Early High Court Decision 2013J 2754 ( October 31, 2014)

The validity of the disposition of non-deductible the pertinent land as an asset irrelevant to the corporation’s business; and

According to evidence, the land of this case cannot be deemed as a case where the land used directly for the corporation's business is leased. Thus, the disposition of non-Inclusion of the relevant expenses is legitimate.

Article 27 of the Corporate Tax Act

Suwon District Court 2015Guhap241 ( December 09, 2015)

Incorporated Company* Farm * farm

00. Head of tax office

November 4, 2015

December 9, 2015

1. The plaintiff's claim is dismissed.

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

The payment of property tax paid for the business year belonging to the year 2009, the corporate tax of 287,882,820 won for the Plaintiff on January 2, 2013, and the gross real estate tax of 61,617,630,630,617,6302,473,8208,6208 624,368,540,540,93796,8003,196,6372,362,03,03209,541,685,490,33,602,602,602,584,60646, 608, 205, 207, 305, 208, 205, 207, 2005, 205, 2005, 2005, 3637, 2005

1. Details of the disposition;

A. From around 1974, the Plaintiff engaged in the livestock farming business from around 00:0 00 :00 :00 g. 00 g. 23-26 g. g. 1,01,796 m. 23-26 m. (hereinafter “00 g. m. 23-26 m.”), with the trade name of “stock company”, 00 m. g. g., g., g., g., g., g., 000 m. m. 23-26 m. from around 2003. Meanwhile, on April 15, 2013, the Plaintiff changed its trade name to 00 m. agricultural company.

B. From August 2012 to November 2012, the Director of the Regional Tax Office: (a) conducted an integrated investigation of corporate tax against the Plaintiff; (b) on the land subject to aggregate aggregate taxation (hereinafter “instant land”) excluding the subject of separate taxation and separate aggregate taxation among the land in 2000 p.m. 23-26 from the year 2011 prepared by the head of Pyeongtaek-si to impose property tax; (c) on the Plaintiff, he/she shall be deemed as an asset irrelevant to the business under Article 27 of the Corporate Tax Act; (d) from the year 2007 to the year 2011; (d) on the land in question, he/she received a notice of rejection of the disposition to the Defendant to the effect that the total amount of the property tax, comprehensive real estate tax, and interest paid should be included in the deductible expenses for the period of 2,727,561,714 won; and (d) on the grounds that the Defendant shall revert the corporate tax to the Plaintiff for 20 years 120, 207088.7 years 208

A. The plaintiff's assertion

1) Article 26(4) of the Enforcement Rule of the Corporate Tax Act does not regard the lease of the instant land as “a case where the land used directly for the business of a corporation, such as the land annexed to a factory and building, is leased,” and the instant disposition that dealt with the entire instant land as an asset irrelevant to business for the following reasons, the Plaintiff asserts that the entire disposition of this case should be revoked around

A) The Plaintiff directly produced livestock feed while running the livestock industry, and partially performed agriculture. Of the instant land, the parts used as electricity and answer also constitute the Plaintiff’s business assets. (B) The Plaintiff agreed to enter into a lease agreement on the instant land, under which the Plaintiff would use the instant land for the livestock industry, and the Plaintiff changed the type of business from the livestock industry to the rental business. As such, the instant land is still used as the Plaintiff’s business assets.

C) In relation to the interpretation of Article 26(4) of the Enforcement Rule of the Corporate Tax Act, the Ministry of Strategy and Finance responded to the inquiry that “where a corporation operating a livestock industry discontinues its livestock industry and leases the land used therefor, the land is excluded from the scope of real estate not related to the business pursuant to Article 26(4) of the Enforcement Rule of the Corporate Tax Act if the land was directly used for the livestock industry (see, e.g., Supreme Court Decision 2001Du4460, Apr. 25, 2012).” Even if not, the Defendant interpreted the above statutes differently from the response to the questioning, and issued the instant disposition. 2) Even if not, the portion of the instant land, which was actually used for the stock farm site, was used as the real estate related to the business, and thus, the corresponding property tax and comprehensive real estate holding tax should be included in the corporation’s deductible expenses.

It is as shown in the attached Form.

