The issue is that the cost of construction has been unjustly reduced due to the lack of economic rationality in light of sound social norms and commercial practices.

It is difficult to view that the Plaintiff’s modification of the terms and conditions of the contract to be paid the key construction cost after unilaterally selling the apartment at a disadvantage to the Plaintiff three (3) months prior to the completion of the construction work, but it is difficult to view that the Plaintiff’s existence of any agreement on compensation for delay in the payment of construction cost constitutes an economic rationality

Article 28 of the Corporate Tax Act

2014Guhap50980 Revocation of Disposition of Imposition of Corporate Tax, etc.

AA Construction Corporation

O Head of tax office

October 31, 2014

November 28, 2014

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The disposition of imposition by the Defendant on April 15, 2013 against the Plaintiff of the corporate tax of 2010 shall be revoked.

1. Details of the disposition;

A. The Plaintiff is a company running civil engineering construction business and housing construction business, etc., and franchiseB (79.8%) and EE Tourism Co., Ltd. (19.95%) and franchiseCC (0.25%) (0.25%) are the Plaintiff’s shareholders.

B. From August 28, 2012 to December 21, 2012, the director of the Central Regional Tax Office: (a) conducted a tax investigation on the Plaintiff from around August 28, 2012 to December 21, 2012; (b) completed the construction work of the OO-dong apartment conducted by the PCC, a related party, under a contract from 2006 to 2008; and (c) delayed the collection of the amount equivalent to the O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O; and (d) notified the Plaintiff of taxation data that franchise included

C. On April 15, 2013, the Defendant, on the grounds that the Plaintiff delayed the recovery of the controversial construction cost from the FCC, a person with a special relationship, and practically lent funds (support) and the key benefits also constitute processing benefits, was recognized as to the issue of construction cost, as well as KRW OOOO in the gross income, as well as KRW OOOOOO in the gross income, and as for the inclusion of the paid interest in the deductible expenses, notified the Plaintiff of the correction and notification of KRW OOOO in the corporate tax for 2010 (hereinafter

D. The Plaintiff appealed and filed an appeal on May 23, 2013, but the claim was dismissed on November 14 of the same year.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 2, 8, 10 (including branch numbers in case of additional number), Eul evidence No. 1, the purport of the whole pleadings

[Groundd Statutes]

(1) The former Corporate Tax Act (amended by Act No. 11128, Dec. 31, 201; hereinafter the same shall apply)

Article 28 (Non-Inclusion of Interest Paid in Calculation of Losses)

(1) The interest on any of the following borrowings shall not be included in deductible expenses for the purpose of calculating the amount of income of a domestic corporation for each business year:

4. Of interest on loans paid during each business year by a domestic corporation which acquires or possesses any of the following assets, the amount calculated, as prescribed by Presidential Decree (limited to interest on loans equivalent to the value of the relevant assets):

(b) Provisional payments, etc. prescribed by Presidential Decree to a specially related person under Article 52 (1) without connection with the business of the relevant corporation;

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

(2) For the purposes of paragraph (1), the standard for determining the applicable price (including tariff rates, interest rates, rents, exchange rates and other corresponding rates; hereafter referred to as "market price" in this Article) shall be applied or to be applied in sound trade practices and ordinary trade transactions between persons who are not persons with a special relationship.

【Enforcement Decree of the Corporate Tax Act

Article 53 (Non-Inclusion of Interest Paid on Non-Business Assets, etc. in Calculation of Losses)

(1) The term "those prescribed by Presidential Decree" in Article 28 (1) 4 (b) of the Act means the amount of loans (including the amount of loans that cannot be deemed the principal profit-making business in the case of financial companies, etc. falling under any subparagraph of Article 61 (2)) that are unrelated to the business of the relevant corporation, regardless of their names (the short sentence omitted

Article 88 (Calculation Type of Wrongful Acts)

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

6. Where money and other assets or services are provided with no compensation or at an interest rate, rate, or rental rate lower than the market price;

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The Plaintiff and the FranchiseCC agreed to pay the construction cost upon the completion of apartment sale, such as ordinary cases, while entering into a contract for the key construction work, and the collection of the construction cost at issue was delayed due to the delay in apartment sale. As such, the key issue is not the provisional payment in charge of business affairs under Article 28(1)4 (b) of the Corporate Tax Act.

