The early trial of 2014 father-5745

Whether it is a related company or not shall be based on the standard of the immediately preceding business year and on the end of the relevant business year.

Whether or not a small or medium enterprise is subject to special taxation under the former Restriction of Special Taxation Act shall be determined in accordance with the former Restriction of Special Taxation Act and its Enforcement Decree, and it shall not be determined by the Framework Act on Small and Medium Enterprises.

Article 7 of the Restriction of Special Taxation Act (Special Tax Abatement or Exemption for Small or Medium Enterprises)

2015Guhap21979 Revocation of Disposition of Corporate Tax Imposition

AA Corporation

J Head of J Tax Office

September 15, 2015

October 27, 2015

1. The plaintiff's claim is dismissed.

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

The Defendant’s corporate tax of KRW 513,569,610 (including additional tax) for the business year 2012 against the Plaintiff on June 2, 2014 shall be revoked.

1. Details of the disposition;

(a) The Plaintiff and BBB Co., Ltd. (hereinafter referred to as “BB”) aim at the manufacture and sale of household appliances for household appliances, and the shareholder composition from December 31, 201 to December 31, 201, and the sales for each business year of 2011 and 2012 are as listed below:

B. Meanwhile, the Plaintiff became subject to external audit pursuant to Article 2 of the Act on External Audit of Stock Companies from the business year 2012 (hereinafter “Act on External Audit”).

C. The Plaintiff filed an application for special tax reduction or exemption with respect to a small or medium enterprise pursuant to Article 7 of the former Restriction of Special Taxation Act (amended by Act No. 11614, Jan. 1, 2013; hereinafter the same) at the time of filing a corporate tax return for 2012 business year. However, the Director of theCC notified the Defendant of the pertinent taxation data on the ground that “the Plaintiff is not subject to special tax reduction or exemption with respect to a small or medium enterprise where the total amount of sales revenue for 2012 business years exceeds 10 billion won based on the date of the business year 2012, when adding to KimD, the Plaintiff owned at least 30% of the shares BBB as the largest investor, while holding more than 30% of the shares of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 25302, Apr. 14, 2014).”

D. Accordingly, the Defendant issued the instant disposition to the Plaintiff on June 2, 2014, which corrected and notified KRW 513,569,610 (including additional taxes) corporate tax for the business year 2012.

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on August 21, 2014, but the said appeal was dismissed on April 27, 2015.

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 to 5, purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

In full view of Article 2(1)3 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 24368, Feb. 15, 2013; hereinafter the same) and Article 3(1)2(c) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises, the term "small and Medium Enterprises subject to special tax reduction or exemption" under the former Restriction of Special Taxation Act shall be "actual independence of small and medium enterprises conforms to Article 3(1)2 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises"; i.e., in cases of an enterprise belonging to a related enterprise, the number of full-time employees calculated pursuant to Article 7-4 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises is at least 1,00 billion won, and its equity capital is at least 100 billion won, or its total assets is at least 50 billion won, and thus, the determination of whether the Plaintiff constitutes a small and medium enterprise's sales for the immediately preceding two business years shall be based on the Plaintiff's sales for the two business year.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Determination as to whether the relevant company is a related company

Article 2(1) of the former Enforcement Decree of the Restriction of Special Taxation Act provides for special taxation for small and medium enterprises in Chapter II, Section 1, etc., and Article 2(1) of the former Enforcement Decree of the Restriction of Special Taxation Act provides that "The actual independence of small and medium enterprises shall meet the standards of Article 3(1)2(c) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises" (Article 3(1)2(c) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises or "in applying Article 3(1)1 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises, it shall not meet the standards of attached Table 1 or meet the standards of Article 2(1)1 of the former Enforcement Decree of the Restriction of Special Taxation Act (Article 2(1)4 of the former Enforcement Decree of the Restriction of Special Taxation Act)" (Article 3(1)1 of the former Enforcement Decree of the Restriction of Special Taxation Act for a company belonging to a related company, which shall be less than 100 million won, total amount of assets less than 500 billion won, less than 100 billion won.

