Whether the profits from the Stockholm options constitute earned income

In light of the indivisible relationship between Stockholm options and labor, the existence of a certain correlation may be deemed to exist in view of the purpose of securing and maintaining able executives and employees and promoting a high-quality labor provision, and the fact that Stockholm options may be exercised only when the provision of labor is premised on a certain period of time.

Article 20 of the Income Tax Act / [Labour Income]

1. All appeals filed by the plaintiffs are dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The judgment of the first instance court shall be revoked. The defendants' "the disposition date" in the attached Form [Attachment List] shall be revoked on each date on which the defendants made the same Table as "the global income tax amount for which cancellation is sought" and "resident tax amount for which cancellation is sought" shall be revoked, respectively.

1. Details of the disposition;

A. The Plaintiffs, while serving as an executive officer or employee in each company listed in [Attachment List] “Domestic Subsidiaries” (hereinafter referred to as “Domestic Subsidiaries”), obtained appraisal rights (hereinafter referred to as “Stockholm option”) from each relevant foreign company listed in “foreign parent company” in the same list as indicated “foreign parent company” (hereinafter referred to as “foreign parent company”), and obtained the benefits from the exercise of options (hereinafter referred to as “the benefits from the exercise of options”) as stated in the [Attachment List] from the date of the exercise of options” (hereinafter referred to as “the date of exercise of options”). By exercising the Stockholm option granted as mentioned above in each year, the Plaintiffs obtained the difference calculated by deducting the Stockholm option option exercise price (actual acquisition price) from the market price as of the date of the exercise.

나. 원고들 중 별지 [내역표] 순번 1 내지 8 기재 원고들은 이 사건 각 스톡옵션 행사 시기가 속한 각 과세기간의 종료 후 법정신고기한 내에 같은 표 "피고"란 기재의 각 피고들(그 중 순번 6 기재 ＯＯ세무서장의 권한은 2006. 4. 1.자로 시행된 직제개편 전에는 ＯＯ세무서장에게 귀속되어 있었다)에게 종합소득세를 신고 ㆍ 납부함에 있어, 이 사건 각 스톡옵션 행사이익을 소득세법 제20조 제1항 제2호 나목 소정의 을종근로소득금액으로 하여 그 과세표준에 포함시켰다가, 같은 표 "경정청구일"란 기재의 각 일자에 각 해당 피고들에게 이 사건 각 스톡옵션 행사이익이 과세대상소득에 해당하지 않으므로 이미 신고 ･ 납부한 종합소득세액 중 이 사건 각 스톡옵션 행사이익에 대한 세액인 같은 표 "취소를 구하는 종합소득세액"란 기재의 각 세액과 같은 표 "취소를 구하는 주민세액"란 기재의 각 소득세할 주민세를 감액하여 달라는 취지의 경정청구를 하였다.

On the other hand, each of the Defendants rendered a disposition rejecting the request for reduction or correction of the above Plaintiffs on the ground that each of the instant Stockholm options benefits against the above Plaintiffs fell under Class B earned income, and that each of the tax bases and taxes reported by the above Plaintiffs was justifiable.

C. Of the plaintiffs, the plaintiffs, listed in the [Attachment 9] Nos. 9 through 12, deemed that the profits from exercising Stockholm options of this case do not constitute taxable income, and did not report and pay the resident tax to be imposed on global income tax and income tax accordingly. Accordingly, the defendants listed in the [Attachment ] Nos. 9 through 12, on each date stated in the [Attachment ] No. 9 to the same Table, issued a disposition to impose and notify each of the above plaintiffs of global income tax (including additional tax) indicated in the "amount of global income tax to be cancelled" calculated by including the profits from exercising Stockholm options of this case in the amount of Class B employment income on the ground that each of the above plaintiffs constituted Class B employment income (hereinafter "each of the above dispositions of refusal to correct each of the above dispositions and each disposition of imposition of each of the above dispositions").

[Reasons for Recognition] Unsatisfy, Gap evidence 1 through 4, Gap evidence 9-1, 2, 3, Gap evidence 10-1 through 4, Gap evidence 11, 12, and 13-1, 2, Eul evidence 1-2, Eul evidence 1-2, Eul evidence 2-8, Eul evidence 9-1, 2, Eul evidence 10, and the purport of the whole pleadings

2. Whether each disposition of this case is legitimate

A. The plaintiffs' assertion

(1) The instant Stockholm is merely an incentive provided for the continued employment of outstanding human resources, and thus cannot be deemed as benefit in return for the provision of labor. No legal employment relationship or occupational direction system exists between a foreign parent company and the Plaintiffs that granted Stockholm options. The size of the profit from the exercise of the Stockholm options depends entirely on whether the grantedr selects the time of the exercise of the Stockholm options, and it cannot be deemed as remuneration for labor. Article 38(1)17 of the Enforcement Decree of the Income Tax Act (hereinafter “Enforcement Decree of the amended Act”) amended by Presidential Decree No. 17825, Dec. 30, 2002 provides that the benefits from the exercise of the Stockholm options shall be deemed as earned income and thus, it cannot be deemed as unlawful for each of the instant dispositions under the premise that the exercise of the options prior to the exercise of the Stockholm options cannot be deemed as unlawful.

