In a case where Gap transferred Eul's shares to Byung and reported and paid transfer income tax by applying 10/100 of the transfer income tax rate on the shares of small and medium enterprises as provided by Article 104 (1) 4 (b) of the former Income Tax Act, and Eul was incorporated into an enterprise group subject to limitations on mutual investment under Article 14-3 of the Monopoly Regulation and Fair Trade Act, and upon which the tax authority imposed transfer income tax on Eul by applying 20/100 on the ground that it was not a small and medium enterprise group, the case holding that Article 104 (1) 4 (b) of the former Income Tax Act and Article 167 (5) of the former Enforcement Decree of the Income Tax Act cannot be applied when determining whether it constitutes a "stocks of small and medium enterprises" under Article 104 (1) 4 (b)

Article 104 (1) 4 (a) and (b) of the former Income Tax Act (Amended by Act No. 9897, Dec. 31, 2009); Article 167 (5) and Article 167-8 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 22034, Feb. 18, 2010); Article 101 of the former Restriction of Special Taxation Act (Amended by Act No. 9921, Jan. 1, 2010); Article 63 (3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010); Article 53 (6) and Article 16 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (Amended by Presidential Decree No. 2042, Feb. 18, 2010); Article 101 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (Amended by Presidential Decree No. 20135, Dec. 16, 2019, 2015)

Plaintiff (Law Firm LLC, Attorneys So-young et al., Counsel for the plaintiff-appellant)

Head of the tax office;

Seoul High Court Decision 2014Nu49912 decided December 17, 2014

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Article 104(1)4(a) and (b) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009; hereinafter the same shall apply) provides that the transfer income tax rate for the “stocks, etc. of small and medium enterprises as prescribed by the Presidential Decree” shall be 10/100 of the transfer income tax base. Article 167-8 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010; hereinafter the same shall apply) provides that “small and medium enterprises as prescribed by the Presidential Decree” means enterprises falling under small and medium enterprises under Article 2 of the Framework Act on Small and Medium Enterprises as of the end of the business year immediately preceding the business year in which stocks, etc. are transferred, and Article 167(5) of the former Enforcement Decree of the Income Tax Act, Article 27(1)4(b) of the former Enforcement Decree of the Income Tax Act (amended by Act No. 96130, Jan. 16, 20, 2016 of the former Enforcement Decree.

Meanwhile, Article 2(1)2 of the former Framework Act on Small and Medium Enterprises (amended by Act No. 10952, Jul. 25, 2011); Article 3 [Attachment Table 2] subparag. 2 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 21368, Mar. 25, 2009) provides that “any company that does not belong to an enterprise group subject to limitations on mutual investment under Article 14(1) of the Monopoly Regulation and Fair Trade Act” (Article 3 subparag. 2(a) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 21831, Nov. 19, 2009) provides that “The same provision shall also apply to the provisions under Article 3 subparag. 2(a) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises.”

2. The lower court determined that Article 14-3 of the former Enforcement Decree of the Monopoly Regulation and Fair Trade Act provides that one of the requirements of small and medium enterprises shall be a company not belonging to an enterprise group subject to the limitations on mutual investment under Article 14(1) of the former Framework Act on Small and Medium Enterprises (hereinafter “Fair Trade Act”), and does not invoke Article 14-3 of the Fair Trade Act; ② Article 167-8 of the former Enforcement Decree of the Income Tax Act provides that the determination of whether a company is a small and medium enterprise holding stocks at the time of transferring stocks shall be based on the “the end of the business year immediately preceding the business year to which the date of transfer belongs” in order to prevent changes in circumstances after the transfer of stocks and ensure taxpayers’ predictability; ③ to interpret that the provision on the transfer income tax of Article 14-3 of the Monopoly Regulation and Fair Trade Act that requires the transfer of stocks to a business group subject to the limitations on mutual investment, which applies to the transfer income tax of this case on the ground that it harms legal stability in tax relations and excessively infringes taxpayers’ predictability.

Examining the reasoning of the lower judgment in light of the aforementioned provisions and relevant legal principles and records, the lower court’s determination is justifiable, and contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal principles

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Chang-suk (Presiding Justice)