Seoul High Court-2014-Nu-4249 ( November 21, 2014)

It is reasonable to calculate the amount of net profit and loss in proportion to the payment period of premiums.

Since it is reasonable to see that the new contract cost clause constitutes corporate accounting standards or practices, it is reasonable to calculate the net profit and loss amount according to the method of distributing the new contract cost to the insurance premium payment period, and to evaluate the price per stock based on it.

Articles 40 and 43 of the Corporate Tax Act

2014Du47693 Revocation of Disposition of Imposition of Gift Tax

○○ and 2 others

○ Head of tax office et al.

Seoul High Court Decision 2014Nu42249 Decided November 21, 2014

The judgment below is reversed, and the case is remanded to Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. A. Article 40 (1) of the former Corporate Tax Act (amended by Act No. 8141 of Dec. 30, 2006; hereinafter the same shall apply) provides that "the business year of accrual of earnings and losses of a domestic corporation for each business year shall be the business year which includes the date on which the concerned earnings and losses are determined," and Paragraph (2) of the same Article provides that "necessary matters concerning the scope of the business year of accrual of earnings and losses under paragraph (1) shall be determined by the Presidential Decree." Articles 68 through 71 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19328 of Feb. 9, 2006; hereinafter the same shall apply) upon delegation of the former Corporate Tax Act (amended by Presidential Decree No. 19328 of Feb. 9, 2006) provide that "the business year of accrual of earnings and losses of the domestic corporation for each business year and the acquisition and evaluation of assets and liabilities of the domestic corporation shall be governed by this Act or other practices of corporate accounting."

B. As such, Article 40(1) and (2) of the former Corporate Tax Act declares the principle of confirmation of rights and duties in regard to paragraphs (1) and (2) of the same Article, and stipulates the specific period of attribution of profits and losses depending on the type of transaction. However, the provisions on the reversion of profits and losses under the tax law according to such type of transaction cannot be deemed to have determined the ownership of profits and losses in its entirety by predicting the various types of transaction in the modern society. Thus, in a case where it is difficult to determine the attribution of profits and losses solely by the above provisions, unless it is against the principle of confirmation of rights and obligations under the Corporate Tax Act, it is reasonable to interpret that the attribution of profits and losses can be determined in accordance with the corporate accounting standards which are generally accepted by fair and reasonable accounting practices (see, e.g., Supreme Court Decision 92Nu2936, Oct. 23, 1992; 200Du2943, Jan. 1, 2010).

Therefore, it cannot be readily concluded that the provision on the attribution of profits and losses under the corporate accounting standards is against the principle of confirmation of rights and obligations solely on the ground that the provision on the attribution of profits and losses is not specified in the individual provisions of the tax law. In full view of the following: (a) the details and nature of the introduction of the specific corporate accounting standards; (b) the relationship with the general accounting principles such as relevant tax practice and rationality; (c) the possibility of arbitrary manipulation of taxable income; and (d) the content and structure of the pertinent tax law provisions, it should be determined as to whether the corporate accounting standards or practices applicable to the income amount

2. The reasoning of the lower judgment and the evidence duly admitted reveal the following.

(a) The term "new contract costs" in an insurance business means the amount paid for the recruitment allowance, etc. of an insurance solicitor in connection with the conclusion of a new insurance contract, labor costs, goods costs, diagnostic costs, contract procurement costs, etc.;

B. Article 31 of the Rules on Accounting of Insurance Business (amended by Presidential Decree No. 10, Dec. 10, 1998) (hereinafter referred to as "the new contract expense clause of this case") provides that the new contract expense of this case shall be deemed as other assets and treated as expenses in equal installments over the maintenance period (seven years if the contract period exceeds seven years). Article 68 of the amended Insurance Business Supervision Regulation (Public Notice of Financial Supervisory Commission) of March 12, 199 also provides similar provisions, but the tax authority imposed tax on the premise that the total amount of the new contract expense should be included in deductible expenses at the time when the new contract expense occurred.

