The case holding that, in case where a corporation whose interest rate of reorganization debt and the maturity period are changed favorably according to the approval decision for the reorganization plan of the company redeems the amount at a discount on the current value of the debt, the unpaid balance of the discounted debt estimated by present value, which is the difference between the book value and the redemption amount

The case holding that, in case where a corporation whose interest rate and repayment period are advantageous to the reorganization debt in accordance with the company approval decision, redeems the debt at a discounted value and redeems the amount of the debt at a discounted value, as long as it is not recognized to include the present value before the repayment of the debt in the present value and the appraised profit, the amount of income accrued from repayment based on the book value before deducting the present value of the debt, i.e., the value before calculating the present value before deducting the present value of the debt, shall be included in the calculation of the present value, and as such,

Articles 14(1), 40(1), and 42(1) of the former Corporate Tax Act (Amended by Act No. 6558, Dec. 31, 2001);

Seoul High Court Decision 201Na14488 delivered on August 2, 2012

Head of Suwon Tax Office

Seoul High Court Decision 2007Nu650 decided August 31, 2007

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

The grounds of appeal are examined.

Article 14(1) of the former Corporate Tax Act (amended by Act No. 6558 of Dec. 31, 2001; hereinafter the same) provides that “The income of a domestic corporation for each business year shall be the amount calculated by deducting the total amount of losses incurred during the business year from the total amount of earnings accrued during the business year.” As to the business year to which profits and losses accrue, Article 40(1) of the same Act provides that “the business year to which a domestic corporation’s profits and losses accrue shall be the business year to which the date on which the profits and losses are finalized,” but Article 42(1) of the same Act provides that “if the assets and liabilities of a domestic corporation increase or decrease the book value of the assets and liabilities possessed by the domestic corporation, the book value of the assets and liabilities shall be the amount before the evaluation in calculating the income amount for the business year to which the date of the evaluation belongs and each subsequent business year shall not be reflected in the income amount for the relevant business year, and shall be included in the calculation of the income amount of the person’s profits and liabilities as a uniform taxation.”

According to the reasoning of the judgment below and the evidence duly admitted by the court below, the plaintiff met on May 2, 1994 as to the reorganization secured claims of the Seoul Bank with interest rate of 10 years from 1995 to 10, plus interest rate of 9% per annum (9% per annum) of the Seoul Bank; as to the reorganization claims of the Seoul Bank, the principal shall be repaid in installments for 13 years from 1995 to 10 years; as to the interest rate of 3% from 1998, the interest rate of 4% calculated by deducting the above preferential interest rate of 3% from the principal shall be calculated; as for the settlement claims of the Seoul Bank, the plaintiff shall calculate the amount of 2.3 years from 197 to 25 years from 197; as for the settlement claims of the amount of 3 years from 198, the amount of 40,65,94815, the remaining amount of 160% of the discounted interest rate of the Seoul Bank as at the time of 197.

In light of the contents and legislative intent of the above provisions, even if the plaintiff evaluated the current value of the book value of the liquidation obligation under the provisions of Articles 66 and 67 of the Corporate Accounting Standards and appropriated the present value of the liquidation obligation, which is the difference, as the profit from the debt evaluation in calculating the current value of the liquidation obligation under the provisions of the Corporate Tax Act, but repaid the liquidation obligation in the middle of the liquidation obligation, and accounts for profits and losses arising from redemption of the difference between the value of the present value of the debt less the present value of the present value by the effective interest rate, i.e., the value of the debt under the Corporate Tax Act before the redemption of the debt, unless it is acknowledged that the present value of the debt should be evaluated and appropriated the present value of the present value before the redemption of the debt, i.e. the amount of income from the redemption of the present value before the deduction of the present value of the debt, in calculating the amount of income from the repayment of the liquidation obligation to the Seoul Bank, it is an appropriate measure to reflect the increase in the plaintiff'

Nevertheless, the court below held that the defendant's rejection disposition against the plaintiff's request for correction cannot be included in the gross income in calculating the amount of income following the repayment of the Seoul Bank's liquidation obligation under the Corporate Tax Act, on the ground that the remaining amount of the discounted debt estimated by the present value cannot be included in the gross income. This decision of the court below is erroneous in the misunderstanding of legal principles as to Article 42 (1) of the former Corporate Tax Act, which affected the conclusion of the judgment.

Therefore, the judgment of the court below is reversed and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Cha Han-sung (Presiding Justice)