[1] In a case where a company subject to industrial rationalization under the former Regulation of Tax Reduction and Exemption Act acquires a guarantee obligation for the company subject to industrial rationalization as early as possible in excess of the estimated acquisition amount under the standards for industrial rationalization, whether it may be included in deductible expenses pursuant to the former

[2] The case holding that the act of wrongful calculation under Article 20 of the former Corporate Tax Act is applicable to the case where the seller, even though the seller had cancelled the sales contract for the buyer's default of obligation under the former Corporate Tax Act, did not receive the

[3] In a case where the gratuitous share acquired through the capital transfer of the revaluation reserve fund under the Assets Revaluation Act is revaluated, whether such revaluated gratuitous share can be deemed as a loan under Article 18-3 (2) of the former Corporate Tax Act and a “stocks of another corporation” subject to the exclusion of interest paid by a multilateral corporation from deductible expenses (affirmative)

[4] In a case where a corporation fails to submit a list of total tax invoices by seller and seller in relation to the supply of land or buildings, whether additional tax can be imposed under Article 76 (9) 2 of the former Corporate Tax Act (negative)

[1] Article 36 (1) of the former Regulation of Tax Reduction and Exemption Act (amended by the Restriction of Special Taxation Act by Act No. 5584 of Dec. 28, 1998) provides that "if a national acquires a guarantee obligation to an enterprise subject to rationalization in accordance with the rationalization criteria, the amount of acquiring the guarantee obligation shall be included in the calculation of losses." Thus, if the purport of the above provision that allows the acquisition of a guarantee obligation solely prior to the repayment of obligation is to facilitate the liquidation and acquisition of an insolvent enterprise, it shall not be deemed that the acquisition of a guarantee obligation exceeding the predetermined amount of acquisition at the time set forth in the rationalization criteria is in violation of the rationalization criteria, and it shall not be deemed that the acquisition of a guarantee obligation is in excess of the predetermined amount of acquisition at the time set forth in the rationalization criteria, and that the immediate inclusion of a guarantee obligation in the calculation of losses for the pertinent business year would result in the intention of the acquirer, and thus it is reasonable to allow the early acquisition amount to be successively included in the calculation of losses after the acquisition amount

[2] The case holding that the act of wrongful calculation under Article 20 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) did not receive the penalty agreed upon by the seller even if the seller cancels the sales contract due to the buyer's default on obligation under the former Corporate Tax Act

[3] Even if the book value is deemed zero by the capital transfer of the revaluation reserve fund under the Assets Revaluation Act (amended by Act No. 5581 of Dec. 28, 1998), if the capital transfer of the revaluation reserve fund is excluded from the fictitious dividend pursuant to the proviso of Article 19 (2) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), and the stock value of another corporation is revaluated under the Assets Revaluation Act during the possession of the gratuitous share, the revaluation spread falls under the gross income under Article 12 (1) 5 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) and is deemed as the book value under this Article Article 43-2 (8) of the former Enforcement Decree of the Corporate Tax Act. Thus, the revaluated gratuitously constitutes the borrowings under Article 18-3 (2) 1 of

[4] The purpose of Article 76(9)1 and 2 of the former Corporate Tax Act (amended by Act No. 6558 of Dec. 31, 2001) that provides that where a corporation fails to deliver invoices, etc. in the supply of goods, the corporation’s imposition of additional tax is secured for taxation materials. In the case of the supply of land or buildings, the provision of additional tax is applicable only to the supply of land or buildings, not to require the submission of a list of accounts by purchaser or purchaser, or to impose additional tax on the failure to submit a list of accounts by purchaser or purchaser, in light of the circumstances such as ensuring that transaction data are sent to the tax authority by the registration office or the inspection authority under the Registration of Real Estate Act or the Act on Special Measures for the Registration of Real Estate.

