Whether Stockholm options constitute earned income

The exercise of stock option interest constitutes Class B earned income and cannot be deemed to have justifiable grounds that could not expect the Plaintiff to pay global income tax return and payment. Thus, a disposition imposing Stockholm options on deeming them as earned income is justifiable.

Article 20 of the Income Tax Act / [Labour Income]

Enforcement Decree of the Income Tax Act / [Scope of Labor Incomes]

All appeals are dismissed.

The costs of appeal are assessed against the plaintiffs.

Each ground of appeal is examined.

1. As to the grounds of appeal Nos. 1, 2, and 5

Wage and salary income under Article 20 (1) of the Income Tax Act, regardless of its payment form or name, includes not only all economic benefits in the nature of the provision of labor and a quid pro quo relationship, but also benefits which form a content of the working conditions closely related to the provision of labor on the premise of the labor (see, e.g., Supreme Court Decision 2007Du1415, Oct. 25, 2007).

According to the reasoning of the judgment below, the court below confirmed that the plaintiffs obtained profits (hereinafter referred to as "the profits from exercising the stock option of this case") equivalent to the difference calculated by deducting the stock option price from the stock transaction price as of the date of the exercise of the stock option from the base exchange rate (hereinafter referred to as "the profits from exercising the stock option of this case") by receiving the stock option from each foreign company (hereinafter referred to as "foreign parent company") which held 100% or 67% of the stocks of the domestic subsidiary while working as executive officers and employees of the company (hereinafter referred to as "domestic subsidiary company") as the domestic subsidiary of foreign company as of the date of the exercise of the stock option from 1996 to 200.

In the same way, the Plaintiffs’ exercising stock option benefits are paid to the Plaintiffs by foreign parent companies directly or indirectly affecting the management and performance of their duties, and it is reasonable to deem that the Plaintiffs’ exercising stock option benefits fall under Class B earned income under Article 20(1)2(b) of the Income Tax Act because it is reasonable to deem that there exists a quid pro quo relationship or an economic rationality with the labor provided by the Plaintiffs to domestic subsidiaries. This does not change on the ground that there is no direct employment relationship between the Plaintiffs and foreign parent companies, and the employer under an employment contract and the stock options are different, or that there is no difference between the Plaintiffs and foreign parent companies at the time of exercising the stock option, and that the exercising profit of stock option was not listed as included in the earned income at the time of exercising the said stock option.

The decision of the court below to the same purport is just, and there is no error in the misapprehension of legal principles as to the nature of profit from exercising stock option, or in the misapprehension of legal principles as to retroactive taxation under Article 20 (1) of the Income Tax Act.

2. As to the third ground for appeal

In order to determine that income which is subject to income tax has been realized, even if it is unnecessary until it is realized, the income should be considerably mature and confirmed in the possibility of realizing the income, and it is merely established without reaching such a degree (see, e.g., Supreme Court Decision 2001Du7176, Dec. 26, 2003). The stock option is entirely entrusted to the choice of the officer or staff who has been granted the stock option, so it cannot be deemed that any income has accrued merely by the granting of the stock option, and only by exercising the stock option, it shall be deemed that the income has accrued.

The court below's determination that the profit of exercising stock options in this case constitutes earned income in the taxable period to which the time of exercising stock options belongs is just in accordance with the above legal principles, and there is no error of law such as misunderstanding of legal principles as to

3. As to the fourth ground for appeal

Article 24 (2) of the Income Tax Act provides that the income amount shall be calculated on the basis of the price at the time of transaction when the transaction is made. Thus, the court below's calculation of the income from exercising the stock option of this case by converting the difference between the price of exercising the stock option and the price of exercising the stock option at the market price as of the date of exercising the stock option is justifiable as it is in accordance with the above provision. There is no violation of

4. Regarding ground of appeal No. 6

Under the tax law, where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, an additional tax is an administrative sanction imposed as prescribed by the Act, and the taxpayer’s intentional or negligent act does not constitute a justifiable reason that does not constitute a breach of duty (see, e.g., Supreme Court Decisions 2001Du4689, Nov. 13, 2002; 2002Du10780, Jun. 24, 2004).

