Criteria for determining types of business subject to special tax reduction or exemption;

Since a business that constructs a building by being awarded a contract to another construction business and sells it in lots falls under "real estate supply business", it is not subject to reduction or exemption.

Article 7 of the Restriction of Special Taxation Act: Special Tax Abatement or Exemption for Small or Medium Enterprises

Article 2 of the Restriction of Special Taxation Act

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition disposition of KRW 922,95,719 of corporate tax for the year 2003 against the Plaintiff on September 1, 2005 and the imposition disposition of KRW 1,169,118,384 of corporate tax for the year 2004, each of which exceeds KRW 17,71,771 of corporate tax for the year 204, shall be revoked.

1. Details of the disposition;

A. On September 6, 1994, the Plaintiff was a corporation established with a real estate development project and agency business, real estate sale business, lease business, and sales agency business. Since the business year of 2003, the Plaintiff was engaged in the construction work of the ○○○○○○○○○○○○○○○○, ○○○○ (hereinafter “instant commercial building”) located in the ○○○○○○, ○○○, ○○○,” a ○○, and reported corporate tax by applying a special tax reduction or exemption for small and medium enterprises based on Article 7(1) of the Restriction of Special Taxation Act.

B. (1) The Defendant: (a) deemed that the Plaintiff made a false calculation of the rate of work progress by cumulative construction cost and the amount of cash-based revenue; and (b) calculated the difference by recalculation the income amount for each business year; (c) considered the advance payment or short-term loan that was paid to Kim○○ in the business year 2003 and 2004 in order to acquire the land for business as the advance payment by a large shareholder and the representative director; (c) included the interest rate calculated pursuant to Article 89(3) of the Enforcement Decree of the Corporate Tax Act in the calculation of earnings; and (d) considered the Plaintiff’s main business as a real estate supply business rather than a construction business subject to special reduction or exemption under Article 7(1) of the Restriction of Special Taxation Act, and denied the special tax reduction or exemption by deeming it as a real estate supply business.

(2) The foregoing inclusion in the gross income and non-deductible expenses, and the denial of special tax reduction for small and medium enterprises is as listed below.

Classification

203 Business year

204 Business year

Reporting(won)

Superintendent General (won)

Reporting(won)

Superintendent (won)

For Small and Medium Enterprises

Special Tax Reduction and Exemption

194,651,409

34,431,569

Additional earnings

Adjudgment of interest paid;

(or interest costs)

6,595,325

929,681,241

(Additional Amount:

923,085,915)

2,155,151,755

Provisional Payment

Recognition Interest

986,057,534

26,251,015

Revenue amount

8,400,037

1,683,491,334

Excess of entertainment expenses

59,278,229

Attempted proceeds;

932,850,360

UnAttempted proceeds (other)

20,787,825

Total

1,924,138,812

5,077,810,518

Deductible Expenses

inclusion

Attempted Proceeds

953,638,185

Revenue amount

(The rate of the progress of the work

Amount of re-calculated revenue

8,400,037

Total

962,038,222

(3) On September 1, 2005, the Defendant corrected and notified the Plaintiff of KRW 583,135,710 of the corporate tax for the business year 2003 (the amount of the original returned tax is KRW -342,932,431, and the amount of the tax to be deducted is KRW 926,068,140), and KRW 1,732,539,480 of the corporate tax for the business year 2004.

C. (1) The Plaintiff filed a request for review with the Commissioner of the National Tax Service on December 2, 2005. On September 1, 2005, the Commissioner of the National Tax Service changed the amount calculated by the Defendant based on the work progress rate among the corporate tax corrected and notified to the Plaintiff on September 1, 2005, and the amount disposed of as a bonus to the Plaintiff in the business year 2004, to the business year 2005, and accordingly, decided to correct the tax base and tax amount and to dismiss the remainder.

(2) On April 1, 2006, the Defendant re-issued and notified the corporate tax of 2003 to KRW 583,135,710, to KRW 3,072,421, and to KRW 580,063,280 (the amount of tax to be deducted shall be KRW 922,995,710, considering that the amount of tax to be deducted was KRW 922,932,932,539,48, and KRW 563,421,096, which was initially reduced from KRW 1,69,118,390.

[Reasons for Recognition] A1-1, 2, A2, A3-1, 2, B-1-10, B-1-10, B-1-10, B-1, 3-1-11, 4-1-13, 5-1, 2, 6, 6, 2-2, 9, 10, and the purport of the entire pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

(1) As to the subject of reduction of special tax amount

(A) The construction and sale of the instant commercial building was conducted under the Plaintiff’s overall responsibility from the land purchase to the design, supervision, permission and completion, etc. In particular, the Plaintiff had its technical team take overall charge of the process management, etc., and directly participated in the technical review, public law and material change, the subcontractor’s prior examination, and the selection of major materials during the specific construction process, and the construction process that the Plaintiff is unable to perform was directly subcontracted to several constructors. The Plaintiff was directly responsible for the construction of the instant commercial building or was in charge of the construction of the instant commercial building at least part.

