KSS Shipping Co., Ltd. (Law Firm Hoh, Attorneys Kim Yong-ok, Counsel for the plaintiff-appellant)

Head of tax office and one other

November 17, 2016

1. The plaintiff's claims against the defendants are all dismissed.

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

The portion of the corporate tax imposed on the Plaintiff on December 12, 2014 and the additional tax of 35,780,883 won and the additional tax of 14,061,07 won and the additional tax of 28,447,596 won and the additional tax of 8,014,004 won and the additional tax of 29,485,471 won and the additional tax of 5,099,2299, and the additional tax of 148,207 won and the additional tax of 5,251, and the amount of income for 208,251, and the amount of income for 2013,71, the amount of income for 2013, the amount of income for 2015, the amount of income for 2013, the amount of income for 205, the amount of which reverts to the Plaintiff shall be revoked.

1. Details of the disposition;

A. On July 28, 2006, the Plaintiff acquired each of the above ground new buildings (hereinafter collectively referred to as the “instant real estate”) on June 1, 2007, and leased the instant real estate to Nonparty 1, the largest shareholder of the Plaintiff on October 29, 2008.

B. From October 16, 2014 to December 5, 2014, the director of the Seoul Regional Tax Office conducted an integrated investigation of the Plaintiff’s regular corporate tax (hereinafter “instant tax investigation”) for the business year 2012 from October 16, 2014 to December 5, 2014; ① under the premise that “the acquisition of the instant real estate by the Plaintiff is the same as the loan to Nonparty 1, the purchase price of the real estate to be actually used by Nonparty 1 is the same as the loan to Nonparty 1”, the acquisition price of the instant real estate shall be deemed as the provisional payment to Nonparty 1, and the acquisition price of the instant real estate shall be deemed as the unfair calculation and the interest shall be deemed as 325,845,229 won (the portion of the acquisition price received by the Plaintiff as the rent was deducted); ② the depreciation cost shall be deemed as an asset unrelated to the instant real estate and the expenses for maintenance and management, 37,183,297 won shall be included in deductible expenses and notified the above head of the

C. Accordingly, on December 12, 2014, the head of the Seoul District Tax Office notified the Plaintiff of the rectification and correction of KRW 35,780,883 and KRW 14,061,07 of corporate tax for the business year 2011 and KRW 28,47,596 of corporate tax for the business year 2012 and KRW 8,47,596 of corporate tax for the business year 2013 and KRW 5,09,229 of corporate tax for the business year 2013, respectively. On January 2, 2015, the head of the Seoul District Tax Office notified the Plaintiff of the rectification and correction of KRW 137,463,582 of income amount for the business year 201, KRW 10,227,223 of income amount for the business year 2012, KRW 315,371 of income amount for the business year 2013 (hereinafter collectively referred to as “income amount”).

D. The Plaintiff, who was dissatisfied with the instant disposition, filed an objection on March 13, 2015 and filed an appeal with the Tax Tribunal on July 14, 2015, but was dismissed on December 28, 2015.

[Ground of Recognition] Facts without dispute, Gap evidence 1-1 through 4, Gap evidence 2, 4, Gap evidence 3-1, 2, Gap evidence 5-1 through 3, Gap evidence 6-1, 2, Gap evidence 7-1 through 3, Eul evidence 6-8, and the purport of the whole pleadings, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

First, when Nonparty 1 purchased the instant real estate and provided medical treatment to Nonparty 1, the Plaintiff intended to use the said real estate as a recreation facility for business partners and employees upon the termination of Nonparty 1’s medical treatment. Therefore, the actual and formal owner of the instant real estate is the Plaintiff, and Nonparty 1 is only the lessee of the said real estate. As such, in the instant disposition, the part that deemed that the Plaintiff leased the said real estate to Nonparty 1 during the disposition of this case, the Plaintiff deemed that the said real estate was leased to Nonparty 1 during the disposition of this case, and was unlawful in the calculation of the recognized interest and the amount corresponding thereto. In addition, the real estate leasing business is included in the Plaintiff’s purpose business, and the Plaintiff acquired the instant real estate and leased it to Nonparty 1 as part of the measures taken by the stable shareholder.

Second, the instant disposition was rendered as part of retaliation taxation in order to have attempted to reform the regulatory framework of “the imposition and collection of taxes” when Nonparty 1 serves as co-chairperson of the Regulatory Committee, and is null and void as it constitutes abuse of the right to impose taxes.