In the same purport, the court below is just in holding that the plaintiffs' exercise of stock options did not constitute a case where there is a justifiable reason for not being negligent in the plaintiffs' breach of their duty, and there is no direct and express provision on stock options in the Income Tax Act and the Enforcement Decree of the Income Tax Act at the time of exercising the stock options in 197 or 2000, or that the defendants disposition the stock options in this case only when they reached around 2002. The court below did not err in the misapprehension of legal principles as to additional tax as otherwise alleged in the ground of appeal.

The Supreme Court precedents cited in the grounds of appeal cannot be invoked in this case due to different cases.

5. Therefore, all appeals are dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

[Seoul High Court Decision 2004Nu3733, January 12, 2007]

1. All appeals filed by the plaintiffs are dismissed.

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

The judgment of the first instance court shall be revoked. The defendants' "the disposition date" in the attached Form [Attachment List] shall be revoked on each date on which the defendants made the same Table as "the global income tax amount for which cancellation is sought" and "resident tax amount for which cancellation is sought" shall be revoked, respectively.

1. Details of the disposition;

A. The Plaintiffs, while serving as an executive officer or employee in each company listed in [Attachment List] as indicated in the “Domestic Subsidiary Company” (hereinafter “Domestic Subsidiary Company”), obtained appraisal rights (Sock options; hereinafter “Stockholm”) from each of the relevant foreign companies listed in “foreign parent companies” in the same list as indicated “foreign parent companies” (hereinafter “foreign parent companies”), and obtained the benefits from the exercise of options (hereinafter “the benefits from the exercise of options”) as stated in the [Attachment List] from the difference calculated by deducting the price of the option (actual acquisition) from the market price of the stocks as of the date of the exercise thereof, by exercising the Stockholm option granted as mentioned above in each year.

B. Of the plaintiffs, the plaintiffs listed in [Contents 1] Nos. 1, 12, and 22 of the separate sheet among the plaintiffs (However, the plaintiff as listed in Nos. 1) reported and paid the comprehensive income tax within the statutory due date of return after the end of each taxable period to which the time of exercising the Stockholm option belongs, "the defendant" stated in the separate sheet "the defendant" was included in the tax base by making the profits exercising the Stockholm option as Class B earned income under Article 20 (1) 2 (b) of the Income Tax Act. The "date of the request for correction" stated in the separate sheet "the date of the request for correction" stated that each of the above defendants did not constitute taxable income, and therefore, among the global income tax amount already reported and paid, the plaintiffs' request for correction was justified for each of the above reasons that "the tax base of the plaintiff's request for correction was stated in the "amount of global income tax" stated in the separate sheet "tax amount for cancellation and resident tax amount for each of the above reasons."

C. Of the plaintiffs, the plaintiffs listed in [Contents 1] Nos. 1 through 11, 13 through 21 (limited to the portion belonging to 198 and 199) stated in [Attachment 1] among the plaintiffs (number 1] did not report and pay the global income tax and the resident tax to be imposed on them within the statutory due date of return, deeming that the profits from the exercise of Stockholm options in this case do not constitute taxable income. Accordingly, the defendants stated in [Attachment Attachment 1] Nos. 1 through 11, 13 through 21 in [Attachment 1] were stated as the date of disposition, on the grounds that the profits from the exercise of Stockholm options in this case from the above plaintiffs constitute Class B employment income, each of the above dispositions on global income tax (limited to the amount belonging to 2 through 11, 13 through 16, 18 through 21) stated in the "tax amount for global income tax" stated in the "tax amount for each of the plaintiffs' respective global income tax base and each of tax (the above disposition on cancellation and payment).

