Plaintiff Co., Ltd. (Attorney Lee Dong-dong, Counsel for plaintiff-appellant)

The head of Chungcheongnam-nam Gun (Law Firm Han field, Attorney Kang Byung-jin, Counsel for the plaintiff-appellant)

October 13, 2005

Daejeon District Court Decision 2002Guhap2644 Delivered on June 23, 2004

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The imposition of acquisition tax (including additional dues) in the attached Form No. 5,587,974,210, which the Defendant made to the Plaintiff on March 26, 2002, shall be revoked.

2. Purport of appeal

It is as set out in paragraphs 1 and 2 of this Decree.

1. Details of the disposition;

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

A. On November 14, 200, the Defendant imposed taxes of KRW 6,518,71,660 on the non-party ○○○ Leisure Co., Ltd. (hereinafter referred to as “non-party ○○○○○”) including the acquisition tax of KRW 5,820,193,050 and the special rural development tax of KRW 6,518,61,610, and the acquisition tax of KRW 1,302,116,580 and the special rural development tax of KRW 119,360,580 each on January 10, 201.

B. On March 27, 2002, the Defendant deemed that the Plaintiff’s business transferee of the non-party company constitutes the secondary taxpayer, and imposed and notified the Plaintiff of KRW 6,689,703,850 on the sum of acquisition tax (including additional charges) as shown in the details of imposition of acquisition tax on attached Form 1 (hereinafter “instant disposition”).

C. On July 26, 2002, as the remaining assets of the non-party company were sold by public auction, the defendant made a notification of the change in the amount of tax to be paid by the plaintiff to be reduced to KRW 5,587,974,210, after appropriating the amount of tax to be paid by the plaintiff

2. Whether the disposition is lawful;

A. The plaintiff's assertion

The instant disposition is unlawful, since the liabilities taken over by the non-party company are more than those taken over by the non-party company, and there is no secondary tax liability for the plaintiff.

(b) Fact of recognition;

The following facts are not disputed between the parties, or can be acknowledged by taking into account the whole purport of the pleadings in the descriptions of Gap evidence 6, 7, 8, 9-1 through 3, Eul evidence 4, Eul evidence 5-1 through 3, Eul evidence 6-1 through 3, Eul evidence 8-2 through 7, and Eul evidence 9.

(1) On October 13, 2001, the Plaintiff Company was established for the purpose of golf club business and related incidental business. Nonparty 1, the representative director of the Plaintiff Company, took part in the bidding of the Plaintiff Company’s name on October 9, 2001, and submitted a bid order of KRW 29,99,99,999,99,99,99, 1996, 1996, 1996, 201, which was conducted on the land of 156,264 square meters and 35 lots of land and its ground sports facilities and affiliated buildings, etc. (hereinafter referred to as “the first thing in this case”), which were located on the non-party Company’s land (number 1 omitted), which was located on the non-party Company’s land owned by the non-party Company. However, the Daejeon District Court decided that the Plaintiff was a successful bid order of KRW 201,4033,00,00,000.

(2) On November 16, 2001, Nonparty 1 transferred the instant goods to the Plaintiff Company KRW 29,796,681,982 (including value-added tax on the building), in lieu of paying the purchase price, Nonparty 1 paid the said successful bid price to the Daejeon District Court in the name of Nonparty 1, and the Plaintiff Company bears all expenses, such as acquisition tax and transfer of ownership, etc., and the Plaintiff Company agreed that Nonparty 1 who did not have the purpose of acquiring the said auction goods is liable to avoid any pecuniary gain or loss in relation to the acquisition of the said auction goods.

(3) On January 25, 2002, the Plaintiff concluded a trade promise with the Korea Exchange Bank (hereinafter “Korea Exchange Bank”) to purchase KRW 5.8 billion in the name of Nonparty 2 Co., Ltd. (hereinafter “Korea Exchange Bank”) to lend approximately KRW 5.8 billion to Nonparty 2 Co., Ltd. (hereinafter “Korea Exchange Bank”) and to purchase KRW 5,832,00,000 in the name of Nonparty 3 Co., Ltd. (hereinafter “Korea Exchange Bank”) for ○○ Golf course’s corporate golf course’s corporate golf course’s corporate golf course’s corporate membership rights (including Nonparty 2 and Nonparty 2’s overseas subsidiaries) as collateral. According to the above trade promise, the Plaintiff Company entered into the said membership agreement by March 31, 2002, and had it exercise its right to pre-sale, but the Korea Exchange Bank concluded a trade agreement by March 31, 2002 but did not enter into the said agreement.

