Seoul High Court 2008Nu10654 ( October 28, 2008)

Suwon District Court 2007Guhap7537 (O. 26, 2008)

Where a small or medium start-up venture enterprise acquires a project portion, whether it is reduced or exempted.

Even if the establishment of a small and medium start-up venture enterprise has the appearance of "business start-up", it is reasonable to view that it actually succeeds to the previous business through business takeover or acquires or purchases the assets used for the previous business and operates the same kind of business

The contents of the decision shall be the same as attached.

Article 6 (2) of the Restriction of Special Taxation Act

Article 6 (4) 1 of the Restriction of Special Taxation Act

The appeal is dismissed.

The costs of appeal are assessed against the Plaintiff.

The records of this case and the judgment of the court below and the grounds of appeal were examined. However, the grounds of appeal by the appellant are not included in the grounds prescribed in each subparagraph of Article 4(1) of the Act on Special Cases Concerning the Procedure of Appeal or are recognized as groundless. Thus, the appeal is dismissed under Article 5 of the same Act. It is so decided as per

[Seoul High Court Decision 2008Nu10654 ( October 28, 2008)]

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance shall be revoked.

The defendant's corporate tax of 293,531,290 won belonging to the year 2003 against the plaintiff on March 15, 2006 and the corporate tax of 265,187,340 won belonging to the year 2004 shall be revoked.

The court's explanation on this case is the same as the reasoning of the judgment of the court of first instance, and thus, citing this as it is in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act

Therefore, the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed, and it is so decided as per Disposition.

[Insuwon District Court 2007Guhap7537 (O. 26, 2008)]

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Each disposition of imposition of corporate tax of KRW 293,531,290 for the year 2003 against the plaintiff on 15, 2006 and corporate tax of KRW 265,187,340 for the year 2004 shall be revoked.

1. Details of the disposition;

A. The Plaintiff is a corporation established for the purpose of electricity, manufacturing, and selling electronic components on 2003.01.28.28, and was confirmed as a venture business by the former Act on Special Measures for the Promotion of Venture Businesses (amended by Act No. 7868, Mar. 03, 2006; hereinafter “ Venture Business Act”). Article 25 of the Act was confirmed as a venture business by the ○○ Local Small and Medium Enterprise Administration.

B. The Plaintiff: (a) constitutes a small and medium start-up venture enterprise under Article 6(2) of the former Restriction of Special Taxation Act (amended by Act No. 7003, Dec. 30, 2003; hereinafter “Special Taxation Act”); and (b) reported and paid corporate tax by reflecting 50% reduction and exemption of tax amount in the year 2003 and 2004.

C. However, on December 12, 2003, the defendant acquired the entire business sector from ○○ Electric Co., Ltd. (hereinafter "○○ Electric Co., Ltd.") and issued a disposition imposing corporate tax of KRW 293,531,290 for the year 2003 and corporate tax of KRW 265,187,340 for the year 204 (hereinafter "the disposition of this case") on the ground that the plaintiff was not subject to reduction and exemption since it did not fall under the business establishment pursuant to Article 6 (4) 1 of the Restriction of Special Taxation Act (amended by Act No. 7322 of Dec. 31, 2004).

[Reasons for Recognition] Facts without dispute, Gap evidence 1, Gap evidence 2-1, 2, Gap evidence 3, Gap evidence 12, Eul evidence 1-1, 2-2, and the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

(1) The Plaintiff, a venture business which started a business after completing the registration of incorporation on 2003.01.28, was engaged in the business of manufacturing and selling a mid-term meter for base station, rasher, antenna, etc. (hereinafter referred to as “non-acquisition sector”). On May 28 of the same year, the Plaintiff acquired the entire business sector (hereinafter referred to as “acquisition sector”) from 000 and expanded the business. The Restriction of Special Taxation Act grants the so-called small and medium start-up venture business confirmed as a venture business under the Venture Business Act the benefit of corporate tax reduction and exemption for a certain period of time to the so-called small and medium start-up venture business confirmed as a venture business under the Venture Business Act. The scope of the establishment is subject to the Act on the Support of Small and Medium Enterprise Establishment, even if the former business continues to run the same type of business before succession, including the case where a contract on the division of business is concluded, and the person who starts the business is the representative, the largest shareholder or the largest investor of the newly established business.

(2) Unless otherwise, it accords with the purpose of the Restriction of Special Taxation Act and the principle of substantial taxation to recognize corporate tax reduction and exemption on income accrued in the non-acquisition sector, which is the object business at the time the Plaintiff was established.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) Facts of recognition

(A) On August 19 of the same year after the Plaintiff retired on August 28, 2003, the Plaintiff was established with capital of KRW 250 million. At that time, there were three and four employees other than the representative director and directors Kim○○ (Resignation on 05.05. 2003. 05. 2003. 05. 2003. 3,000,000,000 won. The Plaintiff’s largest shareholder and the actual manager worked as the head of ○○’s electronic business, and again worked as the representative director of the Plaintiff on 19. 2003. 203. 27. 2003. 1. 2003. 1. 2003. 3. 3. 2003. 3. 3. 1. 2003. 3. 1. 1. 2003. 2. 1. 2003. 1

(B) On April 30, 2003, the Plaintiff entered into a contract for business takeover with the following contents, and took over the business of the entire business sector of ○○○’s ○○’s e-mail business division on December 12, 2003.

