Han Bank Co., Ltd. and seven others (Law Firm LLC, Attorneys Shin Jae-jin et al., Counsel for the plaintiff-appellant)

Seoul District Tax Office et al. al.

June 29, 2016

1. The part of the imposition of additional tax as stated in the separate disposition list that the Defendants made against the Plaintiffs exceeds each legitimate tax amount as stated in paragraph (2) shall be revoked.

2. The costs of lawsuit are assessed against the Defendants.

The same shall apply to the order.

1. Details of the disposition;

(a) Opening of the current account, issuance of corporate bills, and payment of the Plaintiffs’ bills;

1) The Plaintiffs concluded a current account deposit agreement with the issuing company of corporate bills and issued corporate bills to the issuing company of corporate bills.

2) The issuing company of corporate bills issued discounts on corporate bills through securities companies, etc. discount institutions (hereinafter referred to as “the discount institution”).

3) When the maturity date of the corporate bills comes, the bearer of the corporate bills presented a proposal for payment to another bank that deals with the undeposited corporate bills to the Korea Securities Depository (hereinafter “Presentation bank”). The Plaintiffs confirmed the necessary and formal descriptions of the corporate bills presented through a clearing house and paid the face value of the corporate bills to the presenting bank in the absence of any error after confirming the necessary and formal descriptions of the corporate bills presented through a clearing house.

B. Commercial paper and discount amount of the instant case

As above, the Plaintiffs did not withhold interest income equivalent to the discount amount of the corporate bills when paying the said amount. The details of the amount paid and the discount amount (hereinafter “the discount amount of the instant corporate bills”) of the corporate bills for which the withholding tax was omitted (hereinafter “the instant corporate bills”) are as shown below.

The Bank of Korea, which included in the main sentence of the Plaintiff’s note payment amount in the year of 2010,812,50,000,000 won in 22,107,678,428 won in the foreign exchange bank of 2010,538,100,000,000 won in 9,031,521,170 won in the year of 2010,30,000,000,000, 6,020,268, 165, 200, 30,306,30,50,000, 630,50,50,30,06,30,50,30,50,306,30,50,306,50,30,50,000,000,00,00,000,000,05,27,3636,27,27,308,208.

C. The Defendants: (a) deemed that they are liable to withhold corporate tax on the instant discount amount, and failed to submit a payment record without fulfilling the withholding duty; and (b) imposed and notified the Plaintiffs of additional tax as listed below 2.

In the case of Plaintiffs 1 to 2, 2, 2, 3, 10, 2, 208, 10, 2, 2010, 30, 25, 205, 2, 30, 18, 205, 2, 10, 205, 30, 205, 10, 205, 30, 205, 205, 30, 205, 20, 205, 10, 205, 205, 30, 205, 205, 18, 205, 205, 30, 205, 205, 205, 205, 205, 205, 205, 205, 205, 10,75, 193, 2013, 197, 2, 105,2,2, 130.

(d) Procedures of the previous trial; and

The plaintiffs appealed and filed an appeal as shown in the table 3, but the Tax Tribunal rendered a decision to dismiss all the plaintiffs' appeals on May 26, 2014.

On October 25, 2013, the date of filing a petition for a trial (date of filing a petition for objection) with the Plaintiff in the main sentence of the Plaintiff (the Director of the Tax Office) (the date of filing a petition for a trial). On November 29, 2013, the Korea Exchange Bank in the Dispute Resolution Co., Ltd., Ltd., which held on November 15, 2013, but on December 10, 2013, the Korea Bank in the Dispute Resolution Co., Ltd., Ltd., which held on December 13, 2013; on January 13, 2014, 2013, the disposition of imposition against the Plaintiff on March 12, 2013 (the date of disposition of imposition on September 13, 2013) is taken on September 13, 2013, Gwangju Bank in the disposition of imposition on September 13, 2013.

