Boan Highway Co., Ltd. (Attorneys Lee Woo-soo et al., Counsel for the defendant-appellant)

Gongju Tax Office (Law Firm, Attorneys Kim Min-min et al., Counsel for the plaintiff-appellant)

March 19, 2014

1. As to the Plaintiff on January 25, 2013:

(a)a request for rectification to increase the remaining balance of deficits for the business year 2004 to KRW 8,560,244,347 from KRW 9,103,239,018, and to increase the deficits that occurred for the business year 2009 from KRW 0 to KRW 7,324,130,329;

(b)a claim for rectification that increases the undeductible balance of the business year 2005 to 11,489,064,907 won in 3,621,939,907, which remains for the business year 2010;

(c) A request for rectification to reduce the tax base of KRW 29,368,173,169 and corporate tax of KRW 6,436,98,097 for the business year 2011 by 14,176,917,840 and corporate tax of KRW 3,094,921,924 for each tax base;

Each rejection disposition against each other 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. The plaintiff's status

On July 22, 1997, the Plaintiff is a company established for the purpose of construction and operation pursuant to the former Promotion of Private Capital Investment Act (amended by Act No. 4773 of Aug. 3, 1994, hereinafter “Private Investment Act”).

B. Plaintiff’s subordinated debt burden

At the time of May 20, 2005, the Plaintiff reduced the capital of KRW 3,037.50 billion, among the capital of KRW 450 billion, and borrowed KRW 1,822.50 million from the Korea Infrastructure Infrastructure Fund (hereinafter referred to as the “contributation”) which was a shareholder on the same day, and borrowed KRW 47,081,250,000 from the same private school personnel pension management corporation, and KRW 45,562,50,000 from the same national bank to the same national bank, respectively. On September 20, 2005, the Plaintiff borrowed KRW 28,856,250,000 from the next day to the end of 200,000 in total, to the end of 3,037.5 billion until the end of 200,000 annual interest rate from the next day to the end of 206,000 to the end of 208.

C. Imposition, etc. of corporate tax for the business year 2009, 2010 and revocation thereof by the defendant

1) The Board of Audit and Inspection demanded the National Tax Service to monitor the actual state of ex post facto management of private investment projects by guaranteeing minimum import from September 2010 to November 201 of the same year, and to investigate whether the interest rate for subordinated loans is appropriate.

2) On July 201, the Defendant investigated the Plaintiff’s interest rate on subordinated loans in the business year of 2009 and 2010, and determined that the Plaintiff borrowed the subordinated loans in this case from the shareholders to the interest rate of 16% (referring to the interest rate from 2009 to 2012) constitutes wrongful calculation as a transaction between related parties lacking economic rationality, and subsequently, on September 15, 201, based on Article 52 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 201; hereinafter “Corporate Tax Act”) on September 15, 201, based on Article 52 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter “Corporate Tax Act”), among interest expenses on subordinated loans in the business year of 2009, 222,781,250,000 won, which was the amount exceeding 8.5% at the time,505,563636.

3) On September 19, 201, the Plaintiff filed a tax appeal against it. On August 16, 2012, the Tax Tribunal dismissed the Plaintiff’s claim that “The Defendant imposed corporate tax of KRW 1,366,203,760 on the Plaintiff on September 15, 2011, and the non-deductible expenses of KRW 22,781,250,000 on the Plaintiff on September 15, 201, based on the results, the amount of interest rate plus the Plaintiff’s claim [1.53% of the total interest rate, junior risk premium of KRW 1.62%, minimum import guarantee (hereinafter “MRG”), and KRW 2.59% of the early termination of the MRG, 22% of the total amount of corporate tax of KRW 22,781,250 in the business year 209, and 137% in arrears and 16% of the remainder of the correction claim.”

