The Board of Audit and Inspection of Korea (BAI) announced its inspection result, stating that the goodwill of KRW 316.6 billion (hereinafter referred to as “goodwill in question”), calculated by POSCO on September 1, 2019, during its acquisition of the byproduct gas power generation business (hereinafter referred to as “business in question”) from its subsidiary POSCO Energy through a physical division and merger without incorporation, was overvalued. In response, the tax authority reassessed the goodwill in question to KRW 301.3 billion, disapproved of the overestimated depreciation cost, and imposed corporate tax.
DR & AJU claimed that the goodwill in question was calculated by deducting the net asset value from the appraised value (KRW 1,163.7 trillion), as stipulated by the Capital Markets Act, and was acquired through an “appropriate evaluation method” under Article 12 of the Enforcement Rules of the Corporate Tax Act.
DR & AJU also highlighted that the value of goodwill in question (KRW 301.3 billion) claimed by the disposition authorities was based on the appraisal value (KRW 319.2 billion) calculated by POSCO for accounting verification without changing the discount rate, but only by arbitrarily excluding cash flow for the eight months preceding the split merger date (from January 1, 2019, to August 31, 2019). Furthermore, DR & AJU pointed out that the tax office failed to prove the "appropriate valuation amount," successfully leading to a decision revoking all corporate tax impositions.
This case is significant in that DR & AJU successfully defended Client by saving corporate tax worth billions of KRW against the tax authority’s underestimation of the goodwill in question (depreciation cost). In the whole process, from the BAI's audit explanation stage to the tax tribunal's decision, DR & AJU provided comprehensive and efficient tax appeal services for Client.