(B) Therefore, the foregoing type of project is a "industrial activity that is comprehensively responsible for the construction, heavy construction, reconstruction and remodeling of various buildings" and constitutes a "general construction business under the standard classification under Article 17 of the Statistics Act, which is applied mutatis mutandis pursuant to Article 2(3) of the Restriction of Special Taxation Act.

(C) Nevertheless, the instant disposition that the Plaintiff reported on the real estate supply business that is not a construction business subject to the special tax reduction under Article 7 of the Restriction of Special Taxation Act is unlawful.

(2) As to the non-Inclusion of interest in deductible expenses

(A) The Plaintiff’s interest paid in KRW 4.977 billion appropriated for the taxable year 2003 taxable year is merely incurred at KRW 50 billion borrowed from ○○○○○ for the purpose of the purchase of land and the construction of commercial buildings for the business, and not used for the purpose of provisional payment unrelated to the business.

(B) Of the interest paid in the amount of KRW 2.15 million appropriated for the taxable year 2004 taxable year, the interest paid in the amount of KRW 1.466 million, among the interest paid in the amount of KRW 2.15 million paid by the Plaintiff for the taxable year 2004, shall be limited to KRW 186,581,893, which is the corresponding portion of the year 2004, since the interest paid in the principal paid by the Plaintiff against the Plaintiff in the lawsuit claiming the return of the claim against the Plaintiff, one of the transaction partners, should have been counted every year from 1999, the date of the loan, but the interest paid in the amount of KRW 186,581,893, which is the corresponding amount of

(C) Therefore, it is unlawful for the Defendant to deny the interest paid as above and to dispose of it in the gross income. Article 28 of the Corporate Tax Act provides for additional taxation by denying part of the interest cost, which is the cost of financing capital, if it is used without connection with the business. Unlike its purport, it is unlawful for the instant disposition on the ground that Article 53 of the Enforcement Decree of the Corporate Tax Act does not closely consider the purpose of use and the circumstance leading up to the inclusion of the interest paid solely on the ground that there is a provisional payment in charge of business pursuant to Article 53 of the Enforcement Decree of the Corporate Tax

(b) Relevant statutes;

○ Definitions of Article 2 of the former Restriction of Special Taxation Act (amended by Act No. 8387 of April 27, 2007)

(3) Except as otherwise provided in this Act, the classification of types of business used in this Act shall be governed by the Korean Standard Industrial Classification publicly announced by the Commissioner of National Statistical Office under Article 17

○ Article 3 of the former Restriction of Special Taxation Act (amended by Act No. 7849 of Feb. 21, 2006)

Restriction of Special Taxation

(1) The provisions of this Act, the Framework Act on National Taxes, treaties and the following Acts shall not prescribe special cases of taxation:

1. Income tax;

2. Corporate Tax Act;

3. Inheritance Tax and Gift Tax Act.

4. Value-Added Tax Act.

5. Special Consumption Tax Act;

6. Liquor Tax Act;

7. Stamp Tax Act;

8. Securities Transaction Tax Act;

9. National Tax Collection Act;

10. Traffic Tax Act;

11. Customs Act;

12. Local Tax Act;

13. Provisional revenue Value-Added Tax Act.

14. and 14. Deleted;

15. Adjustment of International Taxes;

16. Real Name Financial Transactions and Guarantee

17. and 17. Deleted;

18. Education Tax Act;

19. Act on Special Rural Development Tax; and

20. Deleted;

21. Inter-Korea Exchange and Cooperation Act;

22. Lump-sum Saving of Farming and Fishing Households Act;

23. Act on Designation and Management of Free Trade Zones;

○ Inclusion of small and medium enterprise investment reserves in deductible expenses under Article 4 of the Restriction of Special Taxation Act

(1) Where a national operating a small or medium enterprise as prescribed by the Presidential Decree (hereinafter referred to as the “small or medium enterprise”) appropriates the investment reserves for his deductible expenses in order to appropriate for the funds required for replacement or new acquisition of the assets falling under any of the following subparagraphs (hereafter in this Article, referred to as the “business assets, etc.”) not later than the taxable year ending on or before December 31, 2003, such reserves shall be included in the deductible expenses in calculating his income amount for the relevant taxable year, within the limit of the amount calculated by multiplying the value of the business assets,

○ Special tax reduction or exemption for small or medium enterprises prior to the amendment by Act No. 7281 of Dec. 30, 2004) Article 7 of the former Restriction of Special Taxation Act

