[1] In a case where the remainder of the principal is deducted from interest paid during a certain period of time when lending money, and the remainder is delivered, the scope of the leased principal and whether the interest paid as interest on the leased principal may be deemed to have been paid within the scope permitted by the law (affirmative)

[2] In a case where a creditor pays only the remainder after deducting interest from interest while lending money to the debtor, and the debtor pays only part of the principal including interest at maturity, but did not pay the remainder of the principal and interest, the tax authority imposed a comprehensive income tax by deeming the amount equivalent to the above interest as interest income, the case holding that the disposition imposing the global income tax is lawful

[3] Whether interest income is subject to taxation of interest income tax in a case where the interest income is already specifically realized before a ground for impossibility of collecting a loan claim occurs (affirmative)

[1] In a case where a loan is made by deducting interest from a prior interest for a certain period and the remaining principal is delivered, the borrower gains the same economic profit as the number of money received in reality as to the portion of the loan, so the Korean Civil Code that does not recognize the nature of the loan for consumption as to the establishment of the loan for consumption shall be deemed to have been concluded a loan for consumption. Therefore, it is reasonable to view that the amount of money received in reality is not the principal of the loan, but the amount calculated by adding interest within the limits permitted by the law out of the amount of the prior interest deducted from the loan and the amount equivalent thereto constitutes the leased principal, and that the prior interest deducted within the extent permitted by the law is paid as the interest on the loan principal.

[2] In a case where a creditor pays only the remainder after deducting interest from interest while lending money to a debtor, and the debtor pays only part of the principal including interest at maturity, and fails to pay the remainder as principal and interest, the tax authority imposed a comprehensive income tax on deeming the amount equivalent to the above prior interest as interest income, the case holding that the disposition imposing the global income tax is lawful on the ground that the time of receiving interest income from non-business loan under the Income Tax Act is only "the time when the interest is deducted," but it does not constitute the date agreed to receive the loan principal or the date it is actually paid as the loan principal, and thus the creditor obtained economic profit equivalent to the amount of interest paid by deducting the aforementioned loan from interest paid in advance, and thus, the creditor obtained economic profit equivalent to the amount of interest paid.

[3] The income tax is the so-called "fixed-term taxation" which imposes tax on the income amount for one year from January 1 to December 31 of each year, and the interest income from non-business loans is calculated as the gross income amount for the pertinent year. Thus, in a case where a partial recovery of a claim is made and where it becomes objectively clear that the recovery of the remaining claim is impossible as of the time of recovery, it shall be deemed that the relevant taxable year does not realize the interest income that satisfies the taxation requirement, but it shall not affect the duty to pay the interest income that has already been specifically realized prior to the occurrence of a cause not to recover.

[1] Articles 2(1) and 3 of the Interest Limitation Act / [2] Article 16(1)12 of the former Income Tax Act (Amended by Act No. 7319, Dec. 31, 2004; see current Article 16(1)11 of the Income Tax Act); Article 45(9-2 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 22034, Feb. 18, 2010); Article 16(1) of the Income Tax Act; Article 51(7) of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 22034, Feb. 18, 2010)

[1] Supreme Court Decision 93Da23549 delivered on November 23, 1993 (Gong1994Sang, 177) / [3] Supreme Court Decision 2005Du5437 delivered on October 28, 2005 (Gong2005Ha, 1883)

Plaintiff

Head of Namyang District Tax Office

Suwon District Court Decision 2008Guhap4263 decided July 21, 2009

March 30, 2010

1. Revocation of the first instance judgment.

2. The plaintiff's claim is dismissed.

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

1. Purport of claim

The Defendant’s disposition of imposition of KRW 105,409,90 on September 15, 2007 against the Plaintiff on September 15, 2007 is revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

A. On December 13, 2004, the Plaintiff agreed to lend KRW 1,500,000 to Nonparty 2 as a broker of Nonparty 1, who was known to the Plaintiff on December 13, 2004, and paid KRW 1,350,000 remaining after deducting KRW 135,00,000 from the monthly interest of KRW 3 months out of the loan, to Nonparty 2. On December 23, 2004, the Plaintiff again lent KRW 450,000 to Nonparty 2, and paid KRW 382,50,000,000 after deducting KRW 67,50,000 from the monthly interest of KRW 450,00 to Nonparty 2 (hereinafter “instant loan”).

B. The Defendant calculated the Plaintiff’s global income tax amount of KRW 474,975,357 in 2004 by including the above advance interest in the total amount of income in the Plaintiff’s total amount of income in 2004, and determined the total tax amount of KRW 52,551,910 on the ground that the Plaintiff did not report and pay the amount of income tax on the amount equivalent to the above advance interest in addition to the amount of KRW 32,551,910 on the grounds that the Plaintiff did not report and pay the amount of income tax on the said advance interest, and notified the Plaintiff of the payment of the global income tax amount of KRW 402,117,360 on September 18, 207 to additionally pay KRW 105,409,80 on the difference between the above advance interest and the amount of income tax (hereinafter “instant disposition”).

