Whether it falls under a wrongful calculation

The provision of wrongful calculation does not apply to real estate transactions with a person with a special relationship on the ground that there is no improper decrease in income.

Article 52 of the Corporate Tax Act

Seoul Administrative Court-2014-Gu Partnership-50217 ( November 13, 2014)

Co.*

*The Director of the Tax Office

October 16, 2014

November 13, 2014

U.S. P. P. P. J. S. 5

2014Guhap50217 Revocation of Disposition of Corporate Tax Imposition

Co.*

*The Director of the Tax Office

October 16, 2014

November 13, 2014

1. The Defendant’s imposition of corporate tax of KRW 486,493,010 against the Plaintiff on October 15, 2012 shall be revoked.

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

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

가. 원고는 공동주택을 신축하여 분양하거나 임대하는 것을 영업으로 하는 주식회사이고, 소외 최**은 20**. 무렵 원고의 발행주식 중 20%를 보유한 최대주주였으며, 주식회사 **의 회장 최@@의 자녀이다(최**은 20**, 최@@는 20**. 사망).

나. 주식회사 **이 1997년경의 금융위기로 법정관리를 거쳐 파산절차로 들어가자, 주식회사 **의 파산관재인 예금보험공사는 주식회사 **의 금융기관 차입금에 대하여 연대보증을 한 최@@의 재산을 강제 매각하는 과정에서 원고에게 최@@의 자산을 평가하여 그 가액에 따른 보증재산채권을 원고가 매입하는 안을 제시하였고, 이에 원고는 200*. 예금보험공사로부터 최@@의 보증재산채권을 2**원에 매입하였다(이하 위 채권을 '이 사건 보증재산채권'이라 하고, 예금보험공사가 평가하여 원고가 취득한 각 자산별 보증재산채권내역은 다음의 [표1]과 같으며, 이를 '이 사건 보증재산'이라 한다).

(Ticket 1 omitted)

C. Since then, the plaintiff entered into a contract with the highest** on the acquisition of the claim of this case by the summary that "if there is a request for purchase by the plaintiff, the plaintiff will sell the land of this case first to the plaintiff, *** shall sell the land of this case first to the plaintiff, after several changes have been made to the last**, the main contents of the contract are as follows (Article 8-4, hereinafter referred to as "the acquisition of the claim of this case").

D. Since then, ** has participated in the Suwon District Court 2009Mota District Court 2009 * Real estate auction procedure (hereinafter referred to as "auction of this case") against the land of this case, and has been awarded a successful bid in 20********. The plaintiff received dividends 2**** as a person entitled to demand distribution (i.e., the acquisition of the claim of this case does not have any effective transfer of claims, such as having a requisite to set up against the guarantee property claim of this case, so the plaintiff participated in the distribution procedure of this case as the creditor). The plaintiff also paid 1** won (hereinafter referred to as "the issue amount of this case") settled as shown below according to the contract of this case ** according to this case, and included this as items of investment property disposal loss in the account book. [Attachment 2 omitted]

E. As a result of the investigation of corporate tax against the Plaintiff, the director of the Seoul Regional Tax Office: (a) determined that the issue amount of the instant case paid by the Plaintiff was paid in accordance with an unfair contract to distribute profits to a specially related person; and (b) notified the Defendant of this determination; (c) on October 18, 2012, the Defendant imposed a disposition of imposition of the Plaintiff tax in deductible expenses on the ground that the issue amount of the instant case constituted a wrongful calculation under Article 52 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter “Corporate Tax Act”); (d) Article 88(1)6 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22951, Jun. 3, 2011; hereinafter “Enforcement Decree of the Corporate Tax Act”).

F. The Plaintiff dissatisfied with the instant disposition and filed a request for a trial with the Tax Tribunal on 2013. However, the Tax Tribunal dismissed it on 2013. Accordingly, the Plaintiff appealed and filed the instant lawsuit on 2014.

[Ground for Recognition: Facts without dispute, Gap 1 through 8, entry of Eul 1 and 2, purport of the whole pleadings]

2. The assertion and judgment

A. The plaintiff's assertion

The agreement on the acquisition of the claim of this case does not have been concluded with the intention of offering the best** in a special relationship with the Plaintiff with the intent of unfairly reducing the Plaintiff’s corporate tax through this provision. In other words, the Plaintiff purchased the land including this case’s land and had a plan to develop the Plaintiff’s corporate tax with *** Construction. However, as the Plaintiff could not purchase the land directly due to the relationship with the Plaintiff, which is farmland, was intended to own indirectly through the Plaintiff and indirectly through the Plaintiff, it does not fall short of economic rationality. Nevertheless, the Defendant rendered the instant disposition by deeming the issue amount to fall under the provision on the registration of wrongful calculation.

(b) Related statutes;

Attached Form is as shown in the attached Form.

