[1] In order to deny the validity of a taxpayer’s transaction as an act of tax avoidance despite the form of such transaction, whether there must be individual and specific rules of denial (affirmative)

[2] The case holding that in case where Gap bank traded in the currency swap deposit transactions with customers, since it is clear that it entered into a contract for on-the-spot redemption, which constitutes the currency swap deposit transactions, with the United Nations regular deposit contract and the UNFCCC gift redemption contract, even if the contract was entered into at the same time, and there is no circumstance to conclude that the above contract constitutes a fictitious act, it shall not be deemed as income similar to the interest on deposit under Article 16 (1) 3 of the former Income Tax Act, and subparagraph 9 of the same paragraph shall not be deemed as income similar to the income on-the-counter deposit under Article 16 (1) 3 of the former Income Tax Act, and it shall not be deemed as income similar to the income on-the-counter exchange profit, which is merely the profit margin of bonds or securities other than the bonds or securities, in light of the purport that the said transaction is limited to the "profit margin on repurchase of bonds or securities" under Article 16 (1) 9 of the same Act

[1] Article 16 (1) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006); Article 24 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18705 of Feb. 19, 2005) / [2] Article 16 (1) 3 and 9 (see current Article 16 (1) 8) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006) (see current Article 16 (1) 12 of the current Act), Article 24 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18705 of Feb. 19, 2005)

[1] Supreme Court Decision 90Nu3027 decided May 14, 1991 (Gong1991Ha, 1666), Supreme Court Decision 98Du14082 decided Nov. 9, 199 (Gong1999Ha, 2531), Supreme Court Decision 2007Du26629 decided Apr. 9, 2009 (Gong2009Sang, 672)

Plaintiff 1 and one other (Law Firm Rate, Attorney Park Jong-hun, Counsel for the plaintiff-appellant)

Head of Cheongju Tax Office (Law Firm continental Aju, Attorneys Lee Sin-le et al., Counsel for the plaintiff-appellant)

Daejeon High Court Decision 2009Nu2403 Decided February 4, 2010

The judgment of the court below is reversed, and the case is remanded to Daejeon High Court.

The grounds of appeal are examined.

1. Article 16(1) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006; hereinafter the same) provides that "interest income shall be the following income accrued in the pertinent year." Subparagraph 3 provides that "interest income on deposits received in Korea" under subparagraph 9, "profit margin on repurchase of bonds or securities prescribed by the Presidential Decree" under subparagraph 13, and "income margin on repurchase of bonds or securities as similar to those under subparagraphs 1 through 12, which has the nature of consideration for the use of money" under subparagraph 13, and Article 24 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18705 of Feb. 19, 2005; hereinafter the same shall apply) provides that "for the purpose of earning profit on repurchase or repurchase under Article 16(1)9 of the Act, it shall be deemed that an individual act of taxpayer is subject to the same economic purpose as 90.

2. The court below, based on its adopted evidence, found that ① a new bank (hereinafter referred to as the “new bank”) entered into a currency swap deposit with any other financial institution in 2003 and 2004 by taking into account the fact that the income tax on the currency exchange margin may be less than the case where the new bank entered into a currency currency swap deposit with any other financial institution for the purpose of attracting large-amount customers, and ② the current currency exchange rate difference between the new bank and the new bank at the rate of exchange in Korean currency with any other financial institution (hereinafter referred to as the “this case’s currency swap contract”) was established at the same time as the new currency exchange rate contract was concluded, taking into account the difference between the new bank’s currency exchange rate and the new currency currency currency exchange rate between the new bank and the new currency exchange rate of the new currency exchange rate contract at the rate of exchange rate of exchange in Korean currency.

Furthermore, based on its recognition, the gift exchange profits of this case are the same as the interest on the Korean currency regular deposit in part, and the interest on the foreign currency regular deposit in this case does not have an independent economic substance. If the gift exchange profits of this case only adjusts the difference between the interest on the Korean currency regular deposit and the interest on the foreign currency regular deposit in this case, the United Nations regular deposit contract and the United Nations gift redemption contract are completely combined with each other in law. The gift exchange profits of this case are substantially similar to the interest on the Korean currency deposit in this case, even if the Korean won regular deposit was deposited at maturity and the Korean won currency deposit was withdrawn at maturity and the United Nations could not be realized. The gift exchange profits of this case are the same as the interest on the Korean currency regular deposit in this case, and the gift exchange profits of this case do not have an independent economic substance. In light of the fact that the gift exchange transactions of this case are similar to the interest on the Korean currency deposit in this case where the interest income tax is imposed without the interest income tax.

3. However, we cannot agree with the judgment of the court below for the following reasons.

According to the facts acknowledged by the court below, it is clear that the UN Goods Redemption Agreement, the United Nations Regular Deposit Agreement, and the UN Gift Redemption Agreement, which form the United Nations Exchange Deposit Transactions, have been concluded at the same time, and there is no circumstance to conclude that all of the above contracts fall under the fictitious act, even if these contracts were concluded at the same time. Thus, barring any other special circumstance, the validity under the terms of the contract shall be recognized, unless there are other special circumstances.

Therefore, since the transfer of gift certificates in this case cannot be deemed as the same type of transaction as the transaction in Korean currency because the transfer of foreign currency is accompanied by the sale and purchase of the United Nations currency, it cannot be deemed as income similar to the interest on deposits under Article 16 (1) 3 of the former Income Tax Act. In addition, in light of the purport of Article 16 (1) 9 of the same Act that limits the subject of the application to "the profit margin on repurchase of bonds or securities," it is difficult to view the transfer margin in this case, which is only the UN profit margin on repurchase of bonds or securities, other than bonds or securities, as income similar to the income under Article 16 (1) 9 of the same Act.

Nevertheless, the court below concluded that the gift exchange marginal profit of this case is similar to the income under subparagraph 3 (b) 9 of the same paragraph and its economic nature is subject to interest income tax. The court below erred in the misapprehension of legal principles as to the scope of application under Article 16 (1) 13 of the former Income Tax Act, and the ground of appeal pointing this out has merit.

Therefore, the judgment of the court below is reversed and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Sang-hoon (Presiding Justice)