Analysis of Merger Accounting and Taxation through the Case of Tax Penalties on Restructuring of General Trading Companies
Asian Tax Journal Vol. 23 No. 2 (2022), pp. 9-36
Abstract
This study analyzes the contents related to merger accounting in terms of accounting and corporate taxation using the case in which the amount of tax penalty collected from tax investigations disclosed since the introduction of the DART system in 1999 was the largest. Specifically, in relation to the Hyosung T&C merger case of Hyosung, it focuses on examining the accounting treatment of the merger in detail through the contents of the merger accounting rules and corporate tax law at the time and analyzing the issues. Hyosung T&C, which was merged with Hyosung, was in a state of complete capital encroachment at the time and had a net debt of about KRW 134 billion. In this case, goodwill calculated as the difference between the consideration for the merger and the net asset value of the merged corporation was KRW 136.8 billion on book. Nevertheless, excluding the processed assets due to accounting fraud, which became a problem during the tax investigation process, it can be seen that the actual net debt was about KRW 604.4 billion. However, after the merger, Hyosung’s financial ratio continued to improve. The debt, which increased significantly due to the merger in 1998, continued to decrease, and both sales and operating profit increased significantly. In particular, overall sales increased by about 16% compared to the time of the merger, and in the trade area related to Hyosung T&C, sales grew by about 19% in three years compared to the time of the merger, and operating profit improved significantly. This means that although a policy merger took place in 1998, the synergy effect of the merger was very large as a result. In this process, it seems that the sales network such as assets and customer information of overseas branches owned by Hyosung T&C before the restructuring in the aftermath of the foreign exchange crisis played a major role. However, there was no way to present these intangible assets on the statement of financial position according to accounting standards. In reality, it is judged to have the characteristics of an intangible asset called a business network. From this point of view, the question arises as to whether the corporate tax law should deny the amortization cost because the portion of the business network was reflected as a tangible asset in accounting through the merger accounting, but is actually an intangible asset that can be recognized during the merger process. The contribution of this study can be found in that it is the first time to analyze the gap between accounting principles and tax laws in relation to the huge amount of additional tax penalty revealed during the tax investigation process, which is one of the important disclosures.
Keywords
- merger
- goodwill
- tax penalty
- the purchase method
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