(1) Subject to acquisition: All of the fixed assets, inventory assets, intellectual property rights, and business information necessary for business related to the development, production, and sale of contract products (including paper products manufactured with plastic, plastic, and processed mix materials).

(2) Transfer amount: 3.272 billion won (excluding value-added tax) excluding the price of inventory assets.

(3) Employment succession: To ensure that the employment of all the human resources, among the human resources, such as production personnel, business personnel, and support personnel, working on ○○○○ in connection with contract products, who desire to be re-employed by the plaintiff’s company, is succeeded for three years.

(C) At the time of establishment, the Plaintiff used some facilities, such as ○○○-dong ○○○○○-dong ○○○○-dong ○○○○-dong ○○○-dong ○○○○-dong ○○○○-dong ○○○○-dong ○○○-dong ○○○-dong ○○-dong dong, which is the location of the headquarters of Samsung Electrical, and transferred its business takeover to ○○-si ○○-dong ○○-dong ○○-dong ○○-dong ○○○-dong ○○○, which is the location of the headquarters

(D) As seen below, the Plaintiff’s sales amount accounts for 2003 KRW 11.68 billion, 90.8% of the sales amount, and 9.46 million in 2004, respectively, as the amount of KRW 59.9% of the sales amount.

(unit: million won)

Gu Sector

ITM

203

204

205

Underwriting Project Sector

Soloex(portablephones)

10,469

8,497

4,327

Audios (on-phones)

1,170

849

504

Joint accounts (non-standing)

11,638 (90.8%)

9,346 (59.9%)

4,831 (18.1%)

New Project Sector

Auex (base station/mider)

371

2,063

6,384

DDRPIN ZH ZER

16

344

Other Alers

69

644

1,094

GPS Antenna

530

1,082

CHIP Antenna

16

3,400

Structure Antenna

32

1,034

Cr. Cr. Cr. (Revised Vibration)

733

2,946

7,179

Kamerass

1,326

Joint accounts (non-standing)

1,172 (9.2%)

6,246 (40.1%)

21,844 (81.9%)

Consolidateds

12,811

15,591

26,674

(E) According to the details reported by the Plaintiff as the value-added tax for the first period from January 28, 2003 to March 31, 2003, there is no sales amount and the purchase amount is KRW 766,818.

(F) The Plaintiff’s representative director, Kim○-○ et al., made a statement to the effect that the Plaintiff was a company established by accepting the RF parts business for mobile communications from ○○○○○ to take over and establishing the entire pen, producer director, accelerator, antenna, etc. on the opportunity of an interview with the media after the business takeover.

(G) In the summary column of each audit report of the year 2004 and 2005 against the Plaintiff, the Plaintiff stated that the Plaintiff took over the entire business sector from ○○○ after its establishment on January 28, 2003 to engage in electric and electronic parts manufacturing and selling business by taking over the entire business sector from ○○○, thereby making electric and electronic parts manufacturing and selling business. There is no special reference to the business sector prior to its transfer.

(h) mobile phone producer and seter for mobile phones produced by the business in the acceptance sector, and base stations for meters produced by the business in the non-acquisition sector, and DRPOPIN rush and various antennas are components of RF (high frequency). They are all manufactured in ‘other electronic component manufacturing business (classification code 3219) at the time of subdivision of the Standard Industrial Classification Table notified by the Statistics Korea.

[Reasons for Recognition] Facts without dispute, Gap evidence 1, Gap evidence 5, Gap evidence 11, Eul evidence 14-1, Eul evidence 3-1, Eul evidence 4-2, Eul evidence 4-1,23, Eul evidence 5, Eul evidence 6-2, Eul's evidence 5, Eul's evidence 7, and the purport of the whole pleadings

(ii)judgments

(A) As to the interpretation of the Act on Taxation and Charges, it is not permitted to interpret it in accordance with the text of the Act, barring any special circumstance, regardless of the requirements for imposition or exemption, and it is not permitted to expand or analogically interpret it without any justifiable reason. In particular, it accords with the principle of fairness to strictly interpret the provision that is clearly considered as a preferential provision among the requirements for reduction or exemption (see, e.g., Supreme Court Decision 2007Du9884, Oct. 26, 2007). However, Article 6 of the Restriction of Special Taxation Act provides for the reduction or exemption of corporate tax on a small and medium venture enterprise under paragraph (2) of the same Article and lists the cases that do not constitute a business start-up under paragraph (4) of the same Article. Thus, the above paragraph (4) 1 of the same Article excludes the cases where the Plaintiff succeeds to a previous business through a merger, division, investment in kind, or acquisition of assets used for the previous business, and does not include part of the business in the scope of reduction or exemption.