(2) Even if each of the instant Stockholm options benefits can be seen as earned income, it is not clear whether the benefits from the exercise of Stockholm options are subject to taxation because of their ambiguous legal nature, and it is imposed at the time when the limitation period of the right to impose the Stockholm options is imminent. If the Defendants were to exercise the right to impose taxes from the first taxable period, the Plaintiffs, as listed in the [Attachment Table] Nos. 9 through 12, were dissatisfied with the imposition of additional taxes in order to avoid the burden of additional taxes. However, in light of the following circumstances, the above Plaintiffs were dissatisfied with the payment of taxes in advance in the taxable period to avoid the burden of additional taxes, and thus, they did not return and pay in advance the labor income tax on the profits from the exercise of Stockholm options. Therefore, the Defendants’ imposition of additional taxes in the [Attachment Table] Nos. 9 through 12 are unlawful.

(b) Related statutes;

Ｏ 소득세법 제20조 [근로소득]

(1) Earned income shall be the following incomes generated in the corresponding year:

1. Class A:

(a) Salary, salary, remuneration, remuneration, annual allowance, wage, bonus, allowance, and other benefits of a similar nature, which are received due to the provision of labor;

2. Class B:

(b) Pay received from a foreigner or foreign corporation located abroad (excluding a domestic branch or domestic business office);

Ｏ 소득세법 제24조 [총수입금액의 계산]

(1) The total amount of income of a resident shall be calculated based on the total amount received or received in the relevant year.

(2) In cases under paragraph (1), if any income other than money is imported, such income shall be calculated according to the value at the time of transaction.

Ｏ 소득세법 제39조 [총수입금액과 필요경비의 귀속연도 등]

(1) The year to which the total income and necessary expenses of a resident are reverted shall be the year in which the total income and necessary expenses are determined.

Ｏ 소득세법 시행령 제38조 [근로소득의 범위] (2002. 12. 30. 대통령령 제17825호로 개정된 것)

(1) The scope of the employment income under Article 20 of the Act shall include the following incomes:

17. Profits (referring to the difference between the market price and the actual purchase price at the time of exercising the stock option, and the stock includes the preemptive right) accruing from exercising the stock option granted to an officer or employee of the relevant corporation or a corporation in a special relationship referred to in Article 87 of the Enforcement Decree of the Corporate Tax Act with the relevant corporation (hereafter referred to as the “relevant corporation, etc.” in this subparagraph);

Ｏ 소득세법 시행령 제49조 [근로소득의 수입시기]

(1) The receipt date of the total amount of the earned income shall be as follows:

1. Salaries;

The Labor Day;

(2) Notwithstanding the provisions of paragraph (1) 1, if the relevant benefits are not determined before the beginning of the period for final return on the tax base of the relevant taxable period, it shall be deemed to have been imported on the fixed date: Provided, That the amount actually received before the date of final return on the tax base of the relevant

Ｏ 부칙 제1조 [시행일]

This Decree shall enter into force on January 1, 2003: Provided, That the amended provisions of Articles 38(1), 62(2)2, 63, 64 (excluding paragraph (1)5), 143(3)1, 146-2, and 208-2(4) shall enter into force on the date of its promulgation.

Ｏ 부칙 제5조 [근로소득의 범위에 관한 적용례]

The amended provisions of Article 38(1) of this Decree shall apply from the income portion issued in the taxable period to which the date of promulgation belongs.

Ｏ 조세감면규제법 제13조의 2 [주식매입선택권에 대한 과세특례] (1996. 12. 30. 법률 제5195호로 개정된 것)

(1) The profits (referring to the difference between the actual purchase price and the market price of the stocks, and the stocks shall be deemed to include preemptive rights) which an employee gains by obtaining stock option meeting the requirements set forth in the following subparagraphs from a domestic corporation prescribed by the Presidential Decree as a founder or a new technology businessman, or from a listed corporation or off-the-board registered corporation meeting the requirements set forth in the Presidential Decree (hereafter in this Article, referred to as a “business start-up corporation, etc.”) shall not be regarded as

(c) Fact of recognition;

(1) A foreign parent company listed in the separate sheet that gave Stockholm options to the Plaintiffs had shares of 67% or 100% as stated in the separate sheet (list of Company) with respect to each corresponding domestic subsidiary for which the Plaintiffs work.

