[Request Number] Trial Decision 2009No3117 ( February 9, 2011)
[P] Revocation of a Juristic Person [Type of Decision]
1. Summary of disposition;
(a)In establishing OO.(O.(100% of the shares of the Requested Corporation; hereinafter referred to as "O") as a domestic corporation that is engaged in the Internet tamping Business, the Requested Corporation acquired 100% of the shares of that Corporation in 115,354,543,312, and the OO acquired 100% of the shares of that Corporation in 115,354,543,312 on October 5, 2004.
B. Since then, in order to improve complex governance structure of overseas subsidiaries and efficiently manage them, the applicant corporation established OO (100% of shares in the applicant corporation, and domestic holding companies in the overseas subsidiaries) in November 2007, and in December 2007, 100% of shares of the personal data in kind (980 shares) in the OO in kind (hereinafter “market transaction”), liquidated the following personal data by investing in kind in the OO, and in April 2008, OO came to have the form of complete holding company by selling the shares in kind and sale of the Japanese stocks in this case and the shares of the Chinese subsidiary in May 208, 208.
C. The claimant corporation received 1,00,000 shares of the OO in return for the issue transaction. During that process, the claimant corporation did not include the difference of 43,73,071,568 won in the book value of the shares under the Inheritance and Gift Tax Act and 115,354,54,543,312 won in the book value of the OO shares (acquisition value) under the Inheritance and Gift Tax Act, and 71,621,471,740 won in the corporate tax return for the amount of 71,621,471,740 won in the calculation of the deductible expenses on February 6, 2009, and did not notify the claimant corporation of the result of the claim for correction. However, the disposition authority did not notify the result of the claim for correction by the period for which 2 months elapsed from the date of the request for correction of the corporate tax on January 1, 2007.
C. The applicant filed an appeal on July 30, 2009.
2. Opinion of the requesting corporation and the disposition agency;
A. The claimant corporation's assertion
In the case of a requesting corporation, since the net asset value increased or decreased due to the issue transaction (investment in kind) corresponds to the gross income and deductible expenses under the Corporate Tax Act, the market value at the time of the acquisition of stocks of the OOO (the stock value under the Inheritance Tax and Gift Tax Act) which the requesting corporation received in return for the issue transaction, i.e., the transfer price of the OOO stocks (the stock value under the Inheritance Tax and Gift Tax Act) 43,73,071,568 and the book value of the 115,354,54,543,31,744 shall be included in deductible expenses in the calculation of deductible expenses in the calculation of income for the business year of 2007. The requesting corporation did not recognize the loss due to the investment in kind under the corporate accounting and did not carry out tax adjustment. As a result, since the corporate tax base of the corporate tax of the requesting corporation is excessively appropriated in the business year of 2007, it should be refunded to the corporate tax for the business year of 2007.
(b) Opinions of disposition agencies;
Although the claimant corporation transacted in the form of investment in kind, 100% of the OO's shares were invested in the OO and the OO's shares were received by the claimant corporation due to the liquidation of the OO after the investment in the 100% of the OO's shares, this constitutes a substantial merger. Since the merger between parent-subsidiary companies is required to succeed at the book value, the merged corporation succeeds to the loss of the equity law of the merged corporation and thus does not recognize the loss for the pertinent business year. Since the equity law is the valuation method of investment securities that are not recognized by the Corporate Tax Act, it is confirmed that the OO's shares are not disposed of at the time of the disposition, but at the time of the disposition, it cannot be deemed that the OO and the 20th subsidiary subsidiary company's shares were disposed of at the time of the acquisition of the O's shares as the subsidiary company's consolidated corporate accounting standards, it cannot be deemed that the 20th trust shares were disposed of as the O's shares.
3. Hearing and determination
(a) Points in dispute;
Whether loss of the equity interest law in the event of investment in kind of stocks of an overseas subsidiary can be included in deductible expenses.
(b) Related Acts and subordinate statutes;
(1) Corporate Tax Act
Article 15(1) 【Scope of Gross Income” means the amount of profits generated by transactions which increase the net assets of the concerned corporation except for capital or financing and other transactions as provided in this Act.
(3) Matters necessary for the scope and classification of profits under paragraph (1) shall be prescribed by Presidential Decree.
Article 19 (Scope of Deductible Expenses) (1) Deductible expenses shall be the amount of losses incurred by transactions which reduce the net assets of the corporation, except as otherwise provided in this Act, such as refund of capital or financing, disposition of surplus funds, and other transactions.
