Wrongful calculation of a loan contract for consumption under which interest payment is agreed;

Since it is not borrowed without compensation or at a lower rate than the market price, it is borrowed at a rate of 13% per annum higher than 11% per annum, which is the monthly interest rate for the current account, the recognized interest and appropriation are illegal.

Article 52 of the Corporate Tax Act § 52. Denial of wrongful calculation

Article 87 of the Enforcement Decree of the Corporate Tax Act

1. The Defendant’s disposition of imposition of global income tax of KRW 152,553,930 against the Plaintiff on January 3, 2004 shall be revoked.

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

1. Purport of claim

The same shall apply to the order.

1. Details of the disposition;

The following facts are without dispute between the parties, or evidence Nos. 1-1, 2, 5, 7 through 10, Gap evidence No. 11-1, 4, 5, Gap evidence No. 12-5, 13, Gap evidence No. 14-5, 6, 15-3, Gap evidence No. 16, 17-1, 2-1, 3-2, 3-1, 3, 4-1, 5-1, 6-1, 5-2, 5-1, 5-1, 5-2, 5-1, 5-1, 5-2, 5-1, 5-2, 5-1, 5-1, 5-2, 5-1, 6-1, 5-2, 5-1, 5-1, 5-2, 5-2, 3-1, 5-1, 5-2, and 5-1, 5-1, 2, and 4-1.

A. From February 27, 1986, the Plaintiff was in office as the representative director of the ○ industry, and resigned on March 3, 1994, and the ○○ industry (hereinafter referred to as “○○ industry”) as the ○○○ industry on December 27, 1995, and on January 13, 1998, as the ○○ Company on December 27, 2000, as the ○○○ Company on December 27, 2000, and as the ○○○ Company on February 2003, as the ○○○ Company on December 27, 2000.

B. As of December 31, 1992, 240,000 shares issued by the ○ industry were all 2,000 shares. Of them, 116,00 shares were owned by the Plaintiff, 70,000 shares by the Plaintiff, 116,00 shares by the Plaintiff, 16,00 shares by the Plaintiff, 16,00 shares by the ○○○○○○, 6,000 shares by the Plaintiff’s ○○○, and the other 32,00 shares by the Plaintiff’s ○○, and the other 32,00 shares by the Kim○.

However, on March 3, 1994, the Plaintiff resigned from the position of the representative director of the ○ industry and held title trust with 116,000 shares of the ○○ industry owned by the Plaintiff.

C. Meanwhile, on September 21, 1992, the Plaintiff established a school foundation’s ○○ Private Teaching Institute (hereinafter “○○ Private Teaching Institute”) and was appointed as the first president and promoted the establishment of ○ University. On March 8, 1995, the Plaintiff granted ○○○○○ Construction Co., Ltd. (hereinafter “○○ Construction”) the power to transfer shares to ○○○○○○○○○○, a private village, on the ground of ○○○’s agent, and transferred 1160 million shares to 15.45 billion won, while transferring ○○○ Construction and ○○ Industries to 15.4 billion won (hereinafter “the agreement”). (In order to reduce the corporate tax of the Plaintiff, ○○ Construction and ○ Industries, the largest shareholder of ○○ Industries, etc.).

(1) In lieu of paying KRW 15.45 billion to the Plaintiff a share price of KRW 15.45 billion, ○○ Industries contributes KRW 15.45 billion to ○○ Private Teaching Institute in subrogation of ○○ Construction (the largest shareholder of ○○ Industries).

(2) As the chief director of ○○ Driving Schools, the Plaintiff, as the chief director of ○○ Driving Schools, shall issue and deliver a donation contribution certificate equivalent to KRW 15.45 billion in the name of ○○ Driving Schools.

D. Under a side agreement, the ○ industry donated the aggregate of KRW 5 billion on March 14, 1995 and KRW 10 billion on April 1, 1995 to the ○○ Private Teaching Institute. At that time, the Plaintiff, as the president of the ○ Private Teaching Institute at that time, issued and issued a donation contribution certificate of KRW 10 billion in total to the ○○ Industry.