(1) With respect to an enterprise operating any of the following types of business eligible for reduction or exemption among small and medium enterprises, an amount equivalent to the tax amount calculated by applying the reduction or exemption rate under subparagraph 2 to the income tax or corporate tax on the income accrued from such business not later than the taxable year ending on or before December 3

1. Types of reduction or exemption;

(a) Manufacturing business;

(b) Mining business;

(c) Construction business;

(d) The logistics industry (hereinafter referred to as the "logistics industry");

○ Scope of small and medium enterprises under Article 2 of the Enforcement Decree of the Act on Special Cases concerning Tax Restriction (amended by Presidential Decree No. 18594, Dec. 30, 2004)

(1) The term "small or medium enterprises prescribed by the Presidential Decree" in Article 4 (1) of the Restriction of Special Taxation Act (hereinafter referred to as the "Act") means manufacturing businesses (including business similar to manufacturing business as prescribed by the Ordinance of the Ministry of Finance and Economy; hereinafter the same shall apply), mining, construction business under Article 5 (6), logistics business under Article 5 (8), ship management business under the Marine Transportation Act, passenger transport business, fishery, wholesale, retail business, telecommunications, research and development business, broadcasting business, data processing and computer operation-related business under Article 54 (1), automobile maintenance factory under Article 54 (1), medical institution operation business under the Medical Service Act, waste disposal business under the Wastes Control Act (hereinafter referred to as the "waste disposal business"), public wastewater treatment business (hereinafter referred to as the "wastewater treatment business"), private teaching institute established under the Water Quality Conservation Act, private teaching institute, scientific and industrial business related to excreta and livestock wastewater, agricultural and fishery business, professional movie-making business, film and video-making business, film and video-making business, professional movie-making business and video-making business, etc.:

1. The number of employees ordinarily used, capital or sales shall not exceed the size under the provisions of attached Table 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises (hereafter in this Article referred to as the "standard for small and medium enterprises");

3. Actual independence shall meet the provisions of subparagraph 2 of Article 3 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises.

(3) In applying the provisions of paragraph (1), where two or more different businesses are operated, the business with the larger business revenue amount by business shall be deemed the main business.

[Korean Standard Industrial Classification (Public Notice of Statistics Korea 2000-1]

F. Construction business (45 to 46);

1. Summary;

The activities of constructing temporary buildings, prefabricated buildings and structures include activities such as blasting, drilling, excavation, suspension, etc. for ground creation by contract or self- account, and industrial activities such as new construction and installation, extension, reconstruction, reconstruction, repair, repair, repair, dismantling, etc. of various buildings and structures in the construction site. These construction activities shall be conducted by contract, self-contractor, general constructor or specialized constructor.

2. Relation to other industries;

E. In a case where real estate other than a building (land, mining rights, etc.) is directly developed, sold or leased, or does not directly perform construction activities, and a building is requested to be constructed by another constructor and sold or sold (701).

45 Integrated construction business

Industrial activities and various buildings that perform the construction works of ground creation works and civil engineering facilities are the industrial activities that are generally responsible for the construction, extension, reconstruction and reconstruction of buildings and perform construction activities.

452 Building construction business

Industrial activities for constructing, expanding, reconstructing, reconstructing, and reconstructing a building by a contractor or a comprehensive constructor, and includes the construction activities of a prefabricated-type building.

Exclusions

· Cases of direct sale after being entrusted to another construction company (7012)

4522 Construction of a non-resident building

Industrial activities that directly build a non-residential building, such as commercial buildings and industrial buildings.

45221 Business and Commercial Building Construction

The term "business and commercial buildings" means industrial activities of constructing industrial buildings.

For example, the Board of Audit and Inspection

· Construction of buildings for school and public amusement;

· Construction of museums and similar buildings, stores and shopping centers

· Construction of hotels, dormitories, Military Ambsium construction, police stations, and fire stations

Exclusions

· Construction of general warehouses (4522)

·Construction of a particular warehouse ( hangars, etc.) (4529),

· Construction of swimming pools and related slopes (45129)

· Cases of direct sale after being entrusted to another construction company (7012)

L. Real estate and lease business (70-71)

1.Abstracts

이 대분류에는 부동산업, 조작자가 없이 각종 기계장비 및 개인 또는 가정용퓸을 임대하는 산업활동이 포함된다.

(a) Real estate business;

Industrial activities related to the operation, lease, purchase, sale, etc. of buildings, land, and other real estate (excluding cemeteries) owned or leased by the person concerned.

2.Relation to other industries

(a) Where buildings are directly constructed, sold in lots and sold through its own account, it shall be classified into "452: Building construction business";

70 Real estate business

The industrial activities related to the lease, purchase, and sale of real estate include the lease activities of residential and non-residential buildings directly constructed, and the development, sale, and lease activities of land and other real estate.

