Standard for determining whether a person constitutes “non-housing employee” under Article 46(2)7 of the former Enforcement Decree of the Corporate Tax Act concerning the denial 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) 7 of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) (see current Article 88 (1) 6)

National Bank of Korea (Attorney Jeong Sung-sung, Counsel for defendant-appellee)

Head of Central Tax Office

Seoul High Court Decision 2003Nu22645 delivered on November 18, 2004

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

According to Article 20 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), Article 46 (2) 7 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998; hereinafter “former Enforcement Decree of the Corporate Tax Act”), where a corporation is deemed to have unjustly reduced tax burden by lending money to its employees, etc. free of charge or at low interest rate, it may calculate the amount of income of the corporation for each business year, notwithstanding the calculation of the act or income amount of the corporation. However, if a corporation lends money (including land attached to the house) required for the acquisition and lease of a house below national housing scale (including land attached to the house) under the Housing Construction Promotion Act to a homeless employee, it is excluded from the object, and the issue of whether it constitutes a "non-housing employee" should be determined by whether it is entered into a building register, unless there is any special reason or otherwise.

However, if an employee without a house acquires a house with another fund as a principle in order to secure bonds, and provides a house as a collateral and redeems a house acquisition fund by obtaining a loan from a corporation, it shall be deemed to fall under a “employee without a house” under the proviso of Article 46(2)7 of the former Enforcement Decree of the Corporate Tax Act in light of the legislative purport of the proviso of Article 46(2)7 of the former Enforcement Decree of the Corporate Tax Act. Thus, if an application for a loan with no house is filed and a loan was received after acquiring a house, the above case shall be deemed to fall under the case unless there are special circumstances. However, if a loan was received by applying for a loan after acquiring a house independently, it shall be deemed that the loan should be made at the time near the acquisition of the house, and it shall be excluded from the application of the unfair act and calculation

In the same purport, the court below determined that the part concerning the employees who received a loan within 3 months after acquiring a new house due to a loan procedure shall not be excluded from the application of the unfair act and calculation rules because there is no evidence to acknowledge that the loan was used for the repayment of the fund required for acquiring the house in question. Furthermore, in the case where the Plaintiff acquired a house which is not used for residence such as a farmer's house, or received a loan temporarily for the purpose of moving the house, if the Plaintiff acquired the house before the loan and received the loan thereafter, but the transfer registration of the house was delayed due to a continuous trial, etc., it shall not be deemed that it exceeded 2 houses from the time of the original acquisition of the house in question by acquiring the new house under Article 46 (2) 7 (proviso) of the Enforcement Decree of the Corporate Tax Act, and it shall not be deemed that it constitutes an unlawful act of acquiring the house in excess of 4 houses from the time of the reconstruction of the house in the ground of appeal, and it shall not be deemed that it exceeded 2 houses from the time of the new house.

In addition, even if the loan of housing funds of this case was made under a collective agreement with the trade union, it cannot be deemed that it was actually paid as a part of wages, and such circumstance alone does not constitute a case of lending to homeless employees. Therefore, the argument in the grounds of appeal on this point is without merit.

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Park Jae-sik (Presiding Justice)