[1] The scope of "provisional payment made without connection with the business" under the former Corporate Tax Act and the standard for determining whether the business of provisional payment is related to the business of the former

[2] Whether Article 20 of the former Corporate Tax Act with respect to a wrongful calculation father violates the principle of prohibition of blanket delegation, or whether Article 47 (2) of the Enforcement Decree of the same Act is unconstitutional or unlawful beyond the limit delegated by this mother Act (negative)

[3] Whether the proviso of Article 47 (2) of the former Enforcement Decree of the Corporate Tax Act is excluded in determining whether the act constitutes the denial of wrongful calculation (negative)

[4] The case holding that the transaction, which purchased subordinated bonds or corporate bills issued by a person with a special relationship at an earning rate higher than the monthly interest rate for the current account, does not constitute a wrongful calculation and calculation under the proviso to Article 47 (2) of the former Enforcement Decree of the Corporate Tax Act

[1] Article 18-3 (1) 3 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) and Article 43-2 (2) 2 of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) include loans of pure meaning as well as loans equivalent to loans in the nature of bonds, and those cases where provisional payments are provided with interest at an appropriate interest rate, and whether the provisional payments are related to the business should be objectively determined based on the purpose or business contents of the pertinent corporation.

[2] Article 20 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) with respect to a person whose wrongful act was committed violates the principle of prohibition of comprehensive delegation, or cannot be deemed as a provision of unconstitutional and unlawful beyond the bounds delegated by this mother Act under Article 47(2) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998).

[3] Article 47 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970, Dec. 31, 1998) is derived from the denial of wrongful calculation and interpreted as supplementary provisions under Article 46 (2) 7 of the Enforcement Decree of the same Act. Meanwhile, Article 47 of the former Enforcement Decree of the Corporate Tax Act is amended by Presidential Decree No. 13541, Dec. 31, 1991, it is calculated as the monthly interest rate for loans under paragraph (1). Paragraph (2) of the same Article provides that the corporation shall set the maturity of loans to its specially related persons and received interest rate of 97 months at the current rate of interest rate of 97 months, if the other party to the transaction is a corporation or an individual, the former Enforcement Decree shall be deemed as the maximum interest rate of loans under Article 97 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970, Dec. 31, 199).

[4] The case holding that the transaction, which purchased subordinated bonds or corporate bills issued by a person with a special relationship at an earning rate higher than the monthly interest rate for the current account, is not subject to a wrongful calculation because it constitutes a case where the transaction was made by lending money under the proviso of Article 47 (2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998), and it was agreed to receive interest at the current account interest rate with a maturity fixed and thus, it does not

[1] Article 18-3(1)3 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) [see Article 28(1)4(b) of the current Enforcement Decree of the Corporate Tax Act] Article 43-2(2)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998; see Article 53(1) of the current Enforcement Decree of the Corporate Tax Act / [2] Article 20(1) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998; see Article 52 of the current Enforcement Decree of the former Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998); Article 47(2)(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 198 of the current Enforcement Decree of the Corporate Tax Act]

[1] Supreme Court Decision 91Nu8302 delivered on November 10, 1992 (Gong1993Sang, 141) Supreme Court Decision 2003Du14796 Delivered on March 26, 2004 / [2] Supreme Court Decision 2002Du11479 Delivered on February 13, 2004 (Gong2004Sang, 488) Constitutional Court Decision 200Hun-Ba81 Delivered on May 30, 202 (HunGong69, 467)

Samsung C&T Co., Ltd. (Law Firm J&S et al., Counsel for the defendant-appellant)

The director of the Nammun District Office (Attorney Process-at-Law)

Seoul High Court Decision 2003Nu13986 delivered on June 10, 2005

Of the judgment below, the part of the disposition imposing corporate tax for the business year 1998 is reversed, and that part of the case is remanded to Seoul High Court. The plaintiff's remaining appeal

The grounds of appeal are examined.

1. As to whether the case constitutes a provisional payment without office

Article 18-3 (1) 3 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998; hereinafter the "former Act") and Article 43-2 (2) 2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998; hereinafter the "former Enforcement Decree of the Corporate Tax Act") include not only purely meaningful loans, but also loans that are equivalent to the nature of the loan, and also provisional payments are provided upon receiving interest at a reasonable interest rate. Whether the provisional payments are related to the business shall be objectively determined based on the purpose or business contents of the relevant corporation (see, e.g., Supreme Court Decisions 91Nu8302, Nov. 10, 1992; 2004Du47636, Mar. 26, 2004).

In light of the above legal principles and records, the court below's determination that the plaintiff's debt ratio exceeding 100% as a general trading company with commercial sector, distribution business sector, construction business sector, and clothes business sector as stated in its reasoning was hard to find out that the plaintiff deposited 40 billion won of specified money trusts in Korea on December 30, 1997 to the Insurance Bank and purchased subordinated bonds issued by Samsung Securities Co., Ltd. (hereinafter "Tsung Securities"), a specially related party, and that the Samsung General Chemical Co., Ltd. (hereinafter "Tsung General Chemical Co., Ltd.") purchased subordinated bonds with 40 billion won issued by Samsung Co., Ltd. (hereinafter "TB") without any special relationship with the specially related party at the time of its purchase of Samsung Co., Ltd. (hereinafter "TBT"), and it is hard to view that it constitutes a legitimate business structure of Samsung Co., Ltd. (hereinafter "TBT")'s purpose and management status at the time of its purchase of Samsung Co., Ltd., Ltd. and its underlying bonds and other corporate bonds purchased at the time of its purchase.

