In a case where Gap corporation established a branch in the Geum River Tourist Site in North Korea and operated a tourist-related business, etc., but caused a large amount of losses at the above branch without deducting the said losses, but filed a return of corporate tax without deducting the said losses, and subsequently filed a request for correction of the tax base and the amount of corporate tax to be included in deductible expenses, and the tax authority rejected the request, the case holding that it is reasonable to deduct the losses incurred at the Geum River branch in calculating the corporate tax base for Gap corporation's corporate tax, and thus the tax authority's rejection

In a case where Gap corporation established for the purpose of establishing and operating a tourist accommodation business with the approval of the inter-Korean cooperation project and operated a golf course and a spat business in the Geumgangsan Tourist Complex, etc., in which South Korean tourists died due to the total occurrence of an accident, and South Korea's death, it reported large losses at the Geumgangsan branch based on the tax base which did not deduct the above losses, but later included the losses in deductible expenses, and the tax base and the tax amount of corporate tax were corrected accordingly, and the tax authority rejected the above request for correction on the ground that the method of income exemption stipulated in Article 22 of the "Agreement on the Prevention of Double Taxation on Income between South and North Korea" was the complete exemption method, the case holding that in a case where the tax authority rejected the request for correction on the ground that the purpose of preventing double taxation on income is to prevent double taxation and that there is no provision for dealing with the losses in the other party's region, corporate tax should be applied to the treatment of losses incurred in the course of running the business, which is a domestic corporation Gap, and Article 16(4) of the former Corporate Tax Act.

Article 26(3)6 and 7 of the former Inter-Korean Exchange and Cooperation Act (Amended by Act No. 10282, May 14, 2010); Articles 1 and 17(1) of the Inter-Korean Exchange and Cooperation Act; Articles 44(1) and (3) of the Enforcement Decree of the Inter-Korean Exchange and Cooperation Act; Articles 13, 14, 60(1), and 66(1), 66(2)1, and 4 of the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 2010);

Esson City Pacific Co., Ltd. (Law Firm Rated, Attorney Kim M&D, Counsel for the plaintiff-appellant)

Head of Cheongju Tax Office

May 26, 2011

1. The defendant's rejection disposition against the plaintiff on December 28, 2009 regarding the corporate tax belonging to the business year 2008 and the special rural development tax shall be 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. On December 30, 2005, the Plaintiff was a domestic corporation established for the purpose of the establishment, operation, invitation and lease of tourism accommodation business, entrusted operation business, etc. The Plaintiff obtained approval for inter-Korean cooperation project pursuant to Article 17(1) of the Inter-Korean Exchange and Cooperation Act (hereinafter “Inter-Korean Cooperation Act”) with respect to the business for the purpose of the construction and operation of the Geum River and the smpha boat by investing the amount of KRW 72.355 million in the Geum River Tourist Site area in North Korea by himself from the Minister of Unification. After that, the Plaintiff established a branch of the Plaintiff company in Geum River-gu Tourist Site in North Korea and operated the smpha boat business.

B. However, on July 2008, there was an accident that South Korean tourists died in the total of North Korean forces in the Geum River Tourism District of North Korea, and thus, the full suspension of Geum River Tourism was made. Accordingly, the Plaintiff incurred losses at the Geum River branch in the business year of 2008 at KRW 6,038,821,332 (hereinafter “instant losses”).

C. On March 31, 2009, the Plaintiff reported the corporate tax and special agricultural and fishing villages tax for the business year 2008 on the basis of the tax base for which the instant losses were not deducted from the income in the business year of 2008, and thereafter, on October 28, 2009, included the instant losses in the deductible expenses, and filed a request for correction of the tax base and amount of tax for the business year of 2008.

D. On December 28, 2009, the defendant rejected the claim for correction on the ground that the method of income exemption stipulated in Article 22 (1) of the "Agreement on the Prevention of Double Taxation on Income between South and North Korea" (hereinafter "the agreement in this case") means the complete exemption method, and accordingly, the defendant rejected the claim for correction on the ground that in case where income does not accrue from North Korea and the loss occurred without deducting it from the tax base of corporate tax on the other side (hereinafter "the disposition in this case").

[Reasons for Recognition] The facts without dispute, Gap evidence 1 to Gap evidence 3, Gap evidence 6 to Gap evidence 8 (including branch numbers), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the parties' arguments

(1) The plaintiff's assertion

In principle, the corporate tax base should be calculated by including the deficit in deductible expenses in the case of a domestic branch of a domestic corporation’s occurrence of deficit. This case’s agreement is intended to prevent double taxation by preventing a tax burden from being imposed on either of the two Koreas, and does not include any deficit in calculating the corporate tax base. Thus, the Defendant’s disposition of this case based on a different premise is unlawful even though the deficit in this case should be included in deductible expenses in calculating the corporate tax base against the Plaintiff.

(2) The defendant's assertion

Article 22 of the Agreement provides that, with respect to interest, dividends, and usage fees accrued to either party, the method of tax credit shall be applied to the other income, and with respect to the other income, the method of tax exemption shall be fully exempted without considering all the income accrued from the other party. Thus, the losses of this case shall not be deducted in calculating the corporate tax base for the Plaintiff, and the disposition of this case which rejected the Plaintiff’s request for correction is legitimate.

