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

The head of Yeongdeungpo-gu

December 3, 2015

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of acquisition tax of KRW 1,626,623,100 on May 18, 2015 and special rural development tax of KRW 162,662,30 (including additional tax) shall be revoked.

1. Details of the disposition;

A. On October 14, 2010, the Plaintiff acquired 51% of the shares issued by Nonparty AFD Seoul Co., Ltd. (hereinafter “Nonindicted Company”) and met the taxation requirements for deemed acquisition tax on the non-party company’s ( Address omitted) pursuant to Article 105(6) of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010; hereinafter “former Local Tax Act”), pursuant to Article 105(6) of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010); and

B. However, on September 30, 2009, prior to becoming an oligopolistic stockholder of the non-party company, the Plaintiff already converted into a holding company under the Monopoly Regulation and Fair Trade Act (hereinafter “Fair Trade Act”), and thus, applied for reduction of and exemption from the deemed acquisition tax under Article 120(6) Subparagraph 8 (hereinafter “instant provision on reduction and exemption”) of the former Restriction of Special Taxation Act (amended by Act No. 10406, Dec. 27, 2010). Upon receipt of the said application, the Defendant reported and paid the special rural development tax amount on November 19, 2010 (including 20% of the reduced and exempted tax amount and additional tax).

C. However, on May 18, 2015, the Defendant issued a correction and notification of acquisition tax of KRW 1,626,623,100 (including additional tax, and only KRW 1,381,291,170, which deducts the refund of the already paid special agricultural and fishing villages tax) to the Plaintiff on the ground that the Plaintiff’s acquisition of stocks at the time of the Plaintiff’s acquisition of Nonparty Company was a general company, which was not a subsidiary of the Plaintiff, and thus, does not fall under the subject of the instant provision on reduction and exemption (hereinafter “instant disposition”).

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 to 5, 7, and 8, and purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

First, the Plaintiff became a holding company only in relation to the non-party company by acquiring 51% of the shares issued by the non-party company, and the non-party company also became a subsidiary of the Plaintiff at the same time as the above shares were acquired. Therefore, the Plaintiff constitutes both a holding company under the Fair Trade Act, “a holding company becomes a subsidiary under the Fair Trade Act,” and “a holding company acquires shares of a subsidiary under the Fair Trade Act,” and such interpretation accords with the legislative intent of the provisions on the reduction and exemption

Second, before December 24, 2014, the Defendant applied the instant provision to a holding company where it acquired stocks of a general company and becomes an oligopolistic stockholder, and accepted the Plaintiff’s application for reduction or exemption of local taxes to the same purport. As a result, the Plaintiff reported and paid a special tax for rural development equivalent to 20% of the reduced or exempted tax amount. Nevertheless, the instant disposition taken four years and six months after the lapse of the period is unlawful against the principle of trust protection.

Third, in light of the fact that the defendant interpreted the provision of this case as the plaintiff, accepted the plaintiff's application for reduction of local tax, and imposed a special tax for rural development, the plaintiff could not expect to interpret the provision of this case to be disadvantageous to the plaintiff. Therefore, there is a justifiable reason that the plaintiff cannot impose additional tax.

B. Relevant statutes

The entries in the attached Table-related statutes shall be as follows.

(c) Markets:

1) Interpretation of the provision on reduction or exemption of this case

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 circumstances, and shall not be extensively interpreted or analogically interpreted without reasonable grounds. In particular, it accords with the principle of fair taxation to strictly interpret that the provision is clearly preferential among the requirements for reduction and exemption (see Supreme Court Decision 2008Du11372, Aug. 20, 200).

However, the instant provision provides that “If a holding company becomes a holding company under the Fair Trade Act (hereinafter “the requirement 1”) or a holding company becomes an oligopolistic shareholder under subparagraph 2 of Article 22 of the former Local Tax Act by acquiring stocks of its subsidiary under the same Act (hereinafter “requirements 2”), Article 105(6) of the same Act concerning the imposition of deemed acquisition tax shall not apply to the oligopolistic shareholder.”

