Cho-2014-west-0945 (2014.06.30)

In a case where the purchase price is not reduced on the basis of a legitimate ground for business, it does not constitute a ground for subsequent correction.

Even if a reduction in the purchase price was made between the Plaintiff and the Nonparty, it is difficult to recognize that the reduction was made on the basis of a legitimate business ground, and thus cannot be seen as

Article 25-2 of the Enforcement Decree of the Framework Act

Revocation of Disposition Imposing Corporate Tax

The Korean Association of Korean President of KIG and KIC shall be established

Director of the District Office

on December 22, 2016

on October 26, 2016

1. The Defendant’s disposition of imposition of KRW 10,639,943,484, which the Plaintiff rendered on July 1, 2013, revoked the part of KRW 335,354,028, which the Defendant imposed on the Plaintiff on July 1, 2013.

2. The plaintiff's remaining claims are dismissed.

3. Of the costs of lawsuit, 95% is assessed against the Plaintiff, and the remainder of 5% is assessed against the Defendant, respectively.

Cheong-gu Office

The Defendant imposed corporate tax of KRW 10,639,943,484 on the Plaintiff on July 1, 2013.

The cancellation shall be revoked.

1. Details of the disposition;

A. On March 16, 2006, the Plaintiff purchased land and buildings located at BB 1005-21, Seoul Gangseo-gu, Seoul (hereinafter “instant real estate”) from AA Industry Co., Ltd. in order to carry out real estate rental business in KRW 34 billion, and completed the registration of ownership transfer on June 23, 2006.

B. On April 30, 2008, the Plaintiff entered into a contract to sell the instant real estate at KRW 70 billion with the purchase price (hereinafter referred to as “instant sales contract”), and completed the registration of ownership transfer on the instant real estate in the CC comprehensive construction process on June 19, 2008 without the purchase price (hereinafter referred to as “CC comprehensive construction”).

C. On March 31, 2009, the Plaintiff reported KRW 278,124,958 as corporate tax for the business year 2008, by including KRW 20,326,168,372, and reserve funds for proper purpose business, KRW 1,212,613,200 as corporate tax for the business year 2008, and KRW 278,124,958 as corporate tax for the business year 2008.

D. The Defendant denied the Plaintiff’s deductible expenses on the grounds that the Plaintiff’s total amount of KRW 1,417,285,109 and KRW 1,083,876,362 of the interest paid included in deductible expenses for the business year of 2008 and the interest paid for the business year of 2008, and KRW 2,501,61,471,471 of the interest paid for the loan used for non-profit business was the interest paid for the loan used for non-profit business; and ② the amount of the proper purpose business expenses included in deductible expenses for the business year of 2008 and KRW 20,326,168,372 of the proper purpose business expenses and the proper purpose business expenses for non-profit business, and KRW 1,212,613,200 of the interest paid for non-profit business was not a corporation subject to the establishment of the proper purpose business for non-profit business for the Plaintiff on July 1, 2013.

E. The Plaintiff appealed and filed an objection on October 4, 2013. The Defendant, on October 30, 2013, issued a decision to additionally include KRW 1,797,784,00,00, including acquisition tax, as well as KRW 838,580,068, out of the corporate tax originally notified by the Plaintiff on October 30, 2013, the amount of KRW 838,580,068, which was the corporate tax reported by the Plaintiff on March 31, 2009, was reduced to KRW 11,20,398,594, which was corrected and notified by the Defendant on July 1, 2013; and the Defendant deducted KRW 838,580,068, which was corrected by the Defendant on October 30, 2013, hereinafter “instant disposition”).

F. On February 4, 2014, the Plaintiff filed an appeal with the Tax Tribunal on February 4, 2014, but was dismissed on June 30, 2014.