[Reasons for Recognition] Unsatisfy, Gap evidence 1-1 through 6, Eul evidence 2-1 through 4, Gap evidence 3-1 through 6-1, 2, 3, Gap evidence 7-1 through 4, Gap evidence 8 through 11-2, 3, Gap evidence 12-1 through 5, 2, 3, Gap evidence 13 through 16-1, 2, 3, 18 through 21-1, 2-1 through 2-2, Eul evidence 1-2, 3-1, 2-1, 3-2, 2-1, 3-2, 1-2, 3-1, 2-1, 3-2, 3-1, 2-2, 3-1, 3-1, 2-2, 3-1, 3-2, 4-1, 5-2, 3-1, 2-1, 3-2, 1-2, 2-1, 3-1-

2. Whether each of the dispositions of this case is legitimate

A. The plaintiffs' assertion

(1) The instant Stockholm is merely an incentive provided for the continued employment of outstanding human resources, and thus cannot be deemed as benefit in return for the provision of labor. No legal employment relationship or occupational direction system exists between a foreign parent company and the Plaintiffs that granted Stockholm options. The size of the profit from the exercise of Stockholm options depends entirely on whether the grantedr selects the time of the exercise of the Stockholm options, and it cannot be deemed as a payment for labor. Article 38(1)17 of the Enforcement Decree of the Income Tax Act (hereinafter “Enforcement Decree of the amended Act”) amended by Presidential Decree No. 17825, Dec. 30, 2002 provides that the benefits from the exercise of the Stockholm options shall be deemed as earned income, and thus, the disposition of this case cannot be deemed as unlawful in light of the premise that the benefits from exercise of the Stockholm options cannot be deemed as an earned income under the premise that the benefits from exercise of the Stockholm options prior to its interpretation cannot be deemed as an earned income under each of the instant Income Tax Act.

(2) Even if each of the Stockholm options benefits of this case can be seen as earned income, it is not clear whether the benefits from the Stockholm option exercise are subject to taxation because of its ambiguous legal nature, and it is taxed at the time when the period for limitation of the right to impose the Stockholm option exercise benefits of this case as stated in the [Attachment] Nos. 2 through 11, 13 through 16, and 18 through 21 is prolonged. If the above Defendants exercised the right to impose the tax from the first taxable period, the Plaintiffs, as stated in the [Attachment] Nos. 2 through 11, 13 through 16, 18, and 21, were dissatisfied with the taxation period in order to avoid the burden of additional tax, in light of the circumstances such as the above Defendants’ imposition of additional tax by imposing the additional tax later later, the above Plaintiffs failed to return and pay the income tax on the benefits from the exercise of the Stockholm option exercise of each of the above cases, and thus, the Defendants’ imposition of additional tax is unlawful.

(b) Related statutes;

[Income Tax]

Article 20 (Earned Income) (1) Earned income shall be the following incomes earned during the current year:

1. Class A:

(a) Salary, salary, remuneration, remuneration, annual allowance, wage, bonus, allowance, and other benefits of a similar nature, which are received due to the provision of labor;

2. Class B:

(b) Pay received from a foreigner or foreign corporation located abroad (excluding a domestic branch or domestic business office).

Article 24 (Calculation of Total Amount of Income)

(1) The total amount of income of a resident shall be calculated on the basis of the total amount received or received during the relevant year.

(2) In cases under paragraph (1), if any income other than money is imported, such income shall be calculated according to the value at the time of transaction.

Article 39 (Accretion Year, etc. of Total Amount of Income and Necessary Expenses)

(1) The year to which the total income and necessary expenses of a resident are reverted shall be the year in which the total income and necessary expenses are determined.

[Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17825 of Dec. 30, 2002)

Article 38 (Scope of Earned Incomes) (1) The scope of the employment incomes as prescribed in Article 20 of the Act shall include the following incomes:

17. Profits (referring to the difference between the market price and the actual purchase price at the time of exercising the stock option, and the stock includes the preemptive right) accruing from exercising the stock option granted to an officer or employee of the relevant corporation or a corporation in a special relationship referred to in Article 87 of the Enforcement Decree of the Corporate Tax Act with the relevant corporation (hereafter referred to as the “relevant corporation, etc.” in this subparagraph);

Article 49 (Receipt Date of Earned Income)

(1) The receipt date of the total amount of the earned income shall be as follows:

1. Salaries;

The Labor Day;

(2) Notwithstanding the provisions of paragraph (1) 1, if the relevant benefits are not determined before the beginning of the period for final return on the tax base of the relevant taxable period, it shall be deemed to have been imported on the fixed date: Provided, That the amount actually received before the date of final return on the tax base of the relevant

Addenda

Article 1 (Enforcement Date) This Decree shall enter into force on January 1, 2003: Provided, That the amended provisions of Articles 38(1), 62(2)2, 63, 64 (excluding subparagraph 5 of paragraph (1)), 143(3)1, 146-2, and 208-2(4) shall enter into force on the date of its promulgation.

