The case affirming the judgment of the court below that the act of endorsement of bills issued by the company for a new loan at the time when the bankruptcy of the company in a special relationship under the Corporate Tax Act was objectively predicted constitutes the object of avoidance of wrongful calculation.

Article 20 (see current Article 52) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998); Article 46 (2) of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) (see current Article 88)

Hansung Co., Ltd. (Law Firm Gyeong & Yang, Attorneys Gyeong-soo et al., Counsel for the defendant

The director of the tax office

Seoul High Court Decision 2002Nu12016 delivered on May 13, 2004

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

1. Regarding ground of appeal No. 1

The purpose of Article 20 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) which provides for the denial of wrongful calculation is to determine whether the transaction is unfair in light of sound social norms or commercial practices, and whether the transaction is unfair in light of the economic rationality (see, e.g., Supreme Court Decisions 95Nu8751, Jul. 26, 1996; 95Nu751, Jul. 26, 1996; 97Nu578, May 28, 1997).

According to the reasoning of the judgment below, after compiling the adopted evidence, the court below acknowledged the facts as stated in the judgment, and determined that it is difficult to recognize the economic rationality because it took the form of the Plaintiff’s endorsement on the bill as it merely takes the form of the Plaintiff’s endorsement on the bill, in fact, merely takes the steps to provide funds necessary for the taking system industry in fact free of charge, and it is difficult to recognize the fact that the consideration system was objectively and clearly predicted by the bankruptcy of the Plaintiff and the Korea Systems Industry Co., Ltd. (hereinafter “Korea Systems Industry”) under the Corporate Tax Act, and that even if the Plaintiff performed its guaranteed obligation, it is evident that the Plaintiff is unable to exercise its right to indemnity.

In light of the above legal principles and records, we affirm the above fact-finding and determination by the court below as just, and there is no error of law such as misconception of facts against the rules of evidence or misunderstanding of legal principles as to the requirements for establishment of denial of wrongful calculation and the criteria for determination as alleged in the grounds of

2. Regarding ground of appeal No. 2

Although the parent company supported its own company according to the business judgment to assist the rehabilitation of its own company, if the parent company fails to meet the economic rationality in light of sound social norms and commercial practices, it shall, in principle, be deemed as subject to the avoidance of wrongful act of calculation. Therefore, the argument in the grounds of appeal to this purport is unacceptable.

3. Conclusion

Therefore, the appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Kang-tae (Presiding Justice)