(1) In addition, whether the interest on a loan, which is deducted and adjusted from the calculation of the amount to be excluded from the gross income of a corporate shareholder pursuant to Article 18-3 (1) of the former Corporate Tax Act, is limited to the interest on a debt under a monetary loan agreement under the Civil Act or a loan having an individual relation to the invested stocks (negative),

(2) Whether the interest on a deposit received by a financial company in the course of managing its customers' deposits based on a deposit contract, etc. can be deemed as interest on a loan as provided for in Article 18-3(1) of the former Corporate Tax Act (negative); and whether the expenses incurred in raising operating funds from others in various ways, such as selling bonds with repurchase agreement, discounting sales bills, issuing financial bonds, borrowing funds from a trust account, etc. are included in the interest on the loan (affirmative in principle)

Article 18-3 (1) 3 of the former Corporate Tax Act (Amended by Act No. 7317, Dec. 31, 2004); Article 18-3 (1) and Article 55 of the former Corporate Tax Act (Amended by Act No. 8831, Dec. 31, 2007); Article 17-3 (2) and Article 19 subparagraph 7 of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 22577, Dec. 30, 2010); Article 18-3 (1) of the former Corporate Tax Act (Amended by Act No. 8831, Dec. 31, 2007); Article 19 subparagraph 7 of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 22577, Dec. 30, 2010)

Han Bank Co., Ltd. (Attorney Ba-man et al., Counsel for the plaintiff-appellant)

The director of the tax office

Seoul High Court Decision 2014Nu63772 decided May 19, 2015

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

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

1. According to Articles 18-3(1) and 18-2(1)3 of the former Corporate Tax Act (amended by Act No. 8831, Dec. 31, 2007; hereinafter the same) and Article 17-3(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010; hereinafter the same), where a domestic corporation receives dividends from another domestic corporation as a shareholder of another domestic corporation, a specified amount of the dividend amount shall not be included in gross income when calculating the amount of income subject to corporate tax for each business year when calculating the amount of income subject to corporate tax. In such cases, the specified amount shall be calculated by subtracting the interest, etc. (Articles 18-3(1)1 and 4) from the amount calculated by multiplying the dividend amount by the ratio of exclusion from gross income in accordance with the equity ratio, and the amount of interest accruing from borrowings shall be calculated by multiplying the total amount of interest, etc. paid by the relevant domestic corporation in the business year (Article 37(3).).

The purpose of this case’s legal provision, which requires a corporate shareholder to exclude a certain amount from the income dividends, is to relieve the corporate income from the corporate income through tax adjustment in sequence at the corporate level and the current state of taxation at the corporate shareholder’s level. In addition, in calculating the amount to be excluded from the income, the purpose is to exclude the part corresponding to the dividend excluded from the taxation from the expenses included in the calculation of losses. In this regard, the former Enforcement Decree of the Corporate Tax Act, like Article 17-3(2), provides that the amount already excluded from the deductible expenses pursuant to Article 55 of the former Corporate Tax Act, shall not be included in the borrowings and the interest on the borrowings. In addition, Article 18-3(1)3 of the former Corporate Tax Act (amended by Act No. 7317, Dec. 31, 2004) provides that only “interest on borrowings related to the investment in another domestic corporation,” which is revised as “interest on borrowings,” and that the ratio of the amount of the borrowings to be deducted and adjusted to the gross income amount should be reflected.

In full view of the language, structure, legislative purport, and amendment history, etc. of the legal provisions of this case, the interest on loans under the legal provisions of this case cannot be deemed to be limited to the interest on loans under the Civil Act or the borrowed money having an individual relationship with the invested stocks. In principle, the interest on loans under the legal provisions of this case shall be deemed to refer to the “interest on loans” under Article 19 Subparag. 7 of the former Enforcement Decree of the Corporate Tax Act.

2. A. The reasoning of the lower judgment and the record reveal the following facts.

(1) When the Plaintiff, a corporation engaged in financial business, files a return on the tax base and tax amount of corporate tax for each business year of 2006 and 2007, it excluded the interest on repurchase agreement, sales discount, and interest on financial bonds (hereinafter “instant interest”) from the interest on borrowings under the legal provisions of this case.

(2) On March 6, 2012 and March 19, 2012, the Defendant issued a correction and notification of corporate tax for each business year of 2006 and 2007 to the Plaintiff on March 19, 2012 (hereinafter “instant disposition”).

B. Examining the aforementioned factual basis in light of the legal principles as seen earlier, the interest on the instant issue falls under the interest expense incurred by the Plaintiff in raising funds from another person to raise the operating capital. Meanwhile, the interest on the deposit received by a financial company in the course of managing its deposits from a customer based on a deposit contract, etc. falls under a business expense due to the attraction of deposits, and thus cannot be said to be equal to the interest on the loan, and thus constitutes an account entirely different from the interest on the loan. On the contrary, the expenses incurred by the financial company in raising operating funds from another person by means of sale of bonds with repurchase agreement, discount of sales bills, issuance of financial bonds, etc., and other various methods, such as sale of bonds with repurchase agreement, issuance of financial bonds, etc., shall be deemed as the interest on the loan under Article 19 subparag. 7 of the former Enforcement Decree of the Corporate Tax Act, as long as it is not a financial company but a general company.

As such, the lower court’s determination is based on the legal principles as seen earlier. In so doing, it did not err by misapprehending the legal principles as to the legislative intent of the legal provision of this case and the scope of interest on borrowings and borrowings, and the legal nature of interest on the issues of this case.

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 Yong-deok (Presiding Justice)