Whether investment securities losses are succeeded to a merged corporation

It is not the valuation loss of investment securities, but the disposal loss of investment securities, which is not included in the loss of the merged corporation, and thus it is not succeeded to the merged corporation.

Article 49 of the Corporate Tax Act: Succession, etc. of Assets and Liabilities at Time of Merger and Division

Article 85 of the Enforcement Decree of the Corporate Tax Act: Succession of Assets and Liabilities at Time of Merger and Division

1. The plaintiff's claim is dismissed.

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

The defendant's rejection disposition against the plaintiff on December 23, 2004 against the plaintiff shall be revoked.

1. Details of the disposition;

A. On July 19, 1975, ○○○○○○ International Co., Ltd. (hereinafter “○○○”) established in New York, a local subsidiary, ○○○○○’s (○○○ INTSNAL INC; hereinafter “○○”). From among the capital increase through the 4th (from February 28, 2000 to December 18, 2000) of ○○○○’s new capital increase, instead of giving up the first-time new capital increase, ○○ Industry Co., Ltd. (hereinafter “○○ Industry”) falling under a person with a special relationship under the Corporate Tax Act (hereinafter “○○”) participated in, instead of giving up the first-time new capital increase, ○○○ Industries Co., Ltd. (hereinafter “○○”) took over all the abandoned new capital increase at the 2,3,4th and fourth capital increase, thereby holding 150,040 shares issued.

B. At the time of the settlement of accounts in 1999, ○○ evaluated KRW 2,731,618,00 of the acquisition value of KRW 90,040 of the shares in the account books, KRW 102,40,609,603,155, and KRW 102,40,213 of the evaluation difference assessed under the Corporate Accounting Standards Act as to KRW 90,731,618,00 of the shares in the account book of ○○○ at the time of the settlement of accounts in 1999, 102,40,200,208,162 of the appraisal profit in the account of appraisal profit and loss on the account of appraisal profit and loss statement, and the remaining 748,795,206,206 of the appraisal profit in the account on the balance sheet as a decrease in the capital of the account on the balance sheet. With the tax adjustment thereon, 102,400,213 of the appraisal loss.

C. ○○○ sold KRW 117,040 out of 150,040 shares issued by ○○○ on December 18, 200 to KRW 2,106,720,00 on condition that 150,040 shares will be redeemed within 3 years in the ○ industry (hereinafter “the instant repurchase transaction”). The amount of KRW 1,724,827,001 (the key amount) below the book value as investment securities disposal loss; and the amount of KRW 1,724,827,001 (the key amount) out of the total amount of 150,040 shares held by ○○○○○ (the pertinent amount) was included in deductible expenses; on the contrary hand, the tax adjustment (the pertinent ratio of KRW 79,882,40,213 shares sold to 10,400,213 won was realized; on the other hand, the pertinent ratio of sales of KRW 1,638,700) was reserved in deductible expenses.

D. On July 1, 2001, the Plaintiff (the Plaintiff was the first corporation, ○○, but was changed to its trade name as of August 29, 2003) merged ○○ on July 1, 2001, and redeemed 117,040 shares issued by ○○ on October 31, 2001, from 2,106,720,000 shares initially sold by ○○○, the initial sale price of which was 2,106,720,000 shares, and on July 1, 2003, 150,040 shares issued by ○○ was reduced at a cost.

E. As a result of the tax investigation on ○○○ on November 18, 2004, the head of the ○○ Tax Office: (a) waived the acquisition of new shares for the first time with respect to ○○○’s 4 occasions; (b) denied the acquisition of ○○ Industries; and (c) reserved the inclusion of 351,49,749 won by deeming the acquisition of ○○ Industries as profits from high-priced acquisition; and (d) imposed the additional disposition of 116,814,357 won on the ground that the acquisition of ○○ Industries at the time of ○○’s ○○ ○○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○.

F. On July 1, 2003, the Plaintiff: (a) reduced 131,040 shares of 150,040 shares, which were owned by the Plaintiff; (b) and (c) rejected the Plaintiff’s claim for disposition of tax adjustment on the ground that the amount of KRW 1,063,438,687, reservation of appraised Loss of Equity Act; (d) reservation of 1,724,727,001 shares; (e) reservation of profits accruing from distribution of imperied fung fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor fluor f fluor f. 351,8516.37. 208.1.

