[1] Whether the portion of “securities appraisal profit” under Article 4(1)4 of the former Enforcement Decree of the Education Tax Act exceeds the scope of the authorization right under Article 5(3) of the Education Tax Act as the parent corporation, and thus, is null and void in violation of the principle of no taxation without law

[2] Whether the imposition of education tax is illegal in violation of the principle of no taxation without law by including the sales gains of the loan in the "other business profits and non-business profits" under Article 4 (1) 8 of the former Enforcement Decree of the Education Tax Act (affirmative)

[1] Article 4(1)4 of the former Enforcement Decree of the Education Tax Act (amended by Presidential Decree No. 18630 of Dec. 31, 2004) is a type of “other amount determined by the Presidential Decree” and includes “securities appraisal profits” as the tax base. However, Article 5(3) of the Education Tax Act provides that all of the listed amounts specifically and individually differ from the actual and realistic profits of financial and insurance business entities, which are unrealized profits, as the real and realistic profits. Under the parent law, “securities sale profits and redemption profits” are already stipulated as the tax base for taxation. However, if the provisions of subordinate statutes stipulate “securities appraisal profits” as the tax base for taxation additional to those of securities, it would be unreasonable in terms of the regulatory system that delegation profits and valuation profits to those of securities only to those of the same Act and subordinate statutes, so it would be unreasonable to understand that the above provisions of the Education Tax Act are invalid and unreasonable in light of the legislative purport of Article 4(1)4 of the Enforcement Decree of the same Act and the proviso to Article 1301 of the Education Tax Act.

[2] In light of the purport of delegation of Article 5(3) of the Education Tax Act, in order to interpret the provisions of the former Enforcement Decree of the Education Tax Act (amended by Presidential Decree No. 18630, Dec. 31, 2004) (amended by Presidential Decree No. 18630, Dec. 31, 2004) that stipulate the types of tax bases of financial and insurance business entities in a harmonious manner in a lawful and effective manner, the types of tax bases should be interpreted to be defined only when they are actually imported by the financial and insurance business entities. Therefore, even if Article 4(1)8 of the Enforcement Decree of the Education Tax Act provides that “other operating and non-operating profits” shall be subject to taxation, it is unlawful to include the sales profits of the loan claims, which are only those stated in the account books, and impose education tax by including them shall not be deemed to constitute non-business profits under the corporate

[1] Article 3 subparags. 2 through 4, Articles 4, 5(1) and (3) of the Education Tax Act, Article 4(1)4 of the former Enforcement Decree of the Education Tax Act (amended by Presidential Decree No. 18630 of Dec. 31, 2004), Article 4(1)4 of the Enforcement Decree of the Education Tax Act / [2] Article 5(3) of the Education Tax Act, Article 4(1)8 of the former Enforcement Decree of the Education Tax Act (amended by Presidential Decree No. 18630 of Dec. 31, 2004)

Korea Exchange Bank (Law Firm Rate, Attorneys Kang Han-hun et al., Counsel for the defendant-appellant)

The director of the Nammun District Office (Attorney Process-at-Law)

August 19, 2009

1. On November 15, 2006, the Defendant revoked each disposition of imposition of KRW 748,204,931 (including additional tax; hereinafter the same shall apply), 249,454,949, 221,295,85,854, 2003, and 386,91,637, of education tax for the fourth-year education for the Plaintiff on April 2001.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. From 2001 to 2004, the Plaintiff reported education tax for the pertinent taxable period by excluding the total of KRW 234,924,627,538 (the detailed details are as follows: hereinafter referred to as “instant interest in the assessment of equity laws”; hereinafter referred to as “interest in the assessment of equity laws”) arising from evaluating stocks invested in the company, other than the 15 companies, as equity laws in accordance with the corporate accounting standards (However, in 2005, the Plaintiff reported education tax including the interest in the assessment of equity laws).

