Busan High Court Decision 2013 Busan High Court Decision 1551, 2013 Busan High Court Decision 2926

No person shall be deemed to fall under other income provided for in subparagraph 10 (b) of Article 93 of the Corporate Tax Act.

Since it falls under the amount deducted from ship price, it shall not be deemed to fall under other income under Article 93 subparagraph 10 (b) of the Corporate Tax Act.

Article 93 of the Corporate Tax Act

2014Guhap21613 Disposition of revocation of refusal to correct corporate tax

△△△△ Corporation

○ Head of tax office

oly 2015.106

December 01, 201

1. On January 18, 2013, the Defendant revoked all the disposition rejecting rectification of the total amount of the corporate tax withheld as indicated in the attached Table 1 attached hereto, which the Plaintiff rendered on January 18, 2013, and the disposition rejecting rectification of the total amount of the corporate tax withheld as indicated in the attached Table 2 attached hereto to the Plaintiff on February 8, 20

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff is a company building oil drilling, oil tanker, etc.

B. On September 16, 2005 and February 7, 2006, the Plaintiff concluded a contract with two foreign corporations located in the place of the first vessel (hereinafter referred to as "the first vessel of this case") for the delivery of one oil drilling (not more than H**19, H*20) on March 31, 2008 (H*19) and July 31, 2008 (H*20) to 30.31 (H*20) to 5 (the first vessel of this case) and to 30.5 (the second vessel of this case) on March 28, 2006 to 10, 196 to 30.5 (the second vessel of this case) to 20.5 (the second vessel of this case* the second vessel of this case* the vessel of this case* 5.7) to 5 H, 205 (the second vessel of this case) to 10.5 H, * 5 5 6.5 H.1 (the vessel of this case).

Ⅱ. Contract price and terms of payment; and

1. Contract price;

The contract price of the ship shall be US$ 000 on the basis of the net amount received by the drieder, and the contract price shall be increased or decreased in accordance with the provisions of this contract.

Ⅲ. Adjustment of contract price;

The contract price shall be adjusted in the following cases as provided in the below:

1. Delay of delivery;

In the event that this ship is delivered to the shipbuilding yard after the date of delivery, the shipper shall pay to the buyer, in accordance with Section 8(2), the following amounts for losses which the ship could not use under this ship, not in the form of Penalty, by L/D (hereinafter referred to as "L/D"):

(a) The first 30 days delayed after the date of delivery in the case of the delivery of the vessel shall remain without adjusting the contract price (which shall be terminated at the 30th (Korean due date)).

(b) If the delivery of the vessel is delayed for more than 30 days after the date of delivery due to a cause attributable to the building, L/D, as a means of contract price adjustment, commences from the 30th day after the date of delivery to the actual date of delivery of the vessel, as follows:

US$ 000 per day where the number of delayed days is 31 to 90 days.

US$ 000 per day where the number of delayed days is 91 to 150 days.

US$ 000 per day where the number of delayed days is 151 to 210 days.

Provided, That the total amount of L/D shall not exceed the amount calculated from the self-determination of the day after the 30th day after the date of delivery of the contract to the day after the 180th day after the date of delay.

(c) If the delay in delivery of the vessel is 180 days or longer from the 31st day from the 31st day due to its fault, the buyer may terminate this contract at his own option in accordance with the provisions of Article X of this Agreement at the time the period expires.

VII. India and India

4. Ownership and risk.

The ownership and risk of the ship shall be transferred to the buyer at the time the delivery is completed. Until the delivery takes effect, the ownership and risk of the ship remain in the shipbuildinger.

C. The Plaintiff delivered the instant first vessel to the instant first vessel owner at the latest 193 days and 169 days prior to the delivery date, and the instant first vessel owner demanded payment of L/D to the Plaintiff, but the Plaintiff’s delay was not caused by the Plaintiff’s cause attributable to the Plaintiff, and thus rejected the international arbitration procedure.

D. Upon the occurrence of a dispute under the instant contract, the Plaintiff received the first vessel price of this case from the owner of the instant first vessel pursuant to the payment clause, and thereafter, the Plaintiff paid USD 000 in total to the first vessel owner of this case as L/D, interest, and arbitration costs on the ground that the Plaintiff’s assertion was not accepted in the international arbitration procedure.

