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Interest expenses, etc. paid shall not be included in necessary expenses as they are not directly related to the business income of the plaintiff.

In the event that a corporation which has acquired land of a development project accounts for the interest on the loan of this case as its liabilities, the interest on the loan of this case shall not be included in the deductible expenses, and the interest on the loan of the corporation which has acquired land of a development project shall not be included in the deductible expenses, and there is no evidence to acknowledge that there is no possibility of

2011Guhap14999 Revocation of revocation of a request for rectification of income tax

XX

○ Head of tax office

August 16, 2011

September 22, 2011

1. The plaintiff's claim is dismissed.

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

The Defendant’s rejection of correction against the Plaintiff on July 6, 2010 as to the portion exceeding KRW 394,574,634 out of global income tax of KRW 1,304.167,36 of 206, shall be revoked.

1. Details of the disposition;

A. The Plaintiff was a business operator who registered as a business operator on December 14, 2004 and was engaged in the side acid trade. Around April 2010, the Plaintiff filed a claim with the Defendant for the tax base and tax amount of global income for KRW 1,304,167,36 of global income tax for 2006, May 31, 2007 (interest, handling fees, and other expenses incurred in relation to the loans of this case in an amount equivalent to KRW 15.3 billion as seen in the facts of recognition under paragraph (c) of the same Article) 2,156,384,405 (2,129,050,428 won for 2004 + KRW 27,33,977 for 206) by deducting necessary expenses from the business income for 2006 and reducing the tax base and tax amount of global income for 206.

B. On July 6, 2010, the Defendant rejected the Plaintiff’s request for correction on the ground that the necessary expenses for the Plaintiff’s assertion cannot be acknowledged (hereinafter “instant disposition”).

C. On October 6, 2010, the Plaintiff dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal (including KRW 3,64,937,667, including KRW 300,00,000,000,000,000,000 as at the time of the said request for correction, and dismissed the said appeal on February 14, 201 by the Tax Tribunal.

[Ground of recognition] Facts without dispute, Gap 17, 19, 20 evidence, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The Plaintiff is the owner of the instant land in Seoul XX-dong 000 W, 5,399m2 (hereinafter “the instant land”) and the owner of the real estate development project (hereinafter “the instant development project”) that develops the instant land for the purpose of the medical industry, and is using the instant loan under his own risk burden to cover funds, etc. necessary for the acquisition of the instant land and the initial progress of the project. As long as the Plaintiff actually performed the repayment of the principal and interest of the instant loan, the instant loan belongs to the Plaintiff. As long as the Plaintiff performed the repayment of the principal and interest of the instant loan, the instant loan belongs to the Plaintiff according to the substance over form principle, the interest, handling fees, and other expenses incurred in relation to the instant loan (the Plaintiff claimed that the necessary expenses, which was omitted at the time of the said tax trial, were 3,64,937,670 won, but this should be calculated by mistake, and the Plaintiff’s interest expenses should be included in the Plaintiff’s expenses for the instant loan in 206 years.

2) Even if the subject of the instant loan is deemed not the Plaintiff, but to be the subject of the instant loan, even if the Plaintiff, by paying interest, etc. on the instant loan to the opposite financial institutions of XX baby, incurred a claim for reimbursement against the Plaintiff (hereinafter “instant claim for reimbursement”). Since there exists no possibility of recovery of the instant claim for reimbursement due to the bankruptcy of XX baby, the amount equivalent to the instant claim for reimbursement should be counted as the bad debt in the necessary expenses of the Plaintiff in 2006.