701 Real Estate Lease and Supply Business

7012 Real Estate Supply Business

The term “industrial activities” means industrial activities that sell and sell land, such as farms, housing sites, industrial sites, etc., and buildings, etc. constructed by being awarded contracts to others. It includes resale without leasing or operating the purchased real estate.

For example, the Board of Audit and Inspection

· Sale and purchase of buildings and sale of land

Exclusions

· Construction of a self-managed building (452)

70122 Supply of non-residential buildings

It refers to an industrial activity that constructs a non-residential building and sells it by entrusting a construction company without directly performing construction activities. It includes the case of resale without leasing or operating a non-residential building purchased.

For example, the Board of Audit and Inspection

· Supplying and selling buildings for office use;

Article 28 of the Corporate Tax Act (Non-Inclusion of Interest in Loss)

(1) The interest on loans falling under any of the following subparagraphs shall not be included in deductible expenses in calculating the income amount of a domestic corporation for each business year:

4. Of interest on loans paid during each business year by a domestic corporation which acquires or holds assets falling under one of the following items, the amount calculated under the conditions as prescribed by the Presidential Decree (limited to interest on loans equivalent to the value of the relevant assets):

(a) Assets falling under subparagraph 1 of Article 27:

(b) Provisional payments, etc. prescribed by the Presidential Decree to a person with a special relationship under Article 52 (1) without connection with the business of the relevant corporation; and

Article 40 of the Corporate Tax Act for the business year of profit

(1) The fiscal year of accrual of earnings and losses of a domestic corporation shall be the fiscal year which includes the date on which the concerned earnings and losses are settled.

(2) Necessary matters concerning the scope of the business year in which earnings and losses accrue under the provisions of paragraph (1) shall be prescribed by Presidential Decree.

Article 53 of the Enforcement Decree of the Corporate Tax Act (Non-Inclusion of paid interest in non-business assets)

(1) The term “those as prescribed by the Presidential Decree” in Article 28 (1) 4 (b) of the Act means the lending amount (including the lending amount of funds which cannot be regarded as the principal profit-making business in the case of financial institutions, etc. falling under any subparagraph of Article 61 (2)) of funds which are not related to the business of the relevant corporation notwithstanding their names: Provided, That any amount as

(2) The term "amount calculated under the conditions as prescribed by the Presidential Decree" in Article 28 (1) 4 of the Act means the amount calculated by the following formula:

The provisions of paragraph (1) and Article 49 (1).

Aggregate of the value of assets (limited to total loans)

Paid interest X

Total loans

(3) The sum of the total loans and the value of assets under paragraph (2) shall be calculated by the drop number. In this case, the assets under paragraph (1) shall, where there concurrently exist the provisional payments and receipts and disbursements against the same person, be the amount offsetting them, and the assets under Article 49 (1) shall be the acquisition value (it shall be the acquisition value of assets under Article 72, but shall include the amount in excess of market price under paragraph (3) 3 of the same

(4) Loans under paragraph (2) shall be excluded from the following amounts:

1. The amount under any of the following items borrowed by financial institutions, etc. under each subparagraph of Article 61 (2):

(a) Amounts borrowed from the special account for finance loans under the Act on the Special Accounts for Finance Loans or the Bank of Korea under the Bank of Korea Act;

(b) Amounts borrowed from the State and local governments (including associations of local governments);

(c) Money borrowed from the funds established by statutes;

(d) Foreign currency loans under the Foreign Investment Promotion Act or the Foreign Exchange Transactions Act; or

(e) Receiving funds;

2. The amount borrowed by a domestic corporation through a loan of corporate purchase funds pursuant to the provisions of the Governor of the Bank of Korea;

Article 70 of the Enforcement Decree of the Corporate Tax Act

(1) In the application of Article 40 (1) and (2) of the Act, the fiscal year of accrual of earnings and losses of interest, etc. shall be as follows:

2. Interest paid by a corporation: Business year which includes the date of receipt under Article 45 of the Enforcement Decree of the Income Tax Act: Provided, That in the settlement of accounts, where the interest on periods which have already passed is appropriated as losses for the relevant business year, it shall be included in the losses for the relevant business year.

Article 71 of the Enforcement Decree of the Corporate Tax Act, the business year to which other profits and losses accrue.

