Board of Audit and Inspection ( Board of Audit and Inspection, 2012.03.22)

Investment in loans shall be limited to provisional payments made to persons with a special relationship without connection with the business.

It is reasonable to see that investing in a loan in an affiliate company constitutes "provisional payment, etc. paid without connection with the business of the related party". Thus, the disposition that does not include the bad debts fund related to loans and interest on loans in deductible expenses is legitimate.

2012Guhap2605 Revocation of Disposition of Corporate Tax Imposition

XX Co., Ltd

Daejeon director of the tax office

October 17, 2012

November 14, 2012

1. Of the instant lawsuit, the part concerning the claim for refund of KRW 000,000, corporate tax for the business year 2006 shall be dismissed.

2. The plaintiff's remaining claims are dismissed.

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

The Defendant’s imposition disposition of corporate tax of KRW 000 for the business year 2005 notified to the Plaintiff on January 6, 201, exceeding KRW 000, exceeding KRW 000, exceeding KRW 000 among the imposition disposition of corporate tax of KRW 000 for the business year 2007, and exceeding KRW 000 among the imposition disposition of KRW 000 for the business year 2009, respectively, shall be revoked. The Defendant shall refund KRW 00,000 to the Plaintiff.

1. Details of the disposition;

A. The Plaintiff, a company engaged in manufacturing, selling, etc. of feed, was established in Vietnam in around 2002, and invested 00 U.S. dollars in the form of loans from 2005 to 2009.

나. 원고는 2004년경 중국에 XX사료(QQ)유한공사(이하 'XXQQ'라 하고, 'XX비나'와 통틀어 '이 사건 각 회사'라 한다)를 설립하여 2005사업연도부터 2009사업연도까지 미합중국화 000달러를 대여금 형식으로 투자하였다(이하 '위 가, 나항 기재 투자금을 통틀어 '이 사건 대여금'이라 한다).

C. The Plaintiff included interest on the loan corresponding to the instant loan during the business year 2005 or 2009 as deductible expenses, and reported and paid corporate tax by appropriating the instant loan as the bad debt allowance.

D. On January 4, 2011, the Daejeon Regional Tax Office, upon conducting a tax investigation with the Plaintiff from August 30, 2010 to October 22, 201, deemed the instant loan as a loan unrelated to its business, and notified the Defendant of the presumption of corporate tax, such as not including the Plaintiff’s interest on the loan corresponding to the said loan from January 4, 201 to 2009 as deductible expenses.

E. Accordingly, the Defendant, pursuant to Articles 28(1)4(b) and 34(3) of the former Corporate Tax Act, did not include interest paid on the loan of this case in deductible expenses as well as bad debt allowances related to the loan of this case in deductible expenses. The Defendant, on January 6, 201, notified the Plaintiff that the Plaintiff should additionally pay KRW 00 as corporate tax for the business year 2005, corporate tax for the business year 2007, and KRW 00 as corporate tax for the business year 2009, and KRW 00 as corporate tax for the loan of this case (hereinafter “instant disposition”). The portion related to the loan of this case in the disposition of this case is KRW 200,000, KRW 2007, KRW 000 for the business year 200 for the loan of this case and KRW 00 for the business year 200 for the loan of this case after deducting the amount of the loan of this case from deductible expenses for the business year 200,0000 for the tax refund of this case.

F. The Plaintiff dissatisfied with the instant disposition and filed a request for review with the Board of Audit and Inspection on April 1, 201, but was dismissed on March 22, 2012.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 5 (if there are provisional numbers, including each number; hereinafter the same shall apply), witness B's testimony and the purport of the whole pleadings

2. Determination ex officio as to the lawfulness of the lawsuit concerning the claim for refund of KRW 000,00, corporate tax for the business year 2006 among the lawsuit in this case

The plaintiff asserts that the defendant is obligated to refund the above KRW 000 to the plaintiff, since the plaintiff unfairly deducteds the above KRW 000 with respect to the loan of this case in 2006 corporate tax refund.

However, the so-called "performance of obligation", which seeks monetary payment against an administrative agency under the current Administrative Litigation Act, is not allowed. Thus, among the lawsuit in this case, the part against the defendant, who is the administrative agency, seeking the refund of the corporate tax amount of KRW 000 cannot be exempted.

3. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff established each of the instant companies to sell feed in Vietnam and China, and the Plaintiff’s employees and employees paid technology transfer fees to the Plaintiff. The Plaintiff’s income from each of the instant companies is more than the Plaintiff’s profits from the direct sale of the Plaintiff’s feed, and the Plaintiff, other than the Plaintiff, receives interest on the instant loans from the said companies. As such, the Plaintiff loaned funds to increase the Plaintiff’s profits through the existence and growth of each of the instant companies. As such, the instant loans should be deemed directly related to the Plaintiff’s business. Nevertheless, the Defendant rendered the instant disposition based on its different judgment, and thus, the portion exceeding the amount stated in the first sentence of the claim corresponding to the legitimate tax amount should be revoked by unlawful means.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

(1) 원고는 2007. 12. 10. XX비나와 사이에, 원고가 XX비나에 새우 및 양어사료의 제조와 영업에 관한 노하우(know-how)를 사용하는 것 등을 허락하고 위 회사로 부터 연간순매출액의 2%에 해당하는 기술지원료(로열티)를 받기로 약정하였고, 또한 원고는 2007. 8. 4. XXQQ와 사이에, 원고가 XXQQ에 사료 제품의 제조, 판매 등에 관한 노하우를 제공하되, XXQQ로부터 연간순매출액의 3%를 기술지원료로 지급 받기로 약정하였다(이하 이들 각 약정을 '이 사건 각 기술지원료 약정'이라 한다).

(2) The Plaintiff’s revenue and sales of technical support fees from the business year 2005 to the business year 2009 are as listed in the following table.

(The following table omitted):

(3) The Plaintiff and each of the instant companies did not engage in direct purchase and sale transactions between the business year 2005 to 2009.

[Ground of recognition] Unsatisfy, Gap's statements in Gap's 8, 9, 10, 14, witness Eul's testimony, the purport of the whole pleadings

D. Determination

Articles 28(1)4 (b) and 34(3) of the former Corporate Tax Act provide that interest on loans for the purpose of the provisional payments paid by a corporation to a related party without connection with its business shall not be included in deductible expenses. At the same time, the legislative purpose is to prevent the inclusion of expenses for bad debts related to provisional payments in deductible expenses. Where a corporation holding loans has paid loans to a related party without connection with its business, it shall be given tax disadvantage not to include interest on loans or related allowances for bad debts in deductible expenses. It shall be to prevent the deterioration of the financial structure of an enterprise through the unreasonable expansion of enterprises, to induce sound economic activities of an enterprise through the production and management of corporate funds. Accordingly, it shall be determined that the aforementioned provision includes not only pure payments for loans paid to a related party or allowances for bad debts paid to a related party without connection with its business, but also the amount of loans paid to a related party, which shall be included in deductible expenses in deductible expenses, based on the nature of loans provided by the related party or interest rate of 10.20 (see the Supreme Court Decision 2007Du197, etc.

In this case, according to the records on the certified transcript of corporate register No. 1, the plaintiff is merely engaged in incidental business and investment related to manufacturing and selling feed, and does not engage in financing business. Loans and investment related to affiliated companies are difficult to view them as investments in feed manufacturing and selling of the plaintiff company or in incidental business related thereto. ② The details of the disposition of this case and the above facts acknowledged. Each company of this case is separate from the plaintiff who is engaged in independent business by producing and selling products in its name even if they belong to the plaintiff's affiliated company, and there is no other material to view that the loan of this case contributed to the increase in sales of the products produced by the plaintiff. (3) Technical support fees received by the plaintiff from each company of this case are not received as interest for the loan of this case, and it is not reasonable to view that the plaintiff's loan of this case constitutes a "loan of this case" related to the loan of this case and the loan of this case without any reasonable reason to view it as being related to the loan of this case's affiliated company of this case.

4. Conclusion

Therefore, the part of the claim for refund of KRW 000 of the corporate tax for the business year of 2006 among the lawsuit of this case is unlawful and dismissed, and the remaining claims of the plaintiff are dismissed as they are without merit. It is so decided as per Disposition.