Incheon District Court Decision 2011Guhap5296 Decided May 3, 2012

Early High Court Decision 201Du1623 ( October 13, 2011)

Since the Plaintiff cannot be deemed to have acquired shares due to the retirement of shares, the disposition imposed on the constructive dividend is unlawful.

Since the transfer price acquired by the Plaintiff through a contract on November 2005 cannot be seen as money acquired by the Plaintiff retroactively due to the retirement of stocks in December 2007, it is illegal to impose tax on constructive dividend income.

2012Nu14530 global income and revocation of disposition

IsaA

Deputy Director of the Tax Office

Incheon District Court Decision 2011Guhap5296 Decided May 3, 2012

November 22, 2012

December 20, 2012

1. Revocation of a judgment of the first instance;

2. The Defendant’s disposition of imposition of global income tax of KRW 000 on February 10, 201 against the Plaintiff on February 10, 201 is revoked.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Partial citement of judgment of the first instance;

The reasoning of this court's ruling is as follows: from '1. 2. '2.' to '2. '2. The plaintiff's main place of disposition', and 'the plaintiff's main place of disposition', with the exception of the correction on December 17, 2007 as of December 22, 2007, the corresponding part of the reasoning of the court of first instance (the second one to 11.) is the same as the corresponding part of the judgment of the court of first instance (the second one to 2.3). Thus, it is cited in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

2. Related statutes;

Attachment 'Related Acts and subordinate statutes' shall be as shown.

3. Facts of recognition;

The following facts may be acknowledged in full view of the overall purport of the pleadings in each entry into Gap 2 through 13, and Eul 17 through 19, and Eul 2 (in case of household number, including branch number, and this hereinafter the same shall apply):

A. On November 19, 2005, the transferor, including the Plaintiff, and the due BB, thisCC (hereinafter referred to as the “Plaintiff, etc.”) entered into a stock acquisition agreement with the transferee (hereinafter referred to as the “stock acquisition agreement of this case”). On November 19, 2005, the transferor including the Plaintiff, concluded the stock acquisition agreement of this case as the agent of the transferor, including the Plaintiff, with the content that the transferor would transfer the EE industry shares totaling 816,200,000 won (i.e., the Plaintiff 716,180 + 100,000 + 200,000 won to the transferee, including KimD.). According to the stock acquisition agreement of this case, the transferee would pay the remainder of 00,000 won to the transferor, and the stock acquisition price of this case would be calculated by deducting the total debt payment of the 200,000,000,000 won from the total debt and 20,000,00,00.

B. On November 17, 2005, prior to the conclusion of the instant stock acquisition agreement, the Plaintiff et al. held a general meeting of shareholders on November 17, 2005 to approve the “transfer of business”, and the content of the agreement was to evaluate the balance after subtracting the assets and liabilities of the EE industry, such as the instant stock acquisition agreement, as the shares transfer agreement, as the shares transfer agreement, and to transfer the business. The Plaintiff et al., upon receipt of all the transfer proceeds under the instant stock acquisition agreement, filed a securities transaction tax base return on January 10, 2006, and the Plaintiff reported 416,200 out of 716,180 shares issued by the EE industry, and 200 shares were 6,091,316,326, and 2990 shares were transferred to the EE industry, and 200D shares were transferred to 200,000 shares were transferred to each of the above transfer to 20D 2000.2.20.2.2.20 shares transfer.

D. On November 19, 2007, E industry held a temporary general meeting of shareholders to approve the “case of reduction of capital”, and its contents were that “E industry reduces 416,200 shares owned by EE industry from 816,200 shares, and then retire without compensation.” Accordingly, E industry, on December 22, 2007, retired 416,200 shares acquired from the Plaintiff under the instant stock acquisition agreement (hereinafter “instant pending shares”), and accordingly, the shares issued by E industry decreased from 40,000 shares (i.e., 816,200 shares, - 416,200 shares, and 200 shares) from 816,200 shares, and its capital decrease from 200 shares (=816,200 shares, 2000 shares, and 400,000 shares) from 400 shares (=400,000 shares).

