In a case where a holding company which has already been established or converted pursuant to the Monopoly Regulation and Fair Trade Act acquires stocks of a domestic company which is not an affiliated company at the same time, and thereby becomes an oligopolistic stockholder of a domestic company, whether it constitutes “case of becoming a holding company” under Article 120(6)8 of the former Restriction of Special Taxation Act (affirmative)

The legislative intent of Article 120(6)8 of the former Restriction of Special Taxation Act (amended by Act No. 10406, Dec. 27, 2010) that excludes holding companies from the imposition of deemed acquisition tax is to support corporate restructuring for the rationalization of ownership and management by granting tax benefits on the establishment of holding companies or the conversion of a holding company into a holding company. Thus, even if a holding company has already been established or converted into a holding company under the Monopoly Regulation and Fair Trade Act (hereinafter “Fair Trade Act”), if a domestic company is newly incorporated into a holding company and becomes a holding company in the Republic of Korea, it is necessary to grant tax benefits under the same provision as in the case of establishing a new holding company. Moreover, it is allowed in principle that a general holding company acquires stocks of the domestic company in order to newly incorporate a domestic company that is not an affiliated company into a subsidiary with a view to controlling its business content, thereby becoming a holding company and oligopolistic stockholder.

In full view of the language and text of the provision on reduction or exemption as well as the intent of tax benefits for holding companies, and the type of incorporation into a holding company permitted under the Fair Trade Act, even in cases where a holding company already established or converted under the Fair Trade Act acquires stocks of a domestic company, which is not an affiliated company, at the same time, and thereby becomes an oligopolistic stockholder of a domestic company, it constitutes “case where a holding company becomes an affiliated company” as provided in the provision on

Article 105(6) of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010; see current Article 7(5)); Article 120(6)8 of the former Restriction of Special Taxation Act (Amended by Act No. 10406, Dec. 27, 2010; see current Article 57-2(5)3 of the Restriction of Special Local Taxation Act)

Supreme Court Decision 2011Du2781 Decided January 23, 2014 (Gong2014Sang, 516)

C&A Co., Ltd. (Law Firm Squa, Attorneys Park Jae-sik et al., Counsel for the plaintiff-appellant)

The head of Yeongdeungpo-gu Seoul Metropolitan Government

Seoul High Court Decision 2016Nu37272 decided October 14, 2016

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Regarding ground of appeal No. 1

A. Article 105(6) of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010) provides that “When an oligopolistic stockholder becomes an oligopolistic stockholder by acquiring a corporation’s stocks or shares, such oligopolistic stockholder shall be deemed to have acquired the relevant corporation’s real estate.” Article 120(6)8 of the former Restriction of Special Taxation Act (amended by Act No. 10406, Dec. 27, 2010) (hereinafter “instant reduction or exemption provision”) provides that “Where a holding company (including a financial holding company) under the Monopoly Regulation and Fair Trade Act (hereinafter “Fair Trade Act”) becomes a oligopolistic stockholder under Article 22 subparag. 2 of the Local Tax Act by acquiring the stocks of a subsidiary under the same Act or the Financial Holding Companies Act, such oligopolistic stockholder shall not be subject to Article 105(6) of the former Local Tax Act concerning the imposition of deemed acquisition tax.”

The legislative intent of the instant provision, excluding the subject of deemed acquisition tax, is to support corporate restructuring for the rationalization of ownership and management by granting tax benefits on the establishment of a holding company or the conversion of a holding company into a holding company (see Supreme Court Decision 2011Du2781, Jan. 23, 2014, etc.). Thus, even if a holding company has already been established or converted under the Fair Trade Act, if a domestic company is newly incorporated into a subsidiary and becomes a holding company in the Republic of Korea, it is necessary to grant tax benefits under the instant provision, as in the case of establishing a new holding company, if there is a corporate restructuring for which the domestic company becomes a holding company in the Republic of Korea. Moreover, it is permissible in principle that a general holding company becomes a holding company and an oligopolistic stockholder by acquiring stocks of its domestic company, which is not an affiliated company, to be newly incorporated into its subsidiary with a view to controlling its business,

In full view of the language and text of the instant reduction and exemption clause as well as the intent of tax benefits to holding companies, and the type of incorporation into a holding company permitted under the Fair Trade Act, even in cases where a holding company, which had already been established or converted under the Fair Trade Act, acquires stocks of a domestic company that is not an affiliated company at the time and became an oligopolistic stockholder of the domestic company, thereby newly incorporating the domestic company into its subsidiary and becoming an oligopolistic stockholder of the domestic company, such case shall be deemed to constitute “case where

B. The reasoning of the lower judgment and the evidence duly admitted reveal the following: (a) the Plaintiff acquired 51% of the shares issued by the Arain Seoul Co., Ltd. (hereinafter “Saman Company”) holding the instant real estate on October 14, 2010 when it was converted into a holding company under the Fair Trade Act on September 30, 2009, and was incorporated into a subsidiary under the Fair Trade Act.

Examining these facts in light of the legal principles as seen earlier, even if the Plaintiff acquired shares of the non-party company as a holding company under the Fair Trade Act and thereby newly incorporated the non-party company into the subsidiary, the provision on reduction and exemption of this case

C. Nevertheless, the lower court did not err by misapprehending the legal doctrine on the scope of application of the instant reduction or exemption clause, thereby adversely affecting the conclusion of the judgment. The ground of appeal assigning this error is with merit.

2. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the judgment below is reversed, and the case is remanded to the court below for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim So-young (Presiding Justice)