C. Determination

1) Articles 28(1)4(a) and 27 subparag. 1 of the Corporate Tax Act stipulate that a corporation shall not include the interest paid on loans due to the holding of real estate for non-business use in deductible expenses, and delegate the scope of real estate for non-business use to the Presidential Decree. Accordingly, Article 49 of the Enforcement Decree of the Corporate Tax Act provides for the scope of real estate for non-business use, and delegates matters necessary to determine whether real estate for non-business use is

Article 26 of the Enforcement Rule of the Corporate Tax Act provides for detailed matters necessary for the determination of whether a real estate for non-business use is real estate. The legislative intent of such provision is to prevent the aggravation of the financial structure of an enterprise due to the unreasonable expansion of enterprises depending on other person’s capital, to restrain the investment in real estate and the reckless expansion of non-productive business through financial assets of a large enterprise, thereby inducing the sound economic activities of an enterprise through the production and management of corporate funds, and to promote efficient utilization of land. Whether a real estate owned by a corporation constitutes real estate for non-business use under Article 49(1)1 of the Enforcement Decree of the Corporate Tax Act shall be determined by comprehensively taking into account the legislative intent of the provision on non-taxation of expenses related to real estate for non-business use under Article 28(1)4 (a) and subparagraph 1 of Article 27 of the Corporate Tax Act, the purport of delegation to the Enforcement Rule, and its standard (see, e.g., Supreme Court Decisions 2005Du12527, Feb. 10, 2008).

A) Article 26(4) of the Enforcement Rule of the Corporate Tax Act provides that “Where a parcel of land without a building is leased (excluding the case of leasing a parcel of land directly used for a corporation’s business, such as land annexed to a factory and building), the parcel of land shall be deemed real estate not directly used for the business.” In other words, in the case of leasing a parcel of land without a building, the parcel of land constitutes real estate not directly used for the business, but it is exceptionally used for the business of a corporation only when the parcel of land directly used for the business of a corporation, such as land annexed to a factory and building, is leased. In light of the contents of the provision of the Corporate Tax Act and regulations, the concept of “land directly used for the business of a corporation” under the exceptional provision should be interpreted as limited to “a lease of land used for the business

B) Although the Plaintiff, at the time of leasing the instant land, was able to have a friendship or money on the land, the Plaintiff was only located in a part of the instant land, and the lease of the instant land is close to a lease in the form of a site.

C) Meanwhile, Article 49(1)1 of the Enforcement Decree of the Corporate Tax Act provides that real estate not used directly for a corporation’s business constitutes an asset irrelevant to the corporation’s business, but it excludes real estate for which there are unavoidable reasons prescribed by Ordinance of the Ministry of Strategy and Finance, and Article 26(5)17 of the Enforcement Rule of the Corporate Tax Act provides that “real estate for which five years have not passed from the date of business suspension, closure or transfer as a corporation discontinues, closes, or transfers all or part of its business, which is not directly used for a business, shall not be used for a corporation.” In other words, real estate, which is not used directly for a business due to the corporation’s closure of the whole or part of its business, constitutes an asset irrelevant to the corporation’s business, but is subject to a grace period of excluding real estate for which five years have not passed since

D) The Plaintiff closed down the livestock industry around 2001. The land in this case is real estate that the Plaintiff was not directly used for the business due to the closure of the livestock industry, and it should be viewed as an unrelated asset during the taxable period of this case for which five years have passed since the date of the closure of the business. Although there was a condition that the Plaintiff leased a lot of land in this case to tin, etc. around 2003 and used it for the livestock industry, it is difficult to view that the Plaintiff changed the type of business from the livestock industry to the real estate rental business by leasing the land in this case which was not used for the business after the closure of the livestock industry to a third party.

E) With respect to the interpretation of Article 26(4) of the Enforcement Rule of the Corporate Tax Act, the Ministry of Strategy and Finance responded to the inquiry that “where a corporation operating a livestock industry discontinues its livestock industry and leases the land used therefor, the land is excluded from the scope of real estate not related to its business pursuant to Article 26(4) of the Enforcement Rule of the Corporate Tax Act if the land was directly used for the livestock industry (the foregoing interpretation is merely a mere administrative interpretation of the higher authority, and it cannot have any external binding force, and there is no ground for such interpretation. Therefore, the pertinent question reply cannot be a ground for illegality of the disposition of this case. Accordingly, the Plaintiff’s primary assertion and assertion premised on the premise that the lease of the land in this case constitutes “where the land used directly for the business of a corporation, such as the land annexed to the public road and building, is leased” under Article 26(4) of the Enforcement Rule of the Corporate Tax Act without any further preliminary reasons.

3. Conclusion

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