Disposition of non-taxation of the interest on borrowings as a legal fiction of household expenses for excess withdrawals of real estate rental business establishments;

The defendant's disposition of this case which deemed that the interest paid to him was not included in the necessary expenses after determining whether the excess withdrawn occurred after classifying each place of business of this case.

Article 33 (Non-Inclusion in Necessary Expenses)

2013Guhap10207 Global income and revocation of disposition

NewA

Head of Namgu Tax Office

June 12, 2013

August 30, 2013

1. On February 8, 2011, the Defendant’s imposition of the global income tax for the Plaintiff on February 8, 201 and the global income tax for the year 2008 shall be revoked, respectively.

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

Cheong-gu Office

The same shall apply to the order.

1. Circumstances of dispositions;

A. On May 12, 2003, the Plaintiff purchased an OO-O-O-O-O-O-O-O-O-O-O-O-type gas station site 452-1,127 square meters on the ground, and newly constructed Class 1 neighborhood living facilities on the 9th floor above the 2nd floor above the slive roof of reinforced concrete structure (hereinafter referred to as "real estate") on the ground, completed the registration of ownership preservation on September 4, 2006, and thereafter registered a real estate as a real estate developer (hereinafter referred to as "the instant business establishment").

B. On November 30, 2006, the Plaintiff sold 8/10 shares (this partB B B 2/10 shares) among the 8/10 shares (the 2/10 shares) of the 4th floor neighborhood living facilities on the ground (hereinafter referred to as “real property of this case”) on one parcel, other than 477m2 and 477m2, O-Gu O-dong O-dong O-dong O-dong O-dong O, and completed the registration of ownership transfer on December 5, 2006, the Plaintiff registered the real estate rental business (hereinafter referred to as “O-O-OOOO”) and then registered the real estate rental business (hereinafter referred to as “the business of this case”).

C. On the ground that the sum of the business assets belonging to the business place of this case in 2008 and 2009 falls short of the total sum of the liabilities as OOOO, OOOO, OOOOO, and OOOO(hereinafter referred to as "the above amount") at the business place of this case as listed below, the director of the Central Regional Tax Office of China ordered the Defendant to correct and impose the interest paid in relation to each of the above amounts in this case by excluding the interest paid in relation to the above amounts from the necessary expenses.

Classification

Year

Value of assets;

Amount of liability

Excess withdrawns

This case ① Business place

208

OOOE

OOOE

-OOOwon

209

OOOE

OOOE

-OOOwon

(2) The place of business

208

OOOE

OOOE

OOOE

209

OOOE

OOOE

OOOE

D. Accordingly, on February 8, 2011, the Defendant issued a notice of correction and notification to the Plaintiff on the global income tax for 2008, the global income tax for 2008, the global income tax for 2009, and the global income tax for 2009, and the global income tax for 2009, respectively.

E. On May 4, 201, the Plaintiff appealed with the Tax Tribunal on May 4, 201. On September 4, 2006, the Plaintiff asserted that, not using the loan borrowed as collateral for the instant real estate in the acquisition of the instant real estate, the amount of KRW OOO (hereinafter “the instant loan”) was not used for the acquisition of the instant real estate, and that, among them, KRW OOO was used for the acquisition of the instant real estate and the remaining KRW OOOO (hereinafter “the instant loan”). As such, each of the instant loans appropriated in installments the loans actually used in each of the instant businesses, would not have occurred.

F. On September 10, 2012, the Director of the Tax Tribunal rendered a re-audit to the effect that, in consideration of the Plaintiff’s aforementioned assertion, the instant borrowings were actually used for the Plaintiff’s acquisition of each workplace, the amount of excess withdrawals in each workplace shall be calculated according to the outcome thereof, and the interest paid in excess shall be deemed not to be included in necessary expenses, and the tax base and tax

G. On November 30, 2012, the head of the Sejong District Tax Office, the investigating authority, determined that the instant loan was used as the acquisition fund of the instant real estate (construction) and that it was not used for the acquisition of the instant real estate. While it has been confirmed that the rental deposit OOO of the instant real estate was used as the acquisition fund of the instant real estate, the rental deposit is not excluded from the liability even if it was used as a fixed debt for the acquisition fund of the instant real estate, even if it was used as the acquisition fund of the instant real estate, as the fixed debt of the instant real estate, and the instant real estate loan was not used as the business fund of the other real estate. As such, the initial taxation disposition that calculated the tax base by including the instant real estate loan in the amount of the liabilities of the instant real estate, calculated the excess interest, and excluded the relevant interest paid therefrom in the necessary expenses, was lawful. However, it was corrected ex officio with respect to the OOO of the carried-over loss deducted at the time of

H. Accordingly, on December 10, 2012, the Defendant issued a decision on the correction of reduction (hereinafter referred to as “instant disposition”) on the following grounds: (a) imposition of global income tax for 2008 and global income tax for 2009 remaining after the reduction was made; (b) the Defendant issued a disposition on imposition of global income tax for 2008 and global income tax for 2009.

I. Meanwhile, the specific assets and liabilities pertaining to the instant place of business in 2008 and 2009 are as follows.