(2) The losses under the provisions of paragraph (1) shall be losses or expenses generated or spent in connection with the business of a corporation which are generally accepted as normal or directly related to profit, except as otherwise prescribed by this Act and other Acts and subordinate statutes.
(3) Matters necessary for the scope and types of losses under the provisions of paragraphs (1) and (2) shall be prescribed by Presidential Decree.
Article 40 (Business Year of accrual of Profit and Loss) (1) The business year of accrual of profit and loss of a domestic corporation shall be the business year which includes the date on which the profit and loss are settled.
(2) Matters necessary for the scope of the business year of accrual of earnings and losses under paragraph (1) shall be prescribed by Presidential Decree.
Article 41 (Acquisition Value of Assets) (1) The acquisition value of assets acquired by a domestic corporation through purchase, production, exchange, gift, etc. shall be the amount falling under any of the following subparagraphs:
1. For assets purchased from a third person, the amount of the purchase price plus incidental expenses;
2. For assets acquired through the corporation's own manufacture, production, construction, or other corresponding methods, the amount of the cost of production plus any incidental costs;
3. For assets acquired other than under subparagraphs 1 and 2, the amount as prescribed by the Presidential Decree.
(2) Matters necessary for the calculation of the acquisition value of assets, such as the scope of purchase prices and incidental expenses under paragraph (1) shall be prescribed by Presidential Decree.
Article 42 (Evaluation of Assets and Liabilities) (1) Where the book value of assets and liabilities held by a domestic corporation increases or decreases (excluding depreciation; hereinafter in this Article “evaluation”), the book value of the relevant assets and liabilities in calculating the income amount for the business year which includes the date of the evaluation and each subsequent business year shall be the value before the evaluation: Provided, That this shall not apply to cases falling under any one of the following subparagraphs:
1. ( Deleted, December 31, 2001)
2. Evaluation of fixed assets under the Insurance Business Act and other Acts;
3. Evaluation of inventory and other assets and liabilities as prescribed by the Presidential Decree.
(2) Assets and liabilities under the provisions of paragraph (1) 3 shall be evaluated separately as assets or liabilities by the method as prescribed by the Presidential Decree.
(3) For assets falling under any one of the following subparagraphs, the book value may be reduced by the method as prescribed by the Presidential Decree, notwithstanding the provisions of paragraphs (1) and (2):
1. Inventory which cannot be sold at the normal price due to damage, spoilage, or other causes;
2. Fixed assets damaged or destroyed due to natural disasters, fire, or other causes prescribed by Presidential Decree;
3. Stocks as prescribed by the Presidential Decree in case where the issuing corporation goes insolvent, receives an authorization for its rehabilitation plan under the Debtor Rehabilitation and Bankruptcy Act, or becomes an enterprise showing signs of insolvency under the Corporate Restructuring Promotion Act; and
4. Where a corporation that issued stocks, etc. goes bankrupt, the relevant stocks, etc.
Article 43 【Application of Corporate Accounting Standards and Practices】 In the calculation of the income amount for each business year of a domestic corporation, where the concerned corporation applies corporate accounting standards which are generally deemed fair and reasonable with respect to the business year of accrual of earnings and losses and the acquisition and evaluation of assets and liabilities, or continuously applies practices, the concerned corporate accounting standards or practices shall be followed, except as otherwise provided for in this Act and the Restriction of Special Taxation Act.
(2) Enforcement Decree of Corporate Tax Act
Except as otherwise provided for in the Act and this Decree, 【Scope of Earnings” under the provisions of Article 11(1) of the Act shall mean any of the following subparagraphs:
2. The amount of assets transferred;
【Scope of Losses】 Losses under Article 19 (1) of the Act shall be those prescribed in the following subparagraphs, except as otherwise provided for in the Act and this Decree:
2. The book value at the time of transfer.
(1) In the application of the provisions of Article 40 (1) and (2) of the Act, the fiscal year of accrual of earnings and losses from the transfer of assets shall be the fiscal year which includes the date under each of the following subparagraphs:
3. Transfer of assets other than commodities: The date of liquidation (the date of transfer registration (including the date of registration), delivery, or use and profit-making date, whichever is earlier, in cases where the foreign currency portion of the amount equivalent to the acquired principal which is not converted into the won currency among the proceeds acquired and held by the Bank of Korea under the Bank of Korea (hereafter referred to as "foreign currency proceeds" in this subparagraph) which are the proceeds from the transfer of foreign currency assets, such as foreign currency securities, which are acquired and held by the Bank of Korea under the Bank of Korea Act, is converted to the won currency by selling the relevant foreign currency proceeds in the manner prescribed by the Bank of Korea): Provided, That the date
Article 72 (Acquisition Value of Assets) (1) The acquisition value of assets pursuant to Article 41 (1) and (2) of the Act shall be the amount under each of the following subparagraphs:
1. Assets purchased from a third person: The amount obtained by adding the acquisition tax, the registration tax, and other incidental expenses to the purchase price;
4. Stocks acquired by stockholders, etc. through investment in kind, debt-equity swap, merger, or division: Market price at the time of its acquisition.
