[1] The meaning of the setting aside of wrongful calculation under Article 20 of the former Corporate Tax Act and the standard of determining whether “economic rationality” exists

[2] The case holding that since the representative director of a corporation entered into a sales contract on the land under his/her own ownership with a corporation after obtaining permission for diversion of reserved forest and permission for diversion of farmland for his/her own land, and calculated based on the sales price and the current status of the site created by taking corporate expenses, it constitutes an abnormal act and calculation under Article 20 of the former Corporate Tax Act and Article 46 (2) 4 of the former Enforcement Decree of the Corporate Tax Act

[3] In the case of denial of wrongful calculation due to high-priced purchase, the standard time of determining whether the acquisition of land, etc. constitutes wrongful calculation (=the time of transaction) and the standard time of calculating the amount to be disposed of by including it in gross income (=the time of acquisition)

[1] The rejection of unfair calculation under Article 20 of the former Corporate Tax Act (wholly amended by Act No. 5581 of Dec. 28, 1998) applies only to cases where a corporation’s act of wrongful calculation under Article 20 of the former Corporate Tax Act (wholly amended by Act No. 5581 of Dec. 28, 1998) is deemed to have avoided or reduced tax burden by abusing various forms of transactions listed in each subparagraph of Article 46(2) of the former Enforcement Decree of Corporate Tax Act (wholly amended by Presidential Decree No. 15797 of May 16, 1998), without a reasonable method of a person with a special relationship. In a case where a corporation’s act of wrongful calculation is deemed to have avoided or reduced tax burden by abusing the forms of transactions with the person with a special relationship, the person with a taxation authority denies it and it is deemed that the person with a special relationship had an objective and reasonable income according to the method prescribed by the law. Determination of economic rationality should also be made based on the special circumstances at the time of transactions.

[2] The case holding that since the representative director of a corporation entered into a sales contract on his own land with a corporation after obtaining permission to convert a reserved forest into corporate expenses and permission to divert farmland, and calculated based on the sale price and the current status of a site forming the corporation's expenses, such act constitutes an act in violation of the duty of loyalty to directors under the Commercial Act, and that the sales contract is an abnormal act in violation of the duty of loyalty to directors under the Commercial Act, and thus, it is an abnormal act in lack of economic rationality since it belongs to the representative director up to the increased portion of the land price formed by the corporation's efforts and expenses in excess of the market price, it constitutes an act in violation of the duty of loyalty to directors under the Commercial Act, and thus, it constitutes an act in violation of unfair calculation under Article 20 of the former Corporate Tax Act (wholly amended by Act No. 5581 of Dec. 28

[3] Articles 20 and 32(5) of the former Corporate Tax Act (wholly amended by Act No. 5581, Dec. 28, 1998); Articles 46(2)4 and 94-2(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15797, May 16, 1998); the purport of the system of denying wrongful calculation and calculation; the purpose of the system of denying wrongful calculation under Article 96(2)4 and Article 94-2(1)1 of the former Enforcement Decree of the Corporate Tax Act; where the time of conclusion of a contract and the time of transfer are different from the time of wrongful calculation due to low-price transfer, the issue of whether the transfer of land, etc. constitutes wrongful calculation is determined as of the time of transaction at which the price is determined; on the other hand, since this is different from the reason and criteria to determine transfer margin, it is unreasonable to view that the two is different from the time of wrongful calculation as at the time of acquisition.

[1] Article 20 (see current Article 52) of the former Corporate Tax Act (wholly amended by Act No. 5581 of Dec. 28, 1998), Article 46 (2) (see current Article 88 (1)) of the former Enforcement Decree of the Corporate Tax Act (wholly amended by Presidential Decree No. 15797 of May 16, 1998) / [2] Article 20 (see current Article 52) of the former Corporate Tax Act (wholly amended by Act No. 5581 of Dec. 28, 1998); Article 46 (2) 4 (see current Article 88 (1) 3) of the former Enforcement Decree of the Corporate Tax Act (wholly amended by Presidential Decree No. 15797 of May 16, 1998); Article 46 (2) 1 of the former Enforcement Decree of the Corporate Tax Act (wholly amended by Presidential Decree No. 155797 of May 28, 1998); Article 197 (2)

[1] Supreme Court Decision 95Nu8751 Decided July 26, 1996 (Gong1996Ha, 2711), Supreme Court Decision 2005Du14257 Decided December 13, 2007 (Gong2008Sang, 67), Supreme Court Decision 2009Du12822 Decided January 14, 2010 / [3] Supreme Court Decision 88Nu5273 Decided June 13, 1989 (Gong1989, 1088), Supreme Court Decision 97Nu15821 Decided January 29, 199 (Gong199Sang, 399Sang, 399)

