Seoul Administrative Court-2014-Gu Partnership-67444 (O7.03, 2015)

Cho Jae-2013-west-2591 ( October 17, 2014)

Where interest income corresponding to the period that has passed pursuant to the corporate accounting standards is appropriated, the period to which such interest income accrues shall be included in gross income.

Where the interest income corresponding to the period that expired pursuant to the corporate accounting standards is appropriated, the period of attribution of such interest income is the business year in which the profit is appropriated, and even if the interest rate has not been determined at the end of the business year,

Article 70 of the Enforcement Decree of Corporate Tax Act

Action Demanding Revocation of a Corporate Tax Correction Request

The Bankruptcy Trustee BB Insurance Corporation of Korea AA Bank Corporation

The director of the tax office

Seoul Administrative Court Decision 2014Guhap67444 decided July 3, 2015

on January 30, 2016

October 28, 2016

1.The judgment of the first instance shall be modified as follows:

A. The Defendant’s revocation of the part exceeding KRW 237,225,544 of the disposition rejecting an application for rectification regarding KRW 863,671,353 of the corporate tax for the business year from July 1, 2009 to June 30, 2010, against the Korea AAO Bank Co., Ltd. as of November 28, 2012.

B. The plaintiff's remaining claims are dismissed.

2. 30% of the total costs of litigation shall be borne by the Plaintiff, and 70% by the Defendant, respectively.

Cheong-gu Office

1. Purport of claim

The defendant's rejection of a request for correction of corporate tax for each business year from July 1, 2008 to June 30, 2009, and from July 1, 2009 to June 30, 2010, shall be revoked, where the defendant made to the Korea ADA Bank Corporation on November 28, 2012.

2. Purport of appeal

The judgment of the first instance is revoked, and the plaintiff's claim is dismissed.

1. Details of the disposition;

A. The Korean AA Bank Co., Ltd. (hereinafter referred to as the "Bankruptcy Corporation") which is a corporation operating a financial business that falls under the financial insurance business under the Korean Standard Industrial Classification shall transfer the insolvent project financial bonds (hereinafter referred to as "bonds subject to the post-management") to the KoreaCC as shown in the table 1, along with a security. In return, the KoreaCC Co., Ltd. (hereinafter referred to as "private equity bonds of this case") shall acquire in return for the transfer of the bonds subject to the de facto settlement with the security.

Details of transfer of bonds subject to ex post facto settlement or subscription of privately placed bonds;

(unit: million won)

first day; and

Transfer of Claims

Subscription to private equity bonds;

Acceptance Price

Due Date

December 30, 2008

16,000

10,000

December 30, 2011

March 18, 2009

120,582

106,028

March 18, 2012

June 30, 2010

12,463

85,580

June 30, 2013

June 30, 2011

98,731

75,354

December 31, 2014

Consolidateds

347,776

276,962

B. A bankrupt corporation agreed with the KoreaCC Corporation to settle accounts when the amount of claims subject to ex post facto settlement becomes final and conclusive due to the completion of the sale of securities on the claims subject to ex post settlement. The bankrupt corporation paid to the KoreaCC Corporation an amount calculated by subtracting interest on privately placed bonds from the total amount of management expenses, such as interest on ex post settlement and sales expenses of securities, until the post settlement.

C. From July 1, 2008 to June 30, 2009 and from July 1, 2009 to June 30, 2010, a bankrupt corporation included interest income on privately placed bonds and other liabilities (such as estimated loss amount, interest expenses, and other management expenses) as shown in the following table 2 in the business year from July 1, 2008 to June 30, 2009. The interest expenses, etc. on bonds subject to ex post facto settlement of accounts shall be deemed deductible expenses for the business year in which the date of settlement of accounts falls, and thus, the interest income on privately placed bonds was adjusted as deductible expenses, but the corporate tax was reported for each business year without a separate tax adjustment.

Details of returns on private bonds, interest accrued thereon, and appropriating other appropriation liabilities.

