The appeal is dismissed.

The costs of appeal are assessed against the Plaintiff.

The grounds of appeal are examined.

1. According to Article 19-2(1) and (5) of the Corporate Tax Act and Article 19-2(1)8, Article 19-2(3)1 and 2 of the Enforcement Decree of the Corporate Tax Act with respect to the assertion that bad debts should be included in deductible expenses, the amount of bonds which cannot be recovered due to the reasons prescribed by Presidential Decree, such as debtor's bankruptcy, among bonds held by a domestic corporation (hereinafter "deductible expenses") shall be included in deductible expenses for the purpose of calculating the amount of income for the pertinent business year, and among such bonds, the period of inclusion in deductible expenses of "bonds which cannot be recovered due to debtor's bankruptcy, compulsory execution, execution of punishment, discontinuance of business, death, disappearance, or missing (hereinafter "unrepaid bonds")

Unlike the case of credit sales, etc. whose extinctive prescription has been completed under the corporate tax law, the time of attribution of losses is determined based on the time when it is appropriated as losses for the business year to which the relevant cause occurred. This is because the accounting perception that the claim corresponding to the bad debt is not legally extinguished and is impossible to recover in light of the debtor's asset situation and payment ability, etc. is not legally extinguished.

(See Supreme Court Decisions 91Nu1684 delivered on January 21, 1992, 2001Du489 delivered on September 24, 2002, etc.). However, Article 19-2(4) of the Enforcement Decree of the Corporate Tax Act provides that “Where a corporation merges with another corporation, notwithstanding paragraph (3) 2, fails to appropriate bad debts falling under paragraph (1) 8 as deductible expenses by the business year which includes the date on which the merger is registered, such bad debts shall be deemed deductible expenses for the business year which includes the date on which the merger of the relevant corporation is registered.”

This is the tax accounting when the corporation is not appropriated as bad debts until the merger.