Corporate Litigation | The Supreme Court's Determination Regarding a Small Business Representative Charged With Violating the Subsidies Act

The defendant in this corporate litigation had requested a Supreme Court determination on the alleged violation of the Subsidies Act.

The case of the defendant, who operates a small and medium-sized enterprise, is as follows.

Company A, a small and medium-sized enterprise operated by the defendant, participated in the startup internship program administered by the Small and Medium Business Administration.

The prosecution, however, indicted the client on the charge of having falsely registered persons who had not actually worked as interns and then applied for and received startup internship program support funds.

In the corporate litigation, the Supreme Court did not accept the determination of the lower court and reversed the judgment.

The Supreme Court noted that the startup internship program support funds could constitute a contribution rather than a subsidy.

Under Article 2 of the Subsidies Act, a subsidy is defined as “a subsidy disbursed by the State to foster, or to provide financial assistance to, affairs or projects carried out by a person other than the State.”

The National Finance Act, on the other hand, provides that “where there is a basis in statute, the State may make a contribution to the relevant institution in order to achieve a specific purpose, such as carrying out a national research and development project or operating an institution that performs a public purpose.”

The Supreme Court determined that if the State, in supporting a specific project, executed the funds without accounting for them as a contribution, those funds do not constitute a subsidy under the Subsidies Act.

The Small and Medium Business Administration accounted for and executed the budget for the startup internship program as a contribution.

The budget explanatory materials also expressly designated the funds as a contribution, and the relevant operating guidelines likewise defined the funds as government support funds.

The Supreme Court determined that the internship activity allowances paid under this project were paid from a contribution as their source of funding.

In the corporate litigation above, the distinction between a subsidy and a contribution, and the classification of the budget item, were the points at issue.

The fact that the budget for the relevant Small and Medium Business Administration project had been allocated as a contribution was the central issue, and it became an important factor in determining whether the Subsidies Act applied.

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