(e) Alteration of the disposition of the head of Seodaemun Tax Office, the director of the mid-term Tax Office, or the Yeongdeungpo Tax Office;

1) On January 1, 2015, the director of the tax office of Seodaemun revoked ex officio the imposition of interest income tax on Han Bank Co., Ltd. (hereinafter “former Han Bank”) on August 19, 2013. On the same day, he/she imposed and notified the former Han Bank of KRW 84,283,750 on the additional payment for withholding tax on interest income from commercial papers.

2) On January 1, 2015, the Head of the Central Tax Office revoked ex officio the imposition of interest income tax on the Plaintiff’s National Bank of Korea (hereinafter “Plaintiff’s National Bank”) on October 16, 2013, and on the same day, imposed and notified the Plaintiff’s National Bank of KRW 7,214,780 on the additional payment for withholding tax on the interest income from corporate bills.

3) On January 1, 2015, the director of the tax office having jurisdiction over the Defendant Youngpo District Tax Office ex officio revoked the imposition of interest income tax on the Plaintiff Korea Development Bank on October 16, 2013, and on the same day imposed and notified the Plaintiff Korea Development Bank of KRW 15,193,790 on the additional payment for withholding tax on the interest income from corporate bills.

F. The director of the tax office of Seodaemun-gu confirmed that ① five corporate bills presented by the Plaintiff Korea Exchange Bank Co., Ltd. (hereinafter “Plaintiff Korea Exchange Bank”) to Korea Exchange Bank (hereinafter “Korea Exchange Bank”), ② five corporate bills presented by the Plaintiff National Bank to the former Korea Exchange Bank are reverted to investment trust property; and around July 2015, the director of the tax office of South Korea corrected the amount of KRW 126,41,290 to the former Korea Exchange Bank for additional tax withholding for the business year 2010 on the ground that “the ten corporate bills presented by the Plaintiff National Bank to the former Korea Exchange Bank (hereinafter “Korea Exchange Bank”) is liable to withhold corporate tax on the ten corporate bills from the former Korea Exchange Bank, not the former Exchange Bank that paid the bills, but the trustee Bank and the Plaintiff National Bank are liable to withhold corporate tax on the ten corporate bills discounted amount” (hereinafter “each disposition of imposition of additional tax each of the Plaintiffs including the corrected additional tax”).

G. On September 1, 2015, the former Exchange Bank merged the former Han Bank, and changed its trade name to the Han Bank. In addition, the Plaintiff, the Korea Standards Institute, Inc., Ltd. (hereinafter “Plaintiff Korea Standards Institute”) merged the Korea Standards Institute Co., Ltd. on December 2, 2015.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 6, 15, 17, 21 through 26, Eul evidence 1, 2, 5, Eul evidence 1 to 1 (including the relevant branch numbers) and the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. Grounds for each of the dispositions of this case asserted by the Defendants

The Defendants, among the depositors’ depositors’ account books of financial companies, received only the data related to the corporate bills that financial companies have withdrawn from the real account (the account book owned by the financial company as an investor’s own account) from the Korea Securities Depository, and excludes the cases where the financial companies have verified that they had withheld their taxes on their own as the underwriters. Each of the instant dispositions does not include ① the financial institutions which have presented the payment of the corporate bills of this case under their own name as a discount institution or trustee, and ② the cases where the financial institutions which have presented the payment of the corporate bills of this case owned the bills in their own name as a discount institution and owned some of them directly. The Defendants issued each of the instant dispositions on the following grounds: (a) the financial institutions which presented the payment of the corporate bills of this case purchased the corporate bills from the discount institution on their own name and own account; and (b) the Plaintiffs

