Daegu District Court 201Guhap1506 (No. 13, 2011)

Cho High Court Decision 2009Gu3975 ( October 31, 2010)

Tax credit for temporary investment is applied first than tax credit for investment.

External reduction or exemption constitutes tax reduction or exemption for income for each business year, and temporary tax credit for investment constitutes tax credit for which deduction is granted, and thus, foreign investment reduction or exemption should first be applied when there is no separate provision on the order of application under the Corporate Tax Act and other Acts.

2011Nu1864, revocation of disposition of imposing corporate tax, etc.

XX Stock Company

Racing Head of the Tax Office

Daegu District Court Decision 201Guhap1506 Decided July 13, 2011

November 25, 2011

January 13, 2012

1. The defendant's appeal is dismissed.

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

1. Purport of claim

The imposition of KRW 135,60,300 on the Plaintiff on March 19, 2009 and the imposition of KRW 286,540,100 on September 10, 2009 on the Plaintiff on September 10, 2009 and the imposition of KRW 942,063,990 on the special rural development tax for the year 2004, the corporate tax for the year 2005, and the imposition of KRW 982,132,690 on the Plaintiff is revoked.

2. Purport of appeal

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

1. Details of the disposition;

A. On June 14, 1999, the Plaintiff is a foreign-invested corporation established with its main business purpose to manufacture and sell motor vehicle parts, such as the Moter and power generator.

B. Under Article 121-2(1) and (2) of the former Restriction of Special Taxation Act (amended by Act No. 7003, Dec. 30, 2003; hereinafter referred to as the "former Restriction of Special Taxation Act"), the Plaintiff was entitled to reduction or exemption of foreign investment tax (hereinafter referred to as "foreign investment reduction or exemption") for seven years from the starting date of the establishment year among the corporate tax on income from the sales business of Start-Mor and Alternator products, and for three years thereafter, reduction or exemption of foreign investment tax (hereinafter referred to as "foreign investment tax reduction or exemption") for 50% from the starting date of the establishment year. However, from 200 and 2001 business year, it was not subject to reduction or exemption for 202 business years from the date of 2003 "temporary investment tax deduction" under Article 26 of the former Restriction of Special Taxation Act.

C. The Plaintiff reported and paid the corporate tax for the business year of 2003 to 2006, and applied the tax credit for temporary investment under Article 26 of the former Restriction of Special Taxation Act after first reduced and exempted the tax amount calculated by the Plaintiff corporation as follows.

D. Unlike the Plaintiff, the Defendant, on March 19, 2009, issued a tax credit for temporary investment subject to the minimum tax from the calculated tax amount, and calculated the tax amount by making it an external investment reduction or exemption that is not subject to the minimum tax. ① On March 19, 2009, the Plaintiff corrected and notified the Plaintiff of KRW 149,166,930 for special rural development tax belonging to the year 2003. On June 16, 2009, the Plaintiff revoked the portion of KRW 13,560,630 for the tax amount due to the defective filing of the objection, which was reduced to KRW 135,606,30 for the tax amount to be reduced to KRW 286,540,100 for special rural development tax belonging to the year 2004, KRW 942,063,90 for corporate tax belonging to the year 205, KRW 298,296 for corporate tax belonging to the year 2006.

E. The Plaintiff appealed and filed a petition with the Tax Tribunal on October 22, 2009, but was dismissed on December 31, 2010.

[Reasons for Recognition] Unsatisfy, Gap evidence 1-2, Gap evidence 2, Gap evidence 3-1, 2, Gap

Each entry of evidence of heading 4 through 7, 12, and 13, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) The plaintiff's assertion

The instant disposition is unlawful for the following reasons.

(A) According to Article 59 of the Corporate Tax Act, the deduction reduction and exemption should be based on ① tax reduction and exemption, ② tax credit, but the Defendant calculated otherwise in the order of tax credit, ② tax reduction and exemption.

(B) The Defendant issued a public opinion statement in the notice of the result of the claim for correction, ex officio revision of the request for adjudication, and notice of the result of the tax investigation, and issued the instant disposition inconsistent with this, and thus contravenes the principle of good faith

(2) The defendant's assertion

(A) Foreign investment reduction or exemption is "tax reduction or exemption to which the minimum tax is not applied", and temporary tax credit is "tax reduction or exemption to which the minimum tax is applied", and Article 132 (1) of the Restriction of Special Taxation Act provides for the calculation of corporate tax by applying "tax reduction or exemption to which the minimum tax is applied to income for each business year of a domestic corporation, etc." before applying "tax credit reduction or exemption to which the minimum tax is not applied". Thus, it constitutes a special provision under Article 59 of the Corporate Tax Act that provides for the order of tax reduction or exemption under Article 132 of the same Act, and thus, it is legitimate to deduct it in the order of tax credit to which the minimum tax is applied,

(B) Reviewing and notifying the appropriateness of facilities and assets that meet the requirements for notification of the result of request for correction or temporary tax credit for investment is not a public expression on the order of application of tax credit reduction or exemption, but there was no Plaintiff’s act of sacrificeing the principle of legality and protecting trust even if it falls under the title of the statement of opinion. Therefore, the instant disposition does not violate the principle of trust protection under tax law.

B. Relevant statutes

Attached Form 3 is as listed in the "relevant Acts and subordinate statutes".

C. Determination

(1) Issues

The key issue of the instant case is ① temporary investment tax credits to which the minimum tax provision under Article 132 of the former Restriction of Special Taxation Act applies, and the order of tax reduction and exemption where the above minimum tax provision is applied simultaneously, and ② whether the instant disposition violates the principle of good faith under the tax law.

