[1] The criteria for determining “specially related persons” under Article 52(1) of the former Corporate Tax Act and Article 87(1) of the Enforcement Decree of the former Corporate Tax Act, and where a corporate taxpayer is in a relationship under each subparagraph of Article 87(1) of the former Enforcement Decree of the Corporate Tax Act with a corporate taxpayer based on the other party who traded with a corporate taxpayer, whether the other party constitutes “specially related persons”

[2] In a case where Gap owned 48.57% of the shares issued by Eul Co., Ltd. and 20% of the shares issued by Byung Co., Ltd. and Eul Co., Ltd., the party to the transaction, and the issue was whether Byung Co., Ltd. constitutes a specially related party to Eul Co., Ltd. under Article 87(1)4 of the former Corporate Tax Act with respect to transferring and lending of money, the case holding that

[1] [Majority Opinion] Article 52(1) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter “the Act”) provides for the calculation of the amount of income arising from a transaction with a person liable for tax payment or a transaction with a person with a special relationship, and delegates the scope of the person with a special relationship to the Presidential Decree. According to delegation, Article 87(1) of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 17826, Dec. 30, 2002; hereinafter “Enforcement Decree”) provides for a person with a special relationship under any of the subparagraphs of the same paragraph with a person liable for tax payment as a person with a special relationship. Thus, it should be deemed that only one person with a special relationship under any of the subparagraphs should be deemed a person with a special relationship with the person liable for tax payment based on the person liable for tax payment, which constitutes a person with a special relationship under each subparagraph of the same Article.

[Dissenting Opinion by Justice Kim Nung-hwan, Justice Jeon Soo-ahn, Justice Ahn Dai-hee, and Justice Cha Han-sung] Although it is not allowed to expand or analogically interpret tax laws and regulations without any justifiable reason, it does not violate the principle of no taxation without the law even to make a combined interpretation within the possible meaning of the law, considering legislative purport, etc. In light of Article 87(1) of the Enforcement Decree, a taxpayer corporation and a person with a “related relationship” under each subparagraph of the same paragraph is defined as a person with a special relationship. Since “related relationship” refers not only to a case where two or more persons are related each other based on a taxpayer corporation, but also a case where a taxpayer falls under any of the following subparagraphs based on the other party’s base, such a person is not a person with a special relationship under each subparagraph of Article 46(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 8350, Dec. 31, 197; Presidential Decree No. 2001, Apr. 16, 1998>

[2] In a case where Gap owned 48.57% of the shares issued by Eul corporation and 20% of the shares issued by Byung corporation as taxpayer Eul, and Eul corporation's act of transferring and lending money constitutes Eul corporation's specially related person under Article 87 (1) 4 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17826, Dec. 30, 2002; hereinafter "Enforcement Decree"), the case holding that Article 87 (1) 4 of the Enforcement Decree of the Corporate Tax Act constitutes only the specially related person, and only the other corporation whose shareholder as taxpayer invests less than 30% of the total number of shares issued and outstanding, and the other corporation whose shareholder as taxpayer invests less than 30% of the total number of shares issued and outstanding shall not be deemed as a specially related person, on the ground that Eul corporation's act does not constitute a specially related person even if the shareholder as taxpayer owns more than 30% of the total number of shares issued by Byung corporation

[1] Article 52(1) of the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 2010); Article 46(1) of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 8350, Dec. 31, 1976); Article 87(1) of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 17826, Dec. 30, 2002); Article 87(2) of the former Enforcement Decree of the Corporate Tax Act / [2] Article 52(1) of the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 2010); Article 87(1) of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 17826, Dec. 30, 202)

[1] Supreme Court Decision 86Nu30 delivered on March 25, 1986 (Gong1986, 726), Supreme Court Decision 88Nu7248 delivered on May 28, 1991 (Gong1991, 180), Supreme Court Decision 2007Du4438 delivered on February 15, 2008 (Gong2008Sang, 405) Supreme Court Decision 2006Du187 delivered on April 24, 2008

D. S.C. (Law Firm Western, et al., Counsel for the defendant-appellant)

The Director of the National Tax Service

Daejeon High Court Decision 2006Nu2747 Decided November 29, 2007

The judgment of the court below is reversed, and the case is remanded to Daejeon High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the establishment of the standards for specially related persons

