National High Court Decision 2007 Mine5008 ( October 30, 2008)

The acquisition value of combined stocks, etc. shall not be deemed the face value of the stocks of the merged corporation.

The defendant's disposition that did not recognize the acquisition value of combined stocks of the merged corporation as the face value of the shares of the merged corporation on the ground that the shareholders of the merged corporation cannot be deemed to have acquired the shares of the merged corporation equivalent to no less than 95/100 of the transferred amount within seven days after transferring the shares to the plaintiff is legitimate.

Article 122 of the Enforcement Decree of Corporate Tax Act

209Guhap154 Corporate Tax Revision

XXDPP Co., Ltd.

O Head of tax office

June 14, 2011

July 12, 2011

1. The plaintiff's claim is dismissed.

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

In September 5, 2007, the Defendant revoked a disposition rejecting to rectify corporate tax on liquidation income at the time of the Plaintiff.

1. Details of the disposition;

A. The plaintiff (the trade name at the time of the first establishment was PP unemployment, and the name was changed to the Otecro, Co., Ltd. on March 28, 2002, and the 20 May 20, 2003, and was changed to the current trade name on January 31, 2007; hereinafter referred to as the "Plaintiff") is a company established around April 21, 197 for the purpose of semiconductor production and related service business.

B. On December 28, 2005, the Plaintiff acquired the 4,596,798 shares of the merged offender owned by the major shareholders of △△△ Co., Ltd. (hereinafter referred to as the “Merger Corporation”), △△ electronic Co., Ltd., △△△ Electronic Co., Ltd., △△△○ Co., Ltd., △△△, △△△○ Co., Ltd., and the △△△○ Association, etc. (hereinafter referred to as “minimumA, etc.”), but transferred 650,00 shares of 650,00 shares to the Capital Partnership, thereby holding the 3,946,798 shares of the merged corporation (hereinafter referred to as “the shares of this case”). Thereafter, on September 19, 2006, the merged merged the merged person.

C. On December 18, 2006, the Plaintiff calculated the corporate tax base on liquidation income of the extinguished corporation to the Defendant as KRW 16,783,556,488, and reported corporate tax on liquidation income of the extinguished corporation to the Defendant. 4.183,889,122.

D. On May 10, 2007, the Defendant changed the corporate tax base on liquidation income to KRW 13,303,714,081 on the ground that some errors were found in the corporate tax calculation statement on liquidation income of the extinguished corporation reported by the Plaintiff, and corrected and notified the corporate tax to KRW 3,461,06,946 (= calculated tax amount of KRW 3,313,928,520 + additional tax of KRW 147.138,426).

E. On July 17, 2007, in calculating the amount of liquidation income against the merged corporation, the Plaintiff asserted that the acquisition value of the combined stocks added the total cost of the merger should be calculated on the basis of the face value of the stocks of the merged corporation acquired by the Plaintiff under the proviso of Article 122(1)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 21972 of Dec. 31, 2009; hereinafter referred to as the "Enforcement Decree of the Act"), and that the total amount of the acquisition value of the combined stocks should be calculated on the basis of the face value of the stocks of the merged corporation acquired by the Plaintiff under the proviso of Article 122(1)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Act No. 9898 of Dec. 31, 2009; hereinafter referred to as the "Act"), and that the total amount of 3,987,607,000 won received from the merged corporation should be included in the total amount of KRW 167565.6

F. Accordingly, on September 5, 2007, the defendant issued a disposition rejecting the plaintiff's request for correction on the ground that the plaintiff did not meet the requirements of "acquisition of shares of the merged corporation (referring to shares newly issued by the merged corporation) equivalent to 95/100 or more of the transfer amount of the combined shares, etc. within seven days after the shareholders of the merged corporation transfer combined shares, etc. to the merged corporation (hereinafter "disposition of this case") under Article 122(1)2 (b) of the Enforcement Decree of the Act.

G. On November 15, 2007, the Plaintiff filed an appeal with the Tax Tribunal on the grounds that it was dissatisfied with the instant disposition, but was dismissed on October 30, 2008.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4 (including each reporters' number), Gap evidence No. 16, Eul's statement No. 1. 2 and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(i) argument that the acquisition value of the stocks, etc. included in the total cost of merger shall be deemed the face value of the stocks of the merged corporation (section 1).

