Open Decision Ledger · Tax & international taxation
Capital contribution under the Corporation Tax Act read as a commercial-law subscription
Supreme Court, Nov. 30, 2023, 2019Du58445 (judgment)
Case name: 법인세경정거부처분취소
Official text on the National Law Information Center
Question
Does 'capital or contribution paid in' in Article 15(1) of the Corporation Tax Act mean only the payment made on the incorporation of a company or on the issue of new shares under commercial law, and must the legal characterisation of the transaction that produced taxable income be lawful and valid?
Holding
It means only that. Weighing the purpose and wording of Article 15(1) of the Corporation Tax Act, and the absence of a separate definition in the Act, the Court read, absent special circumstances, 'capital or contribution paid in' strictly, in line with legal certainty and the principle of strict interpretation under tax legality, as the payment made on incorporation or on the issue of new shares under commercial law. Taxable income, absent special circumstances, need only be a gain that the taxpayer actually controls, manages and enjoys so as to have the capacity to pay; the legal characterisation of the transaction that produced it need not be lawful and valid.
Summary of the holding, verbatim
특별한 사정이 없는 한 상법상 의미와 동일하게 해석하는 것이 법적안정성이나 조세법률주의가 요구하는 엄격해석의 원칙에 부합하는 점 등을 종합하면, 위 조항의 “자본 또는 출자의 납입”은 상법상 회사 설립 또는 설립 후 신주 발행 시 이루어지는 납입행위(상법 제295조 제1항, 제303조, 제305조 제1항, 제421조 제1항 등)만을 가리킨다고 보아야 한다.
Unofficial English translation
Considering, in combination, that, absent special circumstances, interpreting it in the same sense as under the Commercial Act accords with legal stability and with the principle of strict interpretation required by statutory taxation, among other things, the "contribution of capital or investment" in the above provision must be regarded as referring only to a payment made upon the incorporation of a company or upon the issuance of new shares after incorporation under the Commercial Act (Article 295 (1), Article 303, Article 305 (1), and Article 421 (1) of the Commercial Act, among others).
Disposition
Reversed and remanded Stated in the decision
원심판결을 파기하고, 사건을 서울고등법원에 환송한다.
Unofficial English translation
The judgment of the court below is reversed, and the case is remanded to the Seoul High Court.
Form of the test
Elements stated Stated in the decision
상법상 회사 설립 또는 설립 후 신주 발행 시 이루어지는 납입행위(상법 제295조 제1항, 제303조, 제305조 제1항, 제421조 제1항 등)만을 가리킨다고 보아야 한다.
Unofficial English translation
must be regarded as referring only to a payment made upon the incorporation of a company or upon the issuance of new shares after incorporation under the Commercial Act (Article 295 (1), Article 303, Article 305 (1), and Article 421 (1) of the Commercial Act, among others).
Factors
- 법인세법이 별도의 정의 규정을 두고 있지 않은 이상
- 법적안정성이나 조세법률주의가 요구하는 엄격해석의 원칙에 부합하는 점
- 상법상 회사 설립 또는 설립 후 신주 발행 시 이루어지는 납입행위
- 경제적 측면에서 보아 현실로 이득을 지배·관리하면서 이를 향수하고 있어 담세력이 있다고 판단되면 족하고
Unofficial English translation
• So long as the Corporate Tax Act contains no separate definitional provision
• the fact that it accords with the principle of strict interpretation required by legal stability or statutory taxation
• a payment made upon the incorporation of a company or upon the issuance of new shares after incorporation under the Commercial Act
• it is sufficient if, viewed from an economic standpoint, one actually controls and manages the benefit while enjoying it and is thus deemed to have taxable capacity
Relation to precedent
Follows earlier decisions Stated in the decision
대법원 2015. 7. 16. 선고 2014두5514 전원합의체 판결(공2015하, 1266)
Unofficial English translation
Supreme Court Decision 2014Du5514, en banc judgment, decided July 16, 2015 (Gong 2015 Ha, 1266)
Decisions referred to
[2] 대법원 2015. 7. 16. 선고 2014두5514 전원합의체 판결(공2015하, 1266)
Burden of proof
Not addressed Not in the decision
Open question and revisit condition
Where a taxpayer included money in gross income in the year of receipt and then, after rescission, actually returned it to the counterparty, must the money remain in gross income for that year?
A judgment of the Seoul High Court on remand that finds or rejects an actual contribution in kind would show how the strict reading of Article 15(1) is applied. Any later decision on money returned to the counterparty after rescission, or any amendment to Article 15(1) of the Corporation Tax Act or to the Commercial Act's provisions on contribution in kind, would require this entry to be read again.
