(1) In addition, whether the interest on a loan, which is deducted and adjusted from the calculation of the amount to be excluded from the gross income of a corporate shareholder pursuant to Article 18-3 (1) of the former Corporate Tax Act, is limited to the interest on a debt under a monetary loan agreement under the Civil Act or a loan having an individual relation to the invested stocks (negative),

(2) Whether the interest on a deposit received by a financial company in the course of managing its customers' deposits based on a deposit contract, etc. can be deemed as interest on a loan as provided for in Article 18-3(1) of the former Corporate Tax Act (negative); and whether the expenses incurred in raising operating funds from others in various ways, such as selling bonds with repurchase agreement, discounting sales bills, issuing financial bonds, borrowing funds from a trust account, etc. are included in the interest on the loan (affirmative in principle)

Article 18-3 (1) 3 of the former Corporate Tax Act (Amended by Act No. 7317, Dec. 31, 2004); Article 18-3 (1) and Article 55 of the former Corporate Tax Act (Amended by Act No. 8831, Dec. 31, 2007); Article 17-3 (2) and Article 19 subparagraph 7 of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 22577, Dec. 30, 2010); Article 18-3 (1) of the former Corporate Tax Act (Amended by Act No. 8831, Dec. 31, 2007); Article 19 subparagraph 7 of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 22577, Dec. 30, 2010)

Korea Development Bank (Attorneys Kim Sea-man et al., Counsel for the plaintiff-appellant)

Yeongdeungpo Tax Office (Law Firm Quasi-Gyeong, Attorneys Kim Jong-soo et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2015Nu5518 decided January 14, 2016

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. According to Articles 18-3(1) and 18-2(1)3 of the former Corporate Tax Act (amended by Act No. 8831, Dec. 31, 2007; hereinafter the same) and Article 17-3(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010; hereinafter the same), where a domestic corporation receives dividends from another domestic corporation as a shareholder of another domestic corporation, a specified amount of the dividend amount shall not be included in gross income when calculating the amount of income subject to corporate tax for each business year when calculating the amount of income subject to corporate tax. In such cases, the specified amount shall be calculated by subtracting the interest, etc. (Articles 18-3(1)1 and 4) from the amount calculated by multiplying the dividend amount by the ratio of exclusion from gross income in accordance with the equity ratio, and the amount of interest accruing from borrowings shall be calculated by multiplying the total amount of interest, etc. paid by the relevant domestic corporation in the business year (Article 37(3).).

The purpose of the instant legal provision, which requires a corporate shareholder to exclude a certain amount from the income dividends, is to relieve the corporate income from the corporate level and the current state on which the corporate shareholder is taxed in sequential order by tax adjustment. In addition, in calculating the amount to be excluded from the income, the purpose is to exclude the part corresponding to the dividend excluded from the taxation from the expenses to be included in the calculation of losses. In this regard, the former Enforcement Decree of the Corporate Tax Act, like Article 17-3(2), provides that the amount already excluded from the deductible expenses pursuant to Article 55 of the former Corporate Tax Act, shall not be included in the borrowings and the interest thereon. In addition, the instant legal provision provides that only the “interest on borrowings related to the investment in another domestic corporation” under Article 18-3(1)3 of the former Corporate Tax Act (amended by Act No. 7317, Dec. 31, 2004) shall be reflected in the calculation of the amount to be excluded from the gross income amount.

In full view of the language, structure, legislative purport, and amendment history, etc. of the legal provisions of this case, the interest on loans under the legal provisions of this case cannot be deemed to be limited to the interest on loans under the Civil Act or the borrowed money having an individual relationship with the invested stocks. In principle, the interest on loans under the legal provisions of this case shall be deemed to refer to the “interest on loans” under Article 19 Subparag. 7 of the former Enforcement Decree of the Corporate Tax Act.

2. A. The reasoning of the lower judgment and the record reveal the following facts.

(1) The Plaintiff, a corporation established under the Korea Development Bank Act and engaged in banking business, etc., calculated the amount of gross income from the dividend income when reporting the tax base and amount of corporate tax for the business year 2005 to 2007, and excluded the interest on industrial finance bonds (hereinafter “interest on this case”) from the loan interest under the legal provisions of this case.

(2) On December 2, 201, and November 7, 2011, the Defendant issued a notice of correction and notification of corporate tax for the business year 2008 to the Plaintiff on December 2, 201, when the Tax Tribunal accepted the remainder of the claim other than the interest on the instant case, and then partly reduced the remainder of the claim by the Tax Tribunal).

B. Examining the above facts in light of the legal principles as seen earlier, the interest rate at issue in this case falls under the interest expense incurred by the Plaintiff in raising funds from another person for the purpose of raising the operating funds, and thus, falls under the interest rate on borrowings as stipulated in the legal provisions of this case. Meanwhile, the interest on deposits received by a financial company in charge of managing its deposits from a customer based on a deposit contract, etc. is not the same as the interest on loans because it is business expenses incurred in attracting deposits, and constitutes an account that is entirely different from the interest on loans. On the contrary, the expenses incurred by a financial company in raising operating funds from another person in the course of raising funds for its purpose, such as sale of bonds with repurchase agreement, discount on sales bills, issuance of financial bonds, etc. by a financial company, and other various methods, such as sale of bonds with repurchase agreement, discount on sales bills, and issuance of financial bonds, shall not be excluded from the interest on borrowings under the legal provisions of this case

The judgment of the court below as above is based on the legal principles as seen earlier. Contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles as to the meaning or scope of interest on loans under the legal provisions of this case

3. 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 on the bench.

Justices Kim Chang-suk (Presiding Justice)