4) On November 5, 2012, the Defendant, after re-audit, determined that the market value of the instant subordinated loan was 1.53% at the maturity rate of 8.62% of the interest rate added to the interest rate of the Plaintiff’s claim, 1.62% at the subordinated risk premium, and 13.41% of the interest rate added to 1.64% of the interest rate added to 8.62% of the interest rate of the instant subordinated loan, and on this basis, notified the tax base and estimated tax amount for the business year 2009 as KRW 782,743,392, 00, KRW 782,743,392, and KRW 2010, KRW 00, KRW 1,366,203,765, respectively, and notified the result of the tax investigation

2. The amount of loss brought forward according to the re-audit decision: The amount of loss brought forward pursuant to the re-audit decision of KRW 9,103,239,018, the balance of KRW 9,103,239,239,018; 2. The amount of loss brought forward pursuant to the re-audit decision of KRW 2005: 25,308,945,879: the amount of loss brought forward (in the case of 2010), the amount of loss brought forward: KRW 22,386,95,672, the balance of KRW 2,921,95,921,950,227, the amount of loss brought forward.

D. The Plaintiff’s filing of corporate tax for the business year 2011

The Defendant determined that the market price of the instant subordinated loan was 8.5% as stated in the foregoing C-2, and the Plaintiff returned corporate tax for the business year 201, March 31, 2012, and subsequently declared the tax base and corporate tax as KRW 55,757,109,397 and KRW 12,242,564,067, respectively.

E. Plaintiff’s request for correction and Defendant’s disposition of this case

1) The Defendant determined the market price of the subordinated loan in this case as 13.41% and notified the result of the tax investigation, etc. as stated in the above C-4, the Plaintiff asserted that, on November 29, 2012, the market price of the subordinated loan in this case is not 13.41% but 16%, which is the initial agreed interest rate. 15,457,119,671 won as to corporate tax in 209 (the balance of losses was changed depending on the increase in deductible expenses), 2010, 34,58,318, calculated tax amount is 1,52,369,430 won, 13.40 won, 1,522,369,430 won, 200 won, 1,522,369, 430 won, 207, 2014, 207, 197, 2947, 2014, 297, 197, 47, 197, 47.

2) On January 24, 2013, the Defendant corrected the tax base, etc. for the business year 2009, 2010 as follows.

1. Table 1. 209. A. Tax base in the main sentence: zero won in the business year of 2009: - Details of the increase or decrease of loss carried forward - Amount of KRW 9,103,239,018 in the business year of 2004: Amount of loss brought forward: KRW 542,94,671 in the amount of loss brought forward, KRW 8,560,244,347 in the amount of loss brought forward in the business year of 2010 - details of the increase or decrease of loss brought forward in the business year of 2005 - Amount of loss brought forward in the business year of 25,308,945,879 in the amount of loss brought forward: KRW 21,687,05,972 in the amount

3) Furthermore, on January 25, 2013, the Defendant dismissed the claim related to corporate tax for the business year 2009, 2010 among the claim for correction in the instant case. (3) As to the claim for correction relating to corporate tax for the business year 2011, the Defendant issued a disposition of partly citing the corporate tax by reducing the amount of KRW 14,914,125,000 to KRW 5,805,565,970 by adding the interest rate on subordinated loans to deductible expenses (hereinafter “instant disposition”).

F. The plaintiff's objection to the disposition of this case

On February 15, 2013, the Plaintiff dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal on February 15, 2013, but dismissed the portion of corporate tax for the business year of November 22, 2013, and received a decision to dismiss the portion of the business year of 2011.

[Ground of recognition] Facts without dispute, Gap evidence 1, Gap evidence 16 through 21, Eul evidence 6 through 9 (including branch numbers, if any) and the purport of the whole pleadings

2. Whether the lawsuit in this case is lawful

A. Defendant’s defense prior to the merits

The period for filing a lawsuit according to the re-audit decision shall be calculated from the date of receipt of the notification of the subsequent disposition. The defendant shall file a petition for trial or administrative litigation within 90 days from November 5, 2012, on the ground that the court determines that the appropriate interest rate for the subordinated loan of this case was 13.41% according to the re-audit decision of the Tax Tribunal, and the plaintiff corrected each tax base for the business year 2009, 2010 and revoked the imposition of corporate tax for the business year 2010.

However, the Plaintiff filed a tax appeal on February 15, 2013 after the lapse of 102 days from November 5, 2012, and filed the instant lawsuit on April 18, 2013. As such, the portion of the instant lawsuit pertaining to the business year 2009 and 2010, which was filed after the lapse of the filing period, is unlawful.

