Cho High 2015 Jeon 1013 (20 April 20, 2015)

Even if a small or medium enterprise is a related company under a grace period, it does not invalidate the grace period.

Where a small or medium enterprise is deferred following its graduation because its sales amount exceeds 100 billion won, if it falls under a related company and becomes not a small or medium enterprise, the deferment shall not be invalidated.

Disposition of revocation of imposition of corporate tax by the Seoul Administrative Court 2015Guhap7357

00 Stock Company

00. Head of tax office

2, 2016.22

2016.05.27

1. The Defendant’s imposition of KRW 159,08,310 of corporate tax for the year 2013 against the Plaintiff on October 1, 2014 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. On July 25, 200, the Plaintiff was a corporation established for the purpose of manufacturing and wholesale and retail business of cremation sites, etc. in the business year 2010, KRW 16.9 billion in the business year 201, KRW 1,24.3 billion in the business year 2012, KRW 1,28.9 billion in the business year 2012, and KRW 1,28.9 billion in the business year 2013. The Plaintiff’s sales revenue did not constitute a small and medium enterprise in excess of KRW 100 billion in the business year 2010, but the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22583, Dec. 30, 2010; hereinafter “former Enforcement Decree of the Restriction of Special Taxation Act”) was subject to the grace period from 2010 to 2013 pursuant to Article 2(2) of the former Enforcement Decree of the Restriction of Special Taxation Act.

B. Meanwhile, the Enforcement Decree of the Restriction of Special Taxation Act applies mutatis mutandis to the requirements for small and medium enterprises under the Enforcement Decree of the Framework Act on Small and Medium Enterprises. The Enforcement Decree of the Framework Act on Small and Medium Enterprises amended by Presidential Decree No. 21368, Mar. 25, 2009; Article 3 subparag. 2 and subparag. 1, 2011; and Article 3 subparag. 2 and subparag. 3 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises added the requirements for substantial independence of small and medium enterprises; and subsequently, the former Enforcement Decree of the Restriction of Special Taxation Act amended by Presidential Decree No. 22583, Dec. 30, 2010; Article 2 subparag. 2(c) of the Enforcement Decree of the Framework Act on Small and Medium Enterprises introduced the standards for related companies under the former part of Article 3(1)3 and the proviso of Article 2(2) of the Enforcement Decree of the Framework Act on Small and Medium Enterprises to not apply the grace period applied for three years thereafter.

C. Matters pertaining to changes in the shares of 00 P.S. Co., Ltd. (hereinafter “00 P.P.”) owned by the Plaintiff are as follows:

Equity ratio (%) on the date of acquisition of the number of additional stocks in a business year;

22,808 20,00 33.76

28,808 6,000 March 19, 2012

30,000 101,192 October 16, 2013 50.00

D. Upon filing a corporate tax return with the Defendant for the business year 2013, the Plaintiff filed a return on the amount of tax subject to special tax reduction and exemption and tax credit for research and human resources development expenses pursuant to Articles 7 and 10 of the former Restriction of Special Taxation Act (amended by Act No. 12153, Jan. 1, 2014) on the ground that the period

E. After a comprehensive audit against the Defendant, the director of the Central Regional Tax Office notified the Defendant of various tax credits rates even though the Plaintiff was not a small or medium enterprise pursuant to the proviso to Article 2(2) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 25079, Jan. 4, 2014; hereinafter “Enforcement Decree of the Restriction of Special Taxation Act”) and Article 2(1)3 of the same Act in excess of KRW 159,08,310 of the corporate tax in 2013 when the Plaintiff did not apply various tax credits rates to the Plaintiff on October 1, 2014 (hereinafter “instant disposition”). In accordance with the above audit results, the Defendant corrected and notified the Plaintiff of KRW 159,08,310 of the Enforcement Decree of the Restriction of Special Taxation Act (hereinafter “instant disposition”).

F. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on December 8, 2014, but was dismissed on April 20, 2015.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1, the purport of the whole pleadings

2. Legitimate grounds for the instant disposition

A. The plaintiff's assertion

1) The Plaintiff is not a small or medium enterprise for the business year of 2010 more than KRW 100 billion and not a small or medium enterprise. However, the Plaintiff’s disposition of this case, which was not subject to the grace period on a different premise, is unlawful since it was merely subject to the application of the grace period for small or medium enterprises, and it does not constitute a small or medium enterprise only due to the introduction of the standards for related companies under the Enforcement Decree of the Framework Act on Small and Medium Enterprises and the Enforcement Decree of the Restriction of Special Taxation Act.