2) Since franchise was provided with labor and received benefits for the Plaintiff by participating in the operation of the Plaintiff’s golf course while serving as an outside director, it is also unlawful for the Defendant to regard the issue as a processing benefit and not include it in deductible expenses.

B. Determination

1) As to the construction cost in question

A) The purport of Article 52 of the Corporate Tax Act, which provides for the denial of wrongful calculation, is to ensure fairness in taxation and prevent tax avoidance by deeming that the taxation authority had an income objectively reasonable in terms of tax law when considering that a transaction with a corporation and a related party abused all the forms of transaction under each subparagraph of Article 88(1) of the Enforcement Decree of the Corporate Tax Act, and thus disregards economic rationality. The determination of whether economic rationality exists shall be based on whether the transaction is abnormal in light of sound social norms and commercial practices (see Supreme Court Decisions 95Nu18697, May 28, 1997; 99Du10131, Nov. 27, 2001).

B) Comprehensively taking account of the overall purport of the arguments as to the instant case’s health class, Gap’s evidence Nos. 3 through 8, the following facts are acknowledged: (a) at the time of entering into the first contract on or around October 2006, the Plaintiff and GuCC agreed to “the payment of the initial construction cost with a bank loan (one-month) and the sales price (one-month),” but the contract was amended on or around September 2008, which was three months before the completion of the construction; (b) the CC held office as the Plaintiff’s director for the key construction period, and received the total amount of OOO wages from the Plaintiff; and (c) the NA did not borrow money from the bank during the key construction period.

Since delay in the recovery of construction cost that a corporation is obliged to receive from a person with a special relationship without any justifiable reason brings the same effect as the provisional payment was made after the full recovery of the construction cost was made within the time limit for the performance of the contractual obligation, the amount equivalent to the unpaid construction cost falls under the “provisional payment, etc. made without any connection with the business” under Article 28(1)4(b) of the Corporate Tax Act and the interest paid on the loan corresponding thereto is not included in deductible expenses. In addition, in cases where the delay in the recovery of the purchase price is deemed to reduce the tax burden unfairly due to the lack of economic rationality in light of sound social norms and commercial practices, Article 52 of the Corporate Tax Act and Article 8(1)6 of the Enforcement Decree of the Corporate Tax Act are included in gross income (see, e.g., Supreme Court Decision 2005Du1558, Oct. 26, 2006).

As can be seen from the above facts, the contract contents were modified, while the contract contents were not entered into with respect to compensation or compensation for delay in the payment of the construction cost, as it was unilaterally unfavorable to the Plaintiff at least three months prior to the completion of construction work. It is difficult to view that the above transaction constituted an economic rationality under the social norms.

Therefore, considering that the above transaction is an abnormal transaction without economic rationality and the tax burden has been unjustly reduced, it is deemed legitimate to include the Plaintiff’s interest as to the above issue of construction cost and the amount equivalent thereto in the gross income in 2010, and to exclude the interest paid on the relevant loan from the deductible expenses. The Plaintiff’s assertion on this part cannot be accepted.

2) Regarding key benefits

Unless special circumstances exist, such as that if a tax authority received a written confirmation from a taxpayer that a certain part of a transaction is a processing transaction during the course of a tax investigation, such written confirmation cannot be readily denied solely based on the evidence of such written confirmation, barring special circumstances, such as where it was forced to prepare such written confirmation against the intent of the originator or it is difficult to use it as supporting materials for specific facts due to insufficient details (see, e.g., Supreme Court Decision 98Du2928, May 22,

In full view of the purport of the argument in Gap evidence No. 8, the plaintiff prepared a written confirmation that "franchise has appropriated the issue salary as the expense for the plaintiff company's failure to work in the tax investigation process," and submitted it to the Jungbu regional tax office, and even after examining all of the records of this case, there is no other evidence to deem that there is a special reason to deny the value of evidence of the above written confirmation.

There is no evidence to acknowledge that franchiseD provided labor in the Plaintiff Company. It is legitimate that the Defendant excluded the issue from deductible expenses based on the above certification. This part of the Plaintiff’s assertion cannot be accepted.

3. Conclusion

The plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.