Seoul Administrative Court-2016-Gu Partnership-73658 ( October 20, 2017)

The acquisition of treasury stocks in violation of the provisions of the Commercial Act falls under the invalidity of a year, and the act of acquiring treasury stocks without economic rationality falls under the object of denial of wrongful calculation.

In light of the principles of capital adequacy and the principle of equality of shareholders, acquisition of treasury stocks in violation of the Commercial Act falls under the invalidity of a year. The acquisition price of treasury stocks falls under the provisional payment unrelated to business, and the acquisition price of treasury stocks falls under the object of denial of unfair calculation.

Article 52 of the former Corporate Tax Act

2017Nu35631 Revocation of Disposition of Corporate Tax Imposition

OOO Co., Ltd.

Head of Seocho Tax Office

on October 16, 2017

on October 30, 2017

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The disposition of imposition of corporate tax of KRW 2,462,060 for the business year 2012, corporate tax of KRW 20,812,060 for the business year 2013, corporate tax of KRW 20,812,060 for the business year 2013, and corporate tax of KRW 18,45,790 for the business year 2014 shall be revoked.

1. Details of the disposition;

The court's explanation on this part is identical to the corresponding part of the judgment of the court of first instance, except for dismissal or addition of part of the judgment of the court of first instance as follows. Thus, the meaning of the language used in this part is identical to the judgment of the court of first instance, and thus, it is accepted in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act (hereinafter the same shall apply to the judgment of the court of first instance).

○ The second 7th page "6.25%" is regarded as "1.85%, hereinafter referred to as "the shares of this case".

○ The second page " April 4, 2016" and the second page "2,462,00 won" are deemed to read " April 1, 2016" and "2,462,00 won" respectively.

The phrase “No. 9” is added to the 3rd page 1-2 [based grounds for recognition].

2. Whether the instant disposition is lawful

A. The parties' assertion

As the Plaintiff’s share transaction is effective in compliance with Article 341 of the Commercial Act and Articles 9 and 10 of the Enforcement Decree of the same Act, the Plaintiff asserts that the purchase price of shares that the Plaintiff paid to Korea-O does not constitute a provisional payment irrelevant to its business, and that the provision on the denial of wrongful calculation does not apply to the instant share transaction. Accordingly, the Defendant asserted that the instant share transaction was null and void on the ground that the Plaintiff did not notify the shareholders of the purpose of acquiring shares in the process of acquiring the instant shares, and that the Plaintiff did not acquire shares with the profits available for dividends, and thus, it did not constitute a substantial violation of the principle of capital adequacy under the Commercial Act. Even if the instant share transaction is valid, the Plaintiff’s share transaction constitutes an abnormal transaction that lacks economic rationality, and thus becomes subject to the avoidance of wrongful calculation and calculation.

B. Relevant statutes

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

(c) Fact of recognition;

1) On October 8, 2012, the Plaintiff: (a) held a board of directors to make a resolution to convene an extraordinary general meeting of shareholders to acquire treasury shares; and (b) issued a notice to convene an extraordinary general meeting of shareholders to all shareholders

2) On October 23, 2012, the Plaintiff held a special general meeting of shareholders and resolved to approve the acquisition of treasury shares pursuant to Article 341(2) of the Commercial Act. The Plaintiff held a board of directors to determine matters under Article 10 subparag. 1 of the Enforcement Decree of the Commercial Act by a resolution.

3) On the same day, the Plaintiff notified all shareholders of the fact that they can file an application for stock transfer with the company, and omitted "the purpose of acquiring one's own stocks" among the items of Article 10 subparagraph 1 of the Enforcement Decree of the Commercial Act, "the method of calculating the amount of money or other property (hereinafter "money or other property"), "the time when money or other property is delivered in return for the transfer", and "the other conditions of stock acquisition" as stated by the board of directors on October 23, 2012.

4) Only one of the Plaintiff’s shareholders filed an application for stock transfer with respect to the instant shares on November 26, 2012, which was within the period of application for transfer as determined by the board of directors on October 23, 2012, and the Plaintiff approved the transfer by a resolution of the board of directors on November 27, 2012.

5) In trading the instant shares, the Plaintiff received a loan from Masp’s passbook and paid 1.1 billion won for the purchase price to Masp’s account. The Plaintiff accounted for the acquired shares as an item for capital adjustment. On the statement of financial position, the Plaintiff’s unpaid surplus was KRW 17,276,428,636 as of December 31, 201, and KRW 15,342,722,205 as of December 31, 201, as of December 31, 2012.

6) Meanwhile, the current status and equity ratio of the Plaintiff’s shareholder before and after the instant stock transaction are as follows.

Name of shareholders

Number of previous shares

(Equity Ratio)

The stock transaction of this case

Number of stocks (ratio)

Jinay

HanO

1,599,520 Shares

(29.62%)

-100,000 note

1,499,520 Shares

(27.77%)

Park Gyeong-gu

2,280 Shares

(0.04%)

2,280 Shares

(0.04%)

10 10 10

GaO

1,175,900 Shares

(21.78%)

1,175,900 Shares

(21.78%)

10 10 10

Park △△△

25,300 Shares

(d)17%)

25,300 Shares

(d)17%)

10 10 10

△, Inc.