G. On March 23, 2005, when the Plaintiff filed a claim for a national tax trial on the instant disposition, the National Tax Tribunal rendered a decision to dismiss the remainder of the petition for a trial by correcting the tax base and tax amount of corporate tax by calculating the total amount of income from the investment securities held by the Plaintiff as well as the amount equivalent to KRW 79,882,406, and KRW 1,063,438,687, from calculating the amount of income from the assessment of the equity interest on the investment securities held by ○○, merged with the Plaintiff, in addition to the gross income from the assessment profit of the equity interest on the investment securities held by the Plaintiff.

Each entry of Gap evidence 1, 2, Gap evidence 7, and 8, respectively, with no dispute (applicable for recognition)

2. Whether the disposition is lawful;

A. The plaintiff's assertion

The key amount that the Plaintiff reflects as losses due to accounting settlement should be succeeded to the Plaintiff, a merged corporation, pursuant to Article 85(1)2 of the Enforcement Decree of the Corporate Tax Act, to the amount that is not included in the calculation of earnings or losses of the extinguished corporation, because the year to which profits and losses accrue, as the tax adjustment matter, has not arrived.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

(1) On July 1, 2001, ○○ owns more than 20% of 170,040 shares (150,040 shares out of 170,040 shares, 88.2%) before the merger with the Plaintiff, and it assessed 150,040 shares out of ○○ shares out of 170,040 shares under corporate accounting standards as equity law.

(2) As a result of the tax investigation into the ○ industry, the head of the Seoul Regional Tax Office notified the head of the ○○ Tax Office of the taxation data stating that the repurchase transaction of this case constitutes funds borrowed substantially, and that the ○○○○ Tax Office would dispose of losses incurred from the disposition of securities invested in the ○○ stocks as non-deductible losses. Accordingly, the head of the ○○ Tax Office added the amount of KRW 983,556,281, which was reported in addition to deductible expenses due to the key amount and tax adjustment as deductible expenses, to the gross income, and decided to revise the tax base and tax amount, and to add the recognized interest to the gross income.

(3) On July 3, 2003, the Plaintiff filed an application for rectification of corporate tax with the Defendant under the condition that the amount equivalent to the shares reduced out of the above amount should be disposed of as deductible expenses, and the Defendant filed an application for rectification of corporate tax against the defect of the disposition rejecting the application.

(4) 국세심판춴은 당초 ○○이 세무조정으로 손금가산 신고한 금액 중 익금가산 유보 처분한 983,556,281원만 원고가 승계하는 것이 타당하다고 인용하고, 회계처리로 손금에 반영한 쟁점금액 부분은 기각하는 내용의 결정을 하였다.

Each entry of Gap evidence 12-1, 2, Eul evidence 1-1 through 10, Eul evidence 2 and 3-1, 2, and Eul evidence 4-1, 2, and 3, respectively.

D. Determination

(1) Except as otherwise provided in this Act or other Acts, Article 49 of the Corporate Tax Act provides that, in the calculation of the income amount and tax base of a merged corporation for each business year of a domestic corporation, the disposal of the amount included in or not included in the calculation of earnings or losses of the extinguished corporation and the matters necessary for the succession to the merged corporation with other assets and liabilities shall be prescribed by the Presidential Decree. Article 85 (1) of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18706, Feb. 19, 2005; hereinafter the same shall apply) provides that where a domestic corporation merges with another domestic corporation, the amount included or not included in the calculation of the income amount and tax base of the extinguished corporation for each business year shall be subject to the following provisions:

(2) In this case, it is reasonable to view ○○○○ as a loan transaction with the Plaintiff’s real value of KRW 2,106,720,000, the initial sale price of KRW 117,040, which was the purchase and sale of ○○○ shares after three years from the date of sale on December 18, 2000, as a loan transaction with shares as collateral rather than the sale and purchase price of the shares. Accordingly, it is reasonable to view that ○○○ as a special relationship corporation, calculated losses for processing by agreement with ○○○ industry, and thus, it was denied the effect under the relevant tax law by applying the unfair act reduction rule. Accordingly, the book value of shares issued by affiliated companies under 117,040, the issue amount appropriated by the Plaintiff should be deemed as KRW 2,106,720,000, which was appropriated at the time of sale by ○○○, and thus, the issue amount appropriated by the Plaintiff can not be deemed as at the time of the merger and transfer after the merger.

