Cho High Court Decision 2009J0319 (No. 28, 2010)

Any disposition that is imposed on a real estate or non-business land not directly related to the business of a corporation is legitimate.

The corporate tax imposed on real estate which is not directly related to the business because it is impossible to acquire a national equity, and the land prescribed in the corporate tax-related regulations is prohibited or restricted by the Acts and subordinate statutes, or it is difficult to view it as a justifiable ground equivalent to the same degree as the alteration of urban planning.

2010Guhap176888 Revocation of Disposition of Imposing corporate tax, etc.

XX Stock Company

○ Head of tax office

August 24, 2011

October 12, 2011

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of KRW 179,291,880 of corporate tax for the business year 2006 against the Plaintiff on December 1, 2008 and the imposition of KRW 4,930,356,830 of corporate tax for the business year 2007 and the imposition of KRW 891,214,690 of corporate tax for the business year 2007 is revoked.

1. Details of the disposition;

A. On April 13, 2006, the Plaintiff acquired 33,272.5 shares in the 70.6/70,037,000 of the member-gu, Ansan-si, 000-0 large 70,073.6 square meters (hereinafter “instant land”) from 25,468,436,000 won, and transferred the shares in the 39,000,000 won to the O Co.,, Ltd. (hereinafter “O deposit”) on October 29, 2007.

B. On December 1, 2008, the Defendant deemed the remainder 24,425.5 square meters, excluding the 8,847 square meters used by the Plaintiff for its business, as real estate not directly related to its business, and deemed the interest paid to the Plaintiff 4,729,00,000 square meters, and deemed the instant land as land for non-business use, and notified the Plaintiff of the amount of corporate tax of KRW 179,291,80 for the business year 2006 and the corporate tax of KRW 4,930,356,830 for the business year 207 (hereinafter “the instant disposition”), and the corporate tax of KRW 4,034,142,140 for the business year 207 imposed by the Defendant as corporate tax of KRW 891,60 for non-business use or corporate tax of KRW 4,729,00 for non-business use or corporate tax of KRW 4,754,51,750

C. The Plaintiff appealed and filed an appeal with the Tax Tribunal on January 21, 2009, but the Tax Tribunal dismissed the appeal on September 29, 2010.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2-1, 2-2, Gap evidence 4, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff purchased shares in the instant land in order to conduct an urban planning facility development project (cargo facility: Cargo Terminal), and the Mayor of Ansan City imposed the condition that the Plaintiff notify the Plaintiff of the designation of the project implementer of the urban planning facility. The Korea Asset Management Corporation returned the Plaintiff’s application for purchase of the State-owned land after obtaining the approval of the project implementation plan to purchase the State-owned land, and the building permission, etc. is restricted due to conflicting opinions between both administrative agencies, and thus, it cannot implement the project in this form. Therefore, since the instant land was not used as a business dance due to justifiable grounds, the instant land is not considered as real estate or non-business land which is not directly related to the business, and the instant disposition that the Defendant imposed corporate tax by deeming the instant land as a real estate and non-business land which is not directly related to the

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

(1) The instant land is a land located within an urban planning zone under the urban management plan. September 11, 1985

The cargo terminal site was designated in the distribution business facility area.

(2) On April 13, 2006, the time when the Plaintiff acquired the instant land shares, 34,168.6/70 of the shares other than the Plaintiff’s shares acquired, among the instant land, was owned by the State (the Management Agency), the Korea Asset Management Corporation (the Korea Asset Management Corporation), 1,818.2/70,073.6/70 of the shares, and 814.3/6 of the △△ General Distribution Co., Ltd. and 70,073.

(3) On May 9, 2005, KimB, the former owner of the Plaintiff’s share, was designated as the implementer of the cargo terminal development project on the instant land from the Ansan market. The Ansan market imposed a condition that the State-owned share of the instant land be purchased within one year from the date of designation as the project implementer even at the time of the said designation.

(4) On October 2006, the Plaintiff purchased the instant land shares, and received a letter of intent to participate in the construction from △△ Public Co., Ltd. and received a letter of intent to participate in the PF from △ Investment Securities Co., Ltd., and received a written consent from MaA to sell the instant land shares to the cargo terminal operator.

(5) On November 2006, the Plaintiff applied for the designation of the Plaintiff as the implementer of the cargo terminal development project on the instant land by taking the public corporation of Ansan City and the PF Finance Agency as the △△ Office, the design and supervision of the PF Finance Agency as the △△ Office.

(6) On December 21, 2006, the Ansan City was designated and publicly announced as the project implementer of the Urban Planning Facilities (Distribution Facilities: Cargo Terminal) on the land of this case, and the Plaintiff should purchase State-owned shares out of the land of this case within six months from the date of designation of the implementer of the Distribution Business (cargo Terminal) development project (hereinafter “instant project”). If the State-owned shares are not purchased in whole, the designation of the project implementer shall be revoked immediately, and if the State-owned shares are not purchased in part, the project implementer shall submit an application for authorization of the implementation plan within six months from the date of designation of the project implementer, except in extenuating circumstances.

(7) On December 27, 2006, the Plaintiff filed an application with the Korea Asset Management Corporation for the purchase of State-owned shares among the instant land, but the Korea Asset Management Corporation sent a reply to the Plaintiff on April 10, 2007 to request the purchase of State-owned shares after obtaining authorization of the instant project implementation plan under the National Land Planning and Utilization Act.