E. On April 4, 1995, the ○ industry issued and delivered to the Plaintiff a promissory note 6 of the total face value of KRW 5.454 billion with the due date on January 8, 1996 (hereinafter “the Promissory note in this case”). The Plaintiff, as the president of the ○ Private Teaching Institute, issued and delivered to the Plaintiff a certificate of contribution of KRW 5.4 billion with the date of publication as of January 8, 1996 under the name of the ○ Private Teaching Institute. The ○○ Industry issued and delivered the certificate of contribution of KRW 5.4 billion with the date of publication as of January 8, 1996 to the ○ Private Teaching Institute, and the ○○ Industry had the said certificate of contribution kept in custody to use when filing and paying corporate tax for the business year 1996.

F. On May 9, 1995, the Plaintiff received the discount of the Promissory Notes from a financial institution and repaid the provisional payment (the amount that ○○ Private Teaching Institutes paid to the Plaintiff temporarily) to ○○ Private Teaching Institutes.

However, around June 25 of that year, ○○ Private Teaching Institute was merged with ○○○ Hospital, a foundation. On the 21st of that month, the Plaintiff was unable to donate KRW 5.4 million equivalent to the instant promissory note to ○○ Private Teaching Institute in the process of the merger. As a result, ○○ Industry, which was issued by the Plaintiff, could not be used for the purpose of originally promising ○○ Private Teaching Institute’s contribution certificate under the name of ○ Private Teaching Institutes, which was delivered by the Plaintiff.

G. Around that time, as seen in the preceding paragraph, the Plaintiff was unable to donate KRW 5.45 billion equivalent to the instant promissory note to ○○ Private Teaching Institutes, and the Plaintiff entered the following terms and conditions (hereinafter referred to as “additional agreement”) with the ○ Industry in order to implement the agreement. However, in preparing a loan agreement for consumption (Evidence No. 7) and an agreement (Evidence No. A. 8) on the additional agreement, the Plaintiff and ○ Industry entered each date of preparation as retroactively on April 4, 1995, which is the date of issuance of the instant promissory note, for the corporate accounting processing convenience of the ○○ Industry.

(1) The Plaintiff borrowed the Promissory Notes amounting to KRW 5.45 billion from the ○ industry on April 4, 1995, and KRW 5.4 billion from January 8, 1996, which is the due date for the payment of the Promissory Notes of this case, 3 years from January 8, 1996 ( January 8, 199), interest rate of 13% per annum, and interest payment date of the Promissory Notes of this case as of January 8, 1996, which is the due date for the payment of interest.

(2) By January 8, 1999, the date on which the loan was due, the Plaintiff established a new school juristic person in the area of ○○ by January 8, 199, the ○ industry will contribute 5.45 billion won to the relevant school juristic person.

(3) If the Plaintiff fails to establish an educational foundation in the area of ○ by January 8, 1996, it will impose corporate tax equivalent to 28% of the loan amounting to 5.45 billion won on ○ industry, and in order to secure this, it will issue to ○ industry a promissory note with the face value of 1.6 billion won of the issuance of ○○ Development Co., Ltd., a major shareholder, and the due date on November 30, 1996.

(4) If the Plaintiff establishes an educational foundation in the area of ○ by January 8, 199, the agreement under paragraphs (1) and (3) above shall lose its validity, and accordingly, the ○ industry shall issue and deliver to the school foundation established by the Plaintiff the certificate of contribution equivalent to the amount of ○ industry contributed by ○○ Industries in the name of 5.45 billion won as to the principal of the loan amount of KRW 5.454 billion, in addition to the loan amount of KRW 5.454 billion, the interest at the rate of 13% per annum paid by the Plaintiff until that time on the loan amount of KRW 1,527,120,00 and the corporate tax of ○○ Industries borne by the Plaintiff, and KRW 152,712,00 as resident tax.

H. However, the Promissory Notes of this case were normally paid on the date of payment, and the Plaintiff did not establish a new school juristic person in the area of ○○ by January 8, 1999.

I. Meanwhile, when ○○ industry reports the tax base of corporate tax and the amount of its tax, it appropriated interest on KRW 5.45 billion for the Plaintiff’s ○ industry as interest income in accordance with the additional agreement in the business year of 1996 and the business year of 1997, but it included interest on KRW 5.454 million for the loan from the business year of 1998 as the interest rate under the Corporate Tax Act and included the interest on KRW 5.4 million as the loan amount in the gross income, and then it included the amount in the gross income with the income amount equivalent to the amount of the loan amount in the income amount of KRW

(j) On March 29, 2002, the ○ industry confirmed the settlement of accounts for the business year of 2001, and on March 30, 2001, reported the corporate tax base and its tax amount for the business year of 2001, the 30.0 billion won of the Plaintiff’s loan amounting to 5.45 billion won as to the Plaintiff’s ○ industry, such as the latter part of the preceding paragraph, deemed the loan with interest-free interest, and included 634,937,854 won as to 11% of the monthly interest rate for the year 2001 under the Ordinance of the Ministry of Finance and Economy in the calculation of earnings by appropriating it as the recognized interest under the Corporate Tax Act, and then the income disposition related thereto reverted to the Plaintiff as other income.

