(a) Where it is difficult to determine the attribution of profits or losses under the provisions listed in Article 17 of the Corporate Tax Act, whether the standards for the accrual of profits or losses under the corporate accounting standards may be adopted to determine the attribution of profits or losses;

(b) Where an apartment seller constructs and sells apartment units over a long-term period, whether the sales cost, including revenues from sale and land values, may be distributed and reverted to the apartment construction project in accordance with the standards for the progress of the construction project (affirmative)

C. The nature of the penalty tax for underreporting under the Corporate Tax Act (=administrative penalty) and whether the penalty tax may be imposed even in a case where there is a justifiable reason for not being able to mislead the person liable for tax payment due to negligence (negative)

(d) The case holding that there exists a “justifiable cause” as referred to in the above paragraph (c) that cannot be caused by a failure to perform an obligation even though a taxpayer has neglected to perform his/her duties by underreporting the corporate tax base,

A. According to Article 17(1) of the Corporate Tax Act, the fiscal year of accrual of earnings and losses of a domestic corporation for each fiscal year shall be the fiscal year which includes the date on which the concerned gross income and losses are determined, declaring the principle of confirmation of profits and losses, and then individually list the time of attribution according to the type of transactions or the method of payment of the purchase price. However, the provisions on the reversion of profits and losses under the tax law according to the type of transactions do not constitute a provision on the attribution of profits and losses under the laws of the modern society, which can be determined upon the prediction of all the various types of transactions in the modern society. Thus, in cases where it is difficult to determine the attribution of profits and losses due to the above listed provisions, unless contrary to the principle of confirmation of profits and losses under the Corporate Tax Act, it may determine the attribution of profits and losses by adopting the standards for the accrual of profits and losses under the corporate accounting standards generally accepted by fair and accounting practices, and thus, it accords with the principle of existence of corporate

B. The apartment seller's construction and sale of apartment units over a long-term period of time constitutes a pre-sale sale under corporate accounting and the time of attribution under corporate tax law does not clearly provide for the pre-sale sale. Thus, the profit and loss may be distributed and its attribution may be determined in accordance with the corporate accounting standards under Article 67 (1) 4 (proviso) of the corporate accounting standards, and it cannot be said that it violates the principle of confirmation of profit and loss under corporate tax law by doing so. Meanwhile, the construction progress standards under the above corporate accounting standards (the progress rate) refer to the ratio of the input price in each business year to the total expected cost (the total amount of land price and apartment construction contract price). The land price, one of the buyers, is the object of self-distribution under the corporate accounting principles, and in calculating the above construction progress, the entire land price, including the revenue from sale and the land price, shall be distributed in accordance with the construction progress standards, and ultimately, the apartment construction cost, including the sale price, shall be distributed and reverted to the unit construction work (the progress rate).

C. Under the Corporate Tax Act, the additional tax for underreporting is a kind of administrative punishment imposed when a taxpayer corporation is not obliged to file a return of tax base in good faith in order to ensure the propriety of taxation, and has neglected to fulfill its obligation in order to secure it, and such a sanction cannot be imposed where there is a justifiable reason that it is impossible for the taxpayer to properly present his/her obligation, or where there is a circumstance that it is unreasonable for him/her to expect the fulfillment of his/her obligation to do so, or where there is a reason that it is unreasonable for him/her to expect the performance of his/her obligation, etc.

(d) the case holding that there exists a “justifiable cause” as referred to in paragraph (c) above.