2) The Plaintiff was holding 34% of the shares of 00 P.C. (amended by Presidential Decree No. 23412, Dec. 28, 2011). As a result of the enforcement of Article 3-2 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 23412, Dec. 1, 2012), the Plaintiff and 00 P.P. (amended by Presidential Decree No. 24271, Dec. 28, 2012) were affiliated companies, and the Plaintiff shall be deemed a small and medium enterprise for the taxable year to which the date on which the cause occurred belongs and for the following three taxable years pursuant to Article 2(5) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 24271, Dec. 2

3) At the time of 2013, Article 9 Subparag. 4 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 24799, Oct. 16, 2013) stipulates that the grace period shall be applied. Article 2(2)3 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 26070, Feb. 3, 2015) stipulates that the grace period shall apply even in cases where a company is not a small or medium enterprise pursuant to related company regulations, considering that the relevant company regulations provide that the grace period shall not apply.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Determination on the first argument

Article 2 (2) of the amended Enforcement Decree of the Restriction of Special Taxation Act provides that where a small or medium enterprise falls under the requirements for exclusion from small or medium enterprise under the proviso of paragraph (1) due to expansion of its size, etc. or fails to meet the standards for size of small or medium enterprise under subparagraph 1, the first taxable year to which the date on which such cause occurred belongs and the next three taxable years shall be seen as small or medium enterprise, and the proviso provides that the grace period shall not apply to cases where it does not fall under a small or medium enterprise due to a cause not meeting the requirements for substantial independence under subparagraph 3 of paragraph (1).

In light of the following circumstances recognized by the above facts and the contents and form of the relevant statutes, it is reasonable to view that the Plaintiff’s existing grace period granted to the Plaintiff is not invalid, even if the Plaintiff is not a small or medium enterprise under Article 2(1) of the Enforcement Decree of the Restriction of Special Taxation Act by introducing the related company standards as the requirements for small or medium enterprises under the Enforcement Decree of the Framework Act on Small and Medium Enterprises and the amended Enforcement Decree of the Restriction of Special Taxation Act.

① Article 2(2) of the former Enforcement Decree of the Restriction of Special Taxation Act provides that “Where a small or medium enterprise falls under the proviso to the part other than each subparagraph of paragraph (1) due to the expansion of its size, etc. or does not fall under a small or medium enterprise as a result of exceeding the standards under subparagraph 1 of the same paragraph, only the first one time shall be deemed a small or medium enterprise for the taxable year to which the date on which the cause occurred and the next three taxable years thereafter, and shall be determined by the provisions of paragraph (1) for each taxable year after the expiration of the said period.” According to the language and text of the above provision, if a small or medium enterprise ceases to fall under a small or medium enterprise due to the expansion of its size, etc., it shall be interpreted that it

② In addition, the language and text of the relevant statutes and Article 2(2)3 of the Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 26070, Feb. 3, 2015) excludes cases where a small or medium enterprise is not a small or medium enterprise in excess of the standards for related companies, the issue of whether to grant a grace period is the legislative policy. Article 3 subparag. 2(c) of the Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 21368, Mar. 25, 2009) of the Enforcement Decree of the Restriction of Special Taxation (amended by Presidential Decree No. 21368) is the issue of whether a small or medium enterprise is not a small or medium enterprise under the former Enforcement Decree as at the time of the enforcement of Article 2 of the Addenda (amended by Presidential Decree No. 26070, Dec. 31, 2011). However, Article 201 of the Enforcement Decree of the Restriction of Special Taxation Act provides that a grace period exceeding the former Enforcement Decree shall not apply to small or medium enterprise.

③ Furthermore, the latter part of Article 2(2) proviso of the Enforcement Decree of the Restriction of Special Taxation Act explicitly states that the grace period becomes null and void only in cases where a company under a grace period fails to meet the requirements for a small and medium enterprise due to its merger with another company under a grace period. In light of such provision, the former part of Article 2(2) proviso of the Enforcement Decree of the Restriction of Special Taxation Act is difficult to regard the provision of the former part of Article 2(2) proviso of the Enforcement Decree of the Restriction of Special Taxation Act as a provision for the invalidation of a grace period already granted to a company under a grace period like the Plaintiff (i.e., the former part of Article 2(2) proviso of the Enforcement Decree of the Restriction of Special Taxation Act as a provision for the invalidation of a grace period, since it is unreasonable to interpret that the effect of a grace period immediately after the lapse of a grace period without any express provision on the exclusion of the effect of a grace period from time. In this regard, it is difficult to interpret the former part of Article 2(2) proviso of the Restriction of Special Taxation Act as a grace period.

