Open Decision Ledger · Tax & international taxation
Substance-based taxation of a split and merger formed to avoid corporate tax
Supreme Court, Aug. 25, 2022, 2017Du41313 (judgment)
Case name: 법인세부과처분취소
Official text on the National Law Information Center
Question
Where a company split off its lending business, received the deposits and interim payments for a property it had already sold, and was then absorbed into a company its shareholders had just bought, may the tax office under Article 14(3) of the former Framework Act on National Taxes reconstruct those transactions in substance so that the book value of the property reverts to the pre-split figure?
Holding
It may. The form chosen must be nothing but a means of achieving tax avoidance from the outset, so that its substance can be rated the same as a direct transaction or as one continuous transaction, and that is judged by weighing the purpose of the form, the circumstances of involving a third party or a step-by-step process, whether there was a rational business reason beyond reducing the tax burden, the time gaps between the transactions, and the possibility of loss and risk. The Supreme Court accepted the finding that the shareholders of Company A acquired Company B, which had a different business purpose, while looking for a way to cut the corporate tax on the transfer, that no business need beyond corporate tax avoidance explained the split and the merger, and that together with the time gap from the transfer this allowed reconstruction under Article 14(3) of the former Framework Act on National Taxes, so the assessment against Company B was lawful.
Summary of the holding, verbatim
구 국세기본법 제14조 제3항을 적용하여 거래 등의 실질에 따라 과세하기 위해서는 납세의무자가 선택한 행위 또는 거래의 형식이나 과정이 처음부터 조세회피의 목적을 이루기 위한 수단에 불과하여 그 실질이 직접 거래를 하거나 연속된 하나의 행위 또는 거래를 한 것과 동일하게 평가될 수 있어야 한다.
Unofficial English translation
In order to impose taxes in accordance with the substance of transactions, etc. by applying Article 14 (3) of the former Framework Act on National Taxes, the form or process of the act or transaction selected by the taxpayer must, from the outset, be nothing more than a means to achieve the purpose of tax avoidance, and its substance must be capable of being regarded as identical to having engaged in a direct transaction or in a single continuous act or transaction.
Disposition
Dismissed Stated in the decision
상고를 기각한다. 상고비용은 원고가 부담한다.
Unofficial English translation
The appeal is dismissed. The costs of the final appeal shall be borne by the plaintiff.
Form of the test
Circumstances weighed Stated in the decision
그리고 이는 당사자가 그와 같은 형식을 취한 목적, 제3자를 개입시키거나 단계별 과정을 거친 경위, 그와 같은 방식을 취한 데에 조세 부담의 경감 외에 사업상의 필요 등 다른 합리적 이유가 있는지 여부, 각각의 행위 또는 거래 사이의 시간적 간격 및 그와 같은 형식을 취한 데 따른 손실과 위험부담의 가능성 등 제반 사정을 종합하여 판단하여야 한다.
Unofficial English translation
And this must be determined by comprehensively taking into account all circumstances, including the purpose for which the parties adopted such form, the circumstances under which a third party was interposed or stepwise procedures were followed, whether there is any other rational reason, such as business necessity, for adopting such a method besides the reduction of tax burden, the interval of time between each act or transaction, and the possibility of loss and risk-bearing arising from adopting such form.
Factors
- 당사자가 그와 같은 형식을 취한 목적
- 제3자를 개입시키거나 단계별 과정을 거친 경위
- 그와 같은 방식을 취한 데에 조세 부담의 경감 외에 사업상의 필요 등 다른 합리적 이유가 있는지 여부
- 각각의 행위 또는 거래 사이의 시간적 간격
- 그와 같은 형식을 취한 데 따른 손실과 위험부담의 가능성
Unofficial English translation
• the purpose for which the parties adopted such form
• the circumstances under which a third party was interposed or stepwise procedures were followed
• whether there is any other rational reason, such as business necessity, for adopting such a method besides the reduction of tax burden
• the interval of time between each act or transaction
• the possibility of loss and risk-bearing arising from adopting such form
Relation to precedent
States a new standard Read from the decision
구 국세기본법 제14조 제3항을 적용하여 위 각 거래를 그 실질에 따라 재구성할 수 있다고 보아, 이러한 분할과 합병은 조세회피행위에 해당하므로 을 회사에 대하여 한 위 처분이 적법하다고 본 원심판단을 수긍한 사례.
