Seoul Administrative Court 2008Guhap37251 ( October 11, 2009)

Whether banks are excluded from the education tax base of profits from credit card business and loan sales profits;

Revenues from credit card business and proceeds from the sale of loans accrued from banking business shall not be deemed as profits accrued from the banking business operated by financial institutions or business incidental thereto, and shall be excluded from the education tax base.

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

1. Revocation of a judgment of the first instance;

2. On each disposition date listed in the separate disposition list, the Defendant’s rejection of reduction or correction as to each education tax belonging to the Plaintiff between each taxation period listed in the same list shall be revoked.

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

The same shall apply to the order.

1. Details of the disposition;

A. On April 1, 2006, the Plaintiff was merged between the former AA Bank and the former BB Bank, and the surviving corporation following the merger is a corporation AB Bank, but its name was changed to BB Bank. At the time of the merger, the credit card business part of the former AA Bank was divided into the banking business part and the merger into BB Card Company.

B. The Plaintiff (AA bank prior to the merger) reported and paid the amount of revenue generated from the credit card business portion and the profit from sales of loan claims generated from the banking business portion within the statutory period of each tax return, including the amount of revenue generated from the credit card business portion and the income from sales of loan claims generated from the banking business portion in the education tax base.

C. After that, the Plaintiff’s revenue accrued from the credit card business portion and the profits from the sale of loan claims accrued from the banking business portion are not included in the tax base of education tax, and the Defendant made a disposition of reduction refusal for each education tax stated in the separate sheet of disposition corresponding to each of the above taxable periods, and the Defendant also made a disposition of credit sales commission, installment commission, cash service fee, card interest, annual fee, foreign credit card fee and other revenue (hereinafter “the credit card revenue of this case”) generated from the credit card business portion while AA Bank concurrently operates the credit card business from the fourth to the first half of 2006 as of the date of each disposition listed in the same list, and the amount of credit sales commission, installment commission, cash service fee, card interest, annual fee, foreign currency credit card fee and other revenue generated from the sale of loan claims held in the third year in 2004 (hereinafter “the sales revenue of loan claims of this case”) and AA Bank constitutes “the revenue of financial and insurance business entities” as the tax base of education tax.

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 to 4 (including paper numbers) and the purport of the whole pleading

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

① According to Article 3 subparag. 1 of the former Education Tax Act (amended by Act No. 9262, Dec. 26, 2008; hereinafter the same) and the attached Table thereof, credit card companies are not specified as taxpayers of education tax, so the amount of revenue accruing from credit card business is not included in the education tax base. The amount of revenue accruing from credit card business is the revenue accruing from the Plaintiff’s credit card business, which is the revenue accruing from the Plaintiff’s credit card business, and cannot be deemed as belonging to the education tax base different from the revenue accruing from the banking business.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) Whether this case’s credit card earnings are subject to education tax

(A) Considering the following circumstances, the instant credit card revenues do not constitute income subject to education tax.

(1) Article 3 of the former Education Tax Act provides that financial or insurance business entities, taxpayers of special consumption tax, taxpayers of traffic tax, etc. shall be liable for education tax, and Article 5(1) of the former Education Tax Act provides that the amount of revenue of the relevant business entity, unlike other taxpayers, is different from the amount of revenue of the relevant business entity, and thus, the amount of education tax may be significantly changed depending on the scope of revenue amount. Accordingly, Article 3(3) of the same Act and Article 4(1) and (2) of the former Enforcement Decree of the Education Tax Act stipulate that the amount of revenue of the financial or insurance business entity shall not be included in the tax base in the amount of revenue of the financial or insurance business entity. However, the amount of interest, dividend, commission, guarantee fee, revenue, other operating income, and non-business

According to the relevant Acts and subordinate statutes, financial and insurance business entities, who are liable for tax payment, are not included in the tax base all the revenue acquired in the pertinent taxable period, but are obliged to pay education tax for a certain amount of revenue depending on the source of revenue generated, while they are not liable to pay other certain amount of revenue. In light of the purport of these provisions, it is reasonable to view that the obligation to pay education tax is determined based on whether a taxpayer has obtained the revenue through any business rather than on the ground that the taxpayer has a legal status.

(2) The attached Table of Article 3 subparagraph 1 of the former Education Tax Act stipulates financial institutions under Article 3 of the Banking Act as persons liable to pay education tax. However, credit card companies under the former Credit Card Specialized Financial Business Act (amended by Act No. 8863 of Feb. 29, 2008; hereinafter the same shall apply) do not so. According to Article 2 (1) 2 of the former Banking Act (amended by Act No. 8863 of Feb. 29, 2008; hereinafter the same shall apply), financial institutions mean all corporations other than the Bank of Korea regularly and systematically engaged in banking business, and Article 2 (1) 2 and 27 of the former Banking Act, Article 18-2 of the former Enforcement Decree of the Banking Act (amended by Presidential Decree No. 20653 of Feb. 29, 2008) provides that credit card merchants' business related to receipt of deposits and securities, issuance of credit cards and other securities, and provision of credit card bills separately from the former Banking Act.

