[1] In calculating the purpose of Article 34(1) of the former Corporate Tax Act, Article 61(2) of the former Enforcement Decree of the Corporate Tax Act, and the scope of the allowance for bad debts to be included in deductible expenses by a financial institution, whether one of the methods under Article 61(2) of the former Enforcement Decree of the Corporate Tax Act, regardless of the method of calculating the allowance for bad debts applied

[2] In a case where the National Agricultural Cooperative Federation excluded a customer's deposit for which five years have passed since the last transaction date among the customer's part of the dormant deposit, based on the size of the balance, but the tax authority included the inclusion in the gross income, the case affirming the judgment below that the extinctive prescription of the dormant deposit was interrupted by the National Agricultural Cooperative Federation'

[1] The provisions of Article 34(1) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010); Article 61(2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17457, Dec. 31, 2001) shall be deemed as an selective determination of the method of calculating the limit on the total amount of allowances for bad debts that can be included in deductible expenses for the unique purpose of the Corporate Tax Act, regardless of the accumulation method used for the purpose of settlement of accounts, with respect to allowances for bad debts accumulated at the time of settlement of accounts for each business year by a financial institution. Thus, it shall be interpreted that a financial institution may choose the most favorable limit within its scope and include the allowances for bad debts accumulated at the time of settlement of accounts within the scope of inclusion of the bad debts

[2] The case affirming the judgment below holding that in the case where the National Agricultural Cooperative Federation excluded a customer's deposit for which five years have elapsed since the last transaction date among part of the customer's dormant deposits was differentiated depending on the size of the balance, but the tax authority included the inclusion in the gross income, the National Agricultural Cooperative Federation's payment of interest in the customer's deposit account constitutes the approval of the obligation because it indicates the existence of the deposit claim, and the deposit holder can confirm the fact by making an Internet banking balance and acquiring the right to dispose of the deposit, so the notification of the approval of the obligation was reached at the time of the deposit owner and the extinctive prescription of the deposit was suspended, and the tax authority's payment was completed at the expiration of five years from the last transaction date, and all of it was included in the gross income at that time in the business year.

[1] Article 34(1) of the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 2010); Article 61(2) of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 17457, Dec. 31, 2001) / [2] Articles 111(1) and 168 subparag. 3 of the Civil Act; Article 64 of the Commercial Act; Article 14 of the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 201)

National Agricultural Cooperative Federation (Attorneys Son Ji-yol et al., Counsel for the plaintiff-appellant)

The director of the Nam-gu Tax Office (Law Firm Hanmun, Attorneys Park Jong-dong et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2008Nu28921 decided July 28, 2009

The part of the lower judgment against the Plaintiff regarding the disposition of imposition of corporate tax for the second half of the 2000s and each business year of 2001 shall be reversed, and that part of the case shall be remanded to the Seoul High Court. The remainder of the Plaintiff’s appeal

The grounds of appeal are examined.

1. Plaintiff’s ground of appeal

A. As to the limits of the bad debts allowance

Article 34 (1) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010) provides that "where a domestic corporation appropriates allowances for bad debts for bad debts for bad debts in each business year in order to appropriate such allowances for bad debts of credit account receivables, loans, and other corresponding claims, they shall be included in the deductible expenses within the scope of the amount calculated as prescribed by Presidential Decree," and Article 61 (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) upon delegation from the financial institution of the Plaintiff, etc. provides that "amount calculated as prescribed by Presidential Decree" in Article 34 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Act No. 10423, Dec. 30, 201) means the amount equivalent to 2% of the total book value of credit account receivables, loans, and other corresponding claims as of the end of the relevant business year, which shall be accumulated.