Unofficial English translation
A case where the appellate court's determination, holding that each of the said transactions may be reconstructed in accordance with its substance by applying Article 14 (3) of the former Framework Act on National Taxes and that such division and merger therefore constitute a tax avoidance act, so that the said disposition against Company B was lawful, was affirmed.
Decisions referred to
해당 본문 참조
Burden of proof
Not addressed Not in the decision
Open question and revisit condition
How much weight must a short time gap between the transfer and the restructuring carry before it tips the balance when the parties assert a business purpose of their own?
A later Supreme Court decision weighing business need more heavily in restructuring cases would require this entry to be read again, as would any amendment to Article 14(3) of the Framework Act on National Taxes. A fresh set of documents on the purpose of the split or on the business of the acquired company would also change the assessment.
Cross-family AI independent reading & axis check
6 of 8 axes matched GPT-6 Astra (OpenAI, codex CLI) · 2026-10-25
A reader from another model family (GPT-6 Astra), given the official text but not the primary reading, agreed on 6 of the 8 axes; the readings differed on axis 6 (relation to precedent), axis 8 (open question and revisit condition).
Axis 6 (Relation to precedent): Primary “States a new standard” vs Independent “Cannot be determined”
The primary reading treats the holding as setting out a new standard, while the independent reading could not confirm whether it departs from existing precedent; the holding's full multi-factor test may be read either as a restatement or as a new framework.
구 국세기본법 제14조 제3항을 적용하여 위 각 거래를 그 실질에 따라 재구성할 수 있다고 보아, 이러한 분할과 합병은 조세회피행위에 해당하므로 을 회사에 대하여 한 위 처분이 적법하다고 본 원심판단을 수긍한 사례.Axis 8 (Open question and revisit condition): Primary “How much weight must a short time gap between the transfer and the restructuring carry before it tips the balance when the parties assert a business purpose of their own?” vs Independent “How substantial must a business purpose be to prevent reconstruction when a transaction also produces major tax savings?”
The primary reading asks how much weight a short time gap must carry when a business purpose is asserted, while the independent reading asks how substantial a business purpose must be when the transaction also yields large tax savings.
구 국세기본법 제14조 제3항을 적용하여 거래 등의 실질에 따라 과세하기 위해서는 납세의무자가 선택한 행위 또는 거래의 형식이나 과정이 처음부터 조세회피의 목적을 이루기 위한 수단에 불과하여 그 실질이 직접 거래를 하거나 연속된 하나의 행위 또는 거래를 한 것과 동일하게 평가될 수 있어야 한다.Raw responses and comparison record: Protocol · Blind readings (JSONL) · Axis comparison (JSONL) · SHA-256 (JSON)
Lower-court contrast & scope of application
Lower-court reading vs. Supreme Court holding
Lower-court context: The Seoul High Court, in its judgment of 29 March 2017 (2016Nu53076), held that the split and the merger were means of evading the corporate tax on the transfer of the property, that the assessment against Company B was lawful once the transactions were reconstructed in substance under Article 14(3) of the former Framework Act on National Taxes and the book value was taken as the pre-split book value of Company A of KRW 4,371,259,150. It also held that Company B, not the company established by the split, was the taxpayer for that tax, and that there was no defect of jurisdiction or of the tax notice and no inconsistency of reasons.
Supreme Court standard: The Supreme Court found no error. Reading the appellate reasons against the provisions, the settled law and the record, it held that the court below had not misread or misapplied Article 14(3) of the former Framework Act on National Taxes, and had not erred on jurisdiction, the tax notice or inconsistency of reasons. The argument that the taxpayer was the company set up by the split was raised for the first time in the Supreme Court and so was not a proper ground of appeal; in any event it was unfounded. The Justices unanimously dismissed the appeal.
Distinguishing conditions
- A split or merger that has a rational business reason beyond reducing the tax burden, since the Court relied on the absence of such a reason.
- Transactions through which no indirect method or series of two or more transactions is used, since Article 14(3) applies only where a third party or a step-by-step process is involved.
- An argument first made in the Supreme Court that the taxpayer for the transfer tax is a different company, since the Court held such an argument is not a proper ground of appeal.