2) Sub-committee

As long as the Plaintiff’s first argument is accepted and the grace period is determined to apply to the Plaintiff, the Plaintiff’s remainder of the argument is no longer determined.

3. Conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is so decided as per Disposition.

Relevant statutes

director of the former Restriction of Special Taxation Act (amended by Act No. 12153, Jan. 1, 2014)

Article 7 (Special Tax Abatement or Exemption for Small or Medium Enterprises)

(1) An amount equivalent to tax reduction or exemption calculated by multiplying income tax or corporate tax on income accrued from the relevant place of business by the ratio of reduction or exemption under subparagraph 2 until the taxable year ending on or before December 1, 2014, among small and medium enterprises that engage in the following types of business eligible for reduction or exemption shall be reduced or exempted: Provided, That where the head or principal office of a domestic corporation is located in the Seoul Metropolitan area, all places of business shall be deemed located in the Seoul Metropolitan

Article 10 (Tax Credit for Research and Human Resources Development Expenses)

(1) Where a national has a research and human resources development expenses for each taxable year, the total of the following amounts shall be deducted from income tax (limited to income tax on business income) or corporate tax for the relevant taxable year. In such cases, subparagraphs 1 and 2 shall apply only to the relevant research and human resources development expenses incurred until December 31, 2015:

1. With respect to research and development expenses for new growth engine industries prescribed by Presidential Decree (hereafter in this Article, referred to as the "research and development expenses for new growth engine industries"), an amount calculated by multiplying the research and development expenses for new growth engine industries incurred in the relevant taxable year by 20/100 (30/100 in the case of a small or medium enterprise);

2. With respect to research and development expenses for acquiring source technology prescribed by Presidential Decree (hereafter in this Article, referred to as "research and development expenses for source technology"), an amount calculated by multiplying the research and development expenses for source technology incurred for the relevant taxable year by 20/100 (30/100 in the case of a small or medium enterprise).

3. In cases of research and human resources development expenses (hereafter referred to as "general research and human resources development expenses" in this Article) of a national who does not fall under subparagraphs 1 and 2 or does not select subparagraphs 1 and 2: Provided, That where no general research and human resources development expenses have been incurred for four years retroactively from the commencing date of the relevant taxable year, or the general research and human resources development expenses incurred for the immediately preceding taxable year are less than the annual average amount of the general research and human resources development expenses incurred for four years retroactively from the commencing date of the relevant taxable year, an amount equivalent to item

(a) General research and human resources development expenses incurred in the pertinent taxable year have been incurred in the immediately preceding taxable year;

Where human resources development expenses are in excess, an amount equivalent to 40/100 (50/100 in the case of a small or medium enterprise) of the amount in excess.

(b) An amount calculated by multiplying the general research and human resources development expenses incurred for the relevant taxable year by the ratio classified as follows:

(a) In cases of small and medium enterprises: 25/100;

(1) Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22583, Dec. 30, 2010)

Article 2 (Scope of Small and Medium Enterprises)

(1) "Small and medium enterprises prescribed by Presidential Decree" in the part other than the subparagraphs of Article 5 (1) of the Restriction of Special Taxation Act means enterprises engaged in crop cultivation, livestock farming, and livestock farming, or business run by an enterprise specialized in energy saving under Article 25 of the Energy Use Rationalization Act as its main business, which meet all the following requirements (hereinafter referred to as "small and medium enterprises"): Provided, That where the number of employees ordinarily employed is at least 1,00 persons, equity capital is at least 1,00 million won, and sales amount is at least 1,00 million won, or the total amount of assets is at least

1. The number of employees who ordinarily use, capital or sales shall not exceed the size under the provisions of attached Table 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises (hereafter in this Article, referred to as the "scale of small

2. Deleted;

3. Actual independence shall meet the provisions of subparagraph 2 of Article 3 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises. In such cases, the ownership of stocks under subparagraph 2 (b) of Article 3 of the same Decree shall include direct and indirect ownership (excluding indirect ownership through a collective investment scheme under the Financial Investment Services and Capital Markets Act).

