[1] The case holding that the case holding that the case does not constitute a "provisional payment without business office" under Article 28 (1) 4 (b) of the Corporate Tax Act where a company deposited and provided as security time deposits for bank loans to the specially related corporations

[2] The case holding that the act of depositing a considerable amount of money in a fixed deposit with low interest rate and offering it as security for loans to the related corporations constitutes a "distribution of profit," which is the object of the denial of unfair act and calculation, although the company bears a high interest on loans,

[1] The case holding that where a company deposits and provides as security time deposits for bank loans to the related corporations, it does not constitute a "provisional payment without business office" under Article 28 (1) 4 (b) of the Corporate Tax Act since it is a juristic act separate from the deposit of company deposits and loans to the related corporations of the bank

[2] The case holding that since a company's act of depositing a considerable amount of money in a fixed deposit with low interest rate and offering it as security for loans to related corporations without economic rationality is an abnormal transaction that disregards economic rationality, it constitutes a "income distribution" subject to the rejection of wrongful calculation under Article 88 (1) 9 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891 of Feb. 28, 2007)

[1] Article 18-3 (1) 3 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) (see current Article 28 (1) 4 (b)), Article 43-2 (2) 2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998), Article 28 (1) 4 (b) of the Corporate Tax Act, Article 53 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20720 of Feb. 29, 2008) / [2] Article 46 (2) 9 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) (see current Article 98 (1) 2 (b) of the former Enforcement Decree of the Corporate Tax Act)

[1] Supreme Court Decision 2004Du13660 Decided May 25, 2006, Supreme Court Decision 2005Du9415 Decided September 20, 2007 (Gong2007Ha, 1705) Supreme Court Decision 2006Du15530 Decided September 25, 2008 / [2] Supreme Court Decision 95Nu18697 Decided May 28, 1997 (Gong1997Ha, 1920), Supreme Court Decision 2001Du9394 Decided June 13, 2003 (Gong203Du13267 Decided January 13, 206), Supreme Court Decision 2003Du13267 Decided January 25, 2006

Plaintiff Co., Ltd. (Law Firm Yang & Yang, Attorneys Cho Jae-soo et al., Counsel for the plaintiff-appellant

The Head of Ansan Tax Office (Attorney Kim Jae-hun, Counsel for the plaintiff-appellant)

Seoul High Court Decision 2005Nu26535 delivered on October 20, 2006

Each appeal is dismissed. The costs of appeal are assessed against each party.

The grounds of appeal are examined.

1. As to the Defendant’s ground of appeal

Article 18-3 (1) 3 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), Article 43-2 (2) 2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998), Article 28 (1) 4 (b) of the Corporate Tax Act, and Article 53 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20720 of Feb. 29, 2008), "provisional payment, etc. paid without business relation" include not only pure meaning, but also loans equivalent to loans given in light of the nature of claims, and even if such money was paid at an appropriate interest rate without business relation, whether it is related to the business of the relevant corporation shall be determined objectively based on the purpose of business, business contents, etc. of the relevant corporation (see, e.g., Supreme Court Decision 2005Du53655, May 25, 20006).

According to the reasoning of the judgment of the court below, from September 30, 1998 to May 21, 2001, the plaintiff deposited one bank, etc. with an amount equivalent to KRW 8.76 billion, respectively, and the corporations having special relations with the plaintiff (hereinafter "special relations corporations") have borrowed each of the above fixed deposits amounting to KRW 6.74 billion in total as security, and as long as the plaintiff's deposit of the fixed deposit and the loan to the special relations corporations of Han Bank, etc. are separately made, the act of offering security to Han Bank, etc. constitutes direct lending to the special relations corporations or acts corresponding thereto, and the same applies to the case where the plaintiff offered the fixed deposit as security and enjoyed the benefits of the loan by the special relations corporations (see Supreme Court Decision 2004Du1360, May 25, 2006).

In the same purport, the court below is just in holding that the plaintiff's provision of time deposit as security and the special relation corporation's lending amount cannot be deemed as provisional payment such as lending to the special relation corporation. There is no error of law such as misunderstanding of legal principles as to provisional payment in office as otherwise alleged in the ground of appeal.

2. Plaintiff’s ground of appeal

After finding the facts as stated in its holding, the court below erred in the misapprehension of legal principles as to profits under Article 46 (2) 9 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) and Article 8 (1) 9 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891 of Feb. 28, 2007) in light of the following: (a) the Plaintiff was responsible for a high interest rate on loans over the entire business year from 1998 to 2002; and (b) the Plaintiff’s act of depositing a considerable amount of money with a term deposit with low interest rate and offering it as security for loans to related corporations; (c) the Plaintiff’s act of causing a significant difference between interest and interest income; (d) the time deposit offered by the Plaintiff as security is likely to lose liquidity because it could not be withdrawn until the repayment of the loan by related corporations; and (d) the Plaintiff is not erroneous in the record.

3. Conclusion

Therefore, each appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Sung-tae (Presiding Justice)