Article 73 【Scope of Assets and Liabilities subject to Evaluation】 Article 42(1)3 of the Act, and “property and liabilities as prescribed by the Presidential Decree” means any of the following:
1. Inventory falling under any one of the following items:
(a) Manufactured goods and commodities (including real estate held by a real estate sales businessman for the purpose of sales, and excluding securities);
(b) Half-finished goods and stock in process;
(c) Raw materials;
(d) Stored goods;
2. Securities, etc. falling under any of the following items:
(a) Stocks, etc. (with respect to December 31, 1998);
Article 75 (Evaluation of Securities, etc.) (1) The evaluation of securities under Article 73 subparagraph 2 (a) and (b) of Article 73 (hereafter referred to as "securities" in this Article and Articles 85 (1) 3, 85 (2) 3 and 86-2) shall be made by reporting to the chief of the district tax office having jurisdiction over the place of tax payment among the following methods:
1. Separate evaluation method (limited to the bonds);
2. The overall average method;
3. Moving average method.
C. Facts and determination
(1) First, we examine the facts of this recommendation.
(A) On Sep. 23, 2004, the applicant corporation established 100% investment of the following in order to expand and expand OO's overseas expansion, as a domestic corporation operating OO on Feb. 20, 1995. The applicant corporation acquired 100% of the U.S. S. S. S. Ra 100 shares (21,400 shares, 91,871, 984 USD) on Oct. 5, 2004.
(B) On November 23, 2007, the applicant established an OO, a domestic holding company of an overseas subsidiary, in order to improve complicated governance structure, such as OOO, Japan's subsidiary, and OOO China's subsidiary, and to efficiently manage it.
(C) Pursuant to Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act and Article 17-2 and Article 3 of the Enforcement Rule of the same Act, the applicant shall make an investment in kind of 100% (980 shares) of the OO shares in the amount of 43,730 million won in the weighted average amount of net asset value and net profit value of net profit and loss value (an appraised accounting firm interest), and acquire 1,000,000 shares of the OO shares in that amount. Accordingly, on November 28, 2007, the applicant filed an application for the issuance of new shares with the OO for the investigation on the issuance of new shares on December 14, 2007 and obtained authorization on December 14, 2007.
(D) On November 27, 2007, the applicant corporation reported and announced the matters related to the above investment in kind to the Financial Supervisory Commission in accordance with Article 186 of the Securities and Exchange Act, and also appeared in the same contents as the minutes of the board of directors and internal resolution documents of the applicant corporation.
(E) After the applicant corporation established the next artificial categories in 2004, the following artificial categories are recorded in accordance with the Financial Accounting Standards (Financial Accounting Standards) for the following artificial categories: (a) the loss of equity law for the net loss of the next artificial categories; and (b) the decrease of capital other than the net loss of the current term (foreign business conversion group due to exchange rate difference), with respect to the decrease of the capital other than the net loss of the current term (foreign business conversion group due to exchange rate difference) as follows: (c) the applicant corporation’s 2004 to 2005 financial statements and audit report(financial statements).
Details of changes in the annual OO shares.
15, 354, 54, 543, 31210, 367, 435, 8219, 732, 902, 90295,254, 204, 58205, 38, 649, 230, 8392, 8392, 8392, 310, 3106, 52154, 294, 294, 867, 29206, 195, 380, 2494, 314, 273, 76050, 175, 973, 788, 310, 8316, 705, 741, 757, 887, 97, 987, 987, 997, 2987
(F) In addition, when investing O stocks in kind in the business year of 2007, the applicant corporation substituted the book value immediately before the investment in kind of O stocks held by the applicant corporation under corporate accounting by the book value of the issued OO stocks, and replaced the capital change account of the following OO stocks with the capital change account of the capital change account of the shares issued by OO.
(G) Although the applicant corporation accounts as above (e) and (f) in accordance with corporate accounting standards, since the investment in kind of listed stocks under tax law disposes of the stocks as transfer, it is argued that the difference between the acquisition value of listed stocks and the acquisition value under the accounting of listed stocks in the amount of 13,91,874,450 won, total 71,621,471,7444 won should be included in the calculation of the investment in kind in the business year of 2007, as follows.