(2) In the application of the provisions of paragraph (1), if a small or medium enterprise falls under the proviso of the part other than the said paragraph due to expansion of its size or becomes not a small or medium enterprise as a result of exceeding the standards set forth in subparagraph 1 of the said paragraph, only the first one time for the taxable year to which the date on which such cause occurs belongs and the next three taxable years shall be deemed a small or medium enterprise, and it shall be determined by the small or medium enterprise pursuant to the provisions of paragraph (1) for each taxable year after the said period (hereafter in this Article, referred to as the

1. Merger with an enterprise other than a small or medium enterprise under the Framework Act on Small and Medium Enterprises;

2. Where a corporation is merged with another corporation under grace period;

3. Cases falling under the enterprises other than those referred to in paragraph (1) 3.

4. Where the establishment date exceeds the standards for small and medium enterprises as of the end of the taxable year within two years.

(3) In applying the provisions of paragraph (1), where two or more different businesses are operated, the business with the larger business revenue amount by business shall be deemed the main business.

(4) Matters necessary for the calculation of the number of employees, equity capital, capital, sales, total amount of assets, and the ratio of indirectly owned stocks under the proviso to the part other than each subparagraph and subparagraphs 1 and 3 of the same paragraph shall be prescribed by Ordinance of the Ministry of Strategy

(5) In applying paragraph (1), if an enterprise becomes a new small or medium enterprise by amending subparagraph 2 (a) and (b) of Article 3 and attached Table 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises, it shall be deemed a small or medium enterprise from the taxable year in which such cause occurs to the enterprise, and if it becomes a small or medium enterprise, it shall be deemed a small

(1) Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22583, Dec. 30, 2010)

Article 2 (Scope of Small and Medium Enterprises)

(1) "Small and medium enterprises prescribed by Presidential Decree" in the main business of Article 5 (1) of the Restriction of Special Taxation Act (hereinafter referred to as the "Act") means enterprises engaged in crop cultivation, livestock farming, ..., market research and public opinion poll business, which meet all the following requirements (hereinafter referred to as "small and medium enterprises"): Provided, That where the number of regular employees is at least 1,00,000, its equity capital is at least 100 billion won, and its total sales are at least 100 billion

1. The number of employees who ordinarily use, capital or sales shall not exceed the size under the provisions of attached Table 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises (hereafter in this Article, referred to as the "scale of small

2. Deleted;

3. Actual independence shall meet the provisions of subparagraph 2 (a) through (c) of Article 3 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises. In such cases, the ownership of stocks under subparagraph 2 (b) of Article 3 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises shall include direct and indirect ownership (excluding indirect ownership through a collective investment scheme under the Financial Investment Services and Capital Markets Act), while the ownership exceeding the standards under subparagraph 1 shall be deemed to meet the standards under the proviso to Article 2 (1) of the Enforcement Decree of the Restriction of Special Taxation Act in the application of subparagraph 2 (c)

(2) In the application of the provisions of paragraph (1), where a small or medium enterprise falls under the proviso to the part other than the subparagraphs of the same paragraph due to a expansion of its size or becomes not a small or medium enterprise as a result of exceeding the standards under subparagraph 1 of the same paragraph, it shall be deemed that the first reason occurs to the small or medium enterprise and the next three taxable years shall be deemed the small or medium enterprise, and it shall be determined by the small or medium enterprise according to paragraph (1) for each taxable year after the period (hereafter referred to as the "period of grace" in this Article) expires: Provided, That where the small or medium enterprise is not a small or medium enterprise due to

1. Merger with an enterprise other than a small or medium enterprise under the Framework Act on Small and Medium Enterprises;

2. Merger with an enterprise under the grace period;

3. Cases falling under the enterprises other than those referred to in paragraph (1) 3.

4. Where the establishment date exceeds the standards for small and medium enterprises as of the end of the taxable year within two years.

