In the case of a corporate division, where a divided corporation does not actually pay retirement allowances to its officers or employees and succeeds to employment with retirement allowances, whether the said allowances for retirement benefits may be included in deductible expenses in calculating the income amount of the divided corporation for the relevant business year (negative)

[1] Articles 26 and 33 of the Corporate Tax Act, Articles 44(1), 44(2)2, and 60 of the Enforcement Decree of the Corporate Tax Act

PP Co., Ltd. (Law Firm Street, Attorneys Kim Jin-jin et al., Counsel for the defendant-appellant)

Deputy Director of the Tax Office

Seoul High Court Decision 2003Nu4173 delivered on January 29, 2004

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

Article 26 of the Corporate Tax Act and Article 44(1) of the Enforcement Decree of the same Act provide that retirement benefits paid by a corporation to an executive officer or employee shall be included in the expenses only when the employee actually retires (hereinafter referred to as "real retirement"). According to Article 44(2)2 of the Enforcement Decree of the same Act, actual retirement benefits shall include when the corporation actually pays retirement benefits through the reorganization, merger, division, or transfer of business of the corporation. In this context, actual retirement benefits include when the executive officer or employee of the corporation actually retires from the corporation due to the reorganization, merger, division, or transfer of business of the corporation. As such, in the case of a corporate division, where a divided corporation does not actually pay retirement benefits to the executive officer or employee but succeeds to the employment of the corporation and succeeds to the retirement benefits and retirement benefits, the retirement benefits paid by the corporation to the corporation shall not be included in the expenses in the calculation of the income amount of the divided corporation for the relevant business year.

After finding the facts as stated in its holding, the court below determined that the plaintiff corporation's retirement allowance cannot be deemed as a case where the retirement allowance, which is the requirement for inclusion of the retirement allowance under Article 44 (1) of the Enforcement Decree of the Corporate Tax Act, is actually paid to the plaintiff corporation, just because it did not actually pay the retirement allowance to the officers and employees employed by the corporation established after retirement as retirement allowance and transfers it to the corporation established as retirement allowance, and therefore, it cannot be deemed as a case where the retirement allowance, which is the requirement for inclusion of the retirement allowance under Article 4 (1) of the Enforcement Decree of the Corporate Tax Act, is actually paid to the plaintiff corporation. Accordingly, with respect to the amount exceeding the limit of inclusion in deductible expenses under Article 60 of the Enforcement Decree of the Corporate Tax Act among the amount additionally established as retirement allowance in the 1999 business year to which the date of division belongs, the defendant disposed of the amount in deductible expenses or reserved expenses, and it is not erroneous in the misapprehension of legal principles as to retirement allowance or retirement allowance.

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition.

Justices Lee Yong-woo (Presiding Justice)