Cho High Court Decision 2007west3798 ( October 06, 2009)

Voluntary transfer of reserve funds for proper purpose business by nonprofit corporations

If a non-profit corporation intends to return the money appropriated as reserve funds for essential business and included in deductible expenses to its gross income and can be deemed to have been included in the calculation of earnings, it is necessary to indicate the circumstances that it will not spend the money for proper business purposes such as substantial diversion of expenditures for profit-making business.

The contents of the decision shall be the same as attached.

1. The defendant's imposition of corporate tax of KRW 1,858,382,720 (including additional tax) for the business year from March 1, 2002 to February 28, 2003 against the plaintiff on August 1, 2007 and the imposition of corporate tax of KRW 2,612,54,00 (including additional tax) for the business year from March 1, 2004 to February 28, 2005 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Circumstances of the disposition;

A. The plaintiff is a school juristic person that establishes and operates ○○ High School, etc.: ① from March 1, 2002 to February 28, 2003 (hereinafter referred to as the "business year 2002") established the reserve fund for the proper purpose business among the corporate accounts for the business year from March 1, 2002 to February 28, 2003, and managed the above amount as the reserve fund for the proper purpose business to transfer the above amount to the school accounting for the proper purpose business; ② from March 1, 2004 to February 28, 2005 (hereinafter referred to as "business year 2004"), and filed a report by deducting each of the above amounts from the reserve fund for proper purpose business.

B. The defendant is the money belonging to the school accounting development fund item that the plaintiff reported to have spent for the proper purpose business during the above 2002 business year. ① The amount of KRW 4,085,442,00 among the 5,375,560,000 which the plaintiff reported to have spent for the proper purpose business in the above 202 business year. ② The defendant actually spent for the proper purpose business expenses in the above 2004 business year. ② The amount of KRW 5,51,92,00 among the 10,874,001,000 which the plaintiff reported to have spent for the proper purpose business in the above 204 business year is the money belonging to the government subsidies and donations which are not for the proper purpose business expenses. It was confirmed that the plaintiff actually spent for the proper purpose business expenses in the above 2002 business year, and the amount of KRW 5,551,92,000 which was not arbitrarily deducted from each of the above proper purpose business expenses.

C. On Aug. 1, 2007, based on Article 29(4) of the Corporate Tax Act (amended by Act No. 7005 of Dec. 30, 2003; hereinafter the same), and General Rule 29-56, and 500 of the Corporate Tax Act, the Defendant adjusted the amount of KRW 4,085,42,00 in gross income for the business year 2002 to include KRW 5,51,92,00 in gross income for the business year 2004, each of which included KRW 1,858,382,720 (including additional tax) and corporate tax for the business year 2,612,54,000 (including additional tax) and corporate tax for the business year 204,612,54,000 (including additional tax).

[Ground of recognition] Gap evidence Nos. 1, 2, 6, Eul evidence Nos. 1, 2, and 3, the purport of the whole pleadings

2. The assertion and judgment

A. The plaintiff's assertion

The imposition of this case shall be revoked in full because it is illegal for the following reasons:

(1) Of the profit-making accounts of non-profit corporations, the reserve funds for proper purpose business, including the dissolution of the corporation, closure of the proper purpose business, and the use of the reserve funds for proper purpose business as deductible expenses within five years after the end of the business year in which the reserve funds for proper purpose business are appropriated as deductible expenses, shall be returned to gross income for the business year in which the reserve funds for proper purpose business are added to deductible expenses. In accordance with the general provisions of the Corporate Tax Act which do not have any legal effect without any explicit provision in the corporate tax law, deeming the voluntary exchange business of the reserve funds for proper purpose business as the ground for inclusion in gross income constitutes an