(b)Article 17 of the Corporate Tax Act, Article 20 of the Framework Act on National Taxes, Article 41(1)2 of the Corporate Tax Act, Article 113(1) of the Enforcement Decree of the Corporate Tax Act,

C. Supreme Court Decision 85Nu229 decided Feb. 24, 1987 (Gong1987,148) 88Nu4218 decided Apr. 25, 1989 (Gong1989,831) 90Nu660 decided Jun. 25, 1991 (Gong191,2060)

Suwon Construction Industry Co., Ltd., Counsel Counsel for the plaintiff-appellant and one other

head of Sung Dong Tax Office

Seoul High Court Decision 91Gu2719,20885 decided January 16, 1992

Of the Plaintiff’s failure portion of the lower judgment regarding corporate tax and defense detailed and disposition as notified by the Defendant on August 16, 1988, the additional portion of corporate tax shall be reversed, and that part of the case shall be remanded to the Seoul High Court.

The plaintiff's remaining appeals and the defendant's appeals are dismissed.

The costs of appeal dismissed shall be assessed against each appellant.

The part exceeding KRW 4,60,55,55,461,350, and the defense tax amount exceeding KRW 1,188,929,880, and corporate tax amount exceeding KRW 4,660,55,261, and the defense tax amount exceeding KRW 1,165,203,367 in Section 1-A of the judgment of the court below shall be corrected to “the part exceeding KRW 4,75,461, and the defense tax amount exceeding KRW 1,165

1. We examine the Plaintiff’s attorney’s grounds of appeal.

A. As to the business year to which the profit and loss of the apartment sale business belongs

According to Article 17 (1) of the Corporate Tax Act, a domestic corporation's fiscal year of accrual of earnings and losses shall be the fiscal year which includes the date on which the concerned gross income and losses are determined, declaring the principle of confirmation of profits and losses, and then individually list the time of attribution according to the type of transaction or the method of payment of the price. However, the provisions on the attribution of profits and losses under the tax law according to the type of transaction under the law of the modern society cannot be deemed to be a provision on the attribution of profits and losses under the conclusion of the contract, because the various types of transactions are predicted in the modern society, and it is difficult to determine the attribution of profits and losses under the above provision, unless contrary to the principle of confirmation of profits and losses under the Corporate Tax Act, if it is difficult to determine the attribution of profits and losses under the above provision, it may determine the attribution of profits and losses by adopting the standards on the accrual of profits and losses under the corporate accounting standards which are generally accepted by fair and reasonable accounting practices

According to the facts established by the court below, the plaintiff is a corporation that carries on a Saturday business or housing construction business, which is a corporation that carries on its own business, to construct and sell 23,390 apartment units on the land except Seocho-gu Seoul ( Address omitted) and five parcels on November 3, 1986, and obtained sales proceeds for three years after starting the apartment construction work and starting the sale in lots on July 19, 198 after starting the sale in lots. Thus, the sale in lots for a long period of time constitutes pre-sale under corporate accounting and it does not clearly stipulate the time of attribution under corporate tax law for the pre-sale sales. Accordingly, the profit and loss can be distributed and its attribution can be determined according to the standards for construction progress under Article 67 (1) 4 (proviso) of the corporate accounting standards, and the price of the apartment construction project under the above corporate accounting standards (the progress of construction project) shall be deemed to be in violation of the principle of determination of profit and loss under corporate tax law, and the sale in lots shall be deemed to be in excess of the total amount of the construction cost and the construction project (construction cost).

Therefore, the court below rejected the plaintiff's measures determined for distribution of profit and loss and attribution according to the construction progress rate calculated by deeming the total amount of the land price provided as the apartment site was temporarily put in the business year in accordance with the construction progress standard under Article 67 (1) 4 (proviso) of the above corporate accounting standards in return of corporate tax base, etc. for the business year from 1986 to 1988, and supported the defendant's measures to correct the plaintiff's corporate tax base, etc. for each business year by deeming that the sale cost, including profit and land price, should be allocated according to the construction progress rate for the year 1986, which is the year 1986, and the sale price itself, which is one of the sale cost, is also subject to the cost distribution. The decision of the court below is just and there is no reason to criticize the judgment of the court below from the opposite point of view.

