법무법인(유한) 율촌 | Yulchon LLC

In January 2010, Samsung SDS merged with Samsung Networks and recorded goodwill of KRW 417.5 billion for accounting purposes. Subsequently, in January 2016, the Korean tax authority issued a corporate income tax assessment of KRW 149 billion regarding this goodwill, arguing that it should be taxed as a merger valuation gain. Despite previous legal efforts by another law firm, Samsung SDS lost the case in the first trial. Yulchon took over the appeal process on behalf of Samsung SDS.

During the appeal, Yulchon meticulously analyzed the rationale behind the tax assessment, the evolution of the taxation regime since the 2010 merger, and relevant Supreme Court case law. Yulchon successfully argued that the goodwill recorded for accounting purposes did not meet the criteria for goodwill under tax law, as it did not satisfy certain requirements such as excess earning power, business valuation or valuation increase.

As a result of Yulchon's representation, the appellate court (Seoul High Court) ruled in favor of Samsung SDS. On February 23, 2023, the Supreme Court upheld the appellate court’s decision, leading to a refund of the KRW 149 billion previously paid by Samsung SDS as corporate income tax. Additionally, the Korean tax authority paid KRW 17.5 billion to Samsung SDS as interest.

In cases where the difference between merger consideration and the net asset value of the merged entity is recorded as goodwill for accounting purposes and not as goodwill for tax law purposes, the Korean tax authority tends to treat the goodwill as a taxable merger valuation gain to impose tax without reviewing whether the requirements for “goodwill for tax law purposes” have been satisfied on a case-by-case basis.

This case holds significance in that Yulchon clarified the requirements for taxation of merger valuation gains particularly regarding goodwill acquired through a merger by closely analysing the structure, changes in the taxation of mergers, and Supreme Court case law.

Yulchon's success in overturning the initial court decision demonstrates the firm's expertise and effectiveness in complex legal matters.