Accordingly, Article 28 (1) of the former Banking Act and Article 18-3 (2) of the former Enforcement Decree of the Banking Act stipulate that if a financial institution intends to directly engage in credit card business under the Specialized Credit Financial Business Act, which is not a banking business, it shall obtain authorization from the Financial Supervisory Commission separately from the banking business, and the financial institution which has obtained such authorization may engage in credit card business as a concurrent loan service provider with a separate license for credit card business pursuant to Article 3 (3) 1 of the former Specialized Credit Finance Business Act and Article 3 (1) 1 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 20549 of Jan. 18,

In addition, Article 28 (2) of the former Banking Act provides that financial institutions shall distinguish it from each other and keep separate books and recorded documents, even if such concurrent operation is permitted, since credit card business is different from banking business.

In full view of the facts that there is no dispute between the parties and the statements in Gap evidence Nos. 1, 4, and 11 (including the paper numbers), the plaintiff (AA bank prior to the merger) was concurrently engaged in credit card business other than banking business with authorization and permission as prescribed by the Specialized Credit Financial Business Act, and the plaintiff kept separate accounts while concurrently operating credit table business. The credit card income of this case can be recognized as the fact that it is credit sales commission, installment commission, credit card loan interest, annual fee, foreign currency credit card fee, etc.

In full view of the aforementioned facts and the provisions of this Act, it is reasonable to view that the Plaintiff has the status as a credit card company engaged in the credit card business, separate from the status as a bank engaged in the banking business. The instant credit loan income cannot be viewed as profit accrued from the credit card business as a credit card business entity prescribed by the former Specialized Credit Finance Business Act and operated by the Plaintiff, which is a financial institution or its affiliated business. Thus, it is reasonable to view that the Plaintiff does not constitute the revenue amount of the banking business, which is a financial institution included in the education tax base.

(3) The revenue amount of credit card dealers, other than banks, is not subject to education tax, and if a bank imposes education tax on profits related to the credit card business on the grounds that the bank concurrently operates the credit card business, unlike the above interpretation, it goes against the balance of tax.

(B) The defendant asserts that the credit next profit of this case constituted "other operating income and non-operating income" under Article 4 (1) 8 of the former Enforcement Decree of the Education Tax Act, which the plaintiff acquired as the status of the bank.

Article 4 (1) 8 of the former Enforcement Decree of the Education Tax Act provides that "other operating income" shall be "income from the disposal of securities, from the valuation of securities, from the valuation of securities, from the dividends of securities, from the dividends of securities, from the foreign exchange, from the trust proceeds, from the operation of trust, from the payment guarantee reserve funds, from other operating profits, from the transaction of securities, from the transaction of securities, from the transaction of securities, from the transaction of other operating income, from the transaction of securities, from the transaction of securities, from the transaction of other operating income, from the transaction of securities, from the transaction of securities, from the transaction of securities, from the transaction of securities, from the transaction of the transaction of securities, from the transaction of other operating income."

(C) In addition, the defendant asserts that the credit card company engaged only in the credit card business is excluded from the taxpayers of education tax in order to promote the credit card business at the time of the enactment of the Education Tax Act, and that the financial institution concurrently engaged in the credit card business, such as the plaintiff, is not subject to education tax.

However, even if the legislative purpose of the credit card company except for the taxpayer of education tax at the time of the enactment of the Education Act is in activation of the credit card business as alleged by the plaintiff, in light of the above provisions related to the Education Tax Act, it is insufficient to view that the financial institution concurrently operating the credit card business and the banking business should be subject to education tax on profits earned by operating the credit card business. Rather, the exclusion of the credit card business from the subject of education tax on the credit card business from the subject of education tax is more faithful to the legislative purpose of the promotion of credit card business. Although the credit card business of the same nature is engaged in the same credit card business, it goes against the equity in taxation as seen earlier, and thus, the defendant's assertion

(D) Therefore, the instant disposition rejecting the Plaintiff’s request for reduction of amount on the ground that the instant credit card profit constitutes the amount of revenues of financial institutions serving as the education tax base is unlawful.

(2) Whether this case’s loan sales profit is subject to education tax

(A) The occurrence of profit from the sale of the loan claim of this case

The following facts are acknowledged in light of the overall purport of the arguments in Gap evidence Nos. 8, 9, and 10.