Record verification notes
Assemble the purpose of each step with dates, the business purpose of the company acquired, the accounting effect of the split on the book value of the property, and the time gap from the transfer, since the Court weighed all of these together. Check whether the argument about who the taxpayer is was raised below, because the Court refused to hear it as a new claim. Confirm that the former Framework Act on National Taxes before its amendment by Act No. 9911 of 1 January 2010 and the former Corporate Tax Act versions cited in the decision govern the tax year in issue.
From the official text
Points at issue
[1] 구 국세기본법 제14조 제3항을 적용하여 거래 등의 실질에 따라 과세하기 위한 요건 및 납세의무자가 선택한 행위 또는 거래의 형식이나 과정의 실질이 직접 거래를 하거나 연속된 하나의 행위 또는 거래를 한 것과 동일하게 평가될 수 있는지 판단하는 방법 [2] 갑 주식회사가 부동산 양도로 받은 계약금과 중도금을 갑 회사의 일부를 인적분할 방식으로 설립한 회사에 이전하고 위 계약금과 중도금 관련 유동부채를 포함한 분할 전 갑 회사가 보유하던 부채 전부를 보유한 상태에서, 갑 회사의 주주들이 을 주식회사 주식을 전부 인수한 후 갑 회사를 을 회사에 흡수합병하였고, 을 회사는 합병 당시 위 부동산을 시가로 평가하여 승계하고 위 부동산을 매수자에 이전하여 매매잔금을 받은 후 양도금액을 익금에 산입하고 합병 당시 시가로 평가된 양도 당시 장부가액을 손금에 산입하여 법인세를 신고·납부하자, 관할 세무서장이 갑 회사가 분할과 합병을 통해 손금에 산입할 위 부동산의 장부가액을 높이는 등의 방법으로 위 부동산의 양도에 따른 법인세를 부당하게 회피하였다고 보아 을 회사에 법인세를 경정·고지한 사안에서, 이러한 분할과 합병은 조세회피행위에 해당하므로 을 회사에 대하여 한 위 처분이 적법하다고 본 원심판단을 수긍한 사례
Unofficial English translation
[1] The requirements for imposing taxes in accordance with the substance of transactions, etc. by applying Article 14 (3) of the former Framework Act on National Taxes, and the method of determining whether the substance of the form or process of an act or transaction selected by the taxpayer can be regarded as identical to having engaged in a direct transaction or in a single continuous act or transaction [2] In a case where Company A transferred the down payment and intermediate payment it had received from a real property sale to a company established through a partial spin-off of Company A by the personnel division method, and while holding all liabilities that Company A had held before the division, including the current liabilities relating to the said down payment and intermediate payment, the shareholders of Company A subscribed for all shares of Company B and then merged Company A into Company B, whereupon Company B succeeded to the said real property, valued at the price as of the time of the merger, transferred the said real property to the purchaser, and after receiving the balance of the purchase price, included the amount of the transfer as income and included the book value at the time of the transfer, which had been valued at the price as of the time of the merger, as a deduction in calculating income, and filed and paid corporate tax, and the head of the competent tax office, deeming that Company A had unjustly evaded corporate tax arising from the transfer