National High Court Decision 2005No4461

Whether profit is realized in case of an impossibility of recovering interest income from non-business proceeds;

In case where a partial recovery of a claim is made and it becomes objectively obvious that the recovery of the remaining claim is impossible at the time of recovery, it shall be deemed that there is no interest income which satisfies the taxation requirement in the pertinent taxable year as long as the recovered amount falls short of the principal.

The contents of the decision shall be the same as attached.

Article 6 (Interest Income)

1. The Defendant’s imposition disposition of global income tax of KRW 463,076,940 on April 15, 2005 exceeds KRW 210,658,90 on global income tax of KRW 463,076,940 on April 15, 2005; the imposition disposition of KRW 375,413,03,575 on global income tax of KRW 375,413,030 on global income tax of KRW 200; the imposition disposition of KRW 240,34,80 on global income tax of KRW 240,34,80 on global income tax of KRW 101,760,986; the imposition disposition of KRW 132,10,350 on global income tax of KRW 56,880,948 on global income tax of year 202; the imposition disposition of KRW 16,54,170 on global income tax of KRW 16,5364,26464.

2. The plaintiff's remaining claims are dismissed.

3. Of the costs of lawsuit, 50% is borne by the Plaintiff, and 50% is borne by the Defendant, respectively.

The Defendant’s disposition of imposition of KRW 463,076,940, global income tax for the year 2009, global income tax for the year 2000, global income tax for the year 2001 (hereinafter “240,104,130, global income tax for the year 2001”), global income tax for the year 201 (hereinafter “241,104,130”), global income tax for 132,10,350, global income tax for the year 202 and global income tax for 16,54,170, global income tax for the year 2003 shall be revoked.

1. Details of the imposition;

A. On December 30, 1997 between the Plaintiff and Kim ○, a notarial deed of money loan contract for security by means of transfer (hereinafter “notarial deed of this case”) was drawn up on December 30, 1997 between the Plaintiff and Kim ○, a future comprehensive law firm 1997, and the contents of the notarial deed were to pay KRW 2 billion borrowed from the Plaintiff on December 30, 1996 by December 30, 1996, and to pay the interest at 25% per annum, and to transfer the ownership of three lots of land, such as ○○○○, Dong 359, Dong 359-1, and 360, etc., to the Plaintiff as collateral, and to recognize compulsory execution at the time of non-performance of the above borrowed money.

B. On December 16, 1999, the loan certificate (hereinafter “the loan certificate of this case”) was drawn up between the Plaintiff, Park ○○ and his wife Kim Jong-young (the birth of Gim○ is the birth of Gim○, and hereinafter hereinafter referred to as “ Park○ and Kim Jong-chul,”). The content was that the spouse of Gamb○ was jointly and severally repaid to the Plaintiff by February 28, 2001, and the interest was 1.2% per month.

C. Under the premise that this case’s authentic deed and loan certificate existed, the Defendant: (a) provided loans to Kim ○ and Park ○; (b) received interest income during the period from January 1, 1997 to December 31, 2003 as follows; (c) provided that the Plaintiff omitted such interest income at the time of filing a global income tax return for the period from January 1, 1997 to December 31, 2003; and (d) added such omitted portion to the amount of income for the corresponding year on April 15, 2005, the Defendant imposed global income tax of 363,093,520, global income tax of 1997 to the Plaintiff on April 15, 2005; and (b) imposed global income tax of 318,178,040,076,940, global income tax of 1999 to 375,303,1303,205,2015 won.

(1) On December 30, 1996, the Plaintiff borrowed 2 billion won to Kim○○○ on 25% per annum. From Kim○○ on 18 May 1998, 17, 100 billion won on 200 billion won, and from October 31, 2003, the Plaintiff received 25 billion won per annum from Kim○○ during the above trading period (one year interest for 2 billion won), 50 million won (one year on 200, 260, 274 won) from 208.3 billion won, 205 billion won from 1998, 306.3 billion won from 205 billion won to 208.3 billion won from 198, 196.3 billion won from 205 billion won to 209, 198, 2008 to 18.3 billion won from 199, 198

(2) The Plaintiff loaned KRW 120,00 to ○○, one hundred and twenty (1.20,000 each month from January 1, 1997 to March 197; KRW 18,90,00 each month from April 1, 1997 to December 197; KRW 18,90,00 each month from January 1, 199 to June 6, 198; KRW 17,50,90,000 each month from 10,50,90,000 to 190,97.19,00,000,000 to 10,000,000,000 or more per month from July 1, 1998; and KRW 10,90,09 to 190,000 per month from February 2, 199 to 19; and

