Whether a trust company is liable to withhold taxes in cases where a trust company pays trust income, which is the interest on bonds or securities, based on a specified money trust contract with a corporation which runs the financial insurance business (negative)

Income to which Article 4 of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994) applies among trust income shall be classified into the details of trust property management, i.e., income from the source when the beneficiary is paid to the beneficiary. However, the interest, discount amount, and redemption interest of bonds or securities provided as trust income for which Article 4 of the former Corporate Tax Act is excluded from the application of Article 4 of the former Corporate Tax Act shall be deemed as income from trust property of a domestic corporation after payment of such income to trust property, the profits of trust under Article 17 (1) 5 of the former Income Tax Act (amended by Act No. 4803 of Dec. 22, 1994) and the profits of the trust company under Article 18 (1) 6 of the former Income Tax Act (amended by Presidential Decree No. 1468 of Dec. 31, 194) shall not be deemed as the profits of the trust under Article 10-5 (1) 17 of the former Income Tax Act.

Articles 4 (see current Article 5), 39 (see current Article 73), 100-4 (see current Article 111), 100-5 (see current Article 112), 17 (1) 5 (see current Article 16 (1) 5), and 18 (1) 6 (see current Article 17 (1) 5) of the former Corporate Tax Act (Amended by Act No. 4804, Dec. 22, 1994);

Dai Bank Co., Ltd., a lawsuit taking over the lawsuit of the Chungcheong Bank (Attorney Cho Jae-soo, Counsel for the plaintiff-appellant)

The Head of Gangnam District Tax Office and one other (Attorney Lee Jae-soo et al., Counsel for the defendant-appellant)

Seoul High Court Decision 96Gu26536 delivered on November 7, 1997

The part of the lower judgment against the Plaintiff is reversed, and that part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined.

1. According to the reasoning of the judgment below, the court below rejected the Plaintiff’s non-party 1’s interest income from the trust property under Article 2 of the former Enforcement Decree of the Income Tax Act (amended by Act No. 1481, Dec. 22, 1994; hereinafter “Non-party 1”) on the ground that the trust income accrued from the non-party 1’s trust business and the non-party 1’s trust business were consolidated with the Plaintiff at the time of the 1999, and that the trust income accrued from the non-party 2’s trust business was managed by the non-party 1’s trust property and the non-party 4’s trust income from the non-party 1’s trust property under Article 4 of the former Enforcement Decree of the Income Tax Act (amended by Act No. 4804, Apr. 1, 1994; hereinafter the same shall apply) constitutes an exception to the trust income accrued from the trust property under Article 30 of the former Corporate Tax Act.

2. Article 39 (1) of the former Corporate Tax Act, which is a provision on withholding under the Corporate Tax Act, provides that when a person who pays interest income (including income amount of finance and insurance business prescribed by the Presidential Decree) under Article 142 (1) 1 of the former Income Tax Act, and dividend amount of securities investment trust proceeds under Article 18 (1) 6 of the same Act to a domestic corporation pays such amount, he/she shall collect and pay corporate tax equivalent to the amount calculated by applying the following tax rates to the amount paid. Article 100-4 (1) of the former Enforcement Decree of the Corporate Tax Act provides that interest income under Article 39 (1) of the Act and dividend amount of securities investment trust proceeds shall not be included in income falling under any of the following subparagraphs, and subparagraph 3 of Article 39 of the former Enforcement Decree of the Corporate Tax Act provides that the amount of income of a corporation operating

However, Article 4 (1) of the former Corporate Tax Act, which is a provision on trust income, provides that income accrued to trust property shall be deemed to belong to the trust property by a beneficiary to receive such trust income (if a beneficiary is not specified or does not exist, the truster of the trust or his heir), and that Article 4 (2) of the former Corporate Tax Act provides that the income accrued to the trust property of a corporation subject to the Trust Business Act and the Securities Investment Trust Business Act (hereinafter “trust company”) shall not be deemed to belong to the corporation and expenditure. However, Article 39 (2) of the former Corporate Tax Act, which provides that Article 4 (1) of the former Corporate Tax Act, provides that the relevant trust property shall be deemed to be a domestic corporation, and Article 100-5 (2) of the former Enforcement Decree of the Corporate Tax Act provides that the income accrued to the trust property shall be deemed to be distributed to the beneficiary under Article 17 (1) of the Income Tax Act or the income accrued to the trust property under Article 10-5 (1) 7 (2) of the former Corporate Tax Act.

Therefore, even if the source of the trust income of this case is the bonds or the interest of securities, when the Chungcheong Bank, which is the trust company, pays to the non-party fund, it shall be deemed to fall under the "trust profit" under Article 17 (1) 5 of the former Income Tax Act. This constitutes the revenue amount of the corporation operating the finance and insurance business, which shall not be subject to tax exemption, and it does not fall under the exception. However, the judgment of the court below which judged otherwise is erroneous in the misapprehension of the legal principles as to trust income, and therefore, there is a ground for appeal

3. Therefore, the part of the judgment below against the plaintiff is reversed, and that part of the case is remanded to the court below. It is so decided as per Disposition by the assent of all participating Justices.

Justices Park Jong-chul (Presiding Justice)