[1] Article 36(1)(current deleted) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5584 of Dec. 28, 1998); Article 36(2)8(current deleted) of the former Enforcement Decree of the Regulation of Tax Reduction and Exemption Act (amended by Presidential Decree No. 15976 of Dec. 31, 1998) / [2] Article 20 (current Article 52) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998); Article 46(1)(current Article 88 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) / [3] Article 16(2)(former Enforcement Decree of the Corporate Tax Act (amended by Act No. 15970 of Dec. 28, 1998); Article 19(2)(1)(3)(1)(2)(3)(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 58158(1) of the former Act)

[4] Constitutional Court en banc Decision 2002Hun-Ba80, 87, 88, 2003Hun-Ga22 decided June 29, 2006 (Hun-Gong117, 889), Supreme Court Decision 2003Du12820 decided October 13, 2006 (Gong2006Ha, 1931), Supreme Court Decision 2003Du15256 decided October 26, 2006 (Gong2006Ha, 2019)

Dae Forestry Industry Co., Ltd. (Attorneys Lee Im-soo et al., Counsel for the defendant-appellant)

Yeongdeungpo-gu Tax Office (Law Firm Gyeong & Yang, Attorneys Im-soo et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2004Nu16425 delivered on July 20, 2005

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. The portion of corporate tax for the business year 1998

A. As to the Defendant’s ground of appeal on the inclusion of the Defendant’s debt acquisition amount in deductible expenses

Article 36(1) of the former Regulation of Tax Reduction and Exemption Act (wholly amended by Act No. 5584, Dec. 28, 1998; hereinafter “former Regulation of Tax Reduction and Exemption Act”) provides that “When a national acquires a guarantee obligation to an enterprise subject to rationalization in accordance with the standards for rationalization, the amount acquiring the guarantee obligation shall be included in the calculation of losses.” Thus, if the purport of the above provision which permits the acquisition of a guarantee obligation solely prior to the repayment of obligation is to facilitate the liquidation and acquisition of an insolvent enterprise, the acquisition of a guarantee obligation exceeding the estimated acquisition amount before the time prescribed in the standards for rationalization is not deemed to be in violation of the standards for rationalization. However, in light of the fact that the immediate inclusion of a guarantee obligation in excess of the estimated acquisition amount in the business year can not be permitted, the early excess acquisition amount shall be allowed to be included in the calculation of losses in sequential order after the acquisition amount determined in the standards for rationalization.

According to the reasoning of the judgment below, the court below acknowledged the facts as stated in its judgment, and judged that the plaintiff can include the actual acquisition amount which was not added to deductible expenses even though the plaintiff acquired debts in excess of the estimated acquisition amount prior to the time set for rationalization. In light of the above legal principles, the judgment of the court below is just and acceptable, and there is no error of law by misapprehending the legal principles of inclusion in deductible expenses under Article 36 (1) of the former

B. As to the ground of appeal on the denial of wrongful calculation by the plaintiff and the defendant

According to the reasoning of the judgment below and the records, when the plaintiff sells the main head office of the judgment of the court below to the non-party 1 corporation in a special relationship with the plaintiff (hereinafter "non-party 1 corporation"), the plaintiff delivered the main office of the contract date to the non-party 1 corporation for use, but the non-party 1 corporation was paid the purchase price in installments for not more than 10 years, and the contract termination due to the delay of the non-party 1 corporation was returned with the amount equivalent to the penalty out of the pre-paid purchase price and the interest on the pre-paid purchase price returned by the plaintiff. However, although the plaintiff had cancelled the above sales contract with the non-party 1 corporation's payment delay and returned the sales price without deducting the penalty and the profits from the pre-paid use, it is difficult to view that the plaintiff's cancellation of the above sales contract and the deduction of the profits from the pre-paid claim due to restitution of the pre-paid contract due to the violation of the former Corporate Tax Act's unfair calculation and calculation as stated in the ground of appeal No. 25198.

On the other hand, if one of the parties to a contract fails to perform the contractual obligation, the other party to the contract may, at his option, seek the performance of the obligation stipulated in the contract, rescind the contract, and avoid the binding force of the contract, and such objection is not different from the contract between the related parties. Thus, in the records of the case where the plaintiff cancels the contract for the purchase and sale of the main office, etc. due to the non-party 1's non-party 1's default, such act shall not be deemed to constitute a wrongful calculation under Article 20 of the former Corporate Tax Act solely on the ground that the plaintiff rescinded the contract, and the judgment of the court below is just, and there is no violation of the rules of evidence