1) On August 2004, the Plaintiff (AAB bank prior to the merger) established a special purpose company (SPC: SPC), CHB, 2004-1, a special purpose company (SPC) in order to issue asset-backed securities (ABS) based on loan claims and lower the ratio of non-performing loans.

2) At that time, the Plaintiff’s Bank Account’s loan claim subject to securitization (hereinafter “the instant loan claim”) was KRW 232,261,135,141 on the basis of the balance of principal, and the bad debt allowance was KRW 97,441,60,76, and the book value of the instant loan claim was KRW 134,819,525,375 (i.e., KRW 232,261,135,141 - KRW 97,441,41,609,7666). As a result of a verification and evaluation for asset sale, the company acquired the instant loan claim at KRW 158,498,798,217 as the current value of the instant loan claim and the trust account at KRW 160.4 billion.

3) As above, the instant loan claim was sold to an asset-backed company in excess of the book value, resulting in KRW 23,679,272,842 as the sales profit of the instant loan claim.

(B) Determination

Article 5 (1) 1 of the former Education Tax Act provides that "amount of revenue of a financial or insurance business entity" as the education tax base, and Article 5 (3) of the same Act provides that "amount of revenue of a financial or insurance business entity, such as interest, dividend, commission, guarantee fee, etc., for the provision of services, such as interest, fees, etc., and ② proceeds from the sale of assets such as profit from the sale or redemption of securities, and ③ other amounts prescribed by Presidential Decree, such as insurance premiums, are individually and specifically listed," and "other amounts prescribed by Presidential Decree" are delegated to the Enforcement Decree. In light of the principle of no taxation without law and the principle of prohibition of comprehensive delegation, the above "other amounts prescribed by Presidential Decree" shall be deemed equivalent to the above type. Accordingly, Article 4 (1) of the former Education Tax Act, which provides the type of tax base of a financial or insurance business entity upon delegation of the above provision, is corresponding to the type prescribed by Article 5 (3) of the former Education Tax Act, and shall

However, as seen earlier, the proceeds from the sale of the instant loan claims by a bank established a bad debt allowance in accordance with the corporate accounting standards for the bad loan claims and adjusted the amount reduced by the amount equivalent to the bad debt allowance in the principal of the original loan claims in the book value of the relevant bad loan claims, but the sales price exceeds the book value when selling bad loan claims in the subsequent taxable period, and calculated the excess amount as a business profit in accordance with the corporate accounting standards. In conclusion, it is nothing more than that accrued in the account book as a result of establishing a bad debt allowance than that of the actual bad loan claims. In this case, the sales price of bad loan claims is larger than the book value, but it is smaller than

Therefore, even if Article 4 (1) 8 of the former Enforcement Decree of the Education Tax Act provides that "other business profits and non-business profits" shall be subject to taxation, it does not include the profits from the sale of loan claims which are not actually profits but merely those stated in the account book, and it does not constitute "internal profits" under Article 4 (2) 2 of the same Act, which is the revenue excluded from the education tax base, and it cannot be viewed that the profits from the sale of loan claims constitute the profits from the disposal of assets through foreign transactions, which are business profits under corporate accounting

In addition, Article 4 (1) of the Enforcement Decree of the Education Tax Act (amended by Presidential Decree No. 22046, Feb. 18, 2010) provides for "the amount equivalent to bad debts and bad debts and bad debts and bad debts and bad debts of the relevant bonds" as one of the following: (a) although the provisions of subparagraph 8 of Article 4 of the former Enforcement Decree of the Education Tax Act (amended by Presidential Decree No. 22046, supra) is added to "other business profits and bad debts and bad debts" included in the tax base of education as before the amendment, it is not included in "other business profits and bad debts" included in the tax base of education; and (b) the former Enforcement Decree of the Education Tax Act (amended by Presidential Decree No. 22046), which is excluded from the tax base of education tax; and (c) it is reasonable in support of the interpretation of Article 5 (3) of the former Education Tax Act and its reasonable interpretation.

(3) Sub-determination

The part of the disposition of this case which rejected the plaintiff's request for reduction or correction of education tax amount of 371 minutes in 2004 is illegal, considering that the sales profit of this case belongs to the revenue amount serving as education tax base.

3. Conclusion

Therefore, the plaintiff's claim seeking the revocation of the disposition of this case shall be accepted on the ground of its illegality, and the judgment of the court of first instance shall be unfair on the ground of its conclusion, so the plaintiff's appeal shall be accepted and the disposition of this case shall be revoked. It is so decided as per Disposition.