1. As to the Defendant’s ground of appeal

A. Ground of appeal Nos. 1 and 2

(1) Article 4(1) of the former Adjustment of International Taxes Act (amended by Act No. 9266, Dec. 26, 2008; hereinafter “International Taxes Act”) provides that “The tax authorities may determine or rectify the tax base and tax amount of a resident (including a domestic corporation and a domestic place of business) on the basis of the arm’s length price if the transaction price is less than or exceeds the arm’s length price in an international transaction in which one of the parties to the transaction is an overseas person with a special relationship.” The main sentence of Article 5(1) provides that “The arm’s length price shall be the price calculated by the most reasonable method among the following methods.” In each subparagraph, the comparable third party’s price method (No. 1), resale price method (No. 2), cost plus method (No. 3), Presidential Decree, and other reasonable methods (Article 5(2) provides that detailed matters concerning the method of computing the arm’s length price shall be determined by Presidential Decree.

Accordingly, Article 5(1)1 of the former Enforcement Decree of the Adjustment of International Taxes Act (amended by Presidential Decree No. 18628, Dec. 31, 2004) provides that one of the criteria to be considered in choosing the arm’s length price calculation method, etc. “an international trade between the parties having a special relationship and the unrelated parties,” is “high possibility of comparison”. Here, the term “high possibility of comparison” provides that “where the difference between the compared circumstances does not significantly affect the compared price or net profit of the transaction,” or “where a difference between the compared circumstances or the compared circumstances has a significant impact on the compared price or net profit, a reasonable adjustment is possible to eliminate the difference by such impact” (Article 6(2) of the Enforcement Decree of the International Trade Act provides that “where computing the arm’s length price pursuant to Article 5 of the Act, the difference between the parties having a special relationship and the trading in terms of functions, risks, risks, or net trade profits, etc. between the parties having a special relationship, the price or net trade profit should be reasonably adjusted.”

In full view of the language, purport, etc. of these provisions, in order for a tax authority to impose a tax on a resident’s transaction with a foreign specially related party based on the arm’s length price, it should select the most reasonable arm’s length price calculation method in consideration of the comparison potential, etc. based on the data collected through a request for submission of data against the taxpayer. In a case where a difference in the compared circumstances has a significant impact on the compared transaction price or net profit, the difference must be reasonably adjusted to calculate the arm’s length price, and the burden of proving that the arm’s length price, which forms the basis for the taxation, was lawfully calculated through such process, is borne by the tax authority (see Supreme Court Decision 201Du6127, Dec. 26, 2012, etc.).

(2) Based on the adopted evidence, the court below acknowledged the following facts: (a) with respect to the interest payment transaction arising from the issuance and acquisition of the instant asset-backed securities between the Plaintiff and its overseas related parties, the Lone Star International Finance Limited (hereinafter “lsF”), the Defendant calculated the normal interest rate on the instant loan transaction with LSIF as of the time of issuance of the instant asset-backed securities; (b) calculated the interest rate on the instant loan transaction with LSIF as of the time of issuance of the instant asset-backed securities; and (c) imposed corporate tax for the business year 2002, 2004, and 2004, respectively; (d) determined that the Plaintiff’s loan transaction and the comparable transaction, which are the Plaintiff’s asset-backed securities, have a large difference in the situation and conditions compared to the Plaintiff’s asset-backed securities in light of the circumstances stated in its reasoning, and that it is difficult to view that the Defendant’s calculation of the interest rate on the instant loan constitutes an independent asset-backed securities without reasonable adjustment of the interest rate, and thus it is unlawful.

(3) Examining the reasoning of the lower judgment in light of the evidence duly admitted, the lower court’s determination is based on the legal doctrine as seen earlier. In so doing, contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal doctrine regarding the selection of comparable transactions and the burden of proof, or by exceeding the bounds of the

B. Ground of appeal Nos. 3 and 4

(1) After finding the facts as indicated in its reasoning based on the evidence adopted, the lower court determined as follows: (a) comprehensively taking account of the developments leading up to the conclusion of a three-time sales contract on the instant site by the Plaintiff and the Maritime Consulting Group (hereinafter “piracy”), and the details thereof, etc., it is reasonable to view that, in the first sales contract, the Plaintiff and piracy set the sales price at KRW 146 billion on the premise that the alteration of use of the instant site would take place; (b) the use of the instant site would have been unabundled upon the second sales contract on November 30, 204; and (c) in the third sales contract on November 30, 2004, the lower court determined as follows: (a) it is reasonable to view that the instant site was transferred, but the sales price was KRW 11,46 billion; and (d) the Plaintiff’s alteration of use of the right to be paid at KRW 200,000,000,000,000 for the instant site could not be determined ex post facto.

Furthermore, the lower court determined that the Plaintiff’s loan of KRW 11 billion to Busan General Cargo Terminal Co., Ltd. (hereinafter “UBD”) for the purpose of changing the use of the site of this case where Busan General Cargo Terminal was located at the request of Busan Metropolitan City for the purpose of using the site of this case (hereinafter “UBD”) may be deemed as the loan of the money of this case to the KBD Investment Co., Ltd. (hereinafter “UBD”) for the purpose of using the land of this case, on the ground that the money of this case was not invested or contributed without registration of an asset-backed securitization plan pursuant to the relevant laws and regulations, and that the Plaintiff could not be deemed as the loan of the money of this case to the Busan General Cargo Terminal Co., Ltd. (hereinafter “UBD”) for the purpose of using the land of this case, and if the purpose of use of the land of this case is finally impossible, it can be deemed as the loan of this case to the Busan General Cargo Terminal Co., Ltd. (hereinafter “UBD”) for the purpose of using the land of this case.

