Supreme Court Decision 2007Du19683 ( December 10, 2009)

Seoul High Court 2007Nu650 (Law No. 31, 2007)

The outstanding balance of the discounted debt estimated by the redemption of the debt falls under the profits from the exemption of the debt.

In calculating the amount of income under the Corporate Tax Act according to the repayment of debts, the outstanding balance of present value discount margin equivalent to the difference between the book value and the amount of redemption of the debts shall be included in the calculation of earnings from debt

The contents of the decision shall be the same as attached.

1. Revocation of a judgment of the first instance;

2. The defendant's refusal to rectify corporate tax for the business year 2001 against the plaintiff on May 24, 2004 shall be revoked.

3. The total costs of the litigation shall be borne by the defendant.

The same shall apply to the order.

1. Circumstances of dispositions of the instant case;

A. The plaintiff was ordered to commence a company reorganization procedure from the Suwon District Court on May 31, 1993, and on May 2, 1994, with respect to reorganization security claims, the principal and interest accrued prior to the commencement of the company reorganization procedure shall be repaid in installments from May 2, 1995 to 2004, and interest accrued after the commencement of the company reorganization procedure (hereinafter referred to as "interest accrued") shall apply to the principal only to the floating interest rate, the interest on the interest accrued during the period from May 2005 to 2007 shall be repaid in installments. The interest on the interest accrued during the period from May 31, 1993 shall not be paid, the principal shall be divided from the date of the company reorganization procedure to the date of the company reorganization procedure, the interest accrued prior to the commencement of the company reorganization procedure shall be divided from the fixed amount to the date of the company reorganization, the interest rate calculated by subtracting three percent from the floating interest rate only to the principal, and the interest on the installment shall not be paid from the approval plan.

B. On January 9, 2001, the Plaintiff paid the total amount of KRW 45,192,536,037 (the remaining debt amount on the account book + KRW 40,175,068,067 + future interest KRW 5,017,467,970 + KRW 5,017,467,970) between the Plaintiff and ○○ Bank (the “○○ Bank”) (the obligee) (the obligee) on January 11, 2001, by applying the present rate of KRW 28,244,55,283, which is the value discount as of January 11, 201, the Plaintiff paid the total amount of KRW 28,54,55,283, which is the remaining debt amount on the account of the above reorganization plan, to ○○ Bank on January 11, 2001.

C. As above, the amount of debt in the account book was reduced by the amount of 11,930,512,784 won (28,067 won - 28,244,55,283 won) which is the difference between the amount of debt in the above account book and the amount of debt actually paid at the present value upon the redemption of the debt in the above account book. The amount of debt in the account book was calculated by applying the discount rate of 12% per annum for internal accounting, and the amount of debt 27,812,753,32,362,379 won ("40,176,068,067 won - 27,812,753,328 won) as of the above account book and the amount of debt in the above account book 12,362,314,739 won as of the present amount of debt in the account book and the amount of debt in the above account book 12,36145,291,41,251,41,41,297.

D. On March 31, 2004, the Plaintiff filed a request for correction with the purport that the repayment of the remaining debt after January 11, 2001 to the Defendant at a discounted value does not actually reduce the debt. Thus, even if the repayment of debt falls under the profit of repayment, it cannot be viewed as the profit of repayment of debt. Even if it falls under the profit of repayment of debt through a decision of approval of reorganization plan, it constitutes an application of Article 44 of the Restriction of Special Taxation Act, which provides that the payment of debt shall not be included in the calculation of earnings during the pertinent business year and the period of three business years after the end of the pertinent business year, and

E. On May 24, 2004, the Defendant appropriated the instant discount amount of KRW 12,362,314,739 for compensating for losses carried forward in the business year of 1994, and made a decision to refund corporate tax of KRW 27,542,663, which shall be bound by the decision to refund corporate tax of KRW 27,542,663, and with respect to the remainder of KRW 12,263,948,087 (hereinafter referred to as the "the above-mentioned amount"), if the obligation is temporarily repaid at an early time at a discounted value at a certain point, the difference shall be included in the gross income as the profit from the repayment of the obligation. Since the above amount of the issue was caused by an agreement between the Plaintiff and ○ bank, it does not fall under Article 44 of the Restriction of Special Taxation Act."

F. On July 28, 2004, the Plaintiff requested an inquiry to the National Tax Tribunal, and was dismissed on July 18, 2005.