C. Since then, corporations operating insurance business filed multiple civil petitions on the grounds that a large amount of losses incurred in the year in which the new contract expenses were incurred, even if the period of deduction for losses carried forward (five years) was incurred in the year in which the new contract expenses were paid. Accordingly, for the purpose of putting the new contract expenses into assets and putting them into losses in the future, the General Rule of the Corporate Tax Act (amended on May 10, 2003) 40-7123 provides that "the new contract expenses incurred by the long-term insurance contract (solicitation allowances, store operating expenses, etc.) out of the project expenses paid by the corporation operating the insurance business during each business year shall be included in deductible expenses in accordance with the insurance premium payment period (seven years where the period exceeds seven years) under the insurance contract (hereinafter referred to as "general rule provision of this case")."

D. The instant company filed a revised return of corporate tax for the business year 2003 (from April 1, 2003 to March 31, 2004) in accordance with the General Provisions of the instant case, and filed a corporate tax for the business year 2004. The instant company also filed a revised return of corporate tax for the business year 2004. Since May 2003, most other insurance companies included the new contract costs in deductible expenses in proportion to the insurance premium payment period.

E. The plaintiffs are from the OO and six other (hereinafter referred to as "transferors") on March 31, 2005.

3. 31. The shares of the instant company (hereinafter “instant shares”) were acquired in 10 won per share.

F. The Defendants calculated the value of the instant shares as KRW 2,898 per share (PlaintiffOO andOO shall be KRW 3,767 per share, added 30/100) based on the net profit and loss amount, etc. calculated in proportion to the insurance premium payment period, based on the supplementary evaluation method under Article 63 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007) on the grounds that the Plaintiffs acquired the instant shares from the transferor at a price lower than the market price, and issued the instant disposition imposing gift tax on the Plaintiffs.

3. Examining these facts in light of the aforementioned legal principles and records, the following conclusion is determined.

A. An insurance business is a type of business that requires public interest, such as the interests of policyholders, and there is a high need to strictly observe the accounting rules, and the amended provisions of the Insurance Business Supervision Regulations are similar to the new contract provisions of this case, and also regulates and supervises the accounting of insurance companies. In addition, as the instant provisions were newly established on May 10, 2003 at the request of the insurance business company, the instant new contract provisions are operated as a firm practice.

B. Article 70(3) of the former Enforcement Decree of the Corporate Tax Act provides that the business year of accrual of insurance premiums received by a corporation operating a financial and insurance business shall be the business year which includes the date on which such insurance premiums are actually received. The instant new contract clause of the Insurance Business Rule, which provides for the pro rata distribution of deductible expenses in response to the receipt of such insurance premiums, not only accords with

C. The inclusion of new contract expenses in deductible expenses is treated as expenses in an equal annual amount and is not accompanied by a special evaluation. Thus, there is little possibility that corporations operating insurance business will arbitrarily manipulate taxable income through this.

D. In addition, even if the new contract cost does not constitute intangible fixed assets listed in each item of Article 24(2)2 of the former Enforcement Decree of the Corporate Tax Act, it cannot be interpreted that the allocation of deductible expenses according to corporate accounting standards or practices with respect to new contract cost is not permitted solely for such circumstances.

E. In full view of the above circumstances, it is reasonable to view the instant new contract expense clause as falling under “standards or practices for corporate accounts that can be applied to the calculation of income amount of a domestic corporation for each business year under Article 43 of the former Corporate Tax Act. Therefore, it is acceptable to accept the instant disposition that the instant company did not include the said new contract expense in total as deductible expenses for the pertinent business year during which it was paid pursuant to the new contract expense clause, but calculated corporate tax by adding it to deductible expenses in proportion to the premium payment period (seven years where the period exceeds seven years), and the Defendant calculated the net profit and loss amount from 2002 of the instant company to 2004 by calculating the net profit and loss amount from the 2004 company to the 204 private business year, and assessed

4. Nevertheless, solely on the grounds stated in its reasoning, the lower court determined that the amount of net profit and loss should be calculated by including the entire amount of expenses incurred in relation to the instant new contract expenses in the pertinent business year, and determined that the instant disposition was unlawful by calculating the value of the instant stocks on the premise thereof. In so determining, the lower court erred by misapprehending the legal doctrine on the confirmation of rights and duties and corporate accounting under the Corporate Tax Act, thereby adversely

5. 그러므로 원심판결을 파기하고, 사건을 다시 심리��판단하게 하기 위하여 원심법원에 환송하기로 하여, 관여 대법관의 일치된 의견으로 주문과 같이 판결한다.