Cho Jae-2016,0611 (Law No. 18, 2016)

stock options are granted from overseas parent companies and the event costs are covered by overseas parent companies.

The Plaintiff Company compensated for expenses such as stock options, etc. to foreign parent companies in return for work provided by its executives and employees for the Plaintiffs, and the shares of expenses, such as stock options, constitute losses as personal expenses.

Article 19 (Scope of Losses)

2016 Gohap69437 Revocation of a disposition rejecting rectification

AAA, Inc.

BB Director of the Tax Office

July 21, 2017

August 25, 2017

1. On October 6, 2015, the Defendant’s disposition of refusal to rectify corporate tax of 000 won for the business year 2010, corporate tax of 000 won for the business year 201, and corporate tax of 000 won for the business year 2012 is revoked.

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. On December 2, 2015, AAB Company was merged with the Plaintiff, a subsidiary company, and dissolved on December 2, 2015 (hereinafter referred to as “Plaintiff”) with the English corporation BB owned 100% shares.

B. The officers and employees of the Plaintiff are BB and their subsidiaries (hereinafter collectively referred to as “BB group”).

The stock-based compensation system (hereinafter referred to as the “instant system”) operated for officers and employees of the World BB Group.

Pursuant to BB, the difference compensation-type stock option (hereinafter referred to as the “instant stock option”) from BB

The choice of purchase was granted, and it was exercised in 2010 to 2012.

C. DD (BB owned 100% shares of 100% shares) as an English corporation, the Plaintiff’s officers and employees remitted the compensation expenses incurred by the Plaintiff’s exercise of the instant stock option to the Plaintiff, and the Plaintiff paid them to its officers and employees.

D. On August 10, 2012, the Plaintiff: (a) between DD and DD upon exercising the instant stock option; (b) KRW DD upon exercising the instant stock option.

The agreement was made to reimburse the compensation costs paid to Gohap (hereinafter referred to as the “instant agreement”) and accordingly 000 won (00 won for the exercise of 2010, 000 won for the event of 2010, and 000 won for the event of 2011;

In 2012, the event amounted to KRW 000 was paid to DoD, thereby preserving it (hereinafter referred to as 'the event amount').

The amount of total preservation (hereinafter referred to as "amount of total preservation").

E. On April 30, 2014, the Plaintiff’s business year from 2010 to 2012, as indicated below, to the Defendant.

Each project to which the date of exercising the stock option belongs with respect to corporate tax

income tax base and amount of corporate tax included in the expenses of the year and seek a refund of the amount of tax;

On October 6, 2015, the Defendant claimed the Plaintiff to purchase shares after the date of the instant agreement. The Defendant selected the Plaintiff to purchase shares after the date of the instant agreement.

The plaintiff's remaining claims against "amount of tax requested for correction" as stated below, which recognized only the amount of compensation for the portion of exercise of rights as deductible expenses, were rejected (hereinafter referred to as "disposition of this case").

F. On December 23, 2015, the Plaintiff filed an appeal with the Tax Tribunal on the grounds that the Plaintiff did not object to the appeal. However, the tax trial was conducted.

On April 18, 2016, the Board dismissed the Plaintiff’s claim.

Facts without any dispute, Gap's 1 through 5, the purport of the whole pleadings, and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The amount of the preservation of this case paid by the Plaintiff to DD is an economic profit paid by the Plaintiff in return for the labor of its officers and employees, and the former Enforcement Decree of Corporate Tax Act (Presidential Decree No. 22035, Feb. 18, 2010

"Labor cost" under Article 19 (3) of the Act is applicable to "labor cost", and even if not, the same shall apply.

Since the requirements of Article 19 (19) are met, the amount of preservation in this case shall be included in the calculation of losses.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) The Plaintiff has been applying the instant compensation system since the incorporation into BB around 2005.

The compensation system of this case is divided into International Spave Bank (hereinafter referred to as the "ISO") and Perst Bank (hereinafter referred to as the "PSP"), Reded Spawme (hereinafter referred to as the "RS") covering some officers and employees. The contents of the ISD, PSP, and ES are as follows.

2) The instant compensation system is related to the operation of the instant compensation system within BB Group.

A claimant corporation shall transfer the amount of compensation to the claimant corporation under the overall control of the affairs, and the claimant corporation shall respectively be appointed

the Corporation shall pay the amount of compensation to the Corporation, and the Corporation shall charge the amount of compensation to the Corporation, after which the

It is a structure that preserves BD.

3) On April 18, 2005, the Plaintiff drafted a written agreement with 000 chapters of the 00 Industrial Trade Union nationwide, and decided to replace the employee stock ownership employee system already planned within 2005 with the ISD and ES system operated by D.