of the said real property by means including raising the book value of the said real property to be included as a deduction through the division and merger, revised the assessment of corporate tax and gave notice of it to Company B, a case where the appellate court's determination holding that the said disposition against Company B was lawful, on the ground that such division and merger constitute a tax avoidance act, was affirmed
Summary of the holding
[1] 구 국세기본법(2010. 1. 1. 법률 제9911호로 개정되기 전의 것, 이하 같다) 제14조 제3항은 "제3자를 통한 간접적인 방법이나 2 이상의 행위 또는 거래를 거치는 방법으로 이 법 또는 세법의 혜택을 부당하게 받기 위한 것으로 인정되는 경우에는 그 경제적 실질내용에 따라 당사자가 직접 거래를 한 것으로 보거나 연속된 하나의 행위 또는 거래를 한 것으로 보아 이 법 또는 세법을 적용한다."라고 규정하고 있다. 구 국세기본법 제14조 제3항을 적용하여 거래 등의 실질에 따라 과세하기 위해서는 납세의무자가 선택한 행위 또는 거래의 형식이나 과정이 처음부터 조세회피의 목적을 이루기 위한 수단에 불과하여 그 실질이 직접 거래를 하거나 연속된 하나의 행위 또는 거래를 한 것과 동일하게 평가될 수 있어야 한다. 그리고 이는 당사자가 그와 같은 형식을 취한 목적, 제3자를 개입시키거나 단계별 과정을 거친 경위, 그와 같은 방식을 취한 데에 조세 부담의 경감 외에 사업상의 필요 등 다른 합리적 이유가 있는지 여부, 각각의 행위 또는 거래 사이의 시간적 간격 및 그와 같은 형식을 취한 데 따른 손실과 위험부담의 가능성 등 제반 사정을 종합하여 판단하여야 한다. [2] 갑 주식회사가 부동산 양도로 받은 계약금과 중도금을 갑 회사의 일부를 인적분할 방식으로 설립한 회사에 이전하고 위 계약금과 중도금 관련 유동부채를 포함한 분할 전 갑 회사가 보유하던 부채 전부를 보유한 상태에서, 갑 회사의 주주들이 을 주식회사 주식을 전부 인수한 후 갑 회사를 을 회사에 흡수합병하였고, 을 회사는 합병 당시 위 부동산을 시가로 평가하여 승계하고 위 부동산을 매수자에 이전하여 매매잔금을 받은 후 양도금액을 익금에 산입하고 합병 당시 시가로 평가된 양도 당시 장부가액을 손금에 산입하여 법인세를 신고·납부하자, 관할 세무서장이 갑 회사가 분할과 합병을 통해 손금에 산입할 위 부동산의 장부가액을 높이는 등의 방법으로 위 부동산의 양도에 따른 법인세를 부당하게 회피하였다고 보아, 구 국세기본법(2010. 1. 1. 법률 제9911호로 개정되기 전의 것, 이하 같다) 제14조 제3항을 적용하여 위 각 거래를 실질에 따라 재구성할 수 있음을 전제로 위 부동산의 장부가액을 분할 전 갑 회사의 장부가액으로 보고, 을 회사에 법인세를 경정·고지한 사안에서, 갑 회사의 주주들이 위 부동산의 양도에 따라 갑 회사가 부담할 법인세를 줄이는 방안을 찾던 중 갑 회사와 사업 목적도 다른 을 회사를 인수하여 분할과 합병으로 법인세를 대폭 줄인 것으로, 위 분할과 합병에 법인세 회피의 목적 외 사업상의 필요 등 다른 합리적인 이유가 있다고 보기 어렵고, 여기에 위 부동산의 양도와 이러한 분할과 합병의 시간적 간격 등 제반 사정까지 더하면 구 국세기본법 제14조 제3항을 적용하여 위 각 거래를 그 실질에 따라 재구성할 수 있다고 보아, 이러한 분할과 합병은 조세회피행위에 해당하므로 을 회사에 대하여 한 위 처분이 적법하다고 본 원심판단을 수긍한 사례.
Order
상고를 기각한다. 상고비용은 원고가 부담한다.
Unofficial English translation
The appeal is dismissed. The costs of the final appeal shall be borne by the plaintiff.
Provisions referred to
[1] 구 국세기본법(2010. 1. 1. 법률 제9911호로 개정되기 전의 것) 제14조 제3항 [2] 구 국세기본법(2010. 1. 1. 법률 제9911호로 개정되기 전의 것) 제14조 제3항, 구 법인세법(2008. 12. 26. 법률 제9267호로 개정되기 전의 것) 제17조 제1항 제3호(현행 제17조 제1항 제5호 참조), 제41조 제1항 제3호, 구 법인세법(2010. 12. 30. 법률 제10423호로 개정되기 전의 것) 제44조 제1항, 구 법인세법 시행령(2009. 2. 4. 대통령령 제21302호로 개정되기 전의 것) 제12조 제1항 제1호(현행 제2조 제1항 제3호 (가)목 참조), 제72조 제1항 제3호(현행 제72조 제2항 제3호 참조)
Read 2026-10-25 · Cross-read 2026-10-25. All quotes matched against the official text. The Chinese-character placeholders the court used for anonymised parties are given in their Korean readings, and parenthetical Chinese-character glosses are omitted.
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