[Ground of recognition] Facts without dispute, Gap's 1, 2, 4, 6, 14, 15, 28, 36 through 38, 46, Eul's 1 through 36, 12, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) As to profits from the disposal of tangible assets

In early 2007, the Plaintiff had been entrusted with construction of the Plaintiff church building on the land outside of 1013-3 and 4 lots of land in Gangseo-gu Seoul, Seoul, and concluded the instant sales contract with the Plaintiff. The Plaintiff transferred the instant real estate to the IntegratedCC Construction before receiving KRW 27.384 billion in sales balance, and had the Plaintiff obtain a loan as security and secure the Plaintiff’s new construction cost for the Plaintiff church construction. Accordingly, the IntegratedCC Construction was granted a loan of KRW 57 billion from five savings banks, and at the same time registered the ownership transfer of the instant real estate in its name on June 19, 2008, entrusted to the K non-Real Estate Trust Co., Ltd. (hereinafter “KB Trust”).

However, on September 25, 2008, the 3-Gu Housing Improvement Project Association established with the whole real estate unit of the instant real estate as the business area (hereinafter referred to as the "Yecheon 3-gu Housing Improvement Project Association") filed a lawsuit claiming sale against the KF Trust on or around September 25, 2008. On April 22, 2011, the Seoul High Court issued a judgment to sell the instant real estate at KRW 62,202,587,200. However, through the revision of the trust contract several times, the first priority right holder claims on the trust ledger of the instant real estate at the end of 2010, and the cumulative loss as of the end of 2010 reaches KRW 14 billion, the Plaintiff was unable to recover the sales amount at KRW 27.384,400,000 in accordance with the above claim for sale.

Accordingly, on March 31, 201, the Plaintiff andCC Construction agreed to suspend new construction works of the Plaintiff church, and on April 30, 201, agreed to reduce the price for the instant sales contract to 50 billion won, and the Plaintiff was unable to receive KRW 20 billion out of the remainder of the remainder. In addition, there is no possibility of recovery in light of the financial status of theCC General Construction. Therefore, the Plaintiff’s agreement to reduce the remainder of KRW 7.384 billion, which is included in gross income at the time of filing a corporate tax return, among the tangible asset disposal profits of KRW 28,61,752,01, which are included in gross income at the time of filing a corporate tax return, shall not be included in gross income, and such circumstance shall be reflected in the calculation of the tax base for the business year of 2008, since it falls under the grounds for subsequent revision under the Framework Act on National Taxes and the Enforcement Decree of the Framework Act on National Taxes.

[Plaintiff asserted to the same purport as above, while the Plaintiff andCC Construction agreed to use part of the instant real estate from the CC General Construction until the completion of the new construction of the church building, and it appears that the Plaintiff had to substitute the remainder of KRW 27.384 billion for the lease deposit. As such, the Plaintiff’s assertion to the effect that since it was impossible to recover KRW 27.384 billion from the above lease deposit, it should be reflected in the tax base for the business year of 2008 because it constitutes the grounds for future correction.]

2) As to the non-deductible of interest paid in deductible expenses

The Plaintiff acquired the instant real estate in order to engage in real estate rental business, which is a profit-making business, and received a loan from a financial institution, and thus the interest paid thereon is subject to inclusion in deductible expenses. However, upon the commencement of the construction of the Plaintiff church, the Plaintiff spent some of the funds from the profit-making business as construction expenses, so the Defendant should have denied the amount of interest paid in accordance with the method of calculating the drop number of profit-making business and non-profit-making business pursuant to Article 28(1)4 of the Corporate Tax Act and Article 53(2) of the Enforcement Decree of the same Act. However, the Defendant denied the amount of interest paid in excess of 1,708,391,678 by calculating the denied amount of interest paid by using the weighted average interest rate on small and medium enterprise loans confirmed

