Cho Jae-2016-China-028 (Law No. 29, 2016.09)

The propriety of the non-deductible disposition, etc. in deeming the leased factory falls under real estate not related to business.

In the case of real estate not used directly for the business of a corporation under Articles 27 and 28 of the Corporate Tax Act, there is no fact that the real estate rental business was registered as the purpose of business during the taxable business year when the plaintiff was taxed, such as the interest paid and maintenance expenses related to the real estate

Article 27 of the Corporate Tax Act

Incheon District Court 2016Guhap54958 Revocation of Disposition of Imposing Corporate Tax

UOOO Co., Ltd.

OO Head of the tax office

2017.08.25

2, 2017.22

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

Of the disposition imposing corporate tax against the Plaintiff on October 28, 2015, the Defendant revoked each part of KRW 108,751,740 for the business year 201, KRW 102,887,730 for the business year 2012, KRW 83,395,890 for the business year 2013, and KRW 75,695,150 for the business year 2014.

1. Details of the disposition;

A. On January 1, 1998, the Plaintiff was a corporation established with "OO as the head office of Man-si, Nam-gu, the main office of which is "OO". The Plaintiff was a corporation that was established with "OOO's sales business", "OOO's product manufacturing and sales business", "OOO's product processing business", " Steel trade business", "SO.S. retail business" and "the business incidental thereto" as its main business.

B. On March 4, 2005, the Plaintiff entered into a contract for the occupancy of the land for the 33,057 square meters in Song-do, Song-dong, Song-dong (hereinafter “instant land”) with the Korea OOOO corporation. On the same day, the Plaintiff purchased the instant land from OOOOOO to 3,669,89,000 won. Accordingly, on October 6, 2005, the Plaintiff completed the registration of ownership transfer on the instant land.

C. On March 5, 2008, the Plaintiff obtained a building permit for the instant land-based factory building, and commenced May 31, 2008. On March 13, 2009, the Plaintiff completed the construction of the instant OO factory on the ground of the instant land and obtained approval for the use of the instant land and the instant OO factory. On April 8, 2009, the Plaintiff completed the registration of ownership preservation for the instant OO factory on the instant OO factory.

D. On June 18, 2010, the Plaintiff registered the instant O-factory and its site (which appears to be part of the instant land) to PO-ethyl Co., Ltd. (hereinafter “O-ethyl”).

The rent was set at KRW 400,000, KRW 40,000 per month, and KRW 40,000 per month, and Shipethyl used the instant O-factory and its site around that time.

E. From August 17, 2015 to October 9, 2015, the commissioner of the regional tax office has conducted a corporate tax integration investigation with the Plaintiff from around August 17, 2015, and has deemed the entire real estate as "real estate for non-business use" and has no relation to the interest paid, depreciation costs, maintenance expenses, etc. In addition, the director of the regional tax office notified the Plaintiff of a resolution of corporate tax revision that "the recognized interest shall be deemed as non-deductible income and related interest paid to the Plaintiff as non-business income and should be included in deductible expenses," and accordingly, on October 28, 2015, the Defendant notified the Plaintiff of a resolution of correction of corporate tax with the content that "the designated interest shall be deemed as non-business income and related interest paid to the Plaintiff," and accordingly, the Defendant issued the previous disposition imposing 168,279,857 won for the business year 168,154,264 won for the business year 15,2012, 134,294.

F. On January 12, 2016, the Plaintiff dissatisfied with the previous disposition, filed an appeal with the Tax Tribunal on January 12, 2016. On September 29, 2016, the Tax Tribunal partially accepted the Plaintiff’s appeal on September 29, 2016 (the foregoing part ②) and added the interest paid in relation to the delay or recovery of credit account account receivable as to OOO volume Co., Ltd. in deductible expenses, the tax base and tax amount were corrected, and the remainder of

G. On October 19, 2016, the Defendant partially reduced the corporate tax imposed on the Plaintiff from the previous disposition of this case on the basis of the aforementioned decision made by the Tax Tribunal on October 19, 2016 to KRW 168,279,857 for each business year of 201, KRW 148,203,117 for the business year of 2012, KRW 136,970,308 for the business year of 2013, KRW 124,35,621 for the business year of 2014, and KRW 124,35,621 for each of the previous dispositions of this case (hereinafter “the previous disposition of this case”).

[Reasons for Recognition] Facts without dispute, Gap evidence 1 to 7, each entry in Eul evidence 1 to 3 (including additional numbers), and the purport of the whole pleadings

2. The plaintiff's assertion

A. For the reasons indicated in paragraphs (1) through (4), at least the instant O factory and the site directly provided for the use thereof (the site area directly provided by the Plaintiff: 16,500 square meters) among the instant real estate shall be deemed real estate for the Plaintiff’s business purpose.

