FTC Loses Samsung Case

The court judged against the Korea Fair Trade Commission (FTC), who imposed the retroactive tax of 15.8 billion won on the Samsung SDS, charging it with low price sales of the Bond With Subscription Warrant (BW) to Lee Jae-Yong who is the son of the Samsung Chairman Lee Kun-Hee.

The Seoul District High Court (Chief Judge Lee Chang-Gu) passed the judgment yesterday that the FTC lost the case in the trial of the administrative litigation, which the Samsung SDS filed to appeal for the FTC`s imposition of the retroactive tax.

According to this decision, unless the FTC appeals to the Supreme Court, the fines of 15.8 billion won levied by the FTC in October 1999 will be scratched, and the fines already paid will be reimbursed.

The FTC had levied the retroactive tax against the Samsung SDS`s unfair internal supports. According to the FTC`s assertion, the Samsung SDS divided the BW of 23 billion won into the debenture bond (21.8 billion won) and the BW (1.2 billion won), and sold the BW to the specially related persons such as Lee Jae-Yong with the lower prices than the current price in order to offer the preference.

The court`s decision is noteworthy in the sense that the court recognized that the FTC arbitrarily imposed the fines beyond the legal limitation after the examination on the unfair in-house trading of the Samsung SDS.

This case is likely to affect the National Tax Office`s measure to levy the retroactive tax on the tax evasion charging the same case with the violation of the inheritance law.

The currently undergoing examination on the Samsung affiliates, which have unfairly supported Lee Jae-Yong to sell his shares of the internet affiliates, is the similar to the Samsung SDS case, calling attention to the outcome.

The judges handed the Samsung SDS the decision, reading that ``the FTC`s charge is valid in the sense that the Samsung SDS helped Lee Jae-Yong maintain and enhance his economic ability by selling the stocks for the low price before they were open to the public. And there is the necessity to regulate such in-house trade. But the FTC could not prove that the Samsung SDS has certainly hampered the fair trade in the market``.

An official of the FTC told that ``we will decide whether to appeal to the Supreme Court after accurately understanding the contents of the decision``.

The Samsung SDS had filed to the Seoul District High Court the administrative litigation in November 1999 in order to appeal the FTC`s decision to levy the fines.

Park Joong-Hyun sanjuck@donga.com