(unit: Won)

Business year

Classification

Above July 1, 2008

June 30, 2009

July 1, 2009

Above June 30, 2010

Total

Interest on private equity bonds;

1,630,620,896

5,742,157,724

7,372,778,620

Other appropriation liabilities

Amount of loss of bonds subject to ex post facto settlement

2,402,246,093

11,304,025,942

13,706,272,035

Bonds subject to ex post facto settlement;

Settlement Interest

1,787,038,629

8,098,934,509

9,885,973,138

Preparation against Internet banking accidents

100,000,000

100,000,000

200,000,000

Debt for Litigation

728,000,000

728,000,000

Consolidateds

4,289,284,722

20,230,960,451

24,520,245,173

D. On September 28, 2012, a bankrupt corporation reported the amount of corporate tax for the business year from July 1, 2008 to June 30, 2009 and the business year from July 1, 2009 to June 30, 2010 (from July 1, 2008 to June 30, 2009) 863,671,353 won (from July 1, 2008 to June 30, 2009) of corporate tax for the business year from July 1, 2008 to June 30, 2012 on the ground that the interest income of the privately placed bonds should be deemed to be the taxable income for the business year which includes the date of settlement of the bonds subject to ex post facto settlement, and thus, filed a revised return of the deficit amount to the tax base on the grounds that the amount falls short of the deficit amount to the tax base.

E. On November 28, 2012, the Defendant refused to file a claim for correction on the ground that the time when interest accrued on privately placed bonds reverts is the business year appropriated as profits pursuant to the proviso of Article 70(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010) and that the initial report is lawful because it corresponds to the accounting of the bankrupt corporation. (hereinafter “instant disposition”).

F. On December 27, 2012, a bankrupt corporation filed an objection with the director of the Seoul Regional Tax Office, but was dismissed. On May 15, 2013, the Tax Tribunal dismissed the request for adjudication on June 17, 2014.

G. Meanwhile, on April 30, 2013, the Plaintiff was appointed as a bankruptcy trustee of the bankrupt corporation by the Seoul Central District Court Decision 2013Hahap47 dated April 30, 2013.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 6, 8, 10, 11, 13 (including relevant numbers)

Each entry, the purport of the whole pleadings

2. Whether the instant disposition is lawful

(a) Relevant statutes;

It is as shown in the attached Form.

B. The plaintiff's assertion

1) Claim for violation of the principle of confirmation of right

The maturity of the private equity bonds accepted by the bankrupt corporation is three years, and the interest rate is three years from the date immediately preceding the date of the conclusion of the contract to the date of the payment of interest (the date of the settlement after the death), and the average monthly rate is the average of the appraised rate for one month as publicly notified by the KIS Bonds Assessment Company. Accordingly, the interest rate of the private equity bonds in this case is determined only after the date of the ex post facto settlement, and it is not finalized before that date. Therefore, even if the bankrupt corporation included the estimated amount in the business year from July 1, 2008 to June 30, 2010 when the interest rate of the private equity bonds in this case was not determined, it cannot be deemed as having been determined as having become final and conclusive as income under Article 40(1) of the Corporate Tax Act, and thus the dispositions in this case on different premise is unlawful.

2) Violation of the principle to cope with profit costs

The interest income of the private equity bonds and the interest expenses of the bonds subject to the ex post facto settlement are not separate, but are accurately responding to the period and object of the settlement. Therefore, as alleged by the defendant, the interest expenses of the bonds subject to ex post settlement are deemed deductible expenses for the business year in which the date of settlement falls, and if only the interest income of the private equity bonds of this case is appropriated as gross income for the past business year, this goes against the principle of income cost response

3) The assertion of violation of substance over form principle

The interest income from the private equity bonds of this case is set off against the interest expense of the bonds subject to ex post facto settlement, and is merely an amount of calculation rather than the actual interest income. Therefore, the disposition of this case rejecting the Plaintiff’s request for correction by deeming the Plaintiff’s request for correction as the gross income for the pertinent business year after the lapse of the period is contrary to Article 14(2) of the Framework Act on National Taxes, which provides that the

4) Claims related to withholding

With respect to the period of attribution of interest income, Article 40 of the Corporate Tax Act and Article 70(1)1 of the Enforcement Decree of the Corporate Tax Act shall be based on the business year in which the date of actual receipt is included in the case of any corporation that runs the finance and insurance business, and where the portion of interest income has been appropriated as profits for the period due to special exception, it shall be recognized as earnings for the relevant business year. However, interest income subject to such special exception does not include the interest income withheld under Article 73 of the Corporate Tax Act. From January 1, 2010 to June 30, 2010 among the interest income appropriated as profits for the business year from July 1, 2009 to June 31, 2010, the interest income from which the bankrupt corporation counted as profits is included in the subject of withholding under the amended Corporate Tax Act and the Enforcement Decree of the Corporate Tax Act as amended on December 31, 2009. Accordingly, the KoreaCC withheld the corporate tax of the bankrupt corporation corresponding to the above period from January 1, 201, 20101.