B. Determination

In a case where a tax official calculates the amount of income for each business year of a corporation and calculates the amount of income for each business year, and accordingly determination of the tax base is not an administrative disposition that is subject to an appeal litigation. Thus, in a case where there was an error in the determination, it may be asserted in the procedure that contests the validity of the taxation disposition accordingly (see Supreme Court Decision 2008Du1795, Jan. 28,

Article 45-2 (1) of the Framework Act on National Taxes may, in any of the following cases, request the head of the competent tax office to determine or correct the tax base and amount of the national tax for which the initial return or revised return was filed within three years after the statutory due date of return expires: Provided, That with respect to the increased tax base and amount of tax due to the determination or revision, a request for correction may be made within 90 days (limited to within three years after the statutory due date of return expires) from the date on which the relevant disposition is known (where a notice of disposition is received, the date on which the notice of disposition is received)" in subparagraph 2, and Article 45-2 (3) of the same Act provides that "Where the amount of the deficit or refundable tax recorded in the tax base return (where a determination or correction is made under each tax-related Act, referring to the deficit or refundable amount after the relevant determination or correction is made) falls short of the deficit or refundable amount to be declared under the tax-related Acts, the head of the competent tax office shall determine or rectify the tax base and amount within two months after such request is made."

On November 5, 2012, the defendant calculated the market price of the subordinated loan in this case as 13.41%, and notified the plaintiff by making a decision of correction of tax base, such as an increase or decrease in losses carried forward in the business year 2009 and 2010. Accordingly, on November 29, 2012, the plaintiff asserted that the market price of the subordinated loan in this case was 16% and filed a request for correction of this case to reduce corporate tax base for the business year 2009, 2010 (the balance of losses carried forward together), but the defendant dismissed it on January 15, 2013. The facts that the lawsuit in this case was brought on April 18, 2013 are clear as recorded in the record.

Examining the above facts in light of the legal principles as seen earlier, on the premise that the market price of the interest rate of the subordinated loan in this case is 13.41%, the defendant's act of increasing and decreasing losses carried forward for the business year 2009 and 2010 is not subject to an appeal litigation, and thus, it is not subject to a disposition to correct the tax base. The plaintiff is entitled to file an appeal suit seeking revocation of the disposition in this case, since the plaintiff argued for correction of the tax base in the business year 2009 and 2010, and the defendant refused correction of the tax base by the disposition in this case, and the plaintiff refused correction of the tax base, the plaintiff can file an appeal suit seeking revocation of the disposition in this case. Accordingly, the lawsuit in this case was filed within 90 days from the date of the disposition in this case, and thus is lawful. Accordingly, the defendant'

3. Whether the instant disposition is lawful

A. The plaintiff's assertion

In order to apply Article 52(1) of the Corporate Tax Act, ① Trading is conducted between persons with a special relationship, ② the price, etc. of the trading should be higher or lower than the market price, ③ Trading is abnormal that lacks economic rationality in light of sound social norms, and thus, the burden of tax should be reduced unreasonably.

1) First, the existence of a special relationship in order to apply the provision that is a wrongful calculation shall be determined as at the time of the act or calculation, and the time when the act or calculation was performed is determined as at the time of determining important conditions, such as transaction object and price. On June 18, 2004, the Plaintiff submitted to the Minister of Construction and Transportation a plan for change of investors, including the interest rate on subordinated loans in this case, and the Minister of Construction and Transportation finally approved the said refinancing plan on December 1, 2004, the time of determining the interest rate on subordinated loans subject to the avoidance of wrongful calculation is December 1, 2004. However, since the lender of the instant subordinated loans became the Plaintiff’s shareholder on or after February 14, 2005, the said lender does not constitute a person having a special relationship with the Plaintiff.

