National High Court Decision 2007Du4482 ( December 24, 2007)

Any gains from forward exchange transactions arising from the swap transactions shall constitute interest income.

It is reasonable to classify profits from forward exchange transactions as interest income in the nature of payment due to the use of money as income similar to interest on deposits received in Korea.

1. The part of the Plaintiff’s claim for revocation of the global income tax disposition that exceeds KRW 5,074,734 of the Plaintiff’s lawsuit, and the part of the claim for revocation of the global income tax disposition that exceeds KRW 1,614,782 of the Plaintiff’s lawsuit, shall be dismissed.

2. The plaintiffs' remaining claims are all dismissed.

3. The plaintiffs bear the costs of lawsuit.

The Defendant’s imposition of KRW 6,901,250 of global income tax in 2004 against Plaintiff LA on March 1, 2007 and the imposition of KRW 2,464,060 of global income tax in 2004 against Plaintiff BB on March 10, 2007 is revoked (the difference between the amount stated in the purport of the claim and the amount stated in the correction resolution is caused depending on whether it is less than 10 won).

1. Details of disposition;

A. The Plaintiffs subscribed to the 'NS Exchange Deposit' (hereinafter "the 'the 'the 'the 'the 'the 'the 'the 'the 'the 'the 'the 'the 'the 'the ')' that was designed by the Do Bank (hereinafter "D Bank") around 2004. The 'the 'the 'the 'the 'the 'the 'the 'the 'the 'the 'the 'the 'the ')

① The spot currency purchase agreement: A contract under which the plaintiffs paid won currency in kind to the DNA bank immediately after entering into the contract and receives the spot currency from the DNA bank at the time of the contract (hereinafter referred to as "the same contract in kind") in kind, calculated at the exchange rate of the spot goods in this case at the time of the contract (hereinafter referred to as "the spot currency agreement in this case").

② On-the-spot deposit contract: a contract under which the plaintiffs deposit the full amount of the said goods in the spot with the DNA bank and receive the amount of the principal and interest of 0.095% per annum or 0.2437% per annum or 0.35% per annum at maturity (hereinafter “the same contract”).

③ First, upon the expiration of the contract for the spot currency deposit of this case, the contract under which the plaintiffs would pay the principal and interest of the spot currency of this case (in relation to the amount equivalent to the global currency interest, the amount excluding the interest income tax withheld; hereinafter the same shall apply) to the DNA bank, and which would receive spot currency in exchange for the gift of this case as agreed upon at the time of each contract of this case from the DNA bank (hereinafter referred to as "the same contract") (hereinafter referred to as "the gift of this case").

B. In addition to the amount equivalent to the won currency amount paid to the D bank at the time of the agreement from the D bank at the maturity of the instant transaction, the Plaintiffs also received: ① the amount calculated by multiplying the difference between the gift exchange rate of the instant contract and the spot currency exchange rate of the instant goods by the principal of the instant spot currency deposit (hereinafter “the instant income”); ② the sum of the amount calculated by multiplying the interest on the instant spot currency deposit by the gift exchange rate of the instant contract was paid in the spot currency.

C. Under the principle of substantial taxation, the Defendant issued a disposition to increase the comprehensive income tax as indicated below on the ground that the instant income constitutes interest income under Article 16(1) of the former Income Tax Act (amended by Act No. 8144, Dec. 30, 2006; hereinafter the same shall apply). Following the Plaintiffs’ request (Plaintiff LAA, May 29, 2007; BB, June 7, 2007), the portion of the additional tax on failure to pay taxes on the amount of the said disposition was reduced (the Plaintiff’s maximum AA, was presumed to have been reduced), and only the amount of remaining tax on the remaining tax on the following table was reduced (hereinafter “the final amount of global income tax imposed after the aforementioned process”).

