In a case where Party A, a private school corporation, transferred real estate used for the proper purpose business to use it as a school operating facility, excluded the marginal profit from the evaluation of real estate prices and book values from the discretionary evaluation marginal profit of assets, and the tax authority imposed corporate tax by deeming the evaluation marginal profit as a disposal profit of fixed assets based on the latter part of Article 76(4) of the Enforcement Rule of the Corporate Tax Act, the case holding that the disposal marginal profit does not constitute the disposal profit of fixed assets subject to taxation, and that the value of assets offset by the proper purpose business reserve fund for the proper purpose business should be based on the market price,

Article 113(1) and (4) (see current Article 113(1) and (6)) of the former Corporate Tax Act (Amended by Act No. 9267, Dec. 26, 2008); Article 156 of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 20720, Feb. 29, 2008); Article 76(3) and (4) of the Enforcement Rule of the Corporate Tax Act; Article 76(1)1 of the former Restriction of Special Taxation Act (Amended by Act No. 9272, Dec. 26, 2008)

School Foundation (Law Firm LLC, Attorneys Kang Han-hun et al., Counsel for the defendant-appellant)

Seongbuk Tax Office (Law Firm, Kim & Lee LLC, Attorneys Kim Wil et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2015Nu36449 decided December 10, 2015

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

Article 113(1) of the former Corporate Tax Act (amended by Act No. 9267 of Dec. 26, 2008; hereinafter the same) provides that where a nonprofit corporation runs a profit-making business, it shall keep separate accounting of assets, liabilities, and profits and losses belonging to such profit-making business and those belonging to other business than the profit-making business, respectively. Article 113(4) of the former Corporate Tax Act and Article 156 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20720 of Feb. 29, 2008) provide that where the method of separate accounting is prescribed under Article 113(3) of the former Corporate Tax Act and Article 76(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Act No. 9267 of Dec. 26, 2008; hereinafter the same shall apply) provides that the value of assets shall be calculated as capital of the nonprofit corporation and the amount of assets in excess of the income amount of the profit-making business (including surplus) shall be returned.

Based on its adopted evidence, the court below acknowledged the following facts: (a) the Plaintiff, a private school corporation, transferred the instant real estate to a proper purpose business in order to use it as a school operating facility for the purpose of using it as a real estate rental business; (b) deemed the market value and book value evaluation marginal profit of the instant real estate as a voluntary evaluation marginal profit of assets; and (c) based on the latter part of the main text of the instant case, the Defendant deemed the instant evaluation marginal profit as a disposal profit of fixed assets and recognized the disposition of the instant corporate tax.

Then, the court below held that in full view of the following facts: (i) the latter part of the main provision of this case provides that a private school corporation shall be deemed to have paid for a non-profit business if the assets belonging to the profit-making business accounting are transferred to the non-profit business accounting; and (ii) the transfer of the real estate to the non-profit business accounting of this case does not constitute profit-making business or profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making profit-making business-making profit-making profit-making profit-making profit-making business-making profit-making profit-making profit-making profit-making business, and (iii) the evaluation profit-making profit-making profit-making profit can be included in the market price of this case.

In light of the above provisions and relevant legal principles and records, such determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles as to the interpretation of profits from the disposal of fixed assets and the expenditure amount of the assets transferred

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 on the bench.

Justices Lee In-bok (Presiding Justice)