E. Meanwhile, the Plaintiff delivered to the second vessel owner of this case the second vessel of this case for 76 days, 32 days, 59 days, and 18 days later than the above delivery date. The Plaintiff was paid only the balance remaining after deducting the L/D demanded by the second vessel owner of this case from the price of the second vessel of this case.

F. As above, the Plaintiff applied 20% of other income tax rates for the above L/D, interest (the sum of L/D and interest; hereinafter referred to as “instant amount”) and arbitration expenses paid to the owner of the instant vessel or deducted from the ship’s price, and paid 000 won in total on September 10, 2012 for the instant first vessel, and paid 00 won in total on December 10, 2009 and April 10, 201 for the instant second vessel.

G. On October 23, 2012 and December 7, 2012, the Plaintiff filed a request for correction with the Defendant to obtain a refund decision on each of the above withholding amounts. However, on January 18, 2013, the Defendant rendered a disposition rejecting correction of KRW 000,000, excluding the remainder of withholding tax as to the relevant arbitration expenses, to the Plaintiff on January 18, 2013 (hereinafter “instant disposition”). On February 13, 2013, the Plaintiff rendered a disposition rejecting refund with respect to the instant second vessel (hereinafter “instant disposition”).

H. On February 6, 2013 and May 7, 2013, the Plaintiff filed a petition with the Tax Tribunal for an adjudication seeking revocation of the instant disposition, but the Tax Tribunal dismissed the petition on June 30, 2014 and June 24, 2014.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 13 (including branch numbers; hereinafter the same shall apply), witness Lee ○-○'s testimony, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) In light of the following circumstances, the instant amount should be deducted from the ship price, and should be deducted from the cost for acquisition of the ship, and even though it does not constitute the instant vessel owner’s income, the instant disposition that deemed the instant amount as other income is unlawful.

A) According to the language and text of the instant contract, although the price of the instant vessel is predetermined in advance, the final price is determined pursuant to the ship price adjustment clause such as L/D, and the instant second vessel was actually paid at the ship price only in the amount remaining after deducting L/D from the price of the instant second vessel.

B) Although Liquage, which can be generally interpreted as an estimate of damages under the instant contract, is used, it is merely clear that it is calculated by the method of Liquage rather than a Palty method, and it can be confirmed that there is the practice of shipbuilding contracts where the occurrence of L/D due to delay is considered as the adjustment of ship price through the Korean Maritime Standard Contract, etc. The reason for such practice is that the value of the ship being delivered at the latest one month after the scheduled date of delivery is lower than the value of the ship immediately delivered at the time of the scheduled date of delivery from the shipowner of this case. This is clear in the Korean Maritime Standard Contract that there is a provision that the ship price increases in the case of early delivery of a ship.

C) According to Article 13(2)1 of the former Value-Added Tax Act (amended by Act No. 11608, Jan. 1, 2013), the discount amount is not included in the tax base, and Article 52(2) of the former Enforcement Decree of the Value-Added Tax Act (amended by Act No. 23965, Jul. 20, 2012) provides that a certain amount shall be directly deducted from the ordinary supply value at the time of the supply of goods or services under the terms and conditions of the settlement of quality, quantity, delivery, and cost of supply in the supply of goods or services. However, the instant amount constitutes a discount amount, which constitutes a direct deduction of a certain amount from the ordinary supply value at the time of the supply of the goods or services, and it cannot be viewed as the instant prior interest income.

D) Even if L/D was paid due to delay in assets in a number of overseas cases, such as legal opinions of the United Kingdom and the United States, and Indian Supreme Court rulings, it shall not be deemed separate income, and shall be deemed as the item to be deducted from the acquisition value of assets. From the point of view of the instant vessel owner, the price determined to be paid at the time of final delivery of the ship is the acquisition cost under corporate accounting standards, which is dealt with in the same way as corporate accounting, and this is confirmed by the authoritative interpretation

