The purpose of Article 57(1) and (4) of the former Corporate Tax Act is to reduce the tax burden of a domestic corporation by preventing duplicate taxation on the same income between the State. Thus, the purport of Article 21 subparag. 1a of the former Corporate Tax Act, which does not include directly paid foreign tax under Article 57, in deductible expenses, is to deduct the directly paid foreign tax amount from the corporate tax amount or include it in necessary expenses. If the amount of corporate local income tax is not included in deductible expenses because there is no provision that grants tax credit or include it in deductible expenses, it would result in an increase in the tax burden of a domestic corporation in violation of the purport of Article 57(1) of the former Corporate Tax Act. Thus, it is reasonable to calculate the tax base of corporate local income tax by directly including a paid foreign tax amount in deductible expenses, in light of the fact that the tax base of corporate local income tax under Article 15(2)2 of the former Corporate Tax Act is deemed to be a tax base of corporate local income tax under Article 57(4) of the former Corporate Tax Act, and thus, it is reasonable to interpret the tax base of corporate local income tax to be deemed unlawful.

2. The costs of the lawsuit are assessed against the defendant.

A. The Plaintiff is a corporation established on December 29, 1989 and engaged in domestic and overseas subsidiaries and real estate rental business.

B. The Plaintiff filed a corporate tax return for the business year 2014, and filed a tax base of KRW 313,730,296,360. The Plaintiff directly paid foreign tax amount to KRW 1,030,233,286 and indirect paid foreign tax amount to KRW 6,927,452,939 (hereinafter “tax amount to be paid abroad”) plus KRW 7,957,686,225 (hereinafter “the tax amount to be paid abroad”) under Article 57(1)1 of the former Corporate Tax Act (amended by Act No. 1522, Dec. 19, 2017; hereinafter the same shall apply). The Plaintiff was granted the tax credit amount to be paid abroad under Articles 15(2)2 and 21 subparag. 1 of the former Corporate Tax Act by choosing the tax credit method among the inclusion methods in deductible expenses under Article 15(2)2 and 21 subparag. 1 of the same Act.

C. The Plaintiff filed a corporate tax return for the business year 2015, and filed a tax base of KRW 240,041,027,390. The Plaintiff directly and indirectly paid foreign tax amounting to KRW 859,274,765 and KRW 9,394,84,555, including the indirect paid foreign tax amounting to KRW 859,39,394,84,848,555, and the indirect paid foreign tax amounting to KRW 10,254,123,320 (hereinafter “the instant paid foreign tax amount”); and the instant paid foreign tax and the instant paid foreign tax were combined with the instant paid foreign tax amounting to KRW 2015 under Article 57(1)1 of the former Corporate Tax Act by selecting a tax credit method under Article 15(2)2 and Article 21 subparag. 1 of the former Corporate Tax Act, and received a tax credit for the instant paid foreign tax amount.

D. On April 30, 2015, the Plaintiff reported and paid KRW 5,238,902,60 as corporate local income tax for the business year 2014, and ② around April 30, 2016, the Plaintiff calculated the tax base under Article 103-19 of the former Local Tax Act (amended by Act No. 14475, Dec. 27, 2016; hereinafter the same) to the Defendant, as in the report of corporate tax, included the amount of foreign tax directly paid abroad (hereinafter referred to as “foreign tax directly paid abroad”), and included the amount of indirect foreign tax equivalent to the amount of corporate tax corresponding to the amount of dividends paid from the foreign subsidiary among the foreign tax paid abroad (hereinafter referred to as “indirect paid foreign tax”).

E. On October 10, 2016, the Plaintiff included the instant directly paid foreign tax amount to the Defendant in deductible expenses. The Plaintiff filed a claim for correction of the amount of money as indicated in the following table by setting the corporate local income tax base in which the instant indirect paid foreign tax amount was not included in gross income. However, the Defendant rejected the Plaintiff’s claim for correction on October 24, 2016 (hereinafter “instant disposition”).

6,860,066,510,5238,902,672,610,610,610,610,672,610, 305, 238,902,60, and 305,135 229,786,904,974,97,4205,013,31,80 the difference between the tax base for the initial return in 2015 (unit (unit): 7,957,686,250,254,123, 320, 1759, 2069, 250,579,720, and 229,720, and 229,70, and 305, of tax base for the initial return (unit: unit) in the year 2014, 2015.