For the following reasons, the Plaintiff is deemed to have satisfied the requirements under Article 122 (11) 2 (b) of the Enforcement Decree of the Act. Thus, the Defendant’s disposition that did not regard the face value of the merged corporation’s shares as the acquisition value of combined stocks is unlawful.

A) The combined stocks stipulated in Article 80(2) of the Act refer to the stocks of the merged corporation that the merged corporation acquired within two years prior to the date of the registration of the merger, which can only be held by the merged corporation. Thus, it conforms to the principle of strict interpretation that the "shareholders of the merged corporation" who can transfer combined stocks, etc. as stipulated in Article 122(1)2(b) of the Enforcement Decree of the Act refer to the merged corporation.

B) The shareholder of the extinguished corporation who transferred the stocks of an extinguished corporation to the merged corporation is not in the position to receive the merged corporation’s stocks any longer through the transfer of the stocks in question, and if the stocks of the merged corporation are not transferred by the time of the merger, the merged corporation can receive the new stocks according to the initial equity ratio after the registration of the merger. As such, as provided by Article 122(1)2(b) of the Enforcement Decree of the Act, there is no reason to acquire the stocks of the merged corporation equivalent to not less than 95/100 of the transfer amount of the stocks in question within seven days after the transfer of the stocks of the merged corporation to the merged corporation. In fact, it is virtually impossible to acquire the stocks of the merged corporation within seven days since the transfer of the stocks in question to the merged corporation

C) There is no reason to distinguish the interpretation of Article 122(1)2(b) and (c) and Article 44(1)2 of the Enforcement Decree of the Act between the shareholders of the merged corporation and the shareholders, etc. of the merged corporation. Both are the premise that item (a) of the same Article is based on USD 122(1) and the situation at the time of the merger.

D) The “transfer of combined stocks, etc.” under Article 122(1)2(b) of the Enforcement Decree of the Act includes the merger of corporations, and the “acquisition of the stocks of the merged corporation” should be deemed to include the delivery of merger stocks to the stockholders of the merged corporation according to the equity ratio after the registration of the merger.

E) Therefore, the Plaintiff, who acquired the instant combined stocks and became the shareholder of the merged corporation around December 28, 2005, shall be calculated on the basis of the face value of the shares of the merged corporation acquired by the Plaintiff in accordance with the proviso of Article 122(1)2 of the Enforcement Decree of the Act, as the Plaintiff did not transfer the instant combined stocks to the merged corporation, and did not receive a separate merger subsidy, other than the shares of the merged corporation (the shares newly issued by the merged corporation) and satisfied the requirements under Article 122(1)2(b) of the Enforcement Decree of the Act.

(ii) argument that the corporate tax on the liquidation income of the merged corporation shall not be added to the total cost of merger (section II);

According to Article 122(1)3 of the Enforcement Decree of the Act, the corporate tax on the liquidation income of the merged corporation paid by the merged corporation shall be added to the total amount of the merger cost. However, in this case, it is improper to add this amount to the total amount of the merger cost, assuming that the merged corporation had sufficient capability to pay corporate tax on the liquidation income at the time of the merger as if the plaintiff, who is the merged corporation, was

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

1) The Plaintiff is a company established around April 21, 197 and engaged in the business of manufacturing semiconductors and related services, and the merged corporation is a company engaged in the business of manufacturing semiconductors, etc., and its representative was the largestA.

2) On December 28, 2005, the Plaintiff acquired 4,596,798 shares of the extinguished corporation owned by the major shareholders of the extinguished corporation from the largest AA, etc. on 15,107,519,000 shares of the extinguished corporation, but transferred them again to the extinguished corporation 650,000 capital partnership, and owned 3,946,798 shares of the extinguished corporation, which is the combined shares of this case (acquisition value: 12.974,212 won).

3) 원고는 2006. 5. 26. 피합병법인과 사이에, 원고가 피합병법인을 흡수합병하고, 원고는 피합병법인의 주주에게 합병신주를 교부하기 위하여 기명식 보통주 22,715,377 주(액면가 500원)똘 신규로 발행하되, 합병교부금은 별도로 없는 것으로 하며, 원고와 피합병법인의 합병비율을 1 : 2.0207253으로 정하는 등의 내용으로 합병계약을 체결하였다.

4) The current status of the Plaintiff’s shares of the merged corporation before and after the merger with the merged corporation and the details of issuance of the Plaintiff’s new shares after the merger are as shown below.