(4) On the other hand, on February 16, 2002, the Plaintiff Company entered into an asset acquisition agreement as follows (hereinafter “instant asset acquisition agreement”).

(A) The Plaintiff Company shall take over all kinds of securities, stored goods, investment securities, various deposits, land 7 lots, machinery equipment, vehicle transport equipment, various equipment, public appliances, etc. (including value-added tax) at KRW 4,62,647,47, and 473 (including value-added tax).

(B) The Plaintiff Company shall take over the obligation to return the golf membership deposit to the Nonparty Company’s company (including KRW 5,832,000,000,000,000,000) (such as above (3)).

(C) The sale price of the instant article 2 is settled by deducting the sale price of the instant article 2 from the value of the obligation to return a golf membership deposit accepted by the Plaintiff Company.

(D) As of the date of the conclusion of the above contract, the Plaintiff Company recognized the status of its membership with respect to the members who paid the deposit to the Nonparty Company in full, and hires the employees of the Nonparty Company in the form of new employment, and takes over the cost of establishing the public golf course and the obligation for regional

(5) On February 16, 2002, the Plaintiff Company submitted a report on succession to the registered sports facility business under Article 30 of the Installation and Utilization of Sports Facilities Act to the Chungcheongnam-do Governor, and reported the reason for succession as “transfer and acquisition by auction of real estate at a golf course” and the succession to the rights and obligations under the above law. The Cheongnam-do Governor accepted the above succession report on February 26, 2002.

(6) On May 22, 2002 and May 29, 2002, the Plaintiff Company participated in the public sale procedure conducted by the Korea Asset Management Corporation with respect to the remaining property owned by the Nonparty Company (hereinafter “instant public sale”), and purchased 15 parcels of land, including 17 vehicles for golf courses owned by the Nonparty Company, 3 vehicles for freight, and 15 parcels of land, including Jinsan-gun, Chungcheongnam-gun, Jinsan-gun, Jinsan-gun, Jinsan-gun, Jinsan-gun, Seoul, and 60 pieces of golf cart (hereinafter “instant third goods”), in total, KRW 383,974,00 and paid in full.

(c) Related statutes;

Attached Form 2. The entry is as shown in Annex 2.

D. Determination

(1) Whether the Plaintiff is a transferee of the business under Article 24(1) of the Local Tax Act

(A) Article 24(1) of the Local Tax Act provides that “If the money collectible by a local government on the business for which the transferor’s liability to pay taxes has become final and conclusive prior to the date of transfer is insufficient to cover the shortage with the transferor’s property, the transferee shall be liable to pay taxes up to the limit of the value of the property acquired by the transferor.” Paragraph (2) of the same Article provides that “A transferee” means a person who comprehensively succeeds to all the rights and obligations on the business by workplace (in the case of the right and obligation to pay accounts, it shall be deemed a comprehensive succession even if the transferor does not succeed to the whole right and obligation to pay accounts), and who operates the business the same as or similar to the transferor’s business at the place where the transferor has operated the business.” The above provision provides that “the transferee shall be deemed a person who comprehensively takes over all the rights and obligations of the transferor in accordance with social norms to the extent that it is equal to the transferor’s legal status as the manager of the business, and shall be deemed as a person who comprehensively acquires all the rights and obligations of the transferor in accordance with social norms.”

(B) According to the above facts, the plaintiff company was established for the same business purpose as that of the non-party company immediately after the chief executive officer of the non-party company participated in the auction of this case and the peremptory notice on the non-party company's main business assets. A request for purchase of the non-party 1 was also made in the name of the plaintiff company, but the non-party 1 was awarded a successful bid for the relationship with the non-party 1 established. After the non-party 1 received the successful bid for the non-party 1, the plaintiff company acquired the non-party 1 goods of this case from the non-party 1. The non-party 2 acquired the non-party 3 goods of this case from the non-party company through the public auction of this case and acquired the non-party 3 goods of this case from the non-party company through the non-party company, the non-party company succeeded to the status of the non-party company's principal business assets of the non-party company, the obligation to pay the non-party 2 to the non-party company's pre-party 1 and the non-party 1.

