Plaintiff (Law Firm Gyeong, Attorneys Lee Gyeong-chul et al., Counsel for plaintiff-appellant)

The head of Yangcheon Tax Office

May 18, 2012

1. The part of education tax (the first quarter, the fourth quarter, the fourth quarter, the first quarter, the first quarter, the second quarter, the second quarter, the second quarter, 2006, which the Defendant imposed on the Plaintiff on March 19, 2009) (the stated amount in the “amount imposed on the correction of 2.2”; and the remaining amount shall be the stated amount in the “amount imposed on the initial disposition”) shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. Of the costs of lawsuit, 2/3 shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

The Defendant’s disposition of imposition of global income tax amounting to KRW 310,675,365 on March 19, 2009, exceeding KRW 195,428,083, among the disposition of imposition of global income tax amounting to KRW 310,675,365 on March 19, 2009, exceeding KRW 161,709,967, among the disposition of imposition of global income taxing to KRW 226,09,59,597, exceeding KRW 161,70,967, among the disposition of imposition of global income taxing to KRW 449,403,210, exceeds KRW 92,028,804, among the disposition of imposition of global income taxing to year 207, and Appendix 1 /4, 206, respectively, shall be revoked.

Details of the disposition

A. While the head of Daegu Regional Tax Office conducted a corporate tax investigation on the Hongwon Ginseng Manufacturing Plant Co., Ltd. (hereinafter “red Red Ginseng”), he confirmed that Hongwon Ginseng paid the interest interest to the Plaintiff, and conducted a tax investigation on the Plaintiff on or around December 2008. As a result, he identified the profits of non-business payment, such as interest and fees that the Plaintiff borrowed and received, as follows, and notified the Defendant of the result thereof.

(unit:,000 won)

In the name of the debtor in the name of 36,000 - 320,00,00 in the year 2005 - 86,033,970 88,300 277,280 727,700 535,000 925,490 480,200 red ginseng 1,742,190- - 336,000 - 259,400 821,790 - 325,790 - Nonparty 5 320,000- - 86,000 90,000 72,000 72,000 - 200 other 971,80,808,3078,307 208,308 207,5708 2008

B. On March 19, 2009, the Defendant included the above amount in the Plaintiff’s total income by the pertinent taxable year, and imposed a disposition of imposition of each global income tax and education tax on the Plaintiff on March 19, 2009, attached Table 1 [Attachment 1].

C. The Plaintiff dissatisfied with each of the above dispositions and filed an appeal with the Tax Tribunal on May 26, 2009, and on December 6, 2010, the Tax Tribunal rendered a decision that “each of the above dispositions was paid by the Plaintiff from Red Ginseng, 89,500,000 won out of the introduction fees of KRW 132,00,000,000, which is deemed to have been paid by the Plaintiff from Red Ginseng, excluded the Plaintiff from non-business profits, thereby correcting the tax base and tax amount, and dismissing the remainder of the claim.”

D. According to the above decision, the Defendant issued a revised and notified of the global income tax accrued in January 4, 201, 2005, 2006, and the education tax accrued in March 4, 2005, the quarter of 4/4, 2006, and the quarter of 1/4, 2006, as indicated in [Attachment 1] [Attachment 2], and issued a revised and notified notice of the imposition of the income tax and the education tax that remain after correction (hereinafter “instant disposition”).

【Ground for recognition】 The fact that there has been no dispute, Gap evidence 1, Eul evidence 1-2, Eul evidence 2-1, Eul evidence 9-1, Eul evidence 9-2, and the purport of the whole pleadings

1. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Since the instant disposition was imposed with non-income of the Plaintiff as follows, the part exceeding the reasonable tax amount, such as the purport of the claim, should be revoked in an unlawful manner.

