Article 17-2 (Non-Inclusion of Holding Company’s Received Dividend Amount in Earnings

2. The costs of appeal shall be borne by the Defendant.

3. The order of the judgment of the court of first instance shall be corrected on April 2, 2005 in paragraph (1) of this Article to " April 8, 2005".

On May 30, 2005, the defendant's request for correction against the plaintiff on March 31, 2005 and the corporate tax belonging to the business year 2004 on April 8, 2005 (the "the plaintiff's request for correction" on April 2, 2005 is an error) is revoked, respectively.

2. Purport of appeal

The judgment of the first instance is revoked, and the plaintiff's claim is dismissed.

Therefore, the decision of the first instance court with the same conclusion is justifiable, and thus, the defendant's appeal is dismissed as it is without merit. It is so decided as per Disposition by the assent of all participating Justices, since it is obvious that " April 2, 2005" in Article 1 of the Judgment of the first instance is a clerical error in the text of " April 8, 2005."

[Seoul Administrative Court 2007Guhap13500 ( December 14, 2007)]

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

A. The Plaintiff, a financial holding company established on September 1, 2001 under the Financial Holding Companies Act, calculated the amount not included in the gross income among the revenue dividends received from the subsidiaries when it filed a report on the tax base of corporate tax for the business year 2002 and 2003 business years, and filed a tax return by calculating the tax base and tax amount, not including the interest on loans borrowed by the Plaintiff (hereinafter referred to as the “interest on loans in this case”) in order to lend to a subsidiary company (hereinafter referred to as the “interest on loans in this case”) under Article 18-2(1)3 of the former Corporate Tax Act (amended by Act No. 7317 of Dec. 31, 2004; hereinafter referred to as the “former Corporate Tax Act”).

B. On June 24, 2004, the Plaintiff filed a voluntary declaration of corporate tax for 2002 and 2004 business year corporate tax for the following reasons: “The amount borrowed by a holding company for lending to a subsidiary shall be included in borrowings subject to calculation of the exclusion amount from the exclusion amount of dividends for the holding company’s income” pursuant to the Tax Authorities’s inquiry (re-corporation-358) on June 24, 2004. < Amended by Presidential Decree No. 18751, Mar. 20, 2005; Presidential Decree No. 18687, Feb.

C. However, the Plaintiff filed a claim for correction of the corporate tax for the business year of 2002 and 2003, and filed a claim for correction of the corporate tax for the business year of 2004 on April 2, 2005, with the purport of Article 18-2 (1) 3 of the former Corporate Tax Act, by asserting that the said authoritative interpretation should not be included in the interest paid after deducting the interest paid in the instant case from the income dividends that are excluded from the income dividends.

D. On the ground that the interest paid after deducting the dividends from the taxable income on May 30, 2005 includes the interest paid on the issue of this case, the Defendant rendered “the instant disposition” rejecting all of the Plaintiff’s request for correction on the ground that the interest paid on the part other than the interest paid on May 30, 2005 included the rejection disposition as to the claim for correction on the part other than the interest paid on the issue of this case, but the same applies hereinafter).

E. The plaintiff was dissatisfied with the disposition of this case and requested for adjudication on August 26, 2005, but the National Tax Tribunal dismissed it on January 11, 2006.

Facts with no basis for recognition, Gap's 1 and 2 evidence, Gap's 3, Gap's 4-1 and 2 respectively.

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) Plaintiff

(A) Article 18-2(1)3 of the former Corporate Tax Act provides that, if a holding company has an interest on loans paid by the holding company for each business year, only "interest on loans related to investments in the subsidiary company" shall be deducted from income dividends not included in gross income. The legislative intent of the above provision is to prevent borrowings where stocks of the subsidiary are acquired by borrowings, from including in deductible expenses, and from excluding in gross income the imported dividends received from the subsidiary. However, the instant interest payment is unlawful even if the interest on loans that were lent to the subsidiary regardless of the holding company's investment, as well as from the literal interpretation of the above provision, notwithstanding the fact that it should not be deducted from income dividends to be excluded from gross income in light of the legislative intent, the instant disposition is unlawful.

