Seoul Administrative Court-2014-Gu Partnership-67352 (2015.03)

Seoul High-9014-0194 (Law No. 19, 2014)

The difference between the market price of stocks acquired by conversion of investment according to the approval decision of the rehabilitation plan shall not be considered as subject to bad debt tax deduction.

Where it is decided to authorize a rehabilitation plan that involves issuance of new shares, the effect of extinction of obligations shall accrue to the total value of the stock on the account book where the conversion of investment takes place as well as the market

Article 17 (2) of the former Value-Added Tax Act

2015Nu6057 Revocation of Disposition of Imposition of Value-Added Tax

Co., Ltd.*** (former trade name: Co., Ltd.*****)

AA Head of the Tax Office

October 31, 2018

December 5, 2018

1. The defendant's appeal is dismissed.

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

1. Purport of claim

The Defendant’s imposition of value-added tax of KRW 000 on the X. X. for the Plaintiff in 2010 shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked, and the plaintiff's claim is dismissed.

1. Quotation, etc. of judgment in the first instance;

The reasoning of this court's judgment is as follows, except for the modification of the corresponding part of the judgment of the court of first instance as follows 2, and it is identical to the reasoning of the judgment of the court of first instance (including its attached Form, but excluding the part of "4. conclusion"). Therefore, it is cited as it is in accordance with Article 8 (2) of the Administrative Litigation Act

2. Parts to be corrected;

○ The term “satisfy” in the main sentence of 3 to 4th parallels below up to 2th parallels under the same text are as follows:

The remaining rehabilitation claims of this case were converted into equity shares issued at a rate consistent with the book value of the bonds as of the day following the date of the approval decision of the rehabilitation plan and the par value of 5,000 per share multiplied by the number of shares issued at the par value of 5,00 per share, and the new shares issued through the conversion into equity investment of this case (hereinafter referred to as the "stock converted into equity investment") were reduced through a consolidation of shares in accordance with the ratio

○ 6 below the 4th day, the phrase “the instant lawsuit” is referred to as “the instant lawsuit.”

○ 5. The 5th three parties add “the Defendant’s defenses prior to the merits cannot be accepted.”

○ 5 pages below the 10th "Value-Added Tax Act" shall be regarded as the "former Value-Added Tax Act".

○ by striking 5 below the 5 pages.

○ 5 The following parts shall be from 4 up to 9 3 o below:

C. Determination

1) Purport and contents of the bad debt tax deduction system and interpretation of the relevant provisions

In supplying goods or services (hereinafter referred to as "goods, etc."), an entrepreneur under the Value-Added Tax Act imposes value-added tax only on the portion corresponding to added value created at the trading stage by paying the difference between the value-added tax (purchase tax) collected at the time of the entrepreneur's supply of goods, etc. from the transaction partner (Article 15 of the former Value-Added Tax Act) and the transaction partner's collection of value-added tax (Article 15 of the former Value-Added Tax Act). Since Korea's value-added tax, which adopts the pre-stage tax credit method, takes the form of transaction tax imposed on the external appearance of transaction, which is not a substantial income, unlike the income tax and corporate tax, has no concept of tax credit, and regardless of the entrepreneur's profit or loss (see Constitutional Court Order 2009Hun-Ba11, Feb. 24, 201).

A person liable to pay value-added tax is a person who supplies goods, etc. (Article 2(1)1 of the former Value-Added Tax Act), and a supplier of goods, etc. shall report and pay value-added tax within the reporting and payment period for the taxable period to which the time of supplying the goods, etc. belongs, rather than the time of actual payment. As such, in cases where an entrepreneur supplied goods, etc. on credit and fails to receive the payment for reasons of the opposite contractual party’s default or bankruptcy, etc., an entrepreneur suffers economic loss as well as the value-added tax paid by the State. In such cases, Article 17-2 of the former Value-Added Tax Act provides for a system of a bad debt tax deduction that is calculated by deducting the amount equivalent to the value-added tax not paid by the opposite contractual party, i.e., bad debt tax amount from the output tax amount to be paid later (see Supreme Court Decision 2006Du13855, Apr. 24, 2008). This can be deemed as an exception to the taxation principle of value-added tax (see Constitutional Court Decision 20131.

