Gangwonland Co., Ltd. (Law Firm LLC, Attorneys Cho Young-chul et al., Counsel for the plaintiff-appellant)

Yeongdeungpo Tax Office (Law Firm Namsan, Attorney Lee Chang-soo, Counsel for defendant-appellant)

December 16, 2016

1. All of the plaintiff's claims are dismissed.

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

The Defendant’s disposition of imposing corporate tax of KRW 2,266,146,860 for the business year 2012 against the Plaintiff on June 18, 2015 and corporate tax of KRW 1,803,584,00 for the business year 2013 shall be revoked.

1. Details of the disposition;

A. The Plaintiff is a corporation established on June 29, 1998 for the purpose of casino business, tourist hotel business, etc. on the basis of a special Act on the Assistance to the Development of Abandoned Mine Areas.

(b) It is a construction project that is jointly invested with a private enterprise to carry on a cooking project at the Taecheon-si on December 2001.

C. On July 26, 2012, the Plaintiff submitted a letter of deposit to the effect that the reason for the designation deposit was the “contribution to revitalize the regional economy through the inducement of normalization of the Taecheon Tourism Development Project,” and that the purpose and purpose of use was “the contribution to revitalize the regional economy by setting the amount of KRW 15 billion at the time of Tae Taecheon, such as the inducement of normalization through the inducement of normalization through the provision of funds for the emergency operation of the Taecheon Tourism Development Project,” and that the designation deposit was to be received by the Plaintiff by opening the Deliberative Committee on

D. Accordingly, the Plaintiff paid KRW 4 billion on August 14, 2012, KRW 4 billion on November 16, 2012, KRW 4 billion on January 2, 2013, KRW 3 billion on August 29, 2013 (hereinafter “instant donations”), and the Plaintiff reported and paid corporate tax for the business year 2012 and 2013 after including the amount of donations in deductible expenses.

E. At the time of the payment of the instant donation, the Plaintiff owned 10.1% to 11.7% of the shares issued by the Taecheon Tourism Development Corporation, and Thai si held 1.25% of the shares issued by the Plaintiff and 50.7% from the shares issued by the Taecheon Tourism Development Corporation to 57.3% of the shares issued by the Plaintiff.

F. Thai-si received the donation of this case from the Plaintiff, and delivered the donation of this case to the Thai-si Development Corporation, and the Thai-si Development Corporation used it as its operating fund.

G. In relation to the instant donations that were disposed of as a statutory donation for Thai City in the course of a comprehensive audit against the Defendant, the Central Tax Office determined that it was problematic for the Plaintiff to directly provide support to the Taecheon Tourism Development Corporation in the position of a related party, and determined that it should be recognized as non-Inclusion in deductible expenses by applying Article 52 of the Corporate Tax Act as a third party’s wrongful calculation denial provision, and ordered the Defendant not to recognize inclusion in deductible expenses.

H. On September 12, 2014, the Defendant notified the Plaintiff of the result of audit that the entire donations of this case are excluded from deductible expenses according to the aforementioned audit results, and the Plaintiff filed a request for pre-assessment review with the Commissioner of the National Tax Service on October 10, 2014, but the Commissioner of the National Tax Service decided not to adopt the Plaintiff’s request for pre-assessment review on March 10, 2015.

I. Accordingly, on June 18, 2015, the Defendant imposed 2,266,146,860 won as corporate tax for the business year 2012 (including 247,51,876 won as corporate tax for general underreporting, and 469,65,567 won as corporate tax for non-payment; and imposed 1,803,584,000 won as corporate tax for the business year 2013 (including general underreporting KRW 142,71,04 as corporate tax; KRW 120,813,000 as corporate tax for non-payment) (hereinafter each of the above dispositions referred to as “each of the instant dispositions”).

(j) The Plaintiff appealed and filed an appeal with the Tax Tribunal on June 9, 2015, but the Tax Tribunal rendered a decision to dismiss the Plaintiff’s claim on March 22, 2016.

[Reasons for Recognition] Unsatisfy, Gap evidence 1 to 9, Eul evidence 1 and 2 (including each number), the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. Summary of the plaintiff's assertion

1) The instant donation is money and valuables donated to the State or a local government under Article 24(2)1 of the Corporate Tax Act without compensation, and should be included in deductible expenses as received pursuant to Article 5(2) of the Act on the Collection and Use of Donations and Article 14(1)2 of the Enforcement Decree of the same Act.