(2) The Stockholm options grant subjects selected by a foreign parent company in accordance with the Stockholm options Assignment Plan that the foreign parent company voluntarily prepares. There are many cases where a domestic subsidiary selects subjects and recommends them to a foreign parent company. However, without such recommendation procedures, a foreign parent company directly selects subjects based on the results of service of officers and employees reported through a domestic subsidiary company.

(3) There are somewhat differences in the purpose, type, exercise price, time of exercise, etc. of Stockholm options for each foreign parent company. Even if Stockholm options granted by the same foreign parent company are granted, the type, exercise price, time of exercise, etc. vary depending on the position of the executive officer or employee, who is the other party, or the point of assignment, but the Stockholm options granted by the plaintiffs have the following common characteristics.

(A) The purpose of Stockholm options is to secure the most suitable human resources for the position substantially responsible, to provide them with additional incentives, and to promote the company’s business success by bringing the economic benefits of the Plaintiffs, an employee, in conjunction with the value according to the long-term holding of shares.

(B) The time of the exercise of the Stockholm option is determined to be able to exercise its entire right after a certain period of time has elapsed from the date of grant, or to exercise at a certain rate of time every year or every six months after a certain period of time has elapsed from the grant date, so that in order to exercise all or part of the Stockholm options granted to the Plaintiffs, it is required to work at a domestic subsidiary for the future period determined by the board of directors of the foreign parent

(C) The Plaintiffs acquired shares of a foreign parent company at the price of the exercise determined in advance by exercising the Stockholm option. The exercise price is ordinarily set at or higher than the market price as of the time of granting the Stockholm option. In any case, the Plaintiffs may benefit from exercising the Stockholm option at a price lower than the market price by exercising the Stockholm option at the time when the foreign parent company’s share price was formed higher than the market price. Accordingly, the foreign parent company, as of the date of exercising the Stockholm option, determines that the Stockholm option may be exercised at a price lower than the market price as of the date of the exercise.

(d)The Stockholm option may be exercised while it maintains its status as an employee of the domestic subsidiary company by the Plaintiffs, and in the case of retirement, it may exercise the Stockholm option within a given period of time after retirement to the extent of the number of shares available at the time of retirement.

(E) The Plaintiffs cannot transfer or dispose of Stockholm options by means other than wills or inheritances, and only the Plaintiffs may exercise Stockholm options during their existence.

(4) Before the Enforcement Decree of the Income Tax Act was amended by Presidential Decree No. 17825, Dec. 30, 2002, the Income Tax Act and the Enforcement Decree thereof did not directly and explicitly provide for Stockholm options. However, the National Tax Service has expressed its view that the profits from exercising Stockholm options constitute earned income through the following established rules, etc.

(1) With respect to income on May 31, 1986, 22601-1803 and May 31, 1986: The difference between the acquisition value and market value of stocks in case where the employees of a corporation receive without compensation according to work performance records from the relevant corporation and the employees excluding members of an employee stock ownership association acquire stocks from the

(2) Income on December 27, 1995: Income (the amount obtained by subtracting the actual acquisition value from the market price at the time of acquisition) gained by an employee working for a domestic branch of a foreign corporation by actually acquiring the relevant stocks through a parent company’s stock purchase right granted in connection with provision of labor shall be taxed as earned income.

(3) On February 13, 1998: Where a foreign-invested corporation or a domestic place of business of a foreign corporation grants its workers the right to acquire stocks of a foreign-invested corporation or head office at a price lower than market price under certain conditions, the difference between the acquisition value of stocks and the market price shall constitute earned income under Article 20 (1) 1 of the Income Tax Act.

(4) Income on February 27, 1998: Where a domestic corporation and a foreign corporation having a special relationship with its employees under Article 2 of the Enforcement Decree of the Adjustment of International Taxes Act grants a right to acquire stocks of a foreign corporation at a specific price at a certain time as compensation for past service period to the employees of the relevant domestic corporation; and where the amount equivalent to the difference between the market price and the specific price at the time of the exercise is paid, such amount paid shall constitute earned income.

[인정근거] 갑 제13호증의 1, 2, 을 제11호증의 1, 2, 3, 을 제12호증의 1, 2, 을 제13호증의 1, 2, 을 제14호증의 1 내지 5, 을 제15, 16호증, 을 제17호증의 1 내지 34, 을 제23호증의 각 기재, 이 법원의 ＯＯ주식회사, ＯＯ주식회사, ＯＯ주식회사, ＯＯ주식회사, 주식회사ＯＯ에 대한 각 사실조회결과, 변론 전체의 취지

D. Determination

(1) Employment income under Article 20 of the Income Tax Act

Article 20 (1) 1 (a) of the Income Tax Act provides that "the salary, salary, remuneration, tax, wage, bonus, allowance, and other benefits of a similar nature that are received due to the provision of employment," with regard to the scope of the earned income subject to the income subject to the income tax, in principle, includes all monetary benefits derived from employment relations or employment relations, except retirement income, or benefits of economic value that are derived from employment relations or employment relations. Thus, the same applies to "wages" under Article 20 (1) 2 (b) of the same Act.