The legislative intent of this bad debt tax deduction system is also known in its history. The Value-Added Tax Act enacted by Act No. 2934 of Dec. 22, 1976 does not provide for bad debt tax deduction, and the provisions for bad debt tax deduction are newly established from the Value-Added Tax Act amended by Act No. 4663 of Dec. 31, 1993 to Article 17-2, so that bad debt tax deduction can be applied from the first supplied or supplied after Jan. 1, 1994 to the date of the revised Act No. 14081, Dec. 31, 1993. Article 63-2 of the Enforcement Decree of the Value-Added Tax Act provides for the grounds for the reduction of bad debt tax deduction system by the Act No. 14081, Dec. 31, 1993; Article 63-2 of the Enforcement Decree of the Value-Added Tax Act provides for the reduction of bad debt tax deduction system by the Presidential Decree No. 15063 months.

However, under the principle of no taxation without law, the interpretation of tax laws and regulations shall be interpreted in accordance with the text of the law, barring any special circumstance, and it shall not be extensively interpreted or analogically interpreted without reasonable reason. In particular, it accords with the principle of fair taxation with the principle of fair taxation to strictly interpret the provisions that are clearly considered as preferential provisions among the requirements for reduction and exemption (see, e.g., Supreme Court Decision 2008Du11372, Aug. 20, 2009). In addition, in light of the fact that value-added tax has the nature of transaction tax, it should not be allowed to interpret the reason that the Corporate Tax Act regulating the taxation on corporate income does not recognize as the secondary bad debt as the grounds for the deduction of bad debt tax in the value-added

2) Whether the deduction amount among the rehabilitation claims of this case constitutes a bad debt tax amount of the purchaser company of this case

A) Article 17-2(1) of the former Value-Added Tax Act provides that "in cases where an entrepreneur supplies goods or services subject to the imposition of value-added tax, if all or part of credit sales or other sales claims (referring to those including value-added tax) related to the supply of such goods or services are bad debt and irrecoverable due to the bankruptcy of the supplier or compulsory execution or other causes prescribed by Presidential Decree, the bad debt tax amount 】 10/110 may be subtracted from the output tax amount in the taxable period whereto belongs the date when the bad debt becomes final and conclusive." Article 17-2(1) of the former Enforcement Decree of the Value-Added Tax Act provides that "the matters necessary for the scope of and procedure for the deduction of bad debt tax amount shall be prescribed by Presidential Decree." Article 63-2(1) of the former Enforcement Decree of the Value-Added Tax Act provides that "the supplier shall be entitled to the exemption of all or part of bad debt tax amount under Article 17-2(1) of the former Enforcement Decree of the Value-Added Tax Act or the exemption of such bad debt tax amount shall be determined as one of the Debtor Rehabilitation Act."

The disposition was taken.

B) In light of the purport and contents of the system of deduction of bad debt tax amount and the relevant provisions, in light of the following circumstances, it is difficult to view the deduction amount of the rehabilitation claim of this case as a "claim confirmed to be impossible to be recovered due to a decision to grant authorization for the rehabilitation plan or a decision to grant immunity from the court," which Article 19-2 (1) 5 of the Enforcement Decree of the Corporate Tax Act provides that the relevant part of the rehabilitation claim of this case constitutes bad debt under Article 19-2 (1) 5 of the Enforcement Decree of the Corporate Tax Act and constitutes bad debt under Article 63-2 (1) of the former Enforcement Decree of the Corporate Tax Act. Therefore, the disposition of this case is unlawful on the premise that the pertinent part of the rehabilitation claim of this case constitutes bad debt tax amount of the purchasing company of this case pursuant