[Ground of recognition] Facts without dispute, Gap evidence 1, Eul evidence 1, Eul evidence 2-1, Eul evidence 2-2, the purport of the whole pleadings

2. Whether the action against the additional tax is proper; and

According to the facts found in Paragraph 1, the part of the Plaintiff’s claim for revocation of global income tax assessment exceeding KRW 5,074,734 of the Plaintiff’s lawsuit, and the part of the Plaintiff’s claim for revocation of global income tax assessment exceeding KRW 1,614,782 of the Plaintiff’s lawsuit by this B, shall be deemed to be related to the part already extinguished due to the correction of reduction.

3. Major issues related to the instant disposition

The main issue related to the instant disposition is whether the pertinent income is deemed income generated from the entire transaction of this case, ② whether the pertinent income is in the nature of consideration for the use of money as income similar to the interest on deposits, bonds, or repurchase/back agreement marginal profits on repurchase/back agreement of securities received in Korea, ③ whether the instant disposition violates the principle of respect for tax practice or the principle of protection of trust in accordance with Article 18(3) of the former Framework Act on National Taxes (amended by Act No. 8830, Dec. 31, 2007; hereinafter the same). The issues are as shown in the attached Form.

4. Whether the income of this case has the nature of consideration following the use of money as income generated from all of the transactions of this case

A. Summary of the plaintiffs' order

Each contract of this case has separate legal and economic substance, so it should be identified as separate transactions. However, the income of this case is "the gains from the transfer of the goods of this case and the gift agreements of this case (hereinafter referred to as "the gift from the transfer of this case") which occurred as a result of the contract of this case and the gift agreements of this case, and its legal and economic substance is merely capital gains, not interest income with the nature of payment for the use of money. In addition, since the object of the gift swap contract of this case is currency, the income of this case is not the income similar to the gain from the repurchase agreement of bonds or securities, not the income of this case. Accordingly, although the interest income tax cannot be imposed under Article 16 (1) 13 of the former Income Tax Act with respect to the income of this case, the defendant's disposition of this case is unlawful in violation of the

(b) Fact of recognition;

1) Each of the instant contracts is concluded between the same parties at the same time, and is entirely combined with both its establishment, existence, and termination, and the subject of transactions.

① In other words, while designing the instant transaction goods as a single product for the purpose of leading to the new attraction of customers of a large amount of won currency deposit that is traded with other financial institutions, the D Bank always concluded each of the instant contracts with a view to eliminating the risk of exchange and preventing the need to be separately provided any deposits or securities provided at the time of forward exchange transactions or foreign exchange swap transactions. In addition, the instant transaction was not the return by each of the instant contracts, but rather the return rate by each of the instant contracts, but is anticipated and designed to divide the amount of 0.50% in proportion to the domestic currency deposit to customers and banks, which is the difference in the return rate after the year of the instant transaction based on the results of the entire transaction. In general, the interest rate announcement on a large amount of foreign currency deposit is in charge of the capital market, and in general, the futures exchange rate announcement is in the capital market department, and in the case of the instant transaction, the D Bank receives gift exchange rate and deposit interest rate from the funds market division to make the notice of the rate of exchange deposit in a lump sum.

② D Bank, while publicizing its customers, including the Plaintiffs, as one product, explained that the instant transaction was more favorable than ordinary deposit at the time of the lapse of the tax after the tax return. Accordingly, it concluded each of the instant contracts with customers including the Plaintiffs at the same time for the purpose of trading one product. The customers including the Plaintiffs compared the instant contracts with the ordinary won deposit on the basis of the yield that can be gained from the entire transaction of the instant case. Moreover, there was no example that only a part of the instant contracts was concluded.

③ Among each of the instant contracts, only the spot currency regular deposit contract of this case or the gift of this case cannot be terminated separately, and where the contract for the spot currency regular deposit of this case is terminated at the same time, the gift of this case shall be liquidated at the same time, and the same applies to the previous contract. In this case, the interest rate on early termination (for less than seven days: 30% of agreed interest rate, less than six months: 50% of agreed interest rate: 50% of agreed interest rate) shall apply to the spot currency deposit of this case, and the gift of this case shall be terminated by applying the maturity and exchange rate newly, and the gift exchange price shall be paid with the fair valuation value. The fair valuation value of the gift exchange shall be the difference in Korea currency by conducting the counter-trade in the market at the time of the pre-sale of the gift exchange, and the opposing price discount and interest rate shall be determined by the D bank at the time of termination. However, the income of this case shall not be paid at the time of termination, but at the time of termination of the contract of this case.

