[1] In order to deny the validity of a taxpayer’s transaction as an act of tax avoidance despite the form of such transaction, whether there must be individual and specific rules of denial (affirmative)

[2] In a case where Gap bank and its customers entered into an international currency exchange contract with a gift exchange transaction, the case affirming the judgment below holding that the gains from the above forward exchange transaction do not constitute a taxable object of interest income tax under Article 16 (1) 13 of the former Income Tax Act because it cannot be viewed as a consideration for the use of money as income similar to the interest of a deposit

[1] Article 16 (1) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006); Article 24 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18705 of Feb. 19, 2005) / [2] Article 16 (1) 3 and 9 (see current Article 16 (1) 8) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006) (see current Article 16 (1) 12 of the current Act), Article 24 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18705 of Feb. 19, 2005)

[1] Supreme Court Decision 90Nu3027 decided May 14, 1991 (Gong1991Ha, 1666), Supreme Court Decision 98Du14082 decided Nov. 9, 199 (Gong1999Ha, 2531), Supreme Court Decision 2007Du26629 decided Apr. 9, 2009 (Gong2009Sang, 672)

New Bank Co., Ltd.

The Head of Nam-gu Tax Office (Law Firm continental Aju, Attorneys Park Jong-soo et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2009Nu23565 decided January 28, 2010

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

We examine the grounds of appeal.

Article 16(1) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006; hereinafter the same) provides that “interest income shall be the income falling under any of the following subparagraphs arising during the pertinent year.” Article 16(1)3 of the same Act provides that “interest and discount amount of a deposit received in the Republic of Korea” shall be “interest and discount amount of a deposit,” under subparagraph 9 of the same Article “the profit margin of repurchase of bonds or securities as prescribed by the Presidential Decree”, and under subparagraph 13 of the same Article “income margin of repurchase of bonds or securities as those similar to subparagraphs 1 through 12, which

Inasmuch as taxpayers may choose one of the several legal relations to achieve the same economic purpose while engaging in economic activities, it shall be deemed valid unless there are special circumstances to deem the transactional act to be an act to circumvent the excessive burden of tax, barring any special circumstance. In order to deny the validity of the transactional act of taxpayers as an act of tax evasion according to the principle of substantial taxation notwithstanding its form, individual and specific denial provisions are required under the principle of no taxation without law (see, e.g., Supreme Court Decisions 90Nu3027, May 14, 1991; 2007Du2629, Apr. 9, 2009).

Comprehensively taking account of the adopted evidence, the lower court: (a) concluded a gift exchange agreement with customers from 2002 to 200; (b) conducted public relations and sale of financial instruments under the name of “Nitrate Deposit”; (c) the Plaintiff made so-called “Nitrate Exchange Transaction” with customers from 2002 to 205 (hereinafter “instant transaction”); (d) the Plaintiff entered into a contract with the Plaintiff on foreign currency deposit at the rate of exchange rate of 000 / 200 / 30 20 /6 0 / 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 2 0 0 0 0 0 % 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 2 0 0 0 2 0 2 0 0 0 % 0 . 2 0 . .

The lower court determined that, in light of the following circumstances revealed in the above facts, etc., it is difficult to view that: (a) the Plaintiff entered into a separate contract and a gift exchange contract with customers; (b) most of the customers at the time of entering into each of the above contracts appears to have agreed with the Plaintiff on the characteristics of the gift exchange transaction in terms of tax treatment; (c) the agreed futures exchange rate applied by the Plaintiff at the time of the gift exchange transaction in this case reflects the actual exchange rate in the foreign exchange market; and (d) in the case of general gift exchange transactions not connected with the UN currency exchange rate at the time of entering into a gift exchange contract, it is difficult to view that the profit accrued from the gift exchange transaction in this case depends on the nature of the instant transaction; (d) whether the profit accrued from the gift exchange transaction in this case depends on the exchange rate and exchange rate in kind is determined definitely; and (e) the bank, including the Plaintiff, prepared and implemented various and detailed measures to avoid exposure to exchange risk arising from the gift exchange transaction in this case; and (e) it is difficult to view that the amount of the gift exchange transaction in this case’s profit within the same period.

In light of the aforementioned legal principles, relevant regulations, and records, the above judgment of the court below is just and acceptable.

The court below did not err in the misapprehension of legal principles as to the scope of application under Article 16 (1) 13 of the former Income Tax Act, as otherwise alleged in the ground of appeal.

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 Yang Chang-soo (Presiding Justice)