(4) In the application of the provisions of Article 40 (1) and (2) of the Act, the business year in which earnings and losses other than those prescribed by the Act (excluding Article 43), the Restriction of Special Taxation Act and this Decree accrue shall be prescribed by the Ordinance of the Ministry of Finance

Article 72 of the Enforcement Decree of the Corporate Tax Act

(3) In applying paragraph (1), the acquisition value shall not include the amount falling under each of the following subparagraphs:

1. In case where assets are acquired under the long-term installment plan under the provisions of Article 68 (3), the present value of the debts incurred shall be evaluated and appropriated as the present value discount margin funds under the corporate accounting standards;

2. The amount appropriated as interest paid separately from the acquisition value for the annual payment income as prescribed by the Ordinance of the Ministry of Finance and Economy;

3. The amount in excess of the market price under Article 88 (1) 1 and 8 (b); and

(5) The provisions of Articles 18-2 (1) 3 and 18-3 (1) 3, 28, 73, 98, and 120 of the Act shall not apply to the depreciation amount of the discounted debt estimated by present value under the provisions of subparagraph 1 of paragraph (3) and the paid interest under the provisions of subparagraph 2 of the same paragraph.

Article 36 of the Enforcement Rule of the Corporate Tax Act for other business year

(4) In applying Article 71 (4) of the Decree, the business year of accrual of earnings and losses other than those otherwise provided for in these Rules shall be the business year which includes the date on which the relevant earnings and losses are determined.

Article 45 (Receipt Date of Interest Income)

The receipt date of the gross amount of interest incomes shall be the following dates:

9-2. Profits accruing from a non-business loan;

The payment date of interest pursuant to the agreement: Provided, That in cases where no agreement exists on the date of payment of interest or a interest is received before the payment date of interest pursuant to the agreement, or where interest was excluded from the calculation of the total amount of income pursuant to Article 51 (7),

C. Determination

(i)whether the special amount of tax has been reduced or exempted;

(A) Relevant provisions and interpretation of the Restriction of Special Taxation Act, etc.

1) Article 4(1) of the Restriction of Special Taxation Act delegates the scope of "small and medium enterprises" to the Enforcement Decree, and Article 2 of the Enforcement Decree of the same Act lists a majority of "manufacturing business (including businesses similar to manufacturing business, which are prescribed by the Ordinance of the Ministry of Finance and Economy; hereinafter the same shall apply)", mining construction business, engineering business, etc., and stipulates that any of the following businesses is an enterprise which satisfies all certain requirements, and where two or more different businesses are engaged in different businesses, it shall be deemed that the

2) In addition, Article 7 (1) of the Restriction of Special Taxation Act limits the subject of special tax reduction or exemption, such as corporate tax, to small and medium enterprises. The classification of specific types of business among the small and medium enterprises is delegated to the Korean Standard Industrial Classification publicly notified by the Commissioner of the Statistics Korea. The Korean Standard Industrial Classification divides and classify "construction business" into "construction business" and "construction business" and "construction business (4521)" into "construction business (45)" and "construction business (referring to industrial activities directly constructing non-residential buildings such as commercial buildings and industrial buildings)" and "construction business" and "construction business (7012, real estate supply business)" into "construction business" and "construction business and rental business" into "construction business (70, real estate supply business)" and "construction business (701, real estate supply business" into "construction business" and "construction business (701, real estate supply business) is not defined as "construction business" and "sale/sale business" into "construction business" or "sale/sale business (70, real estate supply business (701)").7).

3) On the other hand, the interpretation of tax laws and regulations shall be interpreted in accordance with the law, barring any special circumstance, and shall not be extensively interpreted or analogically interpreted without reasonable grounds, barring any special circumstance, and in particular, it accords with the principle of equity in taxation to strictly interpret the provisions that can be seen as clearly preferential provisions among the requirements for reduction and exemption (see, e.g., Supreme Court Decision 2002Du9537, Jan. 24, 2003).

4) In light of the above relevant provisions and legal principles, a small and medium enterprise running a business and a business building construction business (4521) should be engaged in "business and industrial activities to build commercial buildings" to be subject to corporate tax reduction and exemption, and where the building is sold after being entrusted or subcontracted to another construction business entity, an "business and a business building construction business (4521)" shall be deemed to be engaged in "business and a business building construction business (7012)," and where a seller of a commercial building supplies a building by directly constructing a part of the construction work (i.e., where the directly constructed part and the subcontracted part are mixed with the contracted part and the main industrial activity should be considered to be limited to cases where the seller is deemed to have actually constructed the building in consideration of the importance of the entire construction work, etc. and thus, it shall be deemed to fall under "business and business building construction business."

(B) As to whether the Plaintiff is subject to special tax reduction or exemption

With respect to this case, the Plaintiff, without holding any construction business license, had 70 subcontractors run the construction works on the commercial building of this case. The part claiming that the Plaintiff participated in the construction works on the commercial building of this case is merely a general business level for the so-called event of selling and selling the buildings after completing most of the construction works under contract without directly constructing the building, as the management of the construction work and the level of supervision, and without directly constructing the building. In light of the above, the Plaintiff shall be deemed to run the real estate supply business (7012) since it is apparent that the Plaintiff is a business with the aim of completing the construction works on the commercial building of this case as its main business in order to constitute a small and medium enterprise subject to special tax reduction and exemption, and the Plaintiff is not a business with the business with the aim of selling and selling the buildings in this case as its main business, even though the Plaintiff is a business with the aim of completing the construction works on the commercial building of this case.