F. The Plaintiff dissatisfied with the instant disposition and filed a request for review with the Board of Audit and Inspection, but the Board of Audit and Inspection rendered a decision to dismiss the Plaintiff’s request on January 18, 2018.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1-3, 7-10, Eul evidence Nos. 1 and 2 (including branch numbers), the purport of the whole pleadings

2. Determination on the legitimacy of the instant disposition

A. The plaintiff's assertion

1) Regarding the interpretation of the tax base of corporate local income tax (main claim)

As the Local Tax Act was amended by Act No. 12153 on January 1, 2014, the local income tax was previously imposed and collected in the form of income tax or corporate tax, and the corporate local income tax was converted into an independent tax method. In the case of corporate local income tax, the tax base of corporate local income tax is the amount calculated pursuant to Article 13 of the Corporate Tax Act. In other words, the tax base of corporate income tax should be interpreted not to apply the tax base under the Corporate Tax Act as it is, but to apply the method of calculation. In other words, the inclusion of the amount of directly paid foreign tax or the indirect paid foreign tax in the case of this case into deductible expenses or gross income even though it was paid to a foreign country in the return of corporate tax base is premised on the premise that the said amount is deducted from deductible expenses, but the Local Tax Act or the Restriction of Special Local Taxation Act does not have the same tax provision as the Corporate Tax Act. Therefore, the foreign tax amount paid in this case should be included in deductible expenses by applying

2) Regarding the foreign tax credit under the tax treaty (preliminary assertion)

Even if the tax base of corporate local income tax ought to be the same, the tax treaty ought to be applied in preference to domestic law as a special law of domestic law. In accordance with Article 23(1) of the Convention between the Republic of Korea and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, tax credits may be granted in cases of paying taxes on income accrued from sources in Japan. In accordance with the purport of the said treaty

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Provisions, etc. of the Corporate Tax Act concerning paid foreign tax in calculating the tax base

According to Article 57(1) and (4) of the former Corporate Tax Act, where the amount of income for each business year of a domestic corporation includes the amount of foreign corporate tax prescribed by Presidential Decree on income generated from overseas sources, or the amount of profit dividends or surplus dividends received from a foreign subsidiary (hereinafter “amount of foreign corporate tax paid”) or the amount of foreign corporate tax imposed on the income of a foreign subsidiary, which is calculated as prescribed by Presidential Decree (hereinafter “indirectly paid foreign corporate tax”) corresponding to the amount of income earned from the foreign corporate tax for the pertinent business year (Article 57(1)1 of the former Corporate Tax Act) or the method of deducting the amount of income for each business year from the amount of corporate tax for the pertinent business year (Article 57(1)2 of the former Corporate Tax Act) (Article 57(1)2 of the former Corporate Tax Act). Meanwhile, according to Article 94(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 27828, Feb. 3, 2017); Article 57(1(1) of the former Corporate Tax Act is included in the amount of income tax calculated as necessary income for the business year.

In addition, the income of a domestic corporation, which serves as the basis for tax base under Article 13 of the former Corporate Tax Act, is the amount obtained by deducting the total amount of deductible expenses from the total amount of gross income in the business year (Article 14(1) of the former Corporate Tax Act), the foreign tax amount paid directly under Article 57(1) of the former Corporate Tax Act is not included in deductible expenses (Article 21 subparag. 1 of the former Corporate Tax Act) and the amount equivalent to the foreign corporate tax amount deducted under Article 57(4) of the former Corporate Tax Act, shall be deemed as gross income (Article 15(2)2

Meanwhile, Article 103-19 of the former Local Tax Act provides that “The tax base of corporate local income tax on income of a domestic corporation for each business year shall be the amount calculated in accordance with Article 13 of the Corporate Tax Act.”

2) Judgment on the main argument

In full view of the following circumstances recognized by the provisions of the relevant statutes and the above facts and the purport of the entire pleadings, it is reasonable to deem that the directly paid foreign tax amount to the corporate local income tax base is included in deductible expenses, and that the indirectly paid foreign tax amount to the instant indirect foreign tax amount is not included in gross income. Accordingly, the disposition of the instant case is unlawful on a different premise. The Plaintiff

A) The purpose and method of foreign tax credit of domestic corporation

A domestic corporation is liable to pay global income tax (Article 2 of the former Corporate Tax Act); in cases of a foreign source income of a domestic corporation, a domestic corporation pays taxes to the source country in addition to paying the tax, so a problem of double taxation arises. For the purpose of correcting such unreasonable outcomes, Article 57(1) of the former Corporate Tax Act permits a domestic corporation to deduct the amount of foreign corporate tax from the amount of corporate tax for the pertinent business year or to deduct the amount of foreign corporate tax by including the amount of foreign corporate tax in deductible expenses for the pertinent business year (Article 1), and to deduct the amount of foreign corporate tax in deductible expenses (Article 2 of the former Corporate Tax Act). In addition, in cases where a domestic corporation receives dividend income after investing in a foreign company through a foreign company, the amount of foreign corporate tax equivalent to the amount of foreign corporate tax directly borne by the domestic corporation is not different from the amount of foreign corporate tax (Article 57(4) of the former Corporate Tax Act). Article 57(1) and (4) of the former Corporate Tax Act that allows the deduction of the amount of foreign corporate tax as above from the amount of corporate tax to be deducted.

