[1] Where a non-profit domestic corporation determines that the disposal price of land, which is fixed assets, should be deemed taxable income for corporate tax pursuant to Article 3(3)5 of the Corporate Tax Act and Article 2(2) proviso of the former Enforcement Decree of the Corporate Tax Act, whether the pertinent non-profit corporation should examine whether there exists justifiable grounds for not using the land directly (negative

[2] Meaning of “the book value at the time of transfer of transferred assets” under Article 19 subparag. 2 of the former Enforcement Decree of the Corporate Tax Act, and whether corporate accounting evaluation marginal profits arising after the acquisition of assets may be reflected in “property book value” (negative)

[1] Article 3 (3) 5 of the Corporate Tax Act and Article 2 (2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012) provide that a non-profit domestic corporation shall impose corporate tax on the revenues accruing from the disposal of fixed assets that are not directly used for the proper purpose business for at least three consecutive years as of the date of disposal of fixed assets, and where there are justifiable grounds for not being directly used for the proper purpose business, it shall not be deemed otherwise. Therefore, in determining whether the disposal price of land should be deemed taxable income for corporate tax, it is unnecessary to determine whether a non-profit corporation has any justifiable

[2] Article 41(1)1 of the Corporate Tax Act provides that the acquisition value of assets acquired from another person shall be the amount calculated by adding the incidental expenses to the purchase value of assets purchased by a domestic corporation. The main sentence of Article 42(1) of the Corporate Tax Act provides that where the book value of assets held by a domestic corporation increases or decreases, the book value of the assets shall be the value before the evaluation in calculating the income amount for the business year to which the evaluation date belongs and each subsequent business year. Article 19 subparag. 2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012; hereinafter the same shall apply) provides that “the book value at the time of transfer of transferred assets” as deductible expenses. In full view of these provisions, “the book value at the time of transfer of transferred assets” under Article 19 subparag. 2 of the former Enforcement Decree of the Corporate Tax Act shall be based on the acquisition value at the time of acquisition, etc., and it shall not be reflected in the market value of assets for profit-making business.

[1] Article 3(3)5 of the Corporate Tax Act; Article 2(2) of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 23589, Feb. 2, 2012) / [2] Articles 41(1)1 and 42(1) of the Corporate Tax Act; Article 19 subparag. 2 of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 23589, Feb. 2, 2012); Article 76(4) of the Enforcement Rule of the Corporate Tax Act

[1] Supreme Court Decision 2005Du14370 Decided July 27, 2006 / [2] Supreme Court Decision 2010Du28601 Decided May 23, 2013

The Korean Federation of Germany and the Korean Federation of Children (Law Firm LLC, Attorneys Kang Han-hun et al., Counsel for the plaintiff-appellant)

Head of Yongsan Tax Office

Seoul High Court Decision 2016Nu48586 decided November 29, 2016

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Regarding ground of appeal No. 4

Article 3(3)5 of the Corporate Tax Act provides that “income generated from the disposal of fixed assets” as one of the income generated from the profit-making business of a nonprofit corporation, and that “the fixed assets prescribed by Presidential Decree, which are directly used for the proper purpose business, are excluded.” The main sentence of Article 2(2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012; hereinafter the same shall apply) upon delegation, provides that “the fixed assets prescribed by Presidential Decree” as “the assets prescribed by Presidential Decree shall be used directly for the proper purpose business for at least three consecutive years as of the date of disposal of the fixed assets.”

citing the reasoning of the first instance judgment, the lower court determined that the provision of this case limits the scope of non-taxation subject to the delegation of Article 3(3)5 of the Corporate Tax Act based on reasonable standards, and that the provision is within the scope sufficiently predicted by delegation of the aforementioned legal provision, and thus, it cannot be deemed that it violates the principle of equality or the principle of substantial taxation, or goes beyond the bounds of delegation of the mother law.

Examining the foregoing provisions and relevant legal principles, the lower court’s aforementioned determination is justifiable. In so doing, it did not err by misapprehending the legal doctrine on the validity of the provision of the Enforcement Decree of this case.

2. Regarding ground of appeal No. 3

Article 3(3)5 of the Corporate Tax Act and the Enforcement Decree of this case provide that a nonprofit domestic corporation shall impose corporate tax on revenues from the disposal of fixed assets which are not directly used for the proper purpose business for three consecutive years or more as of the date of disposal of fixed assets. Since there are no provisions that do not directly use the assets for the proper purpose business, if there are justifiable grounds for not being directly used for the proper purpose business, it is not necessary to judge whether a nonprofit corporation has justifiable grounds for not directly using the relevant land (see Supreme Court Decision 2005Du14370, Jul. 27, 2006).

The judgment below to the same purport is just, and it did not err by misapprehending the legal principles on the requirements for application of the Enforcement Decree of this case.

3. As to the grounds of appeal Nos. 1 and 2

Article 41(1)1 of the Corporate Tax Act provides that the acquisition value of assets acquired by another person shall be the amount calculated by adding the incidental expenses to the purchase value of assets purchased by a domestic corporation. The main sentence of Article 42(1) of the Corporate Tax Act provides that where the book value of assets held by a domestic corporation increases or decreases, the book value of the assets shall be the value before the evaluation in calculating the income amount for the business year to which the evaluation date belongs and each subsequent business year. Article 19 Subparag. 2 of the former Enforcement Decree of the Corporate Tax Act provides that “the book value at the time of transfer of transferred assets” as deductible expenses. In full view of each of the above provisions, “the book value at the time of transfer of transferred assets” under Article 19 Subparag. 2 of the former Enforcement Decree of the Corporate Tax Act means the book value at the time of acquisition, not the book value at the time of the initial acquisition, but the book value at the tax account (see Supreme Court Decision 2010Du28601, May 23, 2013).

In the same purport, the court below rejected the plaintiff's assertion that Article 76 of the Enforcement Rule of the Corporate Tax Act only applies to the separate accounting for the purpose of dividing the assets, liabilities, and profits and losses that belong to the profit-making business and the profits and losses that belong to the non-profit business into different accounts, and thus, it cannot affect the calculation of the income generated from the disposal of fixed assets of the corporation. Thus, the evaluation marginal profits during the period used for the previous non-profit business cannot be deducted by reflecting the evaluation marginal profits as losses at the time of transfer in the loss at the time of transfer, on the ground that "the book value at the time of the transfer of assets recognized as losses at the time of transfer of the land at the time of transfer shall not be the purchase price at the time of acquisition at December 9, 192, but shall be the market price at

Examining the record in accordance with the aforementioned provisions and legal principles, such determination by the lower court is justifiable. In so doing, it did not err by misapprehending the meaning of book value, misapprehending the legal doctrine on the principle of fair taxation, omitting judgment,

4. Regarding ground of appeal No. 5

For the reasons indicated in its holding, the lower court determined that it was difficult to deem that there was a justifiable reason for the Plaintiff to not perform its duty of return and payment under the Corporate Tax Act on the transfer of land in this

In light of the relevant legal principles and records, such determination by the lower court is justifiable. In so doing, it did not err by misapprehending the legal doctrine on justifiable grounds for exempting from penalty tax.

5. Conclusion

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

Justices Ko Young-han (Presiding Justice)