[Reasons for Recognition] Unsatisfy, Gap evidence 1, Eul evidence 1, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

The Plaintiff, along with the principal, received the instant interest at maturity. Nonparty 2 paid only KRW 765,00,000 among the principal and did not pay the remainder principal and interest. Therefore, the instant disposition imposing income tax on the said interest who was not paid by the Plaintiff is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

(c) Markets:

(1) Article 16(1)12 of the Income Tax Act provides that profits from non-business loans shall be interest income. Article 45 Subparag. 9-2 of the Enforcement Decree of the same Act provides that the receipt date of profits from non-business loans shall be “the date of payment of interest under an agreement”: Provided, That where no agreement exists on the date of payment of interest or where interest is paid before the date of payment of interest under an agreement, “the date of actual payment of interest

In a case where the principal is deducted from the prior interest during a fixed period and the remaining principal is delivered, the borrower gains economic profit equivalent to the actual amount of the money received. As such, the Korean Civil Act that does not recognize the nature of the loan for consumption, as to the establishment of the loan for consumption, shall be deemed to have entered into a loan contract for consumption. Therefore, the amount of the money received in reality is not the principal of the loan, but the amount calculated by adding interest within the limits permitted by the law out of the amount of the prior interest deducted from the money constitutes the leased principal (see Supreme Court Decision 93Da23459 delivered on November 23, 1993, etc.). It is reasonable to deem that the prior interest deducted within the limits permitted by the law that the interest on the leased principal was paid (Article 3 of the Interest Limitation Act, if the amount of the credit was deducted from the prior interest, the amount actually received by the debtor exceeds the maximum interest rate under Article 2(1) and thus, the amount actually paid should be deemed appropriated as the principal and thus, the excess amount should be appropriated as above.

(2) In the instant case, the Plaintiff agreed to lend the leased principal to Nonparty 2 at KRW 1,50,00,000 and KRW 450,000,00, respectively, and paid KRW 1,350,000,000, which remains after deducting KRW 1,350,000 from the monthly interest rate of KRW 135,00,000, and KRW 67,500 from the five-month interest rate of KRW 382,50,00. As long as the agreement between the Plaintiff and Nonparty 2 is effective, the “interest payment date under the agreement” under the Enforcement Decree of the Income Tax Act and the “actual interest payment date” should be deemed to have been paid to the Plaintiff on December 13 and December 23, 2004, and the Plaintiff did not actually receive the principal of the instant loan from the date of deducting the interest rate of KRW 135,00.

As to this, the Plaintiff alleged to the effect that it is unreasonable to deem that the interest income was not paid in reality. However, as long as the Plaintiff received economic benefits immediately by making an advance and interest agreement for his own interest, the Plaintiff’s burden of tax incidental thereto should be determined at that time, and thus, the Plaintiff’s above assertion cannot be accepted.

(3) Meanwhile, according to the purport of Gap evidence Nos. 2 and 3 and the oral argument, the plaintiff is found to have been paid only 765,00,000 won as interest name from non-party Nos. 2 until August 4, 2005 as part of the principal and interest amount of KRW 125,00,000 (the amount paid by non-party No. 2 recently is KRW 829,000,000, but the non-party No. 1 was 64,000,000 as fees in the middle, and the other amount is in a situation where the non-party No. 2 could have been repaid as wind at around 205. However, according to Article 51 (7) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010), if the amount of the principal and interest could not be recovered from the amount of the principal due to the debtor's bankruptcy.

However, the same provision of the Enforcement Decree of the Income Tax Act applies only to cases where a non-business profit is excluded from the total income amount, and the corresponding non-business profit is not recoverable before the final return on tax base or the determination or correction of tax base and tax amount. Income tax is a so-called "fixed-term taxation" which imposes tax on the income amount for one year from January 1 to December 31 of each year, and the interest income generated from non-business profit is calculated as the total income amount for the corresponding year. Thus, in cases where a partial recovery of a claim is made, where it becomes objectively obvious that the collection of the remaining claim is impossible at the time of recovery of the claim, it shall be deemed that there is no realization of the interest income that satisfies the taxation requirement in the corresponding taxable year, but it shall not affect the tax liability for the interest income already realized prior to the occurrence of a cause for recovery (see Supreme Court Decision 2005Du5437, Oct. 28, 2005).

According to the above facts, in this case, since the cause for non-party 2’s failure to recover the loan claims occurred due to the non-party 2’s default around 2005, inasmuch as the Plaintiff is deemed to have already received interest income in the year 2004, which was the previous business year, the interest income tax should still be subject to the interest income tax even if the possibility of collecting the principal and interest of the

(4) Therefore, the Plaintiff’s assertion that the instant interest income did not accrue is difficult to accept, and the Defendant’s imposition disposition of global income tax on the instant case is lawful.

3. Conclusion

The plaintiff's claim shall be dismissed as it is without merit, and the judgment of the court of first instance, which has different conclusions, shall be revoked, and the plaintiff's claim shall be dismissed. It is so decided as per Disposition.

[Attachment] Relevant Statutes: omitted

Judges Kim Yong-deok (Presiding Judge)