A. (1) Article 52(1) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter “the Act”) provides that “Where it is deemed that the head of the district tax office having jurisdiction over the place of tax payment or the Commissioner of the competent Regional Tax Office has unjustly reduced the tax burden on the corporation’s income through an act or transaction with a person with a special relationship prescribed by the Presidential Decree (hereinafter “specially related person”), the head of the district tax office having jurisdiction over the place of tax payment or the Commissioner of the competent Regional Tax Office may calculate the corporation’s income amount for each business year regardless of the calculation of the corporation’s income amount (hereinafter “Calculation by wrongful act”). Article 87(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17826, Dec. 30, 202; hereinafter “Enforcement Decree”) provides that “a person with a special relationship as prescribed by the Presidential Decree” in Article 52(1) of the Act refers to a person with the following corporation:

As above, Article 52(1) of the Act provides for the calculation of a transaction with a person liable for tax payment or income amount arising from the transaction with a person with a special relationship subject to the Presidential Decree, and delegates the scope of the person with a special relationship to the Presidential Decree. As such, Article 87(1) of the Enforcement Decree provides that a person with a relationship under any of the subparagraphs of the same paragraph with a person liable for tax payment is a person with a special relationship. Thus, the person with a relationship under any of the above subparagraphs shall be deemed a person with a special relationship based on the person liable for tax payment. On the other hand, deeming that a person liable for tax payment falls under a person with a special relationship under any of the above subparagraphs cannot be permitted against the language and text of the above Enforcement Decree. In addition, since the legislative policy is to determine the scope of a person with a special relationship, the above provision of the Enforcement Decree does not have any reason to expand the scope of a person with a special relationship by extensively interpreting or analogical interpretation

The Supreme Court Decisions, including Supreme Court Decision 88Nu7248 delivered on May 28, 1991, which held otherwise, are to be modified to the extent inconsistent with this Opinion.

(2) Article 87 (1) 4 of the Enforcement Decree provides that a person liable to pay taxes shall be a specially related person who owns not less than 30/100 of the total number of stocks issued by a corporation and invests not less than 30/100 of the total number of stocks issued by such corporation. In interpreting Article 87 (1) 4 of the Enforcement Decree, only the other corporation which invests not less than 30/100 of the total number of stocks issued by a stockholder of the corporation liable to pay taxes shall be deemed as a specially related person. A corporation which invests less than 30/10 of the total number of stocks issued by a stockholder of the corporation who is a taxpayer shall not be deemed as a specially related person even if the stockholder of the corporation owns not less than 30/10 of the total number of stocks issued by the corporation (see

B. In this case, the court below held that the non-party held that the non-party held 48.57% of the Plaintiff's issued shares and 20% of the Plaintiff's issued shares for the business year from 1999 to 2001 (hereinafter "Korea-Japan Construction") constituted the Plaintiff's specially related party during the above period, and therefore, the Defendant's transfer of shares and lending of money to the Plaintiff constitutes a wrongful calculation of the market price and actual transfer price and the difference between the interest and the actual recipient's interest based on the market value and the market value shall be included in the calculation of profits, and furthermore, it is lawful to consider the Plaintiff's loans to Korea-Japan Construction as a provisional payment to a specially related party as losses. This decision is erroneous in the misapprehension of legal principles as to the scope of specially related parties, and affected the conclusion of the judgment. The Plaintiff's ground of appeal pointing this out is with merit.

2. As to inclusion of bonus in deductible expenses

The court below held that the plaintiff's payment of 4,683,00,000 won as bonus cannot be included in deductible expenses because there is no evidence to support that the plaintiff paid 4,683,00,000 won to officers and employees as bonus, and even if the above money was paid as a family bonus, it cannot be included in deductible expenses pursuant to Article 43 (2) and (3) of the Enforcement Decree. The plaintiff's assertion that it is part of the exclusive authority of the court below, which is the fact-finding court, is not a legitimate ground for appeal, and as a result, it does not constitute a legitimate ground for appeal.

3. As to the inclusion of business promotion expenses in deductible expenses, calculation of the work progress rate, recognized contribution disposition, additional tax imposition, etc.

