Seoul High Court 2008Nu2677 (Law No. 8.19, 2008)

Calculation of Gross Income Amount of the holding company’s dividend

In calculating the dividend income that a holding company receives from its subsidiary, the interest paid on borrowings that should be deducted in calculating the dividend income shall be limited to the interest paid on borrowings directly related to the investment.

The contents of the decision shall be the same as attached.

Article 18-2 (Non-Inclusion of Holding Company’s Received Dividend Amount in Gross Income

Article 17-2 (Non-Inclusion of Holding Company’s Received Dividend Amount in Earnings

The appeal is dismissed.

The costs of appeal are assessed against the Plaintiff.

The records of this case and the judgment of the court below and the grounds of appeal were examined. However, the grounds of appeal by the appellant are not included in the grounds prescribed in each subparagraph of Article 4(1) of the Act on Special Cases Concerning the Procedure of Appeal or are recognized as groundless. Thus, the appeal is dismissed under Article 5 of the same Act. It is so decided as per

[Seoul High Court 2008Nu2677, 208.19]

1. The defendant's appeal is dismissed.

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

3. The order of the judgment of the court of first instance shall be corrected on April 2, 2005 in paragraph (1) of this Article to " April 8, 2005".

1. Purport of claim

On May 30, 2005, the defendant's request for correction against the plaintiff on March 31, 2005 and the corporate tax belonging to the business year 2004 on April 8, 2005 (the "the plaintiff's request for correction" on April 2, 2005 is an error) is revoked, respectively.

2. Purport of appeal

The judgment of the first instance is revoked, and the plaintiff's claim is dismissed.

The reasoning of this Court’s judgment is as stated in the judgment of the court of first instance, except where the third second sentence of the judgment of the court of first instance is used as “ April 2, 2005.” As such, it is identical to the written judgment of the court of first instance, pursuant to Article 8(2) of the Administrative Litigation Act, and Article 420 of the Civil Procedure Act.

Therefore, the decision of the first instance court with the same conclusion is justifiable, and thus, the defendant's appeal is dismissed as it is without merit. It is so decided as per Disposition by the assent of all participating Justices, since it is obvious that " April 2, 2005" in Article 1 of the Judgment of the first instance is a clerical error in the text of " April 8, 2005."

[Seoul Administrative Court 2007Guhap13500 ( December 14, 2007)]

1. The defendant's rejection disposition against the plaintiff on May 30, 2005 against the plaintiff on March 31, 2005 concerning the plaintiff's claim for correction on March 31, 2005 and corporate tax belonging to the business year 2004 is revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff, a financial holding company established on September 1, 2001 under the Financial Holding Companies Act, calculated the amount not included in the gross income among the revenue dividends received from the subsidiaries when it filed a report on the tax base of corporate tax for the business year 2002 and 2003 business years, and filed a tax return by calculating the tax base and tax amount, not including the interest on loans borrowed by the Plaintiff (hereinafter referred to as the “interest on loans in this case”) in order to lend to a subsidiary company (hereinafter referred to as the “interest on loans in this case”) under Article 18-2(1)3 of the former Corporate Tax Act (amended by Act No. 7317 of Dec. 31, 2004; hereinafter referred to as the “former Corporate Tax Act”).

B. On June 24, 2004, the Plaintiff filed a voluntary declaration of corporate tax for 2002 and 2004 business year corporate tax for the following reasons: “The amount borrowed by a holding company for lending to a subsidiary shall be included in borrowings subject to calculation of the exclusion amount from the exclusion amount of dividends for the holding company’s income” pursuant to the Tax Authorities’s inquiry (re-corporation-358) on June 24, 2004.

C. However, on March 31, 2005, the Plaintiff filed a claim for correction of the corporate tax for the business year 2002 and the business year 2003, and filed a claim for correction of the corporate tax for the business year 2004 on April 2, 2005, by asserting that the interest paid in the instant case should not be included in the interest paid deducted from the dividend to be excluded from the income dividends, under the judgment that the said interpretation is inconsistent with the language and text of Paragraph 1 Item 3 of the former Act and that it is inconsistent with the purport

D. On the ground that the interest paid after deducting the dividends from the taxable income on May 30, 2005 includes the interest paid on the issue of this case, the Defendant rendered “the instant disposition” rejecting all of the Plaintiff’s request for correction on the ground that the interest paid on the part other than the interest paid on May 30, 2005 included the rejection disposition as to the claim for correction on the part other than the interest paid on the issue of this case, but the same applies hereinafter).