(1) First argument

The Plaintiff, after obtaining approval for the use of the instant OO factory on March 13, 2009, installed and operated machinery, etc. in the instant OO factory from June 2010 and operated it directly, used the entire real estate in the Plaintiff’s corporate register as a business of manufacturing ice products, etc., which is an object business on the Plaintiff’s corporate register. On June 18, 2010, the Plaintiff leased the instant OO factory and its site to POE and its site were leased to POE. Therefore, the Plaintiff’s lease of the instant OO factory and its site constitutes the Plaintiff’s business incidental to “Sluice Products Manufacturing Business”, which is the Plaintiff’s objective business, and the instant O factory and its site constitutes real estate for the Plaintiff’s business.

(2) Second argument

Even if it cannot be deemed that the lease of the instant OO factory and its site to prior Oethyl actually constitutes the Plaintiff’s business, the Plaintiff started on May 31, 2008 after obtaining a building permit on the instant land’s ground factory building on March 5, 2008, and commenced on May 31, 2008, which constitutes “the case where the construction was commenced for the purpose of using the land for business by acquiring it” under the main text of Article 26(3)1 of the Enforcement Rule of the Corporate Tax Act, and in this case, the relevant real estate shall be deemed to have been directly used for the business. Thus, the instant O factory and its site constitute real estate for the Plaintiff’

(3) Third argument

In addition, on May 26, 2008, the Plaintiff filed for registration as a corporate entrepreneur in the name of 'OOOOethyl Factory', the location of the pertinent land as its place of business, and thus, it does not have been acquired for the purpose of leasing the instant land from the beginning. From then to June 2010, the Plaintiff directly used the instant real estate as a whole and operated the instant OO factory and operated the machinery, etc. in the instant OO factory, and leased the instant OO factory and its site to IMO, which is an enterprise conducting the same business on June 18, 2010, and it constitutes "a case of leasing the land directly used for the business of a corporation, such as land annexed to a factory, building, etc." under the main sentence of Article 26 (4) of the Enforcement Rule of the Corporate Tax Act, and even in such a case, the relevant real estate should be deemed directly used for business.

(4) The fourth argument

Meanwhile, from around 2009 to 2014, the Plaintiff Article 106 of the former Local Tax Act (amended by Act No. 13636, Dec. 29, 2015; hereinafter “former Local Tax Act”).

Paragraph (1) 3 (a) of this Article and Paragraph (1) 1 of Article 102 of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 27710, Dec. 30, 2016; hereinafter referred to as the "former Enforcement Decree of the Local Tax Act") have been imposed and paid each local tax was imposed on the premise that the land in this case is "factory subject to separate taxation as prescribed by Presidential Decree". If the plaintiff's real estate for non-business use is the plaintiff's real estate, the land in this case cannot be "factory subject to separate taxation" as "factory subject to separate taxation," and should be subject to general aggregate taxation. Thus, the plaintiff was subject to imposition of each local tax, and it was only trusted that the land in this case was recognized as "factory" by the local tax authority, and therefore, deeming the land

B. Ultimately, among the instant real estate, the amount of tax determined by the instant OO factory and its site as non-business real estate under the report [the Table] related to interest payment, property tax and depreciation costs as non-business real estate, i.e., the amount of corporate tax imposed on the Plaintiff for the business year 2011, 102,887,730 won, 201, 102,887,730 won, 2012, 83,395, 890 won, 2013, 75,695,150 won for the business year 2013, should be revoked.

3. Relevant legal principles

A. Relevant statutes

Attached 2 is as shown in the "relevant Acts and subordinate statutes".

B. Relevant legal principles

(1) Under the principle of no taxation without law, the interpretation of tax laws shall be interpreted in accordance with the text of the law, barring any special circumstance, and shall not be extensively interpreted or analogically interpreted without reasonable grounds, and in particular, the strict interpretation of the provisions that may clearly be viewed as a preferential provision among the requirements for tax reduction and exemption accords with the principle of fair taxation (see, e.g., Supreme Court Decision 97Nu20090, Mar. 27, 1998). Meanwhile, in a case where it is necessary to clarify the meaning through mutual interpretation between laws and regulations, it is inevitable to make a combined interpretation in view of the legislative intent and purpose, etc. to the extent that it does not undermine the legal stability and predictability pursued by the principle of no taxation without law (see, e.g., Supreme Court Decision 2007Du4438, Feb. 15,

(2) Article 27 subparag. 1 of the former Corporate Tax Act and Article 27 subparag. 1 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter referred to as the “former Corporate Tax Act”) stipulate that a corporation shall not include expenses incurred by acquiring, managing, and managing assets for non-business use (hereinafter referred to as “property 1”) and delegate the scope of assets for non-business use to the Presidential Decree. Article 49(1)1 and 49(2) of the Enforcement Decree of the Corporate Tax Act so delegated provides that the scope of assets for non-business use among assets for non-business use shall be determined by the Ordinance of the Ministry of Strategy and Finance, and Article 26 of the Enforcement Rule of the Corporate Tax Act provides more specifically for the scope of real estate for non-business use. The legislative intent of each provision is to prevent the deterioration of corporate financial structure due to an unreasonable expansion dependent on other person’s capital and to encourage the sound use of real estate for non-business use (Article 207 subparag. 26).