On the other hand, as of December 31, 2001, 2001, the end date of the business year 2001, ○○○, as of December 31, 2001, owned 97,00 shares of ○○ industry, and 13,00 shares, and ○○○, the wife of ○○○, respectively, owned 8,00 shares of ○ industry.

(k) On January 3, 2001, the Defendant rendered a decision to impose global income tax of KRW 152,53,930,930 calculated as stated in the attached Table of Tax Amount on the ground that the Plaintiff’s loan amount of KRW 634,937,854 for 2001 as interest on the Plaintiff’s ○ industry was reverted to the Plaintiff as other income on March 29, 2002 by the disposition of income related thereto as the date of settlement of accounts for 2001, which was the date of settlement of accounts for ○ industry as the interest under the Corporate Tax Act (hereinafter “instant disposition”), and thereafter, notified the Plaintiff at that time.

2. Whether the instant disposition is lawful

A. The parties' assertion

The Defendant asserts that the instant disposition is lawful as it is in accordance with relevant statutes.

On the grounds delineated below, the Plaintiff asserts that the instant disposition should be deemed to be unlawful and minimum.

In other words, under the premise that the Plaintiff’s prior approval was made, the Plaintiff asserted that “the instant promissory note amounting to KRW 5.45 billion is unlawful for the instant disposition imposing KRW 152,553,930,930 on the Plaintiff, on the ground that ○ Industry paid KRW 116,000,000,000 to the Plaintiff as part of the Plaintiff’s ○○ Industries’s share purchase price of KRW 15.45,400,000 for the Plaintiff’s ○○ Construction pursuant to the side agreement, the Defendant, in a special relationship with ○ Industry, lent the instant promissory note amounting to KRW 5.45,54,00,00 to the Plaintiff without compensation, on the ground that: (a) the Defendant’s lending the instant promissory note amounting to KRW 634,937,854, as other income by the disposal of income; and (b) the Plaintiff

(2) On the premise of the facts found in the above disposition, the Plaintiff asserts that, under the additional agreement, even if the Plaintiff borrowed the Promissory Notes amounting to KRW 5.45 billion from the ○ industry under the additional agreement, the Plaintiff would pay interest at the rate of KRW 13% per annum to the ○ industry for KRW 5.454 billion. The agreement’s annual rate of KRW 13% per annum exceeds 11% per annum per annum per the overdraft interest rate in 2001 under the Ordinance of the Ministry of Finance and Economy. Thus, the Plaintiff’s lending of KRW 5.454 million to the Plaintiff is not subject to the avoidance of unfair act and calculation under the Corporate Tax Act, even if it is deemed as subject to the wrongful act and calculation under the Corporate Tax Act, the Plaintiff’s imposition of KRW 634,937,854, which is equivalent to the amount of interest recognized as subject to the denial of calculation and calculation should be attributed to the Plaintiff as other income under the disposition of income under the Corporate Tax Act, and thus, the disposition of this case was unlawful.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(1) Nature of the Promissory Notes of this case

On the other hand, according to the facts found in the above disposition's facts, the ○ Industry issued and delivered the instant promissory note to the Plaintiff in lieu of paying the Plaintiff the transfer price of 116,000 shares of the ○○ Industry, in lieu of paying the Plaintiff the transfer price of 116,00 shares of the ○ Industry, by subrogationing ○○ Construction, one of its major shareholders, the Plaintiff issued and delivered the instant promissory note to the Plaintiff in order to contribute it to the ○ Private Teaching Institutes designated by the Plaintiff. On the other hand, as seen earlier, the Plaintiff was unable to contribute the instant promissory note amounting to KRW 5,40,000 to the ○○ Private Teaching Institutes as the president of the ○○ Private Teaching Institutes. As such, the Plaintiff cannot accept the Plaintiff's assertion on the premise that the Plaintiff received the instant promissory note amount from the ○○ Industries as the transfer price of shares.