B. Relevant statutes

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

(c) Markets:

1) The legal nature of the instant real estate and the funds for its acquisition

A) Relevant legal principles

Article 52 of the Corporate Tax Act provides that “the denial of unfair act and calculation” under Article 52 of the Corporate Tax Act means a legal fiction that a corporation unfairly avoided or reduced tax burden by abusing the various forms of transactions listed in each subparagraph of Article 8(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26981, Feb. 12, 2016; hereinafter the same shall apply) without using a reasonable method with a person with a special relationship. This provision applies only to cases where, in light of the economic person’s perspective, it is deemed that the person with a right to taxation denies or mitigates the tax burden by using the various forms of transactions, and that the person with a special relationship has no objective and reasonable income under the conditions prescribed by the law. Determination of whether the economic rationality exists shall be made based on whether the transaction is unfair in light of sound social norms or commercial practice, and the special circumstances at the time of the transaction should also be considered (see, e.g., Supreme Court Decision 2014Du7164, Apr. 16, 2019).

In addition, according to Article 27 subparagraph 1 of the Corporate Tax Act and Article 49 (1) (a) of the former Enforcement Decree of the Corporate Tax Act, among expenses paid by a domestic corporation for each business year, real estate not directly used for the business of the corporation, namely, expenses incurred in the acquisition and management of assets irrelevant to the business, such as expenses incurred in the acquisition and management of assets irrelevant to the business, maintenance expenses, repair expenses, and other related expenses shall not be included in deductible expenses for the purpose of calculating the amount of income for the pertinent business year. The term "business of the corporation" as mentioned above is limited to the

B) the facts of recognition

① Around August 2005, Nonparty 1, the largest shareholder of the Plaintiff, was subject to ○○ 4 diagnosis, and the Plaintiff decided to purchase the instant real estate around October of the same year.

② During the new construction process of the instant real estate, Nonparty 1 took the method of modifying the above real estate’s design (such as changing the studio into a book or installing a clothes, cremation, etc.), additional landscaping (the cost of KRW 85 million was required after Nonparty 1 ordered to put the pertinent real estate in his own place, and the cost of KRW 85 million was required), replacement of equipment (the replacement of laundry machines, books, etc. in line with Nonparty 1’s entry), etc. directly consulted with the Plaintiff and the Si Corporation, and continued to consult with the Plaintiff and the Plaintiff on the matter of settling additional costs and liquidated damages.

③ In the e-mail sent by Nonparty 1 to the Plaintiff’s employee, Nonparty 1 stated, “The original responsibility for the payment of management expenses is the Nonparty 1 himself, but the tax problem may arise, so it would be desirable to take part of the Plaintiff’s burden, and, for the purpose of one’s own medical care, the Plaintiff would incur a tax burden.”

④ In the official letter that the construction company sent the Plaintiff the instant real estate to the Plaintiff, it was known that the instant real estate was actually sold to Nonparty 1, not the Plaintiff.

⑤ From April 2007, Nonparty 1 resided in the instant real estate. From October 2008, Nonparty 1 entered into a lease agreement with the Plaintiff and entered into a contract. The rent was also determined as KRW 18 million per annum as Nonparty 1 proposed.

④ Nonparty 1 temporarily left the pertinent real estate before and after the instant tax investigation, and re-transfered to the instant real estate. On June 9, 2015, the ownership transfer registration was completed in Nonparty 1’s name.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 6, 7, 12, 13, 25, Eul evidence Nos. 1 through 5, 9 through 12, and the purport of the whole pleadings

C) the board:

In light of the aforementioned legal principles, the Plaintiff purchased the instant real estate immediately after Nonparty 1’s diagnosis. Nonparty 1’s housing and recuperation appears to be the main purpose of purchasing the instant real estate, Nonparty 1 directly involved in the construction process of the instant real estate and remodeled the said real estate to his own direction. Nonparty 1’s above attitude cannot be deemed as a lessee for a limited period of time. Nonparty 1 had Nonparty 1 use the instant real estate in advance, and Nonparty 1 could not have used the instant real estate as personal housing. Nonparty 1 could have actually used the said real estate without any interest in the amount of rent, etc., rather than having Nonparty 1, who was aware of corporate tax burden, to keep the form of management fee, rent, etc., and in fact, the real estate was used exclusively by Nonparty 1 in the name of Nonparty 1, the ownership transfer registration was completed, and the real estate was also deemed to constitute a non-party 1’s act of acquiring the instant real estate for the purpose of using the instant real estate without any special interest in the Plaintiff’s housing and its financial convenience.

2) Whether the disposition of taxation constitutes abuse of the right to impose taxes

It is insufficient to recognize that the instant disposition was conducted as a part of retaliation taxation, solely with the records of No. 10 and reference materials submitted by the Plaintiff, and there is no other evidence to acknowledge it. Therefore, the Plaintiff’s assertion on this part is without merit.

3. Conclusion

Therefore, the plaintiff's claim against the defendants is dismissed as it is without merit. It is so decided as per Disposition.

[Attachment]

Justices Kang Jong-hee (Presiding Justice) (Presiding Justice)

1) Since the date of the disposition stated in the application for amendment of the purport of the claim filed on September 20, 2016 appears to be a clerical error, the aforementioned decision will be made as above.