Meanwhile, income for each business year, which serves as the basis of corporate tax, is the amount of profit generated from transactions that increase the net assets of the relevant corporation, except as otherwise expressly provided for in capital or financing and the Corporate Tax Act (Article 14 of the former Corporate Tax Act), excluding the amount of capital or financing and the amount of loss incurred from transactions that reduce the net assets of the relevant corporation (Article 15(1) of the former Corporate Tax Act), excluding the amount of capital or financing, disposal of surplus funds, and the amount of loss incurred from transactions that reduce the net assets of the relevant corporation (Article 19(1) of the former Corporate Tax Act). However, the amount of direct foreign tax paid to a domestic corporation is not included in deductible expenses (Article 21 subparag. 1 and Article 57(1)1 of the former Corporate Tax Act). However, if a domestic corporation selects the method of tax credit, the amount of direct foreign tax paid to the corporation for the relevant business year is deducted from the amount of corporate tax calculated by multiplying the ratio of income generated from the relevant business year to the tax base (Article 57(1) of the former Corporate Tax Act).

B) Determination as to directly paid foreign tax amount in the instant case

First of all, when the Plaintiff returns and pays corporate tax directly to a foreign country, the Plaintiff selected a tax credit method on the tax base of the corporate local income tax in this case, and subsequently, was excluded from deductible expenses. However, Article 21 subparag. 1(a) of the former Corporate Tax Act, which does not directly include the amount paid to a foreign country under Article 57, in deductible expenses, should be deducted from the amount of corporate tax or included in necessary expenses as seen earlier. Thus, in the instant case where the Plaintiff selected the methods of tax credit in the return and payment of corporate tax, it would result in the Plaintiff’s increase in the tax burden of a domestic corporation in violation of the purport of Article 57(1) of the former Corporate Tax Act, if the Plaintiff did not include the same in deductible expenses because it did not directly pay corporate tax in deductible expenses. Furthermore, it would not be deemed that the amount of income arising from transactions that increase corporate net assets of the corporation, which would not directly be included in deductible expenses, should not be included in the amount of corporate local income tax in the calculation of the corporate tax base in this case.

C) Determination as to indirect foreign tax amount in the instant case

Next, in relation to the indirect foreign tax amount in this case, the Plaintiff selected a tax credit method in corporate tax return and payment, and subsequently reported and paid corporate local income tax, such amount was included in gross income in the tax base of corporate local income tax. However, Article 15(2)2 of the former Corporate Tax Act provides that “the amount of foreign corporate tax under Article 57(4) of the former Corporate Tax Act (limited to the case where the amount of foreign corporate tax is deducted) shall be included in gross income.” Thus, in order to prevent duplicate taxation between countries and reduce the domestic corporation’s tax burden, the amount of foreign corporate tax, which is deducted pursuant to Article 57(4) of the former Corporate Tax Act, once it was included in gross income of the domestic corporation, shall be in the order of tax credit in accordance with the payment of foreign corporate tax, and thus, it is naturally premised that the indirect foreign corporate tax amount pursuant to Article 57(4) of the former Corporate Tax Act is subsequent to the tax credit. Therefore, it is reasonable to determine the tax base of the indirect foreign corporate tax in this case.

D) Judgment on the Defendant’s assertion

The Defendant asserts that the meaning of “the tax base of corporate local income tax shall be the amount calculated pursuant to Article 13 of the Corporate Tax Act” in Article 103-19 of the former Local Tax Act ought to be construed as having the same meaning as the tax base of corporate local income tax pursuant to Article 13 of the former Corporate Tax Act. However, for the following reasons, it is reasonable to interpret that the above language of Article 103-19 of the former Local Tax Act is to be based on the Corporate Tax Act. Accordingly, the Defendant’s assertion

① Under the principle of no taxation without law, the purpose of statutory interpretation ought to be to find a concrete feasibility within the extent that does not undermine legal stability. Moreover, as a matter of principle, the interpretation ought to be faithfully interpreted in the ordinary meaning of the language and text used in the process (see Supreme Court en banc Decision 2010Da81254, Dec. 23, 2010). In particular, the principle of no taxation without law prevents the requirements for taxation, non-taxation, or tax exemption, and the interpretation of tax laws ought to be strictly interpreted in accordance with the statutory text, barring special circumstances (see, e.g., Supreme Court Decision 200Du7131, Mar. 15, 2001).