*The value assessed by the weighted average amount of net asset value and net profit and loss value in accordance with the Inheritance and Gift Tax Act 100% of the shares of the OOO Social Day (980 shares)
(h) On this issue, the agency made a transaction in the form of investment in kind by the requesting corporation, but after investing 100% of the shares of the OOO's shares in the form of investment in kind, the requesting corporation received the shares of OO by liquidation of OO's shares. This, in fact, OOO merges with the OO's shares in the business management level of the overseas subsidiary, and the merger between the parent-subsidiary companies under Article 17 of the Rules on the Acquisition and Merger of Enterprises shall succeed to the book value of the shares of the requesting corporation and the difference between the acquisition value of the OO's shares in the accounts of the OO's shares and the acquisition value in the business year of investment in kind. Thus, the agency rejected the requesting corporation's request for correction by deeming that it cannot be included in deductible expenses
(E) On the other hand, as the domestic and foreign market situation of the Internet portal business has deteriorated, the OOO entered into a sales contract for the shares sold to a Indian corporation on August 15, 2010 (the sales price of 36,00,000,000 US dollars) with a large amount of 10% (21,40,000 US dollars, acquisition price of 91,871,984 USD) of USO shares acquired by OOOO on October 5, 204, and it appears that it received 15,000,000 US shares out of the sales price of October 15, 2010 and delivered 86% of the share certificates to the buyer after obtaining permission from the Indian government.
(2) Examining whether the issue transaction constitutes a de facto merger, the disposition authority may choose one of several legal relationships in order to achieve the same economic purpose when a taxpayer conducts economic activities, barring special circumstances, and the tax authority shall respect the legal relationship chosen by the parties, and the transaction chosen by the taxpayer shall be effective unless there are special circumstances that the taxpayer's act constitutes the most unfair act, and the legal effect between the parties can not be excluded (OO, August 21, 2001, etc.). As OO is a domestic corporation established under the Commercial Act, but OOO is not a foreign corporation established under the Commercial Act, which is not a company under the Commercial Act, and it is difficult to view that it is difficult at the time of the merger between the two parties as a result of the merger. In principle, it is difficult to view that there is a difference between the issue of investment in kind and the loss of the corporation's legal act in kind, such as investment in kind, merger or all-inclusive share swap, and it is difficult to view that it is the most difficult to apply the tax adjustment method of the corporation's corporation as an investment in kind.
(3) Next, according to the provisions of subparagraph 15 of Article 15 of the Corporate Accounting Standards and Article 17 of the Accounting Standards for Corporate Merger and Acquisition, etc. Act, if the corporation has continuously applied corporate accounting standards or practices which are generally recognized as fair and reasonable with respect to the business year of accrual of earnings and losses and the acquisition and evaluation of assets and liabilities, the provisions of Article 43 of the Corporate Tax Act, except as otherwise provided in this Act and the Restriction of Special Taxation Act, shall apply only to cases where there are no provisions under tax law. However, the business year of accrual of earnings and losses of a domestic corporation for each business year shall be the date on which the earnings and losses are determined, and the Enforcement Decree of the same Act, etc. provides for the date of accrual of profits and losses. Article 15 of the Corporate Tax Act and Article 19 of the same Act provide that "The date of accrual of profits and losses shall not be included in the calculation of earnings and losses," and Article 19 of the same Act provides that "the date of accrual of profits and losses shall not be included in the deductible expenses of the same Act."
(4) Therefore, in applying Article 42 of the Corporate Tax Act, the equity investment shares under the corporate accounting standards must be assessed as cost method. Accordingly, the amount of appraisal profit and loss recognized as losses or profit per share in accordance with the corporate accounting standards is included in the calculation of earnings in the calculation of earnings. In addition, it is reasonable for the requesting corporation to include 57,709,597,294 won in the appraisal loss of equity shares, which was reserved as losses in the calculation of earnings at the time of the disposition, in the case of the investment in kind, in the 2007 business year to which the date of the disposition belongs, i.e., the 2007 business year in which the date of the investment in kind belongs. In addition, it is reasonable for the disposition to reject the request for correction of the corporation's stocks in the calculation of earnings, since the difference of 57,64,946,018 won in the book value of the stocks in kind from the date of the acquisition of the investment in kind, 13,911,874do4.
This case shall be decided as ordered in accordance with Articles 81 and 65 (1) 3 of the Framework Act on National Taxes, because the petition for adjudication is well-grounded as a result of the review.