Seoul High Court Decision 200Na14488 delivered on August 1, 200

Head of Yongsan Tax Office

September 4, 2014

Seoul Administrative Court Decision 2011Guhap19963 decided May 4, 2012

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The disposition of imposition of corporate tax of KRW 1,179,368,610 on June 1, 2009 against the Plaintiff on June 30, 2004 shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Quotation of judgment of the first instance;

The reasoning of this court's judgment is as follows. Thus, it is accepted by Article 8 (2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act.

○ From the third bottom to the 7th, the phrase “if applicable, it is the same as a merger in economic substance, and even if not, it is the same as that in economic substance.”

○ 6. The following shall be added to the sixth page:

on June 16, 2003, VI and CT entered into a settlement agreement and plan (Evidence 22-1) with the purport that "VI approves and permits the voluntary dissolution and liquidation of CT and agrees thereto, and CT, as soon as possible, simultaneously with the complete retirement of its shares, shall transfer and distribute all assets, liabilities, rights and obligations to VI to VI."

○ Heading 6 of the 7th page “A 20 No. 1, 20” means “A 20, 22, respectively.”

○ Parts 1 to 6 of the 8th parallel 10 pages are as follows.

2) In light of the following circumstances, when calculating the value of VI’s stock at the time of the instant capital reduction, the average weighted average of the net profit and loss of VI and C for three years before the capital reduction should be calculated. As such, in calculating the value of VI’s stock, the instant capital reduction conducted as the price of USD 50 per share of VI cannot be deemed to constitute a wrongful calculation. Thus, the instant disposition on a different premise should be revoked on a different premise.

A) Since VI is a parent company of 100% of CT, it is possible to complete the merger by reporting the issuance of a certificate of stock ownership and resolution of the board of directors in lieu of preparation of the merger agreement in accordance with Article 253 of the U.S. Detetrawa State Company Act. VI opened the board of directors on June 16, 2003 to merge with CT and VI and completely liquidate CT, and V shall comprehensively succeed to all assets and liabilities of CT. It was notarized on June 20, 2003, but at that time, it did not report the merger to the Minister of State Affairs at that time. Accordingly, the instant merger between V and CT cannot be legally effective as a merger under the Detera State Company Act. It is not possible to view that VI’s resolution of the board of directors and the consent and plan between VI and CT to dissolve the merger as a voluntary liquidation and dissolution of the rights in this case, and that the concept of the merger and dissolution of CT can be deemed as a voluntary liquidation and dissolution.

B) On the premise that V had been the same personality as CT due to the instant merger, V appropriated the assets and liabilities of CT as its own account and treated the difference as the earned surplus account, offset the loans to CT and the loans to CT, and accounted as the extinguishment of CT shares in the investment assets account, and based on such financial situation, the instant merger was completed at the U.S. National Tax Service’s annual tax return for the fiscal year. Such accounting accounts are in line with the U.S. accounting standards and are actually recognized as having been effective as having succeeded to CT’s deficit. In addition, the succession of CT’s deficit in the course of liquidation of CT, the parent company, as seen above, is considered as a reasonable measure in accordance with the U.S. Federal Tax Law (IRC).

다) 이 사건 합병은 미국 연방 내국세입법 §368에서 규정하는 7가지 종류의 기업구조조정(기업재조직, Reorganization) 유형 중 C형(사실상 합병)에 해당하여 A형(합병)과 마찬가지의 과세상 혜택을 받을 가능성이 크다. 한편 VI는 2009. 3. 9. 델라웨어주 국무장관에게 VI와 CT의 합병계약서를 제출하고 회계상의 목적에 한정하여(for accounting purpose only) 합병 유효일을 2003. 6. 18.로 하는 조건으로 그 제출을 승인받았으므로 적어도 회계상으로는 2003. 6. 18.자로 VI와 CT가 합병한 것으로 볼 수 있다.

D) As above, inasmuch as the instant merger between VI and CT is a liquidation following the voluntary dissolution of CT and its substance does not differ from that of the merger, and thereby, VI may succeed to the validity of CT’s loss under accounting and tax law, the weighted average average of the net profit and loss amount of CT in assessing the value of V’s stock can be deemed reasonable and reasonable to reflect the actual value of the VI’s stocks in a reasonable manner. In assessing the unlisted stocks of the merged corporation for which three years have not passed since the merger, the Defendant interpreted that, in assessing the stocks of the merged corporation for which three years have not passed since the merger, the sum of the net profit and loss amount of the merged corporation and the merged corporation for each business year in which the date one to three years have passed before the base date of appraisal falls and then divide it into the total number of stocks issued after the merger (the National Tax Service’s office’s 46014-10352, Oct. 24, 2001), it is reasonable to assess the value of V’s stocks as in the instant case of voluntary dissolution.

E) In cases where the value of VI shares is assessed by reflecting the losses of CT, the said value is 57.68 U.S. dollars per share, and there is no big difference between 50 U.S. dollars per share of the price of the instant capital reduction. Moreover, as the investment in VI was not achieved with particular results, the Plaintiff’s shareholders, a listed company, had pressure to pursue the management’s responsibility, etc. as the investment in VI did not reach any particular result, while in cases of the remaining-run industry, the unlisted company, which is the unlisted company, did not bear such burden, and in cases of the unlisted company, the U.S., even if a reservation was made, the U.S. did not seem to have taken into account the fact that the Plaintiff intended to evade taxes through the instant capital reduction. Accordingly, it cannot be said that VI’s shares were calculated by wrongful calculation with 50 U.S. dollars per share.

2. Conclusion

Since the judgment of the first instance is justifiable, the defendant's appeal is dismissed as it is groundless.

Judges fixed-type (Presiding Judge) Gangwon-gu