Furthermore, the term "in the course of providing labor" under the above legal provision means that the provision of labor and the payment of wages are dealt with either a quid pro quo or a pair of benefits. The above earned income includes not only all economic benefits which are related to the provision of labor by nature, regardless of the cycle of the payment of wages, etc., means of payment or form, etc., but also all the economic benefits which are related to the provision of labor in the context of labor (see Supreme Court Decision 2003Du4089, Apr. 15, 2005). In order to recognize that an employee has a quid pro quo relationship with the labor provided by the employee, it shall not be limited to a close proportion between the quality and quantity of labor provided by the employee and a quid pro quo quo relationship between the labor provided by the employee and a certain quid pro quo relationship or a certain quid pro quo relationship with the labor provided by the employee shall be deemed sufficient (see Supreme Court Decision 2005Du1313, Oct. 13, 2006).

(2) According to the aforementioned determination as to whether the Stockholm option exercise profit was an economic benefit that was “in the course of providing labor” or “in the course of providing labor,” the purpose of granting the Stockholm option is to fundamentally show the Plaintiffs’ domestic subsidiaries and foreign parent companies’ contribution, and to seek incentives to continue to work in the future. Furthermore, in granting the Plaintiffs with options, a foreign parent company must work in its domestic subsidiaries for a certain period of time in the future on condition that it may exercise all or part of the Stockholm options, and shall exercise the Stockholm option during a certain period of time in the future on condition that it can exercise its status as an employee of the domestic subsidiary. In the event of termination of the employment contract, the exercise of rights is possible only within the limit of the number of shares available at the time of retirement, as a matter of principle, such exercise period is limited within a short period of time, and the transfer of Stockholm option itself is prohibited. Furthermore, according to the aforementioned recognition of the aforementioned factors, it can be seen that the pertinent company’s share price increase related to the pertinent company’s share price increase.

In light of the above purpose of the Stockholm option system and the method of its exercise, etc., it is naturally anticipated that the Stockholm option granted by a foreign parent company to the Plaintiffs is necessary human resources by lowering the market price of the Plaintiffs’ economic benefits, while allowing the Plaintiffs, who were granted Stockholm options, to make efforts to increase the foreign parent company’s stock price through improving the performance of domestic subsidiaries, and allowing the Plaintiffs to exercise the Stockholm option if the share price increases by such efforts, and allowing the Plaintiffs to acquire the benefits of exercise of the Stockholm option by exercising the Stockholm option. In addition, the fact that granting the Stockholm option to the Plaintiffs is an essential element inherent in the Stockholm option system. Thus, from the perspective of the Plaintiffs, it can be viewed that the Plaintiffs expected the above benefits of exercise of the Stockholm option and provided their labor to the domestic subsidiary company after receiving the Stockholm option.

(B) On the other hand, the existence and amount of profit from the Stockholm option exercise is affected by the determination of the price change after the Stockholm option was granted and the time when the person to be given the Stockholm option was exercised, and it is difficult to view that there was a correlation between the quality and quantity of the work provided by the employee and the quality of the work provided by the employee.

However, in the event that the Plaintiffs once exercised Stockholm, a foreign parent company is obligated to deliver stocks to the Plaintiffs as the price of exercise determined in advance, so economic benefits equivalent to the difference between the market price and the exercise price as determined at the time of the exercise shall be granted to the Plaintiffs, and as a result, the Plaintiffs gain profits from acquiring stocks at a price lower than the market price. This can be said to be a result of an agreement between a foreign parent company and the Plaintiffs to the effect that the foreign parent company will transfer the economic benefits equivalent to the difference between the market price and the exercise price at the time of the exercise of the rights to the Plaintiffs at the time of the exercise of the rights. In other words, by the exercise of the Stockholm option, the Plaintiffs obtain economic benefits equivalent to the Stockholm option, while a foreign parent company, which is a company granting the Stockholm option, pays economic sacrifice equivalent to the profits from the exercise of the Stockholm option. However, such economic benefits of the Plaintiffs and the economic sacrifice of the foreign parent company, can be deemed to be in a quid pro quo relationship.