② However, Article 13 of the former Corporate Tax Act provides, “The corporate tax base on the income of a domestic corporation for each business year shall be the amount calculated by deducting the amount and income in the following order from the income amount for each business year.” Article 13 of the former Corporate Tax Act provides, “The amount to be deducted within the scope of income for each business year shall be specified in the amount of carried forward, non-taxable income, and income deduction.” Article 13 of the former Corporate Tax Act does not provide for what is “income for each business year.” Article 13 of the former Corporate Tax Act provides, “The first-Section General Provisions concerning the Corporate Tax Base and Calculation” of the portion of corporate tax on the income of a domestic corporation for each business year, which is included in the same Section (Article 14), the scope and calculation method of income for each business year, and the method of calculating the tax base, such as the scope and calculation of losses stipulated in Sub-Section 2,” and Article 13 of the former Corporate Tax Act provides, “The amount reported or otherwise determined pursuant to Article 13 of the Corporate Tax Act.”

Thus, in order to determine the tax base of corporate tax, the purport of Article 13 of the former Corporate Tax Act, which is a general rule on the tax base, is not only the calculation method of gross income or deductible expenses, but also the purport of Article 15(2)2 of the Corporate Tax Act, which provides that the amount of corporate tax shall be included in gross income only when the amount of tax is deducted. In particular, even where the amount of tax is not deducted, if it is included in gross income, it would result

③ Although the Defendant asserts that it would be consistent with the tax base and corporate tax base of corporate local income tax is the legislator’s decision, the Defendant stated that “the tax base of corporate local income tax is identical or shared with the “Corporate Tax Act” (in 9, 17, 23 pages),” and stated that “the tax base of corporate local income tax is subject to independent tax base for local income tax” (22 pages). However, according to the revised bill (Article 103-19 of the Local Tax Act), “the local income tax shall share the tax base under the Income Tax Act and the Corporate Tax Act” and “the earned income deduction, global income deduction, inclusion in deductible expenses, and non-Inclusion in gross income, etc. reflected in the process of deriving such tax base are possible through the amendment of the relevant national tax laws, such as the Income Tax Act and the Corporate Tax Act, and accordingly, it is difficult to deem that the local income tax base is entirely independent from the national tax.”

④ In addition, the Defendant asserts that the international double taxation on the foreign tax amount at the corporate tax stage is completely adjusted. However, if the corporate tax rate in the source country is higher than the corporate tax rate in Korea, there is a problem of double taxation in relation to corporate local income tax, and as seen earlier, the deduction of the foreign tax amount paid to the foreign country is intended to adjust double taxation, and thus, the double taxation is not adjusted, but the double taxation is adjusted by adding the foreign tax amount to the deductible expenses or the indirect foreign tax amount to the gross income, and thus, it is difficult to use the corporate tax base as it is in the corporate local income tax without a tax credit. In other words, even if there is no tax credit in calculating the tax base of the local income tax, the non-taxation of the foreign tax amount or inclusion

⑤ Direct paid-in foreign tax amount is clear that the transaction, which increases the net assets of the relevant corporation, cannot be deemed profit or income, that is, the amount of foreign corporate tax under Article 57 of the former Corporate Tax Act, includes the amount of foreign corporate tax to be included in deductible expenses under Article 21 subparag. 1 of the former Corporate Tax Act.

(6) Article 15(2)2 of the former Corporate Tax Act provides that only the amount equivalent to the amount of foreign corporate tax under Article 57(4) (limited to the amount equivalent to the amount of foreign corporate tax deduction) shall be included in gross income, i.e., only when the method of tax credit is selected. In other words, where the amount of corporate local income tax is not deducted, there is no room to apply the above provision on deemed gross income. Therefore, unless there is a provision on deduction regarding corporate local income tax, the said provision on deemed gross income shall not apply

7) The Defendant asserts that matters concerning the deduction, reduction, and exemption of corporate local income tax under the former Local Tax Act shall be prescribed by the Restriction of Special Local Taxation Act, and that the Restriction of Special Local Taxation Act did not stipulate matters concerning the tax deduction, reduction, and exemption in order to substantially increase the tax by excluding the tax deduction, reduction, and exemption of corporate local income tax. However, tax credit for foreign countries abroad is made in order to correct unreasonable outcomes, such as double taxation on the same income, and its purpose is to promote a company’s overseas expansion by preventing double taxation, and to guarantee neutrality between the domestic investment and overseas investment of the company at the tax burden. As such, it is difficult to view it as an individual tax credit due to a policy cause, such as a tax credit for a tax credit (Articles 5, 11, 24, 25-2, 25-3, 25-4, 26, 29-3, 29-4, and 94, etc. of Special Taxation Act.

3) Sub-determination

Therefore, the instant disposition, based on the premise that the foreign tax amount paid abroad is included in the tax base of corporate local income tax, is unlawful without any need to further examine the Plaintiff’s conjunctive assertion.

3. Conclusion

The plaintiff's claim shall be accepted on the grounds of its reasoning.

[Attachment] Relevant Statutes: omitted

Judges Gangnam-gu (Presiding Judge)