Table 1> Details of interest in legal assessment of equity interests of this case (unit: won)

본문내 포함된 표 구분 2001년 4기 2002년 4기 2003년 4기 2004년 4기 합계 외환카드(주) 94,778,320,172 △22,856,233,705 △321,991,426,380 - △250,069,339,913 외환리스(주) △2,930,459,372 △7,878,947,004 3,155,008,335 3,105,207,385 △4,549,190,656 외환투자신탁(주) △1,831,602,420 1,361,456,707 696,291,305 1,086,292,930 1,312,438,523 환은선물(주) 1,497,422,583 892,976,522 347,376,578 1,915,435,001 4,653,210,684 두산중공업(주) △5,663,495,135 12,701,226,250 3,982,113,717 - 11,019,844,833 PUB 9,590,626,880 8,742,392,391 9,135,655,559 - 27,468,674,830 KEB ire 1,553,747,609 250,471,862 205,171,161 - 2,009,390,633 KEB NYF - - - 1,099,627,924 1,099,627,924 KEB LAF - - - 1,169,156,622 1,169,156,622 KEB USAI - - - 231,362,664 231,362,664 KEBOC 3,920,007,685 3,684,228,663 5,873,781,880 6,564,181,887 20,042,200,116 KEBA △12,245,846,854 2,874,916,858 2,671,957,356 1,537,423,175 △5,161,549,465 KEBD 11,904,167,149 10,302,103,162 8,428,453,181 4,934,403,192 35,569,126,685 KEBB 375,144,523 31,815,108 △2,228,427,830 △1,336,461,988 △3,157,930,187 KEBD.A.G 1,938,772,738 2,897,802,840 5,739,800,831 2,132,272,263 12,708,648,672 CFEB △69,097,978 1,616,054,890 △682,984 - 1,546,273,928 합계 125,558,209,339 45,355,445,253 40,235,609,903 23,775,363,043 234,924,627,538

State) The indication of △△△ means the loss of equity assessment.

B. The Plaintiff filed an education tax return for the pertinent taxable period by excluding KRW 57,051,258,079 (specific details are as follows; hereinafter “the proceeds from the sale of the instant loan claims”) totaling the proceeds from the sale of the loan claims during the period of April 2001 and April 2004, from the tax base.

(1) Of the sales profits of the instant loan, KRW 10,479,050,813 out of the proceeds from the settlement of the proceeds from the sale of the loan and the proceeds from the sale of the non-performing loan occurred during the period of April 2001. On August 1998, the Plaintiff sold to the Korea Asset Management Corporation (hereinafter “Korea Asset Management Corporation”) approximately KRW 1,80,000,000 as collateral bonds with the amount of 45% of the principal of the bonds, and non-mortgage bonds with the amount of 3% of the principal of the bonds (the conditions for settlement of the proceeds from the sale according to the actual degree of recovery of claims by the Korea Asset Management Corporation). After the Korea Asset Management Corporation, the results from the collection of the non-performing loan sold by the Plaintiff were calculated and paid from the Korea Asset Management Corporation on the basis of the initial terms of sale and the settlement amount exceeding the book value of the non-performing loan.

(2) Of the proceeds from the sale of the instant loan claims, KRW 46,572,207,266, the Plaintiff sold non-performing loans to the limited liability company specialized in the securitization of two parts, such as Table 2> at the fourth period of 2004.

Table 2> The details of sale of non-performing loans to a limited liability company specialized in securitization (unit: won)

본문내 포함된 표 매각일자 상대방 채권원금 장부가액 매각가액 매각이익 2004. 6. 17. 외환9차유동화전문 유한회사 206,442,000,000 122,948,000,000 150,000,000,000 27,052,000,000 2004. 9. 17. 외환10차유동화전문 유한회사 147,464,000,000 80,480,000,000 100,000,000,000 19,520,000,000 합계 ？ 353,906,000,000 203,428,000,000 250,000,000,000 46,572,000,000

C. On November 15, 2006, the Defendant issued a notice of correction and notification of KRW 1,605,867,371 in total of education tax as stated in the attached Table 3> to the Plaintiff, on the grounds that the Plaintiff omitted the Plaintiff from filing a return on the evaluation profit of the equity law and the sales profit of loan claims in the tax base during each pertinent taxable period (hereinafter “instant disposition”).

Table 3> Calculation Method of Tax Amount Calculation (unit: Won)

After correcting the initial amount of education tax for the taxable period included in the main sentence, 147,956, 140, 914 136, 037, 260, 152, 680, 3016, 68,018, 6308, 779, 879, 45, 445, 45, 25326, 2267, 2677, 739, 749, 747, 949, 949, 203, 2034, 757, 197, 194, 194, 2035, 197, 194, 257, 1975, 257, 2057, 197, 257, 197, 2057, 257, 19748, 275

[Reasons for Recognition] Facts without dispute, Gap 3 to 13 evidence, Eul 1 and 2 (including above numbers), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) The plaintiff's assertion

(A) Of the instant disposition, the education tax on the interest in the assessment of equity interests in the instant disposition has the following grounds for illegality (the Plaintiff’s selective determination is sought).

