. a total amount of approximately KRW OO in return. This seems to have been made in a series of process to recover the contributions in the situation of the inheritance-related disputes raised by KimGG.

7) After acquiring the instant shares, the non-party company did not go through the retirement procedure until now. However, it cannot be deemed that the acquisition of the instant shares was null and void, or that the acquisition of the instant shares was not aimed at retiring, solely on the sole basis that the non-party company did not go through the formalities for the retirement of the instant shares, in light of the fact that the lawsuit, such as the confirmation of shareholder rights, filed by KimG against the non-party company around 2005, became final and conclusive on December 13, 2012, as to the acquisition of the instant shares, the non-party company treated the acquisition of the instant shares as the items of capital deductions and has already decreased in the financial statements, and that the non-party company obtained the same effect as the retirement of shares, such as

3) Determination as to whether the acquisition of the instant shares is null and void

As seen earlier, the acquisition of shares of this case constitutes “when it is intended to retire shares under Article 341 subparag. 1 of the former Commercial Act” and is effective acquisition of shares. Accordingly, the Plaintiff’s assertion on this part is without merit.”

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