Therefore, the Plaintiff cannot be deemed as a small and medium enterprise subject to tax reduction or exemption because it cannot be deemed as its main business among the requirements for application of special tax reduction or exemption to small and medium enterprises, and it does not constitute business activities of small and medium enterprises. Therefore, the Plaintiff cannot be deemed as subject to special tax reduction or exemption to small and medium enterprises.

(2) Whether the interest paid was excluded from deductible expenses

(A) Facts of recognition

1) The Plaintiff decided to newly build and sell the instant commercial building, and on October 2002 and November 1, 2002

A loan of KRW 50 billion from ○○○○○○○○, and entered into an construction contract with ○○○○○○○○○○○○○○○○○○○, on November 5, 2002, with a construction cost of KRW 103.27 billion. The sale price and development cost have been deposited in the account of ○○○○○○○○○○○○○○○○ Joint Name (Account number ○○○-○○-○-○-○-○-○○-○-○○-○-○-○○-○○-○-○○-○○-○○-○) and managed by ○○○○○○○○○○○○○○○○○. The Plaintiff, upon the approval of ○○○○○○○○○○○○, has been executed by transferring a part of them to three accounts (Account number ○○-○-○-○-○-○, ○-○-○-○○-○○-○).

2) From April 9, 2003 to February 11, 2004, the Plaintiff’s representative director Kim○○, a representative director of the Plaintiff, embezzled 18.5 billion won by withdrawing from the Plaintiff’s account and using it as the total money for gambling.

3) At the time, the Plaintiff kept an account on the embezzlement of this case as an advance payment, as an "Advance payment", as a "representative director Kim○○," and the trader as an "date of withdrawal respectively from the Plaintiff's account." According to the details of this part of the Plaintiff's account settlement, the balance of advance payment up to December 31, 2003 as to Kim○ is KRW 15 billion, and the advance payment amount up to February 11, 2004 is KRW 19 billion, and the next day is recovered as KRW 50 million and the balance of advance payment up to February 12, 2004 is KRW 18.5 billion.

4) The Plaintiff, a related company, was in a special relationship with the ○○○○○○○○○○○ Company, accounting of KRW 5 billion on July 2, 2004, and the total amount of KRW 10 billion on July 2, 2004, to the ○○○○○○○○○○○○○○○○○○○○○○ Company, as “affiliated loans,” and accounted as “short-term loans” on July 2, 2004, and as “short-term loans.”

5) Meanwhile, the Plaintiff borrowed KRW 1.1 billion from ○○○○○○ on August 17, 1999 and KRW 1.1 billion on December 13, 1999 at a rate of 12% per annum. The repayment shall be made by means of 12% per annum. The Plaintiff borrowed 1.2 billion on November 11, 199 as a bank-based promise bill to pay the first priority after appropriating the construction cost among the proceeds from the sale of loan units constructed on the land, ○○○○○○-dong, and ○○○○-dong, and 23 parcels of land. The repayment method was to pay the first priority after appropriating the construction cost from the sales revenue of the above loan units.

6) On January 16, 2004, ○○○○ filed a lawsuit with the Plaintiff seeking payment of KRW 2.3 billion from the above court as Seoul Central District Court Decision 2004Da3562, Oct. 12, 2004; “The Plaintiff’s payment of KRW 2.3 billion from August 17, 1999 to KRW 2.3 billion; the Plaintiff’s payment of KRW 400 million from December 13, 199 to October 12, 2004 to the agreed rate of KRW 12% per annum; the agreed interest rate of KRW 20% per annum from the following day to the date of full payment; the agreed interest rate of KRW 1.2 billion from the date of final decision to the date of full payment; the agreed interest rate of KRW 1.2 billion from the date of final decision to the date of full payment; and the agreed interest rate of KRW 1.2 billion from the date of final decision to the date of full payment under the Commercial Act to the date of full payment.