1) Article 27 Subparag. 1 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010) provides that “property deemed as having no direct connection with the business of the pertinent corporation” but there is no difference in its content.

4. Determination

A. Determination as to the first argument

(1) According to Article 26 (2) of the Enforcement Rule of the Corporate Tax Act, which provides for "real estate that is not used directly for the business of a corporation" that is excluded from deductible expenses pursuant to delegation of the Corporate Tax Act, Article 27 (1) of the former Corporate Tax Act, and Article 49 (1) 1 of the Enforcement Decree of the Corporate Tax Act, "business of a corporation" is limited to "1. In the case of a business prescribed by the law, "business of a corporation" or "business prescribed by the law," "business prescribed by the law," and "2. In the case of a business requiring authorization, permission, etc.

(2) As from June 18, 2010, the Plaintiff’s lease of the instant O-factory and its site to POethyl constitutes “lease business” and this constitutes not only a separate business, but also a business incidental thereto, because it does not have any essential or direct or essential relationship between its own business and its own business, as it does not constitute a business incidental thereto (i.e., the Plaintiff’s registration completion of registration for modification adding “real estate rental business” to the Plaintiff’s corporate registry as an object of business on September 21, 2015), and the instant O-factory and its site leased to POethyl cannot be deemed a real estate directly used for the Plaintiff’s business until the Plaintiff’s “real estate rental business” was added to the purpose of business under the Plaintiff’s corporate registry. Therefore, the Plaintiff’s assertion is without merit.

B. Judgment on the second argument

(1) On March 4, 2005, the Plaintiff entered into a contract for occupancy of the instant land with the Korea OOOO and purchased the instant land on the same day. On March 5, 2008, the fact that the construction was commenced on May 31, 2008 after obtaining a construction permit on the instant land’s ground factory building.

(2) Article 26(3) of the Enforcement Rule of the Corporate Tax Act and Article 27(1) of the former Corporate Tax Act

Article 49(1)1 and (2) of the Enforcement Decree of the Corporate Tax Act provides that the scope of assets for non-business use shall be deemed directly used for the business of applying Article 49(1)1 of the Enforcement Decree of the Corporate Tax Act, which provides that the scope of assets for non-business use shall be the scope of assets for the business of the corporation. In accordance with Article 26(3) of the Enforcement Decree of the Corporate Tax Act, in order to be recognized as real estate used directly for the business of the corporation, not for non-business use, it shall be deemed that the land has been acquired and started for construction for the business purpose (Article 26(3)1) of the Corporate Tax Act (where the commencement date is unclear, it shall be based on the date of submission of the commencement report) or the real estate for sale under Article 26(1)2 of the Enforcement Rule of the Corporate Tax Act is transferred within the grace period of the Corporate Tax Act (Article 26(3)2).

(3) The main sentence of Article 26 (3) 1 of the Enforcement Rule of the Corporate Tax Act provides that "Where the construction of real estate is commenced for the purpose of its business after the acquisition of the land, it shall be deemed that the real estate is actually used for the business." Even if the construction commenced for the purpose of the business, it shall not be objectively used for the business until the actual completion of the construction and directly used for the business, so it shall be deemed that such case is directly used for the business, so it shall be strictly interpreted. Thus, the main sentence of Article 26 (3) 1 of the Enforcement Rule of the Corporate Tax Act provides that "where the construction of the real estate is commenced for the purpose of its business, it shall be deemed that the building is actually used for the construction of the real estate for the purpose of its business, and it shall be deemed that "the construction of the real estate is commenced for the purpose of its construction" and it shall be deemed that "the construction of the real estate is completed for the purpose of its construction without any justifiable reason". It shall be deemed that "the construction of the real estate is not used for the construction."

(4) Ultimately, Article 26(3)1 of the Enforcement Rule of the Corporate Tax Act does not apply to the instant disposition, which is a disposition imposing corporate tax for the business year after the instant OO factory was completed. Thus, the Plaintiff’s second assertion that differs from this premise is without merit.

C. Judgment on the third argument

(1) On March 4, 2005, the Plaintiff purchased the instant land on the same day after concluding a contract for occupancy of the instant land with the Korea OOOOO corporation. On March 5, 2008, after obtaining a construction permit for the instant land-based factory building on May 31, 2008, as seen earlier, the Plaintiff was registered as a corporate business entity on May 26, 2008 under the name of the Plaintiff, “OOOOOOABABABABPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP,” and thereafter, the Plaintiff purchased the instant land under the name of the instant OOO factory on March 13, 2009 and obtained approval for use on March 5, 2009, and it can be viewed that the Plaintiff directly purchased the instant land in the instant case’s 20 OO or 20 OOMPPPPPP, and the Plaintiff established it on March 20, 200.