B. Relevant statutes

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

C. Determination on the assertion on the part of profits from the disposal of tangible assets

1) Relevant legal principles

Article 40(1) of the Corporate Tax Act provides, “The fiscal year of accrual of earnings and losses of a domestic corporation for each fiscal year shall be the fiscal year which includes the date on which the concerned gross income and losses are determined.” Article 40(1) provides, “The fiscal year of accrual of earnings and losses of the domestic corporation for each fiscal year shall be the fiscal year which includes the date on which the concerned taxable income is determined.” In the event that there is a time interval between the time when the right to the cause of income and the time when the income is determined and the time when the income is realized, it shall be deemed that there is the time income based on the time when the right not at the time when the income is realized but at the time when the income is finally determined and the time when the income is realized, and thus, it shall be deemed that the tax liability initially established shall not be levied in principle on the income that is based on the premise that it will be realized in the future. Therefore, even if the tax liability becomes final and conclusive due to the occurrence of a certain cause, if the tax liability becomes final and conclusive,

This interpretation is not only a natural request following the adoption of the principle of confirmation of right, but also accords with the legislative intent of Article 45-2(2) of the Framework Act on National Taxes that provides the system of ex post facto request for correction. However, as bad debt, where special circumstances exist, such as the Corporate Tax Act or related Acts and subordinate statutes stipulate the amount of income not realized due to the occurrence of a specific later cause, as the grounds for deduction of the amount of income for the business year in which the subsequent cause occurred, or where a taxpayer has filed corporate tax return in the manner of deducting the amount of income for the business year in which such cause occurred in accordance with corporate accounting standards or practices, the occurrence of such later cause may not affect the tax liability that was initially established.

In this context, it is reasonable to view that the latter causes of business include cases where the amount of reduction was made for the initial purchase price or service price due to justifiable reasons of business, and barring any special circumstance, corporate tax may not be imposed, including the amount of income for the business year in which the right to the initial purchase price or service price becomes final and conclusive. In addition, if it becomes objectively clear that a claim causing income after the establishment of a tax liability becomes impossible to be recovered due to the debtor’s bankruptcy, etc. and that there was no possibility of realizing such income in the future, it constitutes a ground for ex post request for correction under Article 25-2 subparag. 4 of the Enforcement Decree of the Framework Act on National Taxes, which constitutes a ground corresponding to Article 25-2 subparag. 2 of the Enforcement Decree of the Framework Act on National Taxes, and thus, it cannot be imposed as corporate tax including the amount of income for the business year in which the right to the initial purchase price or service price becomes final and conclusive (see Supreme Court Decisions 2011Du1245, Dec. 26, 2013>

We examine the following legal principles: ① (a) whether the Plaintiff reduced the remaining purchase and sale amount for a legitimate ground for business operation; and (b) whether it was objectively clear that it became impossible to recover due to the impossibility of recovery due to the bankruptcy, etc. of the IntegratedCC Construction.

(ii) the facts of recognition

The following facts are either disputed between the parties, or acknowledged by the overall purport of evidence and pleadings Nos. 5, 6, 8, 9, 22, 23, 28, 36 through 38, and evidence Nos. 6 and 8, and the entire purport of pleadings No. 5, 6, 8, 9, 22, 23, 28, 36

① On March 16, 2006, the Plaintiff purchased the instant real estate from AA Industry Co., Ltd. with the price of KRW 34 billion, and completed the registration of ownership transfer on June 23, 2006.

② On January 20, 2007, the Plaintiff entered into a contract for the construction of the Plaintiff church building on the land (hereinafter “instant construction contract”). The construction period from December 28, 2006 to March 31, 2009, and the construction cost of KRW 31.837 billion (excluding value-added tax) was determined and the Plaintiff entered into a contract for the construction of the Plaintiff church building on the land (hereinafter “instant construction contract”).

③ On November 3, 2007, 2007, the 3-gu Special Metropolitan City Association resolved an extraordinary general meeting to add the instant real estate, etc. adjacent to the existing improvement zone to the improvement zone, and obtained the authorization for the establishment of the association on January 14, 2008. The Plaintiff did not consent to reconstruction in the process of obtaining the consent to reconstruction prior to the said resolution for the special general meeting.

