early 2007west4180 ( December 27, 2007)

Whether the gains from futures exchange transactions in the United Nations Exchange Deposit constitute interest income

It is difficult to view that profits from the forward exchange transactions of swap deposits constitute interest income in the nature of the consideration for the use of money as income similar to the currency repurchase agreement marginal profits of bonds or securities.

The contents of the decision shall be the same as attached.

1. The head of the regional tax office’s rejection disposition against the plaintiffs other than the plaintiff headCC on the same list on the date stated in the separate sheet of disposition excluding the plaintiff headCC among the plaintiffs listed in the separate sheet of disposition excluding the plaintiff head of the regional tax office, and each rejection disposition on the date stated in the separate sheet of disposition excluding correction rejection disposition 'the date of correction rejection disposition' as to the plaintiffs listed in the separate sheet of disposition i.e., the separate sheet of disposition i., "the date of disposition i.e., the separate sheet of disposition i., the correction rejection disposition i.e. the same list

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

The same shall apply to the order.

1. Details of the disposition;

A. The remainder of the plaintiffs except the plaintiff KimE and KimD [Provided, That pursuant to Article 24 (1) of the former Framework Act on National Taxes (amended by Act No. 9911 of Jan. 1, 2010), the plaintiff KimE succeeded to the duty to pay KimD due to inheritance; hereinafter, this does not distinction between KimD and the plaintiff KimE for convenience] between 2002 and 2005, AAAB bank (hereinafter "AB bank"), (i) after the plaintiffs paid won currency to AA bank, (ii) after the plaintiffs deposited the UN currency and received interest at a fixed interest rate before and after 0.25% per annum from the won currency and received interest at a fixed interest rate before and after 0.25% per annum, the contract was entered into at the same time, and (iii) when the gift contract was concluded at the time of the above international currency deposit and exchange transaction at the rate of exchange (hereinafter referred to as "securities exchange transaction at the time of the above gift contract's maturity and exchange transaction at the time of the above.

B. AA Bank shall be deemed as interest income under the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006; hereinafter “Income Tax Act”) with respect to the portion arising from the instant transaction among the profits arising from the instant transaction, and withheld tax. However, the portion arising from the instant forward exchange transaction was not withheld on the premise that it is not an interest income.

C. The Defendants imposed global income tax (including additional tax for return and additional tax) on the Plaintiffs indicated in the separate disposition list on the ground that the profits from the gift exchange transaction of this case also constitute interest income (hereinafter “the initial imposition disposition”).

D. On December 28, 2007, the Plaintiffs were dissatisfied with the initial imposition disposition and filed an appeal with the National Tax Tribunal. On December 28, 2007, the National Tax Tribunal rendered a decision that the said Plaintiffs excluded the portion of the initial imposition disposition from the return and erroneous payment for the reason that there is justifiable reason that the said Plaintiffs did not return and pay the comprehensive income tax on the profits arising from the gift exchange transaction of this case. Accordingly, the Defendants reduced the return and erroneous payment for the erroneous payment for the return from each initial tax return on the attached list of the imposition disposition, thereby reducing the amount of the initial imposition disposition as stated in the same list.

(e) Meanwhile, after filing a return and payment of comprehensive income tax on all interest income arising from the instant transaction, the Plaintiffs filed a request for correction relating to the portion of the global income tax paid as a result of the instant forward exchange transaction, on the ground that the interests arising from the instant forward exchange transaction constituted income subject to taxation pursuant to Article 16(1)13 of the Income Tax Act, the Defendants rejected the above Plaintiffs’ request for correction as shown in [Attachment 2] 3, 3, 46, 36, 47, 46, 36, 47, 46, 47, 46, 47, 47, 36, 47, 47, 57, 46, 47, 47, 461, 47, 57, 466, 47, 57, 47, 57, 461, 221, 2221, 222-1, 46, 17, 14

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

(1) The instant transaction consists of two separate trades, namely, the instant forward exchange transaction, which is capital transaction, and the instant deposited transaction. The interest accrued from the instant deposited transaction constitutes interest income as stipulated in Article 16(1)3 of the Income Tax Act. However, the interest accrued from the instant forward exchange transaction does not constitute a consideration for monetary use as a profit from foreign exchange transaction. Thus, in light of the principle of no taxation without law and the principle of substantial taxation, the income similar to the income as stipulated in Article 16(1)3 of the Income Tax Act does not constitute “income as stipulated in Article 16(1)13 of the Income Tax Act.”