1) ① The receipt date of the discount amount of a bill is the date under an agreement, and the bill discount amount is deemed to be the cause of interest income. The Plaintiffs are liable to pay the discount amount of the bill in question, and the amount of income is paid by conducting an act causing income subject to withholding by being entrusted with the payment of the bill amount from the issuer of the bill. The Plaintiffs are liable to pay the corporate tax withheld at the time of paying the amount of income. ② The payment of interest income and withholding is in an indivisible relationship. ③ Due to the characteristics of the commercial paper, it is impossible for the issuer of the commercial paper, who is the original withholding agent, to perform the withholding duty of the instant discount amount without paying the bill amount, on the other hand, the Plaintiffs are aware that the instant discount amount, which is income subject to withholding at the time of receiving the bill discount amount at the maturity, was generated, and the Plaintiffs are liable to pay the amount of interest income at the time of the issuance of the bill under the former Corporate Tax Act 40% (the same shall apply to the Plaintiff’s 20th discount amount before the issuance of the bill.)

2) Article 73(5) of the former Corporate Tax Act provides that “Where a corporation accepts, trades, mediates, or acts as an agent for a bill” refers to a series of business affairs related to the bill, it is reasonable to interpret that all financial institutions participating in a series of business affairs related to the bill should be liable for withholding. Thus, Article 73(5) of the former Corporate Tax Act does not limit the scope of agency to “acquisition, trade, or intermediary”; and Article 73(5) of the former Corporate Tax Act provides that where interest income generated from securities issued by a foreign corporation in the same context as the Corporate Tax Act provides for withholding taxes is paid to residents, the person who is delegated or entrusted with the authority to pay or pay the amount domestically (Article 127(5) of the Income Tax Act); and (4) The Korea Securities Depository should have the duty to collect the amount of interest income equivalent to the amount of discount of the bill when it receives the bill from the paying bank and pays it to the depositor under its own jurisdiction, the Plaintiffs should have been deemed to have paid the amount of discount of the bill.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) The withholding system is an exceptional method that allows a payer of income who is not a taxpayer to pay a tax after deducting the amount of tax to be paid by the taxpayer from the amount of income, etc. The withholding system can prevent tax evasion and facilitate convenience in tax collection. However, a withholding agent is obliged to bear the expenses required for withholding taxes without consideration, and a withholding agent bears the risk of collecting the amount equivalent to the amount of tax to be paid through withholding as well as the additional tax in cases of violations of the withholding obligation. Therefore, considering the aspect of the restriction on property rights of a withholding agent, the withholding obligation shall be imposed only on a person who can easily and clearly ascertain the existence of the withholding obligation, the amount of withholding tax, and the timing thereof, and the interpretation of the tax law that provides for the withholding obligation shall not

2) Whether there exists a withholding obligation under Article 73(4) and (1) of the former Corporate Tax Act

A) According to Articles 73(4) and 73(1)1 of the former Corporate Tax Act, a person who represents or has been entrusted with a withholding agent shall withhold corporate tax on interest income under Article 127(1)1 of the Income Tax Act paid to a domestic corporation within the scope of the authorization or delegation and pay it to the competent tax office having jurisdiction over the place of tax payment by the 10th of the month following the month to which the date of collection belongs

Meanwhile, comprehensively taking account of the language, purport, etc. of Article 127(1)5 and (2) of the former Income Tax Act (amended by Act No. 7528 of May 31, 2005), “a person who acts for or has been delegated to a withholding agent or a person who is obligated to withhold taxes within the scope of the authorization or delegation” under Article 127(2) of the former Income Tax Act refers to a person who is authorized or delegated to pay income to a withholding agent as well as to withhold taxes from a person liable to pay income under each subparagraph of Article 127(1) of the former Income Tax Act (amended by Act No. 7528 of May 31, 2005). In addition, such delegation may be made explicitly and explicitly, in light of the nature, effect, etc. of withholding taxes, a person who is obligated to pay income taxes at least on behalf of a person liable to withhold taxes or who is obligated to pay income taxes within the scope of the authorization or delegation shall be deemed to have been delegated to the competent tax office.