(1) citing the reasoning of the judgment of the court of first instance, the court below acknowledged the following as follows: ① The plaintiff set aside allowance for bad debts in accordance with the standards of the Financial Supervisory Commission at the time of the settlement of accounts for each business year; ② The plaintiff did not set aside allowance for bad debts in the second half of the 2000 business year without setting aside allowance for bad debts for claims of the State, etc.; and the amount of allowance for bad debts in the business year 2001 when the amount of allowance for bad debts exceeds the limit for bad debts in the tax adjustment; ② The defendant did not include the amount exceeding the limit calculated according to the standards of the Financial Supervisory Commission for bad debts in the business year 200; ② the amount of allowance for bad debts in the business year 201, the amount of allowance for bad debts in the business year 200 and the amount of allowances for bad debts in the business year excluding claims against the State, etc. ; ② the financial institution did not adopt the rate of allowance for bad debts in the calculation of bad debts under the Corporate Tax Act 2% method and method.

However, regardless of the method of accumulation used for the purpose of settlement of accounts with respect to allowances for bad debts accumulated at the time of settlement of accounts by financial institutions such as the plaintiff, etc., it shall be deemed that the method of calculating the total amount of allowances for bad debts that can be included in deductible expenses for the proper purpose of the Corporate Tax Act. Thus, regardless of which method was applied at the time of settlement of accounts and the accumulation of allowances for bad debts, the plaintiff should interpret that the amount of allowances for bad debts accumulated at the time of settlement of accounts may be included in deductible expenses within the scope of the most advantageous limit when the corporation calculates the allowances for bad debts. Therefore, even if the plaintiff accumulated allowances for bad debts in accordance with the Financial Supervisory Commission standards at the time of settlement of accounts, the allowances for bad debts accumulated at the time of settlement of accounts may be included in deductible expenses within the larger amount between the amount equivalent to 2% of the balance of accounts and the amount calculated by multiplying the credit by the ratio of bad debts to the credit.

Therefore, the judgment of the court below that, as long as the plaintiff did not accumulate the allowance for bad debts in setting aside the allowance for bad debts in accordance with the standards of the Financial Supervisory Commission at the time of settlement of accounts, the limit of the allowance for bad debts in the business year of the second half of 2000 and the business year of 2001 is limited to the allowance for bad debts which is set aside in accordance with the standards of the Financial Supervisory Commission with respect to the remaining claims except for the claims against the State, etc., it erred by misapprehending the legal principles as to the limit of the allowance for bad debts and failing to exhaust all necessary deliberation. The ground of appeal assigning this error

B. Whether assets revaluation spread should be included in the calculation of earnings

According to Articles 33(1) and 13(1)1 of the Assets Revaluation Act, Article 18 subparag. 1 and Article 39(1) of the former Corporate Tax Act (amended by Act No. 6558, Dec. 31, 2001; hereinafter the same) and Article 67(1) and (2), and Article 64(3)2 and 64(4)2 of the former Enforcement Decree of the Corporate Tax Act, a domestic corporation shall include any difference in the revaluation of land under Article 13(1)1 of the Assets Revaluation Act in its gross income in calculating the amount of income under the Corporate Tax Act, but it may include the same amount in its gross income in calculating the amount of income under the Corporate Tax Act for the business year in which the relevant land is disposed of.

After comprehensively taking account of the adopted evidence, the lower court determined that all of the entities under Articles 18 subparag. 1, 39, and 42(1)1 of the former Corporate Tax Act are “domestic corporations,” including non-profit domestic corporations,” and that the proviso of Articles 13(1)1 and 33(1) of the Assets Revaluation Act is applicable only to profit-making corporations and does not apply to non-profit corporations. Thus, the lower court also determined that the Plaintiff, a non-profit corporation, can impose corporate tax on the Plaintiff subject to revaluation spread under the Assets Revaluation Act, and that such disposition cannot be deemed as contrary to the no taxation without law, unless the aforementioned provisions provide the basis for taxation.

In light of the above provisions and relevant legal principles and records, the judgment of the court below is acceptable, and there is no error in the misapprehension of legal principles as to the corporate tax on revaluation spread of a non-profit corporation, the nature of revaluation reserve and the principle of no taxation without law, as alleged in the grounds of appeal.

C. The plaintiff filed an appeal on the part of corporate tax for the business year 2002, but did not contain legitimate grounds of appeal.