(B) Article 17-2(5) of the Enforcement Decree of the Corporate Tax Act provides that the calculation of the interest paid, which is excluded from the revenue dividends to be excluded from taxable income, shall be made by the method of “the book value of stocks of a subsidiary company ± the total assets on the balance sheet ± the ratio of exclusion from taxable income”. However, such calculation is illegal as it goes beyond the scope and limitation of “interest on borrowings related to investments in a subsidiary company” under Article 18-2(1)3 of the former Corporate Tax Act, and it

(2) Defendant

Article 18-2 (1) 3 of the former Corporate Tax Act (amended by Act No. 720, Dec. 31, 2004; hereinafter referred to as the "amended Corporate Tax Act") provides that the interest paid to be deducted from the amount subject to exclusion from taxable income shall be calculated based on the total amount of the loan, and Article 18-2 (1) 3 of the former Corporate Tax Act (hereinafter referred to as the "amended Corporate Tax Act") is merely a confirm provision to clarify the purpose.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) In light of the principle of no taxation without law, or the requirements for tax exemption or tax exemption, the interpretation of tax laws and regulations shall be interpreted as the legal text, barring any special circumstance, and shall not be extensively interpreted or analogically interpreted without reasonable grounds (see, e.g., Supreme Court Decision 2002Du6781, May 27, 2004). Article 18-2(1)3 of the former Corporate Tax Act provides that “interest on loans related to the investment in a subsidiary company” shall be “interest on loans related to the investment in the subsidiary company.” Thus, it is apparent that the loan must be deducted from the dividend income subject to exclusion from taxable income, in order

In the instant case, there is no evidence to acknowledge that the interest paid on the instant issue is the interest paid on a loan related to investment in the subsidiary, and the Defendant also does not regard the interest paid on a loan related to investment in the subsidiary as the interest paid on a loan. Therefore, the instant issue is not “interest paid on a loan related to investment in the subsidiary” and is not subject to Article 18-2(1)3 of the former Corporate Tax Act.

(2) As above, there is a problem that it is practically difficult to clarify whether the above interpretation is a loan related to investment in the subsidiary because of the characteristics of money difficult to specify as claimed by the defendant, and to correct this problem, Article 18-2 (1) 3 of the former Corporate Tax Act was amended, and the phrase "related to the investment in the subsidiary" was deleted. Therefore, in the interpretation of the former Corporate Tax Act, the amended Corporate Tax Act cannot be invoked.

(3) Article 3 of the Addenda of the amended Corporate Tax Act provides that "The amended provisions of Article 18-2 (1) 3 and Article 18-3 (1) 1 (proviso) and 3 shall apply from the first dividend income after this Act enters into force," and if the actual contents of the Corporate Tax Act are not changed through the amendment before and after the amendment of the Corporate Tax Act as argued by the defendant, it is not necessary to have a transitional provision like Article 3 of the Addenda of the amended Corporate Tax Act, and it is premised on the fact that such transitional provision has been changed substantially. Therefore, if Article 18-2 (1) 3 of the amended Corporate Tax Act applies to this case against Article 3 of the above Addenda, it constitutes a retroactive taxation and thus, it is in violation of the principle of prohibition of retroactive taxation.

(4) In addition, the interpretation of Article 18-2(1)3 of the former Corporate Tax Act requires the relationship between the loan and the investment. In interpreting Article 17-2(5) of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 19815, Feb. 8, 2007; hereinafter “former Enforcement Decree of Corporate Tax Act”), the phrase “interest on the loan” should be interpreted as “interest on the loan related to the investment”. If such interpretation is not made, Article 17-2(5) of the former Enforcement Decree of Corporate Tax Act shall be deemed null and void as it goes beyond the delegation scope of the parent law.

(5) Sub-decisions

Therefore, the interest paid in the instant case is not the interest paid in connection with the investment in the subsidiary company under Article 18-2 (1) 3 of the former Corporate Tax Act, and thus cannot be deducted from the revenue dividends to be excluded from the taxable income. However, the Defendant’s disposition rejecting the Plaintiff’s claim for correction on the premise that the interest paid in the instant case is deducted from the revenue dividends

3. Conclusion

Therefore, the plaintiff's claim of this case is justified, and it is decided as per Disposition by admitting it.