E) According to the principle of confirmation of rights and obligations under Article 40(1) of the Corporate Tax Act, the acquisition value of the ship shall be appropriated as of the time when ownership and risk of the ship is transferred to the owner of the ship, i.e., the time when the ship is finally delivered and the acquisition of ownership is completed. The time when the ship of this case is finally delivered to the ship. According to Article 41(1) of the Corporate Tax Act, the acquisition value of the corporation’s assets should be the amount added to the purchase value of the assets. Thus, the final price after price adjustment, rather than the provisional price of the ship, should be deemed the acquisition value of the ship by the ship. Accordingly, the amount of this case

F) In order to constitute other income under Article 93 subparag. 10 of the Corporate Tax Act, the content of the original contract shall be the monetary compensation received due to the breach or termination of the contract, which exceeds the damages to the payment itself. According to the instant contract, only if L/D is delivered within six months from the original scheduled date of delivery, it can only be deducted from the ship price, and there is no claim for compensatory compensation or right to cancel the contract, which is generally accepted as a result of delay to the owner separately.

2) Even if the instant amount becomes the preferred income, the instant amount does not constitute other income in relation to the business of providing petroleum drilling services or LNG transport services, and thus, the withholding tax rate shall be applied not only 20% of other income but also 2% of business income.

B. Defendant’s assertion

In full view of the following circumstances, it is reasonable to view that the instant amount received from the Plaintiff constitutes “other income, which is a domestic source income of a foreign corporation under the Corporate Tax Act.”

1) In light of all the circumstances, such as the content and structure of the relevant provisions in the instant contract, in particular, L/D is interpreted as an estimate of damages, and the purpose of such provisions and the situation of interests between the parties, it is reasonable to interpret the instant amount as agreed to compensate for damages.

2) The estimated amount of damages is not for the purpose of price adjustment of the ship, but for the compensation for the expected profit that the ship would have accrued if the ship had operated after delivery on the delivery date, so it is a separate income acquired beyond the future payment.

3) Since a certain amount is deducted in consideration of the fact that purchase discount or sales discount under the Value-Added Tax Act falls short of the terms and conditions of supply at the time of sale, it cannot be deemed that the amount already paid as compensation for damages for the portion of delayed delivery after concluding a contract is a sale discount (purchase).

C. Relevant statutes

It is as shown in the attached Form.

D. Determination

1) Article 93 Subparag. 10 (b) of the Corporate Tax Act provides that "income prescribed by Presidential Decree as penalty or compensation paid in the Republic of Korea, which is a domestic source income of a foreign corporation", and upon delegation, "income prescribed by Presidential Decree" in Article 132(10) of the Enforcement Decree of the Corporate Tax Act means the amount of damages paid due to a breach or termination of a contract on property rights, which exceeds the damages to the payment itself under the original contract terms, regardless of the title thereof.

2) In light of the following circumstances, which can be recognized by comprehensively taking account of whether the instant amount constitutes such other income, the instant amount falls under the amount deducted from the ship price of the instant case, and cannot be deemed to constitute other income under Article 93 subparag. 10 (b) of the Corporate Tax Act. Therefore, the instant disposition is unlawful on the premise that the instant amount constitutes other income, and the Plaintiff’s assertion is reasonable.

A) If, in cases where the content of a contract is written in writing between the parties to the contract as a disposal document, if the objective meaning of the language is clear, the existence and content of the expression of intent should be recognized in accordance with the language and text, barring special circumstances (see, e.g., Supreme Court Decision 2012Da21621, Nov. 27, 20

In the first contract of this case, the contract price shall be adjusted in accordance with the terms of this contract after providing that the contract price shall be increased or decreased in accordance with the terms and conditions of this contract; â…………………, the delay of delivery or the shortage of vessel weight â……………………………………………………………………………………………………âââââââââ………………ââââââââ

Article 3 provides that the contract price shall be subject to adjustment and may be increased or decreased, and Article 15 provides that the contract price shall be adjusted in the item of "Reduction of Contract Price 15.1" under the title of "Deferred Delivery", and the contract price shall not be adjusted for the first 30-day delayed delivery period, and the contract price shall be reduced by 00 US dollars per day if the contract price is delayed for more than 30 days.

