The case affirming the judgment of the court below which held that in case where Gap corporation which constructed a ship did not pay to the owner of the ship or pay for the amount of withholding tax after collecting 20% of the income tax rate for the reduction of the price and the interest from the owner of the ship after the delayed delivery of the ship, and then the tax authority issued a request for correction in order to receive a refund decision, but the tax authority did not issue a request for correction, on the ground that the above amount constitutes a tax amount deducted from the price of the ship and the interest deducted from the price of the ship and the amount deducted from the price of the ship, and thus, constitutes a domestic source income in the premise that the above amount constitutes other income as stipulated in Article 93 subparagraph 11 (b) of the former Corporate Tax Act and Article 93 subparagraph 10 (b) of the Corporate Tax Act, on the ground that the above amount constitutes a tax amount deducted from the price of the ship and the interest deducted from the price of the ship.

Article 93 subparag. 11 (b) of the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 2010; see Article 93 subparag. 10 (b) of the current Corporate Tax Act); Article 93 subparag. 10 (b) of the Corporate Tax Act; Article 132(10) of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 22577, Dec. 30, 2010); Article 132(10) of the Enforcement Decree of the Corporate Tax Act

Suwon Shipbuilding Marine Co., Ltd. (Attorneys Lee Jae-red et al., Counsel for the plaintiff-appellant)

Head of the Tong-gu Tax Office (Law Firm LLC, Attorneys Gangnam-gu et al., Counsel for the plaintiff-appellant)

Busan High Court (Chowon) Decision 2015Nu12239 decided July 13, 2016

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

Article 93 subparag. 11(b) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter “former Corporate Tax Act”) and Article 93 subparag. 10(b) of the Corporate Tax Act provide that a foreign corporation’s domestic source income “income prescribed by the Presidential Decree as penalty or compensation paid in the Republic of Korea” is one of the domestic source income of the foreign corporation, and Article 132(10) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010) and Article 132(10) of the Enforcement Decree of the Corporate Tax Act provide that “The amount of compensation paid due to breach or termination of a contract on property rights is the value of money or other goods paid in excess of the damages to the payment itself under the original contract irrespective of its title.”

citing the reasoning of the judgment of the court of first instance, the court below determined that the contract price is adjusted in cases where the delivery of a ship is delayed after the expiration of a certain grace period after the date of the delivery agreement. Thus, in cases of delay in delivery of a ship, it shall be deemed that there was an agreement between the parties to adjust the contract price in accordance with the above language; ② even if the delivery of a ship is delayed, the buyer can cancel the contract only after the expiration of the price adjustment period; and the above price adjustment clause only can claim damages in case of termination of the contract; ③ the plaintiff can be deemed to have received only the remainder after deducting the amount of the ship price from the original ship price due to delay; ③ the plaintiff can be deemed to have received only the amount of the ship price due to delay in delivery from the owner of the ship; and the above disposition of this case can not be deemed to have been unlawful on the ground that the plaintiff received the relevant ship price in full in accordance with the payment clause in accordance with the international arbitration procedure and returned interest thereon later; ④ In cases where the delivery of a ship was delayed, the amount of this case can not be deemed to have been deducted from the ship price of this case.

Examining the record in accordance with the aforementioned provisions and relevant legal principles, the lower court’s aforementioned determination is justifiable. In so doing, it did not err by misapprehending the legal doctrine on the scope of other income under Article 93 subparag. 11(b) of the former Corporate Tax Act and Article 93 subparag. 10(b) of the Corporate Tax Act, and the principle of substantial taxation.

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Sang-hoon (Presiding Justice)