B) In light of the following circumstances, the aforementioned factual relations, the evidence as seen earlier, and the evidence No. 18, which can be seen by adding up the overall purport of the pleadings, the Plaintiffs cannot be deemed as an agent or an delegated person of the issuing company of the instant corporate bills, and thus, do not bear a withholding duty under Article 73(4) and (1) of the former Corporate Tax Act.

(1) The plaintiffs concluded a current account deposit contract with the corporate note issuer, and the above current account deposit contract applies the plaintiffs' "the free deposit agreement". The plaintiffs paid the amount specified in the bill to the presenter only when the bill was presented within the period during which the bill was issued in the form of the note delivered by them to the Customer in accordance with the above terms and conditions (refer to the evidence No. 5, No. 15-1, No. 7). On the other hand, there is no evidence to deem that the plaintiffs and the issuing company of the corporate note separately concluded a contract on the business of issuing and paying the bill with the limit to the corporate note. Accordingly, the plaintiffs are merely entrusted with the face value payment of all the bills including the instant corporate note from the issuing company of the corporate note, and there was no involvement in the issuance of discount of the instant corporate note, which is the cause of the instant discount amount subject to withholding.

(2) The original withholding agent is obligated to withhold the amount of income at the time of paying the amount of income, and thus, the payment of the amount of income under private law and the obligation to withhold the amount under public law are separate obligations. Therefore, it is difficult to deem that the Plaintiffs were entrusted with the payment of the amount of the instant corporate bills from the issuing company of the corporate bills, solely on the ground that

(3) The Plaintiffs received the amount of KRW 10,00 per bill book, KRW 5,00 per book, KRW 5,000 per book, and KRW 10,000 per book, or KRW 10,000 per book, and KRW 1,000 per exchange settlement, with the commission for the entrustment of payment of promissory notes from the issuer of corporate bills. The Plaintiffs cannot be deemed to have agreed on the payment of promissory notes on behalf of the Plaintiff in addition to the payment of promissory notes.

(4) Even if examining the contents of the current account agreement entered into with the corporate note issuer, it is difficult to find out circumstances to presume the intent to delegate the withholding business.

3) Whether there exists a withholding obligation under Article 73(5) and (1) of the former Corporate Tax Act

A) According to Articles 73(5) and 73(1)(2) of the former Corporate Tax Act, where a financial company accepts, trades, mediates, or act as an agent for a bill issued by a domestic corporation, the financial company should withhold corporate tax on interest income under Article 127(1)1 of the Income Tax Act paid to a domestic corporation and pay it at the district tax office having jurisdiction over the place of tax payment by the 10th day of the month following the month in which the date of collection falls.

B) According to the current deposit contract between the Plaintiffs and the issuing companies of CPs as seen earlier, it is apparent that the Plaintiffs did not accept, sell, or mediate the instant CPs. Therefore, it is a matter of whether or not the Plaintiffs are liable to withhold the amount of the instant CPs as a financial company acting on behalf of the CPs. Considering the aforementioned factual basis and the aforementioned facts and the following circumstances revealed by adding the overall purport of the pleadings, the evidence mentioned above and the evidence indicated in Articles 13, 14, 16, 27, and 28, the Plaintiffs cannot be deemed to constitute “the case of acting on behalf of a domestic corporation issued by the financial company” due to the Plaintiffs’ performance of the business of paying the amount of the CPs entrusted by the issuing company of CPs. Thus, the Plaintiffs do not bear the withholding duty

(1) It is reasonable to deem that a proxy act on behalf of a bill as stipulated in Article 73(5) of the former Corporate Tax Act means acting on behalf of a bill, such as the issuance, endorsement, and guarantee of a bill. However, the Plaintiffs merely entrusted the payment of the bill from the issuing company on behalf of a bill, but did not act on behalf of the issuer on behalf of the bill, such as the issuance, etc. of the bill.

