Professor 2016-Divisions-292 ( January 31, 2017)

The term of income deduction for any loss carried forward incurred in 2007 shall be five years.

The time limit for the deduction of any loss carried forward incurred in 2007 shall be five years, and it shall be carried forward for 10 years from the loss carried forward in 209.

Article 13 of the Corporate Tax Act

2017Guhap51219 (Revocation of Disposition of Imposing corporate tax)

△△ (State)

Head of tax office

June 20, 2018

December 12, 2018

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The imposition of corporate tax of KRW 738,669,953 against the Plaintiff on July 15, 2016 shall be revoked.

1. Details of the disposition;

A. On March 31, 2008, the Plaintiff, a company engaged in the business of manufacturing maternity, etc., obtained the rehabilitation plan approval (the Changwon District Court 2007 Gohap***; hereinafter referred to as the "decision of this case"). The decision of this case includes the contents of partial exemption from the Plaintiff's loan obligations, etc.

B. According to the corporate accounting standards, the profits from debt exemption are recognized as profits (including the discounted debt estimated by present value to the commercial account). After the maturity of the debt, the amount of the present debt estimated by present value is recognized as the cost.

C. However, according to Article 42(1) of the Corporate Tax Act, the “realistic principle that does not allow recognition of the above profits and expenses” is adopted. Accordingly, when calculating the amount of income pursuant to Article 14 of the Corporate Tax Act, the above profits from debt exemption are subject to tax adjustment in gross income, and the discounted debt estimated by the present value is subject to tax adjustment

D. However, in the business year from 2008 to 2011, the Plaintiff calculated the total amount of KRW 5,892,066,971, including the discounted debt estimated by the present decision (in addition to interest expenses) on the profits accruing from debt exemption pursuant to the instant decision, and the total amount of KRW 5,892,06,971, which was not included in deductible expenses, as follows: (a) the Plaintiff calculated the deficit by business year (Article 14(2) of the Corporate Tax Act) for each business year, including the discounted debt estimated by the discounted debt estimated by the present business year in 2012, when filing a return of corporate tax in 2012.

E. Meanwhile, the calculation of the amount of income for each business year must be based on the principle of independence of the business year separately for each business year. However, in order to prevent the maintenance of the corporation's capital and to secure the source of income as a continuing enterprise, Article 13 subparagraph 1 of the Corporate Tax Act provides that "the deduction of losses that occurred within a certain period retroactively from the business year shall be made so that the losses may be deducted from the income for the pertinent business year.

F. Based on the deficit calculated as seen earlier, the Plaintiff deducted the deficit brought forward pursuant to Article 13 subparag. 1 of the Corporate Tax Act, and filed a return on the amount of income for the business year 2014 to KRW 5,010,384,788.

G. As a result of the Busan Regional Tax Office’s corporate tax investigation conducted with the Plaintiff from July 7, 2015 to August 28, 2015, the Plaintiff confirmed that the tax adjustment including the omission in deductible expenses in the business year from July 2008 to 2011 was not legitimate.

H. Upon receipt of such notification, the Defendant adjusted the amount of income as listed below (the sum of KRW 4,712,816,636 and KRW 304,216,602 in foreign currency conversion loss in 201, and KRW 1,179,250,335 in deductible expenses for the year 2012, and KRW 4,712,812,816,636 in deductible expenses for the year 2009 through 2011, and the amount of non-deductible loss in deductible expenses for the year 2008 has not been included in deductible expenses because the exclusion period has expired).

I. In addition, the Defendant calculated the Plaintiff’s income amount as KRW 10,027,418,025 for the business year 2009 through 201 by deducting losses from deductible expenses (the business year 2008 did not make a tax adjustment after the lapse of the exclusion period for the imposition of national taxes under Article 26-2(1)3 and 5 of the Framework Act on National Taxes) based on the following:

(j) On March 31, 2008, the Plaintiff filed a tax appeal against the above disposition. As to the exemption of the amount of commercial transaction debt of 4,701,859,889 won on April 30, 2012 due to corporate merger and acquisition, the Plaintiff filed a claim for the appropriation of the above amount of 4,701,859,889 won as losses carried forward in 2007. The Defendant accepted the claim and corrected the amount of business income of 2014 as KRW 8,210,912,262, and the Plaintiff revised the amount of business income of 2014 as KRW 8,210,912,262. On July 15, 2016, the Plaintiff again issued a disposition of imposition of corporate tax of 738,69,953 won (hereinafter “instant disposition”).

(k) Although the Plaintiff filed a tax appeal on the instant disposition, the Plaintiff was dismissed on January 31, 2017.