2) Even if the special relationship between the Plaintiff and the lender of the subordinated loan of this case is acknowledged, the instant project takes a large amount of initial costs from 1997 to 2002 including a total of KRW 1.4,02.8 billion, while the investment profit recovery period reaches 30 years, operating expenses, and the instant project requires a large amount of KRW 1.5,13.6 billion. At the time of the completion of the expressway project, the ownership belongs to the State at the time of the completion of the project, and the project implementer recognizes the right to manage and operate the facilities for a certain period. Thus, the instant project bears a risk of not paying the minimum operating expenses. The instant project is short of 20 years, and its guarantee terminates on December 13, 202, since the principal repayment of subordinated loan was made from 2024 to 14% of subordinated loan, the Defendant’s priority interest rate can not be considered to be paid only in cases where it is highly likely that the lender would be repaid with the principal repayment rate of subordinated loan of this case.

3) Furthermore, determination on whether economic rationality exists should be made on the basis of the whole transaction. In full view of the following factors: (a) the Plaintiff reduced approximately KRW 300 billion and converted the same amount into subordinated loans; (b) the Plaintiff’s equity investment and subordinated loans to be considered as one fund investment method; (c) the Plaintiff’s shareholders have to determine the appropriate interest rate by deeming the equity investment and subordinated loans as one fund investment method; (d) the return that the Plaintiff’s shareholders gain during the entire business operation period is merely 9.24%; (e) the Plaintiff’s financial burden of the Republic of Korea was reduced from KRW 90% to KRW 82% as the minimum revenue guarantee standard is lower than KRW 11.1 billion according to the Plaintiff’s refinancing plan; and (e) the interest rate of the subordinated loan in the absence of the subordinated loan was increased, there is economic rationality.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Facts of recognition

A) The 12 construction companies, including ELD Construction Co., Ltd., concluded on behalf of the Plaintiff the instant concession agreement with the Ministry of Construction and Transportation on April 3, 1997, with the following contents.

(1) In accordance with the Private Capital Inducement Promotion Act (referring to the Private Capital Inducement Promotion Act, Act No. 4773) and this Convention, the Government shall designate a project implementer as a project implementer for the project, and establish rights to manage and operate the National Highway, and designate, approve, establish and grant the project implementer the qualifications and rights to perform the following acts. ① The design and construction of the roads and the facilities and their accessory facilities under the implementation plan and this Convention; ② the free use of the site for the construction of the roads and their accessory facilities under paragraph (1); ③ the maintenance, repair, operation, and collection of tolls for the facilities under paragraph (3) of this Article, and the operation of the facilities under paragraph (3) of this Article, except as otherwise expressly provided for in this Convention. ② The project implementer shall transfer the rights to manage and operate the facilities under paragraph (3) of this Article to the Government for more than 30 years after the date of operation; and ② the project implementer shall transfer the rights to operate and operate the facilities under paragraph (3) of this Article to the Government for more than 50 years after the date of operation of this Convention.

B) On December 14, 2000, the Plaintiff entered into a concession agreement for the instant project modification including the following contents with the Ministry of Construction and Transportation.

Article 2. Definition 28. Tolls in the main sentence: 90% of the estimated toll revenue for a specific business year specified in Appendix 6. The rate of return on the business of Article 40 shall be 9.24%, and the rate of return on the business of Article 40 shall be 9.24%.

C) On February 16, 2001, the Plaintiff borrowed KRW 730 billion from the Korea Development Bank as senior loans. On February 19, 2001, the Korea Development Bank transferred the credit of KRW 730 billion to the Plaintiff to the Korea Development Bank Specialized in C&C. The Plaintiff’s senior loan interest rate is as follows.

A lump-sum repayment shall be made on February 27, 2006 at the interest rate of 6.92% of the principal repayment with the maturity of 370% on February 27, 2006, and on February 27, 2007 at the temporary repayment of 7.42% on February 27, 2008 at the maturity of 507.62% on February 27, 2009 at the temporary repayment of 507.62% on February 27, 2009, with the maturity of 1,700.7.82% on February 27, 201, 9, 200 on two equal installment repayment in the year 109, from February 27, 2011 to the maturity of 11% on February 27, 2011, and 2.008.62% from February 4, 2016 to the maturity of 11 year.

D) On February 14, 2004, construction companies (excluding treatment construction companies) that are the investors of the Plaintiff agreed to transfer 90.5% of the Plaintiff’s shares to be a quota upon termination of the transaction (the revised contract was concluded on September 21, 2004 and February 2, 2005).