(2) Profits arising from the instant futures exchange transaction are only foreign exchange trading profits, and there is no nature of financing. Moreover, the instant futures exchange transaction does not retain repurchase rights between the parties, unlike repurchase agreements of bonds or securities, and thus, it does not constitute income as income similar to income under Article 16(1)9 of the Income Tax Act under the principle of no taxation without law and the principle of substantial taxation, as income under Article 16(1)13 of the Income Tax Act.

(3) Even if the profit from the forward exchange transaction of this case constitutes income under Article 16 (1) 13 of the Income Tax Act, in light of the fact that most commercial banks, including AA bank, handled the currency swap deposit from around 2002 to non-taxation on the profit from the forward exchange transaction, the Defendants did not be subject to taxation until the time of each disposition of this case, and that at the National Tax Counseling Center, around September 2003, there was AAA to the effect that the profit from the forward exchange transaction of this case is not subject to taxation on the question as to whether the profit from the forward exchange transaction of this case is subject to taxation, each disposition of this case violates the principle of trust protection.

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

(1) From around 2002, AA Bank developed financial instruments that carry out the UN-regular deposit transactions and forward exchange transactions to customers with the name of "the swap deposit", and made public relations and sale as more favorable than ordinary regular deposit at the early effective return rate compared to ordinary deposit. The customer, who made the instant transaction, made payment in Korean currency to AA Bank, made an application for foreign currency deposit transactions with the Bank, and entered into a "UNFCCC-regular deposit contract" with the Bank. At the same time, the customer, who made the instant transaction, entered into a contract with the Bank at the same time as the maturity of the UN-Initial rate of exchange (the rate of exchange calculated as follows), set at the maturity rate at the maturity of the contract at the rate of exchange at the maturity of the gift exchange (the rate of exchange calculated as follows) and entered into a gift exchange contract with the intent to sell the United Nations at the fixed rate of exchange (the futures exchange rate).

(2) According to the instant transaction, customers are deposited in AA bank by converting their own won into the United Nations. At maturity, there is almost no interest on the deposit, but there is no gift redemption profit (in Korean won and foreign currency within 3% per annum at the time of conclusion of the contract) based on the futures exchange rate already agreed at the time of conclusion of the contract. As a result, it is similar to the fixed interest rate, and gift redemption profit under the Income Tax Act is also tax-exempt, so it is possible to secure high income in comparison with the fixed-term deposit in Korean won because they can avoid the comprehensive taxation on financial income.

(3) Since the UN/original exchange rate market did not exist in the Republic of Korea until May 29, 2006, AABB Korea Co., Ltd., the ABB Bank entered into a gift exchange rate agreement with USD 10/200 by dividing the exchange rate of USD 100 per day by the rate of exchange in kind in order to determine the gift exchange rate, and by modifying the difference in the interest rates of two currencies exchanged in the exchange swap transactions, it shall serve as the transaction price to adjust actual profits and losses between the parties) and USD 10/N exchange points, and calculated USD 10/20 by adding USD 1/20 to the gift exchange rate of USD 10/30,000 and USD 10/300,000, it shall be provided with the same forward exchange rate of exchange rate of USD 20/30,000 per day by the gift exchange rate of USD 10/30,000.

(4) AA bank operated the instant transaction, provided that, if there is no separate declaration of intention from the customer on the re-agreement before maturity, it would automatically terminate the UN Contract for Regular Deposit and Exchange Contracts and deposit into the customer account designated in advance, and that, if the UN Contract for Regular Deposit is terminated, the gift exchange contract shall also be terminated.