④ On December 18, 2007, the Plaintiff entered into a purchase and sale agreement with the instant real estate, andCC General Construction completed the provisional registration of the right to claim ownership transfer on December 24, 2007. After which, the Plaintiff entered into the instant sales agreement with CC General Construction on April 30, 2008, the Plaintiff entered into the instant sales agreement with the instant real estate. As to the payment method, the amount of KRW 5 billion deposit to be paid is offset by the amount payable under the instant construction agreement, and the amount of KRW 37.6 billion after the intermediate payment of KRW 37.6 billion is assessed against the amount payable. The amount of KRW 3.16 billion after the Plaintiff’s intermediate payment of KRW 3.5 billion after the Plaintiff’s financial institution loans and the amount of KRW 3.16 billion returned the lease deposit to the Plaintiff, and the remainder amount of KRW 2.7.38 billion after completing the instant construction contract and paying the remainder after settling the new construction and payment.

⑤ On June 19, 2008, CC General Construction completed the registration of ownership transfer based on a provisional registration with respect to the instant real estate (at the same time, e.g., Y3-gu Union made a claim for the registration of ownership transfer based on the right to demand sale as a preserved right and cancelled the provisional disposition registration of prohibition of disposal that was completed based on the decision of provisional disposition No. 2008Kahap696 on May 29, 2006). On the same day, the Plaintiff’s loan obligation of financial institution amounting to 32.1 billion won as a secured obligation was cancelled.

④ On June 19, 2008, the GeneralCC Construction entrusted the instant real estate to the KF trust, which was registered for the transfer of ownership in its own future. The first trust ledger entered the financial institutions of KRW 57 billion in total amount of profit-making premium as the first priority beneficiary, and the Plaintiff of KRW 27.384 billion in profit-making premium as the second priority beneficiary (this later, on February 16, 2010, the profit-making premium of the first priority beneficiary increased to KRW 70.2 billion through the amendment of the trust agreement).

7. On September 25, 2008, the Daegu District Court Decision 2008Gahap18933, filed a lawsuit seeking the sale of the instant real estate at KRW 58,081,476,000, against the KF Trust, the trustee of which was the Seoul Southern District Court Decision 2008Gahap18933.

④ On January 9, 2009, the Plaintiff and the IntegratedCC Construction entered into a contract to extend the completion date of the instant construction contract to December 31, 2010, and to increase the construction cost to KRW 53,436,00,000 (excluding value-added tax).

① On March 31, 2011, the Plaintiff agreed not to proceed with the instant construction contract, and the Plaintiff paid 2.27 billion won to the IntegratedCC Construction, thereby completing the settlement of construction cost, and the comprehensiveCC construction was scheduled to transfer the construction work result, etc. to the Plaintiff.

④ In the lawsuit of claim for sale filed by the Daegu Three Jeju District Partnership, the Seoul High Court, on April 22, 2011, sentenced on the judgment that "the case trust is paid 62.2 billion won from the Daegu Three Jeju District Partnership, and at the same time, the procedure for the registration of ownership transfer to the Daegu Three Jeju District Partnership is implemented."

1) On April 30, 201, the Plaintiff andCC Construction drafted an agreement with the effect that the instant real estate purchase price shall be reduced to 50 billion won, and the remainder KRW 7.385 billion shall be paid after the completion of a lawsuit claiming sale (hereinafter referred to as the “instant reduction agreement”).

3) Determination

Examining the following circumstances recognized by the above facts in light of the legal principles as seen earlier, it is difficult to recognize that the Plaintiff andCC Comprehensive Construction agreed to reduce the remaining amount of KRW 20 billion on the basis of justifiable business grounds. It is difficult to view that the Plaintiff’s assertion on this part is objectively evident that the remaining remaining amount of KRW 7.385 million has not been realized due to the bankruptcy of the GeneralCC Construction due to the bankruptcy, etc.

