Claims for indemnity arising from debt guarantee;

The Plaintiff’s failure to recover the claim under the instant settlement agreement is merely a result of the failure to recover the claim, not a claim for reimbursement arising from debt guarantee.

Article 34 (Inclusion of Bad Debt Reserve Fund in Loss

2013Guhap21503 Revocation of Disposition of Corporate Tax Imposition

Aaaaa Global

b Head of the Tax Office

May 30, 2014

September 19, 2014

1. Corporate tax attributed to the Plaintiff for the business year 2008, which was paid by the Defendant to the Plaintiff on September 3, 2012, KRW 5,034,01,810

The portion exceeding 4,128,759,484 won of the disposition of imposition shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. 1/10 of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

Cheong-gu Office

The Defendant imposed corporate tax of KRW 955,378,150 on the Plaintiff on September 3, 2012.

The portion exceeding KRW 952,871,169 among those, and the disposition of imposition of KRW 5,034,01,810 of the corporate tax for the business year 2008

Imposition of KRW 4,068,154,592 in excess of the amount of KRW 4,068,15,700 in the business year 209

Each part exceeding KRW 822,204,965 shall be revoked.

1. Basic facts

A. The plaintiff's status

The plaintiff was established on May 25, 1995 for the main purpose of the foreigner-only casino business and was a corporation that is currently operating the casino business, construction business, etc. by comprehensively taking over the construction sector of the Aaa Construction Industry, which is a related company, on November 1, 2005.

(b) a settlement agreement with BBP bargaining Co., Ltd. (hereinafter referred to as “bBP bargaining”);

1) On January 25, 2006, the Plaintiff entered into a business agreement (Evidence A) with the content that the Plaintiff may participate in the project of new construction and sale of apartment units (hereinafter referred to as the “instant project”) between BBP bargaining and BBP bargaining on the ground of the Chungcheongnam-dong, Chungcheongnam-dong, Chungcheongnam-dong, Chungcheongnam-dong, Chungcheongnam-do, and accordingly, entered into a construction contract (Evidence B) with BBP bargaining in total amounting to KRW 33,650,196,000 (Evidence A0) on April 24, 2006.

2) On December 20, 2007, BBP bargaining received a loan of 4 billion won from Gg Mutual Savings Bank. On the same day, the Plaintiff entered into a contract between Gg Mutual Savings Bank and the Plaintiff under which the guarantee limit was 5.2 billion won and the Plaintiff entered into a guarantee agreement with the Plaintiff on the same day as the principal obligation for the above loans to g Mutual Savings Bank of BPP bargaining as the principal obligation. BbP bargaining paid 3,972,880,805 won out of 4 billion won borrowed from Gg Mutual Savings Bank (= KRW 17,427,580 won in the five-time balance + KRW 17,427,580 in the five-time amount + KRW 3,95,453,225 in the part of the construction price (Evidence 3,55).

3) On August 29, 2008, the Plaintiff entered into an agreement between BBP bargaining and BBP bargaining on the settlement of claims, such as construction cost, through the acquisition of unsold housing units, payment in substitutes of the instant project, and outstanding accounts receivable, (i) the Plaintiff entered into an agreement (Evidence A 6; hereinafter referred to as the “instant settlement agreement”), and the main contents thereof are as follows.

Division Amount Non-higher

Account payable to the City Corporation

Account payable for Construction Expenses 20,858,554,733

Loan 6,444,54,226 won

Plue trade name (4 billion) and personal liabilities (200 million won);

F. L.C. (50 million won)

Total 27,303,108,959

Remaining Revenues

Amount of outstanding sale in lots in KRW 7,065,976,500 + occupancy balance

80% of the sales price of unsold in lots of 16,14,216,00 won;

Article 2 (Opening of Business Settlement)

1) BBP bargaining, as of August 29, 2008, transferred to the Plaintiff KRW 7,065,976,50 as of 7,065,970 and KRW 1,947,154 of the balance of the account at HH Bank No. 702701-, which is the account for sales revenue of the instant project in the name of HBP bargaining (the buyer and HH Bank must be notified that the claim has been transferred by content-certified mail).

2) BBP bargaining, as of August 29, 2008, shall pay 20,142,770,000 won of the total sale price of 78 households unsold in lots, as of August 29, 2008, to the Plaintiff at KRW 16,114,216,000, by settling the accounts at 80% pursuant to Article 10(2) of the business assistance agreement, and bbP bargaining shall issue to the Plaintiff a tax invoice and an invoice equivalent to the discounted settlement amount (the value-added tax of bbbP bargaining under this paragraph shall be treated as the Plaintiff’s expense).

