The case holding that the above small and medium enterprise is subject to tax reduction or exemption under Article 46 of the former Regulation of Tax Reduction and Exemption Act, barring special circumstances, such as where the small and medium enterprise still seeks to obtain tax reduction or exemption on the ground of another person, even though it leases an old factory building located in the Seoul Metropolitan Area to another person and its lessee uses it for factory use with a entirely new factory facility, even if it is installed in the old factory building, etc.

The case holding that the above small and medium enterprise is subject to tax reduction or exemption under Article 46 of the former Regulation of Tax Reduction and Exemption Act (amended by the Restriction of Special Taxation Act No. 5584 of December 28, 1998) unless there are special circumstances, such as the small and medium enterprise still intends to obtain tax reduction or exemption on the ground of another person, even though it leases old factory buildings located in the Seoul Metropolitan Area to another person and its lessee uses them for factory use with all new factory facilities installed in the Seoul Metropolitan Area.

[1] Article 46 (1) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5584 of Dec. 28, 1998); Article 6 (1) of the former Enforcement Decree of the Restriction of Tax Reduction and Exemption Act (amended by Presidential Decree No. 15197 of Dec. 31, 1996); Article 46 (1) of the former Enforcement Decree of the Restriction of Tax Reduction and Exemption Act (refer to Article 60 (1) 1 of the current Enforcement Decree of the Restriction of Special Taxation Act)

Plaintiff (Attorney Kim Jong-sik, Counsel for plaintiff-appellant)

Head of Seocho Tax Office

May 17, 2005

1. The Defendant’s disposition of imposition of KRW 53,52,020 on March 19, 200 against the Plaintiff on March 19, 200 and KRW 89,482,950 on global income for the year 198 and global income for the year 199 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of taxation; and

The following facts are not disputed between the parties, or may be acknowledged by comprehensively considering the whole purport of the pleadings in each description of Gap evidence 1-2, Gap evidence 2, Eul evidence 3, Eul evidence 1-1, 2, Eul evidence 2, Eul evidence 4-1, and Eul evidence 4-2:

A. From April 16, 1982, the Plaintiff was a personal entrepreneur who operated plastic material manufacturing business in the name of "ship-gu chemical in Seo-gu, Seo-gu, Incheon, Seo-gu on July 5, 1996 (hereinafter referred to as "the place of business of this case") and transferred the place of business (hereinafter referred to as "the place of business of this case") to Singu, Singu, which is an area other than the Seoul Metropolitan area under the relevant laws and regulations, and then reported and paid the reduced or exempted tax amount on the income accrued from the factory after the transfer under Article 46 (1) of the former Regulation of Tax Reduction and Exemption Act (amended by the Restriction of Special Taxation Act, Act No. 5584, Dec. 28, 198; hereinafter referred to as the "Enforcement Decree") and Article 46 (1) 1 of the Enforcement Decree of the same Act (hereinafter referred to as the "Enforcement Decree").

B. In moving the instant plant, the Plaintiff leased the factory building (hereinafter referred to as the “former factory building”) and the site used by Nonparty 1 for the instant plant on November 1, 1996, and Nonparty 1 was engaged in the service business and the mechanical manufacturing business, etc. related to the repair of machinery in the said factory building, with the trade name of “sick machine”, and at present, Nonparty 2 was in the process of taking over and operating the business from Nonparty 1.

C. However, in the event that a third party who leased a former factory building uses the leased building for the purpose of factory, the Board of Audit and Inspection demanded that the leased building not be subject to tax reduction or exemption pursuant to the National Tax Service’s established rules (Law No. 4601-1835, Jun. 25, 1996) was subject to the disposition of this case imposing global income tax of 53,552,020 won for the year 198 and global income tax of 89,482,950 won for the year 199, by excluding the portion initially reported to the Plaintiff as the tax reduction or exemption.

D. The plaintiff appealed to the National Tax Tribunal on June 11, 2004, but the National Tax Tribunal dismissed the above claim on November 3, 2004, and the plaintiff filed the lawsuit of this case on January 31, 2005.