(2) Examining the reasoning of the lower judgment in light of the relevant legal doctrine and the evidence duly admitted, the lower court did not err in its judgment by misapprehending the legal doctrine on the attribution of the sales proceeds or the principle of substantial taxation, as otherwise alleged in the grounds of appeal

2. Plaintiff’s ground of appeal

A. The part on imposition of corporate tax for the business year 2001 to 2002

The court of final appeal may investigate and determine only within the extent of filing an appeal based on the grounds of final appeal. As such, the grounds of final appeal should specify the grounds of final appeal and explain specific and explicit reasons as to which part of the judgment below is in violation of the law. If the grounds of final appeal submitted by the appellant does not state such specific and explicit reasons, it shall be treated as failing to submit the grounds of final appeal (see, e.g., Supreme Court Decisions 2004Da25185, Mar. 9, 2006; 2009Du1607, Nov. 26, 2009).

However, the petition of appeal of this case did not state the grounds of appeal as to the disposition imposing corporate tax for the business year 2001 or 2002 in the judgment of the court below, and there is no mentioning how the appellate brief submitted by the plaintiff violates the law. Therefore, there is no legitimate grounds of appeal as to the disposition imposing corporate tax for the business year 2001 or 2002 among the judgment below, and there is no other reason of illegality subject to ex officio examination.

B. The imposition disposition of corporate tax for the business year 2004

(1) Article 40(1) of the Corporate Tax Act provides that “The business year in which earnings and losses of a domestic corporation accrue shall be the business year to which the date on which the income and losses are determined belongs” shall be deemed as realizing the income if a right which is the cause of such income has not been established yet, and adopts the so-called principle of confirmation of right that calculates taxable income. Such principle of confirmation of right is established when there is time gap between the time when the right which is the cause of income and the time when the income are realized, rather than the time when the right is realized and the time when the income is finally realized, and is deemed as having accrued when the income in the pertinent business year is calculated based on the premise that it can be realized in the future (see Supreme Court Decision 2003Du14802, Nov. 25, 2004). Therefore, if the tax liability becomes final and conclusive after the occurrence of the right to request correction of corporate accounting which is the cause of the initial occurrence of income and the requirement for taxation, it shall not be deemed that the aforementioned provision of corporate tax can not be established separately based on the basis of the principle of corporate accounting.

Furthermore, in light of the language, purport, system, etc. of the relevant provision, it is reasonable to deem that the latter causes in this context include cases where the amount of the initial purchase price or the service price has been reduced due to justifiable reasons for business, and barring any special circumstance, the amount of the reduction may not be imposed as corporate tax including the amount of income for the business year in which the right to the initial purchase price or the service price

(2) According to the reasoning of the lower judgment and the evidence duly admitted, the Plaintiff and piracy agreed in the third sales contract on the instant site that “In the event that the Plaintiff’s alteration of the use of the instant site is completed by May 30, 2005 under its responsibility, but the use of the instant site is not changed by the final decision or by the extended payment period after the said date, the piracy may cancel the sales contract or request repurchase, and the Plaintiff shall bear part of the financial expenses incurred to piracy,” and the Plaintiff and piracy agreed that it is impossible for the Plaintiff to change the use of the instant site within the period stipulated in the third sales contract on March 22, 2005, to reduce the sales amount from KRW 110 billion to KRW 103 billion. Accordingly, the Plaintiff returned the above reduced amount of KRW 7 billion to the piracy on March 28, 2005.

(3) Examining the above facts in light of the legal principles as seen earlier, the Plaintiff agreed to reduce the purchase price of the instant building site to avoid disadvantages arising from the cancellation of the sales contract, etc. as alleged by the Plaintiff, and there may be room to deem that there was a justifiable reason for business. Accordingly, the lower court should have deliberated on this point, and determined whether the Defendant included the above reduced amount of KRW 7 billion in gross income in the disposition imposing corporate tax for the business year 20

(4) Nevertheless, without further deliberation, the lower court rejected the Plaintiff’s assertion that the part of the disposition imposing corporate tax for the pertinent business year 2004, which included the above reduction amount of KRW 7 billion in gross income, was unlawful on the grounds that, without further deliberation, if the income equivalent to the above reduction amount of KRW 7 billion would be retroactively extinguished by the above reduction agreement, it would result in the arbitrary modification of the tax law relationship that had already been established by satisfying the taxation requirements, thereby allowing the act of tax evasion that could be exempted from corporate tax by arbitrarily modifying the tax law relationship under the ex post facto agreement

Therefore, the decision of the court below is erroneous in the misapprehension of legal principles as to legitimate grounds for reduction of the price, which is the basis for the confirmation of rights or the deduction of earnings, which affected the conclusion of the judgment. The ground of appeal assigning this error is with merit.

The Supreme Court precedents cited by the court below are not appropriate to be invoked in the instant case, since the case is different.

3. Conclusion

Therefore, the part of the judgment below against the plaintiff regarding the disposition of imposition of corporate tax for the business year 2004 is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The remaining appeals by the plaintiff and the defendant are all dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Shin Young-chul (Presiding Justice)