① Article 4(1)4 of the Enforcement Decree of the Education Tax Act (amended by Presidential Decree No. 18630, Dec. 31, 2004; hereinafter referred to as the “Enforcement Decree of the Education Tax Act”) (amended by Presidential Decree No. 18630, Dec. 31, 2004; hereinafter referred to as the “amended Enforcement Decree of the Education Tax Act”) excludes securities evaluation profits from taxation, and Article 3 of the Addenda of the above Enforcement Decree provides that where education tax is not imposed on securities evaluation profits until December 31, 2004, it would prevent double taxation on securities evaluation profits and sales profits by failing to impose retroactively tax. Thus, imposing education tax on the instant equity evaluation profits after the amendment date of the above Enforcement Decree violates Article 3

② Article 4(1)4 of the former Enforcement Decree of the Education Tax Act (amended by Presidential Decree No. 18630, Dec. 31, 2004; hereinafter “former Enforcement Decree of the Education Tax Act”) which included securities appraisal profits in the subject of education tax in the subject of education tax is null and void as a unconstitutional or unlawful provision that violates the principle of no taxation without representation and the guarantee of private property rights, and deviates from the scope of the mother’s authority. Thus, the education tax cannot be imposed on the share assessment profits of this case on the basis of the above provision.

③ Although benefits from the assessment of equity law are classified as non-business profits under corporate accounting, they constitute “internal profits” under Article 4(2)2 of the former Enforcement Decree of the Education Tax Act, and should be excluded from the education tax base in that they constitute “internal profits” under Article 4(2)2 of the former Enforcement Decree of the Education Tax Act.

(B) Of the instant disposition, the part on the sales profit of the instant loan claim regarding the instant disposition is unlawful as follows.

The profit from the sale of loan claims is temporarily generated only from the bad debt allowance established in the transfer taxable period, not from the actual profit, but from the "internal profit" under Article 4 (2) 2 of the former Enforcement Decree of the Education Tax Act like the bad debt allowance refunded amount. Therefore, it should be excluded from the education tax base.

(2) The defendant's assertion

(A) The instant disposition on gains from the assessment of equity interests in the instant case is lawful for the following reasons.

① The Enforcement Decree of the Education Tax Act was amended on December 31, 2004, and thereafter on January 1, 2005, the securities valuation profits accrued after January 1, 2005 were excluded from the subject of education tax. However, the instant equity assessment profits are prior to the amendment of the Enforcement Decree, and should be deemed as subject to education tax.

② There are many cases where taxes are imposed only when profits or revenues exist under Korean tax law, and losses are not carried forward. Thus, Article 4(1)4 of the former Enforcement Decree of the Education Tax Act provides securities evaluation profits as subject of education tax, and thus, it cannot be deemed as violating the purport of guaranteeing private property rights under the Constitution. Article 5(3) of the Education Tax Act delegates all items belonging to taxable income under the Corporate Tax Act to the Enforcement Decree, regardless of whether they are realized profits or unrealized profits. Thus, it belongs to the scope of delegation of authority under the parent law.

③ The term “internal profit” is generally defined as profit derived from internal trading between independent accounting units within a specific corporation. As such, equity profit refers to an increase corresponding to the investment shares of a specific corporation in an independent corporation, which exists outside of the net asset value of an independent corporation, regardless of the inside of a specific corporation, regardless of the inside of the specific corporation, and thus, it does not constitute “internal profit” under Article 4(2)2 of the former Enforcement Decree of the Education Tax Act.

(B) The instant disposition on the instant loan proceeds is lawful for the following reasons.

Pursuant to Article 4(1)8 of the Enforcement Decree of the Education Tax Act, profits from the sale of loans fall under “other non-business profits” which are subject to taxation under Article 4(1)8 of the Enforcement Decree of the Education Tax Act. This is the disposal profits generated when the loans are actually transferred through foreign trade, and the price received therefrom exceeds the book value. Therefore, it does not fall under “internal profits” under Article 4(2)2 of the Enforcement Decree of the Education Tax Act.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) The laws and regulations on education tax base for financial and insurance business entities

Article 5(1)1 and (3) of the Education Tax Act provides that "the amount of revenue which serves as the tax base for a financial or insurance business entity" shall be the interest, dividend, commission, guarantee fee, sales profit of securities, redemption profit, profit from redemption, insurance premium and other amount as prescribed by the Presidential Decree, and the calculation thereof shall be prescribed by the Presidential Decree." Article 4(1) of the former Enforcement Decree of the Education Tax Act provides that "other amount as prescribed by the Presidential Decree" under Article 5(3) of the former Enforcement Decree of the Education Tax Act shall be the amount of the revenue received by the financial or insurance business entity under subparagraphs 1 through 8 of Article 5 of the same Act, and the amount of the revenue shall not be included as the tax base for revaluation profit under subparagraphs 1 through 8 of the same Article.

