Article 123 of the former Regulation of Tax Reduction and Exemption Act

Litigation costs shall be borne by the plaintiff.

A. The Plaintiff (at that time, ○○ bank prior to the merger) applied for a reduction or exemption of the special surtax stipulated in Article 40-3 of the Regulation of Tax Reduction and Exemption Act by transferring real estate owned by the Plaintiff from February 13, 1998 to October 29 of the same year.

B. The Plaintiff continued to cause a net loss for the current period from the business year 1998 to the business year 2000, which belongs to the date of the transfer of real estate, and incurred KRW 1,01.4 billion for the current net income in the business year 2001, but did not accumulate the reserve for business rationalization under Article 123 of the Regulation of Tax Reduction and Exemption Act at

C. On September 15, 2004, the Defendant revoked the tax reduction or exemption and imposed corporate tax of KRW 1,213,783,370 for the business year 198, including additional tax, on the grounds that the Plaintiff did not accumulate the reserve for business rationalization of the amount equivalent to the special surtax reduced or exempted by the Plaintiff.

Facts without dispute over the basis of recognition, entry of Gap evidence 1 to Gap evidence 4-3, Eul evidence 1 to 11

2. Whether the disposition is lawful;

A. The plaintiff's assertion

The amount equivalent to the corporate tax reduced or exempted by the plaintiff was used for compensating for losses carried forward or transferring capital, and even though the amount was not accumulated as the reserve for corporate rationalization, the purpose of the corporate rationalization reserve system is satisfied. Therefore, the disposition of this case is erroneous in collecting the amount reduced or exempted for the formal reason that there was no accumulation of the reserve for corporate rationalization.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

Under the principle of no taxation without law, the requirements for taxation, non-taxation, or tax exemption shall be avoided, and the interpretation of tax laws shall be interpreted in accordance with the text of the law, barring special circumstances, and it shall not be allowed to expand or analogically interpret without reasonable grounds (see, e.g., Supreme Court Decision 2005Du1128, Jul. 6, 2006

However, in order to improve the financial structure of a corporation under Article 40-3 of the Regulation of Tax Reduction and Exemption Act, a corporation whose special surtax is reduced or exempted shall set aside an amount equivalent to the amount of tax to be deducted from the amount of tax to be deducted in the disposition of profits for the concerned business year under Article 123 (1) of the same Act as a "reserve for business rationalization": Provided, That in the case of a deficit corporation, it shall be allowed to set aside an amount not later than the time of disposal of profits for the business year in which disposable profits accrue under paragraph (2) of the same Article, and in the case of failure to set aside a reserve for business rationalization under paragraph (4) of the

In addition, if a corporation filed a final return without accumulation due to mistake in the business year in which the reserve for corporate rationalization was to be accumulated, as a requirement to avoid additional collection equivalent to the deducted tax amount, but accumulated shortage due to going through the prescribed procedure within the revised return period, it shall be deemed that it was lawfully accumulated from the beginning (see Supreme Court Decision 95Nu1755 delivered on October 29, 196). However, in the case where the Plaintiff did not accumulate the reserve for corporate rationalization even until the closing date of the pleadings in this case, the interpretation of the principle of no taxation without representation cannot be applied by deeming the same as the case where the reserve for corporate rationalization was accumulated on the sole ground as alleged by the Plaintiff. Therefore, the Plaintiff’s above assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

Related Acts and subordinate statutes

Tax Reduction and Exemption Control Act

Article 40-3 (Exemption of Special Surtax for Support, etc. for Improvement of Financial Structure of Corporation)

(1) Where a corporation as prescribed by the Presidential Decree transfers real estate prior to December 31, 199 in accordance with a financial restructuring plan as prescribed by the Presidential Decree in order to improve the financial structure, the income accruing from the transfer of such real estate shall be exempted from the tax amount equivalent to the special surtax: Provided, That the following requirements shall not apply to the case where a financial institution as prescribed by the Presidential Decree (hereafter in this Article and Articles 40-5 through 40-7 and 40-9, referred to as the “financial institution”) transfers real estate acquired through the exercise of mortgage right, real estate acquired to receive the repayment of bonds, or real estate for business as prescribed by the Presidential Decree according to a self

1. A business real estate prescribed by the Presidential Decree, acquired on or before June 30, 1997, shall be transferred: Provided, That the same shall not apply to the case where the real estate donated under Article 40-7 is transferred; and