(2) Whether the calculation of wrongful act and accounting books is appropriate

(A) According to Articles 52 and 57 of the Corporate Tax Act and Articles 87 and 88 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17826, Dec. 30, 2002; hereinafter the same), where a corporation in tax accounting lends money to a person with a special relationship, such as an investor or employee, without interest, the amount equivalent to the interest calculated based on the overdraft interest rate (where a corporation borrowed money at a rate higher than the overdraft interest rate, the interest rate on the loan; hereinafter the same shall apply) and the amount equivalent to the interest calculated based on the overdraft interest rate shall be deemed as the income of each interest, and the amount equivalent to the difference between the interest calculated based on the overdraft interest rate and the agreed interest shall be included in the calculation of the taxable income amount, and the amount included in the disposition of income shall be reverted to the person with a special relationship, as other income, etc.

(B) According to the facts found in the above disposition circumstances, the Song-○ and Song-○ own each share of 97,000 shares and 13,000 shares of the ○ Industry as of 2001 as the Plaintiff’s private village students, and thus, the Plaintiff and the ○ Industries held the special relationship under Article 52(1) of the Corporate Tax Act and Article 87(1)2 of the Enforcement Decree thereof, which serve as the basis for the Plaintiff’s unfair act and calculation of the amount of KRW 5,400,000 borrowed money for the ○ Industries as of 2001 between the Plaintiff and the ○ industry.

(C) Meanwhile, there is no assertion or proof by the Defendant as to the fact that the monthly interest rate in the year 2001 by the Ordinance of the Ministry of Finance and Economy was 11% per annum, while the ○○ Industry borrowed funds at a higher rate than 11% per annum as of 2001.

However, according to the facts found in the above disposition, the Plaintiff entered into a quasi-loan agreement with the ○ Industry on April 4, 1995 that the Plaintiff borrowed the Promissory Notes amounting to KRW 5.45 billion from the ○ Industry as of January 8, 1999; the interest rate of KRW 13% per annum; the interest payment period of January 8, 1996; and the interest payment period of KRW 13% per annum as of January 8, 1996. Since the interest rate under the additional agreement was higher than 11% per annum per annum as of 13% per annum under the Ordinance of the Ministry of Finance and Economy, the Plaintiff cannot be said to have lent the Promissory Notes amount to the Plaintiff at an interest rate lower than the market price.

(D) As to this, even if the Plaintiff and ○ Industry set the interest rate of KRW 5.45 billion per annum on the above borrowed amount at 13%, the repayment date was set on January 8, 1999. Thus, it is clear that ○ Industry loaned 5.4 billion won to the Plaintiff at interest free of charge after the due date. However, even if the due date for the above borrowed amount expires, the Plaintiff shall pay damages for delay at the rate of KRW 13% per annum from the date following the due date for repayment to the date of full payment. Thus, it is clear that the Defendant’s above assertion cannot be accepted.

(3) Sub-determination

Therefore, the instant disposition imposing KRW 152,53,930,000,000 under the Corporate Tax Act, on the ground that ○○ Industry lent KRW 5.45 billion to the Plaintiff with a special relationship, as interest, the amount of KRW 634,937,854, which was recognized under the Corporate Tax Act, was reverted to the Plaintiff by the disposal of income, as other income, is unlawful.

3. Conclusion

Therefore, the plaintiff's claim of this case seeking revocation on the ground that the disposition of this case is unlawful is reasonable, and it is so decided as per Disposition by admitting it.

Table of Tax Amount;

(unit: Won)

Gu Sector

Reporting

Correction

Increase or decrease

non-higher

(a)Revenue amount;

without Filing a report

634,937,854

634,937,854

(2)Income amount;

634,937,854

634,937,854

(3) Income deduction

2,600,000

2,600,000

(4) Tax base

632,337,854

632,337,854

(2) - (3)

(5)Tax rates

36%

36%

(6) Calculated tax amount;

215,941,627

215,941,627

X0.00 won + [4] - 80,000,000 won] X 0.36

(7) The final tax amount;

215,941,627

215,941,627

(6)

(8) Additional tax

31,852,982

31,852,982

(9) Total determined tax amount

247,794,609

247,794,609

(7) + (8)

(10) Already paid tax amount

95,240,670

95,240,670

Amount withheld at source

(11) Additional tax amount

152,553,939

152,553,939

(9) - (10)

Relevant statutes

Corporate Tax Act

Article 52 (Dispudiation of Wrongful Acts)

(1) Where the superintendent of the competent district tax office or the Commissioner of the competent Regional Tax Office deems that the tax burden on the income of a domestic corporation has been unjustly reduced through transactions with a person with a special relationship as prescribed by the Presidential Decree (hereinafter referred to as a "specially related person"), he may calculate the income amount for each business year of the relevant corporation without regard to the act or calculation of the income amount of the relevant corporation (hereinafter referred to

(4) In applying paragraphs (1) through (3), matters necessary for the types of wrongful calculation, assessment of market price, etc. shall be prescribed by Presidential Decree.