[Reasons for Recognition] A3-2, A6, B7-1-3, B8-1, 2, the purport of the entire pleadings

(B) Whether the inclusion of interest paid in 2003 in deductible expenses can be denied

1) Provisions and interpretation of the business-related provisional payments

Article 28 (1) of the Corporate Tax Act provides that "the interest on borrowings falling under any of the following subparagraphs shall not be included in the calculation of losses in calculating the income amount of a domestic corporation for each business year," and subparagraph 4 of the same subparagraph provides that "the amount (limited to the interest on loans equivalent to the relevant asset value) calculated under the conditions as prescribed by the Presidential Decree from among the interest on loans paid by a domestic corporation that acquires or holds assets falling under any of the following items in each business year by the domestic corporation," and subparagraph 4 (b) of the same Article provides that "the provisional payments, etc. paid to the person with special relationship without connection with the business of the relevant corporation as prescribed by the Presidential Decree" and Article 53 (1) of the Enforcement Decree of the Corporate Tax Act provides that "the provisional payments, regardless of the title, shall be the amount of loans that are not related to the business of the relevant corporation" and Article 53 (2) provides that the formula in which the amount

According to the above provisions, in order to exclude the interest paid by a non-business office in the calculation of losses, ① is a person with a special relationship, ② a loan of funds or a transaction corresponding thereto must be made. ③ A taxation requirement should be satisfied such as a case where a loan of funds is not related to the business of the concerned corporation. When a taxation requirement is established, the amount equivalent to the interest paid by the relevant corporation calculated according to the formula under the Enforcement Decree of the Corporate Tax Act among the interest paid by the corporation for each business year shall not

2) Whether the scope of the “paid interest” under Article 53(2) of the Enforcement Decree of the Corporate Tax Act is inconsistent with the Corporate Tax Act

On the other hand, the provision on the denial of interest paid in relation to a provisional payment by an office of business should be deemed to regulate not only the payment by an office of business but also the payment by an office of business but also the collection of the provisional payment by an office of business. Thus, since the corporation has paid the provisional payment with the loan, it cannot be said that it appropriated other expenses as the loan because it did not collect the provisional payment without business office, or that it did not have an effect on the corporation, it does not limit the interest paid in relation to the non-business office to the interest paid in relation to the loan directly used for the payment of the provisional payment without business office, and the "interest paid in relation to the non-business office" under Article 53 (2) of the Enforcement Decree of the Corporate Tax Act is not limited to the scope of the interest paid in relation to the loan directly used for the payment without business office (see Supreme Court Decision 98Du13102, Jan. 18, 200). Thus, the part concerning the above 00 billion won non-taxation of the loan without business office of business office 5 billion won is unlawful.

3) Whether the interest paid in 2003 constituted a requirement for non-deductible of losses

As seen in the above, the plaintiff paid 15 billion won to the representative Kim ○, a person with a special relationship in 2003 as an advance payment. Since this was paid without connection with the plaintiff's business, the advance payment constitutes a provisional payment irrelevant to business affairs, and the amount equivalent to the interest paid on the advance payment calculated by the formula under Article 53 (2) of the Enforcement Decree of the Corporate Tax Act shall be subject to non-deductible (the amount equivalent to the interest paid on the advance payment calculated by the formula under Article 53 (2) of the Enforcement Decree of the Corporate Tax Act shall be subject to non-deductible (3.5 billion won out of the interest paid in 2004), 00, 000, 000 won among the interest paid in 204, 00, 000, 000, 000, 000, and ○○○○, ○○○○, and ○○○○, without connection with the plaintiff's business affairs).

(C) Whether the inclusion of interest paid in 2004 in deductible expenses can be denied

1) Provisions and interpretation of the Act regarding the time when the interest paid reverts to deductible expenses

Article 40 of the Corporate Tax Act provides that the business year in which gross income and deductible expenses accrue shall be the business year which includes the date on which the relevant gross income and deductible expenses are determined (paragraph (1)), and that matters necessary therefor shall be delegated to the Presidential Decree (paragraph (2)), and Article 70 (1) 2 of the Enforcement Decree of the Corporate Tax Act provides that "interest, etc. paid by a corporation" shall be the business year which includes the date on which the date on which the amount of income under Article 45 of the Enforcement Decree of the Income Tax Act is determined: Provided, That in the settlement of accounts, where the interest, etc. paid by a corporation is appropriated as deductible expenses for the relevant business year, it shall be the deductible expenses for the relevant business year; Article 71 (4) of the Enforcement Decree of the Corporate Tax Act provides that in the application of the provisions of Article 40 (1) and (2) of the Corporate Tax Act, the business year in which gross income and deductible expenses accrue, other than those provided for in the Corporate Tax Act, the period of accrual of gross income and deductible expenses shall be excluded from the date of interest payment under paragraph (1).

According to the above provisions, the period of attribution of interest paid in deductible expenses is the business year to which the date of payment of interest belongs if there is an agreement on the date of payment of interest, and where interest is paid no agreement on the date of payment of interest or prior to the date of payment of interest pursuant to the agreement, the business year to which the date of actual payment of interest belongs, but where the interest on the period already passed is appropriated as deductible expenses for the business year concerned regardless of whether the agreement was actually paid or not

2) The nature of interest and delay damages on ○○○○○○ borrowed money KRW 2.3 billion.