C. Determination

1) Article 40(1) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010) provides that "the fiscal year of accrual of earnings and losses for each fiscal year of a domestic corporation shall be the fiscal year which includes the date on which the concerned earnings and losses are settled." Article 70(1)1 of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 22184, Jun. 8, 2010) provides that "the fiscal year of accrual of earnings for interest income received by a corporation shall, in principle, be the fiscal year which includes the date of actual income in the case of a corporation operating financial and insurance business under the Korea Standard Industrial Classification such as the bankrupt corporation, but Article 73 of the Corporate Tax Act provides that "where the interest corresponding to the period which has already passed is appropriated as earnings for the concerned fiscal year, the fiscal year of accrual of earnings and losses shall be the fiscal year which includes the date on which the concerned corporation's earnings and losses are settled."

Meanwhile, Article 73 of the Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009) provides that in principle, a person who pays interest income under Article 127(1)1 of the Income Tax Act, including the income amount of a corporation operating a financial insurance business, shall withhold corporate tax and pay it to a domestic corporation at the tax office having jurisdiction over the place of tax payment. In addition, Article 111 of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 21972, Dec. 31, 2009; Presidential Decree No. 21972, Jan. 1, 2010; Presidential Decree No. 111 of the Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; Presidential Decree No. 22030, Dec. 31,

(ii) the facts of recognition

A) On December 30, 2008, the bankruptcy corporation acquired 10 billion won of the private equity bonds of this case from the KoreaCC (the face value is KRW 8,069,463,82) and set the interest rate as the monthly average yield of bonds (special bonds) AA three years from the immediately preceding month from the date of payment of interest to the immediately preceding month from the date of the payment of interest (the average of the appraised return for one month from the immediately preceding month of December 30, 2008), the date of repayment of principal was December 30, 201, and the date of payment of interest was determined as the date of repayment of principal or the date of settlement of interest on the bonds subject to settlement of principal or ex post facto settlement, and as the date of settlement of interest on private equity bonds interest.

B) In addition, on March 18, 2009, the bankruptcy corporation acquired KRW 106,028,213,538 of the private equity bonds of this case from the KoreaCC and set the interest rate as the average monthly yield of bonds (special bonds) from the immediately preceding month of March 18, 2009 to the immediately preceding month of the payment date of interest (the average of the appraised return for the one-month period publicly notified by the Korea Exchange and Assessment Corporation), and set the date of principal repayment as March 18, 2012, the date of principal repayment was March 18, 2012.

C) On June 30, 2011, a bankrupt corporation settled the amount calculated by subtracting the corporate tax withheld amount from the interest income of private equity bonds acquired on December 30, 2008 and March 18, 2009, from the interest income of private equity bonds acquired on or after March 18, 201, and pays the difference to the KoreaCC.

D) Meanwhile, from July 1, 2008 to June 30, 2009, the bankruptcy corporation acquired private equity bonds (hereinafter referred to as "private equity bonds") on December 30, 2008 during the business year from July 1, 2008 to December 30, 2009 (=8,069,463,822 per annum 】 4.72% per annum 】 183 days (from the date of the acquisition of the private equity bonds until June 30, 2009), 190,961,098 ("private equity bonds") interest x 365 days per annum x 96 days per annum 186 days per annum (hereinafter referred to as "private equity bonds") x 96 days per annum 209, 209, 309 x 96 days per annum x 96 days per annum x 196 days per annum 29, 209.

E) A bankrupt corporation: (i) during the business year from July 1, 2009 to June 30, 2010, KRW 600,916,390 [The par value of the privately placed bonds x KRW 8,069,463,822 x 4.96% per annum x 548 days (round June 30, 2010, which is the closing date of the business year from the date the privately placed bonds are subscribed), interest income of the privately placed bonds 6,71,862,230 won [the amount less than KRW 6,771,862, 230 x 106, 206, 360 x 765 x 7636, 278636, 27865 x 760 x 76365% per annum x 4706% per annum

F) From July 1, 2008 to June 30, 2009, the bankrupt corporation appropriates interest income on the private equity bonds during the business year as of December 30, 2008 and March 18, 2009, and 4.72% per annum as the interest rate, which is 4.72% per annum as of June 2009 when it appropriates interest income on the private equity bonds during the business year as of March 18, 2009. From July 1, 2009 to June 30, 2010, it was 4.0% per annum as of June 1, 2009 and 3.0% per annum as of July 30, 2008 to 30.6% per annum as of March 18, 2009 to 4.0% per annum as of the actual average interest rate of the private equity bonds of this case as of March 18, 2009.

