Seoul Administrative Court 2016Guhap56752 ( October 12, 2017)

The recognition interest rate for loans between persons with a special relationship shall be interpreted as the "market price" applied in calculating the interest rate for loans.

- The weighted average loan interest rate shall be on the basis of loans as at the time of loan - The plaintiff and the mutual aid association shall be deemed to be a person with special relationship.

2017Nu54717 Revocation of Disposition of Imposing Corporate Tax

Dog Dog

O Head of tax office

October 25, 2017

December 20, 2017

1. All appeals filed by the plaintiff and the defendant are dismissed.

2. The costs of appeal shall be borne by each party.

1. Purport of claim

The disposition of the defendant against the plaintiff *.*. *. *. *. 201*, 201***,**,***** (including additional tax; hereinafter the same shall apply), *1**,***,***,***,***,**,**,**,**,**,*,**, of the disposition of the imposition of the won ******,***,***,**,**,**, of the part in excess of ****,**,****,***,**,**,**,**,**, of the disposition of the imposition of the won **,**,*****,****,****,*****

2. Purport of appeal

[Plaintiff] The judgment of the first instance court is modified as stated in the purport of the claim.

[Defendant] The part against the Defendant in the judgment of the first instance is revoked. The Plaintiff’s claim corresponding to the revoked part is dismissed.

1. The reasoning of the judgment of the court is as follows: (a) adding to the corresponding part of “related Acts and subordinate statutes” of part 19 of the judgment of the court of first instance, the phrase “additionals of relevant Acts and subordinate statutes” of this judgment is as stated in the reasoning of the judgment of the court of first instance, except supplementing or adding the judgment as follows, and (b) cites it as is in accordance with Article 8(2) of the Administrative Litigation Act and Article

2. Supplement and addition of judgments;

A. Summary of the plaintiff's assertion

The defendant's re-calculated the interest rate recognized as the market price by applying the current interest rate to the market price and included the added portion in the gross income is illegal for the following reasons.

(1) Article 89(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012) (amended by Presidential Decree No. 23589, Feb. 2, 2012).

In the case of applying the interest rate recognized as economic rationality, such as the weighted average loan interest rate at a certain point of time adjacent to the lending point, the current interest rate is forced to be the market price, and thus, is null and void in violation of Articles 37(2) and 23(1) of the Constitution of the Republic of Korea, Article 52(2) of the Corporate Tax Act.

② The Plaintiff’s application of the weighted average loan interest rate at the time most adjacent to the lending point as of the lending point to the market price was reasonable from a normal economic person’s standpoint, and considering the various circumstances of transaction, it does not constitute an abnormal act with economic rationality. Therefore, the Plaintiff’s loan transaction in this case does not constitute wrongful calculation.

(3) Even if the interest rate on overdraft loans prescribed by Ordinance of the Ministry of Strategy and Finance is applied to the market price due to the absence of loans at the time of lending, there is no ground to view that the interest rate on overdraft loans should continue to be applied to the market price.

④ The calculation of the weighted average loan interest rate by reflecting the change in interest rates each time the Plaintiff borrowed funds after borrowing is consistent with the substance of the transaction and economic rationality, and thus does not constitute wrongful calculation.

B. Summary of the defendant's assertion

In light of the Supreme Court’s decision that in a case where the funds borrowed by the Construction Mutual Aid Association and the Construction Mutual Aid Association under Article 87(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23724, Apr. 13, 2012) are leased to the said members at a low interest rate or interest rate, it constitutes an unfair act against the members of the Construction Mutual Aid Association and the Construction Mutual Aid Association and the Construction Mutual Aid Association (hereinafter “Mutual Aid Association”) in order to ensure fair taxation and prevent the act of tax evasion, the loans borrowed from the Plaintiff Mutual Aid Association should be excluded when calculating the weighted average loan interest rate.

