Cho High Court Decision 2009J3282 (Law No. 1010,06.29)

A corporation

Dismissal

It does not simply add the existing factory production facilities, but it constitutes a new factory established while being subject to tax reduction or exemption after the relocation to a regional factory other than the overconcentration control region in the Seoul Metropolitan area, and thus does not constitute income subject to tax reduction or exemption for the relocation

Article 63 of the Restriction of Special Taxation Act for Small and Medium Enterprises Relocated Outside Overconcentration Control Zone of Seoul Metropolitan Area

The appeal is dismissed.

1. Summary of disposition;

A. On February 16, 1998, the applicant corporation established and operated the head office and factory in OOOOOOOOO for the purpose of carrying out the manufacturing of plants and machinery and equipment. On January 2001, the head office and factory located in OOOOOOOOO (hereinafter “OOO”) located in the area other than the overconcentration control region in the Seoul Metropolitan area (hereinafter “the head office”) were transferred in whole after the relocation of the head office and factory to the head office and factory (hereinafter “OOOO”), and was subject to tax reduction or exemption for the small and medium enterprises located in the area other than the overconcentration control region in the Seoul Metropolitan area under Article 63(1) of the Restriction of Special Taxation Act during the income accruing from the relevant factory, OOOOOOOOO, OO, OOO, OOOOO, 300, 3000, 3700, 3600, 3600, 2000

(b)The Administration shall consider the income derived from the OO newly established in the business year of June 19, 2009 as not constituting the income subject to reduction and exemption provided for in paragraph 1 of Article 63 of the Restriction of Special Taxation Act and thus rejected the Claimant's request for correction.

C. The applicant filed an appeal on August 26, 2009.

2. Opinion of the requesting corporation and the disposition agency;

A. The claimant corporation's assertion

Article 63(1) of the Restriction of Special Taxation Act and Article 54(2) of the Enforcement Decree of the same Act merely stipulate “income accruing from the factory after the relocation” on the premise that the business type operated in the factory after the relocation and the business type operated in the factory after the relocation are the same, and there is no different provision on the scale of the factory after the relocation, i.e., the expansion and reduction of business within the same business type before and after the relocation, insofar as the business type is maintained with respect to income accruing from the factory after the relocation, regardless of the scale of the factory after the relocation, all reduction and exemption shall apply to the income that arises from the factory after the relocation, and it is interpreted that the reduction and exemption shall not be applied during the remaining reduction and exemption period only

In addition, in applying the tax reduction and exemption, it is interpreted that the tax reduction and exemption shall apply to the income accrued from two factories even if the production facilities are partially reconstructed and two factories are operated at the same time after the relocation to a single factory, and the income accrued from the same type of business is defined as the income subject to tax reduction and exemption, and it can be excluded from the income subject to the tax reduction and exemption in cases where the business exceeds the scope of small and medium enterprises due to the expansion of the size or exclusion of the same type of business as before the relocation, or where the business is additionally produced, the tax reduction and exemption can be applied to the case where a small and medium enterprise to which the tax reduction and exemption is applied relocates its factory and head office to a single factory located in the overconcentration control region in the Seoul Metropolitan area, or where a factory that produces the same kind of business is newly built within the overconcentration control region in the Seoul Metropolitan area after relocation to the same factory, even if the tax reduction and exemption is applied to the case where the

(b) Opinions of disposition agencies;

Where a small or medium enterprise operating a business with factory facilities installed in an overconcentration control region in the Seoul Metropolitan area under Article 63 (1) of the Restriction of Special Taxation Act and starts the business by relocating the entire factory facilities to an area other than the overconcentration control region in the Seoul Metropolitan area, the tax amount equivalent to 50/100 of the corporate tax shall be reduced or exempted for the income accruing from the factory after the relocation. The income accruing from the factory after the relocation is reasonable to relocate the factory located in the overconcentration control region in the overconcentration control region and start the business to an area other than the overconcentration control region in the Seoul Metropolitan area and to reduce or exempt the

3. Hearing and determination

A. Key issue

Whether the tax reduction or exemption for small or medium enterprises relocating over the overconcentration control region in the Seoul Metropolitan area may be applied to any income accruing from an O factory producing the same product as that produced by the O factory relocated under Article 63 of the Restriction of Special Taxation Act within the remaining tax reduction or exemption period of the O factory

(b) Related statutes;

(1) Restriction of Special Taxation Act (amended by Act No. 7003 of Dec. 30, 2003)

Article 63 (Tax Abatement or Exemption for Small or Medium Enterprises Relocated Outside Overconcentration Control Region in the Seoul Metropolitan Area) (1) When any small or medium enterprise (limited to nationals) operating a business with factory facilities installed in the overconcentration control region in the Seoul Metropolitan area for more than two consecutive years has commenced the business not later than December 31, 2005 after all of such factory facilities have been relocated (limited to the case where the headquarters or principal office is relocated together with the relevant headquarters or principal office where the headquarters or principal office is located in the overconcentration control region in the Seoul Metropolitan area) to an area other than the overconcentration control region in the Seoul Metropolitan area under the conditions as prescribed by the Presidential Decree, the tax amount equivalent to 100/100 of the income or corporate tax for the taxable year whereto belongs the date of relocation for the income accruing from the factory after the relocation

(2) Where a small or medium enterprise subjected to reduction or exemption under paragraph (1) falls under any of the following subparagraphs, the tax amount calculated under the conditions as prescribed by the Presidential Decree shall be paid as the income tax or corporate tax:

1. Where the corporation discontinues its business or is dissolved within three years from the date on which it starts its business after relocating its factory: Provided, That this shall not apply to cases due to merger, division, or merger by split;

2. Where business commences by relocating the factory to an area other than the Seoul Metropolitan area under the conditions as prescribed by the Presidential Decree.

