Plaintiff (Law Firm White General Law Office, Attorney Seo-ju, Counsel for the plaintiff-appellant)

Head of the Jeonju District Tax Office (Attorney Jeon Soo-soo, Counsel for defendant-appellant)

November 2, 2007

Jeonju District Court Decision 2006Guhap2456 Decided June 7, 2007

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

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

1. Purport of claim

The disposition of imposition of KRW 1,381,858,536 of the corporate tax imposed by the Defendant on the Plaintiff on December 1, 2004 shall be revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff is a company with the purpose of construction business, housing construction business, etc. using 101 business places in Jeonju-si, Nam-gu, Namdong (hereinafter omitted) and 101 business places. From around 1994 to June 27, 1998, the Plaintiff acquired land of 81,534 square meters (hereinafter “instant land”) for the purpose of using it as housing construction site, and 15,840,920,268 won for 28,274,972,370 won for the instant land to the Korea Land Corporation on March 7, 200 through consultation on the acquisition of public land. From the above transfer value, the amount of tax calculated as 4,925,09,050 won for loans used by the Plaintiff to acquire the instant land, and the amount of tax calculated as 15,840,000 won for the instant construction business year (hereinafter “the instant special surtax”) and 297,507,7507,7500

B. After investigating the special surtax reported and paid by the Plaintiff, the Director of the Gwangju Regional Tax Office notified the Defendant to correct the special surtax on the ground that the land of this case constitutes a sales inventory asset, not a fixed asset for business, as a housing construction site, and that the interest rate of the construction of this case is not included in the acquisition price in calculating the special surtax pursuant to Articles 140(2), 72(2)2, and 52(2) of the Enforcement Decree of the Corporate Tax Act and Article 2 of the Addenda of the Enforcement Decree of the Corporate Tax Act, and the Defendant issued a notice to correct the special surtax against the Plaintiff on December 1, 2004. The Defendant issued a new notice to the Plaintiff on December 1, 2004, excluding the interest rate of this case from the acquisition price, thereby 147,752,850 won, the additional surtax tax base and tax amount of the special surtax (1,865,107,815 won, additional tax for under-reported return plus 147,750 won,341,5361 won.

C. On February 18, 2005, the plaintiff filed a request with the National Tax Tribunal for a trial seeking the revocation of the disposition of this case, but the National Tax Tribunal dismissed the plaintiff's request on September 18, 2006.

【Evidence of Evidence No. 1-4, Evidence No. 2-6, and Evidence No. 1-2

2. Plaintiff’s assertion and judgment thereon

A. The assertion

(1) With respect to the calculation of the acquisition value of transferred assets among the tax base of special surtax, Article 124-2(2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970, Dec. 31, 1998; Presidential Decree No. 15970, Dec. 31, 1998; Presidential Decree No. 15970, Dec. 31, 1998; Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 1703, Dec. 29, 2000; hereinafter “Enforcement Decree of the Corporate Tax Act”) provides that “interest on the amount appropriated for construction funds” shall include “interest on the amount appropriated for construction funds” in calculating the acquisition value of transferred assets. However, the said “interest on the amount appropriated for construction funds” is interpreted to include construction of inventory assets for sale, but only the acquisition value of fixed assets for business purposes shall be calculated according to Article 140(2)1 and Article 72(2)2(1)2)2 of the Enforcement Decree of the Corporate Tax Act.

Since Article 140 (2) 1 of the Enforcement Decree of the Corporate Tax Act provides that the acquisition value of transferred assets shall be calculated by applying mutatis mutandis Article 72 (1) through (3) and (4) 2 of the Enforcement Decree of the same Act after the amendment, Article 8 (3) of the Addenda of the same Act provides that "the amended provisions of Article 72 shall apply to the first acquisition after the enforcement of this Decree" shall apply to the calculation of acquisition value of transferred assets. Therefore, in calculating the acquisition value of transferred assets, the calculation by applying the amended provisions of Article 72 of the same Act shall be limited to the acquisition of transferred assets after the enforcement of the same Act, and the acquisition value of transferred assets before the amendment shall be calculated in accordance with the provisions of the Enforcement Decree of the Corporate Tax Act

Therefore, the interest rate of the instant construction should be calculated on the acquisition value of the instant land, and thus, the instant disposition is unlawful.

