The purport of Article 18-3 (1) 1 of the Corporate Tax Act concerning the non-Inclusion of interest paid on borrowings related to non-business property of a corporation in deductible expenses.

According to Article 18-3 of the Corporate Tax Act, it seems that the concept of ‘owned to acquire profits from land price increase' is larger than that of ‘those prescribed by the Presidential Decree' under the same Article in view of the actual use of real estate, or ‘owned to obtain profits from land price increase' under the same Article. Therefore, the meaning of Article 18-3 of the Corporate Tax Act is deemed as 'owned to acquire profits from land price increase' or ‘owned to acquire profits from land price increase' under the Presidential Decree again from among ‘owned to acquire profits from land price increase' under the conditions that do not include interest paid to a corporation in deductible expenses. However, Article 18-3 of the Corporate Tax Act provides that a corporation shall not own real estate for non-business purposes as one of the conditions that does not include interest paid to it in deductible expenses, and Article 43-2 of the Enforcement Decree of the Corporate Tax Act provides that the scope of real estate for non-business purposes shall be delegated by the Enforcement Decree of the Corporate Tax Act, and it shall be deemed that the corporation' under Article 18-3 of the Enforcement Rule of the Corporate Tax Act provides that the above real estate is directly related to non-business purposes.

Article 18-3(1)1 of the Corporate Tax Act; Article 43-2 of the Enforcement Decree of the Corporate Tax Act; Article 18(3) of the Enforcement Rule of the Corporate Tax Act

Supreme Court Decision 93Nu13469 delivered on November 26, 1993 (Gong1994Sang, 222) Supreme Court Decision 94Nu1203 delivered on July 14, 1995 (Gong1995Ha, 2827) Supreme Court Decision 96Nu13095 delivered on February 11, 1997 (Gong1997Sang, 816)

Passenger Co., Ltd. (Attorney Full-time)

The Director of the North Korean Tax Office

Gwangju High Court Decision 95Gu2264 delivered on February 1, 1996

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

We examine the grounds of appeal.

1. Relevant statutes

For each business year from June 1, 1989 to May 31, 1994, the provisions of the Corporate Tax Act, its Enforcement Rule, and Enforcement Rule concerning the non-inclusion of interest paid on borrowings related to non-business property of a corporation are as follows.

A. Provisions of the Corporate Tax Act

Article 18-3 (1) of the Corporate Tax Act amended by Act No. 3794 on December 23, 1985 provides that among interest on loans paid by a domestic corporation that owns assets falling under any of the following subparagraphs for each business year, the amount determined by the Presidential Decree within the scope of the total amount of assets under each of the following subparagraphs shall not be included in the calculation of losses in calculating the income amount for each business year, and subparagraph 3 provides that "real estate which is not directly related to the business of the relevant corporation" and Article 18-3 (3) provides that the scope of assets under paragraph (1) 3 of the same Article shall be prescribed

Article 18-3 of the above Corporate Tax Act was amended by Act No. 4282 on December 31, 1990. As a result, with respect to a domestic corporation which acquires or possesses assets falling under any of the following subparagraphs, paragraph (1) of this Article provides that the amount calculated as prescribed by the Presidential Decree (limited to interest on loans equivalent to the value of the relevant assets) out of the interest on loans paid during each business year shall not be included in the calculation of losses in calculating the income amount for each business year, and subparagraph 1 provides that subparagraph 1 provides that it shall not be included in the calculation of losses, and it shall be deemed that it is not directly related to the business of the relevant corporation or that it holds for the purpose of acquiring

(b) Provisions of the Enforcement Decree;

Article 43-2 (5) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 11813, Dec. 31, 1985; Presidential Decree No. 43-2 (5) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 11813) refers to the real estate prescribed by Ordinance of the Ministry of Finance and Economy (hereinafter referred to as the "real estate for non-business use") in consideration of the period after the acquisition of the real estate concerned, the amount of income from the real estate concerned, the

Article 43-2 of the Enforcement Decree of the Corporate Tax Act was amended by Presidential Decree No. 13541 on December 31, 1990. As a result, Paragraph (1) refers to the real estate falling under any of the following subparagraphs (hereinafter referred to as "real estate for non-business use, etc.") and Item 1 of Article 43 provides that Article 43-2 of the Enforcement Decree of the Corporate Tax Act provides that the criteria for determining non-business real estate under paragraph (1) shall be prescribed by Ordinance of the Ministry of Finance and Economy (Article 43-2 (1) 1 of the Enforcement Decree of the Corporate Tax Act does not change until the last day, and Paragraph (3) of the same Article provides that the criteria for determining non-business real estate under paragraph (1) shall be prescribed by Presidential Decree No. 1468 on December 31, 199, by being amended by Presidential Decree No. 1468 on December 31, 194).