(5) In applying paragraph (1), if an enterprise becomes a new small or medium enterprise by amending subparagraph 2 (a) and (b) of Article 3 and attached Table 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises, it shall be deemed a small or medium enterprise from the taxable year in which such cause occurs to the enterprise, and if it becomes a small or medium enterprise, it shall be deemed a small

The Addenda No. 22583, 2010

Article 1 (Enforcement Date)

This Decree shall enter into force on January 1, 201: Provided, That the amended provisions of Article 106 (7) 49 shall enter into force on March 1, 201, the amended provisions of Articles 16-2 (2) and 108 (3) through (5) shall enter into force on April 1, 201, the amended provisions of Articles 69 (3) and 69-2 shall enter into force on July 1, 201, and the amended provisions of Article 2 (1) 3 (limited to subparagraph 2 (c) of Article 3 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises) and the latter part of Article 2 (1) 3 shall enter into force on January 1, 2012.

director of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 24271, Dec. 28, 2012)

Article 2 (Scope of Small and Medium Enterprises)

(1) "Small and medium enterprises prescribed by Presidential Decree" in the main business of Article 5 (1) of the Restriction of Special Taxation Act (hereinafter referred to as the "Act") means enterprises meeting all the following requirements (hereinafter referred to as "small and medium enterprises"): Provided, That where the number of regular employees is at least 1,00, at least 100, equity capital is at least 100 billion won, and total assets are at least 100 billion won, or at least 500 billion

1. The number of employees who ordinarily use, capital or sales shall not exceed the size under the provisions of attached Table 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises (hereafter in this Article, referred to as the "scale of small

2. Deleted;

3. Actual independence shall meet the standards referred to in Article 3 (1) 2 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises. In such cases, the ownership of stocks referred to in Article 3 (1) 2 (b) of the Enforcement Decree of the Framework Act on Small and Medium Enterprises shall include direct and indirect ownership (excluding indirect ownership through a collective investment scheme under the Financial Investment Services and Capital Markets Act), but the ownership of stocks shall not meet the standards referred to in attached Table 1 or any item of paragraph (1) 1 shall be deemed to meet the standards referred to in the proviso to Article 2 (1) of the Enforcement Decree of the Restriction of Special Taxation Act

(5) In applying paragraph (1), if an enterprise becomes a new small or medium enterprise by amending the provisions of Article 3 (1) 2, attached Tables 1 and 2 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises, it shall be deemed a small or medium enterprise from the taxable year in which such cause occurs to the enterprise, and if it is no longer a small or medium enterprise, it shall be deemed a small

(1) Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 25079, Jan. 4, 2014)

Article 2 (Scope of Small and Medium Enterprises)

(1) Small and medium enterprises prescribed by Presidential Decree in the part other than the subparagraphs of Article 5 (1) of the Restriction of Special Taxation Act (hereinafter referred to as the "Act") means crop cultivation business, livestock farming business, fishery business, manufacturing business (including business similar to manufacturing business prescribed by Ordinance of the Ministry of Strategy and Finance; hereinafter the same shall apply), sewage, waste disposal (including recycling business), raw material recycling and environment restoration business, construction business, wholesale and retail business, passenger transport business, restaurant business, film and audio record production and distribution business (excluding video watching room operation business), broadcasting business, telecommunications business, integration and management business of computer programming and system, information service business, advertising business, other scientific and technological services business, packing and charging business, specialized design, exhibition and event-related service business, industrial training facility business, public opinion poll center and entertainment business under Article 7 (1) 1 (k) of the Act, business operated by a small and medium enterprise under Article 5 (1) of the Tourism Promotion Act, business operated by at least 20 billion won, business operated by public opinion poll, industrial facility improvement business under Article 5 (16) of the Act:

1. The number of employees ordinarily used, capital, or sales by type of business shall not exceed the size standards under the provisions of attached Table 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises (hereafter in this Article, referred to as the

2. Deleted;

3. Actual independence shall meet the standards referred to in Article 3 (1) 2 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises. In such cases, the ownership of stocks referred to in Article 3 (1) 2 (b) of the Enforcement Decree of the Framework Act on Small and Medium Enterprises shall include direct and indirect ownership (excluding indirect ownership through a collective investment scheme under the Financial Investment Services and Capital Markets Act), but the ownership of stocks shall not meet the standards referred to in attached Table 1 or any item of paragraph (1) 1 shall be deemed to meet the standards referred to in the proviso to Article 2 (1) of the Enforcement Decree of the Restriction of Special Taxation Act

(1) Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 26070, Feb. 3, 2015)

Article 2 (Scope of Small and Medium Enterprises)