G) The result of this court's inquiry into the Korea Accounting Institute

1. According to the corporate accounting standards, interest income is determined in advance in accordance with a contract (which means that the amount of profit is not necessarily determined) and profit is generated upon the lapse of time, so that it is recognized in accordance with the effective interest rate (which means that the amount of profit is not necessarily determined) by applying the effective interest rate (the term “effective Interest Rate Act” means the method of calculating the amount of discount or premium increase by applying the effective interest rate. The effective interest rate refers to the interest rate which serves the current value of cash inflows expected from debt securities to

② Therefore, if the amount of interest income can be presumed in a reliable manner based on reasonable grounds as specified in the bond acquisition contract and the possibility of inflow of economic benefits is high, the interest income for the pertinent fiscal year can be recognized.

(3) In cases where there are reasonable grounds for estimation based on estimation, interest income shall be recognized by applying the interest rate calculated on a reasonable basis, even if the amount of revenue at the end of each fiscal year cannot be determined, even if the amount of revenue at the end of each fiscal year is determined.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 4, 5, 9, 10, 11, 12, 14, and 15 (including relevant numbers), the result of each inquiry into the KoreaCC Corporation, and the Korea Accounting Institute, the purport of the entire pleadings

3) Determination

A) Determination on the assertion of violation of the principle of confirmation of right

In full view of the contents of the above Act and the fact-finding results on the Korea Accounting Institute of this Court, the purport of Article 70(1)1 (proviso) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010) provides that "in the case of interest income received by a corporation, the interest corresponding to the period that has already passed shall be included in earnings for the business year concerned in the settlement of accounts, if the interest income is appropriated as earnings for the business year concerned in the settlement of accounts, it shall be included in earnings for the business year concerned."

In this case, as seen earlier, the bankrupt corporation appropriates the interest interest rate of the private placement bonds of this case from July 1, 2008 to June 30, 2009 and from July 1, 2009 to June 30, 2010, since the interest rate of the private placement bonds of this case has not yet been determined at the time of the above appropriation, it seems that it is reasonable to estimate the interest rate of the private placement bonds of this case as the basis of the average monthly profit rate of the special bond bonds of this case of the last three years of the business year (from July 1, 2008 to June 30, 2009) or the average monthly profit rate of the middle month of the business year (from July 1, 2009 to June 30, 2010 to estimate the interest rate of the private placement bonds of this case as the basis of the corporate accounting standards of the pertinent private placement bonds of this case (the average monthly interest rate of the private placement bonds of this case).

Therefore, the interest income calculated by deeming the interest income corresponding to the period that the bankrupt corporation has already lapsed as the interest income shall be deemed to be attributed to the pertinent business year, and the fact that the interest rate of the private placement bonds in this case has not yet been specifically determined in each business year cannot be deemed to be contrary to the principle of confirmation of rights. Therefore, the plaintiff'

B) Determination as to the assertion of violation of the principle of profit cost response and substance over form principle

The interest income of the private placement bonds of this case and the interest expenses of the bonds subject to ex post facto settlement are expected to be offset at the time of settlement. However, according to the statement of the Gap Nos. 4 and 5-1 and 2-2, the interest income of the private placement bonds of this case is generated according to the "non-guaranteed private placement bonds underwriting contract" between the bankruptcy corporation and the KoreaCC corporation, and the interest expenses of the bonds subject to ex post settlement are generated according to the "transfer and acquisition contract of the loan bonds held between the bankruptcy corporation and the KoreaCC corporation". Since the legal relation differs, they are offset at the time of settlement, they cannot be deemed that they are in a relationship of profits and expenses with each other, or that the interest income of the private placement bonds of this case is merely a calculation without substance. Accordingly, the plaintiff's assertion that the disposition of this case violates the profit cost response principle or violates the principle

C) Determination on the assertion related to withholding

(1) Article 73 of the Corporate Tax Act, amended by Act No. 9898, Dec. 31, 2009; Article 111(2)1 and 111(3)2 of the Enforcement Decree of the Corporate Tax Act, amended by Presidential Decree No. 21972, Dec. 31, 2009; the interest income of the instant privately placed bonds accrued after January 1, 2010 shall be subject to corporate tax; Article 70(1)1 of the Enforcement Decree of the Corporate Tax Act provides that where the interest and discount amount corresponding to the period that has already lapsed is calculated as profit for the pertinent business year when the settlement of accounts is finalized, the interest and discount amount withheld pursuant to Article 73 of the Corporate Tax Act shall be included in the income for the pertinent business year; and the interest and discount amount withheld pursuant to Article 73 of the said Corporate Tax Act shall be excluded from the corporate tax withheld at the time of settlement on June 30, 2011.