[Ground of recognition] Evidence Nos. 1-1, 2, 2-1, 2-2, 3-1, 2, 4-1, 5-1, 1, 2-2, and 1-2, and the purport of the whole pleadings

2. Whether the imposition disposition of the instant case is lawful; and

A. The plaintiff's principal

The imposition disposition of this case shall be revoked as it is illegal for the following reasons:

(1) Even if the Plaintiff’s debt is extinguished by temporarily repaying the remaining debt at an early amount at the discounted value after January 11, 2001 to the ○○ Bank, the key issue amount is merely a nominal interest arising from the extinguishment of the debt, and thus, does not increase the Plaintiff’s net asset. However, the imposition of tax by considering it as a deferred interest on debt, based on which it is included in the gross income, is contrary to the principle of substantial taxation and the principle of excessive prohibition.

(2) Even if the issue amount in this case is the profit from debt exemption, according to the investigation report (Evidence A9) prepared at the time of the application for commencement of the company reorganization proceedings in around 192, the Plaintiff remains in KRW 15,607,031,316 of the loss carried forward for the business year 1991. It is not thereafter reflected in the tax base at the time of the corporate tax return. Thus, the issue amount does not remain when the above issue amount is appropriated for compensating the loss carried forward. Thus, the above issue amount cannot

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(1) Judgment on the first ground of appeal by the plaintiff

(A) Article 14(1) of the former Corporate Tax Act (amended by Act No. 6558, Dec. 31, 2001; hereinafter “the Act”) provides that “The income of a domestic corporation for each business year shall be the amount calculated by deducting the total amount of losses incurred during the business year from the total amount of earnings accrued during the business year.” Article 40(1) provides that “the business year to which profits and losses accrued for each business year of a domestic corporation shall be the business year which includes the date on which the profits and losses are finalized.” However, with respect to the evaluation of assets and liabilities, where the book value of the assets and liabilities possessed by a domestic corporation increases or decreases, the book value of the assets and liabilities shall be the pre-assessment value in the calculation of the income amount for the business year to which the date of the evaluation belongs and each business year thereafter, shall not be reflected in the calculation of the income amount for the relevant business year, and shall be reflected in the calculation of the income amount of the taxpayer to realize the profits and losses by disposing of the assets or transactions.”

Accordingly, in a case where a corporation redeems a debt whose maturity date has not yet arrived at at a discount in the current value, the amount of the debt decrease, which is the difference between the original amount of the debt on the account book and the amount actually repaid (i.e., the amount equivalent to the current discount) by evaluating the current value, shall be included in the calculation of earnings, and shall not be deemed to be in violation of the principle of substantial taxation or the principle of excessive prohibition. In addition, prior to the redemption before a corporation’s redemption before the maturity, it shall include the amount of the debt at a discount in the current value on the basis of a certain interest rate, and shall include the amount of the debt discount in the calculation of the income amount for the pertinent business year, as it is not reflected in the calculation of the income amount for the pertinent business year under the Corporate Tax Act. Thus, when calculating the income from the actual repayment, the amount of the debt decrease due to the repayment shall be calculated based on the original amount of the debt on the account book in the absence of such accounting (see

(B) Therefore, as seen in the circumstances of the disposition of this case, the calculation of the amount of income under the Corporate Tax Act for the first time when the plaintiff reported and paid corporate tax for the business year 2001, among the liquidation debts to ○○ bank, was included in the calculation of the amount of income equivalent to the difference between the book value of the debt and the actual repayment amount, and it is appropriate to reflect the increase in net assets of the plaintiff in the amount of income (However, as seen in the above basic facts, the amount to be actually included in the calculation of the gross income is more than the discounted amount of 11,930,512,784 won, which is the decrease in the amount of debt on the account books due to the actual repayment of the above basic facts, but more than the discounted amount of income in this case, the difference between the discounted amount by internal accounting and the decreased amount of debt on the above account books, and thus, it is justifiable to have been included in the calculation of gross income as the whole amount equivalent to the decreased amount of debt, as alleged by the plaintiff).

(2) Judgment on the plaintiff's second ground

(A) Article 18 Subparag. 8 of the Act provides that the amount appropriated to compensate for losses carried forward as prescribed by the Presidential Decree among the reduced amount of liabilities due to the exemption from or extinguishment of debts shall not be included in gross income in calculating the income amount for each business year. The gains from debt exemption shall be first appropriated to compensate for the said losses carried forward and only the remaining amount shall be included in gross income

Article 18 (1) of the Enforcement Decree of the Act (amended by Presidential Decree No. 17457, Dec. 31, 2001; hereinafter referred to as the "Enforcement Decree of the Act") provides that losses (the total amount of losses for each business year exceeds the total amount of losses for each business year pursuant to Article 14 (2) of the Act) other than losses succeeded to a merger and division shall not be deducted in the calculation of the tax base for each business year thereafter (Article 14 (2) of the Act). While the losses for each business year are not included in the tax base reported by the corporation, it shall not be included in the calculation of the tax base but shall be confirmed by the court (Article 13 (2) 2). Among losses under subparagraph 1 of the above Article 18 (1) of the Enforcement Decree of the Act, those losses shall not be included in the deduction period for five years under Article 13 (1) of the Act, and the above losses shall not be included in the amount of ordinary tax treatment, but the defendant shall be deemed to be included in the amount of losses for the preceding business year.

