Seoul High Court 2008Nu37062 (20 May 20, 2010)

National High Court Decision 2006Do1115 ( October 09, 2007)

Borrowing transactions cannot be the comparable transaction for issuing bonds-backed securities because it cannot be deemed that the possibility of comparison is high.

The loan transaction in this case is not subject to comparative transactions because there is a difference between the issue of asset-backed securities and the risk of bank loan transactions, LTV, maturity, and fixed and change of interest rates. In light of the legislative intent of dividend income deduction of a special purpose company, the existence of tax avoidance through dividend income deduction is irrelevant to whether dividend income deduction is granted or not.

2010Du11771 Revocation of Disposition of Corporate Tax Imposition

XX Limited Liability Company

Head of the District Tax Office

Seoul High Court Decision 2008Nu37062 Decided May 20, 2010

September 27, 2012

The appeal is dismissed.

The costs of appeal are assessed against the defendant.

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

1. Regarding ground of appeal No. 1

Article 4(1) of the former Adjustment of International Taxes Act (amended by Act No. 9266 of Dec. 26, 2008; hereinafter “Adjustment of International Taxes Act”) provides that “The tax authorities may determine or rectify the resident’s tax base and tax amount on the basis of the arm’s length price if the transaction price falls short of or exceeds the arm’s length price in an international trade between one of the parties to the transaction, which is a foreign special relationship.” Article 5(1)1 provides that “one of the methods of computing the arm’s length price” means one of the methods of assessing the arm’s length price: “The method of deeming the arm’s length price as the arm’s length price in an international trade between the residents and the foreign specially related parties.” Article 5(1) of the former Enforcement Decree of the Adjustment of International Taxes Act (amended by Presidential Decree No. 18628 of Dec. 31, 2004) provides that “Where an arm’s length price is calculated under the provisions of Article 5(1) of the Adjustment of International Taxes Act, it means the most reasonable comparison of the following standards between the parties and special relationship.”

Based on the evidence of employment, the lower court: (a) acquired loan claims worth of 000 won in total, etc. on May 7, 2001 based on an underlying asset of the Plaintiff; (b) on May 7, 2001, the 1/7 of the issue price of the stock-backed securities shall be KRW 00; (c) on May 5, 200, the remaining 6/7 shall be 7 years with a maturity of 12% ($ 000); (c) on bond-backed securities with a maturity of 18% per annum (00 US dollars); and (d) on bond-backed securities with a maturity of 0% annual interest rate of KRW 70 (0%) calculated on May 8, 201, the lower court determined that the Plaintiff was 10 U.S. dollars-backed securities with a special relationship of the Plaintiff’s first 20% interest rate of KRW 70 (00%) and the Plaintiff’s first bonds-backed securities (hereinafter “the instant bonds-backed securities”).

Based on the aforementioned factual basis, the lower court determined as follows: (i) the instant bond-backed securities issued are based on the instant loan-backed securities; (ii) while the instant loan-backed securities were high risk transactions other than non-performing bonds without any collateral; (iii) the maturity of the instant bond-backed securities was 5 years in cases of subordinated bonds; and (iv) the maturity of the instant loan-backed securities was 7 years in cases of subordinated bonds; (iii) not only the amount of the instant loan-backed securities directly contributed by OO as a party to the instant loan; and (v) the amount of 30% in the instant loan-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-backed securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related securities-related funds-related funds-related funds-related funds-related funds-related funds-related funds-based funds-based funds-based funds-based funds-based funds-.

In light of the above provisions and relevant legal principles and records, the above judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the selection of comparative transactions and the burden of proof in calculating the arm's length price, as otherwise alleged in the ground of appeal.

2. Regarding ground of appeal No. 2

Article 51-2 (1) 1 of the former Corporate Tax Act (amended by Act No. 8141 of Dec. 30, 2006; hereinafter the same) provides that "where a special purpose company under the Asset-Backed Securitization Act distributes not less than 90/100 of distributable profits prescribed by the Presidential Decree, the amount shall be deducted from the income amount in the business year concerned," and Article 86-2 (1) of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 18174 of Dec. 30, 2003) provides that "where a special purpose company under the Asset-Backed Securitization Act distributes not less than 90/10 of distributable profits prescribed by the Presidential Decree, the amount shall be deducted from the income amount in the business year concerned."

Based on the evidence of employment, the court below found the following facts: ① on December 17, 2001, the plaintiff paid 000 won for the consulting service costs of this case to the OAA Korea, LLC, hereinafter referred to as "OA") and included them in the calculation of losses, and reported the corporate tax base for the business year of September 2002; ② After that the consulting service costs of this case were actually paid without the provision of services in the course of the tax investigation by the Seoul regional tax office, the plaintiff was found to have embezzled the consulting service costs of this case to the 0th representative director of the OA and disposed of them as other income; ② the plaintiff held a provisional general meeting of shareholders; ② the 2000 won for the consulting service costs of this case to be added to the 1,000 won for the 1,000 won of the consulting service costs of this case; ③ the 20th of the 205th of the 0th of the 205th of the 201.

Based on the above factual basis, the court below held that, even if the plaintiff disposed of the amount equivalent to the consulting service costs of this case as other income (e.g., profit outflow) without internal reservation, the plaintiff was entitled to claim damages or return of unjust enrichment against the amount equivalent to the consulting service costs of this case, and did not waive it or confirm the act of embezzlement. Furthermore, as the amount equivalent to the consulting service costs of this case was recovered from the OA on May 26, 2006 from the OA on the grounds that the increase in the amount of income resulting from the non-deductible of the consulting service costs of this case is legitimate, and that the additional dividend resolution is legitimate, and that the dividend should be deducted from the amount of income for the business year of September 2002 pursuant to Article 51-2 (1) of the former Corporate Tax Act, the part that the defendant denied the effect of the revised return of corporate tax for the business year of September 2002.

In light of the above provisions and relevant legal principles and records, the above fact-finding and judgment of the court below are just, and there is no error in the misapprehension of legal principles as to the dividend income deduction of a special purpose company, or in violation of the principle of free evaluation of evidence against logical and empirical rules.

3. As to the omission of judgment

The reason of the written judgment is to indicate the judgment on the party's allegations and other means of offence and defense to the extent that it can be recognized that the text is fair, and it is not necessary to judge all the parties' arguments and methods of offence and defense (Article 208 of the Civil Procedure Act).

The court below revoked each of the dispositions of this case by citing the Plaintiff’s claim without making a decision on the above assertion, on the ground that the disposition of this case, which was not necessary to examine the Plaintiff’s argument in violation of the principle of prohibition of duplicate tax investigation, was unlawful. Examining the above legal principles in light of the above, the court below did not err in omitting

4. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.