(2) Scope of secondary tax liability to be borne by the Plaintiff

(A) According to the provisions of Article 24(1) and (3) of the Local Tax Act and Article 7(3) of the Enforcement Decree of the Local Tax Act, a business transferee liable for the secondary tax liability is liable for the tax to the extent of “value of acquired property”. In this case, “the value of acquired property” refers to the value (Article 7 subparag. 1 of the Enforcement Decree of the Local Tax Act) where there is “the amount paid or to be paid by a business transferee”, and where there is no such amount or is very low amount compared to the market price, “the value of acquired property and liabilities deducted the total amount of liabilities from the total amount of assets after evaluating them by applying mutatis mutandis the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act (Article 7 subparag. 2 of the Enforcement Decree of the Local Tax

(B) The purport of the secondary tax liability system of a business transferee is to: (a) as the tax arising from the business per se has the capacity to pay taxes; (b) as such, the business property serves as a security for the tax liability; and (c) to the transferee of the business that has acquired the business itself as a security for the tax liability; and (d) to impose the tax liability for the shortage satisfied from the property of the business transferor (see Constitutional Court en banc Order 95Hun-Ba38, Nov. 27, 1997). Therefore, in determining the scope of the secondary tax liability to be borne by the business transferee, the criteria for determining the scope of the secondary tax liability to be borne by the business transferee are, in principle, the value of the property acquired as a security for the tax liability as seen above, or

Meanwhile, an auction under the Civil Execution Act or a public auction under the National Tax Collection Act or other Act is a private sale under the private law and is merely a public institution in charge of such a sale procedure (see Article 578 of the Civil Act). Thus, in an auction or public auction procedure, a successful bidder becomes a successful bidder, and the debtor becomes a successful bidder, and the proceeds of auction or public auction paid by the successful bidder are the sales price immediately. Therefore, even if the proceeds of auction or public auction paid by the successful bidder in the auction or public auction procedure were distributed to the debtor's creditors by the public institution in charge

Therefore, in this case, where some of the multiple assets of a business transferor are acquired through auction or public auction, and the remainder is deemed to have comprehensively succeeded to the rights and obligations of a business transferor as a result of acquisition by a business transferor through an agreement on asset acquisition with a business transferor, the business transferee, although he took over the business in various forms, such as auction or public sale, and a contract on individual asset acquisition, but all the substance of an auction or public sale, or a contract on individual asset acquisition is a private transaction, and thus, the total amount paid or to be paid by the business transferee in return for each subject matter of sale is the amount paid or to be paid by the business transferee under Article 7 subparagraph 1 of the Enforcement Decree of the Local Tax Act.

(C) Therefore, the Plaintiff Company’s auction proceeds of the instant property No. 1; the proceeds of the instant property No. 2 acquired in the instant asset acquisition agreement; the proceeds of the instant property No. 3 acquired in the instant asset acquisition agreement; the proceeds of the public sale of the instant property acquired in the instant property; and the proceeds of golf membership acquired from a foreign exchange bank (=29,99,99,999 + KRW 4,62,647,647, and KRW 383,974,00 + KRW 5,832,00 + KRW 00 + KRW 383,974,000 + KRW 5,832,00,000) under Article 7 subparag. 1 of the Enforcement Decree of the Local Tax Act, which constitutes “amount paid or to be paid by a business transferee”, which is the limit of secondary tax liability of a business transferee.

(D) In the case of the Plaintiff Company, the Plaintiff asserts that there is no secondary tax liability because the Plaintiff Company was more than the assets acquired by the Plaintiff Company on the premise that Article 7 subparag. 2 of the Enforcement Decree of the Local Tax Act applies to the Plaintiff Company. However, as seen above, Article 7 subparag. 1 of the Enforcement Decree of the Local Tax Act applies to the Plaintiff Company, and it is not necessary to review further whether the Plaintiff Company’s liabilities assumed by the Plaintiff Company more than the assets acquired by the Plaintiff pursuant to Article 7 subparag. 2 of the Enforcement Decree

(E) As seen earlier, the value of the property that the Plaintiff Company acquired from the non-party company is 40,878,621,472, while the sum of acquisition tax, etc. imposed on the Plaintiff Company by the instant disposition is KRW 5,587,974,210, and thus, the secondary tax liability borne by the Plaintiff Company is within the scope of the value of the property that the Plaintiff Company acquired. Accordingly, the instant disposition is lawful.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed due to the lack of reason. The judgment of the court of first instance is unfair and the defendant's appeal is justified. Thus, the judgment of the court of first instance is revoked and the plaintiff's claim is dismissed. It is so decided as per Disposition.

[Attachment 1]

Judges Cho So-young(Presiding Judge)(Presiding Judge)