Cho High Court Decision 2007Da4576 ( December 26, 2007)

Whether interest income from futures exchange transactions is accrued where the United Nations regular deposits and futures exchange transactions are mixed

In the event of a mixture of the United Nations regular deposits and futures exchange transactions, gains from a futures exchange transaction shall not be deemed as interest on deposits or other similar income.

The contents of the decision shall be the same as attached.

1. The Defendant’s disposition of global income tax imposed on Plaintiff MaximumCC and PriorB as stated in the separate disposition of imposition, and the disposition of refusal to rectify the correction against the Plaintiffs, such as written in the separate disposition of refusal to rectify the correction is revoked.

2. The costs of the lawsuit are assessed against the defendant.

The date of disposition and amount of tax stated in the application for modification of the purport of the claim as of June 10, 2008 are corrected as shown in the Disposition.

1. Details of the disposition;

A. From around 2002 to 2004, the Plaintiffs entered into a contract with AAA Bank (hereinafter “AA Bank”) to be paid in Korean currency by selling the principal and interest of the IA Bank (hereinafter “the instant contract”). ① The Plaintiffs purchased the IA Bank in Korean currency and deposited the IE with a fixed interest rate before and after 0.25% per annum, and at the same time subscribed to the IE deposit (hereinafter “NE deposit”) to receive the principal and interest at maturity (hereinafter “the said part”). ② At the maturity or termination of the said IE deposit contract, the Plaintiffs arranged the principal and interest of the IE deposit in Korean currency at the fixed exchange rate (hereinafter “securities exchange transaction”).

B. AA Bank withheld income tax only on the portion of the profits the plaintiffs received in relation to the instant contract which constitutes the UN Regular Deposit Holder, and did not set the source quota for the remaining portion of the profits that constitute marginal profits from the redemption of gift;

C. The Defendant imposed global income tax (including additional tax) on Plaintiff LCC and PB as stated below, on the premise that the total amount of profits the Plaintiffs received pursuant to the principle of substantial taxation in relation to the instant contract constitutes interest income under Article 16(1) of the Income Tax Act. In response, the Defendant’s objection to the national tax adjudication filed by the said Plaintiffs, as stated below, partially reduced tax amount as the amount of reduction in the amount of reduction in the national tax adjudication filed by the said Plaintiffs, and eventually, only the amount of tax indicated in the column of “ residual tax” in the table below remains. The disposition of imposition and correction are imposed

D. Meanwhile, in the case of global income tax that reverts to the year 2004 under the instant contract, the Plaintiffs filed a request for correction to refund the amount of tax related to the global income tax that the Plaintiffs received, but among them, they filed a request for correction for the payment of the amount of tax related to the global income tax that was paid, not interest income. However, on the grounds as seen earlier, the Defendant rejected the Plaintiffs’ request for correction as stated in the details of the refusal of correction (the “each disposition of this case,” along with each disposition of the above sub-paragraph (c), and the Plaintiffs appealed against it, but the above claim was dismissed on December 28, 2007.

[Basis] Facts without dispute, Gap's statements, Gap's 1 through 5, 7 through 19, Eul's statements, 1 through 4, 6, 7, 9, 18 through 21, 24, 27 through 32, and the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

Each disposition of this case is unlawful on the following grounds.

(1) The instant contract consists of the Universal Regular Deposit Transactions Contract and a separate gift exchange transaction contract. The gains from forward exchange transactions do not constitute taxable income under the Income Tax Act.

(2) In addition, commercial banks were treated as non-taxation on the part of a gift exchange contract for financial products similar to those of commercial banks since 2002, and the National Tax Service imposed tax on the financial products now, even though the portion of the gift exchange contract was not subject to taxation, it goes against the principle of trust protection, etc.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

"(1) From 2002, AA Bank developed a financial product that entered into a currency exchange transaction with a foreign currency exchange transaction to customers, and made public relations and sales with a view to more favorable than ordinary regular deposits at the early effective return rate compared to ordinary deposits. The customer who entered into the instant transaction after paying Korean currency to AA Bank and exchanging it into a foreign currency deposit contract with the Bank. At the same time, the customer entered into a contract for foreign currency deposit at the same time as the maturity date of the UN currency deposit contract at a fixed rate of exchange at a fixed rate of exchange (Agreement futures exchange rate) at the maturity and entered into a "securities exchange contract with the purpose of selling it to the Bank at the fixed rate of exchange (Agreement futures exchange rate)." (2) The customer was entitled to deposit the Korean currency deposit at the Bank with the maturity date of the gift contract at least 3% of the total rate of exchange rate at the time of the signing of the gift contract with the domestic currency deposit interest rate at the time of the settlement of exchange rate at the same time.

(3) Since the UN/original currency exchange rate did not exist in the Republic of Korea until May 29, 2006, AAA Bank has been provided with US$/original currency exchange point ("Stex") on a half-year basis constructed at the time of the instant contract from Tweter Korea Co., Ltd. and US/N swap point ("St Point" means an amount calculated by subtracting the spot exchange rate from the futures exchange rate) and US/N swap point, calculated by aggregating US/original currency exchange rate and US/N currency exchange rate and US/N currency exchange rate and US/N currency exchange rate calculated by aggregating US/N currency exchange rate and US/N currency exchange rate, and it continued to apply the UN/N currency exchange rate (U.D. currency exchange rate), but it has been provided with the same currency exchange rate (U.D. rate) rate as above until 205 205 / Stweet currency exchange rate with each other.