(C) Ultimately, in light of the aforementioned various circumstances, i.e., the objective of the Stockholm option system to secure and maintain able officers and employees, and to promote the future provision of high-quality labor, the indivisible relationship between the Stockholm option and the labor, the occurrence of profit from the exercise of Stockholm options is an essential element of the Stockholm option system, and the relationship between the employee’s labor and the stock owner cannot be denied, etc., the Plaintiffs’ profit from the exercise of Stockholm options can be deemed as having a quid pro quo relationship based on a specific correlation or an economic rationality with the labor provided by the Plaintiffs, and the fact that there is no conclusive correlation between the quality and quantity of the labor provided by the Plaintiffs and the economic interest that the Plaintiffs acquired.

(3) As to the difference between the employer under an employment contract and the Stockholm option provider

(A) As seen earlier, Article 20 (1) 1 (a) of the Income Tax Act provides that "the salary, salary, etc., and other similar salaries received from the provision of labor" as to the wage and salary income, and does not require the employer and the payer to coincide as a premise for constituting the wage and salary income. Moreover, the Income Tax Act classifys the income into interest income, dividend income, real estate rental income, business income, wage and salary income, temporary property income, pension income, other income, retirement income, capital gains, and forest income. It can be seen that each of them is intended to take into account the difference of each taxable capacity in calculating the amount of income and applying the tax rate by classifying each income according to its source and nature. In light of the fact that the person who is the recipient of the wage does not have any difference in the nature of the income or the taxable capacity, it is difficult to view that there is a reasonable reason to demand the consent of the employer and the payer of the wage. Therefore, the circumstances that the employer and the payer of the wage are inconsistent are merely one reason for determining whether the wage is paid due to work or work.

Ultimately, as seen earlier, the Income Tax Act provides for the scope of wage and salary income in the form of an exemplary legislation, not a specific way to list it, and in view of the fact that wage and salary income is included in the wage and salary income if the substance of the wage offered and received from an employer or a person corresponding thereto falls under the wage and salary income if it is deemed that the economic benefit that the employee receives from the employer or a person corresponding thereto is a consideration for labor provided in accordance with the employer’s direction and order based

(B) back to the instant case, the foreign parent company listed in the [Attachment List] is a company that holds 67% or 100% shares of the Plaintiff’s domestic subsidiary company with which the Plaintiffs were working, and that a foreign parent company grants Stockholm options to the Plaintiffs, who are employees of the domestic subsidiary company, because the shares of the domestic subsidiary form part of the assets of the foreign parent company, and the performance of the subsidiary company can increase the company’s interests by increasing the assets value of the foreign parent company if the performance of the subsidiary is improved through the efforts of the employees of the domestic subsidiary company. This is consistent with the original purpose of the Stockholm options system that seeks to secure excellent human resources and provide high-quality future work, as in the case of granting Stockholm options to the employees of the foreign parent company.

Therefore, considering these circumstances, it is reasonable to view that the saw options given by a foreign parent company to the Plaintiffs, who are workers of a domestic subsidiary company, are paid as compensation for non-independent labor provided based on the "employment contract or any other similar cause". In the instant case, the difference between the employer and the Stockholm options grantr does not affect the fact that the Stockholm options in this case constitute earned income.

(4) Whether the benefits from the Stockholm options can be subject to taxation

(A) The Plaintiffs asserted to the effect that each of the instant Stockholm options cannot be subject to taxation, on the grounds that it is merely a benefit obtained at the time of the Stockholm option exercise, because the subject of taxation ought to be Stockholm itself, or that the benefit derived at the time of the Stockholm option exercise is merely a benefit obtained at a price lower than the market price, and that the amount of final benefit is not determined until the time of monetaryization by disposing of the stocks acquired at the time of the Stockholm option exercise. Therefore, each of the instant Stockholm options exercise benefits cannot be subject to taxation.

(B) Although there may be room to view that the Stockholm option itself holds a certain economic value as the right of expectation or formation in the future. However, in order for a certain economic benefit to constitute an earned income under Article 20(1) of the Income Tax Act, such economic benefit should be recognized as constituting an income under the Income Tax Act, i.e., an economic benefit increased a tax-bearing capacity. Stockholm option itself is not a right to demand delivery of shares as a pre-sale right or a pre-sale right arising out of a similar legal relationship, but is merely an economic benefit that can only establish a stock transfer contract. Since the transfer is prohibited, it cannot be deemed as an economic benefit that increases the tax-bearing capacity. On the other hand, the Stockholm option exercise profit is equivalent to an economic benefit corresponding to the difference between the share price at the time of the exercise and the exercise price at the time of the exercise, and thus, is transferred from the company at the time of the exercise of the Stockholm option pursuant to the Stockholm option contract, and thus, can be deemed as an economic option separate from the Stockholm option itself.