① The Plaintiff asserts that the CC General Construction transferred the ownership of the instant real estate to the CC General Construction before receiving the remainder and offered convenience to the Plaintiff to raise funds for the new construction of the Plaintiff church as a security. If the CC General Construction has obtained a loan of KRW 57 billion on the trust ledger, it may repay loans of KRW 32 billion from the Plaintiff and secure surplus funds of KRW 23 billion from the intermediate payment of KRW 2 billion to the Plaintiff. However, under the circumstances where the Plaintiff failed to complete the new construction of the CC General Construction and eventually led to the discontinuance of the construction, it is difficult to understand the Plaintiff’s assertion that the CC General Construction was reduced of KRW 20 billion by taking into account the acquisition of the instant real estate and the expenditure of the financial expenses (see, e.g., the evidence No. 9 and 10).

② As above, the Plaintiff offered convenience for the Plaintiff to raise a large amount of new construction capital. According to the evidence No. 50, the Plaintiff stated that, prior to the agreement to suspend new construction, the Plaintiff paid approximately KRW 23.1 billion to the IntegratedCC Construction more than KRW 23.6 billion. Nevertheless, the Plaintiff agreed to suspend construction of the instant construction and agreed to additionally pay KRW 2.7 billion to pay KRW 2.7 billion to the IntegratedCC Construction, and thereafter, paid KRW 90 million. If the Plaintiff was to receive KRW 27.384 billion to the ComprehensiveCC Construction, it is difficult to reasonably explain such agreement to suspend construction and the payable amount (i.e., the relationship between the Plaintiff’s claim for new construction cost and the remaining amount of the Plaintiff’s claim for the purchase and sale of new construction cost and the remaining amount of the Plaintiff’s claim for the discontinuance of new construction).

③ At the time of the conclusion of the instant sales contract, the Plaintiff andCC General Construction was aware of the fact that the instant real estate was included in the rearrangement zone and obtained authorization for modification to establish an association, and that the instant real estate was registered as a provisional disposition to prohibit disposal of the instant real estate. Therefore, the Plaintiff andCC General Construction appears to have been aware of the fact that the Plaintiff did not consent to the establishment of the Daegu Three-gu Cooperative, and that the instant real estate was filed a lawsuit for claim for sale. Nevertheless, the Plaintiff andCC General Construction concluded the instant sales contract, completed the registration of ownership transfer, and received a loan of KRW 57 billion from the financial institution after the instant real estate was entrusted with the instant real estate and received a loan of KRW 57 billion from the financial institution. In such a situation, it is difficult to view that the Plaintiff should have suffered disadvantage

④ On July 1, 2008, the Plaintiff decided to substitute the purchase and sale balance of KRW 27.384 billion as a lease deposit, and if the Plaintiff asserted the existence of the said lease deposit and raised a simultaneous performance defense in the instant claim for the transfer of real estate filed against the Plaintiff by the Daegu-gu Association against the Plaintiff, it is difficult to explain the grounds for the reduction of the purchase and sale balance between the Plaintiff and theCC-based construction and the reason for the reduction of KRW 20 billion among them, even if the purchase and sale balance is a claim that has already been converted into a lease deposit and does not exist any longer.

⑤ In light of the aforementioned circumstances, the Plaintiff andCC General Construction are strongly doubtful with the payment of the balance in sales, the payment of the advance payment of new construction works, the conversion of lease deposit, and other various pecuniary relations, and the existence of an agreement that is not revealed in the instant lawsuit. Under such circumstances, it is difficult to find that there was an agreement between the Plaintiff andCC General Construction on the reduction of the balance in sales, and it is difficult to deem that the claim to be received fromCC General Construction has not been realized.