As one of the reasons why the court below rejected the plaintiff's claim, it states that the above apartment site had been owned by the plaintiff since it was not purchased only in 1986, which was the year of commencement of construction work. If such expression of the court below was acquired in the year of commencement of construction work, it would be inappropriate for the court below to mislead the misunderstanding that it would be possible to calculate the rate of progress of construction work by inserting the unit price as a lump sum in the year of acquisition. However, the court below determined that the defendant's corrective disposition is justifiable, and there is no influence on the result of the judgment. There is no other error of law in the omission of the judgment or the lack

B. As to the non-deductible of interest paid on a loan appropriated as construction funds in deductible expenses

Of the loans of a corporation, the interest of the amount appropriated for construction funds as prescribed by the Presidential Decree shall not be included in the calculation of the income amount for each business year (Article 16 subparagraph 11 of the Corporate Tax Act), and the interest of the amount appropriated for construction funds means the interest paid on the loans used for the purchase, production, and construction of fixed assets for the relevant business regardless of the name thereof or other similar expenses (Article 33 (1) of the Enforcement Decree of the same Act). However, where it is unclear as to which loan is used for the construction of fixed assets for business, etc., it shall not be included in the calculation of losses because it shall be included in the calculation of the fixed assets for business as capital (Article 33 (6) of the Enforcement Decree of the same Act and Article 12 (3) of the Enforcement Rule of the same Act).

The court below held that the loan was used in the construction of the department store, which is a fixed asset for business in the business year of this case during the construction period of the department store in the judgment of the plaintiff. The court below rejected the evidence of the opposing plaintiff's submission in determining that the defendant's measure was lawful, which did not include 200,174,655 won as interest paid in accordance with the formula under Article 12 (3) of the Enforcement Rule of the Corporate Tax Act. In light of the related Acts and subordinate statutes and the records, the court below's fact-finding and decision are justified. The evidence of the court below's fact-finding are insufficient to conclude that the above loan was not used as the construction fund, and there is no error in the judgment of the court below or in violation of the rules of evidence and the burden of proof. The argument is without merit.

In addition, the argument that the defendant's disposition is unlawful on the grounds of Article 33 (3), (4), and (5) of the Enforcement Decree of the Corporate Tax Act is not accepted since the defendant's new ground for illegality not asserted in the original judgment is asserted in the final appeal.

C. As to heavy underreporting additional tax

The court below rejected the plaintiff's assertion that when the plaintiff filed a return on the corporate tax base, etc. for the business year 1988, the amount of sales profit and loss should be distributed and reverted to the party members in accordance with the method of the plaintiff's rejection, and the amount of sales profit and loss should be over-paid in the business year 1986 and thus, even if the amount of the income was underreported and the amount of under-reported income is subject to additional tax for under-reported tax, there are justifiable grounds for under-reported, but the corporate tax is not only imposed for each business year, but also for calculating apartment sales profit in the business year 1986, and it is not merely an issue of accounting method, but rather, it cannot be deemed that the plaintiff's under-reported return on the business year's tax base was a case where there is a justifiable reason.

According to Article 41 (1) 2 of the Corporate Tax Act, where a corporate taxpayer has returned below the tax base amount for each business year, the Government may collect an additional tax on the amount corresponding to the shortage. In this case, where the underreported income amount is the amount due to the reasons as prescribed by the Presidential Decree, the amount equivalent to 30/100 of the calculated tax amount for underreporting shall be the additional tax for underreporting, and in other cases, the amount equivalent to 10/100 of the calculated tax amount for underreporting shall be the additional tax for underreporting, respectively. According to Article 113 (1) of the Enforcement Decree of the Corporate Tax Act, where underreporting income accrues due to different timing of attribution for the calculation of profit and loss for a period of time, it is clear that the amount to be included in gross income is the subject of additional tax for underreporting, but on the other hand, it is unreasonable to say that the taxpayer has the nature of an administrative punishment for the purpose of ensuring the propriety of taxation under the Corporate Tax Act, and that there is no justifiable reason to impose such an obligation on the party.