Article 5 (Application to Scope of Earned Income) The amended provisions of Article 38 (1) shall apply to the portion of income generated in the taxable period to which the date of promulgation belongs.

[The Regulation of Tax Reduction and Exemption Act (amended by Act No. 5195, Dec. 30, 1996)

(1) The profits (referring to the difference between the actual purchase price of stocks and the market price of stocks, and the stocks shall be deemed to include preemptive rights) which a business proprietor or new technology businessman as prescribed by the Presidential Decree and a listed corporation or off-the-board registered corporation meeting the requirements as prescribed by the Presidential Decree (hereafter in this Article, referred to as a “business start-up corporation, etc.”) gains by exercising the stock option granted and meeting the requirements falling under each of the following subparagraphs, shall not be deemed as earned income, and the provisions of Article 20 of the Corporate Tax

(c) Fact of recognition;

(1) A foreign parent company listed in the separate sheet [list of Company] that gave Stockholm options to the Plaintiffs had shares of 67% or 100% as stated in the separate sheet [list of Company] with respect to each corresponding domestic subsidiary for which the Plaintiffs work.

(2) The Stockholm options grant subjects selected by a foreign parent company in accordance with the Stockholm options Assignment Plan that the foreign parent company voluntarily prepares. There are many cases where a domestic subsidiary selects subjects and recommends them to a foreign parent company. However, without such recommendation procedures, a foreign parent company directly selects subjects based on the results of service of officers and employees reported through a domestic subsidiary company.

(3) There are somewhat differences in the purpose, type, exercise price, time of exercise, etc. of Stockholm options for each foreign parent company. Even if Stockholm options granted by the same foreign parent company are granted, the type, exercise price, time of exercise, etc. vary depending on the position of the executive officer or employee, who is the other party, or the point of assignment, but the Stockholm options granted by the plaintiffs have the following common characteristics.

(A) The purpose of Stockholm options is to secure the most suitable human resources for the position substantially responsible, to provide them with additional incentives, and to promote the company’s business success by bringing the economic benefits of the Plaintiffs, an employee, in conjunction with the value according to the long-term holding of shares.

(B) The time of the exercise of the Stockholm option is determined so that it can be exercised in full after a certain period of time has elapsed from the date of grant, or that it can be exercised at a certain rate every year or every six months after a certain period of time has elapsed from the grant date, and it is required to work at a domestic subsidiary for the future period determined by the board of directors of the foreign parent company in order to exercise all or part of the Stockholm options granted to the Plaintiffs.

(C) The Plaintiffs acquired shares of a foreign parent company at the price of the exercise determined in advance by exercising the Stockholm option. The exercise price is ordinarily set at or higher than the market price as of the time of granting the Stockholm option. In any case, the Plaintiffs may benefit from exercising the Stockholm option at a price lower than the market price by exercising the Stockholm option at the time when the foreign parent company’s share price was formed higher than the market price. Accordingly, the foreign parent company, as of the date of exercising the Stockholm option, determines that the Stockholm option may be exercised at a price lower than the market price as of the date of the exercise.

(D) Stockholm options may be exercised while the Plaintiffs maintain their status as employees of the domestic subsidiary company, and, in the case of retirement, the Stockholm options may be exercised within a certain short period of time after retirement to the extent of the number of shares available at the time of retirement.

(E) The Plaintiffs cannot transfer or dispose of Stockholm options by means other than wills or inheritances, and only the Plaintiffs may exercise Stockholm options during their existence.

(4) Before the Enforcement Decree of the Income Tax Act was amended by Presidential Decree No. 17825, Dec. 30, 2002, the Income Tax Act and the Enforcement Decree thereof did not directly and explicitly provide for Stockholm options. However, the National Tax Service has expressed its view that the profits from exercising Stockholm options constitute earned income through the following established rules, etc.