④ The maturity date of the instant contract on the spot deposit and the settlement date of the instant gift agreement are always consistent. Moreover, the general foreign currency deposit may be agreed in advance to be re-deposited under the same conditions, unless otherwise expressed at maturity. However, the instant contract on the spot deposit is automatically terminated unless otherwise expressed at maturity.

⑤ At all times, the amount of the gift internationalization contract of this case is equal to the principal amount of the contract for the spot currency deposit of this case plus the subsequent interest. The Korean won currency amount due to the transaction of this case is to be paid together with the designated account in advance.

2) From 2002 to 2004, the interest rate on time deposits in Korean won in kind was 3% per annum after the tax year, and the rate of return arising from the instant transaction was 3% to 4% per annum. The difference was about 0.5%, which was less than 1% per annum. In addition, when the instant income tax was imposed on the instant income, there were multiple cases where the annual rate of return arising from the instant transaction was lower than that on the spot won deposit in Korea. The rate of exchange for telegraph redemption announced in the en bloc of the D bank was 0.99%, and the rate of exchange for telegraph redemption was calculated by deducting 0.99% from the base rate of sale. In addition, D Bank transmitted the EEEE Korea’s stocks to calculate and use the rate of exchange through cros/won swap through the financial exchange rate.

[Reasons for Recognition] The whole purport of each of the arguments stated in paragraph (1), evidence described in paragraph (1), evidence described in paragraphs (2) through (5), Gap's evidence set forth in paragraphs (2) through (5), and evidence set forth in paragraphs (9) through (21

(c) Provisions and legal principles of the former Income Tax Act;

1) old Income Tax Regulations

Article 16 (1) of the former Income Tax Act stipulates that income subject to income tax is subject to taxation only by identifying the income subject to income as the form of income and not subject to taxation (Article 3 of the former Income Tax Act). However, Article 16 (1) of the former Income Tax Act stipulates that "interest and discount amount of deposits (including installment savings, installments, deposits and postal transfers) and bonds or securities as prescribed by the Presidential Decree (Article 9) as interest income shall be listed as interest income. From January 1, 2002 to January 1, 2002, Article 13 newly establishes subparagraph 13 in the form of a tangible comprehensive principle that allows the same taxation of income similar to income under subparagraphs 1 through 12 of the same Article, which has the nature of consideration following the use of money, and thus, Article 3 of the former Income Tax Act provides that interest income from foreign exchange transactions cannot be imposed on the interest income accrued from exchange rate difference.

2) Legal principles

Meanwhile, in light of the purport of the provision on interest income that a taxpayer selects in the course of conducting economic activities, the tax authority shall respect the legal relationship that the taxpayer selects, but in light of the substance over form principle and the purport of the provision on interest income that adopts the principle of substantial taxation, whether the profit from any transaction constitutes interest income under Article 16 (1) 13 of the former Income Tax Act shall not be determined simply based on the content or form of the relevant contract, but shall be determined by considering the purpose, characteristics of the transaction, transaction practice, parties’ intent, relationship between each contract, process of conclusion of the contract, results of conclusion of the contract, etc. (see, e.g., Supreme Court Decisions 91Nu254, Jan. 21, 1992; 95Nu15476, Jun. 13, 1997; 2001Du6227, Dec. 26, 2002; 105Du12037, Oct. 13, 2006).

D. Specific determination

Comprehensively taking account of the aforementioned legal principles and the following facts, the instant transaction is a single transaction that is similar to the ordinary deposit in Korean won. The entire profit accrued from the instant transaction is similar to the interest on the spot deposit in Korean won. Therefore, it is reasonable to view the entire profit as the price for the use of money. Therefore, the instant income, which is a part of the entire profit of the instant transaction, constitutes interest income under Article 16(1)13 of the former Income Tax Act. The Plaintiffs’ assertion on this part is rejected.

