early 2013 Heavy0275 (2013.04.08)

Since the principal and interest are recovered by each transaction and the re-investment including interest is a separate investment, taxation on the already recovered interest income is legitimate.

Even if the principal and interest were collected by each transaction of lending funds and the money including interest was re-investmented, this is considered to be a separate investment transaction different from the original transaction, and thus a disposition imposing the already recovered amount as interest income is legitimate.

Article 16 of the Income Tax Act

2013Guhap525 Global Income and Revocation of Disposition

KimA

Head of Si Tax Office

November 20, 2013

January 8, 2014

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of global income tax for the Plaintiff on May 16, 2012, the global income tax for the year 2008, the global income tax for the year 2009, the global income tax for the global income tax for the year 2009, and the global income tax for the year 2010 is revoked.

1. Details of the disposition;

A. The Plaintiff was recommended by KimB and Ansan (hereinafter “GeB, etc.”) to “if investing in money, to guarantee the principal of the investment and to pay interest equivalent to 10% of the principal within three months.” The Plaintiff repeated the process of receiving 10% interest on the principal and interest thereon within three months from February 2008 to October 201. The Plaintiff’s said monetary payment was made on a regular basis regardless of the time when principal and interest were collected.

B. According to each of the above monetary transactions, the Plaintiff paid the KRW OB, etc. for the year 2008, KRW OO in 2009, and KRW OOO in 2010, respectively, as interest, but the Plaintiff paid the KRW OB, etc. from September 8, 201 to October 7, 201, as well as the interest paid by the Plaintiff to KimB, etc.

C. The director of the Seoul Regional Tax Office, from September 29, 201 to February 17, 2012, found the details of the tax investigation with the Plaintiff, and notified the Defendant that the Plaintiff should levy the global income tax as the principal and interest income. Accordingly, on May 16, 2012, the Defendant determined and notified the Plaintiff of the total amount of the global income tax for 2008, the global income tax for 2009, the global income tax for 2009, and the global income tax for 2010, the global income tax for OOOOO for 2010 (hereinafter “instant disposition”).

D. The Plaintiff, who was dissatisfied with the instant disposition, filed an objection on July 30, 2012, but was dismissed, and again filed an appeal with the Tax Tribunal on December 17, 2012, but was dismissed on January 8, 2013.

[Ground of recognition] A without dispute, Gap evidence Nos. 1 through 4, Eul evidence No. 1 (including paper numbers), the purport of whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The Plaintiff constantly paid money according to the art investment contract with KimB, etc., and the Plaintiff received interest from KimB, etc., but this was not the profit gained by investing in art works, etc. but the act of fraud by KimB, etc., such as KimB, etc., and the monetary transaction by the Plaintiff and KimB, etc. was conducted under one comprehensive contract, not by a separate contract, but by one separate contract. Although the Plaintiff and KimB, etc. settled the form-based principal and interest of the horse in a comprehensive manner once every three months, it is merely a series of money receipt and payment under a single contract, which is to attract continuous investment, and the interest that the Plaintiff received each time is merely a part of the investment principal paid by the Plaintiff to KimB, etc., and thus, it cannot be deemed a substantial interest subject to taxation under the Income Tax Act, and thus, the instant disposition violates the principle of substantial taxation.

2) Article 51(7) of the Enforcement Decree of the Income Tax Act provides that if all or part of the principal and interest cannot be recovered from a debtor or a third party because the pertinent non-business amount falls under the bonds stipulated in Article 19-2(1)8 of the Enforcement Decree of the Corporate Tax Act before the final return on the tax base or the determination or correction of the tax base and the amount of tax, the amount recovered shall be calculated by preferentially subtracting the principal from the recovered amount, and if the recovered amount falls short of the principal amount, the total amount collected shall be deemed as nonexistent.

3) Even if the Plaintiff had interest income, Article 127 of the Income Tax Act imposes a withholding obligation on the payer of such interest income. As such, in withholding income tax, the person who bears legal liability in relation to the State is a withholding agent, and thus, the instant disposition against the Plaintiff, who is not a withholding agent, is unlawful.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

1) The legal nature of monetary transactions between the Plaintiff, KimB, etc.

In light of the following circumstances acknowledged by the above facts, i.e., ① the Plaintiff did not have entered into a basic contract to regulate the entire monetary transaction activities jointly with KimB, etc., as the Plaintiff’s assertion, there is no evidence to regard each of the said monetary transaction activities as a comprehensive one contract. ② The Plaintiff collected not only the principal and interest but also the interest paid to KimB, etc. during the taxable period from January 1, 2008 to December 31, 2010, and actually enjoyed economic benefits; ③ the Plaintiff regularly lent money regardless of the collection of principal and interest, etc., it is reasonable to regard the monetary transaction between the Plaintiff and KimB, etc. as a monetary loan contract independent of each transaction (hereinafter “individual loan contract between the Plaintiff and KimB, etc.”).