Facts that there is no dispute over the basis of recognition, entries in Gap evidence 1, 4, 6 through 8, and the purport of the whole pleadings

D. Determination

1) Article 19 of the Corporate Tax Act and Article 19 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010)

section 19 of the current Corporate Tax Act (hereinafter referred to as the "Act") provides that "the amount of losses incurred by transactions which reduce the net assets of the corporation except as otherwise provided for in this Act" shall be "the refund of capital or financing, disposal of surplus funds and transactions which reduce the net assets of the corporation" and "the amount of losses" shall be deemed as "the amount of losses."

except as otherwise provided in other laws and regulations, the Corporation’s business

generally accepted, as losses or expenses paid or incurred in such a manner as to be generally accepted

The scope, classification, etc. of losses under paragraph (3) shall be the case.

Article 19 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 24575, Jun. 11, 2013; hereinafter referred to as the "Enforcement Decree of the Act") provides for the scope of losses in subparagraph 3.

2) In light of the following circumstances, the content and purport of the above provisions, the facts acknowledged earlier, and the purport of the entire pleadings, it is reasonable to view that the amount preserved by the Plaintiff in accordance with the instant agreement constitutes “labor cost” under Article 19 subparag. 3 of the Enforcement Decree of the Act, as it was paid by the Plaintiff in relation to the pertinent business for the purpose of creating business profits.

A) “Labor cost” under Article 3 of the Enforcement Decree of the Act refers to the cost paid to an employee as a consideration for work (see, e.g., Supreme Court Decision 97Nu14194, Jun. 25, 199). Stock options are designed to maximize the performance by attracting an employee to gain profit from the purchase of stocks in the future by granting them, and thus contribute to the refund of the cost for the provision of labor and the creation of a corporation’s profit. For the same purpose, Article 38(1)17 of the Enforcement Decree of the Income Tax Act provides that “the profit gained by exercising the stock options granted to an officer or employee of a corporation or a corporation in a special relationship under Article 87 of the Enforcement Decree of the Corporate Tax Act with the corporation, etc.” as one of the wage and salary income. Accordingly, the cost borne by the corporation by exercising the stock options to an employee or employee under its control falls under the labor cost under subparagraph 3 of the Enforcement Decree of the Act, barring any special circumstance such as granting it to an employee or employee beyond the generally acceptable scope.

B) If the subsidiary compensates for the expenses for exercising the stock option to the parent company which granted the stock option to its executives and employees in accordance with the prior agreement, this would eventually result in the subsidiary’s burden of the expenses for exercising the stock option. As such, the amount compensated for the parent company should also be considered as the labor cost as stipulated in Article 19 subparag. 3 of the Enforcement Decree of the Corporate Tax Act. In cases where an officer or employee exercises the stock option granted to him/her on February 4, 2009 under Article 19 subparag. 19 of the Enforcement Decree of the Corporate Tax Act as amended by Presidential Decree No. 21302 of the Corporate Tax Act, the purport of confirming that the provision that

C) In the instant case, even though the explicit agreement between the Plaintiff and DD to compensate for the instant compensation costs arising from the exercise of the instant stock option was drafted on August 10, 2012, the Plaintiff was incorporated into BB Group and agreed to compensate for the instant compensation costs if its executives and employees exercise the instant stock option in the future by implementing the instant compensation scheme. Therefore, it is reasonable to view that the Plaintiff agreed to compensate for the instant compensation costs to BB Group (DD). Therefore, at the time of granting the instant stock option or at least before exercising the stock option, there was an agreement on compensating for the costs. As such, at the time of granting the instant stock option or at least before exercising the stock option, the amount equivalent to

D) The Defendant asserts that the gains from the exercise of stock options are piece rates and cannot be included in the calculation of losses. Article 19(1) and Article 20 subparag. 1 of the Act, and Article 43(1) of the Enforcement Decree of the Act provide that “the amount appropriated as losses for the disposal of surplus excluding certain piece rates” or “the bonus paid by a corporation to its executives or employees by the disposal of profits” shall not be included in the calculation of losses in principle. The term “profit disposition” refers to the payment by the approval of the general meeting of shareholders stated in the disposition item in the appropriation of profits. However, there is no evidence that the Plaintiff’s officers or employees were bonuses by the disposal of profits.

3) Therefore, the amount of the instant preservation should be included in the loss as it falls under the “labor cost” under Article 19 subparag. 3 of the Enforcement Decree of the Act. Thus, the instant disposition issued on a different premise is unlawful. As long as the amount of the instant preservation should be included in the loss as it falls under Article 19 subparag. 3 of the Enforcement Decree of the Act, whether it constitutes Article 19 subparag. 19 of the Enforcement Decree of the Act

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.