E. The plaintiff was dissatisfied with the disposition of this case and requested for adjudication on August 26, 2005, but the National Tax Tribunal dismissed it on January 11, 2006.

Facts with no basis for recognition, Gap's 1 and 2 evidence, Gap's 3, Gap's 4-1 and 2 respectively.

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) Plaintiff

(A) Article 1(1)3 of the former Act provides that, if a holding company has an interest on loans paid by the holding company for each business year, only "interest on loans related to investments in a subsidiary" shall be deducted from the income dividends not included in gross income. The legislative intent of the above provision is to include the interest on loans in deductible expenses when it acquires stocks of a subsidiary with loans, and to prevent the income dividends paid by the subsidiary from being included in gross income and giving double benefits. However, the key issue of this case is not only the literal interpretation of the above provision as the interest on loans, regardless of the amount of loans lent to the subsidiary, but also the amount of interest paid shall not be deducted from the income dividends that are deducted from gross income in light of the legislative intent thereof, notwithstanding

(B) Paragraph (5) provides that the calculation of interest paid to be excluded from the import dividends that are excluded from the exclusion of income shall be made by the method of "X (the book value of shares of a subsidiary ± total assets on the balance sheet) X import dividends". However, such calculation is illegal as it exceeds the scope and limitation of "interest on loans related to the investment of a subsidiary in a subsidiary" under Paragraph (1) 3 of the former Act and delegates specific calculation method to the subsidiary despite delegation by Presidential

(2) Defendant

Article 18-2 (1) 3 of the former Corporate Tax Act (amended by the Corporate Tax Act, hereinafter referred to as the "Corporate Tax Act") provides that the interest paid to be deducted from the amount subject to exclusion from taxable income shall be calculated on the basis of the total amount of the loan, and Article 18-2 (1) 3 of the former Corporate Tax Act (hereinafter referred to as the "Amended by Act No. 783, Dec. 31, 2004") is merely a confirm provision to clarify the purpose of Article 18-2 (3).

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) In light of the principle of no taxation without law, or the requirements for tax exemption or tax exemption, the interpretation of tax laws and regulations shall be interpreted in accordance with the text of the law, barring any special circumstance, and shall not be extensively interpreted or analogically interpreted without reasonable grounds (see, e.g., Supreme Court Decision 2002Du6781, May 27, 2004). In light of the language and text of Article 1(1)3 of the former Act, the term “interest on loans related to the investment in the subsidiary company” is stipulated as “interest on loans related to the investment in the subsidiary company.” Thus, in order to deduct the dividend

In the instant case, there is no evidence to acknowledge that the interest paid on the instant issue is the interest paid on a loan related to investment in the subsidiaries, and the Defendant also does not regard the interest paid on a loan related to investment in the subsidiaries as the interest paid on a loan. Therefore, the instant issue is not “interest paid on a loan related to investment in the subsidiaries” and is not subject to Article 1(1)3 of the former Act

(2) As above, there is a problem that it is practically difficult to clarify whether the above interpretation is a loan related to investment in the subsidiary because of the characteristics of money which is difficult to specify as claimed by the Defendant. In order to correct this, Article 1(1)3 of the former Act was amended, and the phrase “related to the investment in the subsidiary” was deleted. Therefore, in interpreting the former Corporate Tax Act, the amended Corporate Tax Act may not be invoked.

(3) Article 3 of the Addenda of the amended Corporate Tax Act provides that "The amended provisions of Article 18-2 (1) 3 and the proviso of Article 18-3 (1) 1 and 3 shall apply from the first dividend income after this Act enters into force." If the actual contents of the Corporate Tax Act are not changed through the amendment before and after the amendment of the Corporate Tax Act as alleged by the defendant, it is not necessary to establish a transitional provision like Article 3 of the Addenda of the amended Corporate Tax Act, and it is premised on the fact that such transitional provision has been changed substantially. Therefore, if Paragraph 1 (3) of the amended provision is applied to this case contrary to Article 3 of the above Addenda, it is against the principle of prohibition of retroactive taxation because it constitutes retroactive taxation.

(4) In addition, the interpretation of Article 17-2 (5) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19815, Feb. 8, 2007; hereinafter "former Enforcement Decree of the Corporate Tax Act") based on the former Corporate Tax Act requires the relationship between the loan and the investment. In interpreting Article 17-2 (5) of the former Enforcement Decree of the Corporate Tax Act, the phrase "interest on the loan" should be interpreted as "interest on the loan related to the investment". If such interpretation is not made, the former Paragraph (5) shall be deemed null and void as a provision beyond the scope of delegation by the mother law.