D. The Plaintiff filed an appeal with the National Tax Tribunal. The National Tax Tribunal revoked each global income tax for the year 197 and 1998 on January 4, 2007 on the grounds of the lapse of the exclusion period. With respect to the global income tax for the year 2001, the Defendant recognized that the Plaintiff’s loan claim against Park ○ shall not be recovered since February 28, 2001, and that the amount of loan claim collected in 2001, which is the pertinent taxable year, is less than 1.2 billion won in the leased principal. Thus, applying Article 51(7) of the Enforcement Decree of the Income Tax Act, deeming that there was no Plaintiff’s interest income in 2001, deeming that there was no amount of loan income in 204,000 won from the gross income amount of the Plaintiff’s income in 201, and decided to dismiss the remainder of the Plaintiff’s claim.

E. Accordingly, the Defendant rendered a decision to reduce the Plaintiff’s total income in 2001 by 240,344,880 won, subtracting the Plaintiff’s KRW 24,000 from the Plaintiff’s total income amount in 2001 (hereinafter referred to as “each of the instant dispositions imposing global income tax in 2001”) (hereinafter referred to as “each of the instant dispositions imposing global income tax in 241,104,130 won from the global income tax in 1999, global income tax in 2000, global income tax in 375,413,030, global income tax in 202, global income tax in 202, global income tax in 132,110,350, global income tax in 203, global income tax in 203 as above, and global income tax in 241,104,130 won for the year 201 as revised.

[Ground of recognition] Evidence Nos. 3. 4-1 through 7, 5, Eul evidence Nos. 1-1 through 10, 2, 67, and the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiff's assertion

(1) The portion of interest income from loans to Kim○-○

The plaintiff lent KRW 300 million to Kim ○ by setting the interest rate of KRW 1.5% per month, and there was only arranged for the loan of KRW 400 million to ○○○○, KRW 300 million, KRW 100 million, and KRW 200 million to ○○○, and KRW 200 million to ○○○○, and there was no fact that 2 billion was set at 25% per annum to ○○, such as the contents of the notarial deed in this case.

(2) The portion of interest income on loans to the 00 couple and 00 couple

① The Plaintiff loaned KRW 600 million to 00 million to 00,000 to 00,000,000 won, and 200 million won, and 50 million won, respectively, to 00 million to 00,000 to 00,000. The Plaintiff did not lend 1.2 billion to 0,000,000 to 0,000,000. The Plaintiff’s interest income from 00,000 to 1.2, out of the Plaintiff’s loan interest income from 00,000 couple, only the interest income from 0,000,000 is recognized as interest income from 0,000,000,000 won calculated based on the loan interest rate under the instant certificate. ③ Since 28, 2001, the Plaintiff’s loan to 00,000,000 won was clearly short of the Plaintiff’s loan to 00,000,00 won.

(b) Related statutes;

The entries in the attached Table-related statutes are as follows.

C. Facts of recognition

(1) As to loans to Kim○-○

(A) The Plaintiff loaned money owned by ○○ as follows to ○○○, or borrowed money from ○○, ○, ○○, ○○, ○○, or ○○○ from time to time to time to time to lend money to 1.3 billion won. The Plaintiff received interest on the above loan every month from ○○, ○○, ○, ○, ○○, and ○○, and paid interest to ○○○.

① On December 196, 1996, 300 million won owned by the Plaintiff self-employed Kim○ was set at 1.5% per month as interest.

② A total of KRW 400 million from around 1997 and around August 1998 from around 00 to 00 million, and the interest rate was 1% per month after September 1998.

③ From February 1997 to February 1999, a loan of KRW 300 million was made to Kim○○, and the interest rate was 1% per month after September 1998 (round July 2000, the Plaintiff borrowed KRW 300 million from Sung○○, and repaid the debt of KRW 300 million with that money, and thereafter, the interest that was paid to ○○○ was paid to ○○○).

④ From April 1998 to September 1998, a sum of KRW 100 million was borrowed from ○○ to ○○○○, and the said interest rate was 1% per month.

⑤ From February 199 to May 199, 199, a sum of KRW 200 million was borrowed from ○○ to ○○○○, and the said interest rate was 1% per month.

(B) On December 30, 1997, in order to secure the Plaintiff’s loan claims against Kim ○○, the Plaintiff and Kim ○○ entered the amount of the loan and the interest rate raised on convenience by requesting the preparation of the notarial deed of this case in consideration of the circumstances where the size of the loan transaction in the future increases, etc., and the two parties entered the amount of the loan in 2 billion won and the interest rate at 25% per annum.

