Seoul Administrative Court 2008Guhap42666 ( August 20, 2009)

In the case of merger between foreign corporations, the inherent increase in the value of the stocks of the domestic corporation owned by the extinguished corporation is realized with capital gains.

In the case of a domestic corporation, the method of calculating capital gains by deeming that the transfer of assets following the merger constitutes the transfer of assets realizing capital gains is stipulated in Article 80(1) of the former Corporate Tax Act, and there are no other circumstances to view that a foreign corporation

2013Nu32528 Disposition of revocation of imposition of corporate tax, etc.

AAA Ethro Group S. (AAA IT IT Group S.A.)

2. The head of the Jung-gu Seoul Metropolitan Government;

Seoul Administrative Court Decision 2008Guhap42666 Decided August 20, 2009

Seoul High Court Decision 2009Nu27796 Decided April 1, 2010

Supreme Court Decision 2010Du7208 Decided November 28, 2013

July 9, 2014

August 20, 2014

1. Revocation of a judgment of the first instance;

2. All of the claims filed by the Plaintiff are dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The head of the tax office on October 1, 2007 revoke the imposition of the corporate tax for the year 2006 by the director of the tax office of South Korea and the head of the tax office on October 1, 2007, respectively. The imposition of the resident tax for the year 2006 by the head of the Seoul Special Metropolitan City on October 29, 2007 is revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

(a) On August 1, 2006, the head of the tax office of the Republic of Korea and the head of the tax office of the Seoul District Tax Tribunal (hereinafter referred to as the "A") have merged BB Puli S. S. (hereinafter referred to as the "Merger 1"), the parent company of the 20.0% of the shares of the 20th anniversary of the transfer of the shares of the 30th Spain (hereinafter referred to as the "BB Puli S.A."), and thereafter BB Pu. S., the name of the corporation was changed to the Plaintiff (AIT S.A.) in accordance with the name of the 20th AO, and the head of the tax office of the Seoul District Tax Tribunal (hereinafter referred to as the "O-2 of the 10th 2nd 2nd 2nd 30th 2nd 2nd 30th 2nd 2nd 30th 2nd 206th 2nd 3th 20th 2nd 3th 2nd 3th AO.

[Ground of recognition] Facts without dispute, Gap evidence 1 through 9, 15, 16, Eul evidence 1, Eul evidence 1, Eul evidence 1, Eul evidence 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) In the case of a merger by absorption, since all the rights and obligations, including the assets and liabilities, of an extinguished corporation, are comprehensively succeeded to a merged corporation, this case’s shares cannot be deemed to have been transferred to the Plaintiff from the former AA to the Plaintiff under the Corporate Tax Act, and there is no provision that can impose corporate tax on the transfer of securities through a merger between foreign corporations. Therefore, the imposition of corporate tax on the transfer of stocks of this case is contrary to the principle of no taxation without law, where a tax is imposed without clear provision of law. Even if the transfer of stocks falls under the transfer of stocks due to a merger, the transfer of stocks of the former AA and the Plaintiff did not constitute a transfer of stocks, and thus, there was no transfer margin since the former AA did not issue new stocks, and the tax base and the calculation of tax amount were arbitrarily conducted without legal basis. In addition, the transfer of stocks by a merger cannot be deemed to have been subject to the imposition of the securities transaction tax.

2) As long as the disposition of imposition of corporate tax against the Plaintiff is unlawful, the disposition of imposition of the resident tax of this case is also unlawful.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

1) At the time of the instant merger, the Gu AA and the Plaintiff, a corporation involved in the instant merger, transferred all assets and liabilities held by the Gu AA to the Plaintiff according to the resolution of the general meeting of shareholders, and the shareholders holding the shares of the Gu AA agreed to deliver new shares issued by the Plaintiff according to the merger

2) The Plaintiff evaluated the assets of the former AA as a market value based on actual value, namely, the Plaintiff’s new shares and the shares exchange rate of the former AAA. The Plaintiff issued 200,933,415 shares thereafter.

3) Meanwhile, the former AA and the Plaintiff’s shares were retired without issuing new shares, and the shareholders of the instant shares owned by the former AA were changed to the Plaintiff after the merger of the instant shares.

[Ground of recognition] Facts without dispute, entry of Gap evidence Nos. 4 through 9, purport of the whole pleadings

D. Determination

1) Whether the disposition of the instant corporate tax is legitimate

A) Whether the transfer of shares constitutes a transfer of shares

(2) Article 93 subparag. 10(a) of the former Corporate Tax Act provides that “If a domestic corporation is dissolved due to a merger with another foreign corporation, the transfer of its stocks shall be deemed to have been realized as gains on transfer.” Article 80(1) of the former Corporate Tax Act provides that “The transfer of the stocks shall not be deemed to be more than 10 percent of the total amount of its equity capital as of the date of the merger registration.” Article 80(1) of the former Corporate Tax Act provides that “If the domestic corporation is dissolved due to the merger, the transfer of the stocks shall not be deemed to be more than 4 percent of the total amount of its equity capital as of the date of the merger registration.” Article 12(1)1 of the former Enforcement Decree of the Corporate Tax Act provides that “The transfer price of the stocks shall not be deemed to be more than 10 percent of the total amount of its equity capital as of the date of the merger of the former Corporate Tax Act (amended by Presidential Decree No. 20619, Feb. 22, 2008).

B) Whether transfer margin has arisen and the calculation of tax amount is lawful

According to Articles 91(2) and 92(2)3 of the former Corporate Tax Act, if shares are transferred between a foreign corporation having no domestic place of business and a foreign corporation having a special relationship as prescribed by the Presidential Decree, the arm’s length price is the revenue amount to be calculated. Article 131(2)1 of the former Enforcement Decree of the Corporate Tax Act defines “the relationship in which one party owns directly or indirectly 50 percent or more of the voting shares of the other party” as the special relationship. Article 5 of the former Adjustment of International Taxes Act (amended by Act No. 9914 of Jan. 1, 2010; hereinafter “former Adjustment of International Taxes Act”) and its Enforcement Decree (amended by the Presidential Decree No. 19650 of Aug. 24, 2006) provides that the Plaintiff’s price for new shares shall be calculated by applying the former Act No. 1980 of the Income Tax Act (amended by the Presidential Decree No. 19650 of Aug. 24, 2006).

Therefore, the disposition of the corporate tax of this case is legitimate.

2) Whether the disposition of the securities transaction tax of this case is lawful

In light of the language and purport of Articles 1 and 2(3) of the former Securities Transaction Tax Act (amended by Act No. 9274 of Dec. 26, 2008), when considering that Article 117(1)14 of the Restriction of Special Taxation Act (amended by Act No. 6538 of Dec. 29, 2001) newly provides for “where stocks are transferred for the purpose of a merger that satisfies the requirements under each subparagraph of Article 44(1) of the Corporate Tax Act as the object of repayment of securities transaction tax, there is no reason to deem that the transfer of stocks due to a merger does not constitute “transfer of stock certificates” under the said provision. Since the transfer of share certificates, etc. for consideration is subject to securities transaction tax, the disposition of the instant securities transaction tax is legitimate. The Plaintiff’s assertion is unacceptable.”

As long as the disposition of the corporate tax of this case is legitimate, the disposition of the resident tax of this case is legitimate, and thus, the plaintiff's assertion on this part

3. Conclusion

The plaintiff's claim cannot be accepted as it is without merit. The judgment of the first instance court, which concluded otherwise, is unfair, and thus, the plaintiff's claim is revoked and all dismissed.