2) If there is a defect in the resolution of the Plaintiff’s board of directors on the contribution act, it is likely that the instant contribution act will be returned to the Plaintiff. In light of the fact that, as a party to the intermediate transaction, it is likely to bear an economic risk at the Taecheon Tourism Development Corporation, and that, as a result of a large payment guarantee of the amount of money equivalent to 146 billion won, the instant contribution act in Tae Tae Seo Gyeong Gyeong-do, which is an intermediate transaction, was used only as a means for the final purpose of funding to the Tae Tae Gyeong Tourism Development Corporation, or there is no other purpose of business except for the purpose of tax avoidance, and it cannot be said that the instant contribution act in this case constitutes the act deemed to constitute the most act at the time of the Plaintiff's attitude, or that it is possible to deny it through an individual and specific provision provided for in the law, the principle of substantial taxation as provided for in Article 14(3) of the Framework Act on National Taxes cannot be applied

3) Article 52 of the Corporate Tax Act on the denial of wrongful calculation is not applicable to the act of donation in this case, since the act of donation in this case is aimed at lowering the economic risk of the YY and promoting the economic promotion of abandoned mine areas and the stability of residents’ livelihood, and it cannot be deemed that it lacks economic rationality.

B. Determination

1) Relevant legal principles

In a case where a corporation lends the form of money and valuables donated to a local government without consideration with the intention of unfairly evading tax burden to support a person in a special relationship with the corporation, it constitutes the denial of unfair act and calculation (see Supreme Court Decision 90Nu5504, Nov. 27, 1990). "Calculation of unfair act and calculation" refers to the calculation of an act by a taxpayer to reduce or eliminate the tax burden incurred when a taxpayer takes a round-over act, multi-stage act and other abnormal transaction form without reasonable transaction form (see Supreme Court Decision 2013Du20127, Apr. 10, 2014, etc.). "Where it is deemed that a corporation's tax burden on the corporation's income has been unjustly reduced because the type of transaction performed by the relevant corporation is objectively deemed to have neglected economic rationality, and thus, it shall be deemed that the relevant corporation is unfair in terms of tax law and law (see Supreme Court Decision 90Nu5504, Nov. 27, 1990).

2) Relevant statutes

The entries in the attached Table-related statutes are as follows.

3) Determination

A) Facts of recognition

(1) After the establishment of the Taebag Tourism Development Corporation, it was running a business by constructing and operating a large-scale golf course, skiing ground, and accommodation in Taebag-si, Taebag-si. At the time of the contribution of this case, it was suffering from serious financial difficulties related to the construction and operation of the above Obag-dong.

(2) As the largest shareholder of the Taecheon Tourism Development Corporation guaranteed the payment of the amount of KRW 146 billion to the NACF with respect to the obligations of the Taecheon Tourism Development Corporation, Tae Tae Man-si could have caused a serious crisis if Taecheon Tourism Development Corporation defaulted.

(3) On the other hand, on the other hand, the Plaintiff was required to provide support for Taecheon Tourism Development Corporation. The Plaintiff’s board of directors discussed the proposal that the Plaintiff received a security and lent the operating fund of KRW 30 billion to the said Corporation, but the actual loan was not made due to the assessment of collateral.

(4) The Nonparty’s director appointed on July 12, 201 at the 111th meeting of the Plaintiff’s 109, 110, and 111, the Plaintiff’s director, who was appointed on the basis of Thai-si, faced with a critical situation that would be designated as a local government of the early financial crisis in the nation unless the Thai-si Development Corporation, which is operating the Masi-si, is not normalized. As such, the Nonparty submitted a proposal to contribute a cooperative project fund for abandoned mine areas to the effect that the Masi-si Development Corporation should support 15 billion won through Thai-si so that it can normalize its normalization. As the Plaintiff’s 111th meeting held on July 12, 2012

(5) According to the above resolution, the Plaintiff deposited the total amount of KRW 4 billion on August 14, 2012, KRW 4 billion on November 15, 2012, KRW 4 billion on December 31, 2012, KRW 3 billion on August 21, 2013, and KRW 15 billion on August 21, 2013, into the account of Taecheon Tourism Development Corporation after the deposit of the Plaintiff. The said money was deposited as it was in the account of Taecheon Tourism Development Corporation as the general account’s contribution, following the resolution of expenditure of Tae Seo Seo Seo-si Tourism Development Corporation after the deposit of the Plaintiff.

