[1] The method of calculating interest income on foreign currency bonds exempted from corporate tax under the former Regulation of Tax Reduction and Exemption Act and the former Enforcement Decree of the Corporate Tax Act

[2] The method of disposal of deductible expenses where a corporation which operates a business exempt from corporate tax and a business for taxation concurrently appropriates allowance for bad debts without separate accounting

[1] Article 94(1)1 of the former Regulation of Tax Reduction and Exemption Act (wholly amended by Act No. 5584, Dec. 28, 1998; see current Article 21(1)1 of the Restriction of Special Taxation Act); Article 11(1) of the former Enforcement Decree of the Corporate Tax Act (wholly amended by Presidential Decree No. 15970, Dec. 31, 1998; see current Article 59(2) and Article 69(1)1 of the former Enforcement Decree of the Corporate Tax Act; Article 25(1) of the former Enforcement Rule of the Corporate Tax Act (wholly amended by Ordinance of the Ministry of Finance and Economy, May 24, 199); Article 25 of the former Enforcement Rule of the Corporate Tax Act / [2] Article 14(1) of the former Corporate Tax Act (wholly amended by Act No. 5581, Dec. 28, 199; see current Article 34 of the former Enforcement Decree of the Corporate Tax Act (see current Article 196(1)

[1] Supreme Court Decision 87Nu288 delivered on September 22, 1987 (Gong1987, 1661) Supreme Court Decision 93Nu14691 delivered on October 26, 1993 (Gong1993Ha, 3196) Supreme Court Decision 200Du6657 delivered on September 24, 2002 (Gong2002Ha, 2601) / [2] Supreme Court Decision 85Nu349 delivered on March 10, 1987 (Gong1987, 652), Supreme Court Decision 85Nu615 delivered on July 7, 1987 (Gong1987, 1334), Supreme Court Decision 87Nu28787 delivered on January 19, 198 (Gong1987, 1334).

New Bank (Attorney Kim Sung-sung et al., Counsel for the defendant-appellant)

The director of the tax office

Seoul High Court Decision 2004Nu6701 delivered on May 4, 2005

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

The grounds of appeal are examined.

1. As to inclusion of paid-in foreign tax and fund contributions in deductible expenses

According to Article 94(1)1 of the former Regulation of Tax Reduction and Exemption Act (wholly amended by Act No. 5584, Dec. 28, 1998); Article 11(1) of the former Enforcement Decree of the Corporate Tax Act (wholly amended by Presidential Decree No. 15970, Dec. 31, 1998; hereinafter “former Enforcement Decree”), the exempted income from foreign currency bonds issued by the State, local governments, or domestic corporations, which form the basis for calculating the exempted corporate tax, shall be deemed the amount of income from the interest and commission received after deducting the deductible expenses incurred from the relevant business. In this case, if the deductible expenses are clearly related to the exempted business, such deductible expenses shall be deducted in full as individual deductible expenses, but if it is not distinguishable from the exempted business and the taxable business, it shall be common deductible expenses, and Article 69(1) of the former Enforcement Decree of the Corporate Tax Act (wholly amended by the Ordinance of the Ministry of Finance and Economy No. 86, May 24, 1999).

In the same purport, the court below recognized the facts as stated in its reasoning after compiling the employment evidence, and determined that the paid foreign tax amount equivalent to the interest and fees on the foreign currency bonds, which are the income eligible for corporate tax exemption business, out of the Plaintiff’s paid foreign tax amount, falls under the individual deductible expenses of the exempted business, and the remaining paid foreign tax amount and the fund contribution are disbursed in connection with the taxable business, and thus, they do not err by failing

2. As to the inclusion of allowance for bad debts in deductible expenses

In full view of the evidence adopted in the judgment, the court below acknowledged the fact that the plaintiff appropriated the allowance for bad debts in this case in common for exempted business and taxable business, and reported corporate tax in proportion to the sales amount of each business in accordance with relevant Acts and subordinate statutes. The court below held that the allowance for bad debts in all of the documents submitted by the plaintiff cannot be concluded as an individual loss related to the taxable business only. The above judgment below is just in light of the legal principles that the allowance for bad debts should be treated as a common loss unless there are special circumstances, and there is no error in the misapprehension of legal principles as to the misconception of facts due to the violation of the rules of evidence, the error of reasons, the burden

3. Conclusion

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

Justices Lee Hong-hoon (Presiding Justice)