(C) On November 26, 1998, ○○○○○○○, 359, 360, 362, and 359, 362, as security for the Plaintiff’s above loan claims, the mortgagee, upon the Plaintiff’s request, completed the registration of creation of a mortgage over KRW 1.5 billion with respect to the land owned by ○○○○○, ○○, ○○, 359, 360,361, and the same land and buildings 359,360,361.

(D) Around September 17, 2002, Kim○, around September 17, 2002, KRW 1 billion (a loan with an interest rate of KRW 1 billion was agreed to be appropriated to the Plaintiff for appropriation of KRW 1 billion), and around October 31, 2003, the above loan amounting to KRW 1.3 billion was repaid in full, and on the other hand, the registration of creation of a neighboring mortgage was cancelled on October 2, 2002.

(2) As to loans to the ○○ couple

(A) The Plaintiff lent 1.2 billion won in total by lending money owned by his husband and wife or lending money from 00,000 won to 0,000 won by borrowing money from 0,00,000 won from 0,000,000 won. The Plaintiff received interest on the said loan from 0,000 couple, while paying interest to 0,00,000 and 0,000 won.

① Around 1996, around 1996, the Plaintiff lent KRW 600,00 that she had to her husband and wife.

② From June 1996 to January 1, 1997, a sum of KRW 200 million was borrowed from ○○○ to ○○○○○○○○.

③ Around January 1997, around 1997, borrowed KRW 350,000,000 and lent it to ○○○ couple.

④ Around March 1997, a partner, borrowed KRW 50,000,000 from ○○○, a partner, and lent to ○○○○○.

(B) On December 16, 1999, the Plaintiff was issued the instant loan certificate with the content that: (a) on December 16, 1999, 1.2% per month interest on KRW 1.2 billion on the above loan from the 000 million husband and wife at 00 million; and (b) on February 28, 2001, the due date for repayment was 1.2 billion.

(C) On the other hand, the 00,000 won was paid to the Plaintiff a total of KRW 119,50,000,000 as interest on the said loan of KRW 1.2 billion in 1999, and KRW 6 million in 200,000 on seven occasions in 200. Since February 28, 2001, the date of repayment of the instant loan certificate, the Plaintiff did not meet the contact with the Plaintiff and did not repay the said loan of KRW 1.2 billion.

[Ground of recognition] Evidence Nos. 6-1, 2, 3, 7-2, 8-2, 16-1, 8-13, 16-1, 2-2, and the purport of the whole pleadings

D. Determination

(1) As to the interest income on loans to Kim○-○

According to the above facts, the amount of loans lent to ○○○○○○○○○○○○ by the Plaintiff was 80 million won in total at the time of January 1, 199, 1999, 1.3 billion won in total at the time of June 1, 199, and 1.3 billion won in total at around September 17, 2002, the remainder of KRW 300 million was repaid around October 31, 2003, and thus, the Plaintiff’s interest income from the above loans was 158,00,000 won in 199 as follows (19,000,000,000 won + 37,50,000,000 won in 30,000 won in 60,000 won in 60,000 won in 360,000 won in each of the following facts.

Year

Period

Loan principal (cost)

C. Interest rate

Interest income (won)

199

Above 1.1.28.

80 million won

300 million won 1.5%

50 million won 1%

19,000,000

Above 3.1.5.31

110 million won

300 million won 1.5%

80 million won 1%

37,500,000

Above 6.1.12.31

1.3 billion won

300 million won 1.5%

1 billion won 1%

101,500,000

200

Above 1.1.12.31

1.3 billion won

300 million won 1.5%

1 billion won 1%

174,000,000

201

Above 1.1.12.31

1.3 billion won

300 million won 1.5%

1 billion won 1%

174,000,000

202

Above 1.1.9.17

1.3 billion won

300 million won 1.5%

1 billion won 1%

124,216,66

Above 9.18.12.31

30 million won

1.5% by mass

15,600,000

203

Above 1.1.10.31

30 million won

1.5% by mass

45,000,000

(1) From January 1, 199 to February 28, 1999: 19,00,000 won [9,50,000 won [4,500,000 won (300 won x 0.15 + 5,000,000 won (50 million won x 0.01] x 2 months];

(2) From March 1, 199 to May 31, 1999: 37,50,000 won [12,50,000 won [4,500,000 won (300 won x 0.15 + 8,000,000 won (80 million won x 0.01)] x 3 months];

(3) From June 1, 199 to December 31, 1999: 101,50,000 won [14,50,000 won [ [4,50,000 won (30 million won x 0.15] + 10,000,000 won (1 billion won x 0.01] x 7 months];

(4) From January 1, 200 to December 31, 2000: 174,000,000 won (14,500,000 won x 12 months)