(2) However, as seen earlier, the interpretation of tax laws and regulations cannot be extensively or analogically interpreted without any justifiable reason under the principle of no taxation without the law. However, in a case where it is necessary to clarify the meaning through mutual interpretation between the laws and regulations, it is inevitable to make a combined interpretation to the extent that it does not undermine the legal stability and predictability oriented by the principle of no taxation without the law.

With respect to this case, in applying Article 26(4) of the Enforcement Rule of the Corporate Tax Act, where land without a building is leased (excluding the case of leasing land directly used for the business of a corporation, such as land annexed to a factory and building), the relevant land shall be deemed real estate not directly used for the business, and where the relevant provision itself leases land directly used for the business of a corporation, such as land annexed to a building, etc., it shall be deemed that it is directly used for the business, even if it is a land without a building.

Meanwhile, Article 27 subparagraph 1 of the Corporate Tax Act, Article 49 (1) 1 (a) (b) of the Enforcement Decree of the Corporate Tax Act provides that expenses for real estate not directly used for the business of a corporation shall not be included in the calculation of losses. Article 26 (2) of the Enforcement Decree of the Corporate Tax Act provides that "the business of a corporation" under Article 49 (1) 1 (a) and (b) of the Enforcement Decree of the Corporate Tax Act provides that "the business of a corporation" shall not be directly used for the business of a corporation. In cases where the business of a corporation is prescribed by the Act, "the business of a corporation" under Article 49 (1) 1 (a) and (b) of the Enforcement Decree of the Corporate Tax Act provides that "the business prescribed by the Act and subordinate statutes," and Article 26 (4) of the Enforcement Decree of the Corporate Tax Act provides that "the business of a corporation as of the end of each business year, in cases where land without a building is leased, it shall not be directly used for the business.

(3) Under the above statutory provisions, real estate is not directly used for the business of a corporation under Article 27 of the Corporate Tax Act and Article 49 (1) 1 of the Enforcement Decree of the Corporate Tax Act because it is deemed that real estate that is not directly used for the business of a corporation is not directly related to the business of the corporation and its expenses are not included in deductible expenses. Thus, it should be presumed that real estate which is not directly used for the business of the corporation is not directly used for the business of the corporation, and that real estate is not directly used for the business of the corporation under Article 49 (2) of the Enforcement Decree of the Corporate Tax Act, which is not directly used for the business of the corporation under Article 4 of the Corporate Tax Act, is not directly used for the business of the corporation, and it is difficult to recognize that the real estate is not directly used for the business of the corporation under Article 26 (2) of the Enforcement Rule of the Corporate Tax Act to be used for the business of the corporation under Article 26 (2) of the Corporate Tax Act, and that the land is not directly used for the business of the corporation's purpose of lease.

(4) As seen earlier 4-A., the Plaintiff cannot be deemed to have not engaged in the “real estate rental business” as “corporate business during the period from 2011 to 2014 business year. Thus, the Plaintiff’s OO factory and its site where it is apparent that the Plaintiff provided the “rental business” during the period from June 18, 2010 to 2014 as it leased OOethyl from June 18, 2010, is deemed to have no direct relation with the “corporate business” pursuant to Article 26(2) of the Enforcement Rule of the Corporate Tax Act, and it is deemed that there is no room to apply the provision of Article 26(4) or the main sentence of Article 26(2) of the Enforcement Rule of the Corporate Tax Act to non-business property.

(5) Ultimately, Article 26(4) main text of the Enforcement Rule of the Corporate Tax Act cannot be applied to the instant disposition, and the Plaintiff’s third assertion that differs from the premise is also without merit.

D. Judgment on the fourth argument

According to Article 106 (1) 3 (a) of the former Local Tax Act and Article 102 (1) 1 of the former Enforcement Decree of the Local Tax Act, where the relevant land is owned by a person liable to pay tax, it shall be defined as a "factory site" and it does not require that the relevant land is a "factory site" which is used directly for the business of the corporation, and whether it is subject to a separate taxation of non-taxation of non-taxation of real estate for business purposes or a separate taxation of non-taxation of non-taxation of real estate for business purposes shall be a separate issue that is not directly related to the corporation. Therefore, the local tax authority imposed local tax on the plaintiff under the premise that the land in this case is a "factory site subject to separate taxation of non-taxation of non-taxation of non-taxation of non-taxation of non-taxation of non-taxation of non-taxation of non-taxation of tax

5. Conclusion

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