(C) Meanwhile, Article 39(1) of the Income Tax Act provides that "the year to which the total amount of income and necessary expenses of a resident accrue shall be the year to which the date when the necessary expenses are determined, shall be the year in which the total amount of income and necessary expenses are determined." Thus, the profit at the time of the Stockholm option is the profit acquired at lower than the market price and its own profit does not yet be cashized, and there may be changes in the scale of final profit depending on the price of the stocks in the future. However, in order for the income to be determined in the year to which the income belongs pursuant to the above provision, it is not necessary to realize the income in specific cases by considering the management of the income, the degree of objectiveization of the income generated, and the timing of securing the taxpayer's fees, and it is appropriate to deem that the profit acquired at the time of the Stockholm option to be freely sold to the plaintiffs, as long as it is possible to dispose of the stocks acquired at the time of exercising the Stockholm option, or that it is feasible at least at the time of exercising the Stockholm option.

(D) In addition, since the Stockholm option exercise profit falls under the earned income of the taxable period to which the time of the exercise belongs, the instant taxation disposition that deemed the taxable object as the profit from the Stockholm option exercise is lawful.

(5) Whether legal grounds for the instant taxation disposition exist

(A) In 196 to 200, the time when the plaintiffs exercised Stockholm options, there was no direct and express provision on Stockholm options under the Income Tax Act and the Enforcement Decree thereof. However, Article 38(1) of the Enforcement Decree of the amended Act specifies a certain amount of Stockholm options exercising profit as earned income, and Article 5 of the Addenda of the amended Enforcement Decree stipulates that "the amended provisions of Article 38(1) shall apply from the income portion issued in the taxable period to which the date of its promulgation belongs." Thus, there is a question as to whether there is a legal basis for the instant taxation.

(B) In full view of the provisions of Article 20 of the Income Tax Act and Article 38(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17825, Dec. 30, 2002; hereinafter “former Enforcement Decree”), the scope of wage and salary income subject to income tax is, in principle, determined pursuant to Article 20 of the Income Tax Act, and the scope of wage and salary income under Article 38(1) of the former Enforcement Decree of the Income Tax Act is defined as "the scope of wage and salary income subject to income under Article 20 of the Income Tax Act shall include the following income." Thus, it is interpreted that the provisions of Article 38(1) of the former Enforcement Decree of the Income Tax Act prior to the amendment do not include the wage and salary income:

Furthermore, considering that the Income Tax Act comprehensively provides for earned income, Article 5 of the Addenda to the Enforcement Decree of the same Act does not stipulate that profits from the exercise of Stockholm prior to the amendment of the same Enforcement Decree cannot be taxed as earned income, but it shall be interpreted that after the amendment of the above Enforcement Decree, it can be taxed by applying Article 38(1)17 of the same Enforcement Decree to profits from the exercise of Stockholm options generated in the taxable period in which the date of promulgation of the above Enforcement Decree belongs.

(C) Therefore, regardless of the application of Article 5 of the Addenda to the Enforcement Decree of the amended Act, each of the instant dispositions is a legitimate disposition based on Article 20(1) of the Income Tax Act (amended by Act No. 5195, Dec. 30, 1996). Article 13-2(1) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5195, Dec. 30, 1996), which was enforced on January 1, 1997 prior to the amended Enforcement Decree, does not regard the profits earned by an employee of a certain start-up corporation, etc. from exercising Stockholm options as earned income by providing that the profits from exercising Stockholm options constitute the original earned income).

(6) Whether the imposition of additional tax in this case is lawful

세법상 가산세는 과세권의 행사 및 조세채권의 실현을 용이하게 하기 위하여 납세자가 정당한 이유 없이 법에 규정된 신고, 납세 등 각종 의무를 위반한 경우에 개별세법이 정하는 바에 따라 부과되는 행정상의 제재로서, 납세의무자가 그 의무를 알지 못하는 것이 무리가 아니었다고 할 수 있어서 그를 정당시할 수 있는 사정이 있거나 그 의무의 이행을 그 당사자에게 기대하는 것이 무리라고 하는 사정이 있을 때 등 그 의무해태를 탓할 수 없는 정당한 사유가 있는 경우가 아닌 한 세법상 의무의 불이행에 대하여 부과되어야 할 것인바(대법원2003. 2. 14. 선고 2001두8100 판결 등 참조), 앞서 본 바와 같이 ＯＯ이 1986.경 이후로 스톡옵션 행사이익이 근로소득에 해당한다는 견해를 밝혀 왔던 점, 별지 [내역표] 순번 1 내지 8 기재 원고들의 경우 스스로 이 사건 각 스톡옵션 행사이익을 근로소득으로 신고 ･ 납부하였던 점 등에 비추어 보면, 별지 [내역표] 순번 9 내지 12 기재 원고들이 스톡옵션을 행사할 무렵인 1996년 내지 2000년 당시에 소득세법과 동 시행령에 스톡옵션에 관한 직접적･명시적인 규정이 없어 스톡옵션 행사이익이 과세대상이 되는지 여부에 관하여 의문의 여지가 있었다는 사정이나 별지 [내역표] 순번 9 내지 12 기재 피고들이 2001년경에 이르러 비로소 부과 처분을 하였다는 사정만으로 위 원고들의 의무해태를 탓할 수 없는 정당한 사유가 있는 경우에 해당한다고 인정하기에는 부족하고 달리 이를 인정할 증거도 없으므로 이 사건 가산세 부과처분은 적법하다.

