Where a corporation capitalizing part of the revaluation reserve containing both the revaluation spread of a certain portion of land and the revaluation spread of other assets, the method of calculating deemed dividend income;

In a case where a corporation capitalizing part of the revaluation reserve containing both the revaluation spread of a certain land portion and other revaluation spread of assets, it combines the revaluation spread of a certain land portion and other assets without distinction. Thus, even if there is no provision that the revaluation spread is divided under the income tax law, it is necessary to prevent taxpayers from the capitalizing the revaluation reserve and achieve the taxation equilibrium between individual shareholders and corporate shareholders in the capital transfer, but there is no need to divide the contents of the revaluation spread specifically in the capital transfer, it is not deemed that the relevant corporation can divide the revaluation spread equivalent to the portion of a certain land portion or other assets, which is not deemed a dividend, and the amount equivalent to a certain revaluation revaluation difference of land portion, which is calculated proportionally calculated in the ratio of each revaluation spread, can be deemed as a dividend.

Article 17 (2) 2 (b) of the former Income Tax Act (amended by Act No. 6051 of Dec. 28, 1999); Article 13 (1) and Article 28 (1) of the Assets Revaluation Act; Article 12 (4) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 16658 of Dec. 31, 199);

Maritime Zunk (Law Firm Gyeong & Yang, Attorney Man-soo, Counsel for the plaintiff-appellant)

the director of the tax office of Western

Seoul High Court Decision 2002Nu14531 delivered on July 11, 2003

The judgment below is reversed, and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. According to the reasoning of the judgment below, after compiling the adopted evidence, the court below acknowledged the facts as stated in its reasoning, and rejected the defendant's assertion that since the revaluation reserve in this case, which the plaintiff transferred into capital, is mixed with an amount equivalent to the revaluation spread of a specific land to which the revaluation rate of 1/100 applies (hereinafter "specific land revaluation spread") and an amount equivalent to the revaluation spread of other assets to which the revaluation rate of 3/100 applies (hereinafter "other assets revaluation spread"), and as such, an amount equivalent to the revaluation spread of other assets to which the revaluation rate of 3/100 applies, should be applied by applying Article 12 (4) of the Enforcement Decree of the Corporate Tax Act by analogy of Article 12 (4) of the Corporate Tax Act, should be divided in proportion to the revaluation spread of the specific land, and should be deemed as constructive dividend under the Income Tax Act. Thus, the court below rejected the defendant's assertion that the revaluation reserve in this case, which the plaintiff transferred into capital, consists of an amount equivalent to the revaluation spread of land by analogy, and the dividend income cannot be permitted under the tax law.

2. However, it is difficult to accept the above determination by the court below for the following reasons.

Article 13(1) of the Assets Revaluation Act provides that the revaluation rate of 1/100 shall apply to a certain difference in revaluation of land (Article 13(1) in calculating the revaluation tax (Article 13(1)); and that the revaluation rate of 3/100 shall apply to a certain difference in revaluation of other assets (Article 28(2)). However, Article 28(1) of the Assets Revaluation Act provides that where a revaluation has been conducted, the balance remaining after deducting a deficit carried forward in the balance sheet as a revaluation reserve shall be accumulated in the case of a revaluation conducted, the revaluation reserve shall not be distinguished from a certain difference in land revaluation and other assets in calculating the revaluation reserve. As such, it is reasonable to deem that the revaluation reserve is mixed at a certain rate without considering the difference in the revaluation rate in the revaluation reserve, and it is reasonable to deem that there is a difference between a certain difference in the revaluation reserve of land and other assets without the difference in the revaluation reserve.

Meanwhile, according to Article 17 (2) 2 of the former Income Tax Act (amended by Act No. 6051 of Dec. 28, 1999), the value of the stocks or investment acquired by transferring all or part of a corporation's surplus to the amount of capital or investment shall be deemed to have been distributed to the relevant stockholders, etc., however, the same shall not apply to the case where the amount falling under any of the following items is transferred to the capital, but (b) as the revaluation reserve under the Assets Revaluation Act (excluding the amount equivalent to the land revaluation reserve under the provisions of Article 13 (1) 1 of the Assets Revaluation Act), the amount equivalent to the revaluation reserve under the Assets Revaluation Act (excluding the amount equivalent to the land revaluation reserve under the provisions of Article 13 (1) 1 of the Assets Revaluation Act) is exceptionally deemed as a dividend at the time of capital transfer and becomes subject to dividend income tax. In this context, there is no provision in the income tax law regarding the method of separating the amount equivalent to a certain amount of

However, in light of the aforementioned legal principles, where a corporation’s capitalizing part of the revaluation reserve containing both a certain revaluation rate of land and other revaluation rate of assets, the corporation’s capitalizing part of the revaluation reserve containing a certain revaluation rate. Since there is no provision that dividing the revaluation reserve under the income tax law is divided without distinction, the corporation’s capitalizing the revaluation reserve does not constitute a “land revaluation rate” and it does not constitute a “land revaluation rate” and it is reasonable to interpret the provision of Article 17(2)2(b) of the Income Tax Act as a separate interpretation of the same provision as a “land revaluation difference” under the premise that there is no need to separate the contents of the revaluation spread from the capitalizing the revaluation reserve in the aspect of preventing the taxpayer’s arbitrary interest and between the individual shareholder and the corporation’s shareholder. However, it is reasonable to interpret the provision of Article 17(2)2(b) of the Income Tax Act as a “land revaluation difference without consideration” under the premise that the corporation’s capitalizing revaluation difference does not constitute a “land revaluation difference without consideration.”

Nevertheless, the court below erred by misapprehending the legal principles on capitalizing revaluation reserves and constructive dividend, which affected the conclusion of the judgment. Therefore, the defendant's ground of appeal assigning this error is with merit.

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Jae-chul (Presiding Justice)