[1] The meaning of "donations under Article 24 (2) of the former Enforcement Decree of the Corporate Tax Act" under Article 56 (3) of the former Enforcement Decree of the Corporate Tax Act concerning the calculation of "income accrued from profit-making business," which is a premise for the limit of inclusion of reserve funds for proper purpose business in deductible expenses (=amount disbursed by

[2] In a case where a medical corporation Gap reported and paid corporate tax for the pertinent business year by deeming the income amount based on the calculation standard for the inclusion of the statutory donations in deductible expenses as well as the statutory donations and designated donations before the inclusion in deductible expenses, the case affirming the judgment below holding that the "income amount for the pertinent business year" under Article 24 (1) and (2) of the former Corporate Tax Act, which is the basis of the calculation of the maximum amount of inclusion in deductible expenses of the statutory donations, refers only to the income amount prior to the inclusion

[1] Article 24(1)1, 2, and (2), Article 29(1)4 and (8) of the former Corporate Tax Act (amended by Act No. 13555, Dec. 15, 2015; hereinafter the same shall apply), Article 56(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26981, Feb. 12, 2016; hereinafter the same shall apply), the language and structure of Article 24(1)1 and 24(2) of the former Corporate Tax Act, and the “donation included in deductible expenses pursuant to Article 24(2)2 of the former Corporate Tax Act,” separates the “donation included in deductible expenses” from the “annual donations” under Article 24(2)1 and 24(2) of the former Enforcement Decree of the Corporate Tax Act, and the interpretation of tax laws shall be construed as the “annual donations” under Article 24(2)4 of the former Enforcement Decree of the Corporate Tax Act, which refer to the maximum amount of the donations in deductible expenses.

[2] In a case where a medical corporation Gap reported and paid corporate tax for the pertinent business year on the grounds that the income amount based on the calculation of statutory donations and designated donations as well as the income amount before including the reserves for its proper purpose business in deductible expenses with respect to the calculation of the limit of inclusion of statutory donations in deductible expenses, the case affirming the judgment below that the "income amount for the pertinent business year" under Article 24 (1) and (2) of the former Corporate Tax Act (amended by Act No. 13555, Dec. 15, 2015) which is the basis of the calculation of the limit of inclusion of statutory donations in deductible expenses means the income amount before the statutory donations and designated donations are included in deductible expenses, and that it cannot be interpreted as the income amount before the statutory donations

[1] Article 24(1) and (2) (see current Article 24(2) and (4) of the former Corporate Tax Act (Amended by Act No. 13555, Dec. 15, 2015); Article 29(1)4 (see current Article 29(1) and (3) and (8) (see current Article 29(10)); Article 56(3) of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 26981, Feb. 12, 2016); Article 24(1) and (2) (see current Article 24(2) and (4) of the former Corporate Tax Act (Amended by Act No. 13555, Dec. 15, 2015; see current Article 29(2) and (2) and (3)); Article 29(1)4 (see current Article 29(2) and (2) and (2) of the former Enforcement Decree of the Corporate Tax Act (see current Article 29(2) and (2) and (3) of the former Enforcement Decree).

[1] Supreme Court Decision 2016Du35083 Decided September 7, 2017 (Gong2017Ha, 1926)

Medical Corporation Eul Hospital (Law Firm LLC, Attorneys Mok-ok et al., Counsel for the defendant-appellant)

The director of the Nam-gu Tax Office (Law Firm Associate, Attorneys Su-soo et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2017Nu75967 decided January 25, 2018

The part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the Seoul High Court. The Plaintiff’s appeal is dismissed.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the Defendant’s ground of appeal

A. Article 29(1) of the former Corporate Tax Act (amended by Act No. 1355, Dec. 15, 2015; hereinafter the same shall apply) provides that “where a non-profit domestic corporation appropriates reserve funds for proper business purposes as deductible expenses in order to use them for the proper purpose business of the corporation or designated donations each business year, they shall be included in deductible expenses within the scope of the sum of the amounts under each of the following subparagraphs (hereinafter referred to as “limit on inclusion of reserve funds for proper purpose business purposes”) and that “in principle, an amount calculated by multiplying 50/10 by the amount of income generated from profit-making business other than those under subparagraphs 1 through 3” under subparagraph 4 by Article 29(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26981, Feb. 12, 2016; hereinafter the same shall apply) and Article 56(2)4(3) of the Act shall be included in deductible expenses.”