2) Whether the substance over form principle is against the substance over form principle

A) Article 45 of the Enforcement Decree of the Income Tax Act provides that interest income under the Income Tax Act refers to profit from a non-business loan or income similar thereto, the nature of which is the price for use of money, and Article 45 of the Enforcement Decree of the Income Tax Act provides that the date of payment of interest under an agreement shall be deemed the date of receipt of interest income from a non-business loan, but in cases where no agreement on the payment of interest exists, or where the interest is paid before the date of payment under an agreement or the interest is paid

In addition, income tax is the so-called period taxation that imposes tax on the income amount for one year from January 1 to December 31 of each year, and the interest income from non-business loan is calculated as the gross income amount for the corresponding year. Thus, in case where a partial recovery of a claim is made and it becomes objectively obvious that the recovery of the remaining claim is impossible at the time of recovery of the claim, it shall be deemed that there is no realization of the interest income that satisfies the taxation requirement in the corresponding taxable year as long as the recovered amount falls short of the principal amount. However, it shall not affect any obligation to pay the interest income that has already been specifically realized prior to the occurrence of a cause for recovery (see Supreme Court Decision 2005Du5437, Oct. 28, 2005).

B) As acknowledged earlier, as to the instant case, as seen earlier, an individual contract constitutes a separate monetary loan contract, and as long as the Plaintiff was fully paid principal and interest pursuant to an individual contract during the taxable period and realized interest income in a conclusive manner, the circumstance where the collection of principal of a separate monetary loan contract concluded in 2011 between the Plaintiff and KimB, etc. is impossible does not affect any obligation to pay interest income already confirmed. Therefore, the Plaintiff’s assertion on the premise that a monetary transaction between the Plaintiff and KimB, etc. is a single contract is a single contract is without merit (On the other hand, as long as the Plaintiff was fully paid principal and interest pursuant to an individual contract constituting a separate monetary loan contract, it is difficult to view that he/she had the intention of deception from the beginning to KimB, etc.).

3) Whether Article 51(7) of the Enforcement Decree of the Income Tax Act is applied

A) Article 51(7) of the Enforcement Decree of the Income Tax Act provides that when calculating the gross income from profits accruing from a non-business loan pursuant to Article 16(1)11 of the Act, if the whole or part of the principal and interest cannot be recovered from the debtor's bankruptcy, compulsory execution, execution of punishment, discontinuance of business, death, disappearance, or missing before the final return on tax base pursuant to Article 70 of the Act or the final return on tax base pursuant to Article 80 of the Act is determined and corrected, the gross income shall be calculated by preferentially subtracting the principal from the recovered amount if the recovered amount falls short of the principal.

B) However, the above provision of the Enforcement Decree is a method of calculating interest income in cases where the whole or part of principal and interest cannot be recovered from the debtor or a third party. Since the plaintiff cannot be applied to this case where the principal and interest under an individual contract have been fully repaid during the taxable period from 2008 to 2010, the plaintiff's assertion that the interest income should be calculated by deducting the principal first from the recovered amount is without merit.

4) Whether withholding agent should be imposed

A) Where income subject to withholding is added to the tax base of a source taxpayer and a separate procedure, such as a return, decision, etc., is conducted after adding it to the tax base of the source taxpayer (so-called prepayment withholding), and where a withholding agent terminates and disposes of it by withholding without such a procedure (so-called full-time withholding). Meanwhile, even if all of the above two income taxes are automatically determined at the same time as the payment of wages, etc., it is only impossible to allow the withholding agent to withhold the determined tax amount, and it does not prevent the correction of the income tax amount by a separate procedure, such as a final return, etc. of the source taxpayer. If a certain tax law sets a separate procedure, such as a return, tax payment, or imposition, etc., by adding up the income subject to withholding to the tax base of the source taxpayer, the purpose of legislation is to make the said person liable for withholding taxes, and if the income subject to withholding is excluded from the tax base of the source taxpayer, it shall be deemed that the income between the State and the source is not paid to the source (see, e.g., the global income tax base).

B) On the other hand, Article 127(1)1 of the Income Tax Act provides that "interest income" shall be subject to withholding, and Article 14(3) of the same Act provides that "interest income withheld at the tax rate under Article 129(1)1 (a) or (2) shall be the amount of income not added when calculating the global income tax base." Article 129(1)3 of the same Act provides that "interest income withheld at the tax rate under Article 129(1)1 (a) or (2) shall be "interest income withheld at the tax rate" among organizations other than organizations deemed corporations, "interest income received by an organization making financial transactions with its name marked as an organization that does not distribute income to its members" subparagraph 5, "income amount subject to separate taxation under the Restriction of Special Taxation Act" subparagraph 6, "income amount subject to separate taxation under subparagraph 3 through 5,000 won, and "income amount subject to Article 127" shall not be added to the amount of income subject to separate taxation under Article 129(15)4(b) of the Income Tax Act.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.