(A) interest income and fees related to the debtor Red Ginseng;

(1) The Plaintiff lent 1.5 billion won to Red Ginseng three times, and Nonparty 1’s representative director of Red Ginseng introduced the Plaintiff to Nonparty 1 and paid 132,00,000 won in total to Nonparty 4,6, and 7 who introduced the Plaintiff to Nonparty 1. The Defendant imposed the full amount of the above fee on Nonparty 1, but imposed it on KRW 42,50,000 out of the above fee according to the decision of the Tax Tribunal. The introduction fee belongs to the Plaintiff, not the Plaintiff, and should be excluded from the Plaintiff’s revenue amount.

(2) Of the money paid by Nonparty 1 to the Plaintiff, the Defendant deemed to have received the principal of KRW 96,00,000 on December 29, 2005, KRW 60,000 on April 12, 2006, KRW 50,000,000 on September 3, 2007, KRW 200,000 on January 15, 2008, KRW 50,000 on January 16, 2008, KRW 50,000 on April 4, 2008, KRW 52,000,000 on April 4, 2008, and KRW 508,000 on KRW 50,000 on January 16, 208, notwithstanding the fact that the principal was repaid, as interest income of the Plaintiff.

(3) On April 5, 2007, Nonparty 1 converted the amount of KRW 600 million out of the non-payment interest of Red Ginseng into the principal, and set up a collateral with the maximum debt amount of KRW 600 million on the real estate owned by Hongwon Ginseng as collateral, and decided not to pay interest thereon. However, the above real estate had already been subject to a senior mortgage, and the successful bid price falls short of the amount of the secured debt of the senior mortgage, and the Plaintiff was not able to fully repay the said principal amount. Thus, the said converted amount of principal cannot be deemed as the Plaintiff’s income.

B) Interest income related to Nonparty 5

The Plaintiff, around January 2005, lent 450,000,000 won to Nonparty 5 as interest without interest, had the principal repaid 50,000,000 won each month over 50 times per month, and the principal repaid until 2008 is KRW 320,00,000. Nevertheless, the Defendant deemed the amount repaid as interest income of the Plaintiff and disposed of the instant disposition.

2) Under the premise that the Plaintiff is not a business entity, the Defendant imposed a tax on interest income without deducting the necessary expenses for the credit business, etc., and only money credit service provider is liable to pay education tax. Therefore, the part of the instant disposition of education tax in the instant case was

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

1) The Red Ginseng borrowed the Plaintiff’s KRW 70 million on September 1, 2005, KRW 50 million on October 4, 2005, and KRW 300 million on February 10, 2006 on the condition of 3% per interest month. In fact, among the above money, the Plaintiff borrowed KRW 70,00,000 ( KRW 70,000) in return for introducing the Plaintiff, and paid only KRW 25,00,000 ( KRW 50,000), KRW 12,00,000 ( KRW 34,50,000), and KRW 50,00 ( KRW 30,000), and KRW 150,00 in return for lending the Plaintiff to Nonparty 1,50,000 in relation to its lending, the Plaintiff received the Plaintiff’s statement that “The Plaintiff was 150,500,000 won in relation to its lending.”

2) On June 23, 2008 and January 7, 2009, Nonparty 1 sent to the Plaintiff a certificate of the details of the loan status and the payment of interest. The statement is made in order that the Red Ginseng paid to the Plaintiff the money to the Plaintiff, and the statement is made to repay the unpaid interest as of the payment date to the Plaintiff.

3) The Red Ginseng completed the registration of establishment of a mortgage on 11 real estate, including 14,995 square meters of land for a factory in Pungdong-Eup, Pungdong, Pungdong, for the purpose of securing the amount borrowed from the Plaintiff, as follows. Of which, on April 5, 2007, the right to collateral security (right to collateral security (right to collateral security (right to collateral security) was to be transferred to the principal amount of KRW 600,000,000, and was established as a security therefor.