Facts without any dispute, Gap's 1 through 3 (including each number), the purpose of the whole pleading, and the purport of the whole pleading.

2. Relevant statutes;

It is as shown in the attached Form.

3. The plaintiff's assertion

A. The Defendant, for the business year 2007, deducted the Plaintiff’s deficit amount of KRW 9,027,275,335 from the amount of income in the business year 2012. The Defendant, for the income amount after the business year 2013, did not dispose of the balance without deducting the deficit amount on the ground that the five-year period of deduction under Article 13 subparag. 1 of the former Corporate Tax Act (amended by Act No. 9267, Dec. 26, 2008; hereinafter “2008 Corporate Tax Act”).

B. However, with respect to the Plaintiff’s 2007 business year deficit, the ten-year deduction period is applied pursuant to Article 13 of the current Corporate Tax Act and Article 4 of the Addenda (No. 9898, Dec. 31, 2009). Thus, the Plaintiff’s 2007 business year deficit can also be deducted from the amount of income after the 2013 business year.

C. Article 4 of the Addenda of the Corporate Tax Act applies to “Article 13, Section 4, the amended provisions of the Corporate Tax Act shall apply from the first return, rectification, and determination of the tax base after this Act enters into force,” and as the Defendant first determined the corporate tax amount of the Plaintiff in 2014, the deficit brought forward for the past ten years may be retroactively deducted.

D. Therefore, the instant disposition that calculated the corporate tax amount by calculating the amount of income for the business year 2014 without treating the deficit for the business year 2007 as deductible expenses for the income amount after the business year 2013 should be revoked illegally.

4. Determination

Considering the change process and reason of the system of deduction of losses carried forward, which is recognized by adding the whole purport of the pleadings to each description of evidence Nos. 1, 3, and 5 (including paper numbers), the Plaintiff’s above assertion is rejected on the ground that the five-year period of deduction of losses for the business year of 2007 pursuant to Article 13 subparag. 1 of the Corporate Tax Act shall apply to the Plaintiff’s losses for 207 business year.

1) According to Article 13 Subparag. 1 of the Corporate Tax Act, in calculating the corporate tax base, Article 208 Subparag. 1 of the Corporate Tax Act stipulates that the losses incurred during the business year that began within five years from the beginning date of each business year may be deducted as losses carried forward.

Article 13 subparagraph 1 of the Corporate Tax Act provides that the Corporate Tax Act was amended by Act No. 9267 on December 26, 2008 (hereinafter referred to as "the amended Act") and Article 13 subparagraph 1 of the Corporate Tax Act provides that the amount of losses incurred in the business year that began within 10 years from the beginning date of each business year may be deducted as losses carried forward, thereby extending the period of deduction of losses from 5 years to 10 years.

In addition, Article 3 of the Addenda of the Corporate Tax Act (No. 9267, Dec. 26, 2008) provides that the period of deduction from the losses incurred during the business year that begins after January 1, 2009 shall be ten years extended from the losses incurred during the business year that begins after January 1, 209 shall not be subject to the retroactive deduction of the losses incurred before.

2) Meanwhile, the previous Supreme Court precedents held that in calculating the amount of deduction of losses carried forward, if it was proved that the losses incurred during a specific business year are different from the above losses actually determined, even if the final tax base return of a corporation or the investigation and determination by the tax authorities by the tax authorities are determined, the deduction of losses carried forward based on the actual losses proved in calculating the tax base for the following business year (see, e.g., Supreme Court Decisions 2001Du2652, Nov. 26, 2002; 2003Du4522, Jun. 11, 2004).

In practice, even if the loss is not determined in accordance with the above precedents, if the loss is more than the loss, there was a practice that took place by deducting the amount in excess of the loss from the loss amount as the loss amount. According to such practices, despite the fact that the loss and tax base for a specific business year were determined and cannot be corrected, it was criticized that recognizing the loss carried forward deduction in calculating the tax base for a subsequent business year is unreasonable and it would undermine legal stability.

Accordingly, as the Corporate Tax Act was amended by Act No. 9898 on December 31, 2009, Article 13 Subparag. 1 of the Corporate Tax Act was added (the main sentence of Article 13 Subparag. 1 of the amended Corporate Tax Act is the same as the Corporate Tax Act before the amendment). This would be a legislative solution to accept the above criticism so that only the deficit reported, determined, or corrected may be treated as deductible losses.