2. As to the Defendant’s ground of appeal

A. As to the expiration of the extinctive prescription of dormant deposits

Approval as a ground for the interruption of prescription for a claim shall be established by expressing that an obligor who is a party to the benefit of prescription is aware of the existence of the right to the obligor or his/her agent, who is the party to the benefit of prescription. In such a case, the method of indication does not require any form, and it does not require any explicit or implied case (see Supreme Court Decision 92Da947 delivered on April 14, 1992), and the effect of the interruption of prescription due to approval takes place when the obligor is placed in an objective state where the content of the approval can be known in light of social norms (see Supreme Court Decision 97Da31281 delivered on November 25, 1997).

Upon citing the judgment of the court of first instance, the court below acknowledged that ① (a) the Plaintiff reported corporate tax for the business year of 199 through 2003 in excess of the balance of 10,000 won among the deposits of customers for whom five years have passed since the date of the final transaction, was included in the gross income under the Commercial Act; (b) the Defendant calculated the interest income tax for the balance of less than 100,000 won within six years from the date of the final transaction in accordance with the size of the balance; and (c) as to the deposit of not less than 100,000 won in each business year at the time when five years have passed since the date of the final transaction; and (c) the Plaintiff acknowledged the bank’s balance as inclusion in the gross income for each business year at the time when five years have passed since the date of the final transaction; and

Based on such factual basis, the lower court determined that the statute of limitations on the deposit is unlawful on the grounds that the Plaintiff’s deposit in the customer’s deposit account constitutes the approval of the obligation, because the Plaintiff’s deposit in the customer’s deposit account is aware of the existence of the deposit claim, and it constitutes the approval of the obligation, since the deposit owner can confirm the fact by making an Internet banking balance and obtaining the right to dispose of the deposit in the deposit account, it can be said that it reached the deposit owner at the time of notification of the approval of the obligation. Accordingly, on the other premise, the statute of limitations on the deposit was suspended, on the ground that the statute of limitations has expired when the Defendant’s deposit in the customer’s deposit was completed

Examining the reasoning of the lower judgment in light of the relevant provisions and the evidence duly admitted, the lower court’s determination is acceptable as it is in accordance with the above legal doctrine. In so doing, it did not err by misapprehending the legal doctrine on the acceptance of debt and the arrival of declaration of intent, as otherwise alleged

Furthermore, even if the Plaintiff’s deposit of interest in the customer’s deposit account constitutes an acceptance of the obligation and the statute of limitations has been interrupted, the lower court argues that there was an error of law that affected the conclusion of the judgment by failing to review whether the Plaintiff took any measure again before the lapse of five years. However, as long as the statute of limitations of the deposit claim at issue in each business year is not completed, the disposition imposing corporate tax of this case premised on the completion of the statute of limitations is unlawful, and the circumstance that occurred after the pertinent business year does not affect the conclusion on the illegality of the disposition imposing corporate tax of this case. Thus,

B. As to the mutual aid fund upon completion of extinctive prescription

The lower court, citing the reasoning of the first instance judgment, acknowledged the facts as indicated in its holding, and determined that it was unlawful for the Defendant to include the mutual aid money in gross income for each business year at the time when the statute of limitations has expired, on the ground that the Plaintiff expressed his/her intent to waive the statute of limitations on the grounds that the Plaintiff could have objectively known that the mutual aid contractor and the beneficiary of mutual aid would have renounced the statute of limitations on the mutual aid money by sending an individual guide that the statute of limitations has expired to the mutual aid contractor and the beneficiary of mutual

Examining the reasoning of the lower judgment in light of relevant provisions, legal principles, and evidence duly admitted, the lower court’s determination is acceptable. In so determining, contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal doctrine regarding the waiver of prescription benefits, or by failing to exhaust all necessary deliberations, contrary to logical and empirical rules.

3. Conclusion

Therefore, the part of the judgment of the court below against the plaintiff regarding the imposition of corporate tax (including additional tax) for the second half of the 2000 business year and each business year of 2001 shall be reversed, and this part of the case shall be remanded to the court below for a new trial and determination. The remaining appeals by the plaintiff and the defendant shall be dismissed. It is so decided as per Disposition by the assent of all participating

Justices Yang Chang-soo (Presiding Justice)