Whether the interest paid on non-deductible real estate is included in deductible expenses.

Although it is argued that the land portion was sold without using it for the purpose project in consideration of the aspect of the feasibility of the financial situation, considering the various circumstances, it is reasonable to impose the corporate tax as it does not constitute justifiable grounds.

Article 27 (Non-Inclusion of Expenses not Related to Corporate Tax Act)

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance shall be revoked. The defendant shall revoke the disposition of imposition of corporate tax of KRW 698,040,830 on July 10, 2004 against the plaintiff for the business year of 2001.

1. Details of the disposition;

A. On August 28, 199, the Plaintiff, who is a legal entity engaged in the manufacturing, wholesale, and related construction of steel structure, purchased ○○○○○-dong, ○○-dong, and 11,096.7 square meters of land (hereinafter referred to as “○○○” in the following) from ○○○-dong, ○○-dong, and 11,096 square meters of land, and then newly constructed and sold approximately 120 households of apartment houses on the above land, and entered the changes in the purpose column of corporate register on October 1, 199 after adding the housing construction project to the Plaintiff’s articles of incorporation as its own purpose of business.

B. However, as the head of ○○○○○○○○ on December 1, 1999 determined and publicly notified the use of the land of 4,892.3 square meters among the instant land (hereinafter referred to as “the instant land portion”) as an administrative industrial site, the Plaintiff adjusted the initial apartment construction project and newly constructed and sold an apartment unit of 892 households on the remaining land except the instant land portion among the instant land, and on November 8, 2001, sold the instant land portion to ○○○○○○○.

C. On July 10, 2004, the Defendant: (a) filed a report with an asset unrelated to the Plaintiff’s business and rendered a disposition of KRW 1,362,691,735 (in 199:64,61,500; (b) 672,872,415; (c) 625,157,820; (d) 23,046,891 (in 200; 11,541,534; 11,505,357; and 23,046,891 (in 200; 11,541,534; 200; 11,505,357); (b) 698,040,830 won (hereinafter referred to as “instant disposition”) to the Plaintiff for the business year of 201 by adjusting other matters.

[Ground of recognition] Facts without dispute, Gap evidence 1, 3, Gap evidence 4-1, 2, Gap evidence 5, Gap evidence 7-2, Eul evidence 1-1, 2, and 3, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

At the time of the Plaintiff’s purchase of the instant land, the area was a special design complex for urban planning, but the use of the land was not yet determined, but in light of the surrounding conditions of the land, etc., the Plaintiff was anticipated to have acquired the said ○○○ land as a multi-family housing construction site, and the Plaintiff could not at all expect that the instant part of the land was excluded from the construction site of multi-family housing and could not construct an apartment building on the ground of the instant land. Since ○○○○○ was determined as an urban planning as an administrative industrial site, the instant portion of the land could not be used as a site for multi-family housing, and the instant portion of land could not be used as a site for multi-family housing in the administrative industrial site. In addition, the instant portion of land was not included in the Plaintiff’s proper purpose business, but it cannot be newly constructed a commercial building on the instant land in light of the Plaintiff’s experience, business profitability, etc., and thus, the Plaintiff’s sale of the instant portion of land to ○○○ Co., Ltd. without any justifiable reasons for the Defendant’s transfer of the land.

(b) Related statutes;

Article 27 (Non-Inclusion of Expenses not Related to Business in Deductible Expenses)

The following amounts of expenses paid by a domestic corporation for each business year shall not be included in the calculation of losses in the calculation of the income amount for the relevant business year:

1. The amount prescribed by Presidential Decree as expenses incurred from the acquisition and management of assets prescribed by Presidential Decree, which are deemed not directly related to the business of the relevant corporation;

Article 28 (Non-Inclusion of Interest Paid in Calculation of Losses)

(1) The interest on any of the following borrowings shall not be included in deductible expenses in the calculation of the income amount of a domestic corporation for each business year:

4. Of interest on loans paid during each business year by a domestic corporation which acquires or holds assets falling under one of the following items, the amount calculated under the conditions as prescribed by the Presidential Decree (limited to interest on loans equivalent to the value of the relevant assets):

(a) Assets falling under subparagraph 1 of Article 27:

Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18706 of Feb. 19, 2005)

Article 49 (Scope of Non-Business Related Assets)

(1) The term "property prescribed by the Presidential Decree" in subparagraph 1 of Article 27 of the Act means the following assets. The real estate that a specialized securitization company under the Asset-Backed Securitization Act transfers according to an asset-backed securitization plan registered under Article 3 of the same Act and other unavoidable reasons prescribed by the Ordinance of the Ministry of Finance and

(b) Any real estate that is transferred without being used directly for the business of the juristic person during the grace period: Provided, That any juristic person that runs the real estate sales business shall be excluded;

Article 53 (Non-Inclusion of Interest Paid on Non-Business Assets, etc. in Calculation of Losses)

