Seoul Administrative Court 201Guhap6097 ( October 08, 2011)

Seocho 2010west 2410 ( November 29, 2010)

Multi-family transportation business entity shall lend funds at a low price to a person with a special relationship without connection with the business.

As long as a corporation operating a taxi transport business receives interest of 6% per annum less than 9% per annum of the current loan interest rate while lending provisional payments paid to a person with a special relationship without connection with the business of the corporation, it is reasonable to add the interest recognized as constituting wrongful calculation, and to impose corporate tax by adding the loan interest to the calculation of unlawful calculation.

2011Nu23957 Revocation of disposition of revocation of corporate tax, etc.

XX Round Co., Ltd.

Head of the Geumcheon Tax Office and one other

Seoul Administrative Court Decision 2011Guhap6097 decided July 8, 2011

December 14, 2011

February 15, 2012

1. The plaintiff's claim against the director of Seoul Regional Tax Office is dismissed.

2. The plaintiff's appeal against the defendant head of Geumcheon District Tax Office is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

The decision of the first instance court shall be revoked. The decision of the head of the Geumcheon District Tax Office rendered on February 3, 2010 against the plaintiff on the corporate tax of 73,100,750 won for the business year of 2005, the corporate tax of 176,570,590 won for the business year of 2006, the corporate tax of 51,043,080 won for the business year of 207, the value-added tax of 51,711,380 won for the business year of 205, the value-added tax of 9,623,700 won for the second year of 205, the value-added tax of 5,914,760 won for the first year of 206, and the decision of the Seoul District Tax Office revoked the disposition of 303,350,498 won for the business year of 2006, the Seoul District Tax Office revoked the disposition of 2781, each of Seoul District Tax Office.

1. Details of the disposition;

A. The Plaintiff is a corporation that runs the taxi transport business. The head of the Seoul Regional Tax Office conducted an integrated investigation into the Plaintiff’s corporate tax system for the business years from August 11, 2009 to October 30, 2009, and confirmed that the Plaintiff’s joint representative director, the head of the Si/Gun/Gu, and the head of Si/Gun/Gu made a loan from 2004 to 2007 to 2007 to the PP industry corporation with the Plaintiff’s joint representative director’s share of 10% and his/her child’s share of 10%, and notified the head of Kucheon Tax Office of taxation data by confirming that the Plaintiff omitted the amount of transportation during the above period.

B. In addition, as a result of the above tax investigation, the head of the Seoul Regional Tax Office deemed that the Plaintiff unduly reduced the tax burden by lending funds at an interest rate lower than the market price to XX, a person with a special relationship, as a result of the said tax investigation, Article 52(1) and (2) of the former Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; hereinafter the same shall apply) and Articles 8(1)6 and 89(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891, Feb. 28, 2007; hereinafter the same shall apply) applied the current loan interest rate of 9% per annum to the amount recognized as 2005 through 207 and added 143,313,404 won to the Plaintiff’s gross income. From among the daily transport confirmation of the settlement confirmation that the Plaintiff kept in his custody, the Plaintiff’s bonus was disposed as a bonus to the Plaintiff’s representative.

C. Meanwhile, under Article 28(1)4(b) of the former Corporate Tax Act and Article 53(1) of the former Enforcement Decree of the Corporate Tax Act, the Plaintiff’s loan payment to XX constitutes “the provisional payment, etc. that was made without connection with the business” and the Plaintiff’s loan payment related to the above loan was excluded from deductible expenses in total 330,181,139 won.

D. The details of the gross income industry and non-deductible loss by each business year are as follows. The representative director of the Plaintiff’s representative A shall confirm the following on October 28, 2009 (hereinafter “instant confirmation”). However, the omission of a declaration attached to the said confirmation shall be written in 301,092,650 won, which is excluded from value-added tax.) signed on the confirmation.

E. On February 3, 2010, the director of the tax office of Geumcheon Tax imposed corporate tax on the Plaintiff for the business year 73,100,750, corporate tax for 2006, corporate tax for 176,570,590, corporate tax for the business year 2007, corporate tax for 51,043,080, 71,380, value-added tax for the business year 1, 2005, 205, 9,623,70, 700, and 5,914,760 of the value-added tax for the second year of 205, respectively (hereinafter referred to as "the part of corporate tax") shall be subject to imposition of corporate tax for each of the following items, and the director of the Seoul Regional Tax Office imposed a notice of the change in the value-added tax for 206, 303,508, 207, 2081.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2 (including each number, hereinafter the same shall apply), Eul evidence 1 to 8, and 10, the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiff principal

Each disposition of this case is unlawful for the following reasons.