Meanwhile, Article 24(1) of the former Corporate Tax Act provides that “The amount in excess of 10/100 of the amount computed by subtracting the amount under subparagraph 2 from the amount under subparagraph 1 (hereafter referred to as “limit on inclusion in deductible expenses” in this Article) among donations made by a domestic corporation in consideration of public interest, such as social welfare, culture, arts, education, religion, charity, science, etc. among donations made during each business year (hereafter referred to as “designated donations”) shall not be included in deductible expenses for the pertinent business year.” In subparagraph 1, Article 24(1) of the same Act provides that “The sum of donations included in deductible expenses pursuant to paragraph (2) and the amount exceeding the statutory donations under subparagraph 1 of Article 13 shall not be included in deductible expenses, excluding transfer gains or losses under Articles 44, 46 and 46-5, shall not be included in deductible expenses; hereafter the same shall apply in this Article)” in subparagraph 2 of the same Article provides that “the amount exceeding the statutory donations under subparagraph 1 of the same Article shall not be included in deductible expenses.”

B. In full view of the language and structure of these provisions, Article 24(1)1 and 24(2)2 of the former Corporate Tax Act separates “donations under Article 24(2) of the Act” from “donations included in deductible expenses pursuant to Article 24(2) of the Act,” and Article 24(2) of the former Corporate Tax Act prevents taxation requirements or non-taxation requirements or tax reduction or exemption requirements under the principle of no taxation without law, and the interpretation of tax laws should be interpreted as statutory provisions, barring special circumstances (see, e.g., Supreme Court Decision 2016Du35083, Sept. 7, 2017). The “donations under Article 24(2) of the former Enforcement Decree of the Corporate Tax Act” under the main sentence of Article 56(3) of the former Enforcement Decree of the Corporate Tax Act concerning the calculation of “income accrued from profit-making business” which is a premise for inclusion in deductible expenses shall be deemed to mean “statutory donations paid by a non-profit domestic corporation” rather than “amount of donations.

C. Nevertheless, solely based on its stated reasoning, the lower court determined that the part of the instant disposition, which differs from the premise thereof, was unlawful, because the “donation pursuant to Article 24(2) of the Act” refers to the maximum amount of inclusion in deductible expenses of statutory donations. In so determining, the lower court erred by misapprehending the legal doctrine on the maximum amount of inclusion in deductible expenses of the reserve fund for essential business purposes,

2. Plaintiff’s ground of appeal

Article 24(1) of the former Corporate Tax Act provides that "the amount of income for the relevant business year (excluding transfer gains or losses under Articles 44, 46, and 46-5, and the amount before including donations and designated donations in deductible expenses pursuant to paragraph (2); hereafter the same shall apply in this Article)" and Article 24(2) of the same Act provides that the maximum amount of inclusion of statutory donations in deductible expenses shall be calculated by multiplying the amount of income for the relevant business year by 50/100 after subtracting losses under subparagraph 1 of Article 13 from the amount of income for the relevant business year.

For the reasons indicated in its holding, the lower court determined that the “income amount for the pertinent business year”, which serves as the basis for calculating the maximum amount of inclusion in deductible expenses of the statutory donations, means the amount of income before including only the statutory donations and designated donations in deductible expenses, and that it cannot be interpreted as the income amount before including the statutory donations and designated donations in deductible expenses

Considering the language and text of the foregoing provision and the principle of strict interpretation of tax laws, the lower court cannot be deemed to have erred by misapprehending the legal doctrine on the interpretation of income amount in the pertinent business year, contrary to what is alleged in the grounds of appeal.

3. Conclusion

Therefore, the part of the judgment of the court below against the defendant is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The plaintiff's appeal is dismissed. It is so decided as per Disposition by the assent of all participating

Justices Kwon Soon-il (Presiding Justice)