(2) The Plaintiff did not spend the proper purpose business expenses in the business year of 2002 and the business year of 2004, and deducted the amount of KRW 4,085,442,00 and KRW 5,51,922,00 for the proper purpose business, respectively. However, each of the above amounts from March 1, 2005 to February 28, 2006 (hereinafter “2005 business year”) shall be returned to the proper purpose business expenses, and since each of the above amounts is used as the proper purpose business expenses within five years from the business year when the proper purpose business expenses are set and appropriated as the proper purpose business expenses, it cannot be deemed that each of the above amounts was arbitrarily returned from the proper purpose business expenses.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

(1) 원고 산하 ◇◇◇◇고등학교는 2003. 2.경까지 동창회를 통하여 기념관 건립 등 을 위하여 4,085,442,948원을 모금하였는데, ◇◇◇◇고등학교 운영위원회는 2003. 1. 16. 위 돈을 법인회계 중 학교회계에 속하는 학교발전기금에 편입하여 운용하기로 결 의하고 2003. 2. 6. 위 돈을 학교발전기금에 편입한 후 2003. 4. 23.부터 2005. 2. 24. 까지 사이에 ◁◁ 기념관 건립공사비용 등 고유목적사업비로 지출하고 이를 회계처리에 반영하였다.

(2) On February 28, 2003, the closing date of the business year 2002, the Plaintiff included the above collected amount of KRW 4,085,442,948 in the corporate accounting in the profit-making business, set up and appropriated it as the reserve fund for proper purpose business, and then again transfers it to the school accounting, accounts the above money appropriated as the reserve fund for proper purpose business, and appropriated it as the reserve fund for proper purpose business, and then deducted the above amount from the reserve fund for proper purpose business, and then filed a corporate

(3) 원고는 2004 사업연도에 ▽▽시 교육청으로부터 시설비 보조금 2,243,200,000 원, ☐☐☐ 주식회사 등으로부터 기부금 1,003,154,318원, 고유목적사업용 자산인 ○○수련관 양도대금 2,305,568,600원 등 5,551,922,000원을 수령하여 위 사업연도에 ◁◁ 기념관 건립공사비, 교육환경개선사업비, 학교운영비, 기숙사・식당 신축비 등 고유목적사업비로 지출하였다.

(4) On February 28, 2005, the closing date of the business year 2004, the Plaintiff included KRW 5,551,922,00,00, such as the above subsidies, in the corporate accounting, into the profit-making business accounting, and transferred it to the school accounting and accounted as being withdrawn from the school accounting to the proper purpose business, and deducted the reserve funds for proper purpose business from the above amount, and filed a report on the corporate tax for the business year 2004 based on the upper limit of the amount.

(5) In the settlement of accounts on February 28, 2006, the Plaintiff found that the amount of KRW 4,085,442,00 out of KRW 5,375,560,50,000, which was reported to have been appropriated in the items of the high purpose business reserve and spent for the proper purpose business during the pertinent business year, was included in the items of the development fund of the school accounting in the corporate accounts during the pertinent business year, and corrected that amount. ② The amount of KRW 5,51,922,00 out of the amount of KRW 10,874,001,00,000, which was reported to have been spent for the proper purpose business among the amount of the profit-making business accounts in the pertinent business year, was spent for the proper purpose business in order to correct that the amount was immediately included in the item of the proper purpose business, without going through the profit-making business accounts, was immediately returned to the special purpose business accounts for each business year, reflecting the amount of each transferred amount of corporate tax in each business year.