The Plaintiff’s assertion in the grounds of appeal as to this part is not a legitimate ground of appeal, since the Plaintiff’s assertion in the grounds of appeal is erroneous in the selection of evidence and fact-finding, which belong to the exclusive jurisdiction of the lower court, or is alleged in the final appeal that was not asserted until the closing of argument in

4. Conclusion

Therefore, the judgment of the court below is reversed without a need to determine the remainder of the grounds of appeal on the premise that Korea-do Construction constitutes a person with a special relationship, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition

Except for the dissenting opinion of Justice Kim Nung-hwan, Justice Jeon Soo-ahn, Justice Ahn Dai-hee, and Justice Cha Han-sung as to whether the construction constitutes the Plaintiff’s specially related person, the opinion of all participating Justices is delivered.

5. Dissenting Opinion by Justice Kim Nung-hwan, Justice Jeon Soo-ahn, Justice Dai-hee, and Justice Cha Han-sung

In light of the principle of no taxation without law, it is not allowed to expand or analogical interpretation of tax laws without any justifiable reason, but it does not violate the principle of no taxation without law even to make a combined interpretation within the possible meaning of the law, taking into account the legislative purport, etc. (see, e.g., Supreme Court Decisions 2007Du4438, Feb. 15, 2008; 2006Du187, Apr. 24, 2008).

Article 87(1) of the Enforcement Decree provides that a taxpayer corporation and a person with a special relationship falling under any of the subparagraphs of the same paragraph shall be a taxpayer corporation and a person with a special relationship. Since the term "related relationship" means that two or more persons have a mutual relationship, not only where the other party falls under any of the above subparagraphs, but also where a taxpayer corporation falls under any of the above subparagraphs based on the opposite contractual party, the transaction partner may be deemed to have a "related relationship" between the taxpayer and the corporation under the above subparagraphs. Article 46(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 8350 of Dec. 31, 1976) (amended by Presidential Decree No. 8350 of Dec. 31, 198) provides for a "related party" under each subparagraph of the same Article, and it shall not be interpreted as a "related party" as a "related party" under each subparagraph of the above Article.

Meanwhile, the purpose of the wrongful calculation system under Article 52(1) of the Act is to prevent tax evasion and to promote fair taxation by allowing the tax authority to deny such act and calculate the amount of income on the premise that there were ordinarily reasonable transactions with a person liable for tax payment by conducting transactions without economic rationality with a person with a special relationship. However, in cases where the other party to a transaction falls under any of the subparagraphs of Article 87(1) of the Enforcement Decree based on a corporation which is liable for tax payment, where the other party to a transaction invests 30/10 or more of the total number of stocks issued by a corporation which is liable for tax payment or a corporation which is a person liable for tax payment invests 50/10 or more in a corporation which is a person with a special relationship (Article 6) and invests 50/100 or more of the total number of stocks issued and outstanding by the corporation which is a person liable for tax payment and thus, it does not constitute an unlawful calculation method where a corporation which is a person liable for tax payment invests 50/10 or more in another corporation (Article 400).

In addition, Supreme Court Decision 88Nu7248 delivered on May 28, 1991, where a corporate taxpayer falls under any of the subparagraphs of Article 87 (1) of the Enforcement Decree, even if a corporate taxpayer falls under any of the subparagraphs of Article 87 (1) of the Enforcement Decree, a corporate tax-invested by a corporate taxpayer (No. 2) shall be deemed as a person under a special relationship with a corporate taxpayer under the same premise. Other Supreme Court and lower court decisions have determined whether a corporate taxpayer is a person under the same premise. The basic rules of the Corporate Tax Act also provide that "any person under a special relationship" in the provisions of Article 87 (1) of the Decree shall be deemed as a person under a special relationship until January 1, 1985, and such interpretation has been settled among taxpayers. Therefore, the above interpretation cannot be said to undermine the predictability of a person under duty payment.

Therefore, in interpreting Article 87(1) of the Enforcement Decree, where a taxpayer falls under any of the subparagraphs of the same paragraph on the basis of a corporation liable for tax payment, and where a corporation liable for tax payment falls under any of the subparagraphs of the same Article, the transaction partner shall be deemed to fall under a specially related person of a corporation liable for tax payment.

Therefore, the judgment of the court below which held that Dai Construction constitutes the plaintiff's specially related person is just, and there is no error of law as to the scope of related person

For the foregoing reasons, I express my concurrence with the Majority Opinion.

Chief Justice Lee In-bok (Presiding Justice)