[Ground for Recognition: Facts without dispute, Gap evidence 2-1, 4, 6, 7, Gap evidence 8-1, 2, Gap evidence 9-1 through 3, Gap evidence 11, 15, Eul evidence 6-1, and the purport of the whole pleadings]

D. Determination

(1) Provisions of the Income Tax Act

The Income Tax Act lists interest and discount amounts of deposits (including installment savings, installment savings, deposits, and postal transfers) received in Korea under Article 16(1)3 and 9 as interest income, and repurchase agreement marginal profits on bonds or securities as prescribed by the Presidential Decree, by newly creating subparagraph 13 on December 31, 201, which is similar to those under subparagraphs 1 through 12 on December 31, 2001, includes interest income in the nature of consideration following the use of money, thereby taking a tangible comprehensive principle in determining interest income subject to taxation. On the other hand, the Income Tax Act only imposes income tax only on income prescribed by the Act, and does not impose tax on income not listed as taxable objects such as foreign exchange transaction profit arising from exchange rate difference in foreign exchange transactions.

(2) Whether the interest income from the gift exchange transaction of this case constitutes interest income in the nature of payment due to the use of money as income similar to the interest of deposit interest

(A) Although the transaction form, which the parties take place, is an act to avoid the burden of tax, it shall be deemed valid unless there are special circumstances, such as that the above act constitutes the disguised act. Thus, to deny this, a legal basis is required in light of the request for legal stability or predictability to protect taxpayers from the person with the power (see Supreme Court Decision 90Nu3027, May 14, 1991).

In full view of the following circumstances revealed from the aforementioned facts and the purport of the entire pleadings, it is difficult to view that the instant futures exchange transaction is merely a fictitious act, or that the instant transaction is merely a single won deposit transaction taking the form of foreign currency regular deposits and futures exchange transactions. Rather, it is reasonable to deem that the instant securities exchange transaction, the instant deposit transaction, and the instant futures exchange transaction were effective as a separate juristic act, respectively.

① Although the Plaintiffs did not specifically recognize the structure of the instant transaction or the actual condition of the forward exchange transaction at the time of entering into the instant transaction contract with AA bank, they were engaged in the instant transaction with the awareness that financial income is exempt from taxation, and thus, it would have been able to obtain tax revenues higher than general deposits through forward exchange transaction. Therefore, it cannot be deemed that there was an explicit or implied agreement between the Plaintiffs and AA bank that the forward exchange contract was merely a formal only, and that the fact that the forward exchange contract was invalid.

② At the time of the instant transaction with AA bank, the Plaintiffs separately entered into a contract for foreign currency deposit and a forward exchange contract of this case with the respective separate document. The agreed exchange rate applicable to the instant forward exchange transaction is not determined voluntarily by AA bank, but determined by reflecting the actual forward exchange rate in each foreign exchange market at the time of the instant transaction.

③ In the event that there is no separate declaration of intent from the customer on the re-agreement before maturity while selling the swap deposit, AAA Bank is made by automatically terminating the UN regular deposit contract and the forward exchange contract and making it deposited into the customer files designated in advance. In the event of termination of the UN regular deposit contract, the gift exchange contract is also terminated at the same time, but it seems that the instant forward exchange contract is closely combined with the instant deposit contract for the purpose of achieving the UN swap deposit transaction.

④ The final determination of profits and losses to be gained by the parties to a transaction according to the futures exchange rate and the spot exchange rate at the time of conclusion of the contract is natural in view of the general futures exchange transaction. In particular, as at the time of conclusion of the contract in this case, if the futures exchange rate at the time of conclusion of the contract in this case is higher than the spot exchange rate, i.e., the UN/C. swap point at the time of conclusion of the contract in this case, and if the situation continues to be both (+), it is determined definitely that profits should be earned during the due date. Therefore, it is difficult to view that the Plaintiffs’ profits earned through the instant transaction depends on the nature of the instant transaction. Furthermore, the meaning of the fact that the profits earned by the Plaintiffs are conclusive by the instant forward exchange transaction is merely the meaning that the gift exchange rate at the time of conclusion of the contract in this case is higher than the spot exchange rate at the time of conclusion of the contract, and it is difficult to view that there is no risk of exchange at all in this case, since there is no possibility of exchange.