(1) With respect to income on May 31, 1986, 22601-1803 and May 31, 1986: The difference between the acquisition value and market value of stocks in case where the employees of a corporation receive without compensation according to work performance records from the relevant corporation and the employees excluding members of an employee stock ownership association acquire stocks from the

(2) Income on December 27, 1995: Income (the amount obtained by subtracting the actual acquisition value from the market price at the time of acquisition) gained by an employee working for a domestic branch of a foreign corporation by actually acquiring the relevant stocks through a parent company’s stock purchase right granted in connection with provision of labor shall be taxed as earned income.

(3) On February 13, 1998: Where a foreign-invested corporation or a domestic place of business of a foreign corporation grants its workers the right to acquire stocks of a parent company or head office located in a foreign country at a price lower than the market price under certain conditions, the difference between the acquisition value of stocks and the market price shall constitute earned income under Article 20 (1) 1 of the Income Tax Act.

(4) Income on February 27, 1998: Where a domestic corporation and a foreign corporation having a special relationship with its employees under Article 2 of the Enforcement Decree of the Adjustment of International Taxes Act grants a right to acquire stocks of a foreign corporation at a specific price at a certain time as compensation for past service period to the employees of the relevant domestic corporation; and where the amount equivalent to the difference between the market price and the specific price at the time of the exercise is paid, such amount paid shall constitute earned income.

[Ground of recognition] Evidence No. 2-4, Evidence No. 12-5, Evidence No. 24-1 and Evidence No. 24-2, each fact inquiry result of this court's Korea ○○ Stock Company, △△ Stock Company, XX Stock Company, and △△ Stock Company, and the purport of the whole arguments and arguments

D. Determination

(1) Employment income under Article 20 of the Income Tax Act

Article 20 (1) 1 (a) of the Income Tax Act provides that "the salary, salary, remuneration, annual allowance, wage, bonus, allowance, and other benefits of a similar nature that are received due to the provision of labor," with regard to the scope of earned income subject to income subject to income tax, in principle, includes all monetary benefits derived from employment relations or employment relationships or benefits of economic value, except retirement income, and therefore, it does not necessarily constitute earned income, and the same applies to "wages" under Article 20 (1) 2 (b) of the same Act.

Furthermore, the term "in the course of providing labor" under the above legal provision means that the provision of labor and the payment of wages are dealt with either a quid pro quo or a pair of benefits. The above earned income includes not only all economic benefits which are related to the provision of labor by nature, regardless of the cycle of the payment of wages, etc., means of payment or form, etc., but also all the economic benefits which are related to the provision of labor in the context of labor (see Supreme Court Decision 2003Du4089, Apr. 15, 2005). In order to recognize that an employee has a quid pro quo relationship with the labor provided by the employee, it shall not be limited to a close proportion between the quality and quantity of labor provided by the employee and a quid pro quo quo relationship between the labor provided by the employee and a certain quid pro quo relationship or a certain quid pro quo relationship with the labor provided by the employee shall be deemed sufficient (see Supreme Court Decision 2005Du1313, Oct. 13, 2006).

(2) Whether the profit from the Stockholm option event is an economic benefit that was received by the provision of “work”

(A) According to the above, the purpose of granting Stockholm options to the Plaintiffs is to fundamentally respond to the Plaintiffs’ domestic subsidiaries and foreign parent companies’ contribution, and to encourage them to continue to work in the future. In addition, when granting Stockholm options to the Plaintiffs, a foreign parent company must work in its domestic subsidiaries for a certain period in the future on the condition that it would exercise in whole or in part the Stockholm options in the future, and can exercise Stockholm options during the maintenance of the status as an employee of a domestic subsidiary. Upon termination of an employment contract, the exercise of rights is possible only within the limit of the number of shares available at the time of retirement, and the period of exercise is limited within a short period of time, and as a matter of principle, it is prohibited from transferring the Stockholm options itself. Furthermore, according to the above facts, the fundamental reason behind the Stockholm options system maintained is that the employee’s ability to work in the pertinent company is formed by various factors that contribute to the improvement of the market price of the relevant company’s shares, and thus, the performance of the relevant company’s labor performance can be seen as a significant factor.

