Classification of compensation income following delay in the payment of interim retirement allowances;

The amount paid to compensate for losses incurred due to the delay of payment of interim retirement allowances shall be deemed compensation for losses paid in relation to the change of the retirement allowance payment system, which constitutes retirement income.

Scope of retirement income under Article 42-2 of the Enforcement Decree of the Income Tax Act

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The defendant's disposition of imposing corporate tax of KRW 385,380,390 against the plaintiff on September 21, 2005 exceeds KRW 6,952,274 of the disposition of imposing corporate tax of KRW 385,380,390 shall be revoked.

1. Details of the disposition;

A. The Plaintiff changed the retirement allowance system from January 1, 200 to the “short-term” system in accordance with the government’s guidelines for improvement of the retirement allowance system as a non-profit public corporation conducting the inspection and inspection of electric installations. In light of the circumstances that on December 31, 1999, the trade union as the base date for interim settlement confirmation and that the Plaintiff cannot secure financial resources at once between the trade union and the trade union, the interim settlement principal shall be paid in installments from 2001, and the delayed payment shall first be paid in proportion to 8.5% per annum for the delayed payment in 2000.

B. Since then, after consultation with the trade union, an employee whose interim settlement retirement pay is less than KRW 10 million shall be paid in full in full, and with respect to employees whose amount exceeds KRW 10 million, the principal of interim settlement retirement pay shall be paid in installments by 30% in 2001, 203, 205, and 25% in 207, respectively, and a compensation for delay shall be paid in proportion to 7% in a year since 2001.

C. The Plaintiff: (a) deemed the nature of the delayed compensation as interest income; and (b) even if the interest did not actually be paid, the Plaintiff reported corporate tax by including KRW 7,813,940,210 in the amount of the delayed compensation accrued in the business year 200 pursuant to the provision that it may be included in the deductible expenses at the time of the occurrence of interest [the proviso of Article 70(1)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17457, Dec. 31, 2001; hereinafter the same shall apply].

D. Meanwhile, on November 17, 2004, the defendant regarded the nature of the delayed compensation as retirement income, and the retirement income may be included in the loss on the actual payment date (Article 44(2)3 of the former Enforcement Decree of the Corporate Tax Act). Pursuant to the provision that the above delayed compensation may be excluded from the inclusion of deductible expenses, a prior notice of taxation was given to impose corporate tax of approximately KRW 5.4 billion, and the plaintiff filed a request for review of the legality of taxation on December 7, 2004.

E. On July 27, 2005, the Commissioner of the National Tax Service: “The delayed compensation constitutes retirement income under Article 42-2(1)5 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17032, Dec. 1, 2001; hereinafter the same shall apply); however, before May 4, 2001, the National Tax Service's established rules, etc. interpreted the delayed compensation as interest income for the unpaid amount at the time of the installment payment of interim retirement benefits; on May 4, 2001, the National Tax Service's established rules on the financial economy included the delayed compensation in deductible expenses only for the period between the interim payment base date and the actual payment date (the first installment payment date when the installment payment was made); thus, the National Tax Service's established rules prior to May 4, 2001 included the amount of interest income in deductible expenses; thus, the latter delayed compensation in deductible expenses for the business year of 200,714,201.

F. The defendant, on September 21, 2005, included 4,174,292,70 won in the calculation of 2,544,830,190 won in the calculation of deductible expenses for employees who applied for interim settlement of accounts on January 18, 2001, and imposed 385,390,390 won in the calculation of deductible expenses for the business year 2002 (the amount of income for the business year 2001, which occurred after the inclusion of the delayed compensation in deductible expenses, was appropriated for the business year 200, and the corporate tax for the business year 2001 was not generated for the business year 200, 200, 2002, 204, 2005, 204, 2005, 204, 205, 2005, 205, 2004, 2005, 2005, 2004.

G. On the other hand, on May 20, 2002, the Ministry of Finance and Economy changed the interpretation of compensation for delay of the payment of interim settlement of retirement allowances as retirement income. Accordingly, the Plaintiff accounts for all delayed compensation after the business year 2002 as retirement income.

