Plaintiff 1 and four others (Law Firm Seon, Attorneys Kang Jin-sil et al., Counsel for the plaintiff-appellant)

Head of the District Tax Office and one other (Government Law Firm, Attorneys Kim Jae-hoon et al., Counsel for the plaintiff-appellant)

Seoul Administrative Court Decision 2011Gudan8065 decided December 6, 2011

June 13, 2012

1. All appeals filed by the Defendants are dismissed.

2. The costs of appeal are assessed against the Defendants.

3. In accordance with the decision of the court of first instance, the “attached Table 2 subparag. 2” in paragraph (1) of the decision of the court of first instance shall be corrected to “attached Table 1 subparag. 2 subparag. 1 and 2

1. Purport of claim

The disposition of imposition of each transfer income tax listed in attached Table 1 (1) and (2) of attached Table 1, attached Table 2 (1) of attached Table 1, attached Table 2 (1) and (2) of attached Table 1 against the plaintiff 4 and 5 by the head of Seocho District Tax Office shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiffs' claims are dismissed in entirety.

1. The part citing the judgment of the court of first instance

The reasoning of this court’s ruling is as follows: “The developments leading up to the dispositions of the first instance, whether the dispositions of the second instance are legitimate; (b) the Plaintiffs’ assertion, the relevant statutes, and the facts of multi-recognition” may be applied under the 8,9th sentence below the 3rd judgment of the first instance; and (c) the corresponding part of the judgment of the first instance (from the second to the fourth fourth sentence) with the exception of adding the Plaintiffs’ assertion as follows. In accordance with Article 8(2) of the Administrative Litigation Act; Article 420 of the Civil Procedure Act, the corresponding part shall be cited.

【 even if the grace period expires as alleged by the Defendants, in light of the above provisions, the invalidation of the grace period for small and medium enterprises, which is premised on the application of the grace period for small and medium enterprises, may also be calculated from the business year following the business year in which the relevant grounds arise, and the small and medium enterprises that are subject to reduction of capital gains tax as of the end of the business year immediately preceding the business year in which the transfer date

2. Determination

A. Relevant regulations and purport

1) Article 167-8 of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 21195 of Dec. 31, 2008) provides that "small and medium enterprises prescribed by Presidential Decree" shall mean enterprises falling under small and medium enterprises under Article 2 of the Framework Act on Small and Medium Enterprises as of the end of the business year immediately preceding the business year to which the date of stock transfer belongs as of the end of the business year immediately preceding the business year to which the date of stock transfer belongs." Article 2 (3) of the Framework Act on Small and Medium Enterprises provides that "Where a small and medium enterprise ceases to fall under a small and medium enterprise due to expansion of its size, etc., it shall be deemed that it has been for three years from the year following the year when such cause occurs: Provided, That this shall not apply to cases where it is merged with a company other than a small and medium enterprise or it is no longer a small and medium enterprise due to other reasons prescribed by Presidential Decree." Article 9 (1) 1 of the Enforcement Decree of the same Act provides that "

2) Under Article 2(3) of the Framework Act on Small and Medium Enterprises, where a company that was a small and medium enterprise ceases to be a small or medium enterprise due to expansion of its size, etc., the purpose of which is to mitigate the shock level received by temporarily suspending existing support from the year in which such cause arises to a company that was a small or medium enterprise. The proviso to Article 2(3) of the Framework Act on Small and Medium Enterprises and Article 9 subparag. 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises does not allow a grace period under the grace period, in cases where a company that was a small or medium enterprise does not fall under a small or medium enterprise due to merger with a company other than a small or medium enterprise or other reasons prescribed by Presidential Decree. This seems to be prescribed in order to prevent tax avoidance, etc. that may be caused by the application of special provisions, such as tax reduction

B. Determination

1) The key issue of the instant case is whether the deferred company can be deemed as grounds for exclusion from postponement in the event of a merger of a small and medium enterprise, and whether it becomes null and void immediately after the occurrence of the cause thereof. The principle of no taxation without representation prevents the requirements for taxation, non-taxation, or tax reduction and exemption, and the interpretation of tax laws and regulations is not allowed to be expanded or analogically interpreted without reasonable grounds (see Supreme Court Decision 2005Da19163, May 25, 2006, etc.).

