Where a third party purchases all the stocks of a corporation without business performance due to its closure after the completion of the establishment registration and changes the executive, capital, trade name, purpose of business, etc. of the corporation, whether the registration tax may be levied on the corporation by deeming it as "establishment of the corporation" (negative)

Article 138(1)3 of the former Local Tax Act (amended by Act No. 7843 of Dec. 31, 2005); Article 102(2) of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 20708 of Feb. 29, 2008)

Supreme Court Decision 2007Du26629 Decided April 9, 2009 (Gong2009Sang, 672) Supreme Court Decision 2008Du2842 Decided April 23, 2009

[Judgment of the court below]

The head of Seodaemun-gu Seoul Metropolitan Government (Attorney Seo-sik, Counsel for defendant-appellant)

Seoul High Court Decision 2008Nu4116 decided July 16, 2008

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Article 138(1)3 of the former Local Tax Act (amended by Act No. 7843, Dec. 31, 2005; hereinafter “the Act”) provides that “real estate registration and real estate registration following the establishment of a corporation in a large city and the establishment, establishment, and transfer of its head office, main office, branch office, or branch office in a large city and the relocation of a corporation into a large city shall be subject to the imposition of registration tax.” Article 102(2) of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 20708, Feb. 29, 2008) provides that “real estate registration after its establishment, establishment, and transfer” means all real estate for business, non-business, non-business, or non-business, acquired within five years after its establishment, establishment, or transfer.”

2. According to the reasoning of the judgment below, the court below acknowledged facts as stated in its holding, and held that the establishment of a corporation provided for in Article 138 (1) 3 of the Act does not mean establishment by registration of incorporation, but also includes cases where it can be deemed as identical to registration of establishment in substance even if registration of change was made in the form of registration of incorporation, after considering the legislative intent of Article 138 of the Act, the circumstances until the act is evaluated as actual establishment, and the intention of the parties, etc., the court below determined that the establishment of the corporation in this case was legitimate in view of the fact that the non-party, who had no business performance for about seven years after discontinuance of business on September 20, 196, was newly registered as ○○ commercial company and changed its business name and the purpose of business completely different from the purpose of the existing corporation, and that the acquisition of the real estate in this case had no intention to escape taxation only after establishment, and that there was no substantial difference between the establishment and the acquisition of the real property in this case and the acquisition of the new property.

3. However, it is difficult to accept the judgment of the court below for the following reasons.

A. The Constitution adopts the principle of no taxation without law and provides that all citizens are obliged to pay taxes under the conditions as prescribed by law (Article 38 of the Constitution of the Republic of Korea), and the items and rates of taxes shall be determined by law (Article 59 of the Constitution of the Republic of Korea). Such principle of no taxation without law means that taxation requirements, etc. must be prescribed by the law enacted by the National Assembly, which is a representative body of the people, and strict interpretation and application of the law in its enforcement, and expansion or analogical application of administrative convenience is not allowed (see Supreme Court en banc Decision 98Du11731, Mar. 16, 200, etc.).

In addition, taxpayers may choose one of the several legal relations while carrying out economic activities in order to achieve the same economic purpose, and the tax authorities shall respect the legal relations chosen by the parties, except in extenuating circumstances (see Supreme Court Decision 2000Du963, Aug. 21, 2001). In order to deny the validity of a party’s transaction based on the substance over form principle as an act of tax avoidance notwithstanding its form, the individual and specific rules of denial should be established under the principle of no taxation without law (see Supreme Court Decision 98Du14082, Nov. 9, 199).

In full view of the aforementioned legal principles, the form and content of the relevant regulations, and the establishment of a company are basically required to be established and registered through the establishment registration (Article 172 of the Commercial Act); according to the Commercial Act, the company acquires legal personality (Article 171(1) of the Commercial Act); and Article 172 of the Commercial Act on the validity of the establishment registration is a compulsory provision different from the general validity of the commercial registration applicable to the case of a branch office, etc. under Article 37 of the Commercial Act, unless otherwise expressly provided for in the Local Tax Act, the establishment of a corporation under Article 138(1)3 of the Act should be interpreted to be the same as the Commercial Act with general provisions on the establishment of a corporation, unless otherwise provided for in the Local Tax Act. Therefore, even if a third party purchases all stocks of a corporation in a state of non-business performance after the completion of the establishment registration, it cannot be deemed that the establishment of a corporation constitutes an executive, capital, trade name, purpose of business, etc. of the following corporation, and even if it is intended to circumvent the registration tax, etc.

B. Nevertheless, on a different premise, the lower court determined that the instant real estate registration tax, etc. was subject to heavy taxation on the real estate registration tax, etc., which was completed within five years thereafter on the ground that the substance of the Plaintiff corporation was completely changed on August 26, 2002, and it was practically a new establishment. In so determining, the lower court erred by misapprehending the legal doctrine on the interpretation and application of the establishment of a corporation under Article 138(1)3 of the Act, thereby adversely affecting

4. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Nung-hwan (Presiding Justice)