(2) The term “amount calculated under the conditions as prescribed by the Presidential Decree” in Article 28 (1) 4 of the Act means the amount calculated by the following formula:

Paid interest X [the sum of the asset values under paragraphs (1) and Article 49 (1) (limited to the total amount of loans) ¡À Total loans];]

Enforcement Rule of Corporate Tax Act

Article 26

(1) "Period prescribed by Ordinance of the Ministry of Finance and Economy" in the proviso to Article 49 (1) 1 (a) of the Decree means any of the following periods (hereafter referred to as "suspension period" in this Article):

1. Land for new construction of buildings or facilities: 5 years from the date of acquisition (where the period of factory construction planning on the business plan approved under the Industrial Cluster Development and Factory Establishment Act or the Small and Medium Enterprise Establishment Support Act exceeds 5 years, the period of relevant factory construction planning in the case of the site for the factory under subparagraph 1 of Article 2 of the Five Industrial Vitalization and Factory Establishment Act); and

2. Real estate for sale acquired by a corporation that runs the real estate supply business (including cemetery sale business) and building construction business (limited to self-managed construction business; hereafter the same shall apply in this Article) under the Korea Standard Industrial Classification: Five years from the date of acquisition;

3. Real estate, other than those under subparagraphs 1 and 2: Two years from the date of acquisition.

(2) The term "business of the relevant corporation" in Article 49 (1) 1 (a) and (b) of the Decree means the following business:

1. Duties prescribed by Acts and subordinate statutes;

2. Business affairs determined as target business (in cases of business requiring authorization, permission, etc. from the administrative agencies, it shall be limited to those for which authorization, permission, etc. is granted) on the corporate register as of the end of each

(5) "Real estate having inevitable reasons prescribed by Ordinance of the Ministry of Finance and Economy" in the proviso to the part other than the items of Article 49 (1) 1 of the Decree means the real estate falling under any of the following subparagraphs:

(c) Fact of recognition;

(1) On June 23, 199, the head of ○○○○○○ determined and publicly announced the instant land as a special design complex within the detailed design zone under the urban planning by Act No. 1999-36 of Jun. 23, 199, and, from the 28th of the same month to July 12 of the same year, the land portion of this case was designated as an administrative industrial site for the sake that the use of the instant land was determined as an administrative industrial site, the procedure was taken for public inspection by interested parties and the general public, and the said plan was drafted on July 16, 199, after receiving a decision and consultation from the Urban Planning Committee that the pertinent plan would be reasonable, and on July 23, 1999, the urban planning (tax plan) containing the content that the use of the instant land portion as an administrative industrial site.

(2) In a special design complex, ○○ Co., Ltd. can develop by preparing a detailed development plan and obtaining approval from the Urban Planning Deliberation Committee. As such, it decided to sell the instant ○○ land as an apartment site and promote corporate restructuring.

(3) On August 28, 1999, the Plaintiff purchased the instant ○○ land with ○○○ Company and agreed to newly build and sell 1,200 apartment units, and purchased the instant ○○ land from ○○ Company on August 28, 199. In addition, on September 30, 199, the Plaintiff amended the Plaintiff’s articles of incorporation to add housing construction business to the corporation’s purpose business, and completed the housing business registration on October 13, 199. On March 31, 200, the Plaintiff revised the Plaintiff’s articles of incorporation to add “all incidental business related to the business listed in each subparagraph” to the corporation’s purpose business.

(4) At the time of the Plaintiff’s purchase of the instant land, the area was a special design complex for urban planning, and its use has not yet been determined. However, the head of ○○○○○○○ was determined and publicly notified as a multi-family housing site for which 52,204 square meters out of the instant land was 52,204 square meters under Article 199-378 of the ○○○○○ Public Notice on December 1, 1999, and the instant portion of land was determined and publicly notified as an administrative industrial site where a multi-family housing cannot be constructed.

(5) The Plaintiff newly constructed and sold an apartment in accordance with the approval on the remaining site except the land portion among the instant land portion. However, as a result of requesting ○○○○ Co., Ltd. to conduct a development project on seven occasions from January 5, 2001 to November 1, 2001, the Plaintiff obtained a result of the service evaluation that the instant land portion would be better than that of self-development, and then, as a result of a review on feasibility of the business newly constructed and sold a commercial building on the instant land portion, even if it is profitability even if it was newly constructed on its own as a result of the business feasibility review, it is difficult to progress the business in the situation where the above ○○○○○○ could not receive financial support because it is difficult to sell the instant land portion. Accordingly, the Plaintiff sold the instant land portion to ○○ Co., Ltd., which is a specialized company for the development of commercial buildings, and thereafter, ○○ Co., Ltd. newly constructed a commercial building on the instant land portion with the scale of residential facilities and business facilities designated on the ground level.

