Seoul High Court-2014-Nu-56743 (Law No. 12, 2015)

The provisions for exclusion of a holding company's import dividends from gross income may apply mutatis mutandis to the general domestic corporation's import dividends.

It is recognized that there is a special exception to exclusion from the gross income of dividends received by re-investment in a subsidiary that is an institutional investor among the provisions for exclusion from the gross income of dividends received by a holding company, but such a provision shall not apply to a

Article 18-2 of the Corporate Tax Act

2015Du3974 Revocation of Disposition of Imposing Corporate Tax

AAAAAA Corporation

BB Director of the Tax Office

Seoul High Court Decision 2014Nu56743 Decided February 12, 2015

August 27, 2015

1. The appeal is dismissed.

2. The costs of appeal are assessed against the Plaintiff.

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

1. Article 18-3 (1) of the former Corporate Tax Act (amended by Act No. 9267 of Dec. 26, 2008; hereinafter the same) provides that when calculating the amount of income of a domestic corporation for each business year, the corresponding domestic corporation shall exclude a certain amount of dividend income received from another domestic corporation invested by the corresponding domestic corporation from the amount of dividend income, and subparagraph 4 of Article 18-2 (1) provides that where the corresponding domestic corporation that paid dividends to the corresponding domestic corporation (limited to cases where the corresponding domestic corporation is an affiliated company) invests in an affiliated company, the dividend amount equivalent to the amount calculated under the conditions as prescribed by the Presidential Decree by applying mutatis mutandis Article 18-2 (1) 4 shall be excluded from the amount of dividend income within the scope of exclusion from the amount of dividend income. Meanwhile, the main sentence of Article 18-2 (1) 4 of the former Corporate Tax Act provides that the corresponding subsidiary of the corresponding domestic corporation shall be excluded from the amount of dividend income computed by multiplying the corresponding subsidiary's investment in the corresponding affiliated company by the ratio prescribed by the Presidential Decree.

On the other hand, the proviso of Article 18-2 (1) 4 (c) of the former Corporate Tax Act limits the scope of dividend income excluded from gross income in order to curb the expansion of a heat company, while Article 18-2 (1) 4 (c) of the former Corporate Tax Act provides that a financial holding company’s dividend income received from a re-invested subsidiary in order to support smooth financial restructuring through the establishment of a financial holding company shall be excluded from gross income under certain conditions. In light of the language and legislative intent of the relevant provisions, it is reasonable to deem that Article 18-2 (1) 4 of the former Corporate Tax Act that provides for the calculation of the amount excluded from gross income with respect to a general domestic corporation, other than a financial holding company, applies mutatis mutandis to the calculation

2. In the same purport, the lower court is justifiable to have determined that the instant disposition that the Defendant rendered to the Plaintiff by excluding the amount calculated by applying mutatis mutandis the main sentence of Article 18-2(1)4 of the former Corporate Tax Act out of the dividends that the Plaintiff received fromCC Co., Ltd., which re-invested in affiliate companies, within the scope of exclusion from taxable income, on the grounds that Article 18-2(1)4 (c) of the former Corporate Tax Act cannot be applied mutatis mutandis to dividends received by the Plaintiff, a institutional investor, as to the Plaintiff’s institutional investor, was lawful. In so doing, it did not err by misapprehending the legal doctrine on

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.