(1) "Small and medium enterprises prescribed by Presidential Decree" in the main business of Article 5 (1) of the Restriction of Special Taxation Act (hereinafter referred to as the "Act") means enterprises meeting all the following requirements (hereinafter referred to as "small and medium enterprises"): Provided, That where the total amount of assets is at least 500 billion won, such enterprises shall not be deemed small and medium enterprises:

1. Sales by type of business shall be within the size prescribed in attached Table 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises (average sales, etc. shall be deemed sales; hereafter the same shall apply in this Article);

2. Deleted;

3. Actual independence shall meet Article 3 (1) 2 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises. In such cases, when calculating the ratio of indirect ownership of stocks, etc. under Article 3 (1) 2 (b) of the Enforcement Decree of the Framework Act on Small and Medium Enterprises, it shall be excluded herefrom, and when Article 3 (1) 2 (c) of the Enforcement Decree of the Framework Act on Small and Medium Enterprises is applied, an enterprise whose average sales, etc. do not meet the standards specified in attached Table 1 shall be deemed an enterprise whose sales sales, etc. do not meet the standards for

(2) In the application of the provisions of paragraph (1), where a small or medium enterprise falls under the proviso to the part other than the subparagraphs of the same paragraph due to its expansion, etc. or becomes no longer a small or medium enterprise due to its failure to meet the requirements of Article 3 (1) 1 or 3 (limited to the provisions of Article 3 (1) 2 (c) of the Enforcement Decree of the Framework Act on Small and Medium Enterprises) due to its expansion, etc., it shall be deemed a small or medium enterprise for the taxable year to which the date on which the first cause of such cause occurred belongs and the next three years, and it shall be determined as to whether it falls under a small or medium enterprise pursuant to the provisions of paragraph (1) for each taxable year after the relevant period (hereafter referred to as the "period of grace" in

1. Merger with an enterprise other than a small or medium enterprise under the Framework Act on Small and Medium Enterprises;

2. Where it merges with an enterprise under a grace period;

3. If it no longer meets the requirements under paragraph (1) 3 (excluding Article 3 (1) 2 (c) of the Enforcement Decree of the Framework Act on Small and Medium Enterprises).

4. Where the establishment date exceeds the standards for small and medium enterprises as of the end of the taxable year within two years.

(1) Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 21368, Mar. 25, 2009)

Article 2 (Definitions)

The terms used in this Decree shall be defined as follows:

3. The term "related company" means a group of companies with which an individual or a company subject to external audit under Article 2 of the Act on External Audit of Stock Companies (hereinafter referred to as "company subject to external audit") is in a parent-subsidiary relationship under Article 3-2: Provided, That a stock-listed corporation under Article 9 (15) of the Financial Investment Services and Capital Markets Act, which is obligated to prepare consolidated financial statements pursuant to subparagraph 2 of Article 1-2 of the Act on External Audit of Stock Companies and Article 1-3 of the Enforcement Decree of the same Act, or which is included in consolidated financial statements, shall be deemed a group of companies in a parent-subsidiary relationship under Article 3-

Article 3 (Scope of Small and Medium Enterprises)

Small and medium enterprises under Article 2 (1) of the Framework Act on Small and Medium Enterprises (hereinafter referred to as the "Act") shall meet all of the following standards:

1. A company whose type of business and the number of regular workers, capital or sales of which meet the criteria set forth in attached Table 1: Provided, That any of the following enterprises shall be excluded herefrom:

(a) An enterprise with at least 1,00 full-time workers;

(b) A corporation whose total amount of assets (referring to the total amount of assets indicated on the balance sheet as of the end of the immediately preceding business year) is not less than 500 billion won. In such cases, if a foreign corporation is converted to Korean won, it shall be the smaller of the amount converted by applying the closing exchange rate as of

(c) an enterprise whose equity capital is not less than 50 billion won.

(d) An enterprise whose average sales for the immediately preceding three business years are at least 1,50 billion won;

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2. An enterprise whose substantial independence of its ownership and management falls under all of the following items:

(a) It shall be a company not belonging to an enterprise group subject to limitations on mutual investment under Article 14 (1) of the Monopoly Regulation and Fair Trade Act;