[Ground of Recognition] Facts without dispute, Gap evidence 4, 7, and Eul evidence 1 to 10 (including each number)

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) The instant delayed compensation is not an issue if a lump sum payment of interim settled retirement allowances is not directly related to the change of the retirement allowance system, and thus, is aimed at compensating losses arising from the payment of interim settled retirement allowances, the payment obligation and scope of which have been fixed, in lump sum, and the payment of which has not been made in lump sum due to the change of the retirement allowance system. As such, the essence of the instant delayed compensation is the same as interest income, it does not constitute retirement income under Article 42-2(

(2) In light of the fact that the same delayed compensation is not different from the legal nature depending on the time of payment, the Plaintiff’s obligation to pay the same delayed compensation to employees who did not apply for interim settlement retirement pay, the accounting cannot vary depending on when the employee applied for interim settlement retirement pay, the fact that the distinction between interest income and retirement income according to the authoritative interpretation of May 4, 2001 was an interpretation at the level of consideration to reduce the employee’s tax burden, and the fact that the Plaintiff’s position who paid the delayed compensation and accounts as retirement income pursuant to the Income Tax Act can be applied to the Plaintiff’s retirement income pursuant to the Income Tax Act, even if the delayed compensation is treated as retirement income based on the employee who received the delayed compensation, the Plaintiff’s inclusion of the entire delayed compensation in deductible expenses as the paid interest for the business year is lawful.

B. Relevant statutes

【former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17457 of Dec. 31, 2001)】

Article 44 (Non-Inclusion of Retirement Allowances in Calculation of Losses)

(1) Retirement benefits paid to officers or employees by a corporation shall be included in the calculation of losses, limited to where the concerned officer or employee actually retires (hereafter in this Article “actual retirement”).

(2) Actual retirement shall include cases falling under any one of the following subparagraphs in which the corporation actually pays retirement benefits:

3. Where he pays retirement allowances by interim settlement under Article 34 (3) of the Labor Standards Act.

Article 70 (Business Year of Interest Income, etc.)

(1) In the application of Article 40 (1) and (2) of the Act, the fiscal year of accrual of earnings and losses of interest, etc. shall be as follows:

2. Interest paid by a corporation: Business year which includes the date of receipt under Article 45 of the Enforcement Decree of the Income Tax Act: Provided, That in the settling of accounts, where the interest on periods which have already passed is appropriated as losses for the concerned business year, it shall be included in losses for the concerned business

【former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17032 of Dec. 29, 2000 and enforced January 1, 2001)】

Article 42-2 (Scope of Retirement Incomes)

(1) The retirement income as prescribed in Article 22 (1) of the Act shall include the amount as follows:

5. Amount paid for compensation for losses incurred by changes in the retirement allowance payment system, while paying the adjusted retirement payment under Article 34 (3) of the Labor Standards Act as the provisions on payment of retirement benefits or the employment rules are amended.

The amended provisions of Articles 16 and 42-2 (1) 5 of the Addenda to Article 4 (Application to the Scope, etc. of Additional Taxation Benefits for Workers Abroad) shall apply to the portion paid in the taxable period whereto belongs the enforcement date of this Decree.

C. Determination

(1) On December 29, 200, Article 42-2(1)5 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17032, Dec. 29, 2000) is a provision newly established to regulate the issue of payment of compensation for losses arising from interim settlement, such as this case, following the revision of the retirement allowance payment system. Thus, the "compensation for losses arising from the change of the retirement allowance payment system" under the above provision is not required to be based on logical and inevitable causal relationship, but it is reasonable to understand that it includes compensation related to the change of the retirement allowance payment system.

According to the above facts, this case's delayed compensation is aimed at compensating losses incurred during the period between the base date of interim settlement and the actual payment date by changing the retirement allowance payment system and paying interim retirement allowance in lump sum. Thus, this case's delayed compensation is a compensation for losses paid in relation to the change of the retirement allowance payment system. Thus, it constitutes retirement income under Article 42-2 (1) 5 of the former Enforcement Decree of the Income Tax Act.

(2) As such, insofar as the instant delayed compensation falls under the retirement income under Article 42-2 (1) 5 of the former Enforcement Decree of the Income Tax Act, solely based on the circumstances alleged by the Plaintiff alone, the instant delayed compensation cannot be deemed as interest income (the fact that the inclusion of losses in the calculation of losses was bound by the National Tax Service’s interpretation as to the whole delayed compensation in the business year 2000 and part of the delayed compensation in the business year 2001, not because such delayed compensation was recognized as interest income). Furthermore, the Plaintiff’s accounting performance by applying the Corporate Tax Act does not change the nature of the income. Therefore, the Plaintiff’s assertion is without merit.

3. Conclusion

Therefore, the disposition of this case is legitimate and the plaintiff's claim is dismissed as it is without merit. The judgment of the court of first instance is just and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.