E) On June 18, 2004, the Plaintiff submitted to the Minister of Construction and Transportation a plan to change investors and refinancing the following contents:

1. 5th-2nd-2nd-2nd-2nd-5th-2nd-2nd-2nd-2nd-5th-2nd-3th-2nd-2nd-300 billionth-2nd-5th-2nd-5th-2nd-5th-2nd-300 billionth-2nd-36th-200 billion capital of Korea Infrastructure Investment Company (Korean Lora Ltd. Ltd., Ltd., Ltd., Ltd., Ltd., 90.5% of the shareholding ratio of stockholders: LG Construction Co., Ltd., Ltd., Gold Industry Co., Ltd., Ltd., Ltd., 1, 500, 100, 100% of the capital ratio of stockholders: 11,800, 100% of the total amount of subordinated loans, 2000,0000 won prior to the change of the capital ratio of 5th-2nd-5th-3600 billion capital ratio (300 billion won).

F) On November 26, 2004, the Plaintiff submitted to the Minister of Construction and Transportation a letter of commitment related to the change of investors and re-financing, including the fact that the minimum operating guarantee rate was reduced from 90% to 82% of the estimated toll revenue. On December 26, 2004, the Minister of Construction and Transportation approved the change of investors and re-financing plan on the condition that the consent of the lender of senior debts and shareholders who did not transfer stocks, and the changes in the concession agreement are reflected.

G) On February 5, 2005, the Plaintiff entered into a concession agreement with the Ministry of Construction and Transportation as follows.

Article 9 (Guarantee and Redemption of Tolls) 28 of the concession agreement included in the main text shall be amended as follows: (3) Article 46 (Guarantee and Redemption of Tolls) of the concession agreement shall be amended as follows: (2) Where the actual toll revenue for each business year falls short of the base toll revenue for 20 years from the date of operation pursuant to the Public-Private Partnerships Act, the Enforcement Decree of the Public-Private Partnerships Act, the basic plan, etc., and the basic plan for private investment and private investment and the basic plan for private investment and the basic plan for private investment and the basic plan for private investment and the basic plan for redemption, the amount of the shortage shall be ensured; or where the actual toll revenue for the pertinent business year exceeds 82% of the estimated toll revenue, and is below 92%, 40% of the excess; and (4) where the actual toll revenue for the pertinent business year exceeds 92% of the estimated toll revenue for 10% of the estimated toll revenue for 10% of the total amount exceeding 10% of the estimated toll revenue for 20% of the pertinent business year and below 12% of 10% of the actual excess.

H) On February 14, 2005, the Plaintiff entered into a modified loan agreement with the CCR specialized in C&A with the following terms and conditions.

The withdrawal of deposit in the operation account of the operating account of Article 5 (3) (C) of the Table contained in the main text shall be made in the order of the following specifications during the construction period and the operation period on a monthly basis based on the estimated deposit withdrawal amount to be determined by the lender. Therefore, in cases where the lender considers that the funds for the payment of the preceding priority items are insufficient on a monthly basis, the withdrawal for the payment of the following items shall not be allowed: (1) Tax and public charges under the Acts and subordinate statutes; (2) Tax and public charges under the Acts and subordinate statutes; (3) project expenses for the instant project during the construction period, such as construction expenses; (2) the principal of the loan; (7) the repayment of the principal of the loan; (3) the payment of interest on the subordinated loan; (4) the payment of interest; (1) the payment of interest and principal (limited to cases permitted under this Agreement) the period of this Agreement shall not be made without the prior consent of the lender, except in cases where the following requirements are met during the period of this Agreement:

(i) On May 3, 2005, 15.5% of the Plaintiff’s shares were transferred to the Korea Teachers’ Pension Foundation, and 15% of the Plaintiff’s shares were transferred to the Korean National Bank Co., Ltd. (hereinafter referred to as “Mactri, the Korea Teachers’ Pension Foundation, and the Korean National Bank, etc.”) on May 4 of the same year, respectively.