E. The audit report (No. 2) on the financial statements of the EE industry prepared by the FF accounting corporation on September 19, 2008 stated that "the FF accounting corporation passed a resolution to reduce capital at a temporary shareholders' meeting on November 19, 2007 to change the capital on December 22, 2007 by adopting a resolution to reduce capital on November 19, 2007."

F. KimD was appointed as the representative director of the EE industry on November 28, 2005 immediately after the date of the instant stock acquisition agreement, and on September 11, 2009, the Incheon District Court issued a decision to commence rehabilitation proceedings with respect to the EE industry on September 11, 2009, and was appointed as the manager on June 21, 2010, and again appointed as the representative director of the EE industry on June 22, 2010. The EE industry was appointed as the representative director of the EE industry on June 21, 2010 after the decision to authorize rehabilitation proceedings with respect to the E industry was issued on June 21, 201, and 320,000 shares issued by the EE industry, which were owned by KimD on June 21, 201, and accordingly, the shares issued by the E industry was reduced mainly from KRW 80 million to KRW 80 million (=320 million x 8 million).

G. On November 1, 2012, KimD prepared and submitted a written statement stating that “The time of the instant stock acquisition agreement was not intended to reduce capital at the time of the instant stock acquisition agreement, and that it was difficult to operate the EE industry after the acquisition of the EE industry, thereby reducing the amount of KRW 000 on December 22, 2007, and KRW 000 on June 21, 2010, which was KRW 000,000 at the time of the instant stock acquisition, became KRW 00 after the reduction of capital twice at the time of the said agreement (Evidence 19).”

4. Determination

A. Whether a sale of stocks constitutes a transfer of stocks as an asset transaction or a refund of capital at the time of stock retirement, which is a capital transaction, is a matter of interpretation of legal act and must be determined based on the content of the transaction and the intent of the parties concerned. However, under the substance over form principle, the entire process of the transaction, such as the parties’ intent and the process of concluding the contract, the method of determining the price, and the progress of the transaction, should be grasped and determined (see, e.g., Supreme Court Decision 2008Du19628, Oct. 28, 2010).

B. According to the above facts, both parties including the plaintiff 1 and 2 transfer all the issued stocks of the EE industry to the transferee, including Kima, which were known by the above facts, and the price was considered to have been paid in full by the plaintiff 1 and the transferor 2, and therefore, it is difficult to view that only 416,200 shares in this case were transferred to the EE industry at the time of reporting the tax base of securities transaction tax, and that the acquisition of the shares was made for the purpose of 0 years after the conclusion of the above stock acquisition contract, and that the transfer of the shares was made for 10 years after the acquisition of the shares for 20 years after the acquisition of the shares, and that the transfer of the shares was made for 10 years after the acquisition of the shares for 20 years after the acquisition of the shares, and that the transfer of the shares was made for 10 years after the acquisition of the shares for 20 years after the acquisition of the shares for 3 years after the acquisition of the shares was made for 3 years after the acquisition of the shares.

C. Regarding this, the defendant, and Articles 341 and 341-2 of the former Commercial Act (amended by Act No. 10600, Apr. 14, 201; hereinafter the same) prohibit the acquisition of the company's own stocks in other cases when the company can acquire its own stocks on its own account. In the case of the EE industry (Article 341 subparagraph 1 of the former Commercial Act), since the transfer of the stock in this case was made as part of the procedure of stock retirement, its price constitutes a refund of capital through stock retirement, it is merely a case where the company can acquire its own stocks, but it cannot be acknowledged that the plaintiff and E industry can acquire the stock in this case without delay for the purpose of acquiring the stock in this case without delay under Article 341 and 341-2 of the former Commercial Act, and it cannot be acknowledged that the plaintiff and E industry would acquire the stock in this case for the purpose of acquiring the stock in this case without delay under Article 342 of the former Commercial Act.

D. Ultimately, the instant disposition that reported that capital gains from the transfer of the instant shares constituted income from constructive dividend shall be revoked on the ground that it is unlawful without examining the remainder of the Plaintiff’s assertion.

5. Conclusion

If so, the plaintiff's claim should be accepted on the ground of its reason, and the judgment of the court of first instance which differs from this conclusion is unfair, and the judgment of the court of first instance is revoked, and the disposition of this case is revoked.