No. 13200, Sep. 1, 2005, 13199 No. 1,000,000,000 on September 1, 2005, 13200 No. 1,5041, 800,000,000 on October 4, 2005, 500 on the registration of creation of superficies (No. 5219, Nov. 16, 2006) and 50,000,000 on November 16, 2006, for the first order of 18219,50,000,000 on the Plaintiff’s creation of superficies (No. 6711,60,000,007 April 5, 2007)

4) On January 25, 2005, the Plaintiff, the husband of Nonparty 5, completed the registration of creation of a neighboring mortgage of KRW 450,000,000,000 on the site and building of Yongsan-gu Seoul Metropolitan Government, Taewon-dong ( Parcel Number omitted), Yongsan-gu, Seoul, which is the husband of Nonparty 5, and received KRW 9,00,000,000 from February 24, 2005 to October 27, 2008, respectively.

5) On the other hand, the Plaintiff expressed that the Plaintiff received KRW 9,00,000,00 as interest monthly from Nonparty 5 and his consciousness each month, regarding the “request for the materials supporting loans” requested by the director of the Daegu Regional Tax Office at the time of the tax investigation, the loan principal for Hongwon Ginseng was KRW 1.5 billion, and the loan principal for Nonparty 5 was KRW 300,000,000 from Nonparty 5 and his consciousness.

【Ground of recognition】 The fact that there has been no dispute, Gap evidence 1, Eul evidence 2 through 6-1, 2, Eul evidence 7-3, 4, Eul evidence 8, Eul evidence 9-1 and Eul evidence 9-2, and the purport of the whole pleadings

D. Determination

1) Determination on the first argument on the debtor Red Ginseng

In full view of the above facts and the overall arguments, the plaintiff made a statement that 70,000,000 won was divided into 3 Brackers with respect to the loan of KRW 700,000,000,000, and 2. 500,000,000,000 won, and 2. 50,000,000 won was loaned to the same debtor, and it is not clear whether Brers paid fees to Brackers, and if Brers was paid to Brers, it would be difficult for the plaintiff to arbitrarily discount the fee. 3) The plaintiff made a loan to Hong Ginseng, after deducting the fee, stated that 70,000,000 won was divided into Bracker's personal information and amount of fee, etc. x 50,000,000 won x 400,000 won x 50,000 won x 705,000,00 won.

2) Determination on the second assertion on the debtor Red Ginseng

In full view of the aforementioned facts and the purport of the entire arguments, the Plaintiff responded to the following circumstances: (i) while submitting explanatory materials at the time of the tax investigation, the Plaintiff responded that the loan principal of Red Ginseng is KRW 1.5 billion (excluding the portion of interest converted to the principal of interest); (ii) the amount actually received from Red Ginseng from the time the Plaintiff loaned the funds to Red Ginseng until April 11, 2008 (excluding the commission) is KRW 1,010,190,000; and (iii) when calculating the interest rate of KRW 3,50,000 per month, the Plaintiff paid the interest amount of KRW 1.35,000,000,000,000 won per month; (iii) the Plaintiff’s payment of the principal after the remainder of the unpaid interest; and (iv) the Plaintiff’s payment of the interest amount of KRW 1.00,000,000,000,000 from Red Ginseng’s representative of Hong Ginseng is not accepted; and (iv) the Plaintiff’s payment of interest amount of KRW 4719.

3) Judgment on the third assertion on the debtor Red Ginseng

Income tax is the so-called "fixed-term taxation" which imposes tax on the income amount for one year from January 1 to December 31 of each year, and the interest income from non-business loans is calculated as the gross income amount for the corresponding year. Thus, in case where a partial recovery of claims is made and where it becomes objectively obvious that it is impossible to recover the remaining claims at the time of recovery of claims, it shall be deemed that there is no realization of the interest income that satisfies the taxation requirement as long as the recovered amount falls short of the principal amount. However, it shall not affect any obligation to pay the interest income already realized prior to the occurrence of a cause not to recover (see Supreme Court Decision 2001Du8490, May 27, 2003).

