School Juristic Person near the School (Law Firm Pyeongan, Attorneys Seo-gu et al., Counsel for the plaintiff-appellant)

Head of Ansan Tax Office

September 21, 2016

Suwon District Court Decision 2015Guhap937 Decided January 19, 2016

1. Revocation of a judgment of the first instance;

2. The imposition of corporate tax of KRW 530,853,453 on March 13, 2013 by the Defendant against the Plaintiff on March 13, 2013 (including additional taxes) shall be revoked.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Partial citement of judgment of the first instance;

The reasoning of this judgment is as stated in the reasoning of the judgment of the court of first instance, except for adding and adding some of the reasons for the judgment of the court of first instance as follows. Thus, it shall be cited in accordance with Article 8(2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

○ 3 pages 16 of the Act shall add the following:

【Appraisal the acquisition value of the land of this case as the larger amount between the book value and the officially assessed individual land price in 191】

○ 4. 8 side 8 side 8 side 14 side .

○ 5 pages 1, the following shall be added to:

4) Since the officially assessed individual land price was already publicly announced in January 1, 1991 that properly reflected the standard market price at the time of the instant disposition, Article 50(6) of the Inheritance and Gift Tax Act is not necessary to apply mutatis mutandis to legal stability and predictability. Pursuant to Article 8(2) of the Addenda to the Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), the acquisition price of the instant land shall be determined based on the publicly assessed individual land price as of January 1, 1991.

○ 5.6 6. The following shall be added to the former Corporate Tax Act:

【Revenue accruing from the disposal of fixed assets, except for fixed assets directly used for proper purpose business, pursuant to Article 3(1)1 and Article 3(3)5, is the income of a non-profit domestic corporation for each business year and the corporate tax is imposed thereon.】

At the bottom of 07, the following shall be added to 3 others, and the bottom of 2 others shall be referred to in the front.

(D) The Plaintiff’s articles of incorporation provides that “The purpose of incorporation is to provide secondary education and vocational education by entering the educational ideology of the Republic of Korea (Article 1); the property is divided into fundamental property and ordinary property; and fundamental property is divided into fundamental property for education and fundamental property for profit (Article 6(1)); and that a farm, tree cultivation and sale and lease business and lease business are provided for in the Plaintiff’s articles of incorporation as a profit-making business for school operation (Articles 32 and 33). As such, the purpose of establishment pursuant to the Plaintiff’s articles of incorporation is specialized education for secondary education and unemployment, and a lease business is for profit-making business, and the lease business for acquisition and operation of apartment of the instant case constitutes a profit-making business.

E) Inasmuch as profits earned by nonprofit corporations are ultimately appropriated for raising funds for the proper purpose business, and the profitability is not denied, it cannot be deemed that it was used for the proper purpose business even if income accrued from the leasing business was appropriated for operating expenses, etc. of the school.

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【The interpretation of the term “where it is not used for the proper purpose business by the fifth anniversary” in relation to the period of attribution of the profits of the flag, rather than “where it is used for any other business than the proper purpose business even before the fifth anniversary”, it shall be deemed as “the fifth anniversary of the end of the business year appropriated as losses” in the following light:

① The phrase “where reserve funds for essential business purposes are not used for proper business purposes by the fifth anniversary of the last day of the business year in which reserve funds for essential business purposes are appropriated as deductible expenses” is more consistent with the phrase “where the balance is not used for the proper business purposes by the fifth anniversary of the last day of the business year (limited to the balance not used within five years)” and the remainder within five years is presented in the concept “the remainder within five years”, so the balance can only be specified before the last day of five years and cannot be specified before the last five years. Therefore, rather than the phrase “amount remaining after the last five years have elapsed”, the phrase “amount remaining after the last day of five years.”

② Reserve funds for proper purpose business shall be imposed on profits if the reserve funds for proper purpose business including the reserve funds for proper purpose business, which are recognized as deductible expenses and granted benefits from the deferment of taxation, are actually forced to use the reserve funds for proper purpose business within the period prescribed by Acts and subordinate statutes, and if they are not used within the period, it may be deemed that the reserve funds for proper purpose business can be operated flexibly within the limit of five years. On the other hand, even before five years have passed, deeming that the relevant cause occurred immediately when the reserve funds for proper purpose business is used for any other business than the proper purpose business, it goes against the purpose of the system of the reserve funds for proper purpose business by granting benefits from the deferment of taxation and

③ Even if assets are acquired for profit-making business, as long as the reserves paid for profit-making business are not used for the proper purpose business within five years, it cannot be readily concluded that the reserves paid for profit-making business will not be used for the proper purpose business until the lapse of five years immediately immediately. Even if the reserve funds for profit-making business have not been converted to used for the proper purpose business, Article 29(4) of the former Corporate Tax Act is added to the amount equivalent to the interest accrued when the balance of the reserve funds for profit-making business is included in the gross income, so the amount equivalent to the interest accrued when it is added

(4) The fact that a non-profit corporation waives benefits from the deferment of corporate tax, and pays the amount equivalent to the interest of corporate tax during the period in which corporate tax is deferred, by including the amount appropriated as reserve funds for proper purpose business in the previous business year and included in deductible expenses within the period prescribed by Acts and subordinate statutes, instead of using it as the proper purpose business expenses within the period prescribed by the Acts and subordinate statutes, is very unusual except in extenuating circumstances, such as dissolution of the corporation, closure of the proper purpose business, revocation of approval of the organization deemed a corporation, etc. (Article 29(3) of the former Corporate Tax Act). Where it uses the reserve funds for proper purpose business for other business before five years

B) In light of the above legal principles, even if the Plaintiff appropriated the sale price of the instant land as its proper purpose business to deductible expenses in the business year of 2007 and used it for the purchase of apartment houses for rental business which is not its proper purpose business, so long as the expenses have not yet arrived at the fifth anniversary of the end of the business year from the date of including the deductible expenses, it cannot be deemed that the expenses for the purchase of apartment are not immediately used for the proper purpose business, and thus, the Defendant cannot include the above proper purpose business expenses in the gross income for the business year to which the date of purchase of apartment of this case belongs. Therefore, the disposition of this case which included the sale price of the instant land

2. Conclusion

Since the disposition of this case is unlawful, the judgment of the court of first instance with different conclusions is revoked, and the disposition of this case is revoked.

Judges Kim Yong-open (Presiding Justice)