In light of the above purpose of the Stockholm option system and the method of its exercise, etc., it is naturally anticipated that the Stockholm option granted by a foreign parent company to the Plaintiffs is to secure and maintain necessary human resources by lowering the market price of the Plaintiffs’ economic benefits, while allowing the Plaintiffs, who were granted Stockholm options, to make efforts to increase the foreign parent company’s stock price through the improvement of the performance of domestic subsidiaries, and allowing the Plaintiffs to obtain the benefits of exercise by exercising the Stockholm option if the stock price increases by such efforts. In addition, the fact that granting the Stockholm options to the Plaintiffs is an essential element that is inherent in the Stockholm option system, and thus, it can be viewed that the Plaintiffs, from the standpoint of the Plaintiffs, can be seen as being granted the Stockholm option by expectationing the above benefits of exercise of the Stockholm option and providing their labor to the domestic subsidiary company.

(B) On the other hand, the existence and amount of profit from the Stockholm option exercise is affected by the determination of the price change after the Stockholm option was granted and the time when the person to be given the Stockholm option was exercised, and it is difficult to view that there was a correlation between the quality and quantity of the work provided by the employee and the quality of the work provided by the employee.

However, in the event that the Plaintiffs once exercised Stockholm, a foreign parent company is obligated to deliver stocks to the Plaintiffs as the price of exercise determined in advance, so economic benefits equivalent to the difference between the market price and the exercise price as determined at the time of the exercise shall be granted to the Plaintiffs, and as a result, the Plaintiffs gain profits from acquiring stocks at a price lower than the market price. This can be said to be a result of an agreement between a foreign parent company and the Plaintiffs to the effect that the foreign parent company will transfer the economic benefits equivalent to the difference between the market price and the exercise price at the time of the exercise of the rights to the Plaintiffs at the time of the exercise of the rights. In other words, by the exercise of the Stockholm option, the Plaintiffs obtain economic benefits equivalent to the Stockholm option, while a foreign parent company, which is a company granting the Stockholm option, pays economic sacrifice equivalent to the profits from the exercise of the Stockholm option. However, such economic benefits of the Plaintiffs and the economic sacrifice of the foreign parent company, can be deemed to be in a quid pro quo relationship.

(C) Ultimately, in light of the aforementioned various circumstances, i.e., the objective of the Stockholm option system to secure and maintain able executives and employees and to promote a high-quality work in the future, the indivisible relationship between the Stockholm option and the labor, the occurrence of profit from exercising the Stockholm option is an essential element of the Stockholm option system, and the relationship between the employee’s labor and the stock owner cannot be denied, etc., the Plaintiffs’ profit from exercising the Stockholm option can be deemed as having a quid pro quo relationship based on a specific correlation or an economic rationality with the labor provided by the Plaintiffs, and the fact that there is no conclusive correlation between the quality and quantity of the labor provided by the Plaintiffs and the economic interest that the Plaintiffs acquired.

(3) As to the difference between the employer under an employment contract and the Stockholm option provider

(A) As seen earlier, Article 20(1)1 (a) of the Income Tax Act only provides that “the salary, salary, etc. received through the provision of labor and other similar salaries” as to the wage and salary income, and does not require the employer and the wage payer to coincide as a premise for constituting the wage and salary income. Moreover, the Income Tax Act classifys the income into interest income, dividend income, real estate rental income, business income, wage and salary income, temporary property income, pension income, other income, retirement income, income, forestry income, and forest income. It can be deemed that each of them is intended to consider the difference of each taxable capacity in calculating the amount of income, applying the tax rate, etc. by classifying each income according to its source or nature. In light of the fact that the recipient of the wage cannot be deemed to have a difference between the nature of the income and the taxable capacity, it is difficult to view that there is a reasonable reason to demand that the employer and the wage payer be the same. Therefore, the circumstance that the employer does not coincide with the wage does not constitute one ground for determining whether the wage is paid due to work or labor.