First, Article 2 subparag. 1-2 of the Fair Trade Act and Article 2(1) and (2) of the former Enforcement Decree of the Fair Trade Act (amended by Presidential Decree No. 25079, Jan. 14, 2014) stipulate that a company whose main business is to control the business of a domestic company through the ownership of stocks (including shares) shall be a company whose total amount of assets is at least 100 million won on the balance sheet as of the date of registration of incorporation or the end of the immediately preceding business year (if a report on conversion into a holding company is filed on the basis of the total amount of assets before the end of the business year, the date of the relevant report on conversion), with respect to “holding company under the Fair Trade Act” as the main business is to control the business of the domestic company. Accordingly, the issue of whether to impose deemed acquisition tax shall be determined on the basis of “whether the total amount of stocks of the subsidiary company owned by the domestic company exceeds 50/100 of the total amount of assets of the relevant company.” Thus, if a company satisfies the above requirements for reduction or exemption of the provisions in this case.

Next, the foregoing provision applies only to cases where a holding company acquires stocks of a subsidiary under the Fair Trade Act as prescribed in Article 2, and the above provision is naturally interpreted to apply only to cases where a holding company acquires stocks of an existing subsidiary and strengthens its real control power (in cases where a general company, etc. is incorporated into a new subsidiary as alleged by the Plaintiff, it seems that the legal form of the provision was different from the case where a holding company seeks to apply the tax reduction or exemption provision in this case where it acquires stocks of another company and thereby satisfies the requirements of a subsidiary under the Fair Trade Act). Even if considering the legislative intent of the provision on the reduction or exemption in this case where a holding company intends to support restructuring of a company for ownership and business rationalization by granting tax benefits on the establishment of a holding company or conversion into a holding company, it would be unreasonable to view that the provision on the reduction or exemption in this case would apply to cases where a holding company newly incorporated into a general subsidiary, etc. beyond the scope of the language and text, where a holding company acquires stocks of an existing subsidiary (requirements 1) or a holding company additionally acquires stocks of an existing subsidiary

Therefore, this part of the plaintiff's assertion is without merit.

2) Whether the principle of protection of trust violates the principle

The principle of trust and good faith, the principle of trust and good faith, or the principle of respect for non-taxable practices, in tax and legal relations, are exceptional legal principles applicable only to cases where there are special circumstances deemed that the protection of taxpayer’s trust is consistent with the justice even if the principle of legality is sacrificeed. Therefore, in order to apply the principle of trust and good faith or the principle of protection of trust to a tax authority’s act, the average taxpayer’s trust given by the tax authority through the public opinion list, etc. should be able to have a reasonable and justifiable expectation. Even if the tax authority expressed a certain opinion through inquiry, if it is a result of questioning without revealing the important facts and legal issues properly, it cannot be deemed that there is a trust to have a legitimate expectation by the public opinion list. Furthermore, the principle of respect for non-taxation practice is also applicable to the interpretation of the tax law generally accepted by the taxpayers regarding non-taxation or the practice of national tax administration, which is erroneous interpretation or practice, it cannot be deemed that such interpretation or practice has been unreasonable to have been accepted by the taxpayers without any objection to the extent of public opinion or practice (see 2016).

However, as alleged by the Plaintiff, even if the Defendant erroneously accepted the Plaintiff’s application for reduction or exemption of local taxes and imposed a special rural development tax amounting to 20% of the reduced or exempted tax amount on the Plaintiff on the premise that the said application is lawful, such circumstance alone does not lead to the fact that there was an expression of public opinion by the tax authority subject to the principle of trust protection, and there is no evidence suggesting that there was an expression of public opinion as above, and therefore, the Plaintiff’

(iii) whether there is a justifiable reason for not being able to impose an additional duty.

Under the tax law, penalty taxes are administrative sanctions imposed in accordance with the law in cases where a taxpayer violates a duty to report and pay taxes without justifiable grounds in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, and the taxpayer’s intention or negligence is not considered, and the land or mistake of the law does not constitute justifiable grounds (see Supreme Court Decision 2013Du1829, May 23, 2013).

On the other hand, the reason alleged by the plaintiff is nothing more than the site or mistake of the law, and the defendant's acceptance of the plaintiff's application for the reduction or exemption of local taxes does not change merely because it is the defendant's acceptance of the plaintiff's application for the reduction or exemption of local taxes, and there is no other justifiable reason for

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.

[Attachment]

Judges Kim Jong-Gyeong (Presiding Justice)