(2) Article 127(5)3 of the Income Tax Act and Article 73(6) of the Corporate Tax Act provide that, where interest income, etc. accruing from bonds or securities issued by a foreign corporation is paid to a resident or a domestic corporation, “the person who represents, delegates, or entrusts the authority to pay such payment” in the Republic of Korea as a withholding agent of income tax or corporate tax on such income. In light of the scope of recognition of the above agency, in order to impose the withholding duty on the delegated or entrusted person for interest income equivalent to the amount of the discounted amount of the discounted amount of the bill, there must be explicit provisions such as the above provisions, and even if there is no such explicit provision, deeming that “the delegation or entrustment of the payment of the bill is included in “the delegation of the payment of the bill” under Article 73(5) of the former Corporate Tax Act as “the delegation

(3) According to the main text of Article 111(6) of the Enforcement Decree of the Corporate Tax Act, Article 190 subparag. 1, 2, and Article 45 subparag. 3 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 24356, Feb. 15, 2013), where a financial company, etc. selects a discount amount as to the discount amount of the notes sold or mediated on the date of discount sale, the date of discount sale of the notes, and (2) otherwise, corporate tax shall be withheld on the due date of the bills. In full view of the above provisions and Article 73(5) and (1) of the former Corporate Tax Act, where a financial institution which presented a discount amount for payment of corporate bills purchases corporate bills from its own account and on its own account, it constitutes “case of purchase and sale of bills” under Article 73(5) of the former Corporate Tax Act, and where a financial institution selects a discount amount on the date of payment of interest income equivalent to the discount amount of the relevant corporate bills, it shall bear corporate tax on the discount amount of the relevant corporate bills.

(4) The proviso of Article 190 subparagraph 1 of the Enforcement Decree of the Income Tax Act cited in the main sentence of Article 111 (6) of the Enforcement Decree of the Corporate Tax Act was amended on February 15, 2013 as “However, where bills and electronic short-term bonds, etc. have been deposited continuously from the date of issuance to the Korea Securities Depository under Article 294 of the Financial Investment Services and Capital Markets Act until the maturity date and the beneficiary of the interest and discount amount of the relevant bills and electronic short-term bonds, etc. have selected to withhold on the date of discount sale.” The purpose of such amendment is to make it unified into “the date of discount sale” as “the date of discount sale,” but to prevent the omission of withholding on the interest income of the corporate bills by allowing the recipient of the interest income equivalent to the discount amount of the corporate bills deposited in the Korea Securities Depository from the date of issuance to the maturity date. As alleged by the Defendants, if the Plaintiffs entrusted with the payment of corporate bills bear the duty of withholding on the discount amount of corporate bills not deposited in the Korea Securities Depository, it seems to exist as above.

(5) In a case where the corporate bills owned by the Korea Securities Depository are deposited in the Korea Securities Depository, the Korea Securities Depository does not withhold the amount of the discounted amount of the corporate bills on the basis of Article 73(5) of the former Corporate Tax Act because it did not have been entrusted by the issuing company of the corporate bills. The Korea Securities Depository receives the amount of the bills by exercising the rights of the depositor on behalf of the deposited corporate bills, and then pays the amount of the bills to the depositor. In this case, the Korea Securities Depository fulfills its original withholding duty under Article 73(1) of the former Corporate Tax Act in the capacity of the

(6) In principle, the Plaintiffs are not the issuer of the instant commercial paper, who is not the income earner of the instant discount amount, but is in charge of paying the instant discount amount. Therefore, considering whether the Plaintiffs have the withholding obligation under Article 73(5) of the former Corporate Tax Act, the purport and limitation of the said withholding system should be considered.

The Plaintiffs have confirmed whether the corporate bills presented for the presentation of payment meet the requirements for bills, and whether the endorsement is continuous, and paid the amount of the bills. The Plaintiffs, who cannot be identified as the last holder of the corporate bills of this case before the presentation of payment, could not be seen as having confirmed in advance the amount of the discount of the corporate bills of this case to income earners with interest income equivalent to the discount amount of this case, and whether the amount of the discount was already withheld at source.