Ultimately, as seen earlier, the Income Tax Act provides for the scope of wage and salary income in the form of an exemplary legislation, not a specific way to list it, and in view of the fact that wage and salary income is included in the wage and salary income if the substance of the wage offered and received from an employer or a person corresponding thereto falls under the wage and salary income if it is deemed that the economic benefit that the employee receives from the employer or a person corresponding thereto is a consideration for labor provided in accordance with the employer’s direction and order based

(B) back to the instant case, the foreign mother company listed in the [Attachment List] is a company that holds 67% or 100% shares of the Plaintiff’s domestic subsidiary company with which the Plaintiffs were working, and that a foreign parent company grants Stockholm options to the Plaintiffs, who are employees of the domestic subsidiary company, because the shares of the domestic parent company form part of the assets of the foreign parent company, and the performance of the subsidiary company is improved by the efforts of the employees of the domestic subsidiary company, it can be considered that the increase in the assets of the foreign parent company may increase the company’s profits. This accords with the original purpose of the Stockholm options system that seeks to secure excellent human resources and provide high-quality future work, as in the case of granting Stockholm options to its employees.

Therefore, considering these circumstances, it is reasonable to view that the Stockholm option granted by a foreign parent company to the Plaintiffs, who are workers of a domestic subsidiary company, was paid as compensation for non-independent labor provided based on the "employment contract or any other similar cause". In the instant case, the difference between the employer and the Stockholm option provider does not affect the fact that the Stockholm option constitutes earned income.

(4) Whether the benefits from the Stockholm options can be subject to taxation

(A) The Plaintiffs asserted to the effect that each of the instant Stockholm options cannot be subject to taxation, on the grounds that it is merely a benefit obtained at the time of the Stockholm option exercise, because the subject of taxation ought to be Stockholm itself, or that the benefit derived at the time of the Stockholm option exercise is merely a benefit obtained at a price lower than the market price, and that the amount of final benefit is not determined until the time of monetaryization by disposing of the stocks acquired at the time of the Stockholm option exercise. Therefore, each of the instant Stockholm options exercise benefits cannot be subject to taxation.

(B) Although there may be room to view that the Stockholm option itself holds a certain economic value as the right of expectation or formation in the future. However, in order for a certain economic benefit to constitute an earned income under Article 20(1) of the Income Tax Act, such economic benefit should be recognized as constituting an income under the Income Tax Act, i.e., an economic benefit increased a tax-bearing capacity. Stockholm option itself is not a right to demand delivery of shares as a pre-sale right or a pre-sale right arising out of a similar legal relationship, but is merely an economic benefit that can only establish a stock transfer contract. Since the transfer is prohibited, it cannot be deemed as an economic benefit that increases the tax-bearing capacity. On the other hand, the Stockholm option exercise profit is equivalent to an economic benefit corresponding to the difference between the share price at the time of the exercise and the exercise price at the time of the exercise, and thus, is transferred from the company at the time of the exercise of the Stockholm option pursuant to the Stockholm option contract, and thus, can be deemed as an economic option separate from the Stockholm option itself.

(C) Meanwhile, Article 39(1) of the Income Tax Act provides that "the year to which the total amount of income and the necessary expenses of a resident accrue shall be the year to which the date when the necessary expenses are determined is determined, shall be the year to which the total amount of income and the necessary expenses of the resident accrue." Thus, the profit at the time of the Stockholm option is the profit acquired at lower than the market price and its own profit does not yet be cashized, and there may be changes in the amount of final profit depending on the price of the stocks in the future. However, in order for the income to be determined in the year to which the income accrues pursuant to the above provision, it is not necessary to realize the income in a specific case by taking into account the management of the income, the degree of the income generated, the degree of the objectiveization of the income, and the timing of securing the taxpayer's fees, and it is adequate to deem that the profit acquired at the time of the exercise of the Stockholm option to the plaintiffs, as long as it is possible to freely dispose of the stocks acquired by the exercise of the Stockholm.

(D) If so, the Stockholm option exercise profit is deemed to constitute earned income in the taxable period to which the time of its exercise belongs, and thus, the instant taxation that takes the taxable object as the exercising profit in the Stockholm option is lawful.

