early 2010 Before 1910 ( December 29, 2010)

When the procedures for reduction of capital due to voluntary retirement are completed, the taxation disposition that deemed that the stock retirement payment claim occurs shall be unlawful.

In the event that a shareholder concludes a sales contract for his own stocks and goes through a separate procedure for stock retirement after acquiring the stocks for consideration, the obligation to pay the stock retirement price bonds is the payment date agreed, and thus, when the capital reduction procedure following voluntary retirement under the Commercial Act has been completed, the tax disposition is unlawful.

2011Guhap629 Revocation of Disposition of Imposing Corporate Tax

XX Co., Ltd

O Head of tax office

August 11, 2011

September 8, 2011

1. The Defendant’s imposition of KRW 139,037,670 of corporate tax for the business year 2004 on March 3, 2010, KRW 214,570,170 of corporate tax for the business year 2005 on March 9, 2010, KRW 196,451,510 of corporate tax for the business year 2006, KRW 158,802,170 of corporate tax for the business year 2007, and KRW 145,708,60 of corporate tax for the business year 2007 shall be revoked.

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

As set forth in the text.

1. Details of the disposition;

A. The plaintiff was established on July 3, 1992 and operated construction materials leasing, selling leaves, etc., and on March 6, 2004, the plaintiff was requested to purchase the shares of the 56.000 shares of the 56.00 shares (17.7% shares, and 'the next 'from the 17.7% shares') from XX Construction ("P Construction'). However, on March 18, 2004, the plaintiff decided to retire the shares of this case after holding a board of directors. On March 23, 2004, the 3,50,000 shares were purchased on March 23, 200 (62,50 won per share, and 'the stock price' from the next 'the 2,500,000 won' to the 2,500,000 won per share purchase price' to the 300,000 won per share purchase price and to pay the shares of this case from the 20130,201.

C. After that, the Plaintiff holds a temporary shareholders’ meeting on November 27, 2009, without undergoing the procedures for retiring the instant shares until the end of 2008, the Plaintiff voluntarily retired the instant shares, thereby reducing the number of outstanding shares from KRW 1,300,000 to KRW 1,30,000,000, and made a special resolution to reduce the number of outstanding shares from KRW 316,000 to KRW 260,000, and on December 2, 2009, the Plaintiff completed the registration of change as to the reduction of capital in the corporate register on January 15, 2010.

D. Meanwhile, the Commissioner of the National Tax Service, from November 2, 2009 to November 19, 2009, found that the Plaintiff acquired and held the shares as above, and on February 5, 2010, that the Plaintiff’s acquisition of the shares of this case to the Defendant, a tax office having jurisdiction over the pertinent tax office, did not meet the requirements for acquiring the shares of this case under Article 341 of the Commercial Act, and thus, the instant share purchase price paid to XX Construction, a related party, should be deemed as a provisional payment to the business office having jurisdiction over the business that was paid without any legal cause, and issued a corrective order to rectify the corporate tax for the business year 204 - 2008.

E. Accordingly, the Defendant determined that the share price of this case constitutes a provisional payment unrelated to business, and included it in the gross income. The interest paid in relation to the provisional payment was excluded from the deductible expenses, and the Plaintiff was corrected and notified respectively (hereinafter “instant disposition”) of the corporate tax of 139,037,670 on March 3, 2010, corporate tax of 2004, corporate tax of 214,570,170 on March 9, 2010, corporate tax of 2005, corporate tax of 196,451,510,510, corporate tax of 2006, corporate tax of 158,802,170, corporate tax of 207, corporate tax of 145,708,600 on corporate tax of 208 (hereinafter “instant disposition”).

F. On May 24, 2010, the Plaintiff filed an appeal with the Tax Tribunal on the instant disposition, but the appeal was dismissed on December 29, 2010.

[Ground of recognition] The facts without dispute, Gap evidence 1 to Gap evidence 6, Eul evidence 1 to Eul evidence 3 (including the number of branches), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) The plaintiff's assertion

The Plaintiff acquired the instant shares in order to retire upon receiving a request for the purchase of the instant shares from XX Construction, which constitutes an exception to the prohibition of acquiring treasury shares as stipulated in Article 341 subparag. 1 of the Commercial Act. Even if the acquisition of the instant shares is null and void under the Commercial Act, it cannot be deemed as a provisional payment irrelevant to business under the substance over form principle, and as the cost of the instant share purchase claim may be determined according to the intention of the parties in a contract for the purchase of the instant shares, it cannot be deemed as a provisional payment irrelevant to business even if the instant shares were to be paid prior to the completion of the capital reduction procedure under the Commercial Act. Accordingly, the instant share price was paid as a legitimate purchase price, and the Defendant’s disposition contrary

