School of the nearest School of the School Foundation (Law Firm Pyeongan, Attorney Seo-sik, Counsel for the plaintiff-appellant)

Head of Ansan Tax Office

November 10, 2015

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s disposition of imposition (including additional tax) of KRW 530,853,453 of corporate tax for the business year from March 1, 2007 to February 28, 2008 against the Plaintiff on March 13, 2013 is revoked.

1. Details of the disposition;

A. The Plaintiff is a corporation established with the purpose of providing secondary education and vocational education on March 1962. At the time of the establishment of the Plaintiff, the Plaintiff: (a) received the contribution of 421,785 square meters of forests and fields; (b) 181,785 square meters of forests and fields; and (c) 91,240 square meters of forests and fields ( Address 2 omitted); and (d) owned them as fundamental property; (b) on April 21, 2005, the Plaintiff owned the sales amount of KRW 1,632,03,000 of forests and fields (hereinafter “sale proceeds of the instant land”).

B. The Plaintiff included KRW 1,689,657,481, including the proceeds from the sale of the instant land, as reserves for its proper purpose business, and completed a corporate tax return for the business year from March 1, 2005 to February 28, 2006 (hereinafter “business year 2005”).

C. On November 14, 2007, the Plaintiff deposited and managed the instant land as a term deposit, and terminated the said term deposit with the permission of the competent office of education on November 19, 2007, and between November 19, 2007 and December 28, 2007, the Plaintiff acquired at KRW 1,676,901,250, and 1,677, 727, and 9, other than Gangnam-gu ( Address 4 omitted), Gangnam-gu, Seoul (hereinafter collectively referred to as the “instant apartment”).

D. As a result of examining the actual conditions of the follow-up management of the reserve fund for proper purpose business of the school juristic person, the director of the Central Regional Tax Office determined that KRW 1,632,03,00,000, which is equivalent to the sale price of the land of this case, was used not for proper purpose business but for the acquisition of the apartment of this case, and notified the Defendant, the head of the competent tax office, who is the

E. On March 13, 2013, the Defendant: (a) applied Article 29(4)4 of the Corporate Tax Act to include the amount in gross income for the business year from March 1, 2007 to February 28, 2008 (hereinafter “2007 business year”); and (b) imposed a disposition of imposition of KRW 728,560,80 (including additional tax) on the Plaintiff for the business year from March 1, 2007, which includes the date of acquisition of the apartment of this case, on the ground that “the Plaintiff appropriated the sales price of the instant land in the business year of 2005 as deductible expenses; and (c) it is reasonable to deem that the use of the instant apartment in the acquisition of the instant apartment of this case goes beyond the scope of its proper purpose business.”

F. On June 3, 2013, the Plaintiff filed an appeal with the Tax Tribunal. On January 16, 2015, the Tax Tribunal rendered a decision to the effect that “The acquisition value of the instant land shall be the larger amount between the book value and the value appraised pursuant to Articles 60 and 61(1) through (3) of the Inheritance Tax and Gift Tax Act as of January 1, 1991, and that “the reserve fund for proper business purposes shall be set based on the amount equivalent to the profits from disposal of fixed assets as of January 1, 1991, and the tax base and tax amount for the business year 2007 shall be corrected.”

G. On February 10, 2015, the Defendant issued a corrective disposition against the Plaintiff on February 10, 2015, which reduces KRW 728,560,80 as corporate tax listed in the said paragraph (i.e., KRW 288,538,675 + additional tax of KRW 179,124,809 + KRW 63,189,969) to the amount of additional tax to be paid, such as reduction or exemption (hereinafter “instant disposition”).

[Ground of Recognition] Facts without dispute, Gap evidence 1, 2, 4 through 6, 8, Eul evidence 1 through 3, 2, 3, 4-1 through 3, 5, 6-1, 2, 7, 8-1, 2, 8-2, and 8-2, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's cause of claim

1) The Plaintiff uses all the proceeds from the rental business of the apartment of this case for a proper purpose business, such as securing the legal charges of the school juristic person itself, so the Plaintiff’s acquisition of the apartment of this case constitutes an expenditure for a proper purpose business under Article 56(6) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20930, Jul. 24, 2008; hereinafter the same shall apply). In addition, Article 48(2)4 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9269, Dec. 26, 2008; hereinafter the same shall apply), Article 38(4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 21292, Feb. 4, 2009; hereinafter the same shall apply) provides that it shall not be subject to gift tax in cases where the Plaintiff acquires the basic property of this case for profit-making business after establishing the proper purpose business reserve fund in deductible expenses.