(6) The Plaintiff set and appropriated all revenues generated from the profit-making business accounts as reserve funds for its proper purpose business in the business year of 2002 and 2004, and included them in the deductible expenses for each business year of the above business year. The amount of KRW 4,085,442,00 which was returned to the items of the reserve funds for proper purpose business in the business year of 2002 as mentioned in the above paragraph (5) and KRW 5,551,922,00 which was returned to the items of the reserve funds for proper purpose business in the business year of 2004 as reserve funds for proper purpose business within five years from the

(7) The Plaintiff has received donations, government subsidies, school development funds, etc. from non-profit business accounts in addition to the revenues belonging to the profit-making business accounts under the Corporate Tax Act. However, according to the Private School Act, the Plaintiff did not keep separate accounts of school expenses accounts belonging to school accounting, affiliated hospital accounts, corporate business accounts and general business accounts, and did not keep separate accounts under the Corporate Tax Act. As such, it does not clearly distinguish between the Plaintiff’s separate accounts and non-profit business accounts from the revenues belonging to the profit-making business accounts and the non-profit business accounts. However, at the end of the business year after the settlement of accounts, the Plaintiff prepared the aggregate financial statements based on each accounting account under the Private School Act and prepared a tax adjustment statement reflecting the settlement settlement statement or the tax adjustment statement reflecting the matters under the Corporate Tax Act.

[Ground of recognition] The aforementioned evidence, Gap evidence Nos. 3, 5, 7 and 15, and the purport of the whole pleadings

D. Determination

(1) According to Article 29(1) through (4) of the Corporate Tax Act, Article 56(6) and (7) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 18146 of Nov. 29, 2003), and Article 74 of the Restriction of Special Taxation Act (amended by Act No. 6867 of May 10, 2003), where a nonprofit corporation establishes and appropriates income generated from profit-making business as reserves for proper purpose business in the business year in which such income accrues so that it can be operated stably, it shall be included in deductible expenses to exclude the income generated from profit-making business of the relevant school foundation from the income subject to taxation (it may be included in deductible expenses as reserves for proper purpose business under the Private School Act until the business year which ends on or before December 31, 2009). It shall be included in deductible expenses for the business year in which reserves for proper purpose business purposes should be deducted from the amount of expenditure for proper purpose business purposes, and it shall be included in deductible expenses for the same business year.

(2) According to the above facts, the plaintiff's transfer to the school accounting in 2002 and at the same time deducted from the high purpose business reserve in 4,085,442,00 won and 5,551,922,00 won that were deducted from the reserve fund for proper purpose business at the same time, cannot be deemed to have been the legal grounds such as Article 29 (3) of the Corporate Tax Act, which will operate the business for profit within 5 years from the business year when the plaintiff transferred to the school accounting in 2002 and transferred to the school accounting in 2004, or the reserve fund for proper purpose business, or when it was not used for profit within 5 years from the business year when the corporation is dissolved, discontinued, discontinued, or appropriated as the reserve fund for proper purpose business, and there is no other data on this (the defendant's assertion that each of the above amounts constitutes the grounds for the gross income industry under general provisions of the Corporate Tax Act, but the basic rules of the National Tax Service is merely an administrative rule imposed on the tax authority's and the court or citizens's effect.

(3) In addition, the non-profit corporation's appropriation of the funds for its proper purpose business in the previous business year to its deductible expenses without using the funds for its proper purpose business and returning them to its gross income within the period of time prescribed by the laws and regulations, to waive the benefits of deferred taxation of corporate tax and to pay the amount equivalent to the corporate tax for the period of deferred taxation of corporate tax according to the earnings industry, except in extenuating circumstances, such as the dissolution of the corporation and the abolition of the proper purpose business. Thus, the circumstance that the non-profit corporation should not use the funds for its proper purpose business, such as actual disbursement and diversion of the funds for its proper purpose business, in addition to the circumstance that the non-profit corporation should not spend the funds for its proper purpose business, and it is difficult to view the funds to be used as the proper purpose business expenses for environmental improvement and the construction expenses of the corporation and the operation expenses of the non-profit corporation for its proper purpose business without using them as the proper purpose business expenses for its proper purpose business expenses. Thus, it is difficult to view the funds to be used by the plaintiff as the above construction expenses for its proper purpose business expenses.

(4) Therefore, the Plaintiff’s assertion is with merit.

3. Conclusion

If so, the plaintiff's claim of this case seeking revocation of each disposition of this case is justified.