(The following table omitted):

5) On April 26, 2006, the Plaintiff merged the merged corporation through a resolution of the board of directors on April 26, 2006. On August 2006

4. The Plaintiff completed the merger registration on September 19, 2009, following the resolution of the temporary general meeting of shareholders for approval for the merger. The Plaintiff issued registered common shares (500 won) to deliver the new shares of merger to the shareholders of the merged corporation, and delivered shares according to the share ownership ratio at the end of the period. The Plaintiff treated that KRW 7,975,395 out of the above new shares of the merger were delivered to the shares of this case, which were held by the Plaintiff.

6) On December 18, 2006, the Plaintiff reported the amount of KRW 16.783.56,488 to the Defendant on December 18, 2006 as corporate tax on liquidation income of the extinguished corporation.

7) On May 10, 2007, the Defendant changed the corporate tax base on liquidation income to KRW 13,303,714.081 on the ground that some errors were found in the corporate tax calculation statement on liquidation income of the extinguished corporation reported by the Plaintiff, and corrected and notified the corporate tax payable to KRW 3,461.06.946 ( = calculated tax amount + + KRW 3.313,928.520 + penalty tax + KRW 147,138,426). The grounds for calculating the above corporate tax are as set forth in [Attachment 2].

(The following table omitted):

8) On July 17, 2007, the Plaintiff filed a claim for correction to the Defendant for the reduction of corporate tax on liquidation income of the extinguished corporation, as seen in the aforementioned disposition E., but the Defendant rejected the claim on September 5, 2007.

[Ground for Recognition] Unsatisfy, Gap evidence 2 to 4 (including each number), Gap evidence 6, Eul

1. Descriptions of the categories of subparagraphs 1 and 2, and the purport of the whole pleadings.

D. Determination

(i)decision on the first proposal;

A) According to Article 80(1) of the Act, where a domestic corporation is dissolved due to a merger, the amount of liquidation income by the merger shall be the total amount of the cost that the stockholders, etc. of the extinguished corporation receive from the merged corporation minus the total amount of equity capital of the extinguished corporation as of the date of the registration of the merger. According to Article 80(2) of the Act, in the calculation of the total cost of the above merger, where the merged corporation acquires the stocks, etc. of the extinguished corporation (hereinafter “combined stocks, etc.”) within two years prior to the date of the registration of the merger, and delivers the stocks, etc. with respect to the combined stocks, etc., the amount calculated by deducting the value of the stocks, etc.

According to the proviso of Article 122 (1) 2 of the Enforcement Decree of the Act according to the delegation under Article 80 (4) of the Act, the "acquisition value of combined stocks, etc." in this case means that (i) the merged corporation and the extinguished corporation at the time that the merged corporation acquires the combined stocks, etc. under Article 80 (2) of the Act from stockholders, etc. of the merged corporation at the time that the merged corporation acquires them from the stockholders, etc. of the merged corporation (i) the merged corporation and the extinguished corporation are not special-related persons (ii) the merged corporation shall acquire stocks, etc. (referring to stocks newly issued by the merged corporation) equivalent to not less than 95/100 of the transfer amount of combined stocks, etc. within seven days after the stockholders, of the extinguished corporation shared the combined stocks, etc. to the merged corporation (i) the acquisition value of the stocks, etc. under Article 44 (1) 1 and 2 of the Act; and (ii) the merger between the domestic corporation that has engaged in the business for not less than one year following date of the merger registration; and (ii) the acquisition value of stocks, 4.

B) The purport of the special case concerning the calculation of the acquisition value of combined stocks added to the amount of liquidation income due to a merger under the proviso of Article 122(1)2 of the Enforcement Decree of the Act is as follows: ① In the case of a merger between unrelated corporations, the merged corporation first acquired the stocks of the merged corporation and acquired the management right, and the liquidation income taxation system for combined stocks does not lead to the merger; ② in the case where the stockholders of the merged corporation acquire the stocks newly issued by the merged corporation in return for the transfer of the stocks before the merger (share swap) and the stocks newly issued by the merged corporation are actually different from the acquisition of the stocks of the merged corporation at the time of the merger, it is reasonable in a taxation-oriented manner to calculate the acquisition value of the merged corporation as face value in the same way as the stocks of the merged corporation were received by the merged corporation at the time of the merger. ③ However, in consideration of the fact that the direct exchange of stocks between the acquisition company and the merged corporation is recognized only when the stocks of the merged corporation are acquired by 100% under the current Commercial Act, it must provide the same support as the merger requirement.

