Cho High Court Decision 2005No4260 (No. 21, 2008)

Where it is unclear to distinguish the revenue cost of a non-profit corporation, it shall be calculated according to the profit-making business and non-profit business

Where it is unclear where a non-profit corporation has incurred any profit-making business or non-profit-making business, it shall be calculated in accordance with the method of separate calculation in which the necessity of separate accounting is the necessity of common profit-making business or common loss.

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

Article 3 of the Corporate Tax Act

Article 76 of the Enforcement Rule of Corporate Tax Act

1. The Defendant’s imposition of KRW 459,316,30 of corporate tax for the business year 1999, March 10, 2005; imposition of KRW 2,652,045,540 of corporate tax for the business year 2000, October 10, 2005; imposition of KRW 1,553,877,420 of corporate tax for the business year 2001; imposition of KRW 1,365,440 of corporate tax for the business year 2002, October 27, 2005; imposition of KRW 1,365,40,980 of corporate tax for the business year 2002; imposition of KRW 712,030,410 of corporate tax for the business year 203, October 27, 2005; and imposition of KRW 712,030 of corporate tax for the business year 203.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Circumstances of the disposition;

(a) The plaintiff's activities for unemployment measures;

On May 1, 1995, the Plaintiff, a non-profit corporation established under the Industrial Accident Compensation Insurance Act, issued employment security bonds (total amount of KRW 1.5,23.45 billion), borrowed funds from the special accounts for financial loans (180 billion) from the Government to the Korea Development Bank (U.S.) and deposited and operated funds in the form of deposits, beneficiary certificates, etc. with financial institutions by raising funds for unemployment measures in the form of deposits, beneficiary certificates, etc., from 1998 to the unemployed who meet certain qualification requirements, and provided them with a long-term loan from the Bank (hereinafter referred to as "long-term loan from the Bank") with the interest rate of fixed loans and funds for financial loans from the Government, 180,000,0000,000,000 won, and directly paid the remainder of loans from the Bank (hereinafter referred to as "long-term loan from the Bank"), 190,0000,0000,000 won.

B. Plaintiff’s report of corporate tax

In filing a report on the tax base and tax amount of corporate tax on income for the business year 1998, the Plaintiff: (a) opened an exchange rate adjustment account on foreign currency converted profits from the reloan of the foreign currency loans; (b) returned the amount equal to the annual income during the repayment period from 1998 to the non-profit business account in the business year 1998; and (c) appropriated the total amount in the account for profit-making business in the business year 1999- - the corporate tax base and tax amount on the income for the business year 2003; (d) included the income from the income from the indirect loan and the interest from the surplus funds deposited and operated in the financial institution in the account for profit-making business; and (e) included the amount in the gross income in the calculation for profit-making business at the same time the income from the direct loan business; (e) included the interest income from the business in the calculation for the proper business purpose; and (e) included the foreign currency converted profits and losses from the IBD loans in the account.

C. Defendant’s rectification of corporate tax

The defendant: (a) conducted tax investigation on the plaintiff between February 1, 2005 and March 10, 2005; (b) 199- - interest on direct loan of 203 business year; (c) 30-10-6-6-6-6-6-7-7-7-7-7-7-7-7-7-7-7-7-9-7-7-7-7-7-7-7-7-7-7-7-7-7-7-7-9-7-7-7-7-7-7-7-7-7-9-7-7-7-7-7-7-7-9-7-7-197-7-7-7-197-7-7-7-7-197-7-7-7-197-7-7-7-196-7-7-7-7-197-7-7-7-77-77-190-7-7-7-7-7-7-19-7-7-7-7-7-7-7-7-7-7-7-7

D. Re-revision of the Defendant’s corporate tax

The plaintiff filed an objection and a request for review of the propriety of corporate tax for the business year 199 and 200 - 200 - 320 5 - 199 - 320 5 - 4 5 - 20 5 0 - 30 5 20 - 4 5 20 - 30 5 20 -4 5 7 - 30 5 20 -4 5 7 -4 196 - 30 5 5 20 -4 5 196 ,4 5 205 ,4 196 ,7 5 205 - 196 ,7 5 196 ,7 5 196 ,205 ,7 199 ,46 ,57 5 205 ,209 ,57 29

[Ground of recognition] Class A Nos. 1, 2, 3, 6, 8, 9, 10, 16 (including any natural disaster) and the purport of the whole pleadings and arguments as evidence Nos. 2

2. Whether the dispositions of the instant case are legal.

A. The plaintiff's principal

(1) Violation of the principle of good faith, the principle of prohibition of retroactive taxation, and the principle of prohibition of duplicate investigation.

