The early high-2014-Seoul Government-3727

income earned by an individual by conducting bonds sales business shall constitute business income listed in the Income Tax Act.

It is reasonable to view that an individual's income earned by selling non-performing loans falls under income similar to income under "financial business" under Article 19 (1) 11 of the Income Tax Act, and that an individual has continuously and repeatedly engaged in business for profit in light of the frequency and period of transaction.

Article 19 of the Income Tax Act

2015Guhap54964 global income and revocation of disposition

AA

BB Director of the Tax Office

December 4, 2015

February 19, 2016

1. Of the instant lawsuit, the part of the claim for revocation of the disposition imposing global income tax for the year 2009 is dismissed.

2. The plaintiff's remaining claims are dismissed.

3. 9/10 of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

Cheong-gu Office

The Defendant’s disposition of imposition of global income tax of KRW 000,000,000 for the year 2009 (the Plaintiff appears to have been written as KRW 00,000,000 for the Plaintiff on June 1, 2014), KRW 00,000 for the year 2010, KRW 000 for the year 2010, KRW 0000 for the Plaintiff (the Plaintiff appears to have been written as KRW 0,000,000 for the year 201), and KRW 00,000 for the year 2012 for the Plaintiff.

1. Details of the disposition;

A. From 2009 to 2012, the Plaintiff purchased 19 bonds with collateral security (hereinafter “instant bonds”) from the CCC Savings Bank, etc., and received dividends or repaid by the debtor during the auction procedure for secured real estate (hereinafter “instant income activity”), thereby gaining gains from the gains of KRW 00 million in 2009,000,000 in 201, and 0,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 won in total (hereinafter “the instant income”).

B. On June 1, 2014, the Defendant: (a) deemed that the instant income constituted business income under Article 19(1)20 of the Income Tax Act; and (b) determined and notified each of the total income tax of KRW 000,000,000 for the year 2009, KRW 000,000 for the year 2010, KRW 000,000 for the year 201, and KRW 000,000 for the year 2012 (hereinafter “the first disposition”).

C. On July 11, 2014, the Plaintiff filed a request for a trial with the Tax Tribunal. On December 9, 2014, the first disposition rendered on the basis of the first disposition rendered on the dividend amount as revenue amount, including the acquisition value of non-performing loans in purchase expenses, to determine the tax base and tax amount by estimation, thereby correcting the tax base and tax amount and dismissing the remainder of the request for a trial.

D. According to the above decision, the Defendant issued a correction and notification, as stated in the initial disposition on December 24, 2015, as the amount of each global income tax for the year 2009 to 2012, as stated in the purport of the claim, (hereinafter “instant disposition”).

[Ground of recognition] Facts without dispute, Gap evidence 1 through 3 (including branch numbers for those with additional numbers; hereinafter the same shall apply), Eul evidence 1 and 2, the purport of the whole pleadings

2. Related statutes;

It is as shown in the attached Table related statutes.

3. Whether the part of the instant lawsuit seeking revocation of imposition of global income tax for the year 2009 is lawful

Around January 29, 2016, the imposition of global income tax of KRW 000,000,000 for the year 2009 was completely corrected. As such, a claim for revocation on this part is against the portion for which the said claim has not been extinguished, and is unlawful as there is no benefit in the lawsuit.

4. Whether the disposition on the instant case was lawful for the year 2010 through 2012

(a) Whether to recognize business feasibility;

1) With respect to the existence of the pertinent income activity, determination shall be based on ordinary social norms, taking into account the Plaintiff’s acquisition and holding status of the instant claim, the scale, frequency, mode, and counterpart of the pertinent income activities, and whether such income activities are for profit purposes, as well as the continuity and repetition of business activities to the extent that such income activities can be seen as business activities. The determination ought to take into account all the circumstances before and after the time when the pertinent income activities were conducted (see, e.g., Supreme Court Decision 2012Du7370, Mar. 13, 2014).

2) In light of the following facts and circumstances, it is reasonable to view that the Plaintiff engaged in the business by continuously and repeatedly engaging in the instant income activities for the purpose of earning profits in light of the following facts and circumstances, which are revealed by adding the whole purport of the pleadings to the respective statements in the facts and evidence as seen earlier, Gap’s evidence, Eul’s evidence Nos. 7, 9 through 20,

① The Plaintiff purchased 19 non-performing loans on the part of the Plaintiff’s funds, savings banks, etc. from 19 savings banks, and paid 90% of the purchase price of non-performing loans on the part of the Plaintiff’s funds and 17 purchase funds (the total purchase funds of the said 19 funds are KRW 00,000,000,000) as collateral for the right of pledge. At the time of acquisition, the Plaintiff paid 00,000,000 won as registration tax and interest expenses related to the loan on the right of pledge loan. As a result, the Plaintiff earned the instant income of KRW 0,00,000 in total. The amount of the purchase funds and bonds acquisition expenses invested by the Plaintiff, and the amount of the instant income of this case is considerably large.

② The instant income activity was conducted by purchasing 19 bonds during the period from 2009 to 2012. It is difficult to view that it was a temporary and contingent transaction in light of the frequency and period of the transaction.

③ The Plaintiff purchased part of the instant claims through DaD (hereinafter “DD”) established by Dod (hereinafter “DD”). DD’s business registration is the wholesale and retail business of golf products and the wholesale and retail business of financial business. However, DD was not actually operating a wholesale and retail business of golf products. The Plaintiff reported DD on its own feasibility as to the so-called non-performing loan sales business, and filed an application for business registration. The Plaintiff considered DD established for the so-called non-performing loan sales business as having no business feasibility. Rather, it is natural to deem that the instant income activities do not seem to have any business feasibility.