1) As to the application of wrongful calculation

The Plaintiff is not subject to the avoidance of wrongful calculation under Article 52 of the former Corporate Tax Act, since the Plaintiff’s interest rate of 6% per annum is applied by appropriately considering the bank loan interest rate to XX, and there is no fact that the tax burden has been unjustly reduced.

Furthermore, comprehensively taking account of Article 52(2) of the former Corporate Tax Act, Article 89(3) of the former Enforcement Decree of the Corporate Tax Act, and Article 43(1) of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 547, Mar. 30, 2007; hereinafter the same), the scope delegated to examinations by the National Tax Service shall be limited to sound social norms and commercial practice based on corporate bonds with the maturity of three years guaranteed by the financial institution and interest convergence that is applied or may be applied to ordinary transactions between persons who are not a related party. The National Tax Service notice (2001-31 (the notice on the change of interest rate per month applicable at the time of the rejection of wrongful calculation) which determines the interest rate per annum 9% (the notice of this case is unlawful as it goes beyond the scope delegated by the above Act. Furthermore, the notice of this case, Article 89(3) of the former Enforcement Decree of the Corporate Tax Act, which is its superior statute, and Article 43(1) of the former Enforcement Rule.

2) Non-Inclusion of interest in deductible expenses

Article 28(1)4(b) of the former Corporate Tax Act provides that a loan to the Plaintiff is related to the Plaintiff’s business, as a liquefied gas charging business entity, with a close relation to the Plaintiff’s taxi transport business, with a vehicle fuel offered to the Plaintiff at a discount above the market price, and with a higher level of rent every month for leasing the Plaintiff’s building owned by the Plaintiff. In light of the fact that the Plaintiff’s loan to XX is related to the Plaintiff’s business, the interest paid on the loan related

3) On notice of change in income amount

The letter of confirmation of this case is signed and sealed by the AA without confirming the contents thereof by stating that the tax officials will process it well with the seal affixed by the AA. Since the AA is the representative director of the plaintiff in the name of the representative director of the plaintiff and the actual management of the AA is an ACC, it cannot be the subject of the written confirmation. In addition, the certificate of settlement presented as the basis for the omission of transport income is prepared by the plaintiff in preparation for the inspection of the total management system of the Gu office under the jurisdiction of the Gu, and it is not the actual revenue amount, but the amount

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Determination as to the assertion regarding the application of wrongful calculation

A) In a case where a corporation’s wrongful calculation division under Article 52 of the former Corporate Tax Act (amended by Act No. 88(1) 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) of the former Enforcement Decree of the Corporate Tax Act without using a reasonable method of a person with a special relationship, it is deemed that the person with a right to taxation authority denies or reduces the tax burden. The same applies only to a case where it is deemed to have neglected the economic rationality due to disregarding the wrongful and unreasonable calculation in light of the economic rationality in light of the manner prescribed by the laws and regulations, and the determination of the economic rationality shall be made based on whether the transaction was conducted in light of the sound social norms and commercial practices, and the special circumstances at the time of the transaction should also be considered (see, e.g., Supreme Court Decision 208Du1541, Oct. 28, 2010).

In light of these legal principles, this case is examined in light of the above legal principles. Pursuant to Article 87 (1) 3 and 4 of the former Enforcement Decree of the Corporate Tax Act, it is clear that the Plaintiff, an officer of the Plaintiff, EA, EB, and his relatives hold 100% of the issued stocks, and that there is a special relationship with the Plaintiff under Article 87 (1) 3 and 4 of the former Enforcement Decree of the Corporate Tax Act, and Article 52 (1) of the former Enforcement Decree of the Corporate Tax Act delegates the type of wrongful calculation under Article 88 (3) of the former Enforcement Decree of the Corporate Tax Act to the Enforcement Decree of the Corporate Tax Act. Article 88 (1) 6 of the former Enforcement Decree of the Corporate Tax Act provides that "where assets are leased at a rate lower than the market price of wrongful calculation." On the other hand, Article 89 (3) of the former Enforcement Decree of the Corporate Tax Act provides that interest income is defined as the market price of the loans at the market price, and the Plaintiff’s annual interest rate is lower than 9% per annum.