B. From February 25, 2002 to April 16, 2002, the director of the Seoul Regional Tax Office conducted a tax investigation on corporate tax, etc. for 1999- 2000 business year, determined whether the business was a profit-making business of the plaintiff, and imposed corporate tax, etc. accordingly. Under the premise that the direct loan business at the time constitutes a profit-making business without determination as to whether the business constitutes a profit-making business, the tax investigation was completed. Recognizing the results of the tax investigation, the plaintiff was deemed as the direct loan business at the time of the above tax investigation to account as the non-profit business and reported corporate tax. The Seoul Regional Tax Office stated public opinion that the direct loan business at the time of the above tax investigation constituted a non-profit business, and the plaintiff did not have any reason to believe that the direct loan business at the time of the above tax investigation constitutes a non-profit business, and thus, the defendant's disposition of tax investigation at the time of the above 90-20-9 of the Framework Act on National Taxes again was made 90-1 of the Seoul Regional Tax Office's.

(2) Substantial unlawful grounds

(A) In the organization and operation of the Plaintiff, the public interest nature, such as being supervised and controlled by government agencies such as the Minister of Labor, and the Plaintiff was managed and operated as the financial resources of the Workers' Welfare Promotion Fund established by the Minister of Labor after borrowing the instant business funds. The loan interest rate of the instant business was lower or lower than the weighted average interest rate of the loans raised from the instant business funds, and its interest income is insufficient to cover the business expenses. In light of the fact that the income accrued from the instant business is incorporated into the funds of the Workers' Welfare Promotion Fund, etc., the instant business does not constitute a profit-making business under Article 3(2) of the former Corporate Tax Act, and thus, the Plaintiff’s income accrued from the instant business is not subject to corporate tax, and the Defendant’s disposition based on the premise that the instant business falls under a profit-making business is unlawful.

(B) Even if the instant business falls under a profit-making business, in calculating the Plaintiff’s corporate tax for the business year 199-2003, the Plaintiff’s disposition of this case, which was made by including not only the interest income from the direct loan business included in the initial non-profit-making business account, but also the total expenses of the instant business and the foreign currency conversion profit and loss of the IBD loan funds for the IBD loan in the gross income and deductible expenses, should be included in the gross income and deductible expenses of the profit-making business. Therefore, the Defendant’s disposition of this case, which was made by calculating only the portion concerning the direct loan business without including the expense of this case and the foreign currency conversion profit and loss

(C) Even if the sum of the income and expenses of the instant business is not permitted, the method of calculating the portion of the direct loan business among the expenses of the Plaintiff’s business in calculating the corporate tax for the business year 199-2003, such as personnel expenses of the instant business, etc. (the portion excluding the interest paid) is calculated on the premise of exchange rate adjustment account for the business year 199-2003, and it is unlawful as it is calculated on the ground that the income, such as interest, etc. from the operation of surplus funds, falls under the common income of direct loan business and indirect loan business, and it is not directly included in the gross income of the Defendant’s business year 1998, even though it is not so, the Defendant’s disposal of the equal amount of the business year 199-203, which was included in the gross income of the Plaintiff’s business year 199-203 business year is not directly included in the gross income of the instant business in the calculation method of the amount of the indirect loan not directly included in the gross income.

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

(1) The Plaintiff, under his/her name, issued a fixed interest rate of KRW 873.4 billion at 7.5% per annum in the year of 1998. The Plaintiff borrowed KRW 180 billion in total from the Government’s loan funds of the special accounts for financing loans twice, with the fluctuation rate of KRW 212,239,12.75 in the amount of the IBD loan funds at the fluctuation rate of KRW 212,239,12.75 in the amount of the IBD loan funds at the interest rate of KRW 6.03-7.7% per annum in the period of May 201; KRW 6.03-7.1% per annum in the annual period of 2001; KRW 5.1 billion in the annual period of 201.5 billion in the amount of the loan funds deposited at the 505.7% annual rate of KRW 95 billion in the amount of the loan funds deposited at the 201.5% per annum in the business year of 2001.5 billion.

(2) The Plaintiff’s indirect loan business conducted from the year 1998 concluded an agreement on the loan business with the bank and deposited the business funds in the form of a bank, and judged that an application for the loan by the unemployed satisfies the requirements for the loan as determined by the Plaintiff is satisfied, and the bank provided the loan to the Plaintiff after examining the requirements for the loan and the requirements for the loan. The bank provided the loan to the Plaintiff with interest other than the bank fees paid by the Plaintiff at the prescribed interest rate. The direct loan business conducted from the year 1999 by the Plaintiff was conducted in the manner that the Plaintiff paid the Plaintiff interest in the form of the deposit interest to the Plaintiff. The problem that the loan does not meet the requirements for the guarantee and the requirements as a result of the indirect loan business conducted from the year 1999 is a non-guaranteed and collateral loan business conducted in the form of a loan without a guarantee and a collateral loan business conducted in order to improve the loan due to the passage of Korea, and then the store was provided to the Plaintiff and paid the interest at the prescribed interest rate on the deposit.