(j) On May 20, 2005, the Plaintiff reduced 274,893,750,000 won, excluding the investment of Daewoo Construction Co., Ltd., for consideration in accordance with the refinancing plan, and entered into a subordinated loan agreement to borrow the same amount from shareholders to lower order, and on September 20, 200 of the same year, the Plaintiff converted the amount of capital reduction of KRW 28,856,250,000 to the subordinated loan. The main contents of the subordinated loan agreement are as follows.

Section 4) The term "high interest rate" in Section 2 shall be 6% per annum until the end of 207, and shall not be paid by the end of 200,00 won per annum for subordinated loan 40,000 won per annum (in the case of a long-term loan 40,000 won per annum 5,000 won per annum 5,00 won per annum for subordinated loan 5,00 won which shall be payable by the first five (in the case of a long-term loan 5,00 won which shall be payable by the first five (in the case of a long-term loan 4) interest rate per annum and the first five (in the case of a long-term loan 5,00 won which shall be payable by the first five (in the case of a long-term loan 5) interest rate per annum interest rate per annum for subordinated loan 1,000,000 won which shall be payable by the first five (6) interest rate per annum interest rate per annum interest rate per annum). It shall also be paid by the preceding interest rate per annum 2).

(k) According to Article 7 of the Private Investment Act, the detailed guidelines for re-financing prepared in 2004 by the Ministry of Strategy and Finance and publicly announced by the Korea Development Institute in accordance with the Ministry of Strategy and Finance in accordance with Article 7 of the Public-Private Partnerships Act are as follows: “If a project operator submits a re-financing plan including the competent authority and the project operator’s profit sharing method, methods of calculating investors’ expected profit sharing, and result, etc., the Korea Development Institute’s public investment management center will conduct a substantive review of the adequacy of preparing a financial model regarding the overall re-financing plan, adequacy of calculating common profit sharing, appropriateness of methods of using shared profit sharing, etc.; and if necessary after consultation with the competent authority and the project operator, the amendment concession agreement shall be concluded after deliberation by the Public-Private Partnership Project Deliberation Committee; and the

(l) In principle, the annual plan is based on the rate of profit sharing between the competent authority and the concessionaire following re-financing. According to the review of the actual application of re-financing of the instant project in April 2006, the new accounting firm determined that the minimum rate of profit sharing due to re-financing is 50:50,000 if the rate of profit sharing due to re-financing is 50:45% to 5.76%.

(m) The detailed guidelines for re-financing include the effects of corporate tax on interest expenses, early dividend effects as the effects of capital change, and include the reduction of user fees, minimum operating guarantee, and reduction of the period of use without compensation due to the methods of using common interests.

n) According to the current status of the shareholder loans of a private investment project implementer in the request for disposition of the audit results on May 201 by the Board of Audit and Inspection, the interest rate for subordinated loans of other private investment projects is 20% to 48% in the case of the metropolitan metropolitan circulation road, 12% to 40% in the case of the Daegu-Ullan-si Highway, 7% to 65% in the case of the Dongwest-si Road, 6% to 20% in the case of the Mangsan-si School, and 6% in the case of the Magnsan-si Bond, 6% to 27.4% in the case of the Magnan Port (1-1 phase).

(o) As a result of the Plaintiff’s request for an analysis of market price of the interest rate on subordinated loans of this case to Durroan Accounting Corporation and Samil Accounting Corporation, Jinjin Accounting Corporation selected asset-backed securities transaction as comparative transaction in accordance with the method of computing the arm’s length price under the Adjustment of International Taxes Act on August 2009 and calculated the appropriate interest rate on subordinated loans as 17.3% by undergoing adjustment, and Samjin Accounting Corporation also determined that the appropriate interest rate was 19.8% to 23.75% by similar method on September 2012.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 14, Gap evidence 24 to 32, Eul evidence 12 (including branch numbers, if any) and the purport of whole pleadings

2) Determination

A) Whether there is a special relationship with the Plaintiff regarding the instant subordinated loan loan agreement

Article 88(1)3 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22951, Jun. 3, 2011; hereinafter “Enforcement Decree of the Corporate Tax Act”) stipulates that one of the objects of wrongful calculation as prescribed by Article 52 of the Corporate Tax Act is where a corporation transfers assets to persons with a special relationship, such as shareholders, etc., at a price lower than the market price. Here, “market price” refers to an objective exchange value formed through a general and normal transaction, and the determination is based on the time of transaction. Thus, if the time and time of transaction differs, whether it constitutes wrongful calculation should be determined at the time of transaction (see Supreme Court Decision 2010Du1484, May 27, 2010).