B. Relevant statutes

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

C. Facts of recognition

(1) On December 26, 200, South Korea and North Korea prepared the instant agreement with the Minister of Unification as the representative of South Korea, as the representative of North Korea, and as the representative of North Korea, in order to prevent double burden by promoting economic exchanges and cooperation between South and North Korea and coordinating the competition between the authority to impose taxes on the income accrued from one of the countries. The contents of the instant agreement are as follows.

The South and North Korea agree to confirm that economic exchanges and cooperation in accordance with the South and North Korean Joint Declaration, which were published on June 15, 200, are transactions within the nation, not between the country and the country, and to prevent double taxation on income. Types 1. of Article 3, which are applicable under this Agreement, are as follows: (a) Income tax, corporate tax, and income-generating tax (b) in the South and North Korea; (b) The kinds of taxes include income tax, corporate income tax, personal income tax, and local tax on the same kind of tax, which are essentially imposed or imposed in lieu of the current tax, after the agreement is entered into; and (b) both parties notify each other of the tax amount if the type of tax differs. In such cases, where one of the enterprises is a company's income tax, taxes on profits from business activities in the permanent establishment, which have been paid or paid to the other party, are exempt from the tax amount paid or paid to the other party in accordance with the agreement:

(2) On the other hand, the instant agreement does not have any provision for dealing with losses in the region of the other party.

(3) The Uniform Foreign Affairs and Trade Committee of the National Assembly presented the instant agreement to the plenary session of the National Assembly on May 17, 2003, and the instant agreement was resolved at the Extraordinary National Assembly on May 17, 2003.

[Reasons for Recognition] Unsatisfy, Eul's evidence 1-1 and 2, the purport of the whole pleadings

D. Determination

(1) Under the premise that inter-Korean relations are a special relationship formed provisionally in the course of pursuing unification, not between a country and a country, the agreement of this case is an agreement document adopted by the inter-Korean authorities with respect to inter-Korean relations that have a common political responsibility to achieve the peaceful unification of the conciliation country, and thus, the inter-Korean authorities are responsible for each political responsibility and promise to fulfill one another between the two Koreas, but such agreement cannot be deemed a treaty or an equivalent treaty among the countries. However, the agreement of this case provides for the tax authorities to limit the tax authorities on the income that a company is entitled to exercise the authority to impose taxes on the profits that may accrue to a permanent establishment among the corporate profits derived from a permanent establishment in the opposite country. However, the agreement of this case provides for the basis for imposing taxes on the income that a company may vest in a permanent establishment in the opposite country among the corporate profits accrued from a domestic establishment in the opposite country, and where a resident of the self-regional area has paid or is obliged to pay taxes on the income accrued from the other party in the way of preventing double taxation, one is exempt from taxes on such income.

(2) According to Article 26(3)6 of the former Inter-Korean Cooperation Act (amended by Act No. 10282, Apr. 5, 2010) and Article 44(1) and (3) of the Enforcement Decree of the same Act, the Corporate Tax Act and the Income Tax Act shall apply mutatis mutandis to the imposition, collection, reduction, exemption, and refund of taxes on investments, goods, etc., and other economic cooperation projects and transactions related thereto between South and North Korea, and the tax on income generated from such economic cooperation projects, on condition that the provisions of the Corporate Tax Act and the Income Tax Act shall not apply mutatis mutandis to taxation on income arising from inter-Korean exchange and cooperation, if the Government and the North Korean authority have reached an agreement on income arising from inter-Korean exchange and cooperation. However, as seen earlier, the instant agreement does not provide for dealing with losses in one party’s region. Accordingly, the Plaintiff, a domestic corporation, in the process of running a business approved as one of the inter-Korean economic cooperation projects in North Korea, shall apply to the settlement of losses of South Korea.

(3) Meanwhile, according to Articles 60(1), 66(1), 66(2)1, and 66(4) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter the same), a domestic corporation liable for tax shall report to the head of the tax office having jurisdiction over the place of tax payment the tax base and amount of corporate tax on income for the pertinent business year within 3 months from the end of the month to which the end of each business year belongs. If a domestic corporation fails to report, the head of the district tax office having jurisdiction over the place of tax payment shall determine the tax base and amount of corporate tax, and if a domestic corporation has found an error or omission in its determination or correction, the tax base and amount of corporate tax shall be corrected immediately. In addition, according to Articles 13 and 14 of the former Corporate Tax Act, the corporate tax base of a domestic corporation is the amount calculated by deducting losses within the scope of income of the domestic corporation for each business year from the total amount of losses for each business year.

(4) In light of the above legal principles, it is reasonable to deduct the losses of this case from the Plaintiff’s income for the business year of 2008, in calculating the corporate tax base on the Plaintiff’s income for the business year of 2008. Thus, the Plaintiff’s claim for correction of the tax base and tax amount of this case reflecting the losses of this case is lawful. Nevertheless, the Defendant’s disposition based on the premise that the Defendant should not deduct the losses of this case in calculating the corporate tax base on the Plaintiff’s income for the business year of 2008 on the ground that the method of income exemption stipulated in Article 22 of the agreement of this case is the so-called “the method of full-time exemption” which does not consider the income accrued from the other party’s income in determining the income of

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.

[Attachment] Relevant Statutes: omitted

Judges Choi Byung-hee (Presiding Judge)