2. Whether the disposition is lawful;

A. The parties' assertion

(1) The plaintiff asserts that the disposition of this case is unlawful on the ground that the disposition of this case is unlawful, since all of the facilities in the old factory building are removed and all of the factory facilities remaining in the old factory in the "Gu factory" under the relevant provision of tax reduction and exemption are removed and the operation of the factory facilities in question is impossible.

(2) As to this, the Defendant asserts that the instant disposition is lawful, since the Plaintiff’s use of the former factory building as a factory is not subject to tax reduction or exemption, in light of the legislative intent of the relevant provision to reduce or exempt taxes.

B. Relevant statutes

Attached Form 3 is as listed in the "relevant Acts and subordinate statutes".

(c) Markets:

Under the principle of no taxation without law, or under the principle of no taxation without law, the interpretation of tax laws and regulations shall be interpreted in accordance with the law unless there are special circumstances, and it shall not be allowed to expand or analogically interpret without reasonable grounds.

In this case, it is one of the tax support systems to restrain the concentration of industrial facilities and business activities in the Seoul Metropolitan area, to induce enterprises located in the Seoul Metropolitan area and to support the improvement of the management conditions of local industries. Article 46(1) of the Act provides that where a small or medium enterprise operating a business with factory facilities in the Seoul Metropolitan area starts the business by relocating the whole factory to an area outside the Seoul Metropolitan area under the conditions as prescribed by the Presidential Decree, the benefit of tax reduction or exemption for the income accruing from the factory after the relocation shall be granted for a certain period of time. Article 46(1)1 of the Enforcement Decree of the Act provides that, under Article 46(1)1 of the Enforcement Decree of the Act, the owner of factory facilities in the Seoul Metropolitan area shall transfer the relevant factory to another person within one year from the date of the relocation or remove or shut down the entire factory facilities in the Seoul Metropolitan area to which the former factory facilities in the Seoul Metropolitan area is unable to operate by

However, the requirements for tax reduction and exemption provided for in Article 46 (1) 1 of the Enforcement Decree of the above Act, first, should be relocated the factory facilities located in the Seoul Metropolitan Area to an area other than the Seoul Metropolitan Area, second, it should be impossible to operate the factory facilities by either transferring the old factory to another person or removing or closing the old factory facilities within one year after the relocation. However, since there is no dispute between the parties that the Plaintiff, who operated a small and medium enterprise in the Seoul Metropolitan Area, transferred the factory facilities to an area other than the Seoul Metropolitan Area and did not transfer the old factory facilities to another person within one year after the relocation, the Plaintiff should have been unable to operate the factory facilities by removing or closing the old factory facilities to be reduced or exempted pursuant to the above provision.

Therefore, as recognized earlier, the Plaintiff’s operation of the manufacturing business of plastic materials at the instant place of business, as recognized by the former Enforcement Decree, was no longer possible due to the Plaintiff’s removal of all of its factory facilities to a new factory outside the Seoul Metropolitan area. Although the Plaintiff did not transfer the instant place of business to a third party within one year after the relocation of the said factory, Nonparty 1 still operated the instant factory as a factory by providing for repair-related services and mechanical installation services at the instant place of business to Nonparty 6, it is not necessary for the Plaintiff to arbitrarily remove the leased factory facilities for the purpose of the Plaintiff’s operation of the instant place of business, on the ground that it was difficult for the Plaintiff to use the new factory facilities within 6 years after the removal of the factory facilities at the instant place of business. However, it is not necessary for the Plaintiff to arbitrarily remove the leased factory facilities at the time of the instant place of business, on the other hand, for the purpose of the Plaintiff’s operation of the new factory facilities for the purpose of the removal of the leased facilities at its own time.

Therefore, the plaintiff met all the requirements for tax reduction and exemption stipulated by relevant statutes, and the grounds alleged by the defendant cannot be the grounds for preventing the establishment of tax reduction and exemption. Therefore, the other purport of the disposition of this case cannot be deemed lawful.

3. Conclusion

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

Judges Lee Tae-tae (Presiding Judge)