Early High Court Decision 201Du008 ( October 28, 2011)

Since it is not a start-up business that is converted into a corporation by succession or expansion of business or by adding similar types of business, it cannot be reduced or exempted

Where a new corporation is established by converting a business run by a resident into a corporation, where it is difficult to deem that a new business is commenced for the first time, such as business expansion or addition of another type of business, it is reasonable to deem that the Plaintiff is converted into a corporation by succession, expansion, or addition of similar type of business.

2011Guhap6173 Revocation of Disposition of Corporate Tax Imposition

XX Co., Ltd

Head of Ansan Tax Office

September 22, 2011

October 6, 2011

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of corporate tax of KRW 213,86,130 for the business year of 2005 against the Plaintiff on October 14, 2010 and the imposition of corporate tax of KRW 85,520,890 for the business year of 2006 shall be revoked.

1. Details of the disposition;

A. The Plaintiff was established on June 27, 2003 and engaged in the business of manufacturing electrical and electronic telecommunications products, and its trade name was changed from ASEAN to Y on July 31, 2003, and from June 30, 2008, to OO as of June 30, 2008.

B. At the time of the establishment of the Plaintiff’s representative director ChoA had operated an individual business with the trade name XX.

C. On November 8, 2004, the Plaintiff confirmed venture businesses by the Administrator of the Gyeonggi-do Small and Medium Business Administration, and reported the amount of corporate tax of 258,91,543, corporate tax of 2004 business year belonging to the business year of 2005, corporate tax of 143,117,710, and corporate tax of 61,779,163 belonging to the business year of 2006 as abated or exempted for the small and medium venture enterprises.

D. On October 14, 2010, the Defendant denied the tax amount reduced or exempted for the small and medium start-up venture enterprise under Article 6 of the Restriction of Special Taxation Act by deeming that the Plaintiff’s succession to the business in XX and continued to conduct the same business, and does not constitute a case of start-up (hereinafter “instant disposition”) and corrected and notified the Plaintiff of the corporate tax as stated in the purport of the claim.

E. The Plaintiff appealed and filed an appeal with the Tax Tribunal on December 10, 2010, but the claim was dismissed on February 28, 201.

[Ground of recognition] Facts without dispute, Gap evidence 1-2, Gap evidence 2, Eul evidence 1-1-2, Eul evidence 1-2 and the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

XX not only the Plaintiff, as an individual entrepreneur, but also the Plaintiff was normally operated for one year and nine months after its establishment, and the Plaintiff’s major production items, main trading places, and types of business are different and thus neither succeeded to the business nor converted into the Plaintiff as the Plaintiff. Since the Plaintiff established a venture business, it is unlawful to deny the instant disposition, even though it constitutes the subject of reduction or exemption under Article 6 of the Restriction of Special Taxation Act.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

1) On June 25, 2001, the Plaintiff’s Internet homepage disclosure column is inserted as “the establishment of XX (Representative ChoA)” and “the conversion of corporation (Co., Ltd.) on June 2003.”

2) At the time of the establishment of the Plaintiff’s place of business, the location of the Plaintiff was the same as that of the AAdong 000-0 at that time, and the Plaintiff was established under XX similar trade name (AW), and the Plaintiff changed its trade name (P), in the same way as the PP was established for one month.

3) Article XX and the Plaintiff’s business classification code are the same as that of the electronic parts manufacturing industry (coding number 321000). Moreover, Article XX manufactures cell phone-related electromagnetic shielding products and mainly sells them to △△△△△△ Electric Telecommunication Co., Ltd.., and the Plaintiff also applied for and registered a patent for electromagnetic shielding technology, and the Plaintiff also designated “electronic shielding materials and components” as export promising small and medium enterprises with manufacturing products. Meanwhile, the above △△te and △ Electronic Co., Ltd, the main sales office of XX, both of the Plaintiff’s establishment and the Plaintiff’s main sales office, have made a transaction with the Plaintiff to supply necessary parts from the Plaintiff.

4) Upon examining the status of stockholding of the Plaintiff reported to the competent tax office at the time of the establishment of the Plaintiff, the MediationA, which operated XX, appears to hold 60% shares as a major shareholder, and the grandchildren, InCC, and KimD, who are the spouse of the said lineal ascendant or descendant or the spouse of the said sibling, appear to hold the remaining 40% shares.

5) Once the Plaintiff was established, a considerable number of employees in XX were transferred to the Plaintiff’s workplace, and the rest of July 2003 did not make a final report on earned income tax.

6) The sales revenue of XX amount sharply decreased in the second half of 2003 established by the Plaintiff and became zero won in 2004. On the other hand, the Plaintiff’s sales revenue amount amounted to KRW 2.437 million in the initial period of establishment in the second half of 2003 and increased in 2004, while the sales amount of the Plaintiff amounted to KRW 2.437 billion in the initial period of establishment in the second half of 2003, it appears

[Ground of Recognition] Facts without dispute, Gap evidence 2, 4, 5, Gap evidence 6-1, 2, Gap evidence 8, Gap evidence 11-1, Gap evidence 12-1, 2, Eul evidence 2-7 and the purport of whole pleadings

D. Determination

According to Article 6(2) of the former Restriction of Special Taxation Act (wholly amended by Act No. 8086 of Dec. 26, 2006; hereinafter the same) and Articles 2(1), 2-2(1), and 25 of the former Act on Special Measures for the Promotion of Venture Businesses (wholly amended by Act No. 8284 of Jan. 26, 2007), in cases of a company verified as a venture business (hereinafter referred to as a "small and Medium Venture Enterprise") within two years after its establishment, the tax amount equivalent to 50/100 of the corporate tax on the income accrued from the relevant business may be reduced or exempted, but Article 6(4) of the former Restriction of Special Taxation Act provides that where a new corporation is established by converting a business operated by a resident into a corporation (Article 2) and it is difficult to deem that a new business is commenced for the first time due to the impossibility of tax reduction or exemption (Article 4).

In full view of the facts acknowledged earlier, it is reasonable to see that the Plaintiff’s business run in XX is succeeded to or expanded or converted into a corporation by adding a similar type of business, and it is difficult to see that the Plaintiff newly started a business. Therefore, it cannot be said that it falls under Article 6(4)2 or 4 of the former Restriction of Special Taxation Act and is subject to tax reduction or exemption under

Therefore, the instant disposition is lawful, and the Plaintiff’s assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.