(B) Each statement of Gap evidence Nos. 8 through 14 (including each number) and the testimony of Lee Jae-B by the witness at the trial, the following facts are acknowledged and there is no counter-proof.

1) When the Plaintiff prepares a report on the settlement of accounts in the business year 1991, the Plaintiff accounted as having earned surplus of KRW 1,077,598,513, and filed a report on corporate tax.

2) However, upon the aggravation of the plaintiff's management status, the plaintiff filed an application for commencement of company reorganization procedures with Suwon District Court 92m 751,753 around December 1992. Upon the appointment of the headA lawyer to conduct an investigation for the commencement of company reorganization procedures, the headA attorney-at-law had the BB certified public accountants investigate the plaintiff's property status between December 15, 1992 and March 20, 193. As of December 31, 1992, as of December 31, 1992, after investigating the plaintiff's assets and liabilities and comparing the books and liabilities, the member of the district court had the employee in charge of the plaintiff adjusts the amount of losses in the first place on the account book before 15,607, 031, 316 (hereinafter referred to as "the above case') as of December 19, 192, the amount of losses in excess of the actual amount of losses in the balance sheet as of 192.

3) Based on the results of the investigation by the above certified public accountant, the Plaintiff prepared a settlement statement that the instant loss carried forward was incurred before the commencement of the pertinent business year. The settlement statement reflects the instant loss carried forward in the business year, and calculates the amount of losses carried forward by adding the losses incurred in the business year 1992 to the amount of 26,120,104,918, and reported the corporate tax base and tax amount for the business year 192 to the Defendant. Furthermore, when filing the corporate tax base and tax amount for the business year 1993, the Plaintiff reported to the Defendant by reflecting the said difference in the business year 192 as it is.

4) On the other hand, the Suwon District Court, which is the legal cause of liquidation of the above corporate reorganization case, established the reorganization plan based on the balance sheet and income statement reflecting the results of the investigation report, based on the investigation report prepared and submitted by the investigating committee.

(C) As such, in light of the fact of the occurrence of the instant loss brought forward to the Defendant through the inspection by a certified public accountant appointed by the inspection committee in the investigation procedure for the commencement of the company reorganization procedure on December 31, 192, the fact of the occurrence of the loss brought forward to the Defendant was reflected in the financial statements such as balance sheet, etc., further reported to the Defendant through the corporate tax reporting procedure, and it was reported to the court prior to the commencement of the company reorganization procedure, and it was confirmed by the reorganization court upon the approval of the reorganization court, the accurate cause or circumstance leading up to the instant loss brought forward to the Plaintiff was not revealed, but at least, it is clear that the Plaintiff suffered the loss corresponding to the instant loss brought forward to the Plaintiff before the inspection was conducted as of December 31, 192.

In addition, there is no dispute between the parties that the carried-over loss of this case was not deducted from the calculation of the tax base after the business year 1993, and even though the carried-over loss of this case was not stated in the balance sheet and the profit and loss statement after the business year 1994, it shall be deemed that the carried-over loss of this case was not covered, and that the carried-over loss of this case remains as it was until the profit from the repayment

Thus, the loss carried forward of this case shall be deemed to fall under the loss carried forward under Article 18 (1) 1 of the Enforcement Decree of the Act (if there are circumstances that do not fall under subparagraph 1, it shall be deemed to fall under the loss confirmed by the liquidation court under subparagraph 2), and pursuant to Article 18 (8) of the Act, the amount calculated by deducting the amount appropriated to the loss carried forward of this case for the 1994 business year from 12,263,948,087, which is the remaining amount appropriated to the loss carried forward of this case, from 15,607,031,316, which is the loss carried forward of this case, shall be included in the gross income. It is clear that the above amount of the issue is less than the loss carried forward of this case and the amount of the above issue shall not be included in the gross income.

(D) Therefore, the Defendant’s refusal to rectify the corporate tax of this case, which is premised on the fact that the above issue amount among the instant discount amounts should be included in gross income, should be revoked as it is unlawful.

3.In conclusion

The plaintiff's claim of this case is justified, and the judgment of the court of first instance which has different conclusions is unfair, so it is revoked, and it is so decided as per Disposition with the cancellation of the disposition of this case.