The method of deduction, in cases where the undeductible loss incurred during the previous business year is deducted from the income of the next business year, although the corporate tax base and amount of tax have been determined in the taxable year;

[1] Article 8 subparagraph 1 of the former Corporate Tax Act (amended by Act No. 4803, Dec. 22, 1994; see current Article 13 subparagraph 1); Article 9 of the former Corporate Tax Act (see current Article 14); Article 9 of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970, Dec. 31, 1998; see current Article 18) (see current Article 18)

[Plaintiff-Appellant-Appellee] Plaintiff 1 and 2 others (Law Firm Gyeong, Attorneys Park Jae-soo et al., Counsel for plaintiff-appellant-appellant-appellee)

Samyang Metal Co., Ltd. (Attorney Lee Im-soo, Counsel for defendant-appellant)

The Director of the District Tax Office of Gangwon-gu (Attorney Choi Woo et al., Counsel for the defendant)

Supreme Court Decision 2001Du2652 Delivered on November 26, 2002

Seoul High Court Decision 2002Nu20505 delivered on October 17, 2003

The part of the lower judgment against the Plaintiff is reversed, and that part of the case is remanded to the Seoul High Court. The Defendant’s appeal is dismissed.

1. The defendant's grounds of appeal are examined.

The court below held that even if a tax official's calculation of the income and deductible expenses for each business year of a corporation and determination of the tax base is not an administrative disposition which is the object of an appeal litigation, if there is an error in the determination, it can be asserted in the procedure of disputing the validity of the taxation disposition, and that the total amount of deductible expenses which belong or will belong to a certain business year is all losses under the Corporate Tax Act, and that the total amount of deductible expenses which would belong to the business year is in excess of the total amount of gross income which would belong to the business year is all losses under the Corporate Tax Act, and that the amount which was investigated as losses at the time of the final return of tax base, etc. of a corporation or the tax base, etc. according to the government's investigation and determination is not an amount of losses, and that the tax base and tax amount can no longer be disputed even if the assessment disposition of corporate tax for each business year based on the premise becomes final and conclusive after the determination of the tax base and the validity of the disposition of corporate tax for the following business year, which is separate from the final and conclusive tax disposition.

2. The plaintiff's grounds of appeal are examined.

After finding the facts as stated in its reasoning based on its adopted evidence, the court below determined that, even if the plaintiff's tax base and amount of corporate tax for the following business year are confirmed, if the amount equivalent to the deductible expenses related to the real estate of this case after the 1988 year in which the initial inclusion in deductible expenses was denied is re-calculated the corporate tax for the business year 1996 and 1997 on the premise that the legitimate carried forward losses were successively deducted, the tax base should be nonexistent in the case of the business year 1996 and the remaining tax base and amount of the carried forward should be reduced even in the case of 1997, and thus, the tax base and amount of the carried forward of this case for the business year 196 and 1997 are unlawful, the court below determined that the plaintiff's taxation disposition of this case for the following business year cannot be re-scheduled on the premise that the previous tax base and amount of tax can no longer be asserted within the scope of 1997 years after the erroneous imposition disposition becomes final and conclusive, and that the tax base and amount of this case cannot be asserted within 1997 years.

However, as to the purport of the judgment of remand, if the total amount of losses for a business year exceeds the total amount of losses as a matter of course at the time of the final return of tax base of a corporation or the determination of tax base by the Government, the amount of losses under the Corporate Tax Act must be deemed to be losses as a matter of course if the total amount of losses for a business year exceeds the total amount of losses, and the losses carried forward should be deducted in order from the first occurrence of losses within five years, which is the statutory deduction period, within the five years, and it is reasonable to calculate the amount of losses carried forward in each business year because it is likely to distort the tax base and tax amount due to the taxpayer's choice if the losses are left at the taxpayer's option. Thus, even if the plaintiff's tax base and tax amount for the business year were determined for the previous business year, the losses to be deducted in the previous business year should be calculated on the premise

Therefore, on the basis of the facts established by the court below, if the amount of losses carried forward of the plaintiff for each business year which can be deducted within the scope of five years under the above method, is calculated for the business year 193, 198

If the cumulative balance of the loss carried forward from 1992 to 24,725,98,023 won is the amount of income of the year 15,262,737,394 won, the amount of the loss carried forward that may be deducted in the year 1994 is 9,463,260,629 won for the loss carried forward that may be deducted in the year 194. Here, if the amount of income of the year 1994 is deducted in the amount of 309,154,778 won for the loss carried forward that could be deducted in the year 1995, the amount of income of the year 1996 is 9,154,105,105,70,502 won again, the amount of income of the year 1996 is calculated as 1,464,235,276 won, the amount of income of the year 196,897,175 won will be calculated as 197.

Nevertheless, the court below held that only 6,960,53,812 won actually recognized by the defendant was determined as losses carried forward in the year 1995 without considering all the amount of losses that could have been deducted by the plaintiff remaining in the year 1995, and thus, the difference of 2,960,531,966 won (it consists of 1,755,452,460 won in the year 1990 and 1,205,079,50 won in the year 1991 as losses and 1,205,079,50 won in the year 1996 and the remaining losses were not deducted after the lapse of five years in the year 196, and that there was no tax base calculated in the year 1996 by taking into account only the remaining losses in the year 199, the court below erred in the misapprehension of legal principles as to the amount of losses carried forward by the plaintiff in the year 1997,1997.

3. Conclusion

Therefore, the part of the judgment of the court below against the plaintiff is reversed, and that part of the case is remanded to the court below, and the defendant's appeal is dismissed. It is so decided as per Disposition by the assent

Justices Byun Jae-chul (Presiding Justice)