The case holding that the act of wrongful calculation shall be deemed to constitute wrongful act, where a corporation, which issued a promissory note in the amount equivalent to its loans to a specially related person, and received a discount from a subsidiary, and on the other hand, purchased the said promissory note from a subsidiary, and recorded the loans by offsetting the payment obligation and the above claims.

The Plaintiff Company, without direct connection with its business, lent the money to the Nonparty Company, which is a person with a special relationship under Article 20 of the Corporate Tax Act and Article 46 of the Enforcement Decree of the same Act, and then, upon the end of the business year, issued a promissory note with the amount calculated by adding the interest on the above loans from the date of issue to the due date, and transferred it from the Nonparty Company the amount of discount bonds, which is to be paid by the Plaintiff Company. On the other hand, the Plaintiff Company purchased the said promissory note from the subsidiaries, offsets the amount of discount bonds with the above discount bonds and the purchase discount bonds with the above discount bonds with the amount of discount bonds with the above discount bonds with the payment due date. However, if the amount of the promissory note was paid after the due date, it does not follow the legal form of discount of the promissory note issued by the Nonparty Company and sold it again to the Plaintiff. However, since the Plaintiff did not directly recover the above loans from the Nonparty Company, it constitutes a special relationship under Article 2 of the Enforcement Decree of the Corporate Tax Act on the date of Payment.

Article 20 of the Corporate Tax Act, Article 46 (2) 9 of the Enforcement Decree of the Corporate Tax Act

Supreme Court Decision 86Nu8630 decided Oct. 13, 1987 (Gong1987, 1295) (Gong1987, 1729) 87Nu8630 decided Apr. 11, 1989 (Gong1989, 772) (Gong1990, 1292) 89Nu8095 decided May 11, 1990

[Defendant-Appellee] Plaintiff (Attorney Shin Young-young et al., Counsel for defendant-appellee)

The Director of the National Tax Service

Seoul High Court Decision 88Gu9161 delivered on June 15, 1989

The appeal is dismissed.

The costs of appeal are assessed against the plaintiff.

The grounds of appeal Nos. 1, 2, and 3 of the Plaintiff’s Attorney are also examined.

According to the reasoning of the judgment below, the court below determined that the plaintiff 1, 2, 301, 701, 709, and 2,385 won were respectively lent to the non-party 1, 300,000 won on January 6, 1986 to the non-party 1, 300,000 won under the provisions of Article 20 of the Corporate Tax Act and Article 46 of the Enforcement Decree of the Enforcement Decree of the Corporate Tax Act, and the non-party 1,30,385 won on December 13, 1986. The above non-party 2 (hereinafter referred to as the "non-party 1") was lawful on December 31, 1986 by issuing a promissorysory note with the interest added to each of the above loans from the 1,3,000,000 won on March 31, 1987, and the non-party 1, 2,000 won of the above promissorysory note were purchased by the above bonds.

In light of the above, a taxpayer’s act of wrongful calculation refers to an act of reducing or removing the tax burden incurred when a taxpayer takes a round-out, multi-stage or other abnormal transaction form without reasonable grounds without reasonable grounds (see Supreme Court Decision 88Nu8630, Apr. 11, 1989). Article 20 of the Corporate Tax Act provides for a true transaction with a juristic person with a special relationship with a juristic person with the purport of setting forth the provision under the denial of wrongful act of a juristic person under the provision of Article 20 of the Corporate Tax Act. However, it is deemed that a taxpayer neglected the economic rationality by abusing all the forms listed in each subparagraph of Article 46(2) of the Enforcement Decree of the Corporate Tax Act, and thus, it is unfair in terms of tax law, and thus, it is based on the principle of substantial taxation to ensure fairness in taxation and to prevent tax evasion by deeming that a taxpayer had objectively recognized income from a taxable person’s standpoint (see Supreme Court Decision 90Nu857, Oct. 13, 1987).

On the other hand, a prompt-term subsidiary established under the Short-Term Finance Business Act deals with the de facto loan business only by discounting or selling bills (see, e.g., Supreme Court Decision 86Meu1308, Jul. 7, 1987). It does not go in accordance with the legal form that the three-dimensional Investment Finance Co., Ltd. discounted each promissory note issued by the non-party company and purchased and sold it again to the plaintiff. However, upon examining the series of processes in which the plaintiff received repayment of the loan in this case from the non-party company, it did not follow the method of collecting the above loans directly from the non-party company, but rather did not follow the method of making a round-up and multi-level act as seen above, it distributes profits to the non-party company with a special relationship and reduced the tax burden by itself. Thus, the judgment of the court below constitutes a violation of Article 46 (2) 9 of the Enforcement Decree of the Corporate Tax Act without the economic rationality, and thus, it is correct in the misapprehension of the legal principle or tax burden.

Therefore, the appeal is dismissed, and all costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Chang-chul (Presiding Justice)