3. Conclusion

Therefore, the plaintiffs' claims seeking revocation on the grounds that each of the dispositions of this case is unlawful are all dismissed. The judgment of the court of first instance is just in this conclusion, and all of the appeals of the plaintiffs are dismissed. It is so decided as per Disposition.

Table of Contents

No.

(Disposition Office)

Stockholm option

Time of the event

Stockholm option

Exercising Profits

(unit: won)

The filing date of request for rectification

Date of Disposition

(Contents of Disposition)

global income tax seeking revocation

(unit: Won)

Amount of resident tax seeking cancellation;

(unit: won)

1

○ ○

○

The head of a tax office

200

2,185,607,172

August 11, 2001

August 17, 2001

(Disposition of Refusal of Correction)

(Reversion to year 200)

615,870,009

61,587,000

2

○ ○

○

The head of a tax office

200

2,002,794,137

August 30, 2001

September 4, 2001

(Disposition of Refusal of Correction)

(Reversion to year 200)

801,117,655

80,111,765

3

○○

○

The head of a tax office

200

80,399,724

September 1, 2001

September 4, 2001

(Disposition of Refusal of Correction)

(Reversion to year 200)

32,159,889

3,215,988

4

Gangwon ○

○

The head of a tax office

200

19,389,848

August 27, 2001

September 14, 2001

(Disposition of Refusal of Correction)

(Reversion to year 200)

6,336,628

633,662

5

○ ○

○

The head of a tax office

200

269,564,926

August 23, 2001

September 25, 2001

(Disposition of Refusal of Correction)

(Reversion to year 200)

68,148,684

6,814,868

6

Park ○

○

The head of a tax office

200

19,802,00

August 20, 2001

September 28, 2001

(Disposition of Refusal of Correction)

(Reversion to year 200)

5,940,201

594,020

7

○ Kim

○

The head of a tax office

200

24,889,949

August 20, 2001

September 20, 2001

(Disposition of Refusal of Correction)

(Reversion to year 200)

89,955,979

8,995,597

8

○ Kim

○

The head of a tax office

200

412,496,092

August 27, 2001

October 8, 2001

(Disposition of Refusal of Correction)

(Reversion to year 200)

164,998,437

16,499,843

9

door-○

○

The head of a tax office

1996

14,196,650

applicable matters

None

July 1, 2001

(Assessment Disposition)

(Reversion to year 1996)

5,297,780

529,770

1997

146,313,538

(Reversion to year 1997)

74,331,530

7,433,150

1998

74,968,041

(Reversion to year 1998)

37,22,070

3,722,200

199

315,595,242

(Reversion to year 199)

175,906,540

17,590,650

200

3,395,905

(Reversion to year 200)

1,763,610

176,360

10

o○

○

The head of a tax office

1998

2,714,264

applicable matters

None

July 2, 2001

(Assessment Disposition)

(Reversion to year 1998)

665,720

66,570

199

47,631,600

(Reversion to year 199)

18,082,860

1,808,280

200

69,162,317

(Reversion to year 200)

9,558,270

955,820

11

○ Kim

○

The head of a tax office

1997

43,358,798

of this title.

September 1, 2001

(Assessment Disposition)

(Reversion to year 1997)

21,556,950

2,155,690

12

○○

○

The head of a tax office

1998

178,560,000

applicable matters

None

November 15, 2001

(Assessment Disposition)

(Reversion to year 1998)

89,157,830

8,915,780

List of Companies

No.

Domestic Subsidiaries

A foreign mother company

Ratio of Shares

1

○ ○

○○ Co., Ltd.

○

100%

2

○ ○

○○ Korea Limited Liability Company

○

100%

3

○○

○○ Korea Limited Liability Company

○

100%

4

Gangwon ○

○○ Korea Limited Liability Company

○

100%

5

○ ○

○○ Korea Stock Company

○

67%

6

Park ○

○○ Korea Stock Company

○

100%

7

○ Kim

○ Stock Company

○

100%

8

○ Kim

○○ Korea Limited Liability Company

○

100%

9

door-○

○○ Korea Stock Company

○

100%

10

o○

○○ Korea Stock Company

○

100%

11

○ Kim

○ Stock Company

○

100%

12

○○

○○ Korea Stock Company

○

100%

[Supreme Court Decision 2007Du5172 ( November 15, 2007)]

All appeals are dismissed.

