Cho-2016-China-1733 (Law No. 16, 2016)

Whether it is related to the business of provisional payments shall be objectively determined on the basis of the purpose or business contents of the corporation concerned.

Whether it is related to the business of provisional payments shall be objectively determined on the basis of the purpose or business contents of the relevant corporation. The loan of this case constitutes provisional payments paid to a related person without connection with the business affairs of the relevant corporation.

Article 53 (Non-Inclusion of Interest Paid on Non-Business Assets, etc. in Loss)

2016Guhap997 Revocation of Disposition of Imposing Corporate Tax

O Co., Ltd.

O Head of tax office

2017.05.08

2017.06.13

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The defendant's imposition of the corporate tax on the plaintiff and the imposition of the corporate tax on the OO.O.O.O.O.O.O.O.O.O.O.O.O.O.O.O.O.O.O.O. business year, respectively, is revoked.

1. Details of the disposition;

A. From O.O.O.O. to O.O.O.O.O.O.O.O.O., the Plaintiff: (a) designated US$OOO(hereinafter “AA”) as an annual interest rate and lent (hereinafter “the instant loan”) to AA as a U.S. corporation (hereinafter “AA”).

B. After conducting a follow-up inspection on the Plaintiff’s overseas subsidiaries’ loan investment, etc., the director of the regional tax office of OO shall regard the instant loan as a provisional payment unrelated to the business that was paid to the specially related person, and notify the Defendant of the result of the inspection, the Defendant: (a) notified the Plaintiff of the rectification and notification of the corporate tax OO.O.O. corporation for the business year of OO.O.O. in the calculation of losses; (b) OO.O. corporation paid for the business year of OO.O. in the calculation of losses, and (c) notified the Plaintiff of the rectification and notification of OO.O. corporation for the business year of OO.O. in the calculation of losses.

(hereinafter referred to as "disposition of this case" in total of the above correction and notification of each corporate tax

C. The Plaintiff dissatisfied with the instant disposition and filed a request for a trial with the Tax Tribunal (OO.O.O.). However, the Tax Tribunal dismissed O.O.O.O.O...

(Ground) Facts without dispute, Gap evidence 1, 2, 3, and Eul evidence 1 (including branch numbers; hereinafter the same shall apply) and the purport of the whole pleadings.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

In the event that a business division is newly established as a new area while expanding its business into a new area, all the interest paid on borrowings may be included in deductible expenses. However, as in the instant case, there is no reason to treat the new business by establishing a separate corporation as a subsidiary, and there is no reason to treat otherwise. In light of the fact that the Plaintiff supplied beverages to Lestop, etc. in the U.S. through AA and raises a certain outcome by supplying them to the Minister of Finance and Economy, and obtained approval after filing a report on direct investment with the Minister of Finance and Economy on the instant loans, the instant loans cannot be deemed unrelated to the Plaintiff’s business

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Article 28(1)4(b) of the Corporate Tax Act provides that a person with a special interest under Article 52(1) of the same Act shall be deemed to exist.

Of the interest on loans paid during each business year by a corporation that holds "the provisional payments, etc. prescribed by Presidential Decree, which are not related to the business of the corporation," the amount calculated as prescribed by Presidential Decree (limited to the interest on the corresponding asset value among loans) shall not be included in the calculation of losses in calculating the amount of income for each business year, and Article 53 (1) of the Enforcement Decree of the Corporate Tax Act provides that "the term "the amount prescribed by Presidential Decree" means the amount of loans that are not related to the business of the corporation, regardless of the name, regardless of the name." In this context, "provisional payments, etc. paid without relation to the business" includes not only pure meaning, but also those equivalent to loans given in the nature of the bonds. The issue of whether the provisional payments are related to the business shall be determined objectively on the basis of the purpose or business contents of the corporation concerned (see, e.g., Supreme Court Decisions 91Nu8302, Nov. 10, 1992; 2004Du3766, Mar. 26, 2004).

2) All the evidence mentioned above and the whole purport of the pleading in Gap evidence Nos. 4, 16, 21

In light of the following circumstances, the instant loan constitutes “provisional payment, etc. paid to a related party without connection with the business of the pertinent corporation” under Article 28(1)4(b) of the Corporate Tax Act, and thus the instant disposition that excluded the interest paid in connection with the loan from deductible expenses is lawful, and the Plaintiff’s above assertion is without merit.

(1) The legislative purpose of Article 28(1)4(b) of the Corporate Tax Act is to prevent the aggravation of the financial structure of an enterprise through the unreasonable expansion of companies depending on other capital and induce sound economic activities of an enterprise through the productive management of corporate funds (see, e.g., Supreme Court Decision 2006Du1647, Sept. 20, 207). In light of such legislative purpose, it is inevitable to treat differently in cases where a corporation, while investing in a new business, establishes a separate corporation as a subsidiary and establishes a business division in a company (see, e.g., merchants with external independent legal personality of a subsidiary).

(2) The Plaintiff, along with a U.S. corporation BB, acquired an O% share in the establishment of the AA while establishing the BB. The Plaintiff is a company established for the purpose of manufacturing and selling food (including ginseng products) and manufacturing and selling pharmaceutical products, and AA is a company established for the main purpose of supplying fishery products in the U.S. and its purpose and business are different.

(3) In light of the fact that there was no sales from OO to OO by the Plaintiff on the part of the Plaintiff, there was a very low proportion of major products related to fishery products in the Plaintiff’s total sales, and that the country importing major products related to fishery products is Japan, not the United States, it seems that the instant loans were used as pure driving funds of AA while not contributing to the increase of Plaintiff’s sales or revenues.

3. Conclusion

Thus, the plaintiff's claim is dismissed as there is no ground.