Plaintiff (Law Firm Rate, Attorneys Kang Han-hun et al., Counsel for the plaintiff-appellant)

Head of Chungcheong Tax Office

Daejeon High Court Decision 2004Nu2804 decided June 21, 2007

The judgment of the court below is reversed, and the case is remanded to Daejeon High Court.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

Article 20 of the former Corporate Tax Act (wholly amended by Act No. 5581, Dec. 28, 1998; hereinafter the same) provides that the rejection of unfair calculation by a corporation in a transaction with a specially related person shall be limited to cases where a corporation evades or reduces tax burden by abusing multiple types of transactions listed in each subparagraph of Article 46(2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15797, May 16, 1998; hereinafter the same shall apply) without reasonable means of a person who has a special relationship. In a case where a corporation’s wrongful calculation of unfair acts is deemed to have neglected the economic rationality due to the wrongful calculation of transactions with a person with a special relationship, the taxation authority shall deny such transactions and deemed to have accrued income in an objective and reasonable manner as prescribed by the law. The determination of whether an economic rationality exists shall be made based on the special circumstances of the transaction between the two parties with a special relationship and the Supreme Court at the time of 250.1575

According to the reasoning of the judgment below, the court below concluded a sale contract with the non-party 1 who is the representative director and the non-party 1 who is the major shareholder in the process of securing the site of the research institute. Since the market price of the land of this case was 400,000,000 won per square, and the land price was 1,80,000 won per square, and concluded a sale contract with the non-party 2 who is the land category adjacent to the land of this case was 350,000,000 won per square, after considering the following facts: the plaintiff's act of purchasing the land of this case was 60,000,000 won before and after the conclusion of the sale contract with the non-party 1, which was 60,000,000 won after obtaining approval for use of the land of this case from the non-party 1, 1995, the court below determined that the non-party 1 and the non-party 1, 1995.

In light of the above legal principles and records, the above judgment below is just, and there is no error in the misapprehension of legal principles as to the denial of wrongful calculation as otherwise alleged in the ground of appeal

2. Regarding ground of appeal No. 2

Article 20 of the former Corporate Tax Act and Article 46(2)4 of the former Enforcement Decree of the Corporate Tax Act provide that “When assets are purchased from investors, etc. in excess of the market price, the tax burden shall be deemed to have been unjustly reduced.” Article 32(5) of the former Corporate Tax Act and Article 94-2(1)1 of the former Enforcement Decree of the Corporate Tax Act provide that “If it is obvious that the amount included in the calculation of earnings has been leaked out of the company in determining or revising the corporate tax base, the bonus, dividend, other income, and other outflow from the disposal of profits according to the person to whom such income belongs

Each of the above provisions and the purport of the system of denial of wrongful calculation, and the determination of whether the transfer of land, etc. constitutes wrongful calculation in a case where the time of conclusion of the contract and the time of transfer are different due to low price transfer, shall be based on the time of transaction determining the price. On the other hand, in calculating gains on transfer of the relevant land, the transfer value shall be calculated based on the time of transfer, which differs from the reason and criteria for its choice, and it is not unreasonable for both parties to regard the standard time differently (see Supreme Court Decisions 88Nu5273, Jun. 13, 1989; 97Nu15821, Jan. 29, 199). The distinction between the standard time is reasonable in full view of the following: (a) the tax accounting method in a case of high-priced purchase; and (b) the standard of determining whether the acquisition of land, etc. constitutes wrongful calculation even in a case of wrongful calculation due to an elevated purchase, while it is the time of transaction, and the standard of calculating the amount of income disposal.

Nevertheless, under the premise that in calculating the amount to be disposed of after considering the sales contract of this case as a high-priced purchase and then including it in gross income, the court below determined that the standard time should be the date of conclusion of the sales contract of this case, which is the same as the time when the decision of wrongful calculation was made. On June 5, 1996, the time of acquisition of the land of this case, which is the time of acquisition of land of this case, shall be the date of conclusion of the sales contract of this case, not the market price of 2,294,118,000 won, but the date of conclusion of the sales contract of this case, which is not the market price of 1,930,80,800 won, under the former and latter conditions as of August 25, 1995, the market price of this case was above 1,930,80,631,050 won and the difference between the sales price of this case was legitimate. The judgment below erred in the misapprehension of legal principles as to the time of wrongful calculation rejection.

3. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Shin Young-chul (Presiding Justice)