C. Determination

wrongful calculation means a taxpayer’s wrongful calculation in accordance with the normal economic form of transactions;

The purpose of Article 52(1) of the Corporate Tax Act is to reduce or exclude the tax burden incurred when a transaction with a corporation and a person with a special relationship is to clarify and abuse the various forms of transaction as provided by each subparagraph of Article 88(1) of the Enforcement Decree of the Corporate Tax Act, thereby disregarding economic rationality, and to fair taxation and to prevent tax avoidance by deeming that a person with a right to taxation is objectively reasonable in terms of tax law, when considering that a transaction with a corporation and a person with a special relationship was deemed unfair in terms of tax law. Determination of whether an economic rationality exists shall be made based on whether the transaction is abnormal in light of sound social norms or commercial practices in consideration of the overall circumstances (see, e.g., Supreme Court Decisions 95Nu18697, May 28, 1997; 95Nu18697, May 28, 1997); and

In such cases, the burden of assertion and certification on the market price, which is the standard for the application of the avoidance of wrongful calculation, shall be borne.

In light of the above legal principles, the instant disposition is deemed unlawful on the premise that the instant claim acquisition contract constitutes “the case where it is deemed that the tax burden on corporate income has been unjustly reduced” in light of the following circumstances: (a) the instant claim acquisition contract constitutes “the case where it is deemed that the tax burden on corporate income has been unjustly reduced”; and (b) the instant disposition based on the premise that the instant claim acquisition contract constitutes “the case where the tax burden on corporate income has been unjustly reduced” is deemed unlawful.

(1) The Plaintiff purchased the instant guaranteed property claim from the Korea Deposit Insurance Corporation in KRW 2**, and upon examining the content of the bond structure, the Korea Deposit Insurance Corporation assessed the asset value of the instant land in KRW 2*** billion and included it in the above purchase price. In other words, the Plaintiff paid KRW 2 billion in the purchase price of the instant claim regarding the instant land among the guaranteed property at that time.

(2) However, as seen earlier, the Plaintiff’s exercise of the right to the instant secured property claim established in the instant auction procedure and received 200 million won as dividends, etc. on the account books, such as “the dividends related to the compulsory auction of real estate”, which appears to be reflected in the taxable income in 2010.

(3) As seen earlier, the purpose of the Corporate Tax Act’s provision on the denial of wrongful calculation is to ensure fairness in taxation and prevent tax avoidance by deeming that a transaction with a corporation and a person with a special relationship has neglected economic rationality in terms of tax law. According to the above recognition, even if the Plaintiff, based on the above recognition, has dealt with the account book as “loss for Refund of Investment Claim 1*.8 billion won (cost)” and has reflected it in the income amount in each business year of 2010, as long as the Plaintiff, based on the account book as revenue items in 2010 and reflected it in the income amount in each business year of 2010, the above dividend 2**** as well as the above 2. billion won, were to be reflected in the income amount in each business year of 2010, and thus, the amount equivalent to the difference between the Plaintiff’s tax base in 2010 and the guaranteed property, and thus, the Plaintiff’s act of reducing corporate tax against the Plaintiff’s maximum amount of corporate tax in the instant case* the Plaintiff’s act of decrease in the corporate tax payment.

3. Conclusion

If so, the plaintiff's claim is reasonable, and it is decided as per Disposition.

[Related Acts]

▣ 구 법인세법(2010. 12. 30. 법률 제10423호로 개정되기 전의 것)

Article 52 (Dispudiation of Wrongful Acts)

(1) Where the head of the district tax office having jurisdiction over the place of tax payment or the Commissioner of the competent Regional Tax Office deems that the tax burden of a domestic corporation has been unjustly reduced through transactions with a person with a special relationship as prescribed by the Presidential Decree (hereinafter referred to as a "specially related person"), he may calculate the income amount for each business year of the corporation regardless of the act or calculation of the income amount of the corporation (hereinafter referred

(2) In the application of the provisions of paragraph (1), the standard for determination shall be the prices (including rates, interest rates, rents, exchange rates and other equivalent rates, and market prices; hereafter in this Article, referred to as "market prices") applied or to be applied in sound and commercial practices and normal transactions between persons without a special relationship.

(3) A domestic corporation shall submit a detailed statement describing transactions with a specially related person for each business year as prescribed by the Presidential Decree.

(4) In applying the provisions of paragraphs (1) through (3), matters necessary for the types of wrongful calculation and the assessment of market price shall be prescribed by the Presidential Decree.

▣ 구 법인세법 시행령(2011. 6. 3. 대통령령 제22951호로 개정되기 전의 것)

Article 88 (Calculation Type, etc. of Wrongful Acts)

(1) Where it is deemed that the tax burden has been unjustly reduced under Article 52 (1) of the Act means cases falling under any of the following subparagraphs:

6. Where money and other assets or services are lent or provided without compensation or at an interest rate, tariff, or rental rate lower than the market price: Provided, That this shall not apply to any of the following cases:

(a) Where money is provided following the exercise or payment of stock options, etc. under the part other than the items of Article 20 (1) 3;

(b) Where company housing (including rental house as provided by Ordinance of the Ministry of Strategy and Finance) is provided to officers who are not stockholders or investors (including officers who are minority stockholders, etc.) and employees; and