As such, it is apparent in the text that the contract of this case provides that the delivery of a ship shall be subject to the adjustment of the contract price if the delivery of the ship is delayed, and therefore, it should be recognized that there exists an agreement between the parties to adjust the contract price in the case of delivery delay

B) Furthermore, in the instant contract No. 1, the buyer may rescind the contract if the delay in delivery of the ship takes place for 180 days or longer from the 31st day from the date of delivery, but in which case the buyer does not have any right to L/D. In the instant contract No. 2, the buyer may either deliver the ship, the price of which has been reduced in US$ 000, or cancel the contract where the delivery has been delayed for 150 days or more.

As can be seen, even if the delivery of a ship is delayed, the contract of this case shall be rescinded only when the delivery is delayed at the expiration of a long time from the original delivery date, rather than immediately cancel the contract, and only the reduction of the price of the ship shall be made if the delivery is delayed. Considering that there is no right to L/D in the case of rescission of the contract, the contract of this case shall be reduced to the amount equivalent to L/D stipulated in the contract if there is no delay in delivery to the extent that the contract of this case can be rescinded, and it shall not be claimed separately by the buyer, but shall not be resolved through L/D, which is a means to adjust the price of the ship, on the premise that the contract is valid. This shows that L/D is not a means to adjust the contract price in the case of the contract of this case.

C) In the case of the instant contract 2, the Plaintiff received only the remainder remaining after deducting the amount of L/D due to delayed delivery from the original ship price, not the Plaintiff paid the amount of L/D to the second owner of the instant case after receiving the total amount of the vessel price. Therefore, there is no room to deem that the second owner of the instant case did not have any separate income.

In the case of the contract of this case, as to whether delay of delivery due to the plaintiff's cause attributable to the first owner of this case was caused by the dispute with the international arbitration procedure. Nevertheless, upon the occurrence of the dispute under the contract of this case, the plaintiff was paid the ship price once and returned to the first owner of this case the amount of L/D equivalent to the delayed period due to the delay of delivery due to the plaintiff's cause attributable to the plaintiff in the international arbitration procedure. Although the plaintiff withdrawn the form of payment of L/D amount to the first owner of this case, it is anticipated that the amount may be deducted by the amount of L/D amount according to the result of the ex post facto arbitration, and it is inevitable due to the immediate payment clause, and therefore, the first owner of this case only acquired the ship by paying the reduced amount for the period delayed pursuant to the contract of this case. Thus, it cannot be deemed that the first owner of this case has a separate income.

Ultimately, the instant vessel owner is merely acquiring a ship by paying the ship price adjusted in accordance with the instant contract, and does not constitute a case of acquiring a "money paid in excess of compensation for payment itself, which is stipulated in Article 132 (10) of the Enforcement Decree of the Corporate Tax Act."

D) The instant contract expressed “L/D” as the means to adjust the price of a ship. L/D generally understood as the amount agreed to pay a certain amount by compensating actual damages when one of the parties violated the agreement under the Anglo-American law, which is similar to the “predetermined of the amount of compensation for damages” in Korean legal system. However, if only the State can impose Palty on an individual under the Anglo-American law, such agreement becomes null and void in a contract between a private person, and thus, it is merely a use of the expression “L/D” in a shipbuilding contract in order to prevent the invalidation of the contract by interpreting the method of adjusting the price of the ship in the form of a Palty method. Accordingly, the instant contract is merely based on the expression “L/D” and it cannot be deemed that the entire text of the instant contract or the substance of the instant amount were neglected, and thus, it cannot be deemed that the instant amount was compensation for damages.

E) If the delivery of a ship is delayed, the price of the ship will be reduced by taking into account the damages that the ship owner would have gained if the ship had been delivered on the delivery date, but even if L/D considers the damages to the ship owner, it shall still have the nature as a means of price adjustment as seen earlier, and it shall not be deemed a separate income that the ship owner acquired beyond the original payment.

F) Even if there is a provision that "the level of price adjustment shall be determined before the delivery of a ship" in the instant contract, the price of a ship adjusted in accordance with the reduction regulations stipulated in the contract as to the number of days delayed at that time when the delivery of the ship is delayed, so the price adjustment following delay in delivery is determined before the delivery of the ship. Thus, the above interpretation is not inconsistent with the above provision, and even if the specific amount of adjusted price has been determined ex post facto, the L/D, which has the character as the vessel price adjustment, does not change its nature as the vessel price separate income.

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.