C. Determination

1) As to Plaintiff’s assertion No. 1

Today, inasmuch as tax is imposed for various policy purposes other than securing national financial resources, a wide range of formation rights is granted to legislators in the area of tax law. In principle, the selection of taxable objects subject to taxation should be based on legislative policy considering the overall political, economic, social, and cultural conditions and financial circumstances of one country, as a matter of principle, inasmuch as the outcome of the legislators’ selection of taxable objects in the tax law belongs to the area of legislative discretion, it cannot be deemed as a violation of the principle of equal taxation, the principle of property right security, and the principle of no taxation without law, unless the outcome of the legislators’ selection of taxable objects is manifestly unreasonable beyond the reasonable scope of discretion. Moreover, the provision on the calculation of tax base is a matter of legislative policy determination in consideration of the characteristics of the pertinent tax item, systematic and organic relationship with other relevant regulations, and the purpose of tax policy. Thus, since the legislative decision falls under the area of legislative discretion, it cannot be deemed as a violation of the principle of no taxation without law (see, e.g., Supreme Court en banc Decision 2008Hun-Ba214).

The purpose of Article 89(3) of the former Enforcement Decree of the Corporate Tax Act is to achieve the legislative purpose of the wrongful calculation system by prescribing that the interest rate on overdraft loan should be market price in cases where there is no amount borrowed from a person who is not a related party, and to harmonize the substance of transaction and the efficiency of tax administration, and the legitimacy of the purpose and method of calculation is recognized as appropriate. In addition, in the course of operating a corporation, setting objective standards to ensure that all taxpayers and tax authorities can easily calculate the market price at the time of loan is inevitable in light of the principle of tax equity and the efficiency of tax administration. Thus, the minimum degree of infringement is recognized. If, as alleged by the Plaintiff, it is difficult to calculate the interest rate because it is difficult to apply the weighted average loan interest rate at a certain time near the time of loan at the time of loan if there is no loan at the time of loan, and it is more convenient to apply the same standard in terms of taxpayer’s convenience, as well as the tax authorities established objective standards, since the public interest achieved by establishing the objective standard is calculated as the market price generated from loan interest rate.

In addition, Article 52(2) of the Corporate Tax Act provides that, in applying Article 52(1) of the Corporate Tax Act, the interest rate applied or deemed as applicable to sound social norms and commercial practices and the normal transaction between persons who are not specially related persons shall be deemed as the market price. In light of the fact that Article 89(3) of the former Enforcement Decree of the Corporate Tax Act, upon delegation under Article 52(4) of the same Act provides for the method of calculating the market price applicable to monetary loans between specially related persons in order to specify the meaning of the “market price”, it cannot be readily concluded that Article 89(3) of the former Enforcement Decree of the Corporate Tax Act provides that only the overdraft interest rate shall apply in cases where there is no amount borrowed from

2) The wrongful calculation panel under Article 52(1) of the Corporate Tax Act with respect to Plaintiff’s assertion (2) is a system that considers that a corporation unfairly avoided or reduced tax burden by abusing the various forms of transactions listed in each subparagraph of Article 88(1) of the Enforcement Decree of the Corporate Tax Act, instead of using them in a normal and reasonable manner with a person with a special relationship. It is limited to a case where, in light of the economic person’s viewpoint, the taxing authority denies or reduces the tax burden by using them. Determination on the economic rationality is based on whether the transaction is improper in light of sound social norms or commercial practices, and the special circumstances at the time of the transaction should also be considered (see, e.g., Supreme Court Decision 2007Du14978, May 13, 2010).

On the other hand, the interpretation of tax laws and regulations shall be interpreted in accordance with the statutory text, barring any special circumstance, by denying the requirements for taxation or the requirements for non-taxation or tax exemption under the principle of no taxation without the law (see, e.g., Supreme Court Decisions 2006Du8969, Feb. 15, 2008; 2010Do191, Jan. 27, 201; 2012Du10987, Sept. 27, 2012).

Considering the strict interpretation principle of tax laws and the language, structure, purport, etc. of the relevant Acts and subordinate statutes as examined in the judgment of the first instance court cited by this court, in a case where there is no amount borrowed from a person who is not a specially related person at the time of the Plaintiff’s lending, it is difficult to regard the current average loan interest rate as the market price at the most close time from the time of lending as the Plaintiff’s assertion. Furthermore, in order to enhance the management evaluation and credit rating of a person who is not a specially related person during the most business year, even though the Plaintiff borrowed a loan from a person who is not a specially related person during the most recent business year, it is difficult to deem that the Plaintiff’s average loan interest rate at the most close time from the time of lending as the market price is in accord with the substance of trading and as economic rationality is permitted.