3) BBP bargaining shall settle the 1 and 4 floors in the complex amounting to KRW 500 million from sales revenue and complete the registration of ownership transfer due to payment in kind to the Plaintiff.

4) On August 29, 2008, the Plaintiff settled the amount of KRW 27,303,108,959, which is the sum of KRW 20,858,554,733 as of August 29, 2008 and KRW 27,303,108,959, which is the sum of the unpaid construction costs and KRW 6,44,54,226, from among the construction costs of the instant business.

5) Also, on April 24, 2006, the contract is to be amended with the absence of interest for delay in payment of the price for the construction contract entered into between BBP bargaining and the Plaintiff.

6) To arrange the above contents, as follows:

Balance of the head of the Tong 1,947,154

500,000,000 1,40

Total 23,682,139,654

-3,620,969,305

4) On September 11, 2008, the Plaintiff repaid to Gg Mutual Savings Banks KRW 4,030,378,082 (the principal of the loan obligation + KRW 4 billion + interest KRW 30,378,082).

5) As a result of the instant settlement agreement, the Plaintiff reported the corporate tax attributed to the business year 2008, around December 2008, and appropriated the said KRW 3,620,969,305 as bad debt (hereinafter “instant bad debt”).

C. On December 15, 2006, the Plaintiff borrowed 200 million won to Solorrr (hereinafter referred to as "Gulorrrrrrr") Dor Co., Ltd. (hereinafter referred to as "Dorrrrrr"), Dorrrr (hereinafter referred to as "Dorrrrrrrr") at interest rate of 8.1% per annum on March 15, 2007, and extended 10,698,221,578 won (the total of KRW 11,12, No. 14, 206, 16, 18, 208, 208, 208, 207, 208, 208, 30, 208, 208, 30, 207, 208, 208, 30, 207, 208, 207, 208.3

2) The Plaintiff, on November 1, 2008, lent the amount of KRW 10.5 million to L&C Co., Ltd. (hereinafter referred to as “L&C”), and on November 25, 2008, the amount of KRW 100 million was set at 10% per annum, and on November 2, 2009, the principal was fully repaid, but the interest was not repaid.

3) When the Plaintiff filed a corporate tax return for the business year from 2007 to 2009, the Plaintiff did not include the agreed interest rate for Solorrr and M&C as interest income.

4) LAWC closed its business on March 31, 2009, and Solar on December 31, 2009, respectively.

D. Disposition imposing corporate tax on the plaintiff

1) From May 21, 2012 to July 31, 2012, the Defendant issued a revised and notified the Plaintiff of KRW 2007 to July 2009 of the corporate tax for the business year from 2007 to 2009. On September 3, 2012, the Defendant issued a revised and notified the Plaintiff of KRW 95,378,150 of the corporate tax for the business year from 2007, KRW 5,034,01,810 of the corporate tax for the business year from 2008, KRW 829,115,700 of the corporate tax for the business year from 209 (hereinafter “instant disposition”).

2) Of the disposition of this case, the part of KRW 905,242,326 of the disposition of this case (hereinafter "the disposition of this case") among KRW 5,034,001,810 of the corporate tax for the business year 2008 (hereinafter "the disposition of this case") shall not be included in deductible expenses on the ground that the bad debt of this case constitutes "claim arising from debt guarantee" under Article 34 (3) 1 of the former Corporate Tax Act (amended by Act No. 92767 of Dec. 26, 2008).

3) Of the disposition of this case, the part of KRW 2,506,98,150, among the disposition of this case for the business year 2007, the part of KRW 2,506,981, the part of KRW 5,034,01,01,810, the part of KRW 60,604,892, and the part of KRW 6,910,735, out of the corporate tax belonging to the business year 2009, KRW 829,115,70 (hereinafter referred to as the "part of the disposition of this case") was 8.1% of the total of KRW 269,59,649 (the total of KRW 10,027,923, KRW 240,634, KRW 208, KRW 209, KRW 2078, KRW 2365, KRW 207, KRW 23605, KRW 208, KRW 236365,2065, etc.

(e) Procedures of the previous trial;

The Plaintiff filed an appeal with the Tax Tribunal on December 7, 2012 against the instant disposition (i) and (ii). However, on September 4, 2013, the Plaintiff was dismissed.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1, 2, 4, 6, 8, 11 through 15, Eul evidence Nos. 1, 2, 4, 7, 8, 10 through 17 (including each number), and the purport of the entire pleadings

2. The assertion and judgment

A. The plaintiff's assertion

1) As to the disposition (1) of this case, the part regarding the disposition (1) of this case is unlawful for the following reasons.

