Whether the acquisition of capital gains by capitalizing the surplus shall be deemed the acquisition of stocks of another corporation as non-deductible income (affirmative)

The value of shares of another corporation under Article 18-3 (2) 1 of the Corporate Tax Act, which is included in the calculation of paid interest, shall include the face value of new shares acquired through the capital transfer of profits surplus.

Articles 9, 18-3(2)1, and 19 subparag. 2 of the Corporate Tax Act, Article 43-2(6) and (8), and Article 45-3(2)1 of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 14080, Dec. 31, 1993)

Seoul High Court Decision 200Na11448 delivered on August 2, 200

Head of Eastern Tax Office

Seoul High Court Decision 96Gu12346 delivered on October 23, 1996

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

We examine the grounds of appeal.

Article 18-3 (2) of the former Corporate Tax Act (amended by Act No. 4282 of Dec. 31, 1990 and amended by Act No. 4664 of Dec. 31, 1993; hereinafter the same shall apply) provides that "where a corporation which holds loans in excess of the standards prescribed by Presidential Decree holds assets falling under any of the following subparagraphs, the amount calculated under the conditions as prescribed by Presidential Decree from among interest on loans paid during each business year shall not be included in deductible expenses in calculating the income amount of each business year," and subparagraph 1 provides that "stocks or equity shares (excluding stocks or equity shares as prescribed by Presidential Decree) of another corporation shall be included in deductible expenses, and the amount calculated under subparagraph 2 of the Enforcement Decree of the same Act (referring to the amount computed under subparagraph 3 of the same Article, which was amended by Presidential Decree No. 12878 of Dec. 30, 198, and which was amended by Presidential Decree No. 13803 of Dec. 31, 1993>

However, in case where a corporation which holds stocks of another corporation acquires new stocks through capital transfer of the earned surplus reserve accumulated by the corporation which issued such stocks, the par value shall be deemed as the dividend and the amount shall be the book value in calculating the income amount of the corporation (Article 19 subparag. 2 of the Corporate Tax Act and Article 45-3(2)1 of the Enforcement Decree of the Corporate Tax Act). Thus, the value of the stocks of another corporation under Article 18-3(2) subparag. 1 of the Corporate Tax Act shall include the face value of new stocks acquired

In the same purport, the decision of the court below that the disposition of this case, which calculated the interest paid to the plaintiff who acquired and held free share due to the capital transfer of earned surplus four times since August 22, 1981, including the face value of the above free share and calculated the amount of interest to be excluded from deductible expenses, is legitimate, and as long as the disposition of this case is imposed by including the acquisition of new stocks following the capital transfer of earned surplus under the Corporate Tax Act in the gross income, it shall not be deemed that it is not different from

In addition, even before the amendment of the Enforcement Rule of the Corporate Tax Act by Ordinance of the Ministry of Finance and Economy No. 1866 of February 28, 191, even if the form of "the statement statement of interest on loans related to non-business real estate, etc.", one of the report documents of the tax base of corporate tax is "the stock acquisition fund" or "the amount of stock acquisition fund" under Article 43-2 (8) of the Enforcement Decree, which is the higher law, it cannot be interpreted differently. It is different from the legal principles that impose tax on the acquisition of stocks due to the capital transfer of the earned surplus reserve by deeming the acquisition of stocks as dividends, and the acquisition of stocks due to the capital transfer of the earned surplus reserve is based on the management policy of the issuing corporation regardless of the shareholders who hold stocks. Therefore, it is unreasonable to impose disadvantages on the corporation holding stocks, and therefore, it cannot be accepted by considering it as the book value despite the fact that Article 43-2 (8) of the Enforcement Decree of the Corporate Tax Act is the book value of the stocks of another corporation.

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.

Justices Shin Sung-sung (Presiding Justice)