[Reasons for Recognition] Facts without dispute, Gap's statements, Gap's 8, 12, 13, 14, 22, 29, 31, 32 and 34, Eul's statements, and the purport of the whole pleadings

B) Determination

As seen earlier, the donation of this case constitutes money and valuables donated free to the State or a local government under Article 24(2)1 of the Corporate Tax Act. However, considering the following circumstances that can be recognized by comprehensively taking into account the relevant statutes and the evidence as seen earlier, it is reasonable to view that the Plaintiff unjustly reduced the tax burden due to the act by providing money to the Tae Magsan Tourism Development Corporation, which is related to the Plaintiff through Tae Mag City, with the view to the denial of unfair act and calculation, the income amount should be calculated except for the portion that deemed the donation of this case as a statutory donation to a local government and reduced the tax burden by including it in deductible expenses according to the denial of unfair act and calculation. Therefore, the Plaintiff’s assertion that the denial of unfair act and calculation should not be applied in the course of each disposition of this case is without merit, and so long as prior to the application of the substance over form principle, the Plaintiff’s assertion on the application of the principle of substantial taxation does not need further be determined as deductible expenses, and thus, each disposition of this case on the premise that the donation of this case is legitimate.

(1) The Plaintiff is a shareholder holding 10% of the shares of Taecheon Tourist Development Corporation at the time of the instant contribution act, and constitutes a specially related person of Tae Taecheon Tourist Development Corporation.

(2) The Plaintiff, while making the instant contribution, specified the purpose and purpose of the instant contribution as the fund for the urgent operation of the Taecheon Tourist Development Corporation, a specific profit-making enterprise. Thus, even if the Plaintiff received the money deposited to Tae Tae Jong-si through the instant contribution act, it is inevitable to pay the money as it is to a specific profit-making enterprise, without any room for discretion. Therefore, the economic purpose of the instant act is to provide support for Taecheon Tourist Development Corporation regardless of the form of transaction.

(3) In fact, immediately after the Plaintiff deposited the instant donation at the time of Thai City, the Plaintiff deposited the relevant donation into the Thai Tourist Development Corporation by means of an expenditure resolution in accordance with the purport of making the donation at the time of Thai City, which differs from the Plaintiff’s direct contribution to the Thai Tourist Development Corporation, as intended by the Plaintiff while making the donation at the time of Thai City.

(4) Meanwhile, Article 52(1) of the Corporate Tax Act and Article 88(1)6, and Article 88(2) of the Enforcement Decree of the Corporate Tax Act provide that where money is provided without compensation to a specially related person, it shall be deemed that the tax burden has been reduced unfairly. In addition to direct transactions with a specially related person, transactions conducted by a third party, other than a specially related person, shall be included in transactions with a juristic person and the specially related person. In applying wrongful calculation, transactions are naturally included in unilateral acts, such as provision of money, rather than bilateral acts, and thus, where a certain act can be evaluated as funding activities with a third party, if the tax burden was reduced due to such form, it is deemed that the wrongful calculation denial provision can be applied to the pertinent act.

(5) In order to achieve the purpose of subsidizing operating funds to the Taecheon Tourism Development Corporation, the Plaintiff did not make a direct contribution to the specially related party, and made a contribution through an indirect method of making a contribution in the Taecheon City. In order to supervise this method, it would take the form of contribution and thereby, it would be possible to reduce corporate tax by including the amount equivalent to corporate tax in deductible expenses in the amount equivalent to corporate tax in the form of the donation. Thus, it is difficult to allow the effect of tax avoidance as it is, in contrast to the case of making a direct contribution.

(6) Even if the Plaintiff is a corporation established pursuant to the Special Act on the Assistance to the Development of Abandoned Mine Areas with the aim of promoting the economy of underdeveloped mine areas, promoting balanced regional development, and enhancing the living standard of residents, and even if the act of contribution in this case was one of the methods by which large amount of payment guarantee can be avoided, the application of the provision on the denial of unfair act by reason of the above alone cannot be ruled out, insofar as the purpose and substance of the act constitutes the bypassive financing for the Asia Tourism Development Corporation.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so decided as per Disposition.

[Attachment]

Judges Noh Jin-young (Presiding Judge)