⑤ In the instant case, there is insufficient evidence to prove that AA bank engaged in tacking transactions in order to avoid exchange risk caused by the instant transaction. However, whether to engage in tacking transactions to avoid risk, and whether to avoid exchange risk without conducting tacking transactions is a matter of choice by the financial institution itself depending on the situation and prospects of the foreign exchange market. Thus, even if there was no tacking transaction related to the instant transaction, it does not constitute circumstances that may affect the nature of the instant transaction.

6. Generally, interest refers to the amount of money received or its substitute in proportion to the original amount and the lending period. The Plaintiffs’ profit derived from the instant futures exchange transaction is not proportional to the trading period, and even if the transaction amount and the period are identical, it differs depending on the agreed futures exchange rate at the time of such transaction.

7) As a result, the AA bank paid won currency at the maturity of most customers at the time of the instant transaction. However, according to the each entry of the evidence No. 14-1 through No. 5, the AA bank entered the instant deposit contract into and entered the amount of deposit into the UNFCCC account and the amount of deposit into the UNFCCC account in various books including financial statements. Accordingly, it is recognized that the NA bank’s foreign currency balance sheet from around 2003, which was the time of the instant transaction, to around 2004, entered more than 2002, and thus, it is difficult to readily conclude that the AA bank operated the Korean won currency fund by deeming the amount of deposit received from customers, unlike the entry in the general corporate accounting principles and the guidelines for the management of deposits, to have been raised as the Korean won fund in violation of the general accounting principles of the AA bank.

(B) When a taxpayer engages in economic activities, he/she may choose any of the various legal relations in order to achieve the same economic purpose by taking into account the efficiency of the objectives and the degree of the burden of relevant expenses, such as taxes, among the various legal relations, and the tax authority shall respect the legal relations chosen by the parties, except in extenuating circumstances (see Supreme Court Decision 2000Du963, Aug. 21, 2001).

As seen earlier, insofar as all transactions constituting the instant transaction are valid as separate legal acts, it is reasonable to view that the content and scope of taxation are determined individually in accordance with the legal relationship. Although the instant futures exchange contract was closely combined with the instant deposit contract, the Plaintiffs were less burden of income tax than when they entered into a general deposit contract and receive interest by taking such a form of transaction, such circumstance alone does not require the same treatment under the tax law regardless of the difference in the legal form (the same shall apply in cases of this case where the legality of taxation disposition on the income before the establishment of Paragraph (3) by the amendment of Article 14 of the Framework Act on National Taxes on December 31, 2007 is at issue). In view of the nature of the benefits derived from the instant futures exchange transaction, the benefits arising from the instant futures exchange transaction are merely a kind of foreign exchange profit, which is a capital interest, and it is reasonable to deem that the said transaction is not a consideration for the use of money as income similar to the interest on deposits.

(3) Whether profits from the instant futures exchange transactions constitute interest income in the nature of the consideration for the use of money, as income similar to the trading marginal profits from bonds or securities with repurchase agreement

Article 16 (1) 9 of the Income Tax Act and Article 24 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010) on the premise that gains from trading with repurchase agreement are profit margins on bonds or securities. However, in cases of profits from trading with repurchase agreement under Article 16 (1) 9 of the Income Tax Act, compared to other interest income listed in each subparagraph of the same paragraph such as interest and discount amount, in essence, the nature of the consideration for use of money is weak, and Article 16 (1) 9 of the Income Tax Act and Article 24 of the Enforcement Decree of the same Act restrict the scope of the profits from trading with repurchase agreement as interest income, considering that Article 16 (1) 13 of the Income Tax Act is defined in the form of a tangible universal principle, it is reasonable to deem that the expansion of the target assets to foreign currency, other than bonds or securities, can not be permitted in accordance with the principle of no taxation without law.

(4) Sub-determination

Therefore, each of the dispositions of this case based on the premise that the profit accrued from the gift exchange transaction of this case constitutes interest income as stipulated in Article 16 (1) 13 of the Income Tax Act is unlawful without considering the remaining arguments of the plaintiffs.

4. Conclusion

The plaintiffs' claims are justified, and all of them are accepted.