○○ proviso to Article 13 subparagraph 1: Losses in such cases shall be those under Article 14 (2), which are reported pursuant to Article 60 or determined or corrected pursuant to Article 66, or included in the tax base reported pursuant to Article 45 of the Framework Act on National Taxes.

In addition, Article 4 of the Addenda of the Corporate Tax Act (No. 9898, Dec. 31, 2009) provides for the application of the above proviso as follows.

Article 4 of the Addenda (Article 9898, December 31, 2009): The amended provisions of Article 13 shall apply to the first return, revision, and determination of the tax base after this Act enters into force: Provided, That where the tax base is reported, revised, or determined before December 31, 2009, so that losses not included in the tax base reported, corrected, or determined are deducted.

3) On the basis of the foregoing amendment process of the Corporate Tax Act, this case is examined. First of all, Article 3 of the Addenda of the Corporate Tax Act provides that the period of deduction of losses incurred during the business year that began after January 1, 2009 shall be ten years from the losses incurred during the business year that began after January 1, 209. According to the above provision, Article 13 Subparag. 1 of the Corporate Tax Act does not apply to the Plaintiff’s losses for the business year of 2007 and Article 13 Subparag. 1 of the Corporate Tax Act is apparent that the five-year deduction period is applied as it is pursuant to Article 13 Subparag. 1 of the Corporate Tax Act of 208. Thus, the losses carried forward

4) Upon amendment of the Corporate Tax Act on December 31, 2009, the Plaintiff amended Article 13 Subparag. 1 of the Corporate Tax Act and Article 4 of the Addenda to the effect that the scope of losses to which Article 13 Subparag. 1 of the Corporate Tax Act and Article 4 of the Addenda extend the deductible period of ten years. As a result, the Plaintiff’s losses for the business year 2007 are subject to the deductible period of ten years

However, Article 13 subparag. 1 of the amended Corporate Tax Act was amended to solve the problem with respect to the deduction of loss carried forward to the tax authority through the filing, determination, and correction as seen earlier, and it was not amended to expand the scope of loss subject to the deduction period of 10 years (Article 13 subparag. 1 of the Corporate Tax Act as it is in the form of "main text" of Article 13 subparag. 1 of the Corporate Tax Act, thereby limiting the amount of loss that can be disposed of among the loss carried forward for 10 years, and eventually reducing the scope thereof).

Article 4 of the Addenda of the Corporate Tax Act also stipulates that "the amended provisions of Article 13 (1) (referring to the proviso of Article 13 (1) because of the addition of only the proviso of Article 13 (1)) shall apply only to the first return of tax base after the enforcement of this Act, or the correction or decision of tax base after January 1, 2010, and does not stipulate that the scope of losses subject to the deduction period of 10 years shall be retroactively extended.

5) Meanwhile, the Plaintiff seems to have asserted the above in light of the fact that Article 4 of the Addenda to the Corporate Tax Act does not impose restrictions on ‘the time of occurrence of losses' unlike Article 3 of the Addenda to the Corporate Tax Act.

However, Article 4 of the Addenda of the Corporate Tax Act means that only the amount of loss brought forward which is confirmed as applicable to the scope of application of the proviso of Article 13 subparagraph 1 of the Corporate Tax Act, and Article 13 subparagraph 1 of the proviso of the Corporate Tax Act does not provide for the period of deduction of loss brought forward. Thus, Article 4 of the Addenda of the Corporate Tax Act does not provide for the restriction on the period of deduction of loss under Article 4 of the Addenda of the Corporate Tax Act. Thus, the scope of loss (the period of occurrence) subject to the 10-year period of deduction of loss under Article 10 of the Addenda of the Corporate Tax Act does not extend (i.e., the period of occurrence of loss brought forward after January 1, 209). However, Article 3 of the Addenda of the Corporate Tax Act (the period of occurrence of loss brought forward after January 1, 209) applies to the time of occurrence of loss subject to the 10-year period of deduction of loss under Article 4 of the Addenda of the Corporate Tax Act.

6) Moreover, even if Article 13 subparag. 1 of the Corporate Tax Act was amended to the effect that the scope of losses subject to the deduction period of ten years is expanded as the Plaintiff’s assertion, Article 4 of the Addenda to the Corporate Tax Act applies “from the first return, correction, and determination of the tax base after the enforcement of the Act (amended January 1, 2010),” the Plaintiff’s losses for the business year of 2007 were not subject to the return, correction, and determination of the tax base after January 1, 2010 (the instant disposition did not make any adjustment of the Plaintiff’s losses for the business year of 2007), and thus, it cannot be subject to the deduction period of ten years.

5. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so decided as per Disposition.