(2) The defendant's assertion

(A) On March 23, 2004, the time when the Plaintiff acquired the instant shares, the Plaintiff immediately retired the shares, but did not proceed with the procedures for reducing the capital of the instant shares until November 20, 2009, which was at the time of audit by the National Tax Service. The audit and inspection by the National Tax Service was conducted on November 27, 2009, and the resolution was passed by holding a temporary general meeting of shareholders on November 27, 2009. In light of this, the Plaintiff’s acquisition of the instant shares was conducted in order to provide financing to the XX Construction, which was in a special relationship, to which the Plaintiff had been responsible for managerial difficulties, and thus, it does not constitute an acquisition of treasury shares for retirement permitted under Article 341(1) of the Commercial Act, and thus, the instant share sales contract becomes null and void, and thus the instant share price constitutes a provisional payment without

(B) Even if the Plaintiff’s acquisition of the Plaintiff’s own shares complies with Article 341 subparag. 1 of the Commercial Act, the market price of bonds issued for voluntary retirement under the Commercial Act shall take place when the capital reduction procedure is completed. Therefore, even though the Plaintiff’s implementation of the capital reduction procedure should be subject to the creditor protection procedure on January 23, 200, the Plaintiff’s implementation of the capital reduction procedure would lead to a lack of payment for GATT construction upon the creditor’s special resolution, the Plaintiff’s implementation of the capital reduction procedure would constitute a provisional payment in charge of business.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

(l) The validity of acquiring the instant shares

(A) According to Articles 341 and 342 of the Commercial Act, a stock company, in principle, fails to acquire its own shares on its own account; however, in exceptional cases where shares are to be retired, a stock company may acquire its own shares on its own account: Provided, That the stock company shall obtain the effect of its own shares without delay; in cases where shares are to be retired, not only the acquisition of shares as a procedure for the retirement of shares but also the acquisition of shares by a plan for the retirement of stolen shares (see, e.g., Supreme Court Decision 90Meu2698, Apr. 14, 192). Meanwhile, the Commercial Act does not provide for the effect of the acquisition of its own shares in cases where a stock company fails to immediately undergo the invalidation

(B) In light of the above legal principles, the Plaintiff concluded a sales contract of the instant shares through a resolution of the board of directors to acquire the instant shares in order to retire the shares, and then completed a change registration of capital reduction on the corporate register after holding a temporary general meeting of shareholders on November 27, 2009, following the first public notice of reduction of capital, ② the Plaintiff acquired the instant shares from the Construction to December 31, 2008, and then did not receive the instant shares for the purpose of collecting the shares from the balance sheet to December 31, 2008, under the following circumstances:

(2) Whether it constitutes a business-related provisional payment

(A) Since the instant sales contract is valid as seen earlier, it cannot be deemed that the instant sales contract was a provisional payment in relation to business under Article 28(1)4(b) of the former Corporate Tax Act (amended by Act No. 9267 of Dec. 26, 2008) and Article 53(1) of the Enforcement Decree of the same Act.

(B) In addition, even though the Defendant’s claim for the stock retirement price under XX Construction ought to arise after the procedure for capital reduction under the Commercial Act was completed, since the Plaintiff paid the instant stock price prior to that date, the instant stock price constitutes a provisional payment irrelevant to business. Thus, in the event a corporation holds a general meeting of shareholders and makes a resolution for capital reduction for consideration and goes through the effective procedure, the claim for the stock retirement price for the company holding the retired shares may arise only after the company completed the procedure for capital reduction as alleged in the Defendant’s assertion (see Supreme Court Decision 2005Da24981, Jul. 10, 2008). However, in the instant case, if a corporation, as seen in the instant case, entered into a sales contract for its own shares with its shareholders for the purpose of retirement and goes through a separate procedure for stock retirement, it shall be deemed that the obligation to pay under the stock sales contract for the acquisition of its own shares takes place on the date agreed between the parties, and it shall not take place only after the subsequent procedure for capital reduction was completed.

(C) Accordingly, in the instant case where the Plaintiff paid shares to XX Construction in accordance with the instant share purchase agreement and acquired the instant shares, and the Plaintiff completed the capital reduction procedure for treasury shares, the Defendant’s assertion that the Plaintiff paid shares to XX Construction even though the Plaintiff did not have the obligation to pay shares in advance, cannot be accepted.

(3) Sub-decisions

Therefore, the instant disposition, based on the premise that the share price paid by the Plaintiff to XX Construction constitutes a provisional payment outside of duty, is unlawful.

3. Conclusion

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