2) Unlike domestic affairs, the sales price of the instant land for the business year in which the Plaintiff acquired the instant apartment cannot be included in the gross income for which five years elapsed since the end of the business year in which the reserve fund for essential business purposes was appropriated as deductible expenses pursuant to Article 29(3)4 of the former Corporate Tax Act.

3) As to whether the acquisition of the apartment of this case constitutes an expenditure for a proper purpose business, there is a conflict of opinion due to the intention under tax law, and there is a justifiable reason that the Plaintiff failed to perform its duty to report and pay corporate tax, such as that it may be unreasonable for the Plaintiff to be unaware of its duty, and thus, the part of the disposition of this case

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) As to the Plaintiff’s assertion as to the foregoing paragraph (1)

A) Article 29(1) of the former Corporate Tax Act provides that "where a non-profit domestic corporation (limited to organizations prescribed by Presidential Decree in the case of an organization deemed a corporation) appropriates reserves for special purpose business for its proper purpose business or designated donations (hereafter referred to as "special purpose business, etc." in this Article) as deductible expenses for each fiscal year, they shall be included in deductible expenses within the scope of the total amount under each of the following subparagraphs when calculating the amount of income for the fiscal year." Paragraph (3) of the same Article provides that "where a non-profit domestic corporation with a balance of reserves for special purpose business included in deductible expenses under the provisions of paragraph (1) falls under any of the following subparagraphs, such balance shall be included in gross income in calculating the amount of income for the fiscal year which includes the date on which the relevant cause occurs." Article 29(1)4 of the same Act provides that "where the reserves for special purpose business is not used for the proper purpose business, etc. for five years after the date on which the fiscal year includes reserves for special purpose business as deductible expenses

In full view of these provisions, even if there are revenues that are subject to corporate tax for non-profit domestic corporations, the former Corporate Tax Act provides that the corporation concerned shall appropriate them as reserves for proper purpose business and include them in deductible expenses within five years, and shall be exempted from corporate tax, but where the reserve funds for proper purpose business exempted from corporate tax are not used for the proper purpose business, the corporate tax shall be withdrawn and the corporate tax shall be imposed again. This is not used for the proper purpose business or for the holding of assets not directly related to the proper purpose business, but for the proper purpose business itself as soon as possible. To clarify this legislative purpose, Article 3(2)5 of the former Corporate Tax Act requires that the assets excluded from corporate tax be used for the proper purpose business, and Article 56(5) of the former Enforcement Decree of the Corporate Tax Act provides that "the purpose of the reserve funds for proper purpose business" shall be "the business of non-profit domestic corporations which directly perform the business defined in the Act or its articles of incorporation."

B) On the contrary, the main text of Article 48(1) of the former Inheritance Tax and Gift Tax Act provides for the principle that “the value of property contributed by a donee as a public-service corporation shall not be included in the taxable value of donated property.” Article 48(2) of the same Act provides that “Where the donated property is not used directly for public-service projects, etc. (including where it is operated for profit-making or profit-making projects to appropriate for direct public-service projects; hereafter the same shall apply in this subparagraph) within three years from the date of its use or contribution (including where the donated property is sold for profit-making projects),” and “where the donated property is not used for public-service projects as prescribed by the Presidential Decree by three years from the date of its sale or use (including property increased by the proceeds from sale or increase, excluding public charges as prescribed by the Presidential Decree), it is difficult to impose gift tax immediately on the donated property for the public-service corporation to prevent such exemption or exemption from being used for public-service projects, as well as for public-interest purposes, it appears that it is appropriate to use the gift tax system directly for public-interest purposes.

