The meaning of the denial of wrongful calculation under Article 52 of the Corporate Tax Act and the standards for determining whether economic rationality exists.

Article 52 of the Corporate Tax Act, Article 88(1) of the Enforcement Decree of the Corporate Tax Act

Supreme Court Decision 2010Du19294 Decided November 29, 2012 (Gong2013Sang, 89), Supreme Court Decision 2013Du1035 Decided September 27, 2013 (Gong2013Ha, 2006), Supreme Court Decision 2017Du63887 Decided March 15, 2018 (Gong2018Sang, 747), Supreme Court Decision 2015Du39842 Decided July 20, 2018 (Gong2018Ha, 1787), Supreme Court Decision 2016Du40375 Decided July 26, 2018 (Gong2018Ha, 1787)

Dagsan Infrastructurewa Co., Ltd. (Attorneys Lee Jae-de et al., Counsel for the plaintiff-appellant)

Head of Seocho District Tax Office (Law Firm LLC, Attorneys Im-soo et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2014Nu40557 decided October 16, 2015

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Article 52 of the Corporate Tax Act provides that a corporation’s wrongful calculation panel under each subparagraph of Article 88(1) of the Enforcement Decree of the Corporate Tax Act is deemed to have avoided or reduced the tax burden by abusing the various forms of transactions listed in each subparagraph of Article 88(1) without using a reasonable method with a special relationship. This is limited to cases where the taxing authority denies the tax burden and deemed to have accrued income objectively and reasonably and reasonably in accordance with the statutory provisions. This is limited to cases where, in light of the economic person’s standpoint, deemed that the act or calculation was neglected the economic rationality by disregarding the natural and unreasonable act or calculation. Determination of the economic rationality is based on whether the transaction was conducted in light of the sound social norms and commercial practices, taking into account the various circumstances of the transaction, and should also take into account the transaction price and special circumstances at the time of the transaction (see, e.g., Supreme Court Decision 2010Du19294, Nov. 29, 2012).

2. A. After recognizing the facts as stated in its reasoning, the lower court determined that the instant disposition, which was based on the premise that the market price of the instant subordinated loan was 11.35% per annum, was unlawful on the grounds that the Plaintiff borrowed 26.6 billion won from shareholders, which was set at 20% per annum, was used as the higher rate of money as stipulated in Article 52 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010) and Article 88(1)7 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22951, Jun. 3, 2011), cannot be deemed to be abnormal in light of sound social norms and commercial practices.

(1) There is a difference between the instant subordinated loan and the priority loan in the terms of collateral, etc., and the market price appraisal result adopted by the court below is reasonable as a comparative transaction between the instant subordinated loan and the corporate bonds and asset-backed securities transaction with the risk of default in the credit rating of the debtor. Accordingly, the market price of the instant subordinated loan is 20% per annum as determined by the plaintiff at 19.63% per annum.

(2) Dangerous Accounting Corporation and Samil Accounting Corporation calculated the reasonable interest rate pursuant to the provisions of the Adjustment of International Taxes Act, and as a result, they also present their opinions that the interest rate of the subordinated loan of this case is within the reasonable interest rate.

(3) After the completion of private investment projects, the concessionaire invited new investors to purchase shares of existing investors, and subsequently, it is planned to change the structure of capital by capital reduction and replacement of subordinated loans in the basic plan for private investment projects. Accordingly, the Plaintiff also proceeded with the procedure for re-financing.

(4) The Seoul Special Metropolitan City, a competent authority, concluded a modified agreement on the basis of the agreement with the Plaintiff to raise subordinated loans equivalent to 100% of the increase in capital reduction at the interest rate of 20% per annum, and to reduce the existing 85% from October 1, 2007 to 79% (or 78% from January 1, 2024) by retroactively applying the minimum revenue guarantee rate from October 1, 2007.

B. Examining the aforementioned legal principles and records, the lower court did not err by misapprehending the legal doctrine on the economic rationality and market price of the setting aside of wrongful calculation, contrary to what is alleged in the grounds of appeal.

3. 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 on the bench.

Justices Kim So-young (Presiding Justice)