(5) Sub-decisions

Therefore, the interest paid in the instant case is not the interest paid in connection with a subsidiary’s investment under Article 1(3) of the former Act, and thus, cannot be deducted from the import dividends to be excluded from gross income. However, the Defendant’s disposition rejecting the Plaintiff’s claim for correction on the premise that the interest paid in the instant case is deducted from the import dividends to

3. Conclusion

Therefore, the plaintiff's claim of this case is justified, and it is decided as per Disposition by admitting it.

Related Acts and subordinate statutes

Article 18-2 of the former Corporate Tax Act (amended by Act No. 7317 of December 31, 2004) (amended by Act No. 7317 of Dec. 31, 2004)

(1) Where the sum computed pursuant to subparagraphs 1 and 2 exceeds the sum computed pursuant to subparagraphs 3 and 4, of the profit dividends or surplus distributions received by a holding company prescribed by the Presidential Decree (including a financial holding company under the Financial Holding Companies Act; hereafter in this Article, referred to as the “holding company”) from its subsidiary (referring to a domestic corporation in which the holding company concerned has invested, and which satisfies the requirements prescribed by the Presidential Decree in view of the equity investment ratio, etc. in its subsidiary; hereafter in this Article, the same shall apply) and of the deemed dividend or distribution amount under Article 16 (hereafter in this Article and Article 18-3, referred to as the “dividend dividend amount”), from among the domestic corporations, the amount in excess shall not be included in its gross income in calculating its income for

1. The amount computed by multiplying dividend amount received from the subsidiary by 90/100 where a holding company has invested in excess of 80/100 (40/100 in case of stock-listed corporations or Association-registered corporations) of the corresponding subsidiary’s total issued equity stocks or equity investment shares: Provided, That the amount equivalent to the total dividend amount received from the corresponding subsidiary where a holding company has invested in all of the subsidiary’s issued equity stocks or equity

2. The amount computed by multiplying the dividend amount received from the corresponding subsidiary by 60/100 where a holding company has invested in the corresponding subsidiary at a ratio lower than that provided in subparagraph 1;

3. The amount of interest computed under the conditions as prescribed by the Presidential Decree considering the ratio for exclusion from gross income under subparagraphs 1 and 2 from among interest amounts, if any, paid by the holding company in each business year on its borrowings related to its investments in its subsidiary;

Article 3 of the Addenda to ○○ Application (No. 7317, and Article 3 of the Addenda to 7317 shall apply to the exclusion of dividend income from gross income.

The amended provisions of Article 18-2 (1) 3 and the proviso of Article 18-3 (1) 1 and 3 shall apply from the first dividend income received after this Act enters into force.

Article 17-2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19815 of Feb. 8, 2007) (amended by Presidential Decree No. 19815 of Feb. 8

(4) In applying the provisions of Article 18-2 (1) 3 of the Act, the borrowings and interest thereon shall not include the amounts excluded from losses pursuant to the provisions of Article 55.

(5) The term "amount computed pursuant to the provisions of the Presidential Decree" in Article 18-2 (1) 3 of the Act means the amount computed by multiplying interest on borrowings by the ratio of the sum of amounts falling under subparagraphs 1 through 3 to the amount falling under subparagraph 4:

1. 90/100 of the total sum of the book values of stocks, etc. of a subsidiary that is subject to the main sentence of Article 18-2 (1) 1 of the Act;

2. 100/100 of the aggregate of the book values of stocks, etc. of a subsidiary that is subject to the proviso of Article 18-2 (1) 1 of the Act;

3. 60/100 of the aggregate of the book values of stocks, etc. of a subsidiary that is subject to Article 18-2 (1) 2 of the Act;

4. Total assets on the balance sheet as of the last day of the holding company concerned;

(7) The value of stocks, etc. of a subsidiary under paragraph (5) 1 through 4, total assets and the value of stocks, etc. under paragraph (6) 2 shall be computed by drop number, and where there exists the amount falling under Article 18-2 (1) 4 of the Act, the ratio under paragraph (5) 1 through 3 shall be the ratio occupied by the amount falling under Article 18-2 (1) 1 and 2 of the Act minus the amount falling under subparagraph 4 of the same paragraph in the total amount of dividend income received from the relevant subsidiary.