As such, imposing a withholding duty on the Plaintiffs in a position that is unable to know or difficult to understand information related to withholding is merely demanding the implementation of an obligation that is impossible or difficult to realize for the convenience of imposing taxes, which goes beyond the bounds of the withholding system. Moreover, given that a discount agency or a financial institution that purchased the instant corporate bills can easily understand whether withholding was made on the instant discount amount, its nominal holders, and the date of discount sales, it is more reasonable to impose a withholding duty on the Plaintiffs rather than imposing a withholding duty on the Plaintiffs.

4) Scope of revocation

Therefore, under Article 73(4) or Article 73(5) of the former Corporate Tax Act, the Defendants’ imposition of additional tax on additional tax for withholding or for failing to submit a statement of payment on the premise that the Plaintiffs are liable to withhold and pay corporate tax on the interest income amount equivalent to the discount amount of the instant case is unlawful. As such, each disposition on imposing additional tax on the Defendants’ imposition of additional tax on the erroneous payment for withholding or for failing to submit a statement of payment stated in the separate sheet of disposition should be revoked without justifiable grounds as to whether the amount exceeds the legitimate tax amount stated in the separate sheet of disposition (i) the amount of additional tax on the part where the former foreign exchange bank failed to perform its duty of withholding as the purchaser of the corporate bills, and (ii) the amount of additional tax on the portion where the Plaintiff bank failed to perform its duty of withholding as the trustee company of the investment trust, and (iii) the amount of additional tax on the portion where the Plaintiff National Bank failed to perform its duty of withholding as the trustee company of the investment trust.

3. Conclusion

Since the plaintiffs' claims of this case are well-grounded, all of them are accepted, and the costs of lawsuit are assessed against the losing Defendants. It is so decided as per Disposition.

[Attachment Omission]

Judges and decorations (Presiding Judge) and Lee Jin-gu decorations

(1) Article 73(1) and (4) of the current Corporate Tax Act, which applies to the imposition of additional tax for additional tax for additional tax for withholding from 2011 to 2013, is also identical to Article 73(1) and (4) of the former Corporate Tax Act. In addition, Article 73(1) and (4) of the former Corporate Tax Act (amended by Act No. 9267, Dec. 26, 2008) that applies to the imposition of additional tax for additional tax for additional tax for withholding from 2011 to 2013 and the imposition of additional tax for non-submission of payment statement, is also the same as Article 73(1) and (4) of the former Corporate Tax Act (amended by Act No. 9267, Dec. 26, 2008) that applies to the Plaintiff Gwangju Bank (hereinafter “Plaintiff Gwangju Bank”).

(2) Article 73(5) of the current Corporate Tax Act, which applies to the imposition of additional tax for unfaithful payment for withholding tax from 2011 to 2013, is also identical to Article 73(5) of the former Corporate Tax Act. In addition, Article 73(5) of the former Corporate Tax Act (amended by Act No. 9267, Dec. 26, 2008) that applies to the imposition of additional tax for failing to submit a statement of payment in 2008 against the Plaintiff Gwangju Bank (hereinafter “Plaintiff Gwangju Bank”). The same applies to Article 73(5) of the former Corporate Tax Act (amended by Act No. 9267, Dec. 26, 2008) that applies to the imposition of additional tax for failing to submit a statement of payment in 201 to 2013

3) The meaning of Article 127(5) of the former Income Tax Act (amended by Act No. 10408, Dec. 27, 2010) and Article 127(6) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009) are the same.

4) The main text of Article 111(5) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 21302 of Feb. 4, 2009) is the same as the phrase only.

5) Article 73(8) of the Corporate Tax Act and Article 73(8) of the former Corporate Tax Act (amended by Act No. 9267 of Dec. 26, 2008) are the same as the phrase only.