(2) The special surtax system was abolished due to the amendment of the Corporate Tax Act on December 31, 2001, and the addition of the special surtax for 2000 to the Plaintiff after 3 years from the abolition of the special surtax is not only contrary to the above legislative intent, but also illegal since it violates the Plaintiff’s trust that there is no liability to pay the special surtax.

B. Determination

(1) The interest on the loan included in the acquisition value refers to the interest paid on the loan required for the purchase, etc. of fixed assets for business or other similar expenses, and thus, the interest on the loan shall not be included in the acquisition value of the transferred assets, which are the tax base of the special surtax, in cases where the construction is based on the provisions of Articles 140(2)1, 72(2)2, and 52(1) of the Enforcement Decree of the Corporate Tax Act after the amendment that was enforced at the time of the transfer of the land in question.

(2) In calculating the acquisition value of the instant land acquired before the enforcement of the Enforcement Decree of the Corporate Tax Act after the amendment, the Plaintiff’s assertion that Article 72(2)2 of the Enforcement Decree of the Corporate Tax Act should be applied pursuant to Article 8(3) of the Addenda to the Enforcement Decree of the same Act, and thus, the Plaintiff’s assertion that Article 124-2(2) of the Enforcement Decree of the Corporate Tax Act should be applied before the amendment is difficult to accept in the following point.

In other words, since the special surtax is a transfer act as a taxation requirement and has the characteristics of the transfer subject to transfer margin, it should be determined on the basis of the time of transfer. In addition, Article 2 of the Addenda of the Enforcement Decree of the Corporate Tax Act provides that "the amended provisions on special surtax shall apply to the first transfer after this Decree enters into force."

In addition, in light of the fact that Article 8 (3) of the Addenda of the same Decree provides for the case of "the time when profit and loss reverts, etc." as provided for in Section 4 of the same Decree, it shall be interpreted as the applicable case in calculating the acquisition value of assets for inclusion in deductible expenses and earnings. Furthermore, it is difficult to regard it as an applicable case in calculating the acquisition value of transferred assets for the tax base of special surtax. Meanwhile, Article 140 (2) 1 of the same Decree applies only to the calculation method under Article 72 (1) through (3) and (4) 2 in calculating the acquisition value of transferred assets, and it does not apply only to the calculation method under Article 72 (4) 2.

Therefore, in calculating the acquisition value of the instant real estate pursuant to the provisions of the Enforcement Decree of the Corporate Tax Act after the amendment, the instant disposition was lawful except for the interest on the instant construction.

(3) As to the Plaintiff’s assertion on the above (2), the former Corporate Tax Act (amended by Act No. 6852 of Dec. 30, 2002) abolished the special surtax system that existed before, and Article 23 of the Addenda of the former Corporate Tax Act provides that “The special surtax that has been imposed or is to be imposed under the previous provisions at the time this Act enters into force shall be governed by the previous provisions.” The instant disposition is justifiable as it is in accordance with the above provision. Meanwhile, it is difficult to say that the Plaintiff was trusted that the special surtax would not be imposed any more on the grounds that the instant disposition was taken after the lapse of three years after the abolition of the special surtax system. Accordingly, the Plaintiff’s assertion is without merit.

3. Conclusion

Therefore, the claim of this case shall be dismissed as it is without merit, and the decision of the court of first instance with different conclusions shall be revoked as it is unfair, and the defendant's appeal shall be accepted as it is so decided as per Disposition.

Judges Donsung (Presiding Judge) Lee Ho-ho