[1] Whether the provisions of Article 18-3(1)3 of the former Corporate Tax Act concerning the non-taxation of provisional payments without office violate the principle of no taxation without law, the principle of prohibition of comprehensive legislation, and the principle of equality (negative)

[2] Whether the provisions of Article 43-2 (2) 2 of the former Enforcement Decree of the Corporate Tax Act concerning the scope of provisional payments without office deviate from the delegation of the parent law (negative)

[3] Scope of and criteria for determination of provisional payments related to business under Article 18-3 (1) 3 of the former Corporate Tax Act and Article 43-2 (2) 2 of the former Enforcement Decree of Corporate Tax Act

[4] In a case where a monetary lender agreed to receive interest higher than the monthly interest rate with a person with a special relationship, whether it is included in the “case where an agreement is made at the monthly interest rate on the current account” under the proviso of Article 47(2) of the former Enforcement Decree of the Corporate Tax Act excluded from the calculation of the recognized interest rate and the subject of rejection of unfair calculation (affirmative),

[5] Whether the main text of Article 47(2) of the former Enforcement Decree of the Corporate Tax Act concerning recognition and calculation of interest where a corporation that lent money to a related party at an interest rate lower than the current interest rate is deemed null and void because it exceeds the scope and limit of delegation under Article 20 of the former Corporate Tax Act (negative)

[1] Article 18-3 (1) 3 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) [see current Article 28 (1) 4 (b) of the Corporate Tax Act] Article 11, 59, and 75 of the Constitution / [2] Article 18-3 (1) 3 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998; see current Article 28 (1) 4 (b) of the former Corporate Tax Act); Article 43-2 (2) 2 (see current Article 53 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 198; / [3] Article 18-3 (2) 9 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15971 of Dec. 28, 1998 of the former Corporate Tax Act];

[2] Constitutional Court Decision 2005HunBa75 decided Jan. 17, 2007 (HunGong124, 136) / [3] Supreme Court Decision 91Nu8302 decided Nov. 10, 1992 (Gong1993Sang, 141) Supreme Court Decision 2002Du4068 decided Mar. 11, 2003 (Gong2003Sang, 1018) Supreme Court Decision 2003Nu14796 decided Mar. 26, 2004

El branch Co., Ltd. (Attorney Kim Dong-dong, Counsel for the defendant-appellant)

Head of Yeongdeungpo Tax Office

Seoul High Court Decision 2005Nu953 delivered on December 22, 2005

The part of the judgment below on imposition of corporate tax for the business year 1998 is reversed, and that part of the case is remanded to Seoul High Court. The plaintiff's remaining appeal is dismissed

We examine the grounds of appeal.

1. With respect to the non-Inclusion of interest paid in connection with provisional payments, etc. irrelevant to business:

A. Article 18-3(1)3 of the former Corporate Tax Act (amended by Act No. 5581, Dec. 28, 1998; hereinafter “former Act”) provides that an amount calculated as prescribed by the Presidential Decree out of interest on loans (limited to interest on assets value among loans) shall not be included in deductible expenses in calculating the income amount for each business year from a specially related person. The legislative purpose of this provision is to provide that where a corporation holding loans has paid provisional payments, etc. to a specially related person without connection with its business, it shall not include interest on loans in deductible expenses. It shall be limited to 0% of the total amount of loans in an unreasonable expansion dependent on other persons’ capital, thereby preventing the deterioration of the financial structure of an enterprise through productive operation of corporate funds and inducing sound economic activities of an enterprise. It shall be limited to 70% of the total amount of loans, which shall be delegated to the National Assembly or 5% of the amount of loans to meet the principle of no taxation without the law.

Meanwhile, Article 43-2(2)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970, Dec. 31, 198; hereinafter “former Enforcement Decree”) provides that the scope of “provisional payments, etc. which are not related to the business of the relevant corporation” shall be “a loan of funds which are unrelated to the business of the relevant corporation regardless of the name,” and this does not mean that the scope of provisional payments, etc. is specifically defined for the purpose of realizing the legislative purpose as mentioned above under the former Act, and is beyond the scope of delegation by the mother law or deviates from the limits of delegation by the mother law.

In this regard, the court below is just in holding that Article 18-3 (1) 3 of the former Act and Article 43-2 (2) 2 of the former Enforcement Decree of the Act do not violate the Constitution and the mother law, and there is no error of law by misapprehending the legal principles on the principle of no taxation without law under the Constitution, the principle of prohibition of comprehensive legislation, or the limitation of delegation of the mother law

B. Article 18-3 (1) 3 of the former Act and Article 43-2 (2) 2 of the former Enforcement Decree of the former Act include not only pure meaning loans, but also loans corresponding to the nature of claims, and also cases where provisional payments are provided upon receiving interest at a reasonable interest rate. Whether the provisional payments are related to the business should be objectively determined on the basis of the purpose or business contents of the pertinent corporation (see Supreme Court Decisions 91Nu8302 delivered on November 10, 1992; 2003Du14796 delivered on March 26, 2004, etc.).