A) The instant bad debt is merely a result of the Plaintiff’s failure to recover the claims that he had with respect to BBP pursuant to the instant settlement agreement, and is not a claim for reimbursement arising from debt guarantee. In order to generate a claim for reimbursement arising from debt guarantee, there must be the withdrawal of the guarantor and the extinguishment of the principal obligation arising therefrom. However, the Plaintiff paid gg mutual savings bank with the financial resources received from BBP pursuant to the instant settlement agreement, and thus, cannot be deemed to have withdrawn on its own.

B) Even if the Plaintiff made a substitute payment as a guarantor, the instant settlement agreement is intended to provide funds necessary for the performance of the Plaintiff’s payment guarantee with remaining income. Thus, the claim for indemnity cannot be established unless the Plaintiff paid the remaining income at least to the amount calculated by dividing the amount (3,469,515,459 won = 23,682,139,654 won = 23,682,139,654 x 4,000,000,000 / 27,303,108,959 won) in proportion to the total amount of obligations owed to the Plaintiff by g mutual savings banks.

C) Even if the instant bad debt was incurred by subrogation under the debt guarantee, it shall be deemed that the debt guarantee under Article 34(3)1 of the former Corporate Tax Act, which was to be limited through the exclusion of bad debt from deductible expenses, is limited to the risk of causing the risk of chain chain bankruptcy by causing excessive loans, unless it is directly related to the business of the corporation. However, the Plaintiff inevitably guaranteed the obligation of Bbbbp bargaining to recover the construction cost, and thus directly related to the Plaintiff’s business. Thus, the instant bad debt is not subject to exclusion of deductible expenses under the aforementioned provision.

2) The instant disposition ② The Plaintiff’s failure to include the interest accrued from Solorrr and L&C in the gross income is reasonable as it is determined based on the judgment that there is no possibility of recovery, and thus, it does not constitute entertainment expenses incurred from the voluntary waiver of the claim. Therefore, the instant disposition that deemed it as entertainment expenses and excluded it from the deductible expenses is unlawful.

B. Relevant statutes

Attached Form 2 is as shown in the relevant statutes.

C. Determination

1) Article 34(3)1 of the former Corporate Tax Act (amended by Act No. 9267, Dec. 26, 2008; hereinafter the same) (Article 19-2(2)1 of the former Corporate Tax Act (amended by Act No. 9267, Dec. 26, 2008; hereinafter the same) provides that, with respect to claims for indemnity arising from debt guarantee other than debt guarantee prescribed by Presidential Decree, such bad debts shall not be included in deductible expenses. Accordingly, Article 61(4) of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 21302, Feb. 4, 2009; hereinafter the same shall apply) provides that, with respect to the instant portion, debt guarantee provided by a corporation operating a credit guarantee business under the Indirect Investment Asset Management Business Act (Article 19-2(2)1 of the current Corporate Tax Act) shall be included in deductible expenses in excess of the amount of debt guarantee that a commissioned enterprise under the Act on the Promotion of Large Enterprises and Small-Medium Enterprises (Article 14).

Meanwhile, Article 14 of the Framework Act on National Taxes provides that if the ownership of income, profit, property, act or transaction subject to taxation is nominal and there is a person to whom it actually belongs, the person to whom it actually belongs shall be liable as a taxpayer (Article 14 (1)). The provisions on the calculation of tax base in the tax-related Acts provide for the principle of substantial taxation in the imposition of national taxes by stipulating that where it is deemed to unfairly receive benefits under this Act or other tax-related Acts by indirect method via a third party or by going through two or more acts or transactions, it shall be deemed that the party has directly traded, or that the party has engaged in a single act or transaction in succession, according to the economic substance, and thus this Act or other tax-related Acts shall apply (Article 14 (3)).

In full view of the provisions and legislative purpose of the former Corporate Tax Act concerning the exclusion of liability from deductible expenses, the provisions, content and purport of the substance over form principle under the Framework Act on National Taxes, and the facts acknowledged earlier, as well as the evidence revealed earlier, it is reasonable to deem that the instant bad debt does not constitute “claim arising from the guarantee of liability” under Article 34(3)1 of the former Corporate Tax Act. Accordingly, the instant disposition on the ground that the instant bad debt constitutes a bad debt of indemnity claim, which cannot be included in deductible expenses under the aforementioned provision, is unlawful.

