[1] The elements to constitute “construction” or “a tangible fixed asset similar thereto” under Article 24(1)1(a) and (f) of the Enforcement Decree of the Corporate Tax Act concerning the scope of depreciable assets, and the meaning of “capital expenditure for land”

[2] The case holding that the cost of creating mitts and miters formed in golf courses constitutes capital expenditures on the site of golf courses and thus cannot be subject to depreciation

[3] The case holding that a company's act of depositing term deposits in a bank and offering them as security for loans to related corporations constitutes "profit distribution" subject to the rejection of unfair act and calculation under Article 88 (1) 9 of the former Enforcement Decree of the Corporate Tax Act

[4] The case holding that the case holding that the case does not constitute a "provisional payment without business office" under Article 28 (1) 4 (b) of the Corporate Tax Act where a company deposited and provided as security time deposits for bank loans to the specially related corporations

[1] Article 24 (1) 1 of the Enforcement Decree of the Corporate Tax Act, Article 23 (2) of the Corporate Tax Act / [2] Article 24 (1) 1 of the Enforcement Decree of the Corporate Tax Act, Article 23 (2) of the Corporate Tax Act / [3] Article 8 (1) 9 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891 of Feb. 28, 2007) / [1] Article 28 (1) 4 (b) of the Corporate Tax Act, Article 53 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20720 of Feb. 29, 2008)

[1] Supreme Court Decision 98Du15290 Decided November 12, 199 (Gong1999Ha, 2537) Supreme Court Decision 2004Du1384 Decided July 28, 2006, Supreme Court Decision 2006Du5502 Decided April 11, 2008 (Gong2008Sang, 703) / [3] Supreme Court Decision 2001Du9394 Decided June 13, 2003 (Gong203Sang, 1545) Supreme Court Decision 2003Du13267 Decided January 13, 2006 (Gong206Sang, 258) decided April 23, 2009

Plaintiff (Attorney Kim Young-soo et al., Counsel for the plaintiff-appellant)

The director of the tax office

Seoul High Court Decision 2005Nu15948 delivered on June 1, 2006

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

In order to constitute “building” under Article 24(1)1(a) and (f) of the Enforcement Decree of the Corporate Tax Act or “a tangible fixed asset similar thereto, structures and forms other than buildings fixed on land should have an independent economic value physically distinguishable from land and have an independent economic value. In this case, unless otherwise, it is assessed as a whole with land, which is an asset the value of which does not decline depending on the lapse of time (Article 23(2) of the Corporate Tax Act) and cannot be subject to depreciation. In addition, capital expenditure for land refers to the cost required to increase the real value of land (see Supreme Court Decision 2004Du13844, Jul. 28, 2006, etc.).

After finding the facts as stated in its holding, the court below held that the costs of creating the instant assets constitute capital expenditures on the instant golf course site in full view of the following facts: (a) the Plaintiff’s land and physical structure and form cannot be clearly separated from the instant golf course (hereinafter “instant assets”) and cannot be deemed to have an economic independent value as an essential facility for convenient use of the instant golf course site; and (b) the creation of the instant assets increases the real value of the instant golf course site, and the cost of creating the instant assets is likely to be absorption into the value of the instant golf course; and (c) in light of the aforementioned statutes and legal principles, the judgment below is just, and there is no error in the misapprehension of legal principles as to capital expenditures, as otherwise alleged in the ground of appeal.

2. As to the third ground for appeal

The court below determined as follows: (a) while the plaintiff was in the state of capital erosion and loss in the business year 199 to 2002, it deposited each term deposit in the National Bank, etc. and offered it as security; (b) the plaintiff and the non-party company, a related party, received each of the same amount as the amount of security from the National Bank, etc. immediately after the deposit of each of the above term deposits as security; (c) it seems that the plaintiff actually made it possible to make loans to the non-party company; (d) the plaintiff did not exercise its liquidity until the non-party company repaid all of the above term deposits; and (e) the non-party company suffered economic risks that will lose all of the above term deposits in the non-party company's non-party company's default; and (e) it was an abnormal transaction that disregards economic rationality; and (e) the plaintiff and the non-party company, a related party, received each of the above term deposits as security; and (e) it did not constitute an unlawful calculation of profit under Article 8(1)9 of the former Enforcement Decree of the Corporate Tax Act.

3. Regarding ground of appeal No. 2

Article 28 (1) 4 (b) of the Corporate Tax Act and Article 53 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20720, Feb. 29, 2008) include not only purely meaningful loans, but also loans corresponding to the nature of claims, but also cases where the provisional payments are provided with interest at a reasonable interest rate. The issue of whether the provisional payments are related to the business shall be objectively determined based on the purpose of business, business contents, etc. of the relevant corporation (see Supreme Court Decision 2006Du15530, Sept. 25, 2008, etc.).

Examining the aforementioned facts in light of the aforementioned legal principles, in principle, provisional payment without office refers to a case of direct lending, and also includes cases equivalent to loans in its nature. The Plaintiff’s deposit of time deposit and loans to non-party companies, such as the National Bank, are separate legal acts. Although the Plaintiff offered time deposit to the National Bank, etc. as security, it cannot be viewed as direct lending to the non-party company. This is the same even if the Plaintiff offered time deposit as security to the non-party company, and the same applies to the case where the non-party company received the benefit of the loan by offering time deposit as security (see Supreme Court Decision 2004Du13660, May 25,

Nevertheless, on the ground that it is reasonable to view that the Plaintiff provided each of the time deposits in this case as security so that the non-party company can get a loan to the non-party company by means of the National Bank, etc., it constitutes a provisional payment for the non-party company among the time deposits in this case, which constitutes a provisional payment for non-party company. It is erroneous in the misapprehension of legal principles as to provisional payment for non-party company's office, which affected the conclusion of the judgment.

4. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Sung-tae (Presiding Justice)