(5) Whether legal grounds for the instant taxation disposition exist

(A) At the time of the exercise of Stockholm options by the Plaintiffs in 196 through 2000, there was no direct and explicit provision on Stockholm options under the Income Tax Act and the Enforcement Decree thereof. However, Article 38(1) of the Enforcement Decree of the amended Act specifies a certain amount of Stockholm options exercising profit as earned income, and Article 5 of the Addenda of the amended Enforcement Decree stipulates that "the amended provisions of Article 38(1) shall apply from the income derived from the taxable period in which the date of its promulgation belongs." Thus, there is a question as to whether there is a legal basis for the instant taxation.

(B) In full view of the provisions of Article 20 of the Income Tax Act and Article 38(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17825, Dec. 30, 2002; hereinafter “former Enforcement Decree”), the scope of wage and salary income subject to income tax is, in principle, determined pursuant to Article 20 of the Income Tax Act, and the scope of wage and salary income under Article 38(1) of the former Enforcement Decree of the Income Tax Act is defined as "the wage and salary income under Article 20 of the Income Tax Act shall include the income falling under any of the following subparagraphs." Thus, it is interpreted that the provisions of Article 38(1) of the former Enforcement Decree before the amendment do not include the wage and salary income:

Furthermore, considering that the Income Tax Act comprehensively provides for earned income, Article 5 of the Addenda to the Enforcement Decree of the Act does not stipulate that profits from the exercise of Stockholm prior to the amendment of the same Enforcement Decree cannot be taxed as earned income, but it shall be interpreted that after the amendment of the above Enforcement Decree, it can be taxed by applying Article 38(1)17 of the same Enforcement Decree to profits from the exercise of Stockholm options generated in the taxable period in which the date of promulgation of the above Enforcement Decree belongs.

(C) Therefore, regardless of the application of Article 5 of the Addenda to the Enforcement Decree of the amended Act, each of the instant dispositions is a legitimate disposition based on Article 20(1) of the Income Tax Act (Article 13-2(1) of the former Tax Reduction and Exemption Control Act (amended by Act No. 5195, Dec. 30, 1996) that was enforced on January 1, 1997, prior to the amendment of the above Enforcement Decree, does not regard the profits earned by an employee of a certain start-up corporation, etc. from obtaining options that meet certain requirements as earned income by using them as an earned income, thereby holding that the profits from exercising options constitute the original earned income).

(6) Whether the imposition of additional tax in this case is lawful

Under the tax law, additional tax is an administrative sanction imposed in accordance with the individual tax law in cases where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim. It is not unreasonable for the taxpayer to be aware of such obligations, unless there are circumstances that make it unreasonable for the taxpayer to be able to reasonably present or to expect the party to fulfill such obligations, or there are justifiable reasons that it is unreasonable for the taxpayer to be able to expect the performance of such obligations, it shall be imposed upon the nonperformance of its obligations under the tax law (see, e.g., Supreme Court Decision 2001Du8100, Feb. 14, 2003). Accordingly, it has been revealed that the National Tax Service, on or after 1986, constitutes an income from the exercise of its obligations under the tax law; [Attachment 2] 1, 12, and 222, the Plaintiffs’ self-determination or payment of additional tax for the period of 10 years or 20 years options.

3. Conclusion

Therefore, the plaintiffs' claims seeking revocation on the grounds that each of the dispositions of this case is unlawful are all dismissed. The judgment of the court of first instance is just in this conclusion, and all of the appeals of the plaintiffs are dismissed. It is so decided as per Disposition.

List of Plaintiffs

1. An Ansan-gu;

2. A leap country;

3. Kim Tae-tae

4. Kim Ho-hee;

5. Maximum bylaws;

6. Lighting; and

7. Kim○ iron.

8. ○○.

9. Matern fever;

10. Park ○ iron.

11. Optional number.

12. Track police officer;

13. Optionalwon;

14. For ○ purposes

15. Kim Jong-jin

16. Kim-○ Office

17. Clerks; and

18. Lighting.

19. Transmittal lodging;

20. ○○