Early High Court Decision 201J 0810 ( October 29, 2012)

Where bad debts are recovered in the taxable period or business year such as the occurrence of bad debts, deduction of bad debts tax amount or inclusion of bad debts in deductible expenses shall not be recognized.

The Plaintiff, upon conversion of bonds into equity, recovered bad debts in the form of acquiring stocks of the non-party company equivalent to the book value in lieu of the repayment of bonds, and as bad debts and bad debts were incurred during the same taxable period or business year, it cannot be recognized that deduction of bad debts tax amount or inclusion of bad debts in deductible expenses for the part

2012Guhap2843 Revocation of Disposition of Imposition of Corporate Tax, etc.

XX Stock Company

the director of the tax office of Western

September 6, 2012

September 20, 2012

1. The plaintiff's claim is dismissed.

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

The Defendant revoked each disposition of KRW 000 of the value-added tax for the second period of 2009 and KRW 000 of the corporate tax for the business year of 2009 against the Plaintiff on December 6, 2010 (in light of the statements in subparagraphs A-1 and B-2, the date of the disposition written in the complaint appears to be written in writing as of December 8, 2010).

1. Details of the disposition;

A. The Plaintiff had a total of KRW 000 (four copies of bills) against Non-Party XX Co., Ltd. (hereinafter “Non-Party Co., Ltd.”). However, on October 14, 2009, the Plaintiff was determined as follows in relation to the above claim by the Non-Party Co., Ltd. upon receipt of the rehabilitation plan approval order in the Seoul Central District Court Decision 2008Kahap108.

(Contents omitted)

B. According to the above decision on October 15, 2009, an amount equivalent to KRW 000 (58% of the amount of claims) out of the Plaintiff’s claim against the non-party company was converted into 1,432,733 shares of the non-party company (00 won). The above shares were reduced to 143,273 shares (free capital reduction) due to the consolidation of shares on October 16, 2009.

C. The Plaintiff filed a final tax return on bad debt tax amount of 000 won (the total bad debt tax amount of 000 won was reported, but 000 won was deducted at the time of the revised tax return) calculated the amount of income for the business year 2009 by adding the bad debt amount of 1,289,460 won (i.e., 1,432,73 shares free of charge out of the total debt-to-equity swap (i.e., 1,433 shares (i., 43 shares - 1,433 shares - 143,273 shares) out of the total amount of debt-to-equity swap in light of the purport of the entire argument, and calculated the amount of income for the business year 2009 by adding the bad debt amount of 1,289,460 shares to the deductible expenses.

D. The Defendant: (a) deemed that a debt-to-equity swap shares cannot be subject to a bad debt tax credit under Article 17-2 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter the same) and denied the said bad debt tax credit; (b) added 000 won to the output tax amount equivalent to the bad debt tax credit equivalent to the total face value of the shares reduced without compensation to the input tax amount; and (c) calculated the tax base again by deducting the existing tax amount from deductible expenses; and (d) issued the instant disposition on December 6, 2010 with deducting the already paid tax amount from deductible expenses; and (b) the bill for which payment is refused as an order to dispose of property by the court under Article 43(1) of the Debtor Rehabilitation and Bankruptcy Act (amended by Presidential Decree No. 2035, Feb. 18, 2010; hereinafter the same shall apply) based on Article 19-2(1)9 of the former Enforcement Decree of the Corporate Tax Act, to impose the remainder 1000.

E. On February 28, 2011, the Plaintiff dissatisfied with the instant disposition, and on August 2, 201, the Plaintiff filed an appeal with each Tax Tribunal on the said disposition. The Tax Tribunal dismissed the appeal against the instant disposition on March 29, 2012, and accepted the appeal against the said disposition ①.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 2, 4, 5 (including each number), Eul evidence Nos. 1, 2, and 3, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

① Even if the amount of capital reduction without compensation after conversion of investment among the Plaintiff’s claims against Nonparty Company decreases in the form of shares, its substance is reduced in accordance with the rehabilitation plan, and thus, it constitutes a claim for which recovery impossible under Article 19-2(1)5 of the former Enforcement Decree of the Corporate Tax Act is finalized at the time of the rehabilitation plan approval plan including a capital reduction plan. Therefore, the deduction of bad debt tax amount and inclusion

② Even if not, 000 won, which the Plaintiff received from the non-party company, out of the bad debt depreciation cost, equivalent to 42% of the supply value of the four bills of exchange received from the non-party company, should be recognized as having been included in deductible expenses.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) Judgment as to the Plaintiff’s assertion

(A) In light of the principle of no taxation without law, or the requirements for tax exemption or tax exemption, the interpretation of tax laws shall be interpreted as the text of the law unless there are special circumstances, and it shall not be extensively interpreted or analogically interpreted without reasonable grounds. Article 19-2(1)5 of the former Enforcement Decree of the Corporate Tax Act provides that “a claim confirmed as impossible to be recovered by a decision to authorize the rehabilitation plan under the Debtor Rehabilitation and Bankruptcy Act or a decision to grant immunity from the court pursuant to Article 19-2(1)5 of the former Enforcement Decree of the Corporate Tax Act” refers to a claim equivalent to stocks of free capital reduction claimed by the Plaintiff, which was converted into investment according to the rehabilitation

(B) However, in addition to the purport of the oral argument as a whole, the Plaintiff’s claim against Nonparty Company 2 and 5 constitutes “bonds on bills which have passed six months or more from the date of occurrence of default” under Article 19-2 subparag. 9 of the former Enforcement Decree of the Corporate Tax Act. In this case, if an entrepreneur fully or partially recovers bad debts, the bad debts tax amount shall be added to the output tax amount on the date of recovery (proviso of Article 17-2(1) of the former Value-Added Tax Act), and the recovered amount shall be added to gross income when calculating the amount of income in the business year to which the date of recovery belongs (Article 19-2(3) of the former Corporate Tax Act (amended by Act No. 11128, Dec. 31, 2011). In this case, where bad debts were recovered in the same taxable period or business year like bad debts occurrence, it cannot be recognized that the Plaintiff acquired bad debts or bad debts in the above business year in lieu of the amount of bad debts acquired in deductible expenses (Article 27(1).

(C) Therefore, the Plaintiff’s assertion 1 is without merit.

(2) Judgment on the Plaintiff’s assertion

As seen earlier, 000 won appropriated as the bad debt depreciation cost by the Plaintiff is the portion corresponding to the shares reduced free of charge after a debt-equity swap (58% of the bonds) among the bonds held in the non-party company, and there is no amount appropriated as the bad debt depreciation cost for the remaining 42% of the remaining 42% of the bonds (if the above part of the bonds was included in the bad debt depreciation cost, the repayment amount of the non-party company's debt in 2010 should be included in the income statement in 2010 of the Plaintiff's income statement (Evidence No. 6) but such content cannot be found in the plaintiff's income statement (Evidence No.

3. Conclusion

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