In light of the above legal principles, the following circumstances revealed in light of the facts acknowledged as seen earlier, i.e., (i) the parties to the instant subordinated loan loan agreement are parties to the instant subordinated loan agreement with the Plaintiff, and (ii) the remaining lenders of subordinated loan in addition to the ber loan at the time the Plaintiff submitted the change of investors and a refinancing plan to the Minister of Construction and Transportation on June 18, 2004, were not confirmed; (ii) the interest rate on subordinated loan in the change of investors and refinancing plan and the final determined interest rate on May 20, 2005 is not the same; and (iii) the approval of the Minister of Construction and Transportation is related to the change of investors and refinancing plan, and the interest rate on subordinated loan in the instant case cannot be deemed to be determined. In full view of the above facts, the time at which the interest rate of the instant subordinated loan was determined shall be May 20, 2005, which was concluded between the Plaintiff and the Plaintiff, etc., and thus, the Plaintiff and the Plaintiff were shareholders.

Therefore, this part of the plaintiff's assertion is without merit.

B) Whether the market value of the instant subordinated loan is 13.41% or more

(1) Article 52(1) of the Corporate Tax Act provides that “where a domestic corporation’s act or calculation of its income amount is deemed to have unjustly reduced the tax burden on the corporation’s income through transactions with a specially related person, the income amount for each business year of the corporation may be calculated regardless of the calculation of the corporation’s act or income amount (Calculation by Wrongful Acts).” Paragraph (2) of the same Article provides that “The wrongful calculation father shall be based on “the market price at which the wrongful calculation father applies or is determined as applicable to sound social norms and commercial practice and normal transactions between unrelated parties.” In addition, Article 88(1)7 of the Enforcement Decree of the same Act provides that “where money or other assets or services are borrowed or received at a rate higher than the market price, rate, or rent than the market price,” and Article 89(3) provides that “the reasonable loan interest rate or weighted average loan interest rate as provided by Ordinance of the Ministry of Strategy and Finance” shall be the market price at the time of lending or borrowing money.

Meanwhile, in a case where a corporation’s wrongful calculation division under Article 52(1) of the Corporate Tax Act does not follow a reasonable method of a person with a special relationship and instead of using various forms of trade listed in each subparagraph of Article 88(1) of the Enforcement Decree of the Corporate Tax Act to avoid or reduce tax burden, it is deemed that the person with the authority to taxation authority denies or reduces the tax burden. It is limited to a case where the person with taxation authority deems that the calculation of an unnatural and unreasonable act was neglected the economic rationality due to disregarding the calculation of an unfair act from the economic standpoint. Determination of the economic rationality is based on whether the transaction was conducted in light of sound social norms or commercial practice, and the determination of whether the transaction was conducted is conducted in a way that lacks economic rationality in light of the circumstances of the transaction, such as the transaction price between the non-specially related persons and the special circumstances at the time of the transaction (see Supreme Court Decision 2007Du14978, May 13, 2010).

(2) In full view of the following circumstances, in light of the contents and legal principles of the aforementioned relevant provisions, it is difficult to conclude that 13.41% of the Defendant’s assertion is an adequate interest rate, and the interest rate of the instant subordinated loan is 16% of the economic rationality in light of sound social norms and commercial practices.

(1) In order to ensure the stable implementation of projects, the basic plan for public-private partnership projects shall maintain the equity capital ratio of a concessionaire at least 20 percent of the total costs of private investment during the construction period of private investment facilities. On the other hand, when the construction is completed and the operation is commenced, new investors shall be invited to attract new investors to reduce their equity

② The purpose of re-financing is to increase the expectation profit of investors by modifying the structure of capital, shares of investors, conditions for financing outside capital, etc., and the fact that corporate tax is reduced due to the occurrence of interest costs if the amount reduced at a cost through re-financing is converted to the subordinated loan is anticipated. Thus, the competent authority approves the re-financing plan of the project implementer to share the increased expectation profit to investors in a way that reduces the expenditure of minimum operational guarantee.