① The instant spot exchange rate and futures exchange rate applied to the instant transaction were determined differently from the case where only each contract is concluded on a separate basis. DDRs, at the same time, offered two transaction prices for the same currency to the customer (such as a bank). By adjusting the sale exchange rate and the purchase exchange rate applied when the bank sells foreign exchange to the customer, the purchase exchange rate applied at the time of the sale and purchase to the customer would have been ever, and the difference between such sale exchange rate and the purchase exchange rate was singdddddddddddddddddddddddddddddddddd

② In the instant transaction, the exchange risk or swap point (the swap point is the transaction price to adjust the actual profit and loss on an equal basis by revising the difference in the interest rate of two currency exchanged in the swap transaction) that appears in the general foreign exchange transaction, and thus, there was no risk of change in the transaction to avoid such risk.

③ Each of the instant contracts was legally completely combined, inasmuch as either of the instant contracts is unable to achieve the purpose of transaction solely by the remaining contracts, and thus, it is impossible to conclude only a part of the instant contracts.

④ Since there exists a contract for the in-kind deposit in the instant case, the customer including the Plaintiffs did not pay the deposit money for the foreign exchange swap transaction to the D Bank.

⑤ In general foreign exchange swap transactions, holding and using won currency and the UN currency funds are practically exchanged, and as a result, swap points are given and received. On the other hand, in the instant transaction, only won currency deposits in the same kind as the ordinary won regular deposit are deposited in the bank at maturity, and the swap points were given and received even if the actual funds of the spot currency are not available.

(6) The total profits that a customer, including the plaintiffs, can obtain through the instant transaction are the same as the interest for time deposits in Korean won provided for the instant transaction. The instant income, i.e., swap points serve to adjust the difference between the interest on the Korean won regular deposit and the interest on the Korean won regular deposit as some of them, and have no independent economic substance or meaning otherwise.

7) If the interest income tax is not imposed on the instant income, the bank and the customer, including the Plaintiffs, instead of the Korean won deposit with which the interest income tax is imposed, may always avoid tax while acquiring the interest on the Korean won deposit at a transaction in the same form as the instant transaction by using the currency with lower interest rate than the Korean won deposit rate.

8) It is clear that Daehan has the nature of consideration for the use of money at the time of borrowing the UN currency when it borrowed its funds in kind from its overseas (the Plaintiff’s legal brief (1) as of June 8, 2010, it can be known that the interest rate in kind is the initial interest rate). If Diplomatic Bank borrows its funds in kind from its overseas and holds it as it is, it shall not be subject to the risk of redemption in kind due to exchange rate fluctuations except for the initial interest rate in kind. If Diplomatic Bank borrows its funds in kind from its overseas to its domestic customers at the same time, it shall not be subject to the adequate risk of repayment in kind due to the exchange rate fluctuations and shall not be subject to the loan in kind except for the initial interest in kind, if it receives the UN currency deposits from its domestic customers in lieu of the initial exchange rate in Korean currency. Furthermore, D Bank shall continue to obtain the adequate risk of repayment in kind due to the exchange rate in Korean currency in addition to the initial interest in kind.

9) A product designer for the instant transaction was D Bank, D Bank, which is a product designer, unilaterally determines the transaction variables, and D Bank constituted each of the instant contracts as a single product. D Bank is not a structure that determines the exchange rate, exchange rate, exchange rate, return rate, return rate, etc. under its responsibility, which is the most maximizes or lowest risk. D Bank’s customer, including the Plaintiffs, is not a structure that determines exchange rate, exchange rate, exchange rate, and return rate, and customer, including the Plaintiffs, has no authority to decide on the exchange rate, exchange rate, refund, and Korean won deposit rate, etc. The D Bank determines that D Bank will take into account the exchange rate, exchange rate, exchange rate, exchange rate difference between the purchase and sale rate, exchange rate, and exchange rate, but the Bank may reduce customer losses by adjusting the purchase rate, exchange rate, exchange rate, and exchange rate, and it cannot be determined that D Bank provided the Plaintiffs’ interest and interest to the customer in the instant case, including the purchase rate, as above.