B) Furthermore, whether the instant notice deviates from the bounds of delegation stipulated by the superior statute.

In light of the following circumstances, which are acknowledged by comprehensively considering the provisions of relevant Acts and subordinate statutes, and evidence Nos. 11, 12, 17 through 20, and evidence Nos. 15 and 16, and the purport of the entire pleadings, the notice by the National Tax Service, which determined 9% interest rate, shall not be deemed to have exceeded the bounds of delegation stipulated in Article 52(1) and (2) of the former Corporate Tax Act, Articles 8(1)6 and 89(3) of the former Enforcement Decree of the Corporate Tax Act, and Article 43(1) of the former Enforcement Rule of the Corporate Tax Act. The Plaintiff’s assertion on this part is without merit.

(1) The change in the interest rate for overdrafts that the Commissioner of the National Tax Service has publicly notified pursuant to the higher legislation is as follows:

(2) In lending money between a person with a special relationship, the upper statutes deemed the interest rate at the market price as the interest rate at the overdraft loan, and the Commissioner of the National Tax Service prescribed that it shall be determined in consideration of the distribution rate. On December 31, 2001, the Commissioner of the National Tax Service conducted the instant test on the basis of the above upper-tier statutes, with the content that the distribution rate at the overdraft was 9%. After the actual distribution rate falls from 14-15% in 1997 to 7-8% in 2001, the lower-level trend was reached without a large width change, and the Commissioner of the National Tax Service announced the overdraft loan interest rate at 20% on December 31, 197, according to the trends in the distribution rate change as above, it can be deemed that the above higher-level interest rate set forth in the instant statutes was legitimate.

(3) The rate of return on distribution after the decline has been gradually, but the rate of return on distribution has not been changed every year, and the rate of interest on overdraft has been reduced by additional rate of interest under the situation that the rate of interest on overdrafts up to 9% already, there was a concern about undermining the purport of the superior law that attempts to restrain reckless loan between related parties. Therefore, the rate of interest on overdrafts was no longer lowered.

(4) Furthermore, Article 43(1) of the Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 356, Mar. 14, 2006) amended that the current loan interest convergence which is deemed as the market price shall be determined by the Commissioner of the National Tax Service in consideration of the current loan interest rate of financial institutions, not the distribution profit rate. Since the amendment of the above Enforcement Rule, the current loan interest rate of financial institutions gradually decreased after the amendment, but there is no difference between the current loan interest rate publicly notified by the Commissioner of the National Tax

(5) Even thereafter, Article 43(3) of the Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 66 of March 30, 2009) directly provides that the current interest rate shall be 8.5% which was 0.5% lower than that of the previous 9%, which was publicly notified by the Commissioner of the National Tax Service, and no change exists thereafter.

(6) Although the Commissioner of the National Tax Service should consider the distribution rate or the current loan interest rate of a financial institution in determining the current loan interest rate pursuant to the superior laws and regulations, it may be deemed that there was a need to make an important policy and technical judgment in order to induce the construction of the financial structure and the transparency of corporate management and to achieve the purpose of the provision for regulating unfair practices among related parties. For this reason, since the legislators can be deemed to have delegated the authority to determine the current loan interest rate itself to the Commissioner of the National Tax Service, it is difficult to deem that the Commissioner of the National Tax Service has discretion in determining the current loan interest rate, and that the Commissioner of the National Tax Service has abused and abused discretion when considering the aforementioned circumstances as seen earlier. Ultimately, the instant public notice which the Commissioner of the National Tax Service set the current loan interest rate of 9% at the rate of the current loan interest rate of 9% is merely deemed to have been applied or applied in a normal transaction between unrelated parties, given the distribution rate of the company’s bonds with the maturity of 3 years guaranteed by the financial institution, and it does not exceed the scope of the public notice.

C) We examine whether the instant notice violates the excessive prohibition principle under Article 88(1)6 and the main text of Article 89(3) of the former Enforcement Decree of the Corporate Tax Act, Article 43(1) of the Enforcement Rule of the Corporate Tax Act, and the instant notice.