① In light of the principle of substantial taxation under the former Corporate Tax Act regarding non-deductible of a guaranteed obligation, insofar as a claim that a corporation intends to include in deductible expenses as bad debt is practically a claim for indemnity arising from the settlement of a credit and obligation, including the debtor and indemnity, and thereafter the corporation agreed to extinguish a claim for indemnity through the settlement of credit and obligation, including claims for reimbursement, and to newly generate a claim for liquidation or loan, the bad debt of the claim shall not be actually included in deductible expenses. However, in cases where a claim that a corporation seeks to include in deductible expenses as bad debt can be deemed as a claim for indemnity, i.e., where the corporation holding existing bonds allows the debtor to obtain a loan from a financial institution and pay the loan, and then has paid the loan by subrogation, it shall be deemed that it can be included in deductible expenses. Although the so-called repayment of the existing loan only formally without receiving funds falls under a separate loan, it is merely a case where the existing debt continues to exist due to the extension of the payment period of the existing loan and its existing debt cannot be seen as one of the existing creditors (see, 20161).

② According to the facts found earlier, the Plaintiff entered into a contract for construction works with BBP bargaining and the contract amount of KRW 33,650,196,00, and demanded BBP bargaining to pay KRW 24,514,568,674 for the total construction cost of KRW 166,772,420, which was 7,347,796,254, which was 17,347,796,254, while the Plaintiff was unable to pay KRW 17,347,79,254, which was 17,885, which was 400,00,000, after which the Plaintiff had been doing the construction work, while requiring BBP bargaining to pay part of the construction cost even if having received a loan from BBP mutual savings bank on December 20, 207. In fact, the Plaintiff was paid KRW 3,972,805,00 among the construction price.

③ If the Plaintiff did not perform a series of acts that guarantee the Plaintiff’s obligation for loans to the GbBP bargaining g mutual savings bank, then the Plaintiff was able to include its bad debts in deductible expenses, since the Plaintiff’s obligation for the construction price was the claim of KRW 4 billion which was prevented from recovering from BBP bargaining. Such series of acts by the Plaintiff appears to be a reasonable act to reduce the liquidity under the delayed receipt of the construction price, and in itself, it does not appear to have been an act with the intent of tax avoidance.

④ Under the instant settlement agreement, the Plaintiff appears to have agreed on the settlement agreement that: (a) BBP bargaining has to pay to GBP mutual savings banks; (b) it is evaluated that it still is an obligation to the Plaintiff, which is merely a guarantor, and included in the subject of settlement; and (c) it is true that the Plaintiff has agreed on the settlement agreement with the effect that the Plaintiff would incur an obligation to pay as a guarantor the amount of the amount which the Plaintiff would have to pay as a guarantor ( approximately KRW 4 billion); and (b) it would have agreed on the settlement agreement with the purport that it would incur an obligation to pay the amount which the Plaintiff would not significantly difference from the amount which the Plaintiff would have to pay as a guarantor (Article 3.6 billion won). However, it is also true that the Plaintiff would not yet have the Plaintiff paid the loan to GBP mutual savings banks in the form of a debt guarantee agreement under the Corporate Tax Act, including an agreement to acquire indemnity against BBP bargaining, but also have the Plaintiff receive a series of loans that could not be paid as a result of the settlement agreement in the form of the settlement agreement.

⑤ Guaranteeing the Plaintiff’s obligation to BBP mutual savings banks is ultimately aimed at reducing the financial liquidity arising from the delayed receipt of construction price by receiving the payment of construction price, and does not impose a new burden on the Plaintiff. Thus, it is difficult to view Article 34(3)1 of the former Corporate Tax Act as constituting an reckless debt guarantee that Article 34(3)1 of the former Corporate Tax Act intends to restrain the improvement of the financial structure and the promotion of corporate restructuring.

2) The following circumstances that can be acknowledged by comprehensively taking account of the facts acknowledged as above and the above facts. ① The Plaintiff leased Dor with Dor for a long period of 53 times from December 15, 2006 to April 30, 2009; ② the Plaintiff was unable to receive all principal loans from Dorr during the period from March 15, 2007 to July 13, 2009. In particular, it is difficult to 2007 where Dornmon C&C paid the loan prior to the due date for 2007, where Donmon C&C did not receive the interest claim at all, and it was difficult to view that Dor lent 200,000,000 won for 20,000,000 won for 20,000,000 won for 20,000 won for each business year from Dorrr and 207,000,000 won.

Therefore, the part of the disposition in this case, which was excluded from the deductible expenses on the ground that the plaintiff voluntarily renounced his claim for the attempted interest on soft and L&C, is included in the gross income, and that the disposition in this case was legitimate.

3. Conclusion

Thus, the plaintiff's claim is justified within the above scope of recognition, and it is accepted by the plaintiff.

Since the remaining claims are without merit, they shall be dismissed, and it is so decided as per Disposition.