1,803,000 Shares

(33.39%)

1,803,000 Shares

(33.39%)

Park △, Park O, Park △△ 100% owned by △△△

△△ Corporation

594,000 Shares

(11.00%)

594.00 Shares

(11.00%)

Plaintiff’s subsidiaries

Plaintiff ( Treasury Stocks)

+100,000 Shares

100,000 Shares

(1.85%)

Total

5,400,000 Shares

(100%)

5,400,000 Shares

(100%)

[Ground of recognition] Facts without dispute, Gap evidence 6-1 through 9, Gap evidence 7-1 through 6, Gap evidence 8-1, 2, Gap evidence 9, 14, Eul evidence 2, and the purport of the whole pleadings

D. Determination

1) The validity of the instant stock transaction

A) Whether the provisions of the Commercial Act are violated

(1) The main text of Article 341(1) of the Commercial Act provides that "the company may acquire its own shares in its name and on its own account in accordance with the following methods," and Article 341(1)2 provides that "the method prescribed by Presidential Decree, which is to be acquired on equal terms in proportion to the number of shares held by each shareholder". Under Article 9(1)1 of the Enforcement Decree of the Commercial Act, "the method of acquiring shares by notifying or publicly announcing all shareholders' acquisition of shares" constitutes "the method of acquiring shares by the company". According to Article 10(1) of the Enforcement Decree of the Commercial Act, where the company acquires its own shares in the aforesaid manner, the purpose of acquiring its own shares; the type and number of shares to be acquired; the details and calculation method of the money to be delivered in return for acquiring shares; the total amount of money to be delivered in return for acquiring shares; the period from 20 days to 60 days to 20 days to 20 days to 20 days to 20 days to 20 days to hereinafter the date of application for transfer.

In addition, the proviso of Article 341 (1) of the Commercial Code provides that "the total amount of acquisition shall not exceed the amount obtained by subtracting the amount under each subparagraph of Article 462 (1) from the net asset value on the balance sheet in the immediately preceding settlement term," and Article 462 (1) of the Commercial Code provides that "the company may pay dividends within the limit of the amount obtained by deducting the amount under each subparagraph from the net asset value on the balance sheet," each subparagraph provides that "the amount of capital stock" (Article 1), "the sum of the reserves and the earned surplus reserve accumulated until the settlement term," "the amount of the earned surplus reserve to be accumulated in the settlement term," "the amount of the earned surplus reserve to be accumulated in the settlement term," and "unrealized profits prescribed by Presidential Decree" (Article

According to this, the company can acquire its own shares within the scope of distributable profits by the procedure and method prescribed by the Commercial Code in accordance with the principle of shareholder equality even if there is no specific purpose.

(2) According to the above facts, the Plaintiff did not notify the company of the matters under Article 10 subparagraph 1 (a), (c), and (f) of the Enforcement Decree of the Commercial Act when notifying the company that it is entitled to apply for the transfer of shares to the company. Thus, the Plaintiff violated Article 10 subparagraph 2 of the Enforcement Decree of the Commercial Act.

In addition, in light of the principle of capital adequacy and the principle of shareholder equality, it is difficult to deem that the Plaintiff acquired the instant shares as dividend income at the time of the transaction of the instant shares, in light of the following: (a) even if the Plaintiff accounts for the instant shares as an item for capital adjustment and entered the Plaintiff’s statement of financial position in holding un disposed surplus funds as of the last day of 2011 and the last day of 2012, it is difficult to deem that the Plaintiff acquired the instant shares as dividend income at the time of the transaction of the instant shares; and (b) in light of the fact that the Plaintiff received the instant shares purchase price of KRW 1.1 billion from the Masp passbook, and that the Plaintiff did not explain the reasons for using the said loan. Accordingly, there is an error of law in violation of the proviso of Article 341(1) of the Commercial Act.

Furthermore, the following circumstances are revealed by the facts acknowledged as above, evidence, and evidence No. 3 and No. 4. The Plaintiff’s shareholders were 1: (1) the Plaintiff’s shareholders were in close relationship with the representative director, the Plaintiff’s subsidiary, etc.; (2) only one of the Plaintiff’s notification that the Plaintiff could apply for the transfer of shares to all of its shareholders; (3) the parent company’s acquisition of shares was prohibited as a matter of principle (Article 342-2 of the Commercial Act); (4) the Plaintiff’s subsidiary company did not acquire the Plaintiff’s shares from the first date; (5) the Plaintiff’s acquisition of shares was 10,000,00 won evaluated as the date of December 31, 201; and (5) the Plaintiff’s acquisition of shares from the Plaintiff’s treasury shares to the 2000,000,000,0000,0000,0000,0000,000 shares, which were purchased from the 20,00,00,000.