(5) From January 1, 2001 to December 31, 2001: 174,000,000 won (14,50,000 won x 12 months)

(6) From January 1, 2002 to September 17, 2002: 124,216,66 won [116,00,00 won (14,50,000 won x 8 months x 8 months] + 8.216,656 won (14,50,000 won x 17/30 months, and fewer than won];

(7) From September 18, 2002 to December 31, 2002: 15,60,000 won [13,50,000 won [4,50,000 won (30 million won x 0.015) x 3 months] + 2,100,000 won (30 million won x 0.015) x 14/30 months];

(8) From January 1, 2003 to October 31, 2003: 45,000,000 won [4,50,000 won (300 million won x 0.015)] x 10 months];

(2) As to the interest income on loans to the ○○ couple

(A) According to the above facts, it is difficult for the Plaintiff to lend KRW 1.2 billion to the ○○○○○○○○○○○○○○○ couple’s loan, or by borrowing money from the ○○○○○○○○ or ○○○○○○○○○○○○○○○○○○○○○○○○○○ by borrowing money. [The above KRW 600 million loan to the Plaintiff or the remainder of KRW 600 million loan to the ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ KRW 1,222,5, and 15,000,000 won, respectively, written out a loan to the Plaintiff’s 1.

(B) Next, in order to ensure that the Plaintiff’s interest income in the year 199 and 2000 pursuant to the above 1.2 billion won was realized, it is not necessary to realize the income in reality. At least, it is sufficient to realize the possibility of realizing the right to generate income, so long as the right to generate income is considerably mature, final and conclusive. However, it is merely a mere establishment of the right to generate income, and it cannot be deemed that there has been no income as a subject of income tax, and it is reasonable to determine the right to generate income in a lump sum, taking into account the specific nature and content of each individual right and the law, and various actual conditions. In light of the above facts, it is reasonable to determine the Plaintiff’s interest income in the above 199 and 200 million won, and there is no other evidence to acknowledge that the Plaintiff’s interest income in the loan agreement in this case was 90 billion won for 190 billion won from the date on which the agreement was made, and it cannot be deemed that the Plaintiff’s interest income in this case was 9000 billion won.

(C) Next, pursuant to Article 51(7) of the Enforcement Decree of the Income Tax Act of 199 and 2000, the Plaintiff’s interest income in 199 and 2000 is not realized so it does not constitute subject to interest income tax, and income tax is so-called “fixed-term taxation” which imposes tax on the income amount for one year from January 1 to December 31 of each year, and the interest income generated from non-business loan is calculated as gross income amount for the corresponding year. Thus, where part of the claim is recovered and it is objectively obvious that it is impossible to recover the remainder of the claim at the time of recovery, it shall be deemed that there is no realization of the interest income that satisfies the taxation requirements, as long as it is impossible to collect the remainder of the claim at the time of recovery. However, it cannot affect the duty to pay the interest income already realized prior to the occurrence of the impossible cause (see Supreme Court Decision 2005Du5437, Oct. 28, 2005).

(3) Sub-decisions

The Plaintiff’s interest income under each of the above loans to ○○○ and Ma○○○○○ is KRW 27,50,00 ( KRW 158,00,00 + KRW 119,50,00) for 199; KRW 216,00,00 for 200 for 200; + KRW 42,000 for 42,00 for 200; KRW 174,000 for 200 for 205; KRW 174,000 for 206; KRW 636,666,66,00 for 20 for 200, KRW 468 for 200 for 205; and the amount of tax for global income for 205, KRW 963,97 for 20 for 208; and the amount of tax for 365,00 for 205 for 204 for 209,3094 for .

3. Conclusion

Therefore, the plaintiff's claim is justified within the scope of the above recognition, and the remainder is dismissed as it is without merit. It is so decided as per Disposition.

Related Acts and subordinate statutes

○ Interest income under Article 16 of the Income Tax Act

(1) Interest income shall be the following income generated during the relevant year:

12. Profits accruing from a non-business loan;

○ Calculation of gross income amount Article 51 of the Enforcement Decree of the Income Tax Act

(7) In calculating the gross income from the profits accruing from a nonbusiness loan under Article 16 (1) 12 of the Act, if the whole or part of the principal and interest are irrecoverable from the debtor or a third party because the relevant non-business loan falls under the bonds stipulated in Article 55 (2) 1 or 2 before the final return on tax base under Article 70 of the Act or the tax base and tax amount under Article 80 of the Act are determined and corrected, the calculation shall be made by preferentially subtracting the principal from the recovered amount. In this case, if the recovered amount is short of the principal, the gross income amount shall