The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. On the first, second, and fifth grounds

The wage and salary income under Article 20 (1) of the Income Tax Act, regardless of the form or name of payment, includes not only the provision of labor and all economic benefits in a quid pro quo relationship due to its nature, but also the wage which forms the contents of the working conditions closely related to the labor on the premise of the work

According to the reasoning of the judgment of the court below, the court below confirmed the fact that the plaintiffs worked for each foreign company (hereinafter "foreign parent company") which held 67% or 100% of the shares of the domestic subsidiary while serving as executive officers and employees of the foreign company (hereinafter "domestic subsidiary company") as the domestic subsidiary company, and as a matter of principle, when the plaintiffs are employed in the domestic subsidiary company for a certain period and when the employment contract is terminated with the domestic subsidiary company, the contract granting the stock option becomes null and void, and the stock option granted under the condition that the assigned stock option cannot be transferred to others. After exercising the stock option from 1996 to 200, the court below determined that the difference calculated by deducting the stock option price (actual acquisition price) from the stock transaction price as of the date of the exercise (hereinafter "the stock option profit of this case").

In this context, the Plaintiffs’ exercising stock option benefits are paid to the Plaintiffs by foreign parent companies directly or indirectly affecting the management and performance of their duties by domestic subsidiaries. This is reasonable to deem that there exists a quid pro quo relationship or an economic rationality with the labor provided by the Plaintiffs to domestic subsidiaries. Therefore, the exercising profit of this case constitutes Class B earned income under Article 20(1)2(b) of the Income Tax Act. This does not change on the ground that there is no direct employment relationship between the Plaintiffs and foreign parent companies, and the employer under an employment contract and the stock option holder are different, or that there is no difference between the Plaintiffs and foreign parent companies, or that the exercising profit of this case was not listed as included in the earned income from exercising stock option under each subparagraph of Article 38(1) of the former Enforcement Decree of the Income Tax Act at the time of exercising the said stock option.

The decision of the court below to the same purport is just, and there is no error in the misapprehension of legal principles as to the nature of profit from exercising stock option, or in the misapprehension of legal principles as to retroactive taxation under Article 20 (1) of the Income Tax Act.

2. On the third ground for appeal

In order to determine that income which is subject to income tax has been realized, even if it is not necessary until it is realized, the income should be considerably mature and confirmed in the possibility of realizing the income, and it is merely established without reaching such a degree (see, e.g., Supreme Court Decision 2001Du7176, Dec. 26, 2003). As stock options are entirely entrusted to the choice of the officers or employees granted it, the granting itself of stock options cannot be deemed to have generated any income, and since economic benefits equivalent to the difference between the market price and the market price of the stocks are determined or realized by exercising the stock options, it shall be deemed that the income has accrued at the time of the above exercise.

The court below's determination that the profit of exercising stock options in this case constitutes wage and salary income in the taxable period to which the time of exercising stock options belongs is just in accordance with the above legal principles, and there is no error of law such as misunderstanding of legal principles

3. On the fourth ground for appeal

Article 24 (2) of the Income Tax Act provides that the income amount shall be calculated on the basis of the price at the time of transaction when it is imported other than money. Thus, the court below's calculation of the income from exercising the stock option of this case by converting the difference between the price at the market price of the stock transaction as of the date of exercising the stock option and the price at the exchange rate based on the exchange rate is just and there is no error in the misapprehension of a legal principle

4. On the sixth ground for appeal

Under the tax law, where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, an additional tax is an administrative sanction imposed as prescribed by the Act, and the taxpayer’s intentional or negligent act does not constitute a justifiable reason that does not constitute a breach of duty (see, e.g., Supreme Court Decision 2002Du10780, Jun. 24, 2004).

As acknowledged by the court below, in light of the circumstances that the National Tax Service stated the opinion that the profits from exercising the stock option constitute earned income after 1986 and that among the remaining taxpayers including the plaintiffs pay as earned income, the court below's decision that the above plaintiffs' obligation does not constitute a case where there is a justifiable ground for not misunderstanding the legal principles as to additional tax, etc., as otherwise alleged in the ground of appeal, on the ground that the plaintiffs as listed in the [Attachment 9] through 12 of the judgment below did not have direct and express provisions as to the stock option under the Income Tax Act and the Enforcement Decree of the Income Tax Act at the time of 196 to 2000, since the time of exercising the stock option of this case, or that the defendants as listed in the [Attachment 9] through 12 of the judgment below did not constitute a case where the above plaintiffs' obligation was violated.

The Supreme Court precedents pointed out in the ground of appeal by the above plaintiffs are different from this case, and it is not appropriate to invoke this case.

5. Conclusion

Therefore, all appeals are 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.