Whether “stocks acquired by directly investing in a concessionaire under the Act on Private Participation in Infrastructure” under Article 129(6)8 of the Enforcement Decree of the Restriction of Special Taxation Act includes “stocks acquired from the company invested in the said concessionaire” (negative)

Article 135(1) of the former Restriction of Special Taxation Act (amended by Act No. 6538 of Dec. 29, 2001); Article 129(6)8 (current deleted) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 18736 of Mar. 8, 2005); Article 18 of the Framework Act on National Taxes

Hho Industrial Co., Ltd. (Law Firm Hho, Attorney Yoon Jong-tae, Counsel for the plaintiff-appellant)

Head of Seogju Tax Office

Gwangju High Court Decision 2004Nu1284 decided June 16, 2005

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Article 135(1) of the former Restriction of Special Taxation Act (amended by Act No. 6538, Dec. 29, 2001; hereinafter “former Act”) and Article 129(6)8 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 18736, Mar. 8, 2005; hereinafter “former Enforcement Decree”) provide that where a corporation whose loans exceed twice its equity capital owns stocks or equity shares of other corporations, the amount calculated as prescribed by the Presidential Decree out of interest on loans paid during each business year shall not be included in deductible expenses in calculating its income for each business year; however, the same shall not apply to stocks acquired by directly investing in a business operator under the Act on Private Participation in Infrastructure. The strict interpretation derived from the principle of no taxation without the principle of no taxation without the law applies not only to taxation requirements, but also to a business operator who falls under non-taxation and tax exemption requirements or unreasonable interpretation without any justifiable reason. Thus, it does not constitute a strict interpretation of the former Enforcement Decree of the Tax Act.

According to the reasoning of the judgment below, the court below determined that the loan does not constitute a “stocks acquired by directly investing in a project operator” with respect to the original stocks transferred by a project operator from a company in which the Plaintiff, which contributed to an “project operator under the Public-Private Partnerships Act” (hereinafter “project operator”), which exceeds twice the equity capital, is not a “stocks acquired by directly investing in the project operator.” In light of the aforementioned legal principles, the judgment below is just and acceptable in light of the aforementioned legal principles, and there is no error of misapprehending the legal principles as to the grounds for exceptions to non-deductible of the former Act and the

2. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Nung-hwan (Presiding Justice)