D. Determination of the non-deductible part of the interest paid

1) In light of the following circumstances acknowledged as above, Gap's facts, Gap's evidence 2, 4, 19 through 21, 33 through 38, Eul's evidence 40 through 48, Eul's evidence 2, 3, and 14, and the purport of the argument as a whole, the plaintiff's interest paid for the loan shall be excluded from deductible expenses only for the interest corresponding to the funds used for non-profit businesses such as the cost of new church construction work. If the plaintiff did not keep separate accounts of profit-making businesses and non-profit businesses, the interest paid for the funds used for non-profit businesses shall be deemed to be reasonable by applying mutatis mutandis Article 28 (1) 4 (b) of the former Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; hereinafter "former Corporate Tax Act") and Article 5 (3) 2 and 3 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22951, Jun. 3, 2011>

① At the time of the instant disposition, the Defendant confirmed that part of the funds borrowed by the Plaintiff from financial institutions was used for a non-profit business, such as the cost of new construction of the Plaintiff church. Accordingly, the Defendant recognized the interest calculated by multiplying the weighted average interest rate of the loans of small and medium enterprises each month during the business year 2007 and 2008 by the interest rate of the above loans of KRW 32 billion from the financial institution as the interest rate of KRW 1,045,839,557 in the business year 2006, on the premise that the Plaintiff acquired the instant real estate in order to run a real estate rental business, which is a profit-making business, and the amount of interest paid in excess of the above interest rate was estimated to be 6.2% in the business year 206, and deemed as the weighted average interest rate of the loans of small and medium enterprises.

② In this case, short-term loans and long-term loans (hereinafter referred to as “long-term loans”) submitted by the Plaintiff, and the president of the account by deposit and proper purpose business expenses (hereinafter referred to as “long-term loans”) and loans according to the balance sheet, and the balance of the full-term loans are as follows:

③ Meanwhile, the Plaintiff appropriated interest expenses in the business year 2006 KRW 3,561,285,109, and KRW 2,142,068,142 in the business year 2008. Of the above interest expenses, KRW 2,838,312,953 in the business year 2007 and KRW 1,892,429,887 in the business year 2008 are deemed to have been paid for interest based on objective data submitted as evidence. However, there is no such data as to whether the interest was actually paid for the interest.

④ On June 23, 2006, the Plaintiff purchased the instant real estate in the amount of KRW 34 billion from a financial institution to use it for the payment of intermediate payments and remainder. However, in light of the fact that the balance of tangible asset accounts as of the end of 2006 is KRW 41.3 billion, and the balance of borrowed money as of the end of 2006 is about KRW 36.5 billion, the Plaintiff appears to have paid additional facility expenses, etc. of the instant real estate during the business year 2006. Moreover, if the amount calculated by subtracting the balance of the previous loan from the balance of the loan as of the end of the business year 2007 and June 2008 is specified, it appears that the amount additionally loaned by the Plaintiff is used for the purpose other than for profit-making business, such as the cost of newly constructing a church.

2) On the basis of the foregoing circumstances, the amount of legitimate interest in deductible expenses is calculated as follows. The interest paid for a loan used for a non-profit business shall not be included in deductible expenses pursuant to Article 28(1)1 of the former Corporate Tax Act. Then, it is reasonable to calculate the amount of interest paid by applying Article 53(2) and (3) of the former Enforcement Decree of Corporate Tax Act mutatis mutandis to the amount of interest paid for a loan used for a non-profit business, by the drop number of loans used for a non-profit business compared to the drop number of the creditors, which is obvious to the creditor. As such, when calculating the deductible amount of interest paid, the amount of interest paid for a loan is calculated by multiplying the amount of interest paid for a non-profit business by the drop number of loans used by the creditor for a non-profit business, as indicated below (a drop number of loans clearly stated by the creditor

E. Sub-decision

As seen earlier, in a case where the Plaintiff’s assertion on the non-Inclusion of interest in deductible expenses is accepted partially and additionally added in deductible expenses, the amount of legitimate tax (total amount of tax) would be KRW 10,304,589,456, and the amount of tax (total amount of tax) would be KRW 10,639,943,484 as a result of the instant disposition (total amount of tax) and KRW 335,354,028, among the disposition of this case, shall be revoked.

3. Conclusion

The plaintiff's claim shall be accepted within the scope of the above recognition, and the remaining claims shall be dismissed as it is without merit, and the costs of lawsuit shall be shared by the plaintiff and the defendant according to the winning ratio.