Whether banks of revenue arising from overseas construction projects are included in the scope of corporate tax exemption income (negative)

The scope of tax-exempt income shall be strictly interpreted in order to ensure fair taxation and securing tax revenues. Therefore, "income generated from overseas construction projects" under Article 4-10 (1) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 1723, Dec. 20, 1965; Act No. 3275, Dec. 15, 1980) refers only to income that accrues directly from the main business activities of overseas construction projects, and the income that is natural legal negligence that accrues from temporarily keeping such income with funds for operating the overseas construction projects does not belong to the scope of income from which the corporate tax is exempted.

Articles 1 and 4-10(1) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 1723 through 3275, Dec. 15, 1980)

Supreme Court Decision 83Nu84 delivered on April 10, 1984; 83Nu70 Delivered on June 12, 1984

Attorney Lee Jae-chul et al., Counsel for defendant

Head of Southern District Tax Office

Seoul High Court Decision 82Gu385 delivered on February 28, 1983

The appeal is dismissed.

The costs of appeal shall be borne by the plaintiff.

The grounds of appeal by the Plaintiff’s attorney are examined (the supplementary grounds of appeal are limited to the extent of supplement, since they are subsequent to the excessive period).

According to Article 4-10(1) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 1723, Dec. 20, 1965; Act No. 3275, Dec. 15, 1980), with respect to income accruing from overseas construction business under the provisions of the Overseas Construction Promotion Act operated by a domestic corporation, the tax amount equivalent to 50/10 of corporate tax on income accruing from the business shall be reduced or exempted in the business year of commencing the business and within 5 years from the starting date of the following business year. According to Article 4-10(4) of the same Act, where a person concurrently runs a business with other businesses, he/she shall separate accounting pursuant to Article 4-8(10) of the same Act, and Article 1 of the same Act provides that the purpose of this Act is to ensure fair taxation and tax exemption by regulating the reduction and exemption of taxes, and the scope of income accruing from the business shall not be construed as 9.281,000,000 won.

According to the reasoning of the judgment below, the court below rejected the plaintiff's claim and supported the defendant's disposition imposing corporate tax on the above interest income on the ground that the amount of KRW 703,866,249, which the plaintiff engaged in overseas construction business under the Overseas Construction Promotion Act received from the Saudi Arabian Government during the business year 1979, deposited or transferred to a local financial institution, and deposited in the resident account of the designated bank in Korea, does not constitute "income arising from overseas construction business" under the above Article. Thus, the court below's decision is just and acceptable, and there is no error in the misapprehension of legal principles as to "income arising from overseas construction business" under Article 4-10 (1) of the former Regulation of Tax Reduction and Exemption Act.

Therefore, the appeal is dismissed, and the costs of the appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating judges.

Justices Kim Young-ju (Presiding Justice)