④ DD has one employee at the place of business, and at the same time, the business affairs of the Plaintiff’s personal name are presumed to have been carried out in the same place, in which it is presumed that the documents related to the purchase of the instant claim under the Plaintiff’s personal name were kept together.

⑤ From 2009 to 2012, no evidence was submitted to deem that the Plaintiff had income other than the instant income.

(b) Whether business income is business income;

1) Article 19 (1) 11 of the Income Tax Act provides that "income generated from finance and insurance business" and Article 19 (1) 20 of the same Act provides that "income that is similar to income referred to in subparagraphs 1 through 19 of the same Article and that earned from continuous and repeated activities under his/her own calculation and responsibility for profit-making purposes" shall be business income, and Article 19 (3) of the Income Tax Act provides that the scope of business referred to in each subparagraph of paragraph (1) shall follow the Korean Standard Industrial Classification publicly notified by the Commissioner of the Statistics Korea pursuant to Article 22

2) In light of the following circumstances, the above facts and evidence, Gap evidence Nos. 4 through 6, Eul evidence Nos. 6 through 9, and the fact inquiry results with the Commissioner of the Statistics Korea with respect to the Commissioner of the Statistics Korea, it is reasonable to view that the pertinent income constitutes income similar to that under the "financial business" under Article 19 (1) 11 of the Income Tax Act.

① Under the Korean Standard Industrial Classification of Statistics Korea, the financial industry is classified into “business activities raising funds other than insurance or pension purposes, and re-distribution, supply, and brokerage thereof,” and is divided into banks, savings institutions (class code 641), invested institutions (642), and other financial business (643). Of the invested institutions, the other invested institutions (6429) refers to business activities that invest funds other than securities issuance and trust funds (personal assets, bonds, bills, notes, and other debtor assets, etc.) in financial assets. In light of the specific procedures as seen earlier and the flow of funds, the income activities in this case refer to the business activities that invest in the instant bonds, which are financial assets with the Plaintiff’s funds or loans, and are similar to the activities of other invested institutions, and the Statistics Korea also expresses its opinion.

② Even if the business category of DD’s business registration is not a non-performing trading business, it appears that it does not include non-performing loan trading business items in the National Tax Service’s computerized system, and at least, it appears that the above business registration was conducted on the premise that the income activities of this case related to non-performing trading are similar to the financial business, which is business activity.

③ If the income related to the sale and purchase of non-performing loans was generated in DD (the purchased bonds were sold again to the Plaintiff, and thus, it seems that the actual income did not have accrued), it should be included in the calculation of earnings and the corporate tax should be reported and paid. There was a problem that the tax authority imposed different taxes on the income between the individual and the corporation by failing to impose tax on the income acquired by an individual who did not have registered his/her business through income activities.

(c) Whether it violates the principle of clarity;

This case’s income is similar to income under the financial business prescribed by the Income Tax Act and thus subject to global income tax is as seen earlier. Moreover, it is difficult to stipulate all details of the financial business and similar business under Article 19(1)11 of the Income Tax Act in the relevant Act, and it is also difficult to deem that there is a need to define the relevant Act. In light of the contents and purport of Article 19(3) of the Income Tax Act, there is no unclear part of the said Act, and thus, the instant disposition under the said Act cannot be deemed to violate the principle of clarity.

It is true that this case’s income activity constitutes business activities similar to financial business, the tax authority’s position has not been clearly expressed in its interpretation, and it was not previously taxed as business income, but it is a matter of interpretation and application of law. However, such circumstance alone does not necessarily mean that this case’s disposition violates the principle of clarity of tax law.

D. Whether the principle of good faith is violated

1) In general, in order to apply the principle of trust and good faith to the acts of the tax authorities in tax and legal relations, the tax authorities should name the public opinion list that is the subject of taxpayer trust, the tax authorities’ name of the opinion list is justifiable, and there is no cause attributable to the taxpayer. The taxpayer must act in trust in the name of the opinion list, and the tax authorities’ disposition against the above opinion list may result in infringing the taxpayer’s interest. Thus, in cases where the expression of intent by the tax authorities is merely a general theoretical opinion list, the application of the above principle is denied (see, e.g., Supreme Court Decision 2007Du19447, Apr. 29, 2010).

2) According to the above facts and evidence as to whether the tax authority imposed the income of this case on the taxpayer, the tax authority may recognize the fact that the tax authority did not impose the tax on the income similar to the income of this case as business income. However, the above circumstance alone does not constitute a public opinion statement of the tax authority, and there is no other evidence to acknowledge it. Accordingly, the disposition of this case cannot be deemed to violate the principle of trust and good faith, and the remainder should not be examined.

5. Conclusion

Of the instant lawsuit, the part of the claim for revocation of the disposition imposing global income tax for the year 2009 is dismissed (the latter part of Article 32 of the Administrative Litigation Act shall apply to the bearing of litigation costs). The Plaintiff’s remaining claims are dismissed as they are without merit

Related Acts and subordinate statutes

/ Income Tax Act

Article 19 (Business Income)

(1) Business income shall be the following income, generated in the relevant taxable period:

11. Incomes accruing from the banking and insurance businesses;

20. Income generated from continuous and repeated activities under a person's own calculation and responsibility for profit-making purposes, as income similar to income under subparagraphs 1 through 19.

(3) Except as otherwise expressly provided for in this Act, the scope of businesses under the subparagraphs of paragraph (1), the Korea Standard Industrial Classification publicly announced by the Commissioner of the Statistics Korea pursuant to Article 22 of the Statistics Act shall be followed, and other necessary matters concerning the scope of

(1) The former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009)

Article 19 (Business Income)

(1) Business income shall be the following income, generated in the relevant taxable period:

10. The income accruing from the banking and insurance businesses; and