C. As to the Defendant’s ground of appeal on the non-inclusion of interest paid in excess of deductible expenses

According to Article 18-3(2)1 of the former Corporate Tax Act and Article 43-2(8) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970, Dec. 31, 1998; hereinafter “former Enforcement Decree of Corporate Tax Act”), “where a corporation which holds loans in excess of the standards prescribed by Presidential Decree holds stocks of another corporation, the amount calculated as prescribed by Presidential Decree out of the interest on loans paid in each business year shall not be included in the expenses in calculating the income amount of each business year, and in this case the stocks of other corporation shall be the book value.” In this case, since there is no separate provision on the book value, it shall be deemed that the provisions and contents of the gross income and deductible expenses under Article 9 of the former Corporate Tax Act are shared (see Supreme Court Decision 96Nu17011, Feb. 27, 1998). Even if the revaluation reserve fund acquired through capital transfer under the former Enforcement Decree of Corporate Tax Act is excluded from the book value dividend under Article 19(2) of the former Corporate Tax Act, it shall be revaluated without compensation.

According to the reasoning of the judgment below, the court below found on January 1, 1995 that the plaintiff holding 67,489 shares of ELCEX corporation, which was granted a free of charge while capitalizing the revaluation reserve fund under the Assets Revaluation Act in 1981, revaluated the amount of KRW 5,790,000,000 under the Assets Revaluation Act, and determined that the gratuitous transfer of the revaluation reserve fund under the Assets Revaluation Act does not constitute the "stocks of another corporation" under Article 18-3 (2) 1 of the former Corporate Tax Act.

However, it is difficult to accept the judgment of the court below in light of the above legal principles.

In other words, as long as the gratuitous transfer of revaluation reserve fund under the Assets Revaluation Act does not re-evaluation, its book value shall be zero and excluded from the application of Article 18-3 (2) 1 of the former Corporate Tax Act. However, the above gratuitous transfer of the ELCT corporation held by the Plaintiff constitutes a case where the gratuitous transfer of the revaluation reserve fund under the Assets Revaluation Act is re-re-re-contributed by the Assets Revaluation Act, and such revaluation spread shall be regarded as its book value. Thus, the re-re-contributed gratuitous transfer constitutes the "stocks of another corporation" under Article 18-3 (2) 1 of the former Corporate Tax Act.

Although the court below did not consider the fact that the above gratuitous shares held by the plaintiff were revaluated again, it determined that they do not constitute "stocks of another corporation" subject to non-deductible of a corporation because they were free shares acquired through capitalization of revaluation reserves. In so doing, the court below erred by misapprehending the legal principles on borrowings under Article 18-3 (2) 1 of the former Corporate Tax Act and non-deductible of interest paid by a corporation, which affected the conclusion of the judgment. The defendant's ground of appeal pointing this out has merit.

2. Additional tax for the business year 200

Article 76 (9) 1 and 2 of the former Corporate Tax Act (amended by Act No. 6558, Dec. 31, 2001; hereinafter "the Corporate Tax Act prior to the amendment in 2001") which provides for the imposition of additional tax in the event that a corporation fails to deliver invoices, etc. in the course of supplying goods provides taxation data. In the case of supplying land or buildings, it is guaranteed that transaction data are sent from the registry office or the inspection office to the tax office under the Act on Special Measures for the Registration of Real Estate or the Registration of Real Estate. In light of such circumstances as the provision of Article 76 (9) 1 and 2 of the former Corporate Tax Act (amended by Act No. 6558, Dec. 31, 200; hereinafter "the Corporate Tax Act prior to the amendment in 2001," the provision of Article 203Du12636, Oct. 13, 2006; and Article 205 of the Corporate Tax Act is against the principle of excessive prohibition.

According to the reasoning of the judgment below, the court below determined that the disposition of imposing additional tax on the plaintiff for failure to submit a list of total account statements by seller in the year 2000, which provides that the corporation shall impose additional tax when it fails to submit a list of total account statements by seller even after receiving a land supply, does not violate the principle of excessive prohibition under Article 76 (9) 2 of the Corporate Tax Act prior to the amendment in 2001. In light of the above legal principles, the court below erred by misapprehending the legal principles on additional tax not submitted to the list of total account statements by seller under Article 79 (9) 2 of the Corporate Tax Act prior to the amendment in 2001, which affected the conclusion of the judgment. The plaintiff'

3. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ahn Dai-hee (Presiding Justice)