As seen earlier, the Plaintiff shall pay the agreed interest and delay damages from August 17, 199 to December 13, 199 with respect to KRW 1.1 billion among them from ○○○○○○○ and the agreed interest and delay damages from December 13, 1999 to the date of full payment, and with respect to the remaining KRW 1.2 billion with respect to delay damages from November 11, 1999 to the date of full payment. Although interest and delay damages are different from interest and legal nature, it is money that is actually generated on the premise of the existence of the loan claim, and is paid at a certain rate. Since the obligor uses the principal after the maturity period is the same, it can be deemed that the original agreement has a nature similar to interest and interest, and it is reasonable to view that the time of payment falls under the business year from the time of actual income by cash principle, such as interest (see Supreme Court Decision 2001Du796132, Nov. 8, 2002).

3) The loan amounting to ○○○○ is KRW 2.3 billion, and the time when the loan amounting to ○○○○ is reverted to deductible expenses.

As seen earlier, as the Plaintiff was sentenced to the judgment against October 12, 2004 in the loan litigation case with ○○○○○○, and paid the interest paid and delayed damages incurred therefrom in the business year 2004, and appropriated them as the interest paid in the business year 2004. Meanwhile, the Plaintiff and ○○○○○○ merely agreed on the interest for KRW 1.1 billion out of the above loan 2.3 billion, but did not agree on the time of payment. The time when the Plaintiff actually paid interest and delayed damages paid to ○○○○○○○○, as alleged by the Plaintiff, falls under the scope of 2004 business years in which the Plaintiff actually paid the interest and delayed damages incurred to ○○○○○○○, even if the time of attribution of losses was from 1999 to 2004 business years, the Plaintiff’s assertion that the amount of interest paid in the account book for 2004 business years should not be excluded from deductible expenses, regardless of whether the interest paid in the instant case did not affect the disposition of losses.

3. Conclusion

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

[Seoul High Court 2007Nu19197 (2008.04)]

1. The plaintiff's appeal is dismissed.

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

1. Purport of claim

Of the disposition of imposition of KRW 922,95,719 of corporate tax for the year 2003 imposed on the Plaintiff on September 1, 2005 and the disposition of imposition of KRW 1,169,118,384 of corporate tax for the year 2004, the part exceeding KRW 17,71,771 of corporate tax for the year 204 shall be revoked.

2. Purport of appeal

Of the judgment of the court of first instance, the part against the Plaintiff seeking revocation as set forth below shall be revoked. Of the disposition imposing corporate tax of KRW 922,995,719 for the Plaintiff on September 1, 2005 and the disposition imposing corporate tax of KRW 1,169,118,384 for the year 2004 for the Defendant on September 1, 2005 and the disposition imposing corporate tax of KRW 194,651,409 for the year 2003 and corporate tax of KRW 334,431,659 for the year 204 shall be revoked.

1. Quotation of judgment of the first instance;

The reasoning stated in this case is as stated in the reasoning of the judgment of the court of first instance, except for the alteration of the Paragraph (1)(b) of Article 2.0 of the Reasons for the judgment of the court of first instance as follows. Thus, this is cited in accordance with Article 8(2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

【Retending Part】

As to whether the Plaintiff is eligible for special tax reduction or exemption for small and medium enterprises, comprehensively taking account of each description of No. 8, No. 14, and No. 28 (including each number), and the purport of the entire pleadings at the testimony of witness ○○○○○○○○○○○○○○○○○○○○○○○○○○○○ on April 28, 1997, the Plaintiff removed three market buildings on which ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○’s construction of a new commercial building on its ground, and the Plaintiff was delegated to the said market-building enterprise (the number of 96 companies).

As shown in the above facts, the plaintiff made a contract for most reconstruction projects including the construction of the commercial building in this case with ○○○ corporation as the main contractor. The plaintiff company only established a small-scale department in charge of technology within the company without a construction business license and participated in the construction of the commercial building. The degree of participation also seems to be merely the general business level for the so-called event of sale and sale after completing most of the construction works under contract without directly constructing the building. Thus, the plaintiff's main business is not to run the construction business for the purpose of building construction itself as its main business, but to sell and sell the building in this case, it constitutes "real estate supply business (7012)" under the aforementioned Korean Industrial Classification.

Therefore, the Plaintiff cannot be deemed as a small and medium enterprise subject to tax reduction or exemption because it cannot be deemed as its main business among the requirements for application of special tax reduction or exemption to small and medium enterprises, and it does not constitute a small and medium enterprise subject to tax reduction or exemption, and it does not constitute a business activity of a small and medium enterprise subject to tax reduction or exemption.

2. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed. It is so decided as per Disposition.