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Lower-court contrast & scope of application
Lower-court reading vs. Supreme Court holding
Lower-court context: The Seoul High Court, in its judgment of 16 October 2019 (2019Nu33509), read the substance of the contract as a contribution in kind to the plaintiff of a 49 per cent interest in the land, with the remaining 51 per cent to be bought with funds advanced by Han Shin Engineering & Construction. It therefore held that 49 per cent of the received money was a transformation of assets intended for a contribution in kind and excluded from gross income under Article 15(1) of the Corporation Tax Act, and that the other 51 per cent was a transformation of the subject matter of the sale, which had to be returned to the participant after rescission, so it could not be included in gross income either. On that basis it held the refusal of the amendment request unlawful.
Supreme Court standard: The Supreme Court reversed. The received money was the residue left after the trustee paid off the priority beneficiaries' claims under the trust, so, absent special circumstances, it belonged to the plaintiff and increased its net assets, and had to be included in gross income for the 2011 business year. Article 15(1) covers only payment in the course of incorporation or a new issue of shares, so money intended for a future contribution in kind but received under a different arrangement is not excluded; and although the plaintiff may have had no legal title to keep the money after rescission, it kept the money without returning it and therefore controlled, managed and enjoyed the gain, so it had the capacity to pay. The Court set aside both parts of the reasoning below and remanded.
Distinguishing conditions
- Money paid to a company as the performance of a contribution in kind on incorporation or on a new issue of shares, which is the payment Article 15(1) excludes.
- Gross income that the taxpayer does not actually control, manage and enjoy, so that the capacity to pay tax is absent.
- A case in which the trust had paid the priority beneficiaries in full and no residual amount reached the beneficiary, since the received money here was that residue.
Record verification notes
Trace where the disputed money came from: whether it is a residue of trust property, and whether it was received on the performance of a statutory subscription or under some other arrangement. Then check whether the company returned it to the participant or kept it, since the Court rested the capacity to pay on its continuing to hold the money without returning it. Confirm as well which provisions were in force for the 2011 business year.
From the official text
Points at issue
[1] 법인세법 제15조 제1항의 “자본 또는 출자의 납입”은 상법상 회사 설립 또는 설립 후 신주 발행 시 이루어지는 납입행위만을 가리키는지 여부(적극) [2] 과세소득은 그 소득을 얻게 된 원인관계의 법률적 평가가 반드시 적법·유효하여야 하는지 여부(소극)
Unofficial English translation
[1] Whether the "contribution of capital or investment" under Article 15 (1) of the Corporate Tax Act refers only to a payment made upon the incorporation of a company or upon the issuance of new shares after incorporation under the Commercial Act (affirmative) [2] Whether, as to taxable income, the legal characterization of the relationship that gave rise to that income must necessarily be lawful and valid (negative)
Summary of the holding
[1] 법인세법 제15조 제1항은 법인의 순자산을 증가시키는 거래라고 하더라도 “자본 또는 출자의 납입”은 익금에서 제외된다고 정하고 있다. 위 조항의 입법 취지 및 문언의 내용, “자본 또는 출자의 납입”의 의미에 대하여 법인세법이 별도의 정의 규정을 두고 있지 않은 이상 특별한 사정이 없는 한 상법상 의미와 동일하게 해석하는 것이 법적안정성이나 조세법률주의가 요구하는 엄격해석의 원칙에 부합하는 점 등을 종합하면, 위 조항의 “자본 또는 출자의 납입”은 상법상 회사 설립 또는 설립 후 신주 발행 시 이루어지는 납입행위(상법 제295조 제1항, 제303조, 제305조 제1항, 제421조 제1항 등)만을 가리킨다고 보아야 한다. [2] 과세소득은 경제적 측면에서 보아 현실로 이득을 지배·관리하면서 이를 향수하고 있어 담세력이 있다고 판단되면 족하고 그 소득을 얻게 된 원인관계에 대한 법률적 평가가 반드시 적법·유효하여야 하는 것은 아니다.
Order
원심판결을 파기하고, 사건을 서울고등법원에 환송한다.
Unofficial English translation
The judgment of the court below is reversed, and the case is remanded to the Seoul High Court.
Provisions referred to
[1] 법인세법 제15조 제1항, 상법 제295조 제1항, 제303조, 제305조 제1항, 제421조 제1항 [2] 법인세법 제15조 제1항
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