In this case, as seen earlier, although the allocation of profit and loss for sale in lots and the method of attribution were erroneous, it is due to the conflict between the opinion on the standard for the progress of construction work under the corporate accounting standards which provide for the time of attribution of profit and loss. It is extremely difficult to interpret the tax law which regulates the original and changing economic phenomenon and transaction at all times because it is the same as the time of attribution of profit and loss. In particular, there is a conflict between the opinion on the interpretation of tax law beyond the scope of simple legal land or misunderstanding. In this case, if the taxpayer has taken different opinion from the opinion of the government, it is too harsh for the taxpayer to impose additional tax (it can be seen that there are many corporations which determined the attribution of profit and loss in the same way as the plaintiff method among the domestic corporations). The plaintiff's act of distributing the profit and loss for the 19th business year, which is merely a correction method of the total amount of profit and loss for the 19th business year, and it is difficult to find that the plaintiff did not have any legitimate reason to allocate the corporate tax for the 9th business year.

2. We examine the grounds of appeal by the defendant litigation performer.

A. As to whether a designated donation is a designated donation

The court below recognized the fact that the plaintiff paid the money in the judgment of the non-party educational foundation sub-public educational institute, etc. as educational expenses, and determined that it constitutes a designated donation for facility expenses, educational expenses, or research expenses to the schools under the Education Act as provided by Article 18 (1) of the Corporate Tax Act and Article 42 subparagraph 2 of the Enforcement Decree of the same Act (which seems to be error in subparagraph 2). In light of the related Acts and subordinate statutes and the records, the court below's findings of fact and decision are acceptable and there is no error of law pointing out any error of facts or incomplete deliberation. In addition, in the interpretation of the Corporate Tax Act where there is no institutional device for follow-up management of donations (see Articles 8-2 (3) and (4) of the Inheritance Tax Act and Article 3-2 (5), (6), and (7) of the Enforcement Decree thereof), and it does not change whether the donation made by the plaintiff for the above purpose was actually used for such purpose (see Supreme Court Decision 9Nu379, Sept. 8, 1986).

B. As to the non-deductible of interest paid in connection with possession of non-business real estate

The court below acknowledged that the plaintiff constructed a wood plant and guard room on the ground of 2,466 square meters above the plaintiff constructed 2,466 square meters on the ground of the apartment district's 7,788-5 square meters on Apr. 22, 1987 after the plaintiff voluntarily removed housing units for military use which were constructed on the ground of 7,788-5 square meters above the apartment district's 7,466 square meters, and the remainder was used as a building material yard for the building of ○○○○ department store, etc. which was constructed at the time, again on May 25, 198, the plaintiff constructed an apartment supermarket attached to the 2,851-58 square meters above the ground and continued to use the remainder as a field yard until now. In light of the provisions of Article 18 (1) 3 of the Corporate Tax Act, Article 43-2 (5) of the Enforcement Decree of the same Act, and Article 18 (3) of the Enforcement Rule of the same Act, the court below did not err in the judgment below's reasoning.

3. Therefore, the part of the judgment of the court below regarding the disposition of imposition of corporate tax and defense tax on August 16, 1988 as notified on the business year 190. It reversed the portion of the corporate tax's additional tax among the plaintiff's failure portion and remanded to the Seoul High Court. The remainder of the plaintiff's appeal and the defendant's appeal are dismissed, and the costs of appeal as to the dismissal of appeal are assessed against each appellant. However, the part exceeding KRW 4,755,461,350, and the defense tax amount exceeding KRW 1,188,929,80,000, and the defense tax amount exceeding KRW 1,660,55,261, and the defense tax amount exceeding KRW 1,165,203,367, is clearly a clerical error in the records, and it is so decided as per Disposition by the assent of all participating Justices.

Justices Park Jong-dong (Presiding Justice)