5. Whether it has violated the principle of good faith, etc.

A. Summary of the plaintiffs' order

Although most commercial banks, including DDA banks, engaged in the instant transaction from around 2002 to the time of the instant disposition, the tax authorities did not impose a tax exemption on the instant income, and thus, it should be deemed that there was no tax exemption practice accepted as legitimate by many and unspecified general taxpayers, such as the Plaintiffs. In addition, around September 2003, the National Tax Counseling Center has been DD in order to the effect that the instant transaction does not constitute a subject of taxation on the question as to whether the benefits arising from the forward exchange transaction are taxable objects. Nevertheless, the instant disposition against it is against the principle of respect for tax practices or the principle of protection of trust under Article 18(3) of the former National Tax Act.

B. Determination

1) Legal principles

In general, in the tax law relationship, in order to apply the principle of trust and good faith to the tax authority's act, first, the tax authority must give the taxpayer a public opinion that is the subject of trust, second, the taxpayer should not be responsible for the taxpayer's reliance on the legitimacy of the tax authority's expression of opinion, third, the taxpayer should be reliance on the expression of opinion, and third, the tax authority should make the disposition against the above expression of opinion, thereby infringing the taxpayer's interest.

In addition, “the construction of tax-related Acts or practices in tax administration, which are generally accepted by taxpayers” under Article 18(3) of the former Framework Act on National Taxes, refers to a wrongful interpretation or practice, which is accepted by an unspecified general taxpayer, who is not a specific taxpayer, without any objection, to the extent that it is not unreasonable for the taxpayer to trust such interpretation or practice. The burden of proving the existence of such interpretation or practice lies on the taxpayer, who is the claimant. In addition, in order to form a non-taxation practice, the tax authority must not impose taxes on the taxpayer, as well as ① there is objective fact that has not been taxed for a considerable period of time, and ② the tax authority must be aware that it is possible to impose taxes on the matter, by special circumstances (see, e.g., Supreme Court Decision 97Nu1315, Aug. 21, 1998; Supreme Court Decision 2001Du403, Sept. 5, 2003).

2) Specific determination

In this case, each statement of Gap evidence Nos. 4 through 8 and Gap evidence No. 17 cannot be deemed to have expressed a public opinion that the tax authority would not impose interest income tax on the income of this case other than the futures exchange premium appearing in the general futures exchange transaction, and it is difficult to deem that the non-taxation practice has been formed on the income of this case (no evidence exists to prove that the defendant or the State has encouraged the instant transaction while actively providing tax reduction and exemption benefits; the plaintiffs or DDA bank did not ask the tax authority in writing by reflecting all the conditions; provided that the legal counsel was given without indicating all the facts of the instant transaction; provided that the legal counsel was given without indicating all the facts of the instant transaction; provided that the legal counsel did not confirm the non-taxation practice as well as the result, rather than confirming the non-taxation practice). This part of the plaintiffs' assertion cannot be accepted.

6. The State's methods of realizing litigation economy, etc.

In the event that there are a number of cases in the same issue, and one of the parties is the state, rather than the state's response and appeal, it is possible for all of the people and the State to follow the final judgment of the judiciary on the preceding or specific cases, or to undertake the same contents as above to the people and the State, so such a statement and opinions should be encouraged in terms of the protection of the rights of the people and the economy of litigation. However, in this case, there is no defendant's opinion, and it seems that it would be sufficient to allow the people to move out, not to stay in the case due to the inherent characteristics of the judiciary. Accordingly, a judgment on this case shall be sentenced in accordance

7. Conclusion

Therefore, the part of the claim for revocation of the global income tax imposition disposition exceeding KRW 5.074,734 among the plaintiff's lawsuit, and the part of the claim for revocation of the global income tax imposition disposition exceeding KRW 1,614,782 among the plaintiff's lawsuit of this B is unlawful. Therefore, all of the claims of the plaintiffs are dismissed, and all of the claims