(4) AA bank operated the instant transaction, provided that, if there is no separate declaration of intention from the customer on the re-agreement before maturity, it would automatically terminate the UN Contract for Regular Deposit and Exchange Contracts and deposit into the customer account designated in advance, and that, if the UN Contract for Regular Deposit is terminated, the gift exchange contract shall also be terminated.

[Reasons for Recognition] Each of the evidence mentioned above

D. Determination

(1) Whether a forward exchange contract is included in the UN Fixed Deposit Agreement

When a taxpayer engages in economic activities, he/she may choose one of the several legal relations while achieving a uniform economic purpose, and the tax authority shall respect the legal relations chosen by the parties, barring any special circumstance (see Supreme Court Decision 2000Du963, Aug. 21, 2001).

Although the first bank agreed on the maturity date of the UN regular deposit contract and the maturity date of the gift exchange contract at the early termination of the UN regular deposit contract, the gift exchange contract is also terminated at the time of the early termination of the contract, and even if the bank operated the gift exchange transaction together with the UN regular deposit transaction, the issue of whether to enter into a certain method of financial instruments transaction contract for the purpose of raising funds from customers is one of its own choice considering the efficiency of the purpose, the degree of bearing relevant expenses, such as tax, etc., and if the bank formed a separate legal relationship with the customer, the contents and scope of the tax arising therefrom should be determined individually in accordance with the legal relationship, and it cannot be treated equally under the tax law on the ground that the substance is the same.

However, taking into account the following circumstances as revealed in the above facts, i.e., ① the Plaintiffs prepare separate disposal contracts between AA bank and the "Agreement on Futures Exchange Transactions", i.e., the separate disposal contract between AA bank and the "Agreement on Futures Exchange Transactions". ② AA bank entered into a gift exchange contract with its customers at the rate of exchange on the date of forward exchange contract, at the rate of exchange calculated at USD / won and US/N exchange rate, and at the rate of exchange in kind. ③ AA bank entered into a gift exchange contract with its maturity, with its customers at the rate of exchange in Korean won according to the agreed futures exchange; ③ a gift exchange contract between AA bank and its customers was concluded only formally, and it cannot be deemed that there was an express or implied agreement between the parties that the gift contract should become null and void, and as a result, no more specific transaction between AA bank and its customers may be deemed to have been established in light of the fact that there was a lack of common understanding of the terms and conditions of the gift exchange contract in Korea.

(2) Whether profits from futures exchange transactions constitute interest income from the use of money

In general, interest refers to money or its substitute received in proportion to the principal amount and the lending period. It is a matter of interpreting how the customer’s profit from transactions, such as deposits, etc. between a bank and a customer constitutes interest or non-taxable income from foreign exchange transactions. It is determined based on the content or intent of the parties to the transaction. However, under the substance over form principle, not simply depends on the content or form of the contract, but rather on the party’s intent and the process of concluding the contract, the degree of return on profit and its profit are conclusive, and the whole process of transaction should be substantially determined.

In addition, even if the transaction form, which the parties take place, is an act to avoid the excessive burden of tax, it shall be deemed valid unless there are special circumstances, such as that the above act constitutes the disguised act. Therefore, to deny this, a specific legal basis is required in light of the request for legal stability and predictability of the no taxation without the law to protect taxpayers from the person with the power (see, e.g., Supreme Court Decision 90Nu3027, May 14, 191).

In light of the facts acknowledged above, (1) The gift exchange contract of this case is a separate contract that is distinct from the UNFCCC regular deposit contract in order to achieve the purpose of the UNFCCC regular deposit contract, and (2) as if the gift exchange contract is not the most unfair act, the AA bank has the opportunity to manage the UNFCCC fund because it does not seem to be the most unfair act, and (3) the benefits acquired by the plaintiffs are not in excess of the duration of principal, but in excess of the exchange rate of the gift exchange contract of this case. (4) considering the fact that the gift exchange contract of this case can not be concluded that the interest rate of the NA bank is equal to the interest rate of the NA regular deposit contract of this case, and that the NA bank has no specific interest rate of the NA deposit of this case from the perspective of the plaintiffs' general deposit account of this case, and there is no difference between the securities exchange contract of this case and the securities exchange transaction of this case.

In addition, taxation on marginal profits from repurchase agreements on bonds or securities is imposed by offering an opportunity to use money from the time of repurchase to the time when the conditions of repurchase are fulfilled by selling bonds or securities conditionally, and considering certain profits paid in return for repurchase as income. Since the payment received by the Plaintiffs after offering an opportunity to use them to AA bank is limited to the amount equivalent to the UN interest and it cannot be included in the gift redemption marginal profits, gift redemption marginal profits on bonds or securities cannot be deemed as having been included in this.

Even if the profits from redemption of trading with buy-back agreement are similar to the profits from trading with buy-back agreement, it is subject to the profit margin of ‘bonds' or ‘securities' under Article 24 of the Enforcement Decree of the Income Tax Act, which is defined as the kind of interest income under Article 16 (1) 9 of the Enforcement Decree of the Income Tax Act. However, Article 16 (1) 13 of the Income Tax Act is defined in the form of a tangible comprehensive principle, but it is not permissible to expand the profits from selling foreign currency, which is not ‘bonds' or ‘securities', as interest income in light of the principle of no taxation without law.

(3) Sub-decisions

Therefore, inasmuch as the gift redemption marginal profit of this case is deemed to constitute interest income, the pertinent income tax is imposed, and each of the instant dispositions rejecting the request for rectification of global income tax is unlawful.

3. Conclusion

Therefore, the plaintiffs' claims of this case are justified, and all of them are accepted, and it is so decided as per Disposition.