The court below, based on its stated reasoning, held that the Plaintiff’s purchase of 13% interest rate per annum and 10 billion won per subordinated bonds issued by EL branch Co., Ltd. through Korea Industrial Securities Co., Ltd. (hereinafter “EL branch fund”) on May 29, 2003 (hereinafter “instant subordinated bonds”) constitutes loans of funds to EL branch fund and provisional payments without connection with the Plaintiff’s business, notwithstanding its form. In full view of the aforementioned legal principles and the evidence adopted by the court below, the above judgment of the court below is just, and there is no error of law by misapprehending the legal principles on provisional payments without office as alleged in the grounds of appeal.

2. As to the denial of unfair act and calculation

A. The part related to the purchase of subordinated bonds of this case

Based on its stated reasoning, the court below rejected the Plaintiff’s assertion on the ground that the purchase of 10 billion won of the subordinated bonds of this case issued by the Plaintiff, who is a person with a special relationship on November 29, 1997, constitutes a wrongful calculation between persons with a special relationship under the former Act and related parties under the former Act, and thus, the difference between the interest rate on the subordinated bonds between January 1, 1998 and September 30, 1998, which was lower than the overdraft interest rate publicly notified by the Commissioner of the National Tax Service (hereinafter “overdraft interest rate”), shall be recognized as equivalent to the above interest rate on the subordinated bonds and the Plaintiff’s loan interest rate (33.5%) as to the period between January 1, 1998 and September 30, 1998.

However, if the purport of the proviso of Article 47(2) of the former Enforcement Decree of the Act is to provide and receive interest at the level of the monthly interest rate for the lending of money between the related parties, it shall not be calculated as to the lender or borrower (a corporation or an individual operating a business). In a case where an agreement was made on the payment of interest at the level of the monthly interest rate for the lending of money to a related party, the rejection of wrongful calculation would not be made as a result of the agreement on the payment of interest at the level of the monthly interest rate for the lending of money. In light of the fact that it is unreasonable that an agreement was made on the payment of interest at a higher rate than the monthly interest rate for the lending of money, it shall be interpreted that the payment of interest at the rate for the lending of money at the rate for the lending of money at the rate for the lending of money at the rate of the monthly interest for the lending of money at the rate for the lending of money at the rate for the lending of money at the rate for the lending of money at the rate of wrongful calculation.

Examining the facts acknowledged by the court below in accordance with the above legal principles, the redemption period and interest rate of the subordinated bonds of this case purchased by the plaintiff are set, and the interest rate is higher than 12% per annum. Thus, even if this transaction is considered as monetary lending relationship, it shall be deemed that all the requirements provided for in the proviso of Article 47 (2) of the former Enforcement Decree of the Act are satisfied, and even if the monthly interest rate for the current account exceeds the above interest rate temporarily, the circumstances are the same. Thus, in calculating corporate tax for the plaintiff for the 1998 business year, the defendant shall not calculate the interest rate for the purchase of the above subordinated bonds calculated in accordance with the main sentence of Article 47 (2) of the former Enforcement Decree of the Act and include it in the gross income.

Therefore, the court below's judgment against this is erroneous in the misapprehension of legal principles as to the denial of wrongful calculation and the calculation of the recognized interest, which affected the conclusion of the judgment, and the plaintiff's appeal pointing this out is justified ( therefore, the judgment on the remaining grounds of appeal as to the rejection of wrongful calculation related to the plaintiff's subordinate bonds is omitted).

B. Parts related to purchase of beneficiary certificates

Although Article 47(2) of the former Enforcement Decree of the Act does not provide the criteria for calculating the amount of income for the subject of the wrongful calculation, in light of the purport of Article 20(2) of the former Enforcement Decree of the Act, the calculation criteria of the amount of income shall also be based on sound social norms and commercial practice, and the price applied or deemed applicable to normal transactions between persons without a special relationship (see Supreme Court Decision 2001Du7268, Sept. 4, 2002). Thus, in cases where money is lent to a related party, etc. at a rate lower than the overdraft interest rate, it is reasonable to include the difference between the amount equivalent to the interest rate calculated on the overdraft interest rate in light of sound social norms and commercial practice. However, if a lending corporation itself bears at least a debt higher than the overdraft interest rate in light of the purpose of the above lending system, it is difficult to view that it is more reasonable to view that it is a lending corporation’s lending of money from a related party, etc. than the above lending interest rate in light of the purport of the lending system.

Therefore, the judgment of the court below to the above purport is just, and there is no error in the misapprehension of legal principles as to the delegation scope and limitation of the parent law as to the denial of wrongful calculation.

3. Conclusion

Therefore, the part of the judgment of the court below on imposition of corporate tax for the business year 198 shall be reversed, and that part of the case shall be remanded to the court below for a new trial and determination. The remaining appeal by the plaintiff shall be dismissed. It is so decided as per Disposition by the assent of all participating Justices

Justices Jeon Soo-ahn (Presiding Justice)