3) As to Plaintiff’s assertion No. 3

In light of the facts and circumstances acknowledged in the judgment of the first instance court cited by this court. As seen earlier, Article 43 of the former Enforcement Rule of the Corporate Tax Act, which calculates the interest rate on loans existing at the time of loan, does not violate the Constitution, and since the weighted average loan interest rate is calculated based on the current status of loans at the time of loan, even if any loan occurred after the time of loan, it cannot be re-calculated based on such standard, and the strict interpretation of tax laws and regulations, etc., the weighted average loan interest rate shall not be deemed as the market price from the business year following the loan occurred to the Plaintiff after the time of loan (Supreme Court Decision 2014Du4719 Decided August 26, 2014 cited by the Plaintiff). Accordingly, as the former Enforcement Decree of the Corporate Tax Act amended and changed the interest rate on loans between related parties into the market price from the "average loan interest rate" to the "average average loan interest rate", it does not constitute an object of wrongful calculation in the case where a corporation enters into a modified contract and changed the interest rate on first loan contracts.

4) As to Plaintiff’s assertion ④

In light of the facts and circumstances acknowledged in the judgment of the first instance court cited by this court, the principle of strict interpretation of tax laws, etc., as alleged by the Plaintiff, Article 43(5) of the former Enforcement Rule of the Corporate Tax Act does not mean that the weighted average loan interest rate prescribed by Ordinance of the Ministry of Strategy and Finance should be newly calculated by reflecting the changed interest rate whenever the interest rate of the loan, which is the floating interest rate

5) As to the Defendant’s assertion

Article 87(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010) provides that a person who has a special relationship with a corporation is one of the following persons and actually exercises influence over the management of the relevant corporation (including a person deemed a director under Article 401-2(1) of the Commercial Act), such as exercising the right to appoint and dismiss executives, determining business policies, etc., and his/her relatives, etc. (excluding minority shareholders, etc.) and their relatives, etc. under Article 401-2(1)2, and Article 50(2) provides that a shareholder, etc. includes a shareholder, employee, or investor. Meanwhile, the amended Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012) provides that “In case of Article 87(1) of the former Enforcement Decree of the Corporate Tax Act, the portion of the corporation’s special relationship before and after the year is added to 201).

In full view of the purport of Gap evidence Nos. 20, 21, 22 (including each number), Eul evidence Nos. 24 and evidence No. 24, the plaintiff's investment ratio to the construction mutual aid association is 0.01%, and the ratio of investment to the electrical construction mutual aid association is 0.17%, and the number of members of the electrical construction mutual aid association is 13,80, and the number of members of the construction mutual aid association is 11,131, and the number of members of the construction mutual aid association is 11,131. Therefore, it is clear that the plaintiff and the mutual aid association constitute minor shareholders, etc. who fall under the scope of Article 87 (1) 2 of the Enforcement Decree of the Construction

In addition, it is difficult to view that the Plaintiff is a person who actually exercises influence over the management of a mutual aid association, such as exercising the right to appoint or dismiss executives, determining business policies, etc. under Article 87 (1) 1 of the Enforcement Decree, or a person who actually exercises influence over the management of the Plaintiff solely on the ground that the Plaintiff repaid the money borrowed from a mutual aid association with an intention to raise business reputation or credit rating as a member of the mutual aid association at the end of the year and borrowed it again at the beginning of the year. Therefore, the Defendant’s assertion on the premise that

3. Conclusion

If so, the plaintiff's claim is justified within the scope of the above recognition, and is accepted and Naman.

The judgment of the court of first instance with the same conclusion is just, and the appeal of the plaintiff and the defendant is without merit, and all of them are dismissed.

Judge exhauster of the presiding judge

Judges Park Jae-woo

Judgment of the Supreme Court