(b) A corporation under subparagraph 1 (b) (excluding an investment company for the establishment of small and medium enterprises under the Support for Small and Medium Enterprises Act and those corresponding thereto, which are determined and publicly announced by the Administrator of the Small and Medium Business Administration to foster small and medium enterprises) shall not be the largest shareholder (referring to the principal in cases where the total number of shares held by the principal and his/her specially related persons is the largest as of the total number of outstanding voting shares of the corporation) who directly or indirectly owns at least 30/100 of the total number of outstanding shares (excluding non-voting shares under Article 370 of the Commercial Act). In such cases, the specially related persons shall not be the spouse, including those in de facto marital relations, blood relatives within the eighth degree, and relatives within the fourth degree, and relatives within the fourth degree,

(c) In cases of an enterprise belonging to an affiliated company, the number of regular workers, capital stock, sales amount, equity capital or total assets (hereinafter referred to as "regular workers, etc.") calculated under Article 7-2 shall not exceed the standards under subparagraph 1.

Presidential Decree No. 21368, Mar. 25, 2009

Article 1 (Enforcement Date)

This Decree shall enter into force on March 27, 2009: Provided, That the following amended provisions shall enter into force on the date specified in the following subparagraphs, respectively:

1. The amended provisions of subparagraph 3 of Article 2, subparagraph 2 (c) of Article 3, Article 3-2, Article 7-2, and attached Table 2: January 1, 201;

2. The amended provisions of Article 3 subparagraph 1 (c) and (d) and subparagraph 3 of Article 9: January 1, 2012;

Article 2 (Transitional Measures)

Where an enterprise falling under a small or medium enterprise becomes no longer a small or medium enterprise due to the enforcement of this Decree as at the time this Decree enters into force, it shall be deemed a small or medium enterprise until December 31, 201: Provided, That this shall not apply where it falls under a small or medium enterprise pursuant to the amended provisions of subparagraph 3 of Article 2, subparagraph 2 (c) of Article 3, Article 3-2,

(1) Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 23412, Dec. 28, 201)

Article 3-2 (Parent-subsidiary Relationship)

(1) The term "parent or subsidiary relationship" means a relationship between a company and another domestic company (hereinafter referred to as a "parent company") as at the end of the immediately preceding business year, if the company controls another domestic company as at the end of the immediately preceding business year as if it falls under any of the following subparagraphs: Provided, That a stock-listed corporation under Article 9 (15) of the Financial Investment Services and Capital Markets Act, which is obligated to prepare consolidated financial statements pursuant to subparagraph 2 of Article 1-2 of the Act on External Audit of Stock Companies and Article 1-3 of the Enforcement Decree of the same Act, and a domestic company included in the consolidated financial statements, shall

1. Where a parent company independently or jointly with a person who falls under any of the following items, owns at least 30 percent of the stocks, etc. of the subsidiary company, and is the largest investor:

(a) A person who owns not less than 30 percent of the stocks, etc. of a parent company independently or jointly with relatives and is the largest investor;

(b) Relatives of individuals falling under item (a);

2. Where a parent company owns at least 30 percent of the stocks, etc. of a subsidiary company jointly with a subsidiary company that falls under subparagraph 1 (hereafter in this Article, referred to as a "subsidiary") or jointly with a person who falls under any of the items of subparagraph 1, and is the largest investor;

3. Where a subsidiary owns not less than 30 percent of the stocks, etc. of its subsidiary company independently or jointly with another subsidiary, and is the largest investor;

4. Where a person who falls under any of the items of subparagraph 1 owns not less than 30 percent of the stocks, etc. of his/her subsidiary company jointly with the subsidiary company, and is the largest investor;

(2) Where a person who falls under any of the following subparagraphs owns stocks, etc. of another domestic company, the company and the other domestic company shall not be deemed the relationship between a parent company and its subsidiary company under paragraph (1):

1. Investment companies for the establishment of small and medium enterprises under the Support for Small and Medium Enterprises Act;

2. A new technology financing business operator under the Specialized Credit Finance Business Act;

3. A company specializing in venture business under the Act on Special Measures for the Promotion of Venture Businesses;

4. An industry-academic cooperation technology holding company under the Promotion of Industrial Education and Industry-Academic Cooperation Act;

5. Other persons determined and publicly announced by the Administrator of the Small and Medium Business Administration to foster small and medium enterprises equivalent to subparagraphs 1 through 4.

(1) The former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 24799, Oct. 16, 2013)

Article 9 (Exclusion from Suspension)

The term "other reasons prescribed by Presidential Decree" in the proviso to Article 2 (3) of the Act means any of the following reasons:

4. Where a small or medium enterprise falls under any item of Article 3 (1) 2;