Seoul Administrative Court 201Guhap4022 (No. 2011.01)

Cho High Court Decision 2010Du2409 ( November 17, 2010)

to a person with a special relationship at a low price without connection with his/her business and constitutes wrongful calculation.

The lending of funds at a low price to a person with a special relationship without connection with his/her business constitutes wrongful calculation. The determination of the lending interest rate of 9% by the Commissioner of the National Tax Service is merely the interest rate applied or deemed as applicable to sound social norms and commercial practice and normal transactions between persons without a special relationship, taking into account the distribution rate of corporate bonds with the maturity of 3 years guaranteed by a financial institution, and cannot be deemed as exceeding the scope delegated by the National Tax Service

2011Nu2373 Revocation of Disposition of Corporate Tax Imposition

AA Unemployment Corporation

Head of Geumcheon Tax Office

Seoul Administrative Court Decision 2011Guhap4022 decided July 1, 2011

November 18, 2011

January 13, 2012

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The decision of the first instance shall be revoked. The defendant shall revoke each disposition of taxing KRW 6,603,540 for the business year 2005, corporate tax of KRW 101,671, and 930 for the plaintiff on February 3, 2010.

1. Quotation of judgment of the first instance;

The reasons for this decision are as follows: (a) partial dismissal of the reasons for the judgment of the court of first instance (Paragraph (2) and (c) other than the determination (Paragraph (3) on the matters that the plaintiff claims additionally in the court of first instance, thereby citing it.

2. A part used by the court of first instance;

Article 2.(c) of the reasoning of the judgment of the first instance court is as follows. 2. 2. Whether the interest paid is subject to non-deductible expenses (Article 1-19 of the 5th judgment).

[1] Article 28 (1) 4 (b) of the former Corporate Tax Act provides that, when a corporation acquires and holds assets prescribed by the Presidential Decree, such as provisional payments paid by the corporation to a person with a special relationship without connection with its business, the amount calculated as prescribed by the Presidential Decree (limited to interest on the asset value of the relevant corporation out of loans) shall not be added to deductible expenses in calculating the income amount for each business year. The legislative purpose of the above provision is to ensure that, where a corporation holding loans has paid provisional payments, etc. to a person with a special relationship without connection with its business, it is difficult to view that the aforementioned provision is not objectively related to the Plaintiff’s business and its business without any reasonable ground to prevent the deterioration of its financial structure due to the expansion of business, such as an affiliate, from being productive portion, and to induce the Plaintiff to engage in sound economic activities by providing loans to the person with a special relationship (see, e.g., Supreme Court Order 2005Hun-Ga75, Jan. 17, 2007).

3. Determination on the additional argument

A. The plaintiff's additional assertion

In full view of Article 52(2) of the Corporate Tax Act, Article 89(3) of the Enforcement Decree of the Corporate Tax Act, and Article 43 of the Enforcement Rule of the Corporate Tax Act, the scope delegated by the National Tax Service’s notice shall be limited to the sound social norms and commercial practices based on the company’s bonds with the maturity of three years guaranteed by the financial institution, and the interest rate applied or deemed applicable to ordinary transactions between unrelated parties, not related parties. The notice given by the National Tax Service, which determined the interest rate of the cash loan as 9% per annum, deviates from the scope delegated by the above statutes, and thus, the

B. Determination

In full view of the legislative intent of the relevant statutes, the process of changing the notice by the National Tax Service, and the overall purport of pleadings

In full view of the following circumstances, the National Tax Service’s notice [the notice in this case was issued at the time of changing the overdraft interest rate to be applied at the time of the denial of wrongful calculation; hereinafter the same shall apply] under Article 1152(1) and (2) of the Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; hereinafter the same shall apply], Articles 88(1)6 and 89(3) of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891, Feb. 28, 2007; hereinafter the same shall apply), Article 43(1) of the former Enforcement Rule of the Corporate Tax Act (amended by Presidential Decree No. 547, Mar. 30, 2007); 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).

(A) The change in the interest rate for the currency loan publicly notified by the Commissioner of the National Tax Service on the basis of higher legislation is as follows:

B) In lending pride between persons with a special relationship, the upper-tier law stipulates that the interest rate deemed as the market price shall be the excess loan interest convergence, and the Commissioner of the National Tax Service shall consider the distribution rate, and the Commissioner of the National Tax Service, on December 31, 2001, issued the instant public notice (effective January 1, 2002) that the distribution rate shall be 9% based on the above upper-tier law. After the actual distribution rate falls from 14-15% in 1997 to 7-8% in 2001, the actual distribution rate was lower, without a large change in the distribution rate, the Commissioner of the National Tax Service, in line with the above trend of the distribution rate change. On December 31, 1997, the lower rate of the cash loan interest rate shall be deemed to have been 9% lower per annum as determined by the above upper-tier law.

C) The rate of return on distribution after the decline has been gradually, but there was no change in the rate of return on distribution since there was a concern about undermining the purport of the higher laws and regulations that aim to restrain reckless loans between related parties, if the rate of interest on the current loan has been reduced additionally due to the decline of the rate of profit on the current loan up to 9%, it seems that the rate of interest on the current loan has not been lowered.

D) Furthermore, Article 43(1) of the Enforcement Rule of the Corporate Tax Act (amended by the Ordinance of the Ministry of Finance and Economy No. 356, Mar. 14, 2006) amended that the interest rate on the current loan of financial institutions, which is deemed the market price, shall be determined by the Commissioner of the National Tax Service in consideration of the interest rate on the current loan of financial institutions, not the distribution rate. After the amendment of the above Enforcement Rule, the interest rate on the current loan of financial institutions has been gradually lowered, but there is no difference between the interest rate on the current loan and

E) Even thereafter, Article 43(3) of the Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Strategy and Finance by Ordinance of Ministry of Strategy and Finance No. 1166, Mar. 30, 2009) directly provides that the interest rate of the overdraft was 9% publicly notified by the Commissioner of the National Tax Service to 0.5% which was 0.5% off, and there is no change thereafter.

F) When the Commissioner of the National Tax Service determines the interest rate on the overdrafted loan in accordance with the superior laws and regulations, the distribution rate or the interest rate on the overdraftd loan of a financial institution should be mainly considered. However, in addition, it may be deemed that there was a need to make an important fixed-scale and technical judgment in order to induce the establishment of the financial structure and the transparency of corporate management and to achieve the purport of the provision for regulating unfair practices among related parties. For this reason, the legislators may be deemed to have delegated the authority to determine the interest rate on overdraftd loan to the Commissioner of the National Tax Service. As such, in determining the interest rate on overdraftd loan by the Commissioner of the National Tax Service, and the Commissioner of the National Tax Service did not have discretion to determine the interest rate on overdraftd loan by 9%, and it is difficult to deem that there was deviation and abuse of discretionary power when considering the aforementioned circumstances (the above-mentioned laws and regulations that set the interest rate on overdraftd loan by the Commissioner of the National Tax Service as 9% have the purpose, legitimacy and means to achieve the legislative purpose, and thus cannot be seen as

Ultimately, setting the interest rate at 9% by the Commissioner of the National Tax Service is merely the interest rate applied or deemed as applicable to sound social norms and commercial practice and other ordinary transactions between unrelated parties, taking into account the distribution rate of bonds at three-year maturity guaranteed by a financial institution, and cannot be deemed as exceeding the scope delegated by the National Tax Service’s notice.

4. Conclusion

Therefore, the judgment of the first instance court is legitimate, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.