(3) In conducting the indirect loan business during the business year from 1998 to 2003, the Plaintiff determined 9.5% per annum (8.5% per annum from the interest rate on loans to banks (8.5% per annum from the living stabilization fund) by adding the fees to 7.5% per annum from the interest rate on loans to the fixed interest rate (8.5% per annum from the living stabilization fund) among the funds of this case. In conducting the direct loan business in the business year of 1999-- 2003, the Plaintiff determined the loan interest rate at 9.5% per annum from the same level as the indirect loan business in the business year of 1999, and handled the loan business by determining the loan interest rate at 9.5% per annum from the interest rate on loans of the indirect loan business to 2000 - 2003 as the loan interest rate of 7.5% per annum, excluding the bank fee.

(4) The Plaintiff included approximately 3.8% of the instant business funds in the total business year 1999 - 2003 in the loan business directly, invested approximately 40% in the indirect loan business, and deposited and operated approximately 56.2% of the instant business funds in the financial institution with oil.

(5) On the other hand, the director of the Seoul Regional Tax Office conducted a tax investigation on corporate tax, etc. for the business year 1996 - 2000 from February 25, 2002 to April 16, 2002 (hereinafter referred to as the "first tax investigation") and denied the excess loss reserve for the proper purpose business, denied the profit and loss of the non-profit business, including the profit and loss of the profit-making business appropriated for the profit-making business accounting, include the lottery profit appropriated for the non-profit business accounting in the profit-making business, include the excess loss in the profit-making business, include the amount transferred from the non-profit business accounting into the profit-making business, include the excess loss in the profit-making business, the amount transferred from the non-profit business accounting to the profit-making business, the amount of the voluntary established lottery sales reserve in the profit-making business, and includes the plaintiff's income from each business year after adjustment such as foreign currency subsidies not related to the profit-making business, and included the amount of the profit-making business loan or the business loan of this case.

After that, on August 24, 2004, the defendant received a tax evasion report stating that the plaintiff borrowed IBD loan funds from the IBD loan funds to the unemployed and used them for profit-making business, which is a profit-making business that obtains interest income and exchange profit, but the foreign currency conversion profit and loss of IBD loan funds was omitted for a long period of time by appropriating them to the IBD loan account without including them in the gross income and deductible expenses for profit-making business. The tax evasion report contains an opinion on the grounds that the business of this case is a profit-making business, the plaintiff's opinion on the grounds that the business of this case is a profit-making business, the specific amount to be included in the gross income or deductible expenses for each business year when the tax adjustment is conducted, and related documents such as the plaintiff's income classification for each business including the business of this case, the plaintiff's profit and loss statement and profit-making business were attached to the plaintiff's business of this case, and according to this result, the defendant made a tax investigation conducted on February 39, 2005.

[Ground of recognition] Each entry of Gap evidence of Nos. 8 through 14, 17 through 26, 41 (if any, numbered) and Eul evidence of Nos. 5, 7 through 12, 14 (including numbered numbers), and the purport of the whole pleadings

D. Determination

(1) As seen in the above facts, the Seoul Regional Tax Office has conducted a first tax investigation on the Plaintiff’s 196-200 business year corporate tax, etc., and denied the profit or loss of the non-profit-making business that has been appropriated for the profit-making business account, and has recovered that the lottery business profit has appropriated it into the non-profit-making business account, and has taken measures, such as including it in the gross income of the profit-making business. However, the Plaintiff’s direct loan income, the business expense of this case, and the foreign currency exchange profit or loss of the IBD loan, which has been appropriated for the non-profit business account in the business year of 2000, did not take measures to add it to the gross income or loss of the profit-making business, but solely on such circumstances alone, it cannot be deemed that the Seoul Regional Tax Office expressed a public opinion that the direct loan business at the time of the first tax investigation constitutes a non-profit business or that it does not constitute a non-profit business, and thus, it cannot be recognized that the Defendant’s testimony or disposition of subparagraph 12 and Article 15-3 of the Framework Act.

In addition, as seen in the above facts, it is recognized that the defendant again conducted the second tax investigation on the part of the plaintiff 199-200 business year corporate tax which was already investigated by the director of the Seoul Regional Tax Office at the time of the first tax investigation. The defendant's second tax investigation is based on the tax evasion report concerning the omission of corporate tax by appropriating profits and losses converted into foreign currency for re-loan funds for the plaintiff, which is not recovered at the time of the first tax investigation by the director of the Seoul Regional Tax Office of the Seoul Regional Tax Office. The defendant's second tax investigation falls under "the case where there is clear evidence to acknowledge the suspicion of tax evasion" under Article 81-3 (2) of the former National Tax Law in light of the structurality and rationality of the content of the tax evasion report. Thus, the defendant's second tax investigation cannot be deemed to violate the principle of prohibition of duplicate investigation under Article 81-3 (2) of the former Framework Act on National Taxes.