③ In the process of re-audit, the Defendant determined 13.41% of the interest rate on senior loans by adding the maturity premium, subordinated risk premium, and the interest rate on the deferred payment period to the appropriate interest rate, but did not add the minimum operating guarantee and the early termination premium claimed by the Plaintiff. However, the subordinated loans cannot be paid interest unless certain requirements, such as repayment of senior loans, are met, and only received the remainder except the collateral offered for senior loans, and even at maturity, the senior loan was repaid in installments for 11 years, and on the other hand, the subordinated loan was repaid in installments for 15 years after 15 years, and there is an essential difference between the senior loan and its payment condition, repayment period, and collateral. Therefore, the interest rate on senior loans is the basic interest rate, and it is difficult to calculate the appropriate interest rate on subordinated loans by simply adding a certain risk premium.

④ In the process of re-financing funds, subordinated loans are higher than senior loans procured from financial institutions, and dividends may not be paid prior to the repayment of principal and interest of senior loans. As such, the Plaintiff is bound to raise the interest rate on subordinated loans in order to induce investment of investors who become a lender of subordinated loans. In addition, if the Plaintiff borrowed the same amount as subordinated loans from commercial banks, it is difficult to deem that the Plaintiff could have received loans at 13.41% due to the terms and conditions of payment disadvantageous to the Plaintiff as seen earlier, security offered, repayment timing, etc.

⑤ The interest rate on subordinated loans of this case is set at the fixed interest rate of 19 years in the future at the time of entering into a loan agreement, and it is reasonable to increase the interest rate as the repayment period of the loan increases due to the increase in the risk of default. In addition, the interest rate on subordinated loans is applied to short-term loans made within a certain credit limit, and thus, it cannot be deemed as the market price uniformly applied to loans borrowed between related parties. Thus, the mere fact that the interest rate on subordinated loans continues to be lower after the agreement on subordinated loans of this case does not mean that the interest rate on subordinated loans applied by the Plaintiff is arbitrary or economic rationality.

(6) In other private investment projects, the interest rate on subordinated loans shall vary from 6% to 65% depending on the characteristics of the projects. Therefore, it is difficult to deem that the interest rate on subordinated loans in this case (6% to 20%, and 16% during the key period) is particularly higher than that on other private investment projects.

7) In a case where the rate of profit-sharing from re-financing 50:50 is 50%, the appropriate reduction rate for the minimum operating guarantee of the instant project was 5.45% to 5.76%. The Ministry of Construction and Transportation gains profits from reducing the financial burden of the Republic of Korea by deciding to reduce the minimum operating guarantee rate from 90% to 82% among the Plaintiff. Accordingly, in a case where corporate tax is imposed on the ground that only the interest rate for the instant subordinated loan was unfairly calculated without considering the reduction rate for the minimum operating guarantee, the Plaintiff would not be able to achieve the original purpose, i.e., profit-sharing through re-financing because it is difficult for the Plaintiff to reduce the minimum operating guarantee income and at the same time to recover profits from the subordinated bonds

8. The calculation process of an appropriate interest rate for subordinated loans of accounting corporation and accounting corporation in Saman accounting corporation is deemed reasonable, and even according to the result, the interest rate for subordinated loans in this case was determined to be within the market price.

C) Whether the instant disposition is lawful

Ultimately, although the Plaintiff had a special relationship at the time of the instant subordinated loan loan loan agreement, it is difficult to view that the market price of the interest rate on the instant subordinated loan is 13.41% asserted by the Defendant, and that the 16% of the Plaintiff’s assertion cannot be deemed to be an abnormal situation that lacks economic rationality in light of sound social norms and commercial practices. Therefore, the Defendant’s disposition that was based on the premise that the part exceeding 13.41% of the interest rate on the instant subordinated loan agreement is a wrongful calculation is unlawful.

4. Conclusion

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

[Attachment]

Judges Kim Byung-sik (Presiding Judge)