○ Calculation of necessary expenses for real estate rental income under Article 55 of the Enforcement Decree of the Income Tax Act

(2) The bad debt under the provisions of paragraph (1) 16 shall fall under one of the following subparagraphs:

1. Claims which cannot be recovered due to the debtor's bankruptcy, compulsory execution, execution of punishment, or discontinuation of business;

2. Claims which cannot be recovered due to the death, disappearance, missing, etc. of a debtor;

Table of Global Income Tax Calculation for 1999

Classification

Original Amount of Tax

Justifiable Tax Amount

Amount of increase or decrease

Revenue amount

602,523,99

300,523,99

-302,000,000

Global income amount;

590,879,198

288,879,198

-302,000,000

Income Deduction

1,000,000

1,000,000

0

Tax Base

589,879,198

287,879,198

-302,000,000

Tax Rate

40

40

0

calculated tax amount

22,951,679

102,151,679

-120,800,000

Tax Credit

0

Amount of final tax

22,951,679

102,151,679

-120,800,000

Additional Tax

241,201,108

109,583,064

-131,618,044

Total determined tax amount

464,152,787

211,734,743

-252,418,04

Tax amount already paid

1,075,839

1,075,839

0

Noticed Amount of Tax

463,076,948

210,658,904

-252,418,04

The global income tax calculation table for the year 200

Classification

Original Amount of Tax

Justifiable Tax Amount

Amount of increase or decrease

Revenue amount

533,99,99

230,99,99

-303,000,000

Global income amount;

528,974,99

25,974,99

-303,000,000

Income Deduction

1,600,000

1,600,000

0

Tax Base

527,374,99

24,374,99

-303,000,000

Tax Rate

40

40

0

calculated tax amount

197,949,99

76,749,99

-121,200,000

Tax Credit

0

Amount of final tax

197,949,99

76,749,99

-121,200,000

Additional Tax

178,309,972

68,380,512

-109,929,460

Total determined tax amount

376,259,971

145,130,511

-231,129,460

Tax amount already paid

846,936

846,936

0

Noticed Amount of Tax

375,413,035

144,283,575

-231,129,460

The global income tax calculation table for the 2001

Classification

Original Amount of Tax

Justifiable Tax Amount

Amount of increase or decrease

Revenue amount

401,246,99

200,246,99

-201,000,000

Global income amount;

388,502,199

187,502,199

-201,000,000

Income Deduction

3,100,000

3,100,000

0

Tax Base

385,402,199

184,402,199

-201,000,000

Tax Rate

40

40

0

calculated tax amount

141,160,879

60,760,879

-80,400,000

Tax Credit

600,000

600,000

0

Amount of final tax

140,560,879

60,160,879

-80,400,000

Additional Tax

100,543,251

42,359,357

-58,183,894

Total determined tax amount

241,104,130

102,520,236

-138,583,894

Tax amount already paid

759,250

759,250

0

Noticed Amount of Tax

240,344,880

101,760,986

-138,583,894

The global income tax calculation table for the 2002

Classification

Original Amount of Tax

Justifiable Tax Amount

Amount of increase or decrease

Revenue amount

314,473,423

165,591,459

-148,881,964

Global income amount;

301,659,868

152,777,904

-148,881,964

Income Deduction

3,893,800

3,893,800

0

Tax Base

297,766,068

148,884,104

-148,881,964

Tax Rate

40

40

0

calculated tax amount

95,495,784

41,898,277

-53,597,507

Tax Credit

400,000

400,000

0

Amount of final tax

95,095,784

41,498,277

-53,597,507

Additional Tax

37,676,254

16,044,358

-21,631,896

Total determined tax amount

132,772,038

57,542,635

-75,229,403

Tax amount already paid

661,687

661,687

0

Noticed Amount of Tax

132,110,351

56,880,948

-75,229,403

The global income tax calculation table for the 2003

Classification

Original Amount of Tax

Justifiable Tax Amount

Amount of increase or decrease

Revenue amount

71,084,382

53,824,108

-17,260,274

Global income amount;

68,128,306

50,868,032

-17,260,274

Income Deduction

2,600,000

2,600,000

0

Tax Base

65,528,306

48,268,032

-17,260,274

Tax Rate

27

27

0

calculated tax amount

13,192,642

8,532,368

-4,660,274

Tax Credit

0

0

0

Amount of final tax

13,192,642

8,532,368

-4,660,274

Additional Tax

3,645,654

2,298,018

-1,347,636

Total determined tax amount

16,838,296

10,830,386

-6,007,910

Tax amount already paid

294,122

294,122

0

Noticed Amount of Tax

16,544,174

10,536,264

-6,007,910