3) Therefore, the instant disposition rejecting a claim for correction regarding the portion exceeding KRW 394,574,634, which was calculated by adding the instant self-expenses, etc. to the necessary expenses among global income tax of KRW 1,304,167,36, which was reported by the Plaintiff for the year 2006, was unlawful.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) On July 9, 2003, the Plaintiff purchased the instant land designated as a medical facility site at KRW 8,904,435,100 on the purchase price; KRW 890,443,510 on the date of the contract; KRW 890,013,91,590 on the date of the contract; and KRW 8,013,91,590 on the basis of payment within 60 days from the date of the contract; when the payment is delayed, the Plaintiff entered into a sales contract with the Seoul Special Metropolitan City on the same day to pay KRW 890,443,510 on the same day; and thereafter, the Plaintiff paid KRW 890,43,510 on the same day with the purchase price plus interest prescribed by the Ordinance of the Seoul Special Metropolitan City on April 1, 2004; and again, on July 20, 2004, the Plaintiff concluded the contract with the Plaintiff and the Plaintiff’s right to transfer and acquire the instant land.

2) On August 25, 2004, GATT 2004, the Plaintiff received each loan of KRW 2.3 billion from the OO Co., Ltd. (hereinafter “O”) and KRW 7.8 billion from the △△ Mutual Savings Bank (hereinafter “△△ Mutual Savings Bank”), and paid each of the above loans to the Plaintiff. On the same day, the Plaintiff paid the remainder of the sales contract with the Seoul Special Metropolitan City and the damages for its delay, and completed the registration of transfer of ownership in the name of the Plaintiff on the instant land.

3) Meanwhile, on August 25, 2004, the Plaintiff: (a) completed a provisional registration of the right to claim transfer of ownership on the instant land for the purpose of securing the obligations for the above loans to the OO of XXP; (b) on August 25, 2004, the Plaintiff provided a joint and several guarantee for the above loan obligations to △△ Mutual Savings Bank in △△△△ Mutual Savings Bank; (c) on the same day, the Plaintiff created a superficies that set forth the right to collateral security and the duration of the right to collateral security for the instant land as 30 years from August 25, 2004 with respect to the right to collateral security and the duration of the right to collateral security for the instant land as 10.92 billion won with respect

4) On October 15, 2004, △△ Construction Co., Ltd. (hereinafter “△△ Construction”) entered into a business agreement to newly build the lost residential facilities, etc. in the name of “WW” in the name of △△△△ Construction Co., Ltd. (hereinafter “△△△△△”) whose events were changed from October 13, 2004 to △△△△△ Group Co., Ltd. (hereinafter “△△△○”) and the executing party event, and the Si Construction Co., Ltd. as the △△△△△△ Construction, the Si Construction. Pursuant to Article 5 of the above business agreement on October 15, 2004, △△△△△ Construction Co., Ltd. (hereinafter “△△△△”) with loans of KRW 520 million from 5.2 billion from △△△△ Construction Co., Ltd. (hereinafter “△△△△”) and deleted the loans of each of the said △△△△△△ Construction Co., Ltd. (hereinafter “the loans of this case”).

5) Meanwhile, on October 15, 2004, the Plaintiff entered into a guarantee agreement (the meaning of the joint and several surety obligation for △△△ Construction) with the △△ Party upon the request of the △△ Party, and if the △△ Party fails to pay the above 5.2 billion won to the △△ Capital by the due date, the △△ Party shall make a substitute payment. In this case, the Plaintiff sold the instant land to the △△ Party, and the △△ Party paid 5.2 billion won to the Plaintiff as the said substitute payment and the first intermediate payment. As seen earlier, △△△ Party concluded a guarantee agreement (the meaning of the joint and several surety obligation for △△△△△ Construction) with the Plaintiff’s joint and several surety obligation for △△ Mutual Savings Bank in lieu of the payment for the purchase price. To secure this on the same day, the provisional registration of the right to claim

6) Around October 15, 2004, GATT 2004: (i) entered into a contract with the △△△○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ KRW 22 billion

7) In accordance with the instant comprehensive acquisition agreement, the Plaintiff, instead of being paid the purchase price for the instant land that is paid to the Plaintiff by △△△○ in accordance with the instant comprehensive acquisition agreement, had prepared a written consent for the use of the instant land with respect to the instant land with respect to the instant land, and thereafter, on July 29, 2005, the Plaintiff obtained a building permit from the head of the Gu with respect to the construction of the medical facilities with the third and tenth floors above the instant land by using the said written consent for the use of the land.

