Supreme Court-2016-Du-59249 ( March 9, 2017)

The gross income of the business year in which the cause not to be spent for proper purpose business occurs may be immediately included.

Notwithstanding the five-year grace period, the amount equivalent to the amount used may be immediately included in the gross income for the business year in which the cause occurs.

Article 29 (Inclusion of Reserve Funds for Reserve Funds in Loss)

2017Nu4117 Revocation of Disposition of Imposing Corporate Tax

AA

Head of Ansan Tax Office

June 27, 2017

July 18, 2017

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The defendant's disposition of imposition (including additional tax) of corporate tax of KRW 494,69,084 (including corporate tax of KRW 530,853,453) for the business year from March 1, 2007 to February 28, 2008 against the plaintiff on March 13, 2013 shall be revoked (the plaintiff sought revocation of corporate tax of KRW 530,853,453,453, which originally belonged to the business year, but the claim was reduced according to the defendant's corporate tax reduction).

1. Quotation of judgment of the first instance;

The court's explanation on this case is identical to the reasoning of the judgment of the court of first instance except for dismissal or addition as follows. Thus, it shall refer to the reasoning of the judgment of the court of first instance pursuant to Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

2. Parts to be removed or added;

○ Article 29(4)4 of the Corporate Tax Act (amended by Act No. 9267 of Dec. 26, 2008; hereinafter the same) provides that “Article 29(3)4 of the former Corporate Tax Act (amended by Act No. 9267 of Dec. 26, 2008)” shall be deemed “Article 29(4)4 of the

○ From 6th to 2th, following the first instance court ruling:

G. Upon reflecting the purport of the decision of the Tax Tribunal, the Defendant reduced the amount of KRW 728,560,80 of the above corporate tax to the Plaintiff on February 10, 2015 to KRW 530,853,450 (= principal tax of KRW 288,538,675 + additional tax of KRW 179,124,809 + KRW 63,189,969). In addition, since the Defendant issued a public notice of the officially assessed individual land price in January 1, 1991, which reflects the adequate standard market price of January 1, 1991, the amount of KRW 5581,560,80 of the above corporate tax was to be reduced to KRW 530,853,678,4686,486,486,4865,286,365,285,200).

○ On No. 4 of the first instance judgment, “No. 8-1, 2, and 11” is added to “No. 10-1, 2, and 11” following the second instance judgment.

○ To delete from the 4th sentence of the first instance court to the 14th sentence “reasonable”.

○ On the fourth decision of the first instance court, the following shall be added to:

2-1) Even if the proceeds from the sale of the instant land can be included in the gross income before five years elapse from the end of the business year in which reserves for proper purpose business are appropriated as deductible expenses, the Plaintiff acquired the claim for the return of a fixed deposit which is not the property for proper purpose business with the proceeds from the disposal of the instant real estate at the time of 2005. Since it was clear in 2005 that the reserves for proper purpose business has already been used for purposes other than the proper purpose business, the reserves

○ Part 5 of the decision of the first instance court, the following is added to the "former Corporate Tax Act" in Part 6 of the decision of the first instance

According to Article 3(1)1 and Article 3(3)5, revenue generated from disposal of fixed assets excluding fixed assets directly used for proper purpose business is income of non-profit domestic corporations for each business year and corporate tax is imposed.

○ In order to dissipate “in order to dissipate” on the 6th judgment of the first instance court No. 4 to 5.

○ Up to two pages 2 through 8 below the first instance court's decision

The Plaintiff’s articles of incorporation provides that the purpose of its establishment is to provide secondary education and vocational education by entering the educational ideology of the Republic of Korea (Article 1); that the property is divided into fundamental property and common property (Article 6(1)); that fundamental property is divided into fundamental property for education and fundamental property for profit-making purposes (Article 6(1)); and that a farm, tree cultivation and sale and lease business and lease business are run as a profit-making business for school operation (Articles 32 and 33). As the Plaintiff’s articles of incorporation is a specialized education for secondary education and unemployment, and a profit-making business is a profit-making business, the purpose of its establishment is not deemed to be a business directly performing the purpose of its establishment; and the rental business after acquiring and operating the apartment of this case constitutes a profit-making business. Since the profit-making from the business conducted by a nonprofit corporation is ultimately appropriated for raising funds for the proper purpose business, it cannot be deemed that it was used for the proper purpose business.

○ From Nos. 8 to 9 of the first instance court ruling is as follows: 5 to 9 of the first instance court ruling

Article 29 (1) of the former Corporate Tax Act provides that where non-profit domestic corporations appropriate reserve funds for proper purpose business as deductible expenses for each fiscal year for the proper purpose business of the corporation, they shall be included in deductible expenses within the limit of a certain limit, and where they are not used for proper purpose business by the date on which five years pass from the end of the fiscal year in which reserve funds for proper purpose business are appropriated as deductible expenses, the balance shall be included in gross income for the fiscal year

The aforementioned provisions aim to ensure smooth performance of public services by allowing non-profit domestic corporations to include the reserve fund for proper purpose business in deductible expenses, instead of allowing non-profit domestic corporations to include the reserve fund for proper purpose business in deductible expenses even before they spend the reserve fund for proper purpose business in deductible expenses, by deferred taxation for the above period under the premise that the reserve fund for proper purpose business should be spent for the above period until the fifth anniversary of the end of the business year in which the reserve fund for proper purpose business was appropriated in deductible expenses. Therefore, if a non-profit domestic corporation has lost the premise that it cannot spend the reserve fund for proper purpose business for five years into other than the proper purpose business during the five-year grace period, it is reasonable to view that the amount equivalent to the reserve fund for proper purpose business can be promptly included in gross income of the business year in which the cause occurred (see Supreme Court Decision 2016Du59249, Mar. 9, 2017).

Comprehensively taking account of the purport of the whole argument in the above evidence, the plaintiff acquired the apartment house of this case at KRW 1,676,901,250 for a rental business around 2007 and started to raise profits from the lease, and the fact that the plaintiff did not spend the apartment house of this case for the purpose of the establishment of the articles of incorporation and for the specialized vocational training business related to secondary education and unemployment with the lapse of the five-year grace period after the plaintiff added the sale price of the land of this case to the proper purpose business reserve fund for its proper purpose business. Examining these facts in light of the above legal principles, as long as the plaintiff purchased the apartment of this case with the sale price of the land of this case and used it for the rental business other than the proper purpose business, it is clear that the sale price of the land of this case cannot be used for the proper purpose business, and thus

○ In Part 9 of the first instance judgment, the following shall be added to the first instance judgment:

2-1) As to the Plaintiff’s assertion as to paragraph 2-1 of the same Article

Deposits, installment savings, etc. are only one of the methods of operating the reserve fund for proper purpose business in cash assets as deposits, installment deposits, etc. In 2005, the Plaintiff also reported that the Plaintiff established the reserve fund for proper purpose business without reporting that the sales price of the instant land was deposited as a term deposit and used for purposes other than the proper purpose business. Therefore, the Plaintiff’s deposit the sales price, etc. of the instant land as a term deposit does not constitute the use for purposes other than the proper purpose business. The Plaintiff’s assertion on this part is without merit.

3. Conclusion

Therefore, the judgment of the first instance court is justifiable, and the plaintiff's appeal is dismissed as it is without merit.