C) As such, the legislative purport of the former Inheritance Tax and Gift Tax Act is different from the former Corporate Tax Act, the provisions of the former Inheritance Tax and Gift Tax Act or the interpretation thereof should not be reflected in the interpretation and application of the former Corporate Tax Act. The interpretation of the former Corporate Tax Act, which explicitly states the purport of encouraging the income of non-profit domestic corporations to be used as soon as possible in the proper purpose business, by promoting the income of the non-profit domestic corporations to be used as soon as possible in the proper purpose business, does not necessarily mean that the basic property

Therefore, it cannot be deemed that the Plaintiff, which is the principal purpose business, acquires and leases the apartment of this case, which is the basic property for profit, directly uses the above apartment in the educational business which is the Plaintiff’s principal business, and even if the income generated from the above rental business was appropriated for school operation expenses, it cannot be viewed

D) Therefore, the Defendant’s assertion on this different premise is without merit.

2) As to the Plaintiff’s assertion as to the Plaintiff’s above A-2

Article 29 (3) of the former Corporate Tax Act provides that "where a non-profit domestic corporation with a balance of the reserve fund for proper purpose business included in deductible expenses under the provisions of paragraph (1) falls under any of the following subparagraphs, such balance shall be included in its gross income in calculating the income amount for the business year which includes the date on which the relevant cause occurs, and one of the reasons to be included in gross income includes "where the reserve fund for proper purpose business is not used for the proper purpose business (limited to the balance not used within five years) by the date on which five years have passed after the end of the business year in which the reserve fund for proper purpose business was appropriated as deductible expenses, the reserve fund for proper purpose business is not used for the proper purpose business (limited to the balance not used within five years), and the above provision aims to force the non-profit corporation which has been established within five years to actually use the reserve fund for proper purpose business for proper purpose business for which the reserve fund for proper purpose business is included in deductible expenses for any purpose other than the proper purpose business, it can be immediately included in gross income for the business year in which the relevant cause occurred:

As long as the Plaintiff used the proceeds from the sale of the instant land for the purchase of the instant apartment with permission from the competent Office of Education for the purchase of the instant apartment, it is clear that the proceeds from the sale of the instant land cannot be used for the proper purpose business, as long as it used the proceeds from the sale of the instant land for the rental business other than the proper purpose business, it cannot be used for the proper purpose business. Therefore, there is no illegality in the disposition of this case including the

Therefore, this part of the plaintiff's assertion is without merit.

3) As to the Plaintiff’s assertion as to the foregoing paragraph (3)

Under the tax law, in cases where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, the taxpayer’s intention and negligence are not considered as administrative sanctions imposed as prescribed by the individual tax law, but the taxpayer’s intention and negligence are not considered. However, in cases where there is a justifiable reason that it is unreasonable for the taxpayer to be unaware of his/her duty to impose taxes, or where it is unreasonable for the taxpayer to expect the fulfillment of his/her duty to impose taxes, etc., it cannot be imposed (see Supreme Court Decision 2003Du13632, Jan. 27, 2005, etc.).

In light of the above facts and the following circumstances, i.e., ① the Plaintiff appropriated earnings from the sale of the instant apartment in its proper purpose business in the business year 2005 to deductible expenses in order to obtain corporate tax exemption, and ② Article 29(3) of the former Corporate Tax Act provides that “if a non-profit domestic corporation with a balance of the proper purpose business reserve fund included in deductible expenses pursuant to the provisions of paragraph (1) falls under any of the following subparagraphs, the balance shall be included in gross income in calculating the income amount for the business year which includes the date of the occurrence of the relevant cause, if the proper purpose business reserve fund is not used for its proper purpose, it shall be included in gross income for the business year which includes the date of occurrence of the cause.” Article 56(5) of the former Enforcement Decree of the Corporate Tax Act clearly defines the meaning of the proper purpose business, and there is no legal basis to regard the apartment rental business of this case as the Plaintiff’s proper purpose business, it is difficult to find that the Plaintiff did not know that there is any other duty to establish the corresponding land sales price in the instant case where the Plaintiff reported the apartment business year:

Therefore, the plaintiff's assertion on this part is without merit.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

[Attachment]

Judges Oh Jeong-man (Presiding Judge) Kim Jong-Aeng Constitution