[1] In order to deny the validity of a taxpayer’s transaction as an act of tax avoidance despite the form of such transaction, whether there must be individual and specific rules of denial (affirmative)

[2] The case affirming the judgment below which held that, in case where Gap bank traded in the United Nations currency currency currency currency deposit contract with its customers, it does not fall under the object of interest income tax under Article 16 (1) 3 of the former Income Tax Act on the ground that the transfer of bonds or securities with repurchase agreement does not constitute the object of taxation under Article 16 (1) 9 of the former Income Tax Act, and Article 16 (1) 9 of the former Income Tax Act on the ground that since the transfer of bonds or securities with repurchase agreement and the United Nations regular deposit and gift repurchase agreement are valid as separate legal acts different from each other, the contents and scope of taxation are determined individually in accordance with their legal relations, and it cannot be seen as a single transaction in the Korean won currency deposit contract that is systematically combined with the principle of substantial taxation, since the transfer profit of the customer through the transfer of securities cannot be deemed as the interest on the deposit under Article 16 (1) 3 of the former Income Tax Act or other similar income, it is difficult to view that it provides opportunities for redemption from the time of redemption to the contract to fulfill the redemption condition.

[1] Article 16 (1) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006); Article 24 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18705 of Feb. 19, 2005) / [2] Article 16 (1) 3 and 9 (see current Article 16 (1) 8) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006) (see current Article 16 (1) 12 of the current Act), Article 24 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18705 of Feb. 19, 2005)

[1] Supreme Court Decision 90Nu3027 decided May 14, 1991 (Gong1991Ha, 1666), Supreme Court Decision 98Du14082 decided Nov. 9, 199 (Gong1999Ha, 2531), Supreme Court Decision 2007Du26629 decided Apr. 9, 2009 (Gong2009Sang, 672)

Korea Cmat Bank (Attorneys Son Ji-yol et al., Counsel for the plaintiff-appellant)

The director of the Nam-gu Tax Office (Law Firm Corporation, Attorneys Go Young-gu et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2009Nu5840 decided January 26, 2010

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

Inasmuch as taxpayers may choose one of the several legal relations to achieve the same economic purpose while engaging in economic activities, it shall be deemed valid unless there are special circumstances to deem the transactional act to be an act to circumvent the excessive burden of tax, barring any special circumstance. In order to deny the validity of the transactional act of taxpayers as an act of tax evasion according to the principle of substantial taxation notwithstanding its form, individual and specific denial provisions are required under the principle of no taxation without law (see, e.g., Supreme Court Decisions 90Nu3027, May 14, 1991; 2007Du2629, Apr. 9, 2009).

Meanwhile, Article 16(1) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006; hereinafter the same) provides that “interest income shall be the following income accrued during the pertinent year.” Article 3 provides that “interest and discount amount of a deposit received in the Republic of Korea” under subparagraph 9, “the profit margin on repurchase of bonds or securities as prescribed by the Presidential Decree” under subparagraph 13, and “income margin on repurchase of bonds or securities as similar to those under subparagraphs 1 through 12” under subparagraph 13 of Article 24 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18705 of Feb. 19, 2005; hereinafter the same) refers to “the profit margin on repurchase of bonds or securities as prescribed by the Presidential Decree” under Article 16(1)9 of the Act refers to the profit margin on repurchase or repurchase on condition that the financial institution trades them on the condition of repurchase or repurchase agreement.”

According to the reasoning of the judgment below, the court below acknowledged the difference between 100 and 300 UN currency exchange rate of 60,000, 660, 60,000 won on the basis that the Plaintiff’s securities exchange rate of 60,000 won was 10,000 won and 30,000 won, 60,000 won, 60,000 won, 60,000 won, 60,000 won, 67,000 won, 60,000 won, 60,000 won, 60,000 won, 60,000 won, 60,000 won, 60,000 won, 60,000 won, 60,000 won, 6376,530,000 won, 60,000 won, and 636,005,06,00 won.

In light of the above facts, the lower court determined that: (a) since the Universal Repurchase Agreement, which constitutes the UNFCCC futures exchange transaction, was effective as separate legal acts different from the Universal Periodical Deposit Agreement and the UNFCCC Futures Redemption Agreement; (b) it is difficult to view that the substance and scope of taxation are individually determined in line with their legal relations; or (c) it constitutes a single Korean currency deposit transaction that is systematically combined based on the principle of substantial taxation; and (d) it is difficult to view that the customer’s gift exchange profits through the UNFCCC Exchange Transaction as one type of capital gains (hereinafter “the gift exchange profits in this case”; (b) it is only a kind of foreign currency trading interest income, not a deposit interest under Article 16(1)3 of the former Income Tax Act or other similar income; and (c) it is difficult to view that the profit margin from redemption or repurchase of securities cannot be deemed as a type of bonds or repurchase agreement under Article 16(1)9 of the former Income Tax Act’s Article 16(1)9 of the former Income Tax Act or similar income, and thus, it cannot be deemed as an interest income subject to taxation under Article 16(1) of the former Income Tax Act.

In light of the above legal principles, relevant regulations and records, the above judgment of the court below is just and acceptable, and there is no error in the misapprehension of legal principles as to the scope of application under Article 16 (1) 13 of the former Income Tax Act, as otherwise alleged in the ground of appeal.

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

Justices Kim Nung-hwan (Presiding Justice)