Whether the purchase of cement at a high price through the wife of a major shareholder who is a person with a special relationship constitutes “cases where it is deemed that the corporate tax burden on corporate income has been unjustly reduced” under Article 20 of the Corporate Tax Act (affirmative)

"Where it is deemed that the tax burden on corporate income has been unjustly reduced" under Article 20 of the Corporate Tax Act refers to the case where the transaction type of the corporation conducted by the corporation concerned is objectively unreasonable because it disregards economic rationality from the objective point of view, and thus it is deemed unfair from the perspective of tax law. If the corporation purchases cement at a higher price through the wife of a major shareholder who is a person with a special relationship without any reasonable reason even though it was possible to purchase cement directly from another company, it constitutes an abnormal transaction that disregards economic rationality, and then the tax burden on corporate income has been reduced unfairly.

Article 20 of the Corporate Tax Act, Article 46 (2) of the Enforcement Decree of the Corporate Tax Act

Korea Lebcon Co., Ltd.

Head of Cheongju Tax Office

Seoul High Court Decision 91Gu1867 delivered on March 25, 1992

The appeal is dismissed.

The costs of appeal are assessed against the plaintiff.

We examine the grounds of appeal.

(1) Comprehensively taking into account the evidence of the court below, the plaintiff were supplied with cement 10 tons from the above cement 1989 and purchased from the above cement 180 tons from the above cement 190 major shareholders to the above 80-year cement 10-year cement 1000 (the above cement 19-year cement 10-year cement 1000-year cement 800-year cement 10000-000-0000-000-0000-000-000-000-000-0000-000-0000-000-000-000-000-000-000-000-000-000-000-000-000--000-00-000).

(2) Article 20 of the Corporate Tax Act (if it is deemed that the corporate tax burden has been unjustly reduced on corporate income) refers to the case where the form of transaction made by the corporation concerned is objectively deemed unfair and unreasonable from the perspective of tax law because it disregards economic rationality. As recognized by the court below, if the plaintiff company purchased cement at a higher price through the above non-party 1, a related party, without any reasonable reason, even though it was possible to purchase cement at a lower price directly from the non-party 1, the above non-party 1, a related party, without any reasonable reason, it is an abnormal transaction that disregards economic rationality and reduced the tax burden on corporate income by purchasing it from the investors under Article 20 of the Corporate Tax Act and Article 46 (2) 4 of the Enforcement Decree of the same Act.

Unlike the grounds for the disposition by the tax authority, it is erroneous to regard the transaction with the plaintiff company and the non-party 1 as an unfair act under Article 46 (2) 9 of the Enforcement Decree of the Corporate Tax Act. However, this conclusion is justified in holding that the tax disposition in this case is legitimate, considering the transaction with the plaintiff company and the non-party 1 as an object of the rejection of unfair act under Article 20 of the Corporate Tax Act. Therefore, the argument that there is an error

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