(8) On April 12, 2007, the Plaintiff entered into a sales contract to purchase the part of the instant land in amount to KRW 1.9 billion and paid the down payment amount of KRW 280,000,000 to the LA.

(9) On June 8, 2007, the Plaintiff requested on June 2007, the date of application for authorization of the implementation plan and the date of application for authorization of the implementation plan to extend the purchase period of the state-owned share among the instant land, and to change the conditions so that the Plaintiff may apply for authorization of the implementation plan on the condition that

(10) However, the Ansan City announced on June 26, 2007 the public notice of the designation of the project implementer under Article 2007-57 of the public notice of Ansan City's notification, and the date of application for the authorization of the implementation plan is within six months from the date of designation of the project implementer within six months from the date of designation of the project implementer, and the period for the purchase (sale consent) of state-owned shares was changed within the period of December 31, 2007 from the date of designation of the project implementer, but the condition was maintained to submit an application for the authorization of the implementation plan after purchasing state-owned shares among the

(11) Meanwhile, the Ansan City was designated and publicly announced as the implementer of the cargo terminal development project on the instant land by Ansan City Notification No. 2008-50, Jun. 18, 2008, after the Plaintiff transferred the instant land’s share, and did not impose a condition to require the Plaintiff to file an application for authorization of the implementation plan after purchasing the State’s share on the instant land.

[Ground of Recognition] A’s without dispute, Gap’s evidence 2-1, 2, Gap’s evidence 4, 5, 6, Gap’s evidence 7-1 through 7, Gap’s evidence 8-1, 2, Gap’s evidence 9, 12, Gap’s evidence 13-1, 2, Gap’s evidence 14-1, 2, and 17, the fact-finding results for the Ansan market, and the purport of the whole pleadings

D. Determination

According to Articles 27 subparag. 1 and 28(1)4(a) of the Corporate Tax Act (amended by Act No. 8852, Feb. 29, 2008; hereinafter the same) and Article 49(1)1 of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20720, Feb. 29, 2008; hereinafter the same), Article 26(2) and (5) of the Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 10, Mar. 31, 2008; hereinafter the same), the interest on the loan paid by a corporation to acquire or hold real estate that is not used directly for business or transferred without being used directly for business of the corporation during a certain grace period shall not be included in deductible expenses. However, real estate not used directly for business due to justifiable reasons, such as the alteration of urban planning, after the acquisition of the relevant real estate, shall be excluded from real estate.

In addition, according to Article 55-2 (1) 3 and (2) 7 of the Corporate Tax Act, Article 92-11 (1) of the Enforcement Decree of the Corporate Tax Act, and Article 46-2 (1) of the Enforcement Rule of the Corporate Tax Act, in case where non-business land is transferred which has considerable reasons to recognize that it is not directly related to the corporation's business, the tax amount calculated by multiplying the income from the transfer of the land by 30/100 (40/100 for the income from the transfer of unregistered land, etc.) shall be imposed. However, after the acquisition of the land, the land falling under any inevitable reason as prescribed by the Ordinance of the Ministry of Finance and Economy is not deemed non-business land, in consideration of the legal restrictions on the use of the land prohibited or restricted pursuant to the Acts and subordinate statutes, other public interest or inevitable reasons, the present

Ultimately, in full view of the above provisions, in a case where the use of land is prohibited or restricted by the laws and regulations or it is inevitably impossible to use land due to justifiable reasons equivalent to the change of urban planning, it shall not be deemed real estate and non-business land which is not directly related to the business of the corporation. The justifiable reasons in determining whether it is real estate and non-business land which is not directly related to the business of the corporation mean internal reasons that the corporation cannot continue its business because it is not only the external reasons that it is impossible for it to do so but also the internal reasons that it is impossible to stop its business due to its normal efforts and implementation. Thus, the existence of such justifiable reasons should be determined individually according to specific matters, taking into account the legal and de facto disability and degree of disability, whether the corporation has made efforts to continue its business, whether the corporation has made a serious effort to run its business, and whether there is a reason attributable to the administrative

In light of the above facts, if the Plaintiff were to be unable to use the land of this case for a legitimate reason, the Ansan market imposed conditions to submit an application for authorization of an implementation plan after purchasing State-owned shares among the land of this case. The Korea Asset Management Corporation, after the approval of the implementation plan, designated the Plaintiff as the project implementer on the condition that the Plaintiff would purchase State-owned shares among the land of this case, although the Plaintiff was aware that the purchase price for State-owned shares was lower, it would not facilitate the implementation of the project. Thus, the Plaintiff could sufficiently expect that the Plaintiff would purchase State-owned shares of this case within the time limit set by the project implementer before acquiring the land of this case. According to Article 28-5 of the Goods Distribution Promotion Act and Article 28-5 of the Local Finance Act, since the State-owned or local government-owned properties within the cargo terminal construction site can be sold to the Plaintiff under a free contract, notwithstanding the provisions of the State Property Act or the Local Finance Act, it is difficult to view that the Plaintiff could not have made any effort to sell the land of this case to the Korea Asset Management Corporation within 70.

Therefore, the disposition of this case that the defendant imposed corporate tax on the plaintiff by deeming the land of this case as real estate and non-business land not directly related to the corporation's business.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.