(1) In order to fully or partially repay obligations, a debt-equity swap is a type of debt and debt adjustment that the debtor issues equity securities to the creditor, resulting in the adjustment of obligations through the alteration of the capital structure converted into equity capital. As can be seen, in cases where an agreement or agreement is reached between the creditor and the debtor on the value of existing bonds to be extinguished by a debt-equity swap, barring any special circumstance, it is reasonable to deem that the value of new stocks is assessed as of the effective date of issuance of new stocks and the amount of existing bonds equivalent to the appraised value has been repaid (see Supreme Court Decision 2008Da18376, Jul. 24, 2008). However, in cases of a rehabilitation plan, the rehabilitation creditor consent of at least 2/3, and consent of at least 3/4 or 4/5 of the rehabilitation secured creditor-backed (Article 237 of the Debtor Rehabilitation Act) to obtain approval from the court, as long as the rehabilitation plan has been authorized, the interested parties should reach an agreement on the value of the existing bonds to be extinguished in accordance with the rehabilitation plan.

Article 72 (2) 4-2 of the Enforcement Decree of the Corporate Tax Act provides that "stocks acquired through a debt-equity swap with respect to the acquisition value of assets shall, in principle, be the market price at the time of acquisition: Provided, That in cases where a corporation whose rehabilitation plan including the content of conversion of debts into investments under the Debtor Rehabilitation Act conducts a debt-equity swap, it shall provide that the book value of the debt-equity swap shall be the acquisition value of the stocks, and consideration shall not be imposed on the profits from the debt exemption of the rehabilitation company at the time of the debt-equity swap. However, the above provision shall not be deemed to be a provision excluding the profits from the debt exemption, and it shall not be deemed to be a provision for the exclusion of the profits from the debt exemption." Based on the decision of the rehabilitation plan or the court's decision, it shall be applied in principle to determine whether the grounds for a debt-equity swap tax amount under

이 사건의 경우, 이 사건 회생계획의 회생계획안(갑 제2호증)에서 '회생채권의 원금 및 개시전 이자의 1.XXXX %는 현금으로 변제하고, 나머지는 출자전환한다. 출자전환은 신규로 발행하는 주식의 효력발생일에 당해 회생채권의 변제에 갈음한다.'라고 정하고 있는 이상, 현금변제가 된 부분을 제외한 나머지 이 사건 회생채권은 출자전환으로 변제에 갈음하여 소멸하고, 이때 취득하게 되는 주식의 취득가액은 법인세법 시행령 제72조 제2항 제4의2호에 따라 출자전환된 채권의 장부가액으로 보아야 하므로, 출자전환된 이 사건 회생채권 중 일부인 이 사건 공제액 해당 부분을 이 법인세법 시행령 제19조의2 제1항 제5호가 대손금으로 정하고 있는 '회생계획인가의 결정 또는 법원의 면책결정에 따라 회수불능으로 확정된 채권'에 해당한다고 할 수는 없다.

② As seen earlier, the scope of repayment of existing bonds in a debt-to-equity swap should, in principle, be calculated on the basis of the value of new stocks as of the effective date of the debt-to-equity swap. Since capital reduction after the said debt-to-equity swap became effective is merely a capital transaction between the creditors of the rehabilitation company and the rehabilitation company, which became the shareholders through the debt-to-equity swap, and as a matter of principle, it cannot be deemed that it affects the assessment of the acquisition value of the pre-to-equity swap (see Supreme Court Decision 2009Da47739, Nov. 12, 2009, etc. mentioned by the Defendant). In the event the main debt, which is a rehabilitation claim, is extinguished through the debt-to-equity swap, it is related to the scope of the guarantor's guarantee obligation

