Early High Court Decision 201No3079 ( December 21, 2011)

Corporations subject to tax reduction or exemption for small and medium enterprises shall be determined only on a scale irrespective of their nationality.

Inasmuch as a corporation whose total amount of assets is more than 500 billion won excludes a corporation which owns more than 30% of the total number of issued stocks from a small or medium enterprise, there is no explicit ground to reduce the scope of the corporation as domestic law, and rather, it is consistent with the relevant provision and the purport of the entire Act on Small and Medium Enterprise regardless of its nationality to determine

2012Guhap134 Revocation of Disposition of Corporate Tax Imposition

XX Co., Ltd

Head of the North Mine District Tax Office

August 23, 2012

September 13, 2012

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of KRW 000 of the occasional corporate tax of 2008 against the Plaintiff on August 12, 201 shall be revoked.

1. Details of the disposition;

A. The plaintiff is a manufacturing company of the kind of manufacturing business, which makes the settlement of accounts as of December 31 of each year, and on March 26, 2009

The amount of total revenue of 000 won, tax base of 000 won, calculated tax amount of 000 won, deducted tax amount of 000 won (=the tax credit for research and human resources development expenses of 000 won + the special tax reduction of 000 won + the tax credit for improvement of corporate paper system of small and medium enterprises) and the total tax amount of 000 won.

B. However, the Board of Audit and Inspection determined that the total amount of assets (referring to the total amount of assets indicated on the balance sheet as of the end of the immediately preceding business year; hereinafter the same shall apply) in 2008, which is a Japanese corporation holding not less than 30% of the Plaintiff’s issued stocks (excluding non-voting stocks under Article 370 of the Commercial Act; hereinafter the same shall apply) was unfairly applied to the Plaintiff even though the Plaintiff did not fall under the small and medium enterprise, and requested the Defendant to correct it.

C. Accordingly, on August 12, 2011, the Defendant denied 000 won, which is premised on the premise that the Plaintiff is a small and medium enterprise, among the above deducted tax amount of 000 won, to the Plaintiff, and imposed a total of 000 won, including additional tax of 00 won (hereinafter “instant disposition”).

D. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on August 25, 201, but was dismissed on December 21, 201.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 4, Eul evidence 1 to 3 (including each number, hereinafter the same shall apply), the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

The plaintiff asserts that the disposition of this case is unlawful for the following reasons.

1) Article 3 subparag. 1(b), 2, and [Attachment 2] subparag. 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 19189, Dec. 27, 2005; hereinafter referred to as the “Enforcement Decree of the instant amendment”) that provide the basis for the instant disposition means a domestic corporation, and the instant disposition is not applicable to a foreign corporation that includes a non-party company. Therefore, there is no legal basis for the instant disposition.

2) Since the date of commencing the business in 2008 on January 1, 2008, the immediately preceding business year of the non-party company is from April 1, 2006 to March 31, 2007, and the total amount of assets of the non-party company as of March 31, 2007, which is the last day of the non-party company, is less than KRW 000,000, and therefore, the plaintiff is a small and medium enterprise under the above Enforcement Decree.

3) If the total amount of assets of a foreign corporation is converted into Korean won, it shall be the smaller of the amount calculated by applying the closing exchange rate as of the end of the immediately preceding business year or the average exchange rate as of the immediately preceding business year. However, even from April 1, 2007 to March 31, 2008, if the company’s immediately preceding business year is applied to KRW 000,000 per average exchange rate for the period, the total amount of assets is less than 00 won.

4) Even if the total amount of assets of the non-party company exceeds 000 won and the Plaintiff is not a small and medium enterprise, it is a result of the enforcement of the Enforcement Decree of the instant amendment. Thus, according to the transitional measure under Article 2 of the Addenda of the Enforcement Decree of the same Act, the Plaintiff shall be deemed as a small and medium enterprise until December

B. Relevant statutes

Attached Form is as shown in the attached Form.

C. Determination

1) As to the plaintiff's first argument

However, Article 3 subparagraph 1 (b), 2, and 1 of the Enforcement Decree of the instant amendment excludes a company whose total amount of assets is not less than 000 won from a small or medium enterprise which owns not less than 30/100 of the total number of issued stocks. Thus, there is no explicit ground to interpret the corporation referred to in this case (hereinafter referred to as "investment corporation") as a domestic corporation. Rather, in the previous Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 17606 of May 20, 2002), the phrase limiting the scope of the investment corporation to a stock-listed corporation or an Association-registered corporation under Article 2 of the Securities and Exchange Act can be deemed as having been deleted through the amendment. Accordingly, the determination of whether the ownership and management of a small or medium enterprise are substantially independent regardless of the nationality of the investment corporation is in line with the relevant provision and the purport of the entire Act. Thus, it is interpreted that the above investment corporation includes not only a domestic corporation but also a foreign corporation.

2) As to the second argument by the Plaintiff

The Plaintiff’s corporate tax liability established in 2008 is December 31, 2008, which is the closing date (Article 21(1)1 of the Framework Act on National Taxes). Since Nonparty Company receives dividends from the Plaintiff on the settlement of accounts in 2008 as of December 31, 2008, the corresponding business year should be from April 1, 2008, which belongs to December 31, 2008 to March 31, 2009, and the Plaintiff’s tax liability was not established and the Plaintiff’s income for the pertinent business year was not confirmed on January 1, 2008, which belongs to the non-party company’s income. Accordingly, the Plaintiff’s assertion on the premise that it is not reasonable.

3) As to the third argument by the plaintiff

Article 3 subparag. 1(b), 2, and 1 of the Enforcement Decree of the instant amendment provides that whether the total amount of assets of an investing corporation is at least 000 won shall be determined on the balance sheet as of the end of the immediately preceding business year. In particular, a foreign corporation’s total amount of assets shall be determined on the basis of the amount computed by converting the amount indicated on the balance sheet as of the end of the immediately preceding business year into the exchange rate, unless there is a provision on the exchange rate applicable in converting the total amount of assets into Korean currency. Accordingly, the Plaintiff’s assertion contrary thereto is

4) As to the plaintiff's fourth argument

Article 2(2) of the Enforcement Decree of the instant amendment provides that if a company falling under a small or medium enterprise becomes not a small or medium enterprise due to the enforcement of the Enforcement Decree of the instant amendment at the time of its enforcement, the company shall be deemed a small or medium enterprise for three years from the enforcement date thereof. Thus, the transitional measure of the said Addenda is a system that benefits under the previous Act and subordinate statutes are extended to ensure the stability of corporate management to prevent unexpected disadvantages due to the amendment of the Enforcement Decree, and provides that the Act on Special Cases Concerning Tax Restriction (amended by Presidential Decree No. 19213, Dec. 30, 2005) provides that the grace period shall not apply where a small or medium enterprise ceases to fall under a small or medium enterprise because it fails to meet the actual independence requirements, the above transitional measure shall not apply to a small or medium enterprise only if it becomes a small or medium enterprise without any change in the requirements under the previous provisions at the time of enforcement of the Enforcement Decree of the instant amendment.

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.