In the instant case, the Plaintiff comprehensively acquired the business of the acquiring sector after the lapse of three months after the establishment of the non-acquisition sector. As can be seen, in light of the content and purpose of the tax reduction and exemption system under Article 6(4)1 of the Restriction of Special Taxation Act, whether a small or medium enterprise is exempt from the tax reduction and exemption by applying the same type of business as the establishment of a corporation, etc., rather than the external type of business in light of the details and purpose of the tax reduction and exemption system under the Restriction of Special Taxation Act, it should be determined on the basis of the principle of fairness by comprehensively taking into account the details of the establishment of the relevant small or medium enterprise, the developments leading up to the acquisition of the business including the time interval from the establishment to the acquisition of the business, and the size and circumstances

However, the following facts revealed in the above facts, i.e., ○○’s executive officers and employees, a transferor of business, were to have established the Plaintiff according to the plan for supporting the retirement. Since 203 years of acquisition of business, the Plaintiff continued to use some facilities at the location of ○○○○, and transferred it to the present location after the business takeover. The Plaintiff’s largest shareholder and ○○○, a de facto manager, retired from ○○○ after the above business takeover, and took office as the representative director of the Plaintiff. The Plaintiff acquired 3.27 billion won (excluding inventory assets) exceeding 00 million won in total capital from 00 million won in the place of establishment and 3.2 billion won in the case of acquisition of the Plaintiff’s business, and the Plaintiff’s assertion that it did not actually increase the number of employees and capital due to such business takeover, and that it did not constitute the Plaintiff’s core business division’s acquisition or transfer of the same type of business from 90.8% in the case of 2003 of total sales revenue to 59% in the previous business division.

(B) Next, regarding the assertion that only corporate tax on income accrued from business in the acquisition sector should be reduced or exempted, the benefits of tax reduction or exemption under Article 6 of the Restriction of Special Taxation Act shall be granted to the entire business of the relevant small and medium enterprise to the extent that the establishment, etc. of the small and medium enterprise satisfies the requirements for business start-up under the same Article, and otherwise, the Plaintiff’s assertion on this part is without merit, since there are no grounds for tax

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.

Relevant statutes

/ Restriction of Special Taxation

Article 6 (Reduction and Exemption for Small and Medium Enterprise Enterprises)

(2) The case before it was amended by Act No. 7003 of Dec. 30, 2003

In cases of a venture business under Article 2 (1) of the Act on Special Measures for the Promotion of Venture Businesses and prescribed by Presidential Decree as a venture business under Article 25 of the same Act (hereinafter referred to as the "small or medium start-up venture business"), the tax amount equivalent to 50/100 of the income tax or corporate tax on any income accruing from such business shall be reduced or exempted for the taxable year in which the first income accrues after the date of confirmation and the taxable year that ends within 5 years from the beginning date of the following taxable year: Provided, That the cases subject to paragraph (1) shall be excluded, and where the confirmation of the venture business is revoked, the tax reduction

(4) The case before it was amended by Act No. 7322 of Dec. 31, 2004

In the application of the provisions of paragraphs (1) through (3), where it falls under any of the following subparagraphs, it shall not be deemed a start-up:

1. Where a person succeeds to the previous business through a merger, division, investment in kind or acquisition of business or acquires assets used for the previous business and operates the same kind of business;

director The Support for Small and Medium Enterprise Establishment Act (amended by Act No. 8086 of Dec. 26, 2006)

Article 2 (Definitions)

The definitions of terms used in this Act shall be as follows:

1. The term “business start-up” means the establishment of a new small and medium enterprise. In this case, the scope of business start-up shall be prescribed by the

m. Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act (amended by Presidential Decree No. 18766 of Oct. 31, 2005)

Article 2 (Scope of Business Start-Up)

(1) The starting of a business under subparagraph 1 of Article 2 of the Support for Small and Medium Enterprise Establishment Act (hereinafter referred to as the "Act") means commencing a business by establishing a new small and medium enterprise, not falling under any of the following subparagraphs:

1. Where a person succeeds to a business and continues the same kind of business as the business before succession: Provided, That this shall not apply where an executive, employee or other person of the relevant enterprise starts the business by separating a part of the business, which shall meet the requirements

【Enforcement Regulations of the Support for Small and Medium Enterprise Establishment Act (amended by the Ordinance of the Ministry of Commerce, Industry and Energy No. 271 of March 31, 2005)

Article 2 (Requirements for Separation of Business)

Where it is recognized as a start-up business under the proviso of subparagraph 1 of Article 2 of the Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act (hereinafter referred to as the "Decree"), a person who starts business shall meet the following requirements

1. A contract for business separation shall be concluded between a person who runs the business and a person who starts the business;

2. The representative of the enterprise to be newly established by the person commencing the business shall be the largest stockholder or the largest investor of the relevant enterprise; and