Therefore, there is no reason for the part of the plaintiff's objection.

(2) The title that the instant project constitutes a non-profit-making business

Article 3(1) and (2) of the former Corporate Tax Act provides that a non-profit domestic corporation is obligated to pay corporate tax only on income derived from business or income prescribed in each subparagraph of Article 3(2). Thus, even if a non-profit domestic corporation has income, it shall not be subject to corporate tax unless such income is attributable to profit-making business. In determining whether a business falls under a profit-making business, the relationship with the intended business should not be considered, such as whether the profit earned from the business was intended to achieve the proper purpose of the relevant corporation. However, in order to constitute a business for profit-making business, the business itself should be at least for profit-making business or for profit-making business (see, e.g., Supreme Court Decision 2003Du12455, Sept. 9, 2

In the case of this case, the plaintiff raised the project funds of this case through the method of issuing employment security bonds in his name, borrowing funds from the government special accounts for financing loans, borrowing funds from the Korea Development Bank, and managing and operating them independently, the plaintiff was paid interest on the loans to the unemployed using the project funds of this case by depositing and operating the funds of this case to financial institutions, and the plaintiff was paid interest, etc. The plaintiff determined the qualification of the object of the loans in carrying out direct loan projects and indirect loan projects, and determined the large interest rate of direct loan and indirect loan projects by taking into account the loan interest rate of this case 10% in 199, 2002, 38% in 200, 2003, 30% in corporate tax and indirect loan projects of this case, 209, 30% in total, 30% in total, 40% in total, 30% in comparison with the average loan interest rate of the project funds of this case as claimed by the plaintiff.

(3) As to the assertion regarding the aggregate of the revenues and expenses of the instant project

Article 113 of the former Corporate Tax Act provides that when a nonprofit corporation operates a profit-making business, it shall keep separate accounting of assets, liabilities, and profits and losses belonging to the relevant profit-making business and those belonging to any other business other than the profit-making business. Article 76(6) of the Enforcement Rule of the Corporate Tax Act provides that where a nonprofit corporation separates profits and losses from profit-making business and other private businesses pursuant to Article 113(1) of the former Corporate Tax Act, common profits and losses shall be calculated in accordance with certain standards. Where a nonprofit corporation operates a profit-making business, where it is clear where specific profits or expenses accrue from such profit-making business or non-profit business, it shall separate accounting of such profit-making business or non-profit-making business. Where it is unclear where specific profits or expenses occur from such profit-making business or non-profit business, it shall be calculated in accordance with the method of separate accounting without the need of separate accounting as common profits or losses, and where a nonprofit corporation fails to comply with the above accounting principles in the profit-making business, expenses or profit-making business shall belong to such principle.

In this case, in light of the purpose, content, method, etc. of the project of this case, the plaintiff has the economic substance of lending money at a certain interest rate to the unemployed using the project fund and receiving interest on the loan. The plaintiff's interest income is the income directly accrued from the project of this case. The plaintiff's deposit and operation of surplus funds in the project of this case is the kind of temporary storage and operation of funds invested in the project of this case or collected funds until the project of this case is invested in the project of this case. The plaintiff's interest accrued during this process is income generated from the project of this case. The project of this case is the expense of this case's borrowing funds for the purpose of the project of this case and the interest paid for the loan of this case and personnel expenses paid for the actual use or in the course of the project of this case's business of this case's business of this case's business of this case's business of this case's business of this case's 90th business year's foreign currency conversion profit and loss from this case's business of this case's 909th business year's total profit and loss of this case's 9.

(4) Cancellation of the entire disposition of this case

In a lawsuit seeking revocation of a taxation, when a reasonable amount of tax to be imposed lawfully is calculated based on the submitted data even though the error in the process of calculating the amount of tax is deemed unlawful, the court shall not revoke the entire amount of the taxation, but shall regard only the portion exceeding the reasonable amount of tax calculated based on the submitted data as unlawful and revoke only the unlawful portion. However, if a legitimate amount of tax to be imposed lawfully cannot be calculated based on the data submitted by the parties concerned, the entire amount of the taxation may be revoked. In such a case, the court shall not be obliged to actively calculate the amount

In this case, even if it is based on the evidence submitted by the original and the defendant or all the evidence presented by the court by the examination of evidence, it is insufficient to calculate the legitimate corporate tax amount for the business year 1999 - 2003. Thus, the court of this case must cancel the whole illegal disposition of this case.

3. Conclusion

If so, the plaintiff's claim shall be accepted for the reasons of the judgment as per Disposition.