Therefore, as between January 1, 2010 and June 30, 2010, interest income of the private placement bonds of this case between January 1, 2010 and June 30, 2010 falls under the interest withheld under Article 73 of the Corporate Tax Act and thus, even if the bankrupt corporation has appropriated it as profits in settling accounts for the above interest income, it shall not be deemed as earnings for the pertinent business year. Thus, when filing a corporate tax return for the business year from July 1, 2009 to June 30, 2010, the portion of the original declaration of the private placement bonds of this case, which included the interest income of the private placement bonds of this case in its gross income, should be calculated again by subtracting the above interest income from gross income, and thus, the part of the disposition of this case which rejected correction of corporate tax amount on the above interest income of this case is unlawful, and this part of the plaintiff's assertion is with merit.

(2) As to this, the defendant asserts that "income, such as income on which corporate tax is not imposed or exempted, prescribed by Presidential Decree" in the main sentence of Article 73 (1) of the above Corporate Tax Act is excluded from withholding, and Article 111 (1) 3 of the Enforcement Decree of the Corporate Tax Act delegated by the defendant provides that "income already included in the reported tax base is one of the income excluded from withholding tax," and that the bankruptcy corporation's interest income of the private placement bonds of this case between January 1, 2010 and June 30, 2010 shall be included in the corporate tax base for the business year from July 1, 2009 to June 30, 2010, and thus, the above interest income does not fall under "interest withheld under Article 73 of the Corporate Tax Act."

In the settlement of accounts under the proviso of Article 70 (1) 1 of the Enforcement Decree of the Corporate Tax Act, the purpose of "interest, etc. on a period which has already passed" is to prevent double taxation because it is likely to be withheld at the time of actual payment of interest, etc. if it is included in the tax base by considering "interest, etc. on a period which has already passed" as earnings for the business year of the appropriated business year excluding the interest income subject to withholding under Article 73 as earnings for the business year of the appropriated business year excluding the interest income subject to withholding. In addition, Article 111 (1) 3 of the Enforcement Decree of the Corporate Tax Act excludes "interest, etc. already included in the tax base" as income subject to withholding under the proviso of the above Article 70 (1) 1 of the Enforcement Decree of the Corporate Tax Act excluding the applicable income from the taxable year excluding the interest income subject to withholding. Thus, the defendant's assertion that the accrued interest can not be included in the tax base under Article 7 (1) 1 of the Enforcement Decree of the Corporate Tax Act as the above.

(3) The calculation of the amount of legitimate tax for the business year from July 1, 2009 to June 30, 2010

From July 1, 2009 to June 30, 2010, a bankrupt corporation calculated interest income of the privately placed bonds 600,916,390 won [=8,069,463,822 won per annum x 4.96% per annum x 548 days (by June 30, 2010), interest income of the privately placed bonds 6,71,862,230 won [from March 18, 2010] 360 to December 30, 208; 206.36% per annum ; 360 to 76.6% per annum 56% per annum ; 207 to 36.6% per annum ; 36.6% per annum ; 207 to 36.76% per annum ; 207.6% per annum ; 36.65% per annum x 207.36% per annum 57.636% per annum

Therefore, the amount calculated as interest income for 181 days from January 1, 2010 to June 30, 2010 for each of the above privately placed bonds is KRW 2,847,480,953 (i.e., KRW 5,742,157,724 x 181/365). The tax base amount for taxation when calculating the above amount from the initial tax base amount of KRW 4,025,778,81 is 1,178,297,928 (i.e., KRW 4,025,778,781 - 2,847,480,953). Accordingly, if the corporate tax amount for the business year from July 1, 2009 to June 30, 2010 is calculated, the tax base amount for taxation shall be 237,254,254,255, and the tax base amount shall be calculated as separate sheet.

D) Sub-determination

Ultimately, among the instant dispositions, a disposition rejecting an application for rectification against the corporate tax for the year from July 1, 2008 to June 30, 2009 is lawful. However, the portion exceeding KRW 237,225,54, out of the disposition rejecting an application for rectification against corporate tax for the business year from July 1, 2009 to June 30, 2010, exceeds KRW 237,225,544, should be revoked.

3. Conclusion

Therefore, among the plaintiff's claims in this case, the claim for cancellation of the claim for rejection of the corporate tax for the business year from July 1, 2009 to June 30, 2010 from the above recognition scope shall be accepted as part of the claim within the above recognition scope, and the remaining claims shall be dismissed as it is without merit. The judgment of the court of first instance is unfair in part of the conclusion, and it is so decided as per Disposition by the court of first instance to revise the judgment as above.