On the other hand, Article 4 (1) 4 of the Enforcement Decree of the Education Tax Act, amended on December 31, 2004, deleted the profits from the appraisal of securities from taxable objects.

(2) Whether the imposition of education tax on the gains from the assessment of equity interests in the instant case is legitimate

Article 5 (3) of the Education Tax Act delegates the specific contents to the Enforcement Decree of the Education Tax Act, which is the revenue amount of financial and insurance businessmen that serve as the tax base of education tax: ① the consideration for the provision of services, such as interest, dividend, commission, guarantee fee, etc.; ② the sales profit of assets such as profit from the sale and redemption of securities; ③ the amount of receipt fund such as insurance premium, etc., which is individually and specifically listed, and ③ the amount determined by the Presidential Decree. In light of the principle of no taxation without law and the principle of prohibition of comprehensive delegation, the above "amount determined by the Presidential Decree

However, Article 4(1)4 of the former Enforcement Decree of the Education Tax Act is a type of “other amount prescribed by the Presidential Decree” and includes “securities appraisal profits,” which are unrealized profits, in the tax base. However, Article 5(3) of the Education Tax Act completely differs in nature from realizing profits, which are realizing profits (securities appraisal profits cannot be seen as different items under the Corporate Tax Act). (2) Article 4(1)4 of the former Enforcement Decree of the Education Tax Act already provides for “securities sale profit and redemption profit” in the parent law; (3) Article 4(1)4 of the former Enforcement Decree of the Education Tax Act provides that if “securities appraisal profit” is prescribed as additional taxable items, it would be unreasonable in light of the legislative purport of Article 5(3) of the former Enforcement Decree of the Education Tax Act and its subordinate statutes, not to mention realizing profit and valuation profit as the tax base; (4) Where securities price declines over several taxable periods, taxation of unrealistic profits, which is an unrealistic profit and unreasonable amount of education tax imposed pursuant to Article 4(1) of the former Enforcement Decree.

Therefore, the instant tax disposition, which was imposed by including this in the education tax base, is unlawful on the premise that the interest in the instant equity law assessment corresponds to the “securities appraisal profit” under Article 4(1)4 of the former Enforcement Decree of the Education Tax Act.

(3) Whether the imposition of education tax on the proceeds from the sale of the instant loan claims is legitimate

The profit from the sale of loan claims means that a bank establishes a bad debt allowance in accordance with the corporate accounting standards for the bad loan claims and lowers the book value by using the amount reduced by the bad debt allowance from the principal of the loan claims at the book value of the bad loan claims, but sells bad loan claims in the subsequent taxable period, and then appropriates the sales value in excess of the book value in accordance with the corporate accounting standards.

In light of the purport of delegation under Article 5(3) of the Education Tax Act, in order to interpret the provisions of the former Enforcement Decree of the Education Tax Act, which define the type of tax base in a lawful and effective way, harmoniously, the type of tax base should be interpreted as defined only when the financial or insurance business entity actually imports the type corresponding to the type provided under Article 5(3) of the Education Tax Act. Therefore, even if Article 4(1)8 of the former Enforcement Decree of the Education Tax Act provides that "other operating or non-operating profits" shall be subject to taxation, it is unlawful to include the sales profits of the loan which are neither substantial profits nor merely those counted in the account book, and impose education tax by including the sales profits of the loan loan which are counted in the account book, and it cannot be viewed that the sales profits of the loan fall under the non-business profits under the corporate accounting standards (In addition, the sales profits of the loan can be deemed to fall under the "internal profits" as provided under Article 4(2)2 of the former Enforcement Decree of the Education Tax Act.

Therefore, on the premise that the sales profit of the instant loan claims constitutes “other business profit and non-business profit” under Article 4(1)8 of the former Enforcement Decree of the Education Tax Act, the instant disposition imposing tax by including it in the education tax base is unlawful.

3. Conclusion

Thus, the plaintiff's claim of this case seeking revocation on the ground that the disposition of this case is unlawful is justified, and this is accepted.

[Attachment] Relevant Statutes: omitted

Judges Kim Jong-soo (Presiding Judge)