③ If the purchaser company of this case can obtain a bad debt tax deduction, and accordingly, it is deemed that the Defendant can impose value-added tax on the Plaintiff for the taxable period to which the rehabilitation plan belongs after the rehabilitation procedure commenced by excluding the pertinent amount of tax from the input tax amount. Unlike other rehabilitation creditors who do not have the liability to pay value-added tax, the purchaser company of this case, unlike other rehabilitation creditors, is entitled to receive a refund of additional bad debt tax deduction through the rehabilitation plan even though rehabilitation claim is converted into equity and repaid at the same ratio as other rehabilitation creditors according to the rehabilitation plan. As a result, the Defendant has a tax claim equivalent to the bad debt tax deduction amount corresponding to public benefit claim*, and the rehabilitation company bears its tax liability. Accordingly, the rehabilitation company will not only cause difficulties in promoting the efficient rehabilitation of the rehabilitation company which is the object of the Debtor Rehabilitation Act, but also cause unreasonable discrimination, which is expected among rehabilitation creditors. Considering these circumstances, it is difficult to view that the scope of exemption from the taxation of bad debt tax should be applied to the non-corporate bad debt tax deduction principle as seen earlier.

* Article 179 of the Debtor Rehabilitation and Bankruptcy Act

(1) Claims falling under any of the following subparagraphs shall constitute priority claims:

9. Taxes falling under any of the following items, for which the payment deadline has not yet arrived at the time rehabilitation procedures commence:

(b) Value-added tax, individual consumption tax, liquor tax, and traffic, energy and environment tax;

④ According to Articles 421 and 423(1) and (2) of the former Commercial Act (amended by Act No. 10600, Apr. 14, 201; hereinafter “former Commercial Act”), in the case of issuance of new shares, the underwriter of new shares is obligated to pay the total amount of the subscription price for the shares acquired on the date of payment. If the underwriter of new shares fails to pay or make a contribution in kind on the date of payment, his/her rights are lost, and the effect of issuance of new shares is limited to the shares paid on the date of payment out of the scheduled shares to be issued. In light of the legal relationship of issuance of new shares, in the case of issuance of new shares through debt-equity swap, the issuance of new shares takes effect for the entire shares to be issued, on the ground that the whole shares to be issued were paid as the subscription price for the shares to be issued. As such, it cannot be denied the substance of the new shares as the payment for the shares separately removed only the shares exceeding the market price (see Supreme Court en banc Decision 2015Du76464, Nov. 22, 2012).

⑤ The Defendant asserts that the legal doctrine of the Supreme Court Decision 2017Du68295 Decided June 28, 2018 and the Supreme Court Decision 2016Du6565 Decided July 11, 2018 should also apply to the instant case. As such, the corresponding portion of the rehabilitation claim in this case constitutes “a claim confirmed as impossible to be recovered according to the authorization of the rehabilitation plan as bad debts under Article 19-2(1)5 of the Enforcement Decree of the Corporate Tax Act.” The instant disposition that excluded the corresponding amount from the Plaintiff’s 2010 input tax amount for 20 years 2010 is lawful. However, the foregoing Supreme Court precedents cited by the Defendant, contrary to the instant case, are difficult to view that the previous creditor’s right is not exercised, and it is difficult to view that the said share would be retired without any other consideration if the income from a debt-to-equity swap is determined based on a certain ratio of bad debt, and thus, it is difficult to view that it would decrease the value of the previous creditor’s interest in the rehabilitation plan.