C) In this case, only the issue is whether the Plaintiff can be deemed to meet the requirements under Article 122(1)2(b) of the Enforcement Decree of the Act. In light of the above fact of recognition and the purport of the entire relevant laws and regulations as seen earlier, the Plaintiff cannot be deemed to have satisfied the requirements under Article 122(1)2(b) of the Enforcement Decree of the Act for the following reasons.

(1) In light of the literal interpretation, it is reasonable to see that the shareholder of an extinguished corporation under Article 122(1)2(b) of the Enforcement Decree of the Act refers to the shareholder of the extinguished corporation who transfers combined stocks to the merged corporation. If the shareholder of the extinguished corporation under the above provision should be deemed to have referred only to the merged corporation, as alleged by the plaintiff, it should have been directly defined as the "merged corporation" as referred to in item (a) of the same subparagraph. The shareholder of the merged corporation here should be the shareholder of the extinguished corporation transfer the stocks of the extinguished corporation to the merged corporation within two years before the date of registration of the merger, and the shares of the extinguished corporation held by the merged corporation as a shareholder of the extinguished corporation are considered to be the "combined stocks" as referred to in Article 122(1)2(b) of the Enforcement Decree of the Act, even in light of

(2) In accordance with the legislative intent of the special provisions as seen earlier, unlike Article 122(1)2(b) of the Enforcement Decree of the Act, Article 122(1)2(b) of the same Act provides that, unlike item (c) of the same subparagraph (if the stockholders of an extinguished corporation receive the stocks of the merged corporation in return for the merger at the time of the merger), a stockholder of the extinguished corporation submits a case where he newly acquires the stocks issued by the merged corporation in return for the transfer of the stocks to the “before the merger.” Therefore, “transfer of combined stocks, etc.” under Article 122(1)2(b) of the Enforcement Decree of the Act cannot be deemed to include a merger of corporations, and “acquisition of the stocks of the merged

(3) The following circumstances revealed in light of the purport of the Act, i.e., the amount of liquidation income from a merged corporation is the value of stocks, etc. received by stockholders, etc. of the merged corporation from the merged corporation, and money and other property value (Articles 80(1) and 16(1)5 of the Act). The legislative purpose of Article 80(1) of the Act is to prevent a merged corporation from unfairly avoiding the burden of corporate tax on liquidation income through acquiring stocks, etc. of the merged corporation prior to the merger (see Constitutional Court Order 2007Hun-Ba78, Dec. 29, 2009). Article 80(2) of the Act is that where the merged corporation acquires such combined stocks, it is not used as the value of acquisition of stocks of the merged corporation from the merged corporation to the acquisition value of the stocks of the merged corporation, i.e., the amount of combined stocks acquired by stockholders, etc. of the merged corporation and the acquisition value of the stocks, etc. of the merged corporation cannot be deemed as the acquisition value of the merged corporation.

D) In full view of the above facts, the Defendant’s disposition that did not recognize the acquisition value of the combined stocks as the face value of the merged corporation by deeming that the Plaintiff did not meet the requirements under Article 122(1)2(b) of the Enforcement Decree of the Act and did not recognize the acquisition value of the combined stocks as the face value of the shares of the merged corporation, is lawful.

(ii)decision on the second proposal;

The corporate tax on liquidation income of a merged corporation is paid by the merged corporation from liquidation income, but where the merged corporation ceases to exist without paying corporate tax on liquidation income, the merged corporation shall be liable to pay the above corporate tax pursuant to Article 127(2) of the Enforcement Decree of the Act. Ultimately, in cases where the merged corporation pays legal advice on liquidation income not paid by the extinguished extinguished extinguished corporation, it may be deemed that a reasonable amount has been paid to the merged corporation as a result of the merger. In light of the above, Article 122(1)3 of the Enforcement Decree of the Act provides that corporate tax call merger for liquidation income of the merged corporation paid by the merged corporation shall be included in the total amount of the corporate tax call merger cost for the liquidation income of the merged corporation. The defendant's disposition of this case is lawful as it is in accordance with Article 122(1)3 of the Enforcement Decree of the Act, and it does not provide otherwise as to whether the total amount of the merger price is included in corporate tax on the liquidation income of the extinguished corporation at the time of merger

3. Conclusion

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