8) On the other hand, on May 11, 2005, the Plaintiff entered into an agreement with the Plaintiff on May 11, 2005, with the content of all the existing agreements and letters of intent agreed between the Plaintiff and the Plaintiff and the relevant GATT. (Provided, That the agreement between the Plaintiff and the instant land and the instant medical facilities on its ground is valid) and all the rights (e.g., enforcement rights, enforcement rights, enforcement authority, rights to PF amount, and all other rights related to other business) of the instant land and the instant medical facilities on its ground belongs to the ▽▽▽ whereas the Plaintiff may waive and lose all rights. In addition, the Plaintiff entered into an agreement on the way of paying the remaining land in relation to the instant land to the Plaintiff of the ▽▽▽▽○ Korea through a multiple-time agreement with the ▽▽ Korea. In addition, the Plaintiff’s promotion of the purchase and sale of the instant land and payment of the remaining land to the Plaintiff as KRW 300,700,790, etc. of the instant land.

9) However, as the Plaintiff was notified on April 18, 2006 that all agreements related to the instant land, including the instant comprehensive acquisition agreement, should be rescinded, in arrears with interest on △△ Capital and △△ Mutual Savings Bank that should be borne by the instant comprehensive acquisition agreement, and did not pay the Plaintiff the remainder of the purchase and sale of the instant land. In addition, on July 3, 2006, the Plaintiff, upon going through the peremptory procedure, requested the head of the relevant Gu, to revoke the said building permit, and accordingly, the head of the relevant Gu revoked the said building permit on September 26, 2006.

10) Even after the Plaintiff’s notice of the termination of the contract, △△△ Mutual Savings Bank continued to be unable to pay interest on loans to △△△ Mutual Savings Bank. As such, △△ Mutual Savings Bank, the mortgagee of the right to collateral security, filed an application for voluntary auction on the instant land and received a decision to commence auction from the Seoul Southern District Court on July 2

11) After December 15, 2006, the Plaintiff entered into a real estate sales contract with AA (hereinafter “A”) on December 15, 2006 to sell the instant land at 18 billion won.

12) On December 21, 2006, AA made payment of KRW 6,418,547,94 to △ Capital, instead of paying a part of the above sales price, instead of paying the above sales price, (in direct deposit of KRW 5,609,342,465, and deposit of KRW 809,205,479,479, including the above KRW 800,000,00,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000.

13) XXia appropriated loans of KRW 7.8 billion from △△ Mutual Savings Bank and KRW 5.2 billion from △△ Capital in the short-term loans of KRW 606,459,703 in the business year 2004 and KRW 1,741,32,681 in the business year 2005, respectively, as interest costs, in the financial statements audited by the external auditor.

14) Meanwhile, on June 11, 2007, the Plaintiff filed an application for adjudication of bankruptcy with the Seoul Central District Court for the declaration of bankruptcy of the PP child and received the adjudication of bankruptcy from the above court on November 20, 207 (2007Hauhap27). The appeal was filed by the Seoul High Court on March 31, 2009, but the Seoul High Court, on March 31, 2009, bears 6.4 billion won as to the obligation of the loan to the Plaintiff against the △△ Capital (the decision that even if the ▽▽▽ has taken over the obligation to the Plaintiff of the PP child, it still bears the obligation to the Plaintiff), whereas the appeal of the PP child was dismissed (207Ra2222) by considering that the insolvency or the total amount of the obligation of the PP child exceeds its total assets. Since then, the decision of this case was made with respect to the PP child, but the decision of this case was not completed until the date of closing the argument.