(c) Provisions of the Corporate Tax Act enforcement regulations;

Article 18(3) of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 1736 of Dec. 31, 1987) provides that "real estate for non-business use" in Article 43-2(5) of the Enforcement Rule of the Corporate Tax Act refers to the real estate falling under any of the following subparagraphs, and six months (two years for the land without a building or facility) have passed after its acquisition under subparagraph 1 and refers to the real estate (including the real estate for sales business) which is not directly used for the business of the juristic person concerned. The above Article 18(3) continues to list the types of non-business real estate under subparagraphs 2 through 13

The above subparagraph 1, which was amended by Ordinance of the Ministry of Finance and Economy No. 1818 on April 4, 1990, became a real estate for which six months (one year in the case of the land without any building or facility) have passed since it acquired the real estate (excluding the real estate for sale as provided in subparagraph 12).

Article 18(3) of the Enforcement Rule of the Corporate Tax Act was amended by Ordinance of the Ministry of Finance and Economy No. 1844 on February 28, 191. As a result, the term "real estate for non-business use" in Article 43-2(1) and (3) of the Decree refers to the real estate falling under any of the following subparagraphs, and subparagraph 1 itself maintains the previous provisions. In addition, at the time of the amendment, Paragraph 3 of the above Article lists the types of other non-business real estate under subparagraphs 2 through 21.

Article 18 (3) 1 of the Enforcement Rule of the Corporate Tax Act was amended by Ordinance of the Ministry of Finance and Economy No. 1911 on February 27, 1993, but there is no other building or facility (Article 18 (3) 1 was amended by Ordinance of the Ministry of Finance and Economy No. 1968 on March 12, 1994, and the amended Enforcement Rule is applied from the business year first commenced after January 1, 1994 pursuant to Article 2 of the Addenda).

2. Judgment on the grounds of appeal

First of all, according to the facts duly established by the court below's evidence, the plaintiff moved the garage on the ground of the land of this case to another place on March 15, 1984 and owned the land of this case without using it for its business. Thus, the land of this case constitutes real estate not directly used for the plaintiff's business as provided by Article 18 (3) 1 of the Enforcement Rule of the Corporate Tax Act, and it is apparent that the grace period (2 years after its acquisition before the amendment of April 4, 1990, 1 year after the above amendment) set forth by the above provision is too rare. Thus, the land of this case constitutes Article 18 (3) 1 of the Enforcement Rule of the Corporate Tax Act.

Article 18-3 of the Corporate Tax Act provides that "not directly related to the business of a corporation" or "not directly related to the business of a corporation" as provided for in Article 18-3 of the same Act, or "be held to acquire profits from the increase of land price" as provided for in the same Article, and therefore, the meaning of Article 18-3 of the Corporate Tax Act refers to "not directly related to the business of a corporation" or "be held to acquire profits from the increase of land price" as provided for in the Presidential Decree, and it may be deemed that the interest on loans related thereto should not be included in deductible expenses." However, Article 18-3 of the above Corporate Tax Act provides that the scope of non-business real estate should be prescribed by the Enforcement Decree as one of the conditions that do not include interest paid on loans of a corporation for the purpose of acquiring real estate for non-business use, and Article 43-2 of the above Enforcement Decree of the Corporate Tax Act provides that the scope of real estate for non-business use should be prescribed by the Enforcement Decree of the Corporate Tax Act.

According to the reasoning of the judgment below, the court below held that the land of this case does not constitute real estate under Article 18-3 of the Corporate Tax Act by confirming that it constitutes real estate under Article 18 (3) 1 of the Enforcement Rule of the Corporate Tax Act, and that the land of this case is held to acquire profits from the increase in land price by considering the circumstances in its reasoning. In light of the above legal principles, although it is inappropriate to reach the conclusion, it is proper that the land of this case constitutes real estate under Article 18-3 of the Corporate Tax Act, and ultimately, there is no reason to argue that the land of this case does not constitute real estate under Article 18-3 of the Corporate Tax Act

In addition, even according to the plaintiff's assertion itself, the land of this case was already pointed out and published as a road before the plaintiff acquired the land of this case. Thus, even if the plaintiff could not dispose of the land of this case easily due to the plaintiff's assertion, such circumstance cannot be seen as a ground for exclusion from non-business real estate under Article 18 (4) 1 of the Enforcement Rule of the Corporate Tax Act, which is applicable to each taxable year. There is no reason to discuss this point

3. 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 on the bench.

Justices Jeong Jong-ho (Presiding Justice)