(2) Order of reduction and exemption

(A) Relevant provisions

1) According to Article 59 of the former Corporate Tax Act (amended by Act No. 7005 of Dec. 30, 2003), where the provisions on reduction and exemption of corporate tax and the provisions on tax credit are applied simultaneously, the application of the provisions on reduction and exemption of corporate tax shall, except as otherwise provided, be applied in the order of reduction and exemption of income for each business year, reduction and exemption of income for each business year, ② tax credit not allowed to be carried over, ③ tax credit to be carried over, and ③ tax credit to be granted to be carried over. Temporary tax credit constitutes “tax credit for which a non- carried over

2) According to Article 132(1) of the former Restriction of Special Taxation Act and Article 126(2) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 18176, Dec. 30, 2003; hereinafter referred to as the "former Enforcement Decree of the Restriction of Special Taxation Act"), in calculating corporate tax on income for each business year of a domestic corporation (excluding corporate tax on capital gains, such as land under Article 5-2 of the Corporate Tax Act, additional tax, and additional tax as prescribed by Presidential Decree; referring to corporate tax which does not have the tax credit as prescribed by Presidential Decree; hereinafter referred to as corporate tax), where the tax amount after the reduction, exemption, etc. under any subparagraph of Article 132(1) of the former Restriction of Special Taxation Act does not fall short of the tax amount calculated by multiplying the tax base by 15/100, and the amount of tax reduction, exemption, etc. under Article 132(1)1 and 2 of the former Enforcement Decree of the Restriction of Special Taxation Act shall not be listed.

(3) Article 82 (1) 3 of the Enforcement Rule of the Corporate Tax Act [Attached Form 3] provides that "(121) of the former Restriction of Special Taxation Act (amended by Act No. 1068, Mar. 12, 2010; hereinafter referred to as the " Restriction of Special Taxation Act") which enters into force on January 1, 2010 after the disposition of this case shall be applied to the case where "(122)" is calculated, and "(123) tax reduction or exemption, to which the minimum tax is not applied," "(23) tax reduction or exemption, to which the minimum tax is not applied," and "(125) tax reduction or exemption" shall be applied at the same time when Article 12 (3) of the Restriction of Special Taxation Act (amended by Act No. 1068, Mar. 12, 2010; hereinafter referred to as the "Special Taxation Act").

(B) In the instant case, comprehensively taking account of the following circumstances, it is reasonable to view that, notwithstanding the minimum tax provision of Article 132(1) of the former Restriction of Special Taxation Act, the foreign investment reduction or exemption should first be made prior to the temporary tax credit under Article 59 of the former Corporate Tax Act.

1) Foreign investment reduction or exemption constitutes a tax reduction or exemption for income for each business year under Article 59(1)1 of the former Corporate Tax Act, and a temporary tax credit for investment constitutes a tax credit for carried-over deduction under Article 59(1)3 of the former Corporate Tax Act, and thus, foreign investment reduction or exemption should first be applied unless there is a separate provision on the order of application under the Corporate Tax Act and other Acts.

2) Article 132(1) of the former Enforcement Decree of the Restriction of Special Taxation Act and Article 126(2) of the former Enforcement Decree of the Restriction of Special Taxation Act provide that in calculating corporate tax on income for each business year, the remaining tax amount shall not be reduced or exempted, if the tax amount is below the minimum tax after calculating the remaining tax amount without 'the reduction or exemption to which the minimum tax is not applicable'. ① It does not directly express the order of application of the minimum tax reduction or exemption, ② Article 132(1) of the former Restriction of Special Taxation Act is premised on calculating the amount of tax not subject to the minimum tax, and it is difficult to determine the order of reduction or exemption to which the minimum tax is not subject to the minimum tax, such as the case where the amount of tax is not subject to the minimum tax reduction or exemption under Article 132(2) of the former Enforcement Decree of the Restriction of Special Taxation Act, and it is difficult to determine the order of reduction or exemption to which the minimum tax is not subject to the minimum tax reduction or exemption, etc.

3) Since Article 82(1)3 of the Enforcement Rule of the Corporate Tax Act (attached Form 3) of the "Adjusted Account Statement of Tax Base and Amount of Tax" is only the form prescribed by Article 60(2)2 of the Corporate Tax Act and Article 97(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18174, Dec. 30, 2003) as an administrative procedure necessary for the report and payment of corporate tax, it cannot be deemed as "the separate limit set forth in the order of application of deduction and exemption under Article 59 of the former Corporate Tax Act, which is a superior law."

4) Article 132(3) of the amended Restriction of Special Taxation Act provides that where the minimum tax is applied at the same time, such as reduction and exemption, etc., to which the minimum tax is applied, it shall be applied before a temporary tax credit to which the minimum tax is not applied, and accordingly, the aforementioned provision sets a separate order of reduction and exemption different from Article 59 of the former Corporate Tax Act. In light of the principle of no taxation without law as prescribed by Article 59 of the Constitution, the foregoing provision cannot be deemed to be a provision in the meaning of confirming the order of reduction and exemption under the premise that the above provision is derived as a matter of course from the interpretation of Article 59 of the former Corporate Tax Act and Article 132(1) of the former Restriction of Special Taxation Act, and it shall be deemed to newly set an exception to the order of reduction and exemption under Article 59 of the former Corporate Tax Act. Accordingly, the above provision was newly established for the business

(C) Sub-determination

Therefore, it is illegal that the Defendant first made a temporary tax credit prior to a tax reduction or exemption, so the instant disposition should be revoked, and the Plaintiff’s assertion disputing this issue is justified (such defect as above is sufficient to revoke the instant disposition, and thus, the Plaintiff’s remaining assertion should not be determined).

3. Conclusion

The judgment of the first instance court which accepted the plaintiff's claim is just, and the defendant's appeal is dismissed.