2. It shall submit a financial restructuring plan to the organization composed of financial institutions, etc. which have claims against the relevant corporation (hereinafter referred to as the "council of financial institutions") and obtain approval (including approval for modification of the approved contents);

3. It shall set aside the proceeds of real estate transfer as a reserve for debt redemption; and

§ 123. Accumulation of reserve for business rationalization

(1) Any domestic corporation that intends to be subjected to the application of tax credit, tax reduction or exemption, or income deduction under the provisions of Articles 5 through 7, 9 through 11, 25 through 27, 31 (7) through (9), 32 (8), 34, 37, 40-3, 45, 46, 50, 51, 53, 54, 88, 93, 96, or 98 shall accumulate as enterprise rationalization reserve the amount equivalent to the amount of tax to be deducted (where intending to receive income deduction, corporate tax on the amount equivalent to the amount of income to be deducted) which intends to be deducted from the amount of tax to be deducted, less the special tax for rural development imposed on the amount of tax to be deducted.

(2) Where any person who is liable to accumulate the reserve for enterprise rationalization pursuant to paragraph (1) fails to accumulate the reserve for enterprise rationalization in the business year concerned, he may accumulate the reserve not later than the time of disposing of profits in the business year in which the profits as determined by the Presidential Decree accrue for the first time after the business year concerned (hereinafter

(3) In case where the reserve for enterprise rationalization is accumulated pursuant to the provisions of paragraph (2), the amount equivalent to 20/100 of the reserve amount shall be collected in addition to the corporate tax for the business year in which the disposable profits accrue: Provided, That this shall not apply to the case where any inevitable reason

(4) Where the reserve for business rationalization is not accumulated pursuant to paragraphs (1) and (2), tax credit, tax reduction or exemption, or income deduction under paragraph (1) shall not apply.

(5) The reserve for enterprise rationalization under paragraphs (1) and (2) shall be continuously accumulated, except in the cases falling under any of the following subparagraphs:

1. Making up losses carried forward;

2. Transfer into capital.

(6) A resident who has received the tax credit, tax reduction or exemption, or income deduction under paragraph (1) shall use the amount equivalent to the amount obtained by subtracting the special rural development tax imposed on such deducted tax amount from the deducted tax amount (an amount equivalent to the income tax on such deducted income, in cases of income deduction) for investment in fixed assets or repayment of long-term loans as prescribed

Article 124 (Additional Collection of Reduced or Exempted Tax Amount)

If any cause falling under any of the following subparagraphs occurs to a national who has received income deduction, tax credit, or tax reduction or exemption under Article 123 (1), the additional amount equivalent to interest calculated, as prescribed by Presidential Decree, shall be promptly collected from the deducted or reduced tax amount (in cases of income deduction, an amount equivalent to the corporate tax on the deducted income amount):

1. Where the corporation which is granted tax credit, tax reduction or exemption, or income deduction pursuant to Article 123 (1) fails to accumulate the reserve for enterprise rationalization pursuant to paragraph (2) of the same Article;

Enforcement Decree of the Tax Reduction and Exemption Control Act

§ 108. Accumulation, etc. of reserve for business rationalization

(1) For the purpose of Article 123 (2) of the Act, the term “gains as determined by the Presidential Decree” means the amount calculated by adding retained earnings carried forward to net income for the current term, deducting earned surplus carried forward and earned surplus reserve in the current taxable year accumulated pursuant to Article 458 of the Commercial Act (hereinafter referred to

(2) In applying the provisions of Article 123 (2) of the Act, any person who fails to accumulate the reserve for enterprise rationalization in the taxable year concerned, because the disposable profits fall short of the reserve for enterprise rationalization to be accumulated in the taxable year in which the disposable profits accrue for the first time, shall accumulate the amount equivalent to the deficit as reserve for enterprise rationalization in the following

(3) The term “inevitable prescribed by the Presidential Decree” in the proviso of Article 123 (3) of the Act means the case falling under one of the following subparagraphs:

1. Where the amount equivalent to the deficit is not accumulated as the reserve for enterprise rationalization as the disposable profits in the taxable year subject to tax credit, tax reduction and exemption, or income deduction provided for in Article 123 (1) of the Act fall short of the reserve for enterprise rationalization to be accumulated in the taxable year; and