3) Whether the calculation of the scope of the bad debt tax deduction is lawful (family judgment)

A) Even if it is necessary to determine whether a bad debt is bad debt based on the actual value of the shares issued through a debt-equity swap as alleged by the Defendant, in this case, it is a matter of assessment of the shares issued through a debt-equity swap in calculating the scope of the bad debt tax deduction in the event of such a case. It is reasonable to deem that the market value of the equity-equity swap should be formed by reflecting the circumstance that a large-scale capital reduction of the old shares, a debt-equity swap to rehabilitation creditors, etc., and a large-scale new shares issued to an underwriter who prepaid the acquisition price at a short time in order to prevent a confusion in the process of capital reduction or the process of issuing new shares under the Debtor Rehabilitation Act, etc. for the technical purpose of preventing a confusion in the process of corporate acquisition, in which the rehabilitation debtor submitted a rehabilitation plan to implement the rehabilitation plan at a short time, and its contents were resolved and publicly announced, if the rehabilitation debtor’s financial structure and the number of shares issued pursuant to the rehabilitation plan were already disclosed and available.

Therefore, in cases where the market value of a debt-to-equity swap is calculated pursuant to the Net Asset Value Act, etc. because it is difficult to prove the case of normal transaction of a debt-to-equity swap, it is reasonable to assess the net asset value per share by reflecting only the financial structure of the rehabilitation obligor and the number of issued stocks based on the accounting performance on the formal grounds that no capital-to-equity swap was yet implemented at the time of the entry into force of the debt-to-equity swap. It is not reasonable to assess the net asset value per share by taking into account the changes in the financial structure due to a debt-to-equity swap and the increase in the number of issued stocks, etc. following the rehabilitation plan after the commencement of the debt-to-equity swap (see, e.g., Supreme Court Decision 2009Da85830, Mar. 25, 2010). The same holds true in cases where the rehabilitation plan, as in the instant case, provides that the rehabilitation plan with the content that reduces the capital by the consolidation of a debt-to-equity swap and the acquisition price, at a short interval (see Supreme Court Decision

In addition, as seen earlier, since the bad debt tax deduction system is an exceptional system to prevent economic loss of the taxpayer of value-added tax, it is reasonable to view that the taxpayer as the supplier has the responsibility to assert and prove that the taxpayer has a bad debt tax in order to obtain a refund of value-added tax by applying for a deduction of bad debt tax amount. However, in administrative litigation regarding a taxation disposition, the tax authority bears the burden of proof as to the facts that meet the taxation requirements, such as the tax cause and the tax base amount (see, e.g., Supreme Court Decision 80Nu521, May 26, 1981). As such, in the case of this case, where the entrepreneur who is supplied with goods, etc. by the tax authority determined the bad debt tax amount for the amount already deducted from the input tax amount for the taxable period to which the date when the bad debt becomes final and conclusive, and then imposed a disposition claiming that the amount of bad debt tax should be excluded from the input tax amount for the taxable period to which the relevant entrepreneur’s disposition belongs

B) We examine the instant case by taking into account the aforementioned legal principles and the overall purport of the pleadings as a whole after the consolidation of shares on November 28, 201 pursuant to the instant rehabilitation plan. After the consolidation of shares on November 28, 201 pursuant to the instant rehabilitation plan, the equity shares held by the instant purchasing company were reduced to the Plaintiff’s capital gains by 5,000 won per share. On November 29, 201, the share capital increase was made at the rate of 5,000 won per share equal to the Plaintiff’s capital gains. If the purchasing company cannot seek the actual transaction price of the equity shares acquired by the instant purchasing company, as stated in the foregoing Supreme Court precedents, considering the changes in financial structure and the increase in the number of issued shares after the conversion of equity shares, the market price of the shares acquired through the conversion of equity shares should be calculated by evaluating the net asset value per share after the conversion of equity shares, but the Defendant merely omitted the process of assessing the market price of the equity shares, based on the total amount of the equity shares acquired by the instant purchasing company’s total amount of KRW 0000,000.

4) Sub-committee

Therefore, the instant disposition, which excluded the deduction amount from the input tax amount against the Plaintiff, should be revoked as it is unlawful.

3. Conclusion

If so, the plaintiff's claim shall be accepted on the grounds of its reasoning. The judgment of the first instance is just with this conclusion, and the defendant's appeal is dismissed as it is without merit.