2. Whether the calculation is subject to the avoidance of unfair act and calculation

A. Article 20 of the former Act on the Avoidance of Wrongful Calculation does not violate the principle of prohibition of blanket delegation, or Article 47(2) of the former Enforcement Decree of the Act does not constitute a provision of unconstitutional or unlawful beyond the limit delegated by this mother Act (see, e.g., Supreme Court Decisions 2002Du11479, Feb. 13, 2004; 200Hun-Ba81, May 30, 2002). The Plaintiff’s ground of appeal on this point cannot be accepted.

B. In light of the records, the court below's decision that the plaintiff and Samsung Securities, Samsung General Chemical, Samsung C&T were related parties under Article 46 (1) of the former Enforcement Decree of the Act between the plaintiff and Samsung Heavy and judged whether they are subject to the avoidance of wrongful act and calculation is just, and there is no error of law such as incomplete hearing, as alleged in the ground of appeal by the plaintiff.

C. Article 20 of the former Act provides, “The Government may calculate the amount of income of a domestic corporation for each business year of the concerned corporation where it is deemed that the tax burden on the income of the concerned corporation has been unjustly reduced as prescribed by the Presidential Decree in the transaction with the related parties as prescribed by the Presidential Decree.” Article 46 (2) of the former Enforcement Decree provides, “Where it is deemed that the tax burden has been unjustly reduced as to the concerned income of the concerned corporation” shall mean cases falling under any one of the following subparagraphs. Article 20 of the former Enforcement Decree provides, “The amount of money or other assets or services has been lent to an investor without compensation or at a low interest rate or at a low interest rate or at a low interest rate, the difference between the loan and the concerned interest rate per month interest rate per annum (hereinafter “monthly interest rate”) shall be included in the calculation of the loan and the concerned interest rate per month interest rate per annum.” In addition, Article 47 (1) of the former Enforcement Decree of the Act provides, “where an investor has lent money to an individual at a lower interest rate per month or over the concerned interest rate per month.”

Article 47 of the former Enforcement Decree of the Act is derived from the denial of wrongful calculation. It is interpreted as a supplementary provision of Article 46 (2) 7 of the former Enforcement Decree of the Act. Meanwhile, Article 47 of the former Enforcement Decree of the Act is amended by Presidential Decree No. 13541, Dec. 31, 1991; Paragraph 1 of the same Article also applies to a low interest rate. Paragraph 2 of the same Article, where a corporation agreed to pay interest at a monthly interest rate higher than that of the current loan to a person with a special relationship, it is deemed that the current interest rate is the highest interest rate of the loan if the other party to the transaction operates a corporation or an individual, and the other party to the transaction agrees to pay interest at the current interest rate than that of the current loan if the other party to the transaction agreed to pay interest at a monthly interest rate than that of the current loan to a corporation or an individual, it is deemed that the former Enforcement Decree of the Act does not always apply to a wrongful calculation of the current interest rate of 97 months.

According to the records, on December 30, 1997, the Plaintiff deposited KRW 40 billion in a specified money trust to the Insurance Bank, and ordered the Insurance Bank to purchase KRW 40 billion in a redemption rate of KRW 17.26% issued by the Samsung Securities, which is a specially related party. On November 14, 1997 and February 13, 1998, the Plaintiff purchased KRW 50 billion in a 91-day commercial paper issued by Samsung General chemical, a specially related party, at a discount rate of KRW 13.42% in each of the above 9-year commercial papers, and KRW 10 billion in total at a discount rate of KRW 13.42% in each of the above 9-year commercial papers and KRW 10 billion in total at a discount rate of KRW 97.19% in each of the above 19-year commercial papers after 198.19% in each of the above 19-year commercial papers.

In light of the aforementioned legal principles and the facts, the Defendant: (a) purchased subordinated bonds or corporate bills issued Samsung Heavy Co., Ltd. (hereinafter collectively referred to as “instant subordinated bonds, etc.”) on Nov. 14, 1997; and (b) issued Samsung Heavy Co., Ltd. (hereinafter collectively referred to as “instant subordinated bonds, etc.”); and (c) issued the instant disposition at a low interest rate under Article 20 of the former Act; and (d) Article 46(2)7 of the former Enforcement Decree of the former Enforcement Decree of the Act at a rate higher than the maturity and the current interest rate; (b) the recognition interest rate under Article 47 of the former Enforcement Decree of the Act is set at a rate higher than the current interest rate; and (c) if a lending corporation, which regulates the difference between the amount equivalent to interest and the amount equivalent to interest accrued at a low interest rate or the amount equivalent to interest accrued at a rate higher than the current interest rate, it is reasonable to view that it constitutes an agreement at a rate higher than the current interest rate per month when it was purchased at a higher interest rate than the current interest rate per month.

Nevertheless, the court below determined that the purchase by the plaintiff of the subordinated bonds, etc. of this case constitutes an abnormal act that reduces tax burden because it lacks economic rationality, and rejected the plaintiff's assertion that the proviso of Article 47 (2) of the former Enforcement Decree of the Act should be applied to the case where it is deemed that the tax burden has been unjustly reduced as in the case of this case, the court below rejected the claim on the ground that the overdraft interest rate cannot be deemed as the loan interest rate. Thus, the court below erred by misapprehending the legal principles on the interpretation and application of the unfair act of calculation under the former Act and the former Enforcement Decree of the Act. The plaintiff's ground of

3. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the part of the disposition imposing corporate tax for the business year 1998 of the judgment below shall be reversed, and that part of the case shall be remanded to the court below for further proceedings consistent with this Opinion. The remaining grounds of appeal by the plaintiff shall be dismissed. It is so decided as per Disposition

Justices Kim Hwang-sik (Presiding Justice)