The case holding that the disposition imposing corporate tax on the purchase fund is lawful on the ground that the purchase of subordinated bonds and corporate bills issued by the corporation for the purpose of lending the funds to the related corporations is not considered as financial and investment activities related to the business.

The case holding that the disposition imposing corporate tax on the purchase fund is lawful on the ground that the purchase of subordinated bonds and corporate bills issued by the corporation for the purpose of lending funds to related corporations is not considered as financial and investment activities related to the business.

Article 18-3(1)3 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), Article 20 and Article 52(2)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998), Article 43-2(2)7 of the former Enforcement Decree of the Corporate Tax Act (amended by Act No. 15970 of Dec. 31, 1998), Article 46(2)6 of the former Enforcement Decree of the Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), Article 8-3(1)3, 9, (see Article 88(1)9 of the current Act), Article 47 of the former Enforcement Decree of the Corporate Tax Act (see Article 89(3) of the current Act)

[Plaintiff-Appellant] Plaintiff 1 and 1 other (Law Firm Gyeong, Attorneys Lee Jae-soo et al., Counsel for plaintiff-appellant)

Samsung C&T Co., Ltd. (Attorneys Han Han-soo et al., Counsel for the defendant-appellant)

The director of the tax office

June 12, 2003

1. The plaintiff's claim is dismissed.

2. Litigation costs shall be borne by the plaintiff.

The disposition of imposition of KRW 365,689,490 of corporate tax for the business year of May 15, 2001 and corporate tax of KRW 4,023,171,440 of the business year of May 15, 1997 against the Plaintiff shall be revoked.

1. Details of the disposition;

A. On December 30, 1997, the Plaintiff deposited KRW 40 billion in a specified money trust to the Insurance Bank. On the same day, the Plaintiff purchased KRW 40 billion in subordinated bonds issued by Samsung Securities Co., Ltd. (the subordinated bonds of this case since 1 year and June of the maturity, hereinafter referred to as the “instant subordinated bonds”), which are related parties, at an earning rate of 17.26%. On November 14, 1997 and February 13, 198, which are brokerage of Samsung Securities issued by Samsung General Co., Ltd., a related party, at a discount rate of KRW 10 billion in total and KRW 50 billion in commercial papers of 91 days and KRW 50 billion in commercial papers of 90 billion, each of which was purchased at a discount rate of KRW 13.42% in Samsung Heavy Co., Ltd., a related party, at a discount rate of KRW 13.42% in each of the 197.

B. The defendant judged that the above purchase constitutes an unfair act between specially related persons under the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), and that the purchase fund constitutes an amount of provisional payment paid without connection with the business, and imposed KRW 6,085,887,941 as to the above provisional payment in the gross income for the business year of 1998, and imposed KRW 861,871,673 as to the above provisional payment and KRW 8,186,684,691 as to the interest paid in the business year of 1997 and KRW 8,048,56,346 as to the interest paid in the business year of 198 in the gross income, and imposed KRW 365,689,490 as to May 15, 201, and corporate tax for the business year of 198,2031,4174,4740.

D. Determination

(1) Whether the relationship with the business is objectively determined on the basis of the business purpose or the business contents of the pertinent corporation under the provision of Article 18-3(1)3 of the former Corporate Tax Act. Whether the transaction constitutes an unfair act under Article 20 of the former Corporate Tax Act ought to be determined on the basis of whether the transaction was an abnormal act lacking economic rationality in light of social norms or trade practices.

(2) In light of the type, frequency, etc. of the purchase of this case, it is not deemed that the Plaintiff engaged in a "other financial business" as specified in the Plaintiff’s articles of incorporation and corporate register. Rather, as the rate of discount interest on corporate bills in the city of the IMF crisis increases to a level of 30%, the 1997 debt ratio was 620.49% at the rate of 620.69%, which was less than 100% than the average industry rate of 524.69%, and the Plaintiff purchased the instant subordinated bonds with a remarkably lower rate of discount than the normal discount rate for corporate bills issued by the Plaintiff, and the purchase of Samsung General Chemical Bills and Samsung Ireland at the discount rate of corporate bills is deemed to have provided funds in order to gather liquidity crisis of all related companies, or to improve the financial structure and to strengthen the market position.

Ultimately, it is difficult to view that the Plaintiff, who does not mainly engage in a profit-making business, purchased subordinated bonds and corporate bills issued by the said corporation for the purpose of lending funds to the related corporation, as its financial and investment activities related to the business, and such transaction does not seem to have an economic rationality as a normal business activity under social norms. Therefore, the instant disposition is lawful.

Judges Sung Pung-tae (Presiding Judge)