[Ground of Recognition] A without dispute, Gap evidence 2-1, 2-3, Gap evidence 4-1, 2, Gap evidence 5-2, Gap evidence 7-2, Gap evidence 8, and Eul evidence 9-1, 2, 3, Eul evidence 2-4, Eul evidence 5-1, 2-2, Eul evidence 5-1 and 5-2, witness of the first instance court, witness of the first instance court ○○○○, the purport of the whole pleadings.

4. Determination

(1) "Justifiable reasons" under Article 26 (5) 29 of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 420 of Feb. 28, 2005, hereinafter referred to as the "Enforcement Rule of the Act") includes not only the external reasons which the corporation cannot use in its mind but also the internal reasons beyond the grace period due to lack of time to make normal efforts to use in its work. In determining the existence of justifiable reasons, considering the legislative intent of the holding of non-business real estate as the requirement for non-profit profit-making or non-profit corporation to exclude the interest paid to the loan of the corporation, whether the corporation is a profit-making corporation or a non-profit corporation, the preparation period required for using in its work in light of the purpose of acquiring real estate, and whether the corporation has made efforts to use the real estate in its work (see, e.g., Supreme Court Decisions 200Du4989, May 10, 2002; 2004Du12094, Apr. 13).

(2) As to the instant case, the Plaintiff asserted that it was only anticipated that it would be possible to construct an apartment on the instant land section at the time of entering into a sales contract for the instant land, and that it could not be anticipated that it would be impossible. However, according to the above, the special design complex was determined by a plan by which the local government or land owner prepared a detailed district unit plan and obtained approval from the Urban Planning Deliberation Committee, and its use was determined by the plan. However, during the period from June 23, 1999 to July 23, 199, the urban planning stating the purport that the use of the instant land is to be determined as an administrative industrial site where the apartment cannot be constructed, which goes through a series of procedures such as going through public inspection, was determined and publicly announced as an administrative industrial site by ○○○○○○○ on December 1, 1999. Thus, it cannot be seen that it was entirely impossible to expect that the Plaintiff could construct the instant apartment land at the time of entering into a sales contract for the instant land with ○○ Co., Ltd.

In addition, the plaintiff asserted that the land portion of this case was not used for business due to changes in urban planning, etc., since the plaintiff acquired the land portion of this case and the land portion of this case was determined as a site for administrative industry. However, according to the above facts, the land portion of this case was designated as a special design complex within the detailed planning zone at the time of conclusion of the above sales contract, and the urban planning was not finalized, the plaintiff submitted and approved the development plan for the land portion of this case to ○○○○○○○○○○○○○○○○○○○○○○○○○○○○, a new construction of a building to be used as a neighborhood living facilities and business facilities, and a new construction of an apartment on the land portion of this case cannot be seen as being used for business due to any restrictions other than the new construction of an apartment building on the land portion of this case. In light of this, it is difficult to view that the plaintiff acquired the land portion of this case and the land portion of this case became final as

In addition, the plaintiff asserts that the new construction and sale of the commercial building on the land portion of this case should not be deemed to be a justifiable reason for the plaintiff's sale without using the land portion of this case's purpose business. However, considering the whole purport of the arguments as above, the plaintiff's new construction of new construction and sale of the commercial building on the land portion of this case's purpose business, it is difficult to recognize that the plaintiff's new construction and sale of the commercial building portion of this case's new construction site's new construction project site's new construction project site's new construction project site's new construction project plan's new construction project site's new construction project plan's new construction project site's new construction project site's new construction project plan's new construction project site's new construction project site's new construction project plan's new construction project site's new construction project site's new construction project site's new construction project plan's new construction project site's new construction project plan's new construction project site's new construction project plan's new construction project site's new construction project site's new construction project site's new construction project site's new construction project plan's new construction project site.

Finally, even if the plaintiff can implement the construction of commercial buildings and sale in lots as a supplementary business of the housing construction project, in light of the plaintiff's insufficient financial ability, work experience and implementation ability, the plaintiff's failure to use the part of the land of this case for the purpose of acquisition is considered as a "justifiable cause" under Article 26 (5) 29 of the Enforcement Rule of the Act. Thus, the "justifiable cause" under the Enforcement Rule of the above Act includes not only the external reason that the corporation cannot use as a matter of mind, such as restrictions, prohibition, etc. under the law, but also the internal reason beyond the grace period due to lack of time, even though the corporation has made normal efforts to use as a business, but also the fact that the plaintiff sells the part of the land of this case under the judgment that the sale of the land of this case is more favorable to the purpose of acquisition. Thus, there is no reason to assert this part of the land of this case on the premise that the plaintiff made a normal effort to use the land of this case for business.

(3) Therefore, the Defendant’s disposition of this case is lawful, and the Plaintiff’s assertion is without merit, since it cannot be deemed that there exist justifiable grounds under Article 26(5)29 of the Enforcement Rule of the Act for the Plaintiff’s sale without using the land portion for the intended business.

5. Conclusion

Therefore, the plaintiff's claim of this case shall be dismissed as it is without merit, and the judgment of the court of first instance is just in its conclusion, and it is so dismissed and it is so decided as per Disposition.