[1] The case holding that in the transaction of so-called "prior export method (D/A), where the domestic export market pays interest on the export finance accrued due to the delay of deposit in foreign import to the bank, it shall not be included in deductible expenses under the Corporate Tax Act

[2] The case holding that the fees for issuing a letter of credit paid to a creditor bank on behalf of a foreign country for domestic exports are not subject to inclusion in deductible expenses under the Corporate Tax Act

[1] Article 19(1) and (2) of the Corporate Tax Act / [2] Article 19(1) and (2) of the Corporate Tax Act

[1] Supreme Court Decision 88Nu6412 delivered on November 14, 1989 (Gong1990Sang, 49)

Seoul High Court Decision 200Na14488 delivered on September 2, 2008 (Law Firm Pacific, Attorneys Nacheon-soo et al., Counsel for the defendant-appellant)

Head of Mapo Tax Office

Seoul High Court Decision 2004Nu7223 delivered on August 25, 2005

All appeals are dismissed. The costs of appeal are assessed against each party.

The grounds of appeal are examined.

1. As to the Plaintiff’s grounds of appeal Nos. 1 and 2 and the Defendant’s grounds of appeal

Article 9(3) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) and Article 19(1) of the Corporate Tax Act provide that deductible expenses shall be the amount of deductible expenses incurred from transactions which reduce the net assets of the corporation, except as otherwise provided for in this Act and other Acts and subordinate statutes. Article 19(2) of the Corporate Tax Act provides that “The deductible expenses under the provisions of paragraph (1) shall be ordinary or directly related to the losses or expenses incurred or incurred in connection with the business of the corporation, except as otherwise provided for in this Act and other Acts and subordinate statutes.”

In full view of the adopted evidence, the court below held that interest at issue and attachment of the bill of exchange on the basis of documents which were shipped and furnished with the U.S. subsidiaries (the collection request bank; hereinafter referred to as the "collection request bank")'s bank (the collection request bank; hereinafter referred to as the "collection request bank")'s bank for interest at issue and attachment of the bill of exchange with the U.S. subsidiary company's payment at issue and attachment of the bill of exchange with the U.S. subsidiary company's payment at the time of the bill of exchange (the plaintiff's trade name prior to the commencement of the reorganization proceedings under the former Company Reorganization Act, Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005) was insufficient, and the court below's determination of the price for interest at issue and the bill of exchange with the U.S. subsidiary company's payment for interest at issue and the bill of exchange cannot be paid without delay due to the due date of the bill of exchange.

2. On the third ground for appeal by the plaintiff

In full view of the adopted evidence, the court below recognized the fact that the overseas subsidiaries of Heung Chang-si used to obtain a loan from a foreign bank, and held that the payment of the fee for the L/C is a substitute for the expenses to be borne by the overseas subsidiaries, and thus, it cannot be viewed as ordinary or directly related to profit and loss under the Corporate Tax Act. In light of the above related Acts and subordinate statutes and the records, the court below's fact-finding and determination are just and they do not contain any errors in the misapprehension of legal principles as to the inclusion of guarantee fee in deductible expenses and the denial of wrongful calculation, or in the violation of the rules of evidence.

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against each party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Young-ran (Presiding Justice)