Related Acts and subordinate statutes

Article 18-2 of the former Corporate Tax Act (amended by Act No. 7317 of December 31, 2004) (amended by Act No. 7317 of Dec. 31, 2004)

(1) Where the sum computed pursuant to subparagraphs 1 and 2 exceeds the sum computed pursuant to subparagraphs 3 and 4, of the profit dividends or surplus distributions received by a holding company prescribed by the Presidential Decree (including a financial holding company under the Financial Holding Companies Act; hereafter in this Article, referred to as the “holding company”) from its subsidiary (referring to a domestic corporation in which the holding company concerned has invested, and which satisfies the requirements prescribed by the Presidential Decree in view of the equity investment ratio, etc. in its subsidiary; hereafter in this Article, the same shall apply) and of the deemed dividend or distribution amount under Article 16 (hereafter in this Article and Article 18-3, referred to as the “dividend dividend amount”), from among the domestic corporations, the amount in excess shall not be included in its gross income in calculating its income for

1. The amount computed by multiplying dividend amount received from the subsidiary by 90/100 where a holding company has invested in excess of 80/100 (40/100 in case of stock-listed corporations or Association-registered corporations) of the corresponding subsidiary’s total issued equity stocks or equity investment shares: Provided, That the amount equivalent to the total dividend amount received from the corresponding subsidiary where a holding company has invested in all of the subsidiary’s issued equity stocks or equity

2. The amount computed by multiplying the dividend amount received from the corresponding subsidiary by 60/100 where a holding company has invested in the corresponding subsidiary at a ratio lower than that provided in subparagraph 1;

3. The amount of interest computed under the conditions as prescribed by the Presidential Decree considering the ratio for exclusion from gross income under subparagraphs 1 and 2 from among interest amounts, if any, paid by the holding company in each business year on its borrowings related to its investments in its subsidiary;

Article 3 of the Addenda to ○○ Application (No. 7317, and Article 3 of the Addenda to 7317 shall apply to the exclusion of dividend income from gross income. < Amended by Act No. 7

The amended provisions of Article 18-2 (1) 3 and the proviso to Article 18-3 (1) 1 and 3 shall apply from the amount of the first dividend income received after this Act enters into force.

Article 17-2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19815 of Feb. 8, 2007) (amended by Presidential Decree No. 19815 of Feb. 8

(4) In applying the provisions of Article 18-2 (1) 3 of the Act, the borrowings and interest thereon shall not include the amounts excluded from losses pursuant to the provisions of Article 55.

(5) The term "amount computed pursuant to the provisions of the Presidential Decree" in Article 18-2 (1) 3 of the Act means the amount computed by multiplying interest on borrowings by the ratio of the sum of amounts falling under subparagraphs 1 through 3 to the amount falling under subparagraph 4:

1. 90/100 of the total sum of the book values of stocks, etc. of a subsidiary that is subject to the main sentence of Article 18-2 (1) 1 of the Act;

2. 100/100 of the aggregate of the book values of stocks, etc. of a subsidiary that is subject to the proviso of Article 18-2 (1) 1 of the Act;

3. 60/100 of the aggregate of the book values of stocks, etc. of a subsidiary that is subject to Article 18-2 (1) 2 of the Act;

4. Total assets on the balance sheet as of the last day of the holding company concerned;

(7) The value of stocks, etc. of a subsidiary under paragraph (5) 1 through 4, total assets and the value of stocks, etc. under paragraph (6) 2 shall be computed by drop number, and where there exists the amount falling under Article 18-2 (1) 4 of the Act, the ratio under paragraph (5) 1 through 3 shall be the ratio occupied by the amount falling under Article 18-2 (1) 1 and 2 of the Act minus the amount falling under subparagraph 4 of the same paragraph in the total amount of dividend income received from the relevant subsidiary.