As seen above, higher-ranking statutes and the notice of this case, which serve as the basis for which the Commissioner of the National Tax Service set the interest rate for overdraft 9%, have the legislative purpose to prevent tax avoidance and ensure fairness in tax burden by regulating unfair acts between related parties. To achieve this purpose, the means is appropriate as it uses the method of deeming the loan interest rate at the market price. In order to cope with the act of tax avoidance, there is a need to immediately respond to changes in economic reality. To this end, the Commissioner of the National Tax Service must set the interest rate for overdraft in consideration of the distribution profit rate. In light of the above policy scale and technical aspects, it appears that the Commissioner of the National Tax Service granted broad discretion to the Commissioner of the National Tax Service in consideration of the above policy structure and technology, and it is difficult to see that the discretionary power was exceeded, and therefore, it cannot be seen as violating the minimum infringement principle. In full view of the above, it cannot be readily concluded that any inevitable private disadvantage occurring in the process is more than the public interest achieved by unfairly regulating the act between related parties.

2) Determination as to the assertion regarding non-deductible interest in deductible expenses

Article 28 (1) 4 (b) of the former Corporate Tax Act provides that when a corporation acquires and holds assets prescribed by Presidential Decree, such as provisional payments paid to a person with a special relationship without connection with its business, an amount calculated as prescribed by Presidential Decree (limited to interest equivalent to the value of the relevant assets out of the loans paid by the relevant corporation) shall not be included in deductible expenses in calculating the income amount for each business year. The legislative purpose of the above provision is to prevent the deterioration of the financial structure of the corporation through the expansion of the company through the production and management of corporate funds (see, e.g., Constitutional Court Order 2005Hun-Ba75, Jan. 17, 2007), and to encourage the sound economic activities of the company through the exclusion of the interest paid by the corporation from deductible expenses under the Corporate Tax Act, in cases where the corporation holding loans has paid provisional payments, etc. to a person with a special relationship without relation to the business without relation to the foregoing, by providing tax disadvantages to the person with an affiliated relationship with the relevant company, etc. (see, e.g., Supreme Court Decision 2007Du1506.

In light of the above legal principles, the evidence submitted by the Plaintiff alone provides fuel to the Plaintiff, which is a taxi transport business entity, at a price lower than the market price, and it is insufficient to recognize that the Plaintiff, who is a taxi transport business entity, pays a high level of rent while leasing the Plaintiff’s owned building. Even if such circumstances are acknowledged, it is difficult to view that the above loans are directly connected to the Plaintiff’s business in light of the Plaintiff’s purpose of business and business contents. The Plaintiff’s assertion on this part is without merit.

3) Determination on the assertion regarding notice of change in the amount of income

Unless there exist special circumstances, such as that if a tax authority received a written confirmation from a taxpayer in the course of conducting a tax investigation, such written confirmation may not be readily denied solely based on the evidence of the written confirmation, barring any such circumstance as where it was forced to prepare the written confirmation against the will of the originator or it is difficult to take the written confirmation as evidence of specific facts due to paralysis of the content thereof, etc. (see, e.g., Supreme Court Decision 2001Du2560, Dec.

In light of the above legal principles, the following circumstances can be acknowledged by comprehensively taking into account the facts as seen earlier and evidence Nos. 9 through 12 as to the instant case, namely, (i) the Plaintiff’s certificate of settlement of accounts was written in detail with respect to the pertinent month, and (ii) the Defendant Director of Seoul Regional Tax Office secured data stored in the Plaintiff’s office’s computer at the time of the integrated investigation into the Plaintiff’s corporate tax system with respect to the Plaintiff, and (iii) the Plaintiff’s representative director regularA owned 100% of the Plaintiff’s shares as the owner of the establishment of the Plaintiff’s corporate body. The Plaintiff’s payment details were also found in 207. ③ The Plaintiff’s representative director regularA signed the instant confirmation form attached to the Plaintiff’s confirmation form after the investigation into the Plaintiff, and it is difficult for the Seoul Regional Tax Office to take the said confirmation form as force against the Plaintiff’s intent or incomplete contents into account as evidentiary materials on the specific facts. The Plaintiff’s each of the instant disposition and the instant notice of change in value-added tax are without merit.

4. Conclusion

The Plaintiff’s claim against the Defendants shall be dismissed for all reasons. Of the judgment of the court of first instance, the part against the director of the tax office having jurisdiction over the Defendant Geumcheon District Tax Office is justifiable (the part on the notification of change of income amount was withdrawn by the Defendant’s correction made in the appellate court and the judgment of the first instance court became null and void). The Plaintiff’s appeal against the director of the tax office having jurisdiction over the Defendant