[Ground of recognition] Facts without dispute, Gap 1, 3, 6 through 12, 14 through 16, 20, 22, 23, 25 through 28, Eul evidence 2 (including each number), the purport of the whole pleadings

D. Determination

1) Determination on the first argument

According to the aforementioned evidence and the purport of the entire pleadings, most of the loans of this case were used for the payment of the purchase price of the land of this case to the Seoul Special Metropolitan City, and the Plaintiff completed the registration of collateral security, superficies and right to claim ownership transfer on the land of this case owned by the Plaintiff to secure the obligation of the loan of this case, or provided joint and several sureties, and the Plaintiff is recognized to have repaid all the principal and interest of △ Capital of △△△ and △ Mutual

However, the following circumstances revealed through the overall purport of the above facts and arguments, i.e., the Plaintiff purchased the instant land designated as a medical facility site from Seoul Special Metropolitan City, and the Plaintiff appears to have sold the instant land to △△△ Bank at its expense for the progress of the instant development project, and left profits by participating in the instant development project that is conducted by △△△ as the principal agent of △△△. Accordingly, the obligor of the instant loan is all the obligor of the instant land, and the Plaintiff, holding the name of the instant land, would be deemed to be a joint guarantor of △△△ in order to secure the repayment of the instant loan obligation, or to have registered the establishment of a superficies, establishment registration, and ownership transfer claim registration with respect to the instant land to the relevant creditors. The Plaintiff’s full repayment of the principal and interest of △△△△△△ Bank with the purchase price of the instant land, etc. is merely a joint and several surety for the loans to △△△ Bank, and there is no evidence to acknowledge the Plaintiff’s sale of the instant land as the subject of the instant loan (excluding the instant loan △△ 200.).

Therefore, this part of the Plaintiff’s assertion that the interest expenses, etc. incurred in relation to the instant loan should be included in the necessary expenses for the year 2006 under the substance over form principle is without merit (On the other hand, even if the Plaintiff is in XXia, the Plaintiff’s guarantee loss equivalent to the interest expenses, etc. incurred by the Plaintiff in relation to the use and disbursement of the instant loan shall be included in the necessary expenses since it has an ordinary nature as expenses directly corresponding to the Plaintiff’s business income. However, it is difficult to conclude that the interest expenses, etc. of the instant case directly related to the Plaintiff’s business income is difficult, and as seen earlier, the interest expenses, etc. of the instant case can not be deemed as the Plaintiff’s claim for reimbursement against XXia. Accordingly, the Plaintiff’s assertion is without merit, and it is not different because the Plaintiff already reported part of the said guarantee loss amount as necessary expenses for the year 2006.)

2) Determination on the second argument

Article 27 (1) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006) provides that the amount to be industrialized shall be the sum of expenses corresponding to the total amount of income in the year concerned, which is generally accepted as expenses. Article 55 (1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19890 of Feb. 28, 2007; hereinafter the same) provides that necessary expenses corresponding to the total amount of income in each year of business income shall be as follows. Article 27 (2) of the former Income Tax Act provides that bad debts shall fall under any of the following subparagraphs. Article 27 (1) of the same Act provides that bad debts shall be recovered due to the debtor's bankruptcy, compulsory execution, execution of punishment or discontinuation of business, claims which cannot be recovered due to the debtor's death, disappearance, missing, etc. under subparagraph 2, and claims which can not be recovered pursuant to subparagraph 3 or any other Ordinance of the Ministry of Finance and Economy.

With respect to this case, it is required that a claim to be included in the bad debt, which is one of necessary expenses in response to the total amount of income of each year under Article 55 (1) 13 of the former Enforcement Decree of the Income Tax Act, is also directly related to the occurrence of income. Meanwhile, in light of the purport of Article 55 (2) of the former Enforcement Decree of the Income Tax Act, the bad debt to be included in the necessary expenses, when calculating the income amount, shall be limited to the claim that is objectively confirmed from the fact that it was impossible to collect the necessary expenses during the pertinent year (see, e.g., Supreme Court Decision 96Nu1418, Nov. 28, 1997). Since the above statement of evidence No. 1 and No. 21 of the above 2006, it is insufficient to view that there is no other evidence to acknowledge it as objectively determined as a claim for reimbursement against the plaintiff under the premise that it can not be recovered from the final claim inspection date after the declaration of bankruptcy.

Therefore, the plaintiff's assertion on this part is without merit.

3. Conclusion

The plaintiff's claim is dismissed on the ground that it is without merit.