(1) The Plaintiff’s sales for the business year 201 + KRW 50.7 billion + (the Plaintiff’s holding ratio of shares to BBB by the BB x KRW 25% x BB’s sales for the business year 2011 x KRW 120.8 billion)

2) Determination as to whether it constitutes a small and medium enterprise

A) The Plaintiff’s sales revenue calculated pursuant to Article 7-4 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises should be below KRW 100 billion, which is subject to special tax reduction and exemption under the former Restriction of Special Taxation Act. The following is examined as to whether the standard for calculating sales revenue as above should be the end of 2012 business year, which is the pertinent taxable year of the disposition of this case, or whether it should be the business year of 2011, which

B) According to Article 2(1) of the former Enforcement Decree of the Restriction of Special Taxation Act and Article 3(1) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises, in order for related enterprises to become small and medium enterprises, the standards by type of business (in the case of manufacturing businesses, less than 300 full-time workers or less than 8 billion won in capital) and the upper limit (less than 1,000 full-time workers, less than 50 billion won in total assets, less than 100 billion won in equity capital, less than 100 billion won in total assets, and less than 10 billion won in sales) set forth in attached Table 1 shall be satisfied. However, in the case of the Enforcement Decree of the Restriction of Special Taxation Act

However, the former Enforcement Decree of the Framework Act on Small and Medium Enterprises only provides for the standards for each type of business subject to the policy to foster small and medium enterprises, but does not impose restrictions on the type of business itself, while the former Restriction of Special Taxation and its Enforcement Decree set the requirements of small and medium enterprises under some provisions of the Framework Act on Small and Medium Enterprises and restrict the application of special taxation from tax policy consideration to a specific type of small and medium enterprise (main sentence of Article 2(1) of the former Enforcement Decree of the Restriction of Special Taxation Act). In addition, the former Restriction of Special Taxation and its Enforcement Decree separately stipulate a provision of suspending the application of special taxation for a certain period of time if a small and medium enterprise is no longer a small and medium enterprise due to expansion of its size or changes in the Acts and subordinate statutes (Article 2(2) and (5) of the former Enforcement Decree of the Restriction of Special Taxation Act), and the former Enforcement Decree of the Restriction of Special Taxation and its Enforcement Decree shall not be determined by the Framework Act on Small and Medium Enterprises (see, e.g., Supreme Court Decision 2013Du1458).

C) In light of the aforementioned legal principles, it is reasonable to view that the Enforcement Decree of the Restriction of Special Taxation Act separately determines whether the instant case constitutes a small or medium enterprise subject to special taxation under the Framework Act on Small and Medium Enterprises, taking into account tax policy factors, and thus, whether the Plaintiff constitutes a small or medium enterprise subject to special taxation under the former Restriction of Special Taxation Act should be determined pursuant to the Enforcement Decree of the Restriction of Special Taxation Act, and such determination shall not

(4) Article 2 (4) of the former Enforcement Decree of the Restriction of Special Taxation Act provides that "the number of employees ordinarily employed pursuant to the proviso to paragraph (1) and subparagraph 1 and the latter part of subparagraph 3 of the same paragraph shall be prescribed by Ordinance of the Ministry of Strategy and Finance." Article 2 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Ordinance of the Ministry of Strategy and Finance No. 322 of February 23, 2013; hereinafter the same shall apply) shall be less than 0 billion won if the number of employees ordinarily employed pursuant to the proviso to Article 2 (1) of the former Enforcement Decree of the Restriction of Special Taxation Act is less than 1, 1, 200 billion won after adding the number of employees as of the end of each month of the relevant taxable year to 1, 200 billion won after the end of the relevant taxable year (the number of employees), 1, 2000 won after the date of the relevant taxable year, and 3, 1,000 won after the end of the relevant taxable year."

D) According to Article 7-4 [Attachment 2] of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises, the Plaintiff directly controls BBB, which is a subordinate company, and constitutes a case of formal control. The Plaintiff’s total sales calculated by the method prescribed in the above [Attachment 2] shall be the Plaintiff’s sales as of the end of 2012 business year, which is the pertinent business year of the disposition of this case, including the Plaintiff’s share ownership ratio to BB, and sales calculated by multiplying BB as of the end of 2012 by the sales as of the end of 2012 business year of BB, and does not meet the criteria prescribed in Article 2(1) of the former Enforcement Decree of the Restriction of Special Taxation Act. Thus, it is reasonable to view that the Plaintiff does not constitute a small and medium enterprise subject to special tax reduction or exemption under the former Restriction of Special Taxation Act at the time of business year 2012, and there is no illegality in the Defendant’s disposition

3. Conclusion

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