3. Where it installs a factory producing the same products as those produced at the factory relocated under paragraph (1) or sets up the head office in the overconcentration control region in the Seoul Metropolitan area during the period subjected to abatement or exemption under paragraph (1);

Article 63-2 (Temporary Special Tax Abatement or Exemption for Relocation of Factory and Head Office to an area outside the Seoul Metropolitan Area) (1) Any corporation meeting the requirements of the following subparagraphs (hereafter referred to as "corporation relocated to an area outside the Seoul Metropolitan Area" in this Article) may be subjected to the reduction or exemption of corporate tax pursuant to the provisions of paragraphs (2) through (4): Provided, That this shall not apply to any corporation that runs real estate

1. A corporation that has been engaged in business with factory facilities for at least three consecutive years in the overconcentration control zone of the Seoul Metropolitan Area or has its head office or principal office (hereafter referred to as "head office" in this Article) for at least three consecutive years;

2. It is required that it should, under the conditions as prescribed by the Presidential Decree, relocate its entire factory and facilities or its head office to an area outside the Seoul Metropolitan area and start business there one or before December 31, 2005 (in case of the relocation of factory and facilities to another Metropolitan City, limited to an industrial complex under the Industrial Sites and Development Act; hereafter the same shall apply in this Article), or that it should build a new factory or head office in an area outside the Seoul Metropolitan area and start business on or before December 31, 2008 (limited to the case where it acquires a site for its factory or head office on or before December 31, 2005, and submits a relocation plan at the time of filing

(2) With respect to the income falling under any of the following subparagraphs, the whole amount of the corporate tax for the taxable year whereto belongs the date of relocation and the taxable year ending within 4 years from the beginning date of the following taxable year, and the tax amount equivalent to 50/100 of the corporate tax for the taxable year ending within 2 years thereafter shall

1. Income accruing from a factory, in case where the factory is relocated;

(2) Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 18176, Dec. 30, 2003)

Article 54 (Scope, etc. of Exemplary Factory) (2) Relocation of a factory under Articles 60, 63 and 63-2 of the Act shall be the same type of business operated in the factory before and after the relocation on the basis of subdivisions in the Korean Standard Industrial Classification.

C. Facts and determination

(1) In light of the psychological data, such as an application for tax base consultation submitted by the applicant corporation, the fact that the applicant corporation was subject to corporate tax reduction or exemption by 100% of corporate tax until the business year 2001 through 2004 and 50% of corporate tax until the business year 2005 through 209, when it moved its head office and factory to an OO factory on January 2, 2001, when it was established and operated the head office and factory in the OOOOOO for the purpose of operating the manufacturing of plants and machinery and equipment on February 16, 1998.

After completing the relocation of the head office and factory as an O factory, there was a fact that the head office and the factory were established and operated respectively as listed below in March and December 2004.

(O) OOOOOOOOOOOOOOOOOOOOOOOO (OO)OOOOOOOOO.

(2) In light of the settlement of accounts, there is no dispute between the requesting corporation and the disposition authority as to the fact that OOOO is manufacturing and manufacturing the same product as the same type of business as that set forth below.

(3) Examining the annual product performance of OOOO on the balance sheet, etc. of the requesting corporation, as follows:

(O) OOO

(4) In light of the application of tax reduction and exemption and temporary tax credit for investment by OOOOOO in accordance with the corporate tax return, etc. of the applicant corporation, in the case of separate accounting by each workplace, regardless of the provisions of Article 127(4) of the Restriction of Special Taxation Act, the applicant corporation may be subject to tax reduction and exemption and temporary tax credit for each workplace in the same taxable year (hereinafter referred to as "tax credit"), and the applicant corporation shall only apply the tax reduction and exemption to the O factory through separate accounting and did not apply to the O factory for the tax reduction and exemption for the O factory as shown below.

(O) OOO directors, OO directors, OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO.

(5) In full view of the above facts and the relevant laws, the applicant corporation established an OO factory in January 2001 for business expansion after completing the relocation to an OO factory located outside the overconcentration control region in the Seoul metropolitan area. Since the establishment of OO factory constitutes a case where the same product is extended, it shall also be subject to tax reduction or exemption for small and medium enterprises located outside the overconcentration control region in the Seoul metropolitan area under Article 63(1) of the Restriction of Special Taxation Act.

In this case, the applicant corporation established an additional factory in March 2004 and December 2004 in order to expand its business after the relocation of the head office and the factory in January 2001 to OOOOOOOO, an area other than the overconcentration control region in the Seoul Metropolitan area, and after the commencement of the business, it is difficult to view that it constitutes a new factory since the relocation of the existing factory to O2 factory in the area other than the overconcentration control region in the Seoul Metropolitan area because it falls under the scope of facilities (2.5 times the head office and the OO factory), sales (the excess of O factory since 2005), and the date of actual business commencement, etc., even if it manufactures the same product as the O factory, it is difficult to deem that it falls under the category of new factory after the relocation of the existing factory to O2 factory in the area other than the overconcentration control region in the Seoul Metropolitan area, and it falls under the category of the factory after the relocation of the local area other than the overconcentration control region in the Seoul Metropolitan area.

Therefore, it is judged that the disposition authority's rejection of the request for correction of the requesting corporation is not the income subject to the above reduction and exemption on the income accrued from the O factory, and there is no error.

4. Conclusion

This case shall be decided as ordered in accordance with Articles 81 and 65 (1)2 of the Framework Act on National Taxes, because the petition for a trial has no merit as a result of the review.