In addition, unlike the fact that ○○○○’s disposal loss of 150,040 shares falls under the amount that is not included in gross income or deductible expenses in relation to “evaluation of securities” under the proviso of Article 85(1)3 of the Enforcement Decree of the Corporate Tax Act, and that 983,556,281 won in total is not included in gross income or is not included in deductible expenses in relation to “evaluation of securities” under the proviso of Article 85(1)3 of the Enforcement Decree of the Corporate Tax Act, the key amount that is succeeded to the Plaintiff, the merged corporation, as investment securities disposal loss, not investment securities disposal loss, falls under the amount that is not included in deductible expenses of the merged corporation in relation to the

(3) Therefore, the instant disposition that the Plaintiff did not succeed to the key amount is lawful.

3. Conclusion

Thus, the plaintiff's claim is dismissed for lack of reason.

Related Acts and subordinate statutes

【Corporate Tax Act】

Article 40 (Business Year of Profit and Loss)

(1) The fiscal year of accrual of earnings and losses of a domestic corporation shall be the fiscal year which includes the date on which the concerned earnings and losses are settled.

(2) Matters necessary for the scope of the business year of accrual of earnings and losses under paragraph (1) shall be prescribed by Presidential Decree.

Where a domestic corporation merges or divides assets and liabilities at the time of a merger or division, except as otherwise provided for in this Act or other Acts, the disposal of the amount, etc. included in or not included in the calculation of earnings or losses and the succession of the amount, etc. to the merged corporation, etc. of the extinguished corporation, divided corporation, or extinguished counterpart corporation to the merger (hereinafter referred to as "merged corporation, etc.") in the calculation of the income amount and the tax base for each business year of the extinguished corporation, divided corporation, or extinguished counterpart corporation to the merger shall

Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18706 of Feb. 19, 2005)

Article 68 (Business Year in which Sale Profits and Losses, etc. of Assets accrue)

(1) In the application of the provisions of Article 40 (1) and (2) of the Act, the fiscal year of accrual of earnings and losses accruing from the transfer of assets shall be the fiscal year which includes the date under each of

3. Transfer of assets other than commodities, etc.: The date the price is settled: Provided, That where any transfer registration (including any registration) of ownership, etc. is filed before the price is settled, or the relevant assets are delivered or the other party uses and benefits from the relevant assets, the date of delivery or use of and benefits from such assets shall be the earlier date;

Article 85 (Succession, etc. to Assets and Non-Refensive Rights at Time of Merger and Division)

(1) Where a domestic corporation merges, the amount which is neither included nor included in the calculation of earnings or losses in the calculation of the income amount and the tax base of the extinguished corporation for each business year shall be as follows, except as otherwise provided in the Act or other Acts:

2. The earnings or the amount not included in the calculation of losses of the extinguished corporation before the arrival of the fiscal year of accrual of losses under Article 40 of the Act shall be succeeded to the merged corporation in accordance with the fiscal year of accrual; and

3. The amount that is included in earnings or is not included in losses in connection with the depreciation, the appraisal provided for in Article 42 of the Act or the tax adjustment shall not be succeeded to any merged corporation: Provided, That such merged corporation may succeed the amount falling under each of the following items:

(a) Amount that is not included in earnings or losses in connection with accumulation of the allowance for severance and retirement benefits and the allowance for bad debts or the appraisal of securities in compliance with the corporate accounting standards;

(b) The amount that is not included in earnings or losses in connection with the readjustment of bonds and debts, the appraisal of the current value of bonds and debts, and the accumulation of the reserve for payment guarantee in accordance with the corporate accounting standards;

(c) Reserves included in the calculation of losses under the Restriction of Special Taxation Act;

(d) Other amounts prescribed by the Ordinance of the Ministry of Finance and Economy.

Enforcement Rule of the Corporate Tax Act

"An amount equivalent to the reserve for ex post facto treatment of nuclear power plants under Article 61 of the Enforcement Decree of the Electric Utility Act" in Article 85 (1) 3 (d) and (2) 3 (d) of the Decree means the amount not included in the calculation of losses (limited to cases of division under the Act on the Promotion of Structural Restructuring of the Electric Power Industry) at the time of merger and division.