B) Effect of acquiring treasury shares in violation of the Commercial Act

(1) Article 341(1) of the former Commercial Act (amended by Act No. 10600, Apr. 14, 201) provides that “A company shall not acquire its own shares on its own account except in the following cases,” thereby prohibiting the acquisition of its own shares, except in exceptional cases, such as retirement of shares or merger of companies. This may cause various harm, such as undermining the interests of the company, shareholders, and creditors, impairing the principle of equality of shareholders, and causing unfair control by the representative director, etc. by impairing the company’s capital foundation. As such, in principle, the Commercial Act uniformly prohibits the acquisition of its own shares for a general preventive purpose, it is clearly stated that exceptional cases where the acquisition of its own shares is allowed are categorized as types of cases where the acquisition of its own shares is exceptionally permitted (see Supreme Court Decision 2001Da44109, May 16, 201). However, as amended by the Commercial Act on April 14, 2011, the procedure and the amendment of the Commercial Act and its related provisions were null and void.

(2) Therefore, as seen earlier, the Plaintiff’s share transaction is null and void, and the Plaintiff’s assertion on this part is without merit.

(3) As to this, the plaintiff alleged that the stock transaction in this case cannot be deemed null and void because all the shareholders of the plaintiff were in a position to fully know the above matters when notifying that the plaintiff can apply for the transfer of shares to the company. However, despite the omission of the plaintiff's notice, there is no material to the effect that individual shareholders were actually aware of the above matters despite the omission of the plaintiff's notice. Even if individual shareholders were aware or could have been aware of the above matters regardless of the company's notice, the acquisition of treasury shares is related not only to the company and shareholders, but also to the interests of creditors, so it cannot be deemed that the violation of Article 10 subparagraph 2 of the Enforcement Decree of the Commercial Act is not cured. The plaintiff's above assertion is without merit (In addition, it is unlawful in violation of Article 341 (1) 2 of the Commercial Act and the proviso to Article 341 (1) of the Commercial Act).

2) Whether it constitutes a provisional payment without office

A) Article 28 of the Corporate Tax Act and Article 53 of the Enforcement Decree of the same Act include not only purely meaningful loans, but also loans corresponding to the nature of claims such as indemnity bonds (see Supreme Court Decision 2005Du1558, Oct. 26, 2006). In the event a sales contract becomes null and void from the beginning or its last cancellation, etc., the sales price received by the transferor should be returned to the transferee in principle, and thus, it cannot be subject to capital gains tax by deeming the transferor’s income as income (see Supreme Court Decision 2010Du25152, Aug. 25, 201). Thus, when determining whether the sales price paid by the corporation for acquiring its own stocks falls under a provisional payment outside of business scope under Article 28(1)4 (b) of the Corporate Tax Act, if the acquisition price of its own stocks is invalid, in principle, the sales price of the stocks should be determined on the premise that it was paid in return for the acquisition of the stocks.

B) As seen earlier, KoreaOO constitutes a shareholder of the Plaintiff, and it is reasonable to deem that the Plaintiff’s transaction of the instant shares is null and void as an acquisition of the shares in violation of the Commercial Act. Thus, the purchase price of the instant shares paid to KoreaO is not paid for the acquisition of the instant shares, but paid without any legal cause, and thus, the Plaintiff as the Plaintiff shall recover the purchase price from KoreaO immediately. Nevertheless, the Plaintiff asserted the validity of the acquisition of the instant shares and voluntarily avoided or renounces the recovery without any justifiable reason. Thus, the purchase price of the instant shares should be deemed a provisional payment that the Plaintiff paid to KoreaO regardless of its specially related party’s business. Accordingly, this part of the Plaintiff’s

3) Whether the act constitutes wrongful calculation

A) “Calculation by wrongful act” under Article 52 of the Corporate Tax Act refers to an act of reducing or excluding the tax burden incurred when a taxpayer takes a bypassing act, a multi-stage act and other abnormal transaction form, instead of a normal economic person’s rational transaction form. Determination as to whether such economic rationality exists shall be based on whether the transaction is abnormal in light of sound social norms and commercial practices (see, e.g., Supreme Court Decision 2002Du11479, Feb. 13, 2004).

B) As seen earlier, the Plaintiff’s return of paid-in capital to the Korea Exchange, which was a major shareholder by purchasing the instant shares, thereby undermining the company’s interests and undermining the company’s capital foundation, shareholders, and creditors, and also violated the principle of shareholder equality. As such, the Plaintiff’s failure to recover the purchase price of the instant shares paid to KoreaO without any legal cause, constitutes an abnormal act that lacks economic rationality in light of sound social norms and commercial practice, and constitutes “a case where money is lent or provided free of charge or at a rate lower than the market price, or an act equivalent thereto,” and thus, constitutes “an act that is subject to the avoidance of wrongful calculation by wrongful calculation.” Accordingly, the Plaintiff’s assertion on this part is without merit.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit, and the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.