In light of the above, Article 45 subparag. 9-2 of the Enforcement Decree of the Income Tax Act provides that profits from non-business loans shall be deemed as the date of receipt of interest income: Provided, That in cases where there is no agreement on the date of payment of interest, or where interest is paid before the date of payment of interest pursuant to the agreement, the date of payment of interest shall be deemed the date of receipt of interest income. In the case of loans to the Plaintiff Red Ginseng, since the time of payment of interest is unclear, the actual date of payment of interest is deemed as the date of receipt of the interest. Therefore, when the interest is converted into the leased principal, the interest claim shall be extinguished when the interest claim is converted into the leased principal, and the loan claim is created accordingly, the interest income shall be deemed to have been realized when the interest claim was converted into the leased principal. Accordingly, the Plaintiff’s attempted payment of Red Ginseng and the amount of 600 million won converted into the principal may be excluded

However, the above facts and evidence No. 4-2 revealed the following circumstances: ① the Plaintiff was paid interest of KRW 527,790,000 from Hong Ginseng even after the attempted principal had been converted, until April 11, 2008; ② the Plaintiff registered the establishment of a right to collateral security at KRW 11 through 5,77 with respect to the real estate in order to secure the principal and interest of Red Ginseng; ③ Hong Ginseng was converted into principal and interest income at the time following its closure on June 30, 2008; ④ The representative of Hong Ginseng did not appear to have any circumstance to deem that it was impossible to recover the Plaintiff’s claim against Hong Ginseng as the principal and interest income at the time of its conversion into principal and interest income; ④ The Plaintiff’s assertion that Hong Ginseng’s claim against Red Ginseng was converted into principal and interest income at the time of its conversion into principal and interest income cannot be objectively accepted, in light of the Plaintiff’s assertion that the Plaintiff’s claim against Red Ginseng was converted into principal and interest income.

4) Determination on the assertion against the non-party 5

In full view of the aforementioned facts and the purport of the entire pleadings, the following circumstances are revealed: ① (a) the Plaintiff initially stated that the loan to Nonparty 5 was KRW 300 million, but was aware that the total amount remitted to the Plaintiff by Nonparty 5 was more than KRW 300 million, the Plaintiff appears to have corrected the loan amount to KRW 450 million and stated; (b) the amount of KRW 9 million, which was regularly remitted to the Plaintiff by Nonparty 5, was calculated by applying the interest rate of KRW 300 million generally when the Plaintiff loaned the loan to the Plaintiff; (c) the maximum debt amount of the right to collateral security established by the Plaintiff on the real estate of Nonparty 9, was KRW 450,00; (d) the amount of the right to collateral security established by the Plaintiff to secure interest on the principal of the debt is set at the maximum debt amount; and (e) the amount of KRW 300,000,000 for the Plaintiff’s 30,500,000,000).

5) Determination on the legality of the imposition of education tax

A) Article 3 of the Education Tax Act provides that the monetary credit service provider prescribed by Presidential Decree among those engaged in financial and insurance business in Korea is liable to pay education tax, and Article 1(2) of the Enforcement Decree of the same Act provides that the lending of money and the receipt of interest shall be applicable to the lending of money without the government’s license or authorization.

B) On the other hand, money credit service providers constitute a business entity under the Income Tax Act and therefore, necessary expenses, which are the expense corresponding to the total revenues, are deducted (Article 27 of the Income Tax Act), while interest income is the tax base for the entire income accrued without deducting necessary expenses. However, the Defendant again issued an education tax disposition on the premise that the Plaintiff is not a business entity and imposed a tax on the entire interest income without deducting necessary expenses. The part of the education tax disposition in the instant case is illegal to the extent that it is against a person who is not liable

2. Conclusion

Then, the plaintiff's assertion is partially reasonable, and the remainder is dismissed as it is without merit. It is so decided as per Disposition.

[Attachment]

Judges Cho Jong-hee (Presiding Judge)