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)

Suwon Accounting Investment Co., Ltd. (Attorneys Lee Im-soo et al., Counsel for the defendant-appellant)

The director of Busan District Office

Busan High Court Decision 2014Nu22380 decided January 15, 2016

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

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 by a person with a special relationship. This is applicable only to cases where a person with a right to taxation denies it and lacks the economic rationality by calculating an unnatural and unreasonable act from the standpoint of an economic person. Determination of economic rationality is based on whether the transaction is conducted in light of sound social norms or commercial practices, and whether the transaction is conducted in light of the circumstances of the transaction, and the special circumstances at the time of the transaction should also be considered (see Supreme Court Decision 2010Du19294, Nov. 29, 2012, etc.).

2. A. In light of the following circumstances, the lower court determined that the instant disposition was unlawful on the premise that the market price of the instant subordinated loan was 13.15% per annum, on the ground that the Plaintiff borrowed approximately KRW 19.2 billion from the shareholder, and that it was determined that the interest rate was 20% per annum, and that the instant disposition was unlawful, based on the premise that the market price of the instant subordinated loan was 13.15% per annum, 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) was for the high interest rate of money as stipulated in Article 88(1)7 of

(1) In a private investment project, a subordinated loan borrowed by a concessionaire from a shareholder is distinct from a general loan, and the loan in this case differs from the senior loan in terms of payment conditions, repayment period, security, etc.

(2) When the Busan Metropolitan City entered into a plan to modify the implementation plan several times with the Plaintiff, it has agreed not only to postpone the timing for payment of the minimum operating revenue guarantee or to repay in installments, but also to defer the payment of the said guarantee despite the modification agreement, the risks therefrom need to be considered.

(3) Upon the commencement of the operation of a private investment facility upon completion, the concessionaire is general to invite new investors to reduce investors’ shares and procure subordinated loans, thereby permitting the modification of the capital structure. It is difficult to deem that the interest rate on subordinated loans in this case is particularly higher than that on other private investment projects.

B. Examining the aforementioned legal principles and records, the lower court did not err by misapprehending the legal doctrine on the 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 Park Sang-ok (Presiding Justice)