2) In light of the above provisions and purport of the relevant statutes, the provisions that exclude the deferment of small and medium enterprises under the proviso of Article 2(3) of the Framework Act on Small and Medium Enterprises and Article 9 subparag. 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises apply to cases where a small and medium enterprise merges with a postponed enterprise as the principal agent, as in the instant case, it does not apply to cases where a postponed enterprise merges with a small and medium enterprise as the principal agent, and even if not, it is reasonable to view that there is no legal ground to immediately suspend benefits

First, according to the main text and proviso of Article 2(3) of the Framework Act on Small and Medium Enterprises, both of the main text and proviso of Article 2(3) of the Framework Act on Small and Medium Enterprises proposed “where a small and medium enterprise ceases to be a small and medium enterprise due to a certain reason.” (2) If a small and medium enterprise ceases to be a small and medium enterprise due to other reasons prescribed by Presidential Decree, it constitutes a requirement for exclusion from postponement. However, since a postponed enterprise has already become a small and medium enterprise due to an increase in the size of regular workers, size of assets, sales, etc. prior to the occurrence of a reason prescribed by Presidential Decree, it cannot be deemed as a “small and medium enterprise which is not a small and medium enterprise due to any other reason prescribed by Presidential Decree” even if it is merged with a small and medium enterprise. This appears likewise to be a case where a postponed enterprise is assumed to be a “small and medium enterprise” as the main body of the proviso to Article

Second, it is against the main text and proviso of Article 2(3) of the Framework Act on Small and Medium Enterprises to interpret that, as argued by the Defendants, the provisions of Article 9 subparag. 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises are applied to a merger between a postponed enterprise and a small and medium enterprise, a postponed enterprise is excluded from the deferment of a small and medium enterprise regardless of the merger between a postponed enterprise and a postponed enterprise, and the remaining enterprise is invalidated in the case of a postponed enterprise. This is against the main text and proviso of Article 2(3) of the Framework Act on

Third, the Defendants asserted that the deferred company's merger between a small and medium enterprise and a company deemed a small and medium enterprise under the main sentence of Article 2 (3) of the Framework Act on Small and Medium Enterprises has changed from "a merger between a small and medium enterprise and a company deemed a small and medium enterprise under the main sentence of Article 2 (3) of the Act" to "a merger between a company and a small and medium enterprise under the period deemed a small and medium enterprise under the main sentence of Article 2 (3) of the Act" to "a merger between a postponed company and a small and medium enterprise under the main sentence of Article 2 (2) of the Act." However, as seen earlier, the proviso of Article 2 (3) of the Framework Act on Small and Medium Enterprises as the mother company provides that "a small and medium enterprise is not a small and medium enterprise due to a reason prescribed by Presidential Decree" and thus, the interpretation of the Defendants, as alleged by the Defendants, is beyond the scope

Fourth, there is no express provision that deferment of small and medium enterprises will be immediately invalidated from that time when a postponed company is merged with a small and medium enterprise as the principal agent of merger under the proviso of Article 2 (3) of the Framework Act on Small and Medium Enterprises and Article 9 (1) of the Enforcement Decree of the Framework Act

Fifth, even if the Defendants’ assertion constitutes grounds for exclusion from postponement, in light of the language and text of the proviso of Article 2(3) of the Framework Act on Small and Medium Enterprises and the purport of the deferment system, which provides that “the same shall not apply to a case that does not constitute a small or medium enterprise,” the above provision can only be interpreted as not granting a new grace period even after a merger with a small or medium enterprise, and it cannot be interpreted that the grace benefits

3) 위와 같은 법리와 사실관계 등을 종합하면, 띵소프트를 합병한 이 사건 법인은 주식 양도일이 속하는 사업연도의 직전 사업연도 종료일 현재 여전히 중소기업에 해당한다고 할 것이다. 이와 다른 전제에 선 이 사건 처분은 위법하다.

3. Conclusion

The judgment of the court of first instance is justifiable. All appeals filed by the Defendants are dismissed. However, since the “attached Table 2 subparag. 2” in paragraph (1) of the judgment of the court of first instance is erroneous in the attached Table 1 List 2 subparag. 1 and 2, it shall be corrected.

[Attachment]

Justices Kim Jong-ho (Presiding Justice)