Article 19 (Scope of Deductible Expenses)

Enforcement Decree of the former Corporate Tax Act (amended by Presidential Decree No. 17826 of Dec. 30, 2002)

Article 87 Scope of Person with Special Relationship

(1) "Person with a special relationship prescribed by Presidential Decree" in Article 52 (1) of the Act means a person with a relationship falling under any of the following subparagraphs with a corporation (hereinafter referred to as a "person with a special relationship"):

1. Persons recognized as exercising real influence over the operations of the concerned corporation, such as exercising the right to appoint officers or determining the course of business (including persons to be treated as directors under Article 401-2 (1) of the Commercial Act) and their relatives;

2. Stockholders, etc. (excluding minority shareholders, etc.; hereafter the same shall apply in this Sub-section) and their relatives;

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, tariff, or rental rate: Provided, That this shall not apply where company housing is provided to officers who are not stockholders, etc. or investors (including officers who are minority shareholders under Article 87 (2)) and employees;

Article 89 (Scope, etc. of Market Price)

(3) In the lending or borrowing of money under the provisions of Article 88 (1) 6 and 7, the overdraft interest rate (hereinafter referred to as the “overdraft interest rate”) as prescribed by the Ordinance of the Ministry of Finance and Economy shall be the market price, notwithstanding the provisions of paragraphs (1) and (2): Provided, That in case of loans to the concerned corporation at a rate higher than the overdraft interest rate, the concerned interest rate on loans equivalent to the amount of such loans (not including loans made to corporations or individuals operating businesses in which the period of repayment is set and the agreement to receive the interest at the overdraft interest rate is made) shall be deemed the market price.

§ 106. Disposal of income

(1) The amount included in the calculation of earnings under the provisions of Article 67 of the Act shall be disposed of under the provisions of the following subparagraphs. The same shall apply to non-profit domestic corporations

1. Where the amount included in the calculation of earnings has clearly leaked out of the company, the dividends, bonuses from the disposition of profits, other income, and other outflow from the company under each of the following items according to the person to whom they accrue: Provided, That where the accrual is unclear, it shall be deemed as accrual to the representative (where the total number of stocks held by an officer who is not a minority shareholder under the provisions of Article 87 (2) and persons with a special relationship under the provisions of paragraph (4) of the same Article is 30% or more of the total number of stocks issued or total investment amount of the relevant corporation and the officer actually controls the operation of the corporation, he shall be deemed the representative, and where a corporation which has been exempted from withholding taxes under the provisions of Article 46 (12) of the Restriction of Special Taxation Act reports that there is a separate representative among the officers who are stockholders, etc., the reported person shall be the representative, and where there are 2 or more representatives, the de facto representative; hereinafter the same shall apply):

(d) Other income of the person to whom it reverts, in case where the person to whom it reverts is the person.

former Income Tax Act (amended by Act No. 7006 of Dec. 30, 2003)

Article 21 Other Incomes

(1) Other incomes shall be interest income, dividend income, real estate rental income, business income, labor income, temporary property income, annuity income, retirement income, transfer income, and forest income, as provided in the following subparagraphs:

20. Incomes disposed of as other incomes under Article 67 of the Corporate Tax Act;

Article 55 Tax Rate

(1) The amount of income tax on a resident's global income shall be calculated by applying the following tax rates to the global income tax base of the relevant year (hereinafter referred to as "calculated amount of global income"):

The global income tax base rate shall be the global income tax base.

36/100 of the amount exceeding 80 million won and 17.1 million won + 36/100 of the amount exceeding 80 million won.

Enforcement Decree of the former Income Tax Act (amended by Presidential Decree No. 18705 of Feb. 19, 2005)

Article 50 (Receipt Date of Temporary Property Income)

(1) The receipt date of the total amount of other incomes shall be the receipt date of the payment: Provided, That with respect to the other incomes disposed of under the Corporate Tax Act, it shall be the closing date of the concerned business year.

- Finally -