This case ① Business place

Details of assets

Details of liabilities

208

Total OOOO

· OOOO for current assets

· Land OOOO

· OOOO

· Other tangible assets OOO

Total OOOO

· OOOO of the Dong debt

· Long-term loan OOO

· OOOO

209

Total OOOO

· OOOO for current assets

· Land OOOO

· OOOO

· Other tangible assets OOO

Total OOOO

· OOOO of the Dong debt

· Long-term loan OOO

· OOOO

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 3, Eul evidence Nos. 1 and 2 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

1) The plaintiff's assertion

A) The Plaintiff: (a) personally borrowed the amount of OOO Won with the real estate acquisition fund; (b) repaid the amount of the above loan with the lease deposit for the instant real estate; and (c) paid the remainder of the acquisition fund for the instant real estate; and (b) the Defendant also recognized the fact that the OOO members out of the lease deposit for the instant real estate were used for the acquisition fund for the instant real estate. As long as the Plaintiff used the money for the acquisition fund for the instant real estate, as long as it was used for the acquisition fund for the instant real estate, the Plaintiff collected the money deposited from the instant real estate; and (b) handled the money with the real estate as the loan for the instant real estate; and (c) so, the amount of the money exceeds the liabilities for the instant real estate; and thus, the amount of the interest paid for this portion is not subject to the exclusion of necessary expenses.

B) The loan of this case was used in the acquisition of the real estate (building) and, even if the loan of this case was overpaid, it should be included in necessary expenses if it is deemed that it was used for business purposes other than household expenses. Therefore, insofar as it is recognized that the excess interest related to the loan of this case was actually used for the payment of the construction price of the real estate of this case, the interest paid in relation to the loan of this case

2) The defendant's assertion

Article 160 (5) of the former Income Tax Act (amended by Act No. 10408, Dec. 27, 2010; hereinafter the same) provides that "in the case of a business operator who has two or more places of business, the account books shall be recorded so that the transaction contents of each place of business can be distinguished." Thus, the calculation of excess discount shall be separately calculated for each place of business.

In addition, since the loan of this case was fully used as the new real estate construction fund, it shall be calculated as the debt of the business establishment of this case, and the deposit shall be calculated as the debt related to the real estate lease business establishment of this case, and the deposit money shall be calculated as the debt related to the real estate lease business establishment of this case.

Therefore, the defendant's disposition of this case is legitimate, which calculated the excess withdrawal by appropriating both the loan of this case and the security deposit as the debt of the business place of this case.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) As to the Plaintiff’s assertion

A) First, we examine whether the excess withdrawn should be calculated separately for each workplace when calculating necessary expenses.

Business income refers to a certain business income. Article 19 (2) of the Income Tax Act provides that business income shall be the amount calculated by deducting necessary expenses incurred in calculating the total amount of income in the relevant taxable period, and Article 27 (1) and (3) of the same Act provides that the amount to be included in necessary expenses shall be the sum of expenses corresponding to the total amount of income in the relevant taxable period, which is generally accepted as expenses, and Article 55 (1) 13 of the Enforcement Decree of the same Act provides that matters necessary for the calculation of necessary expenses shall be prescribed by Presidential Decree, and Article 55 (1) 13 of

In addition, Article 33 (1) 5 of the Income Tax Act provides that the expenses for domestic affairs and the related expenses shall be excluded from the necessary expenses. Article 61 (1) 1 and 2 of the Enforcement Decree of the Income Tax Act provides that the expenses for domestic affairs and the related expenses shall be excluded from the necessary expenses, and Article 61 (1) 1 and 2 of the Enforcement Decree of the Income Tax Act provides that "the expenses confirmed to have been disbursed by the business operator in connection with the domestic affairs" and the interest paid on the debt corresponding to the shortage amount

Meanwhile, Article 160(1), (4), and (5) of the Income Tax Act provide that a business operator shall keep evidentiary documents, etc. so that all transactions related to his/her private business can be objectively grasped by double entry and keep records and manage them in books by double entry. In such cases, a business operator who has income generated from a real estate rental business shall account separately for each type of income, and where two or more places of business are subject to different reduction or exemption by place of business pursuant to this Act or the Restriction of Special Taxation Act, a business operator who has two or more places of business shall account separately for each type of business. However, Article 160(5) of the Income Tax Act provides that a business operator who has two or more places of business shall record the details of transactions in books so that each

In accordance with the above-mentioned provisions, in principle, value-added tax shall be reported and paid at each workplace (Article 4(1) of the Value-Added Tax Act), and income tax shall not be reported and paid at each workplace when calculating business income. ② Business income shall be the amount calculated by deducting necessary expenses incurred in calculating the total amount of income in the pertinent taxable period from the total amount of income in the pertinent taxable period. ③ Article 61(1)2 of the Enforcement Decree of the Income Tax Act provides that the interest paid on the debts directly used in order to earn the total amount of income shall not be included in the necessary expenses if the total amount of assets for business falls short of the total amount of the liabilities, and it is reasonable to separate the above amount calculated as prescribed by Ordinance of the Ministry of Strategy and Finance from the total amount of the assets of the pertinent workplace. ④ Article 160(5) of the Income Tax Act provides that the above excessive amount shall not be included in the necessary expenses for each workplace, and thus, it shall be deemed that there is no provision that the above excessive amount should be separate from the above two or more business places.

B) Therefore, as seen earlier, the sum of the asset value in the workplace in 2008 exceeds the total amount of assets (i.e., the total amount of assets in the workplace + the total amount of assets in 2008) and the total amount of assets in the workplace exceeds OOOO(OOO + the total amount of assets in 2009 (i.e., the total amount of assets in the workplace + OOOOO) and the total amount of assets in 209 exceeds the total amount of liabilities as OOO(i.e., the total amount of liabilities + OOOO + the total amount of assets in 2009). Therefore, the Plaintiff’s real estate rental business did not occur in excess of OOO(OOO + the total amount of liabilities).

Therefore, the plaintiff's assertion that the excessive withdrawal does not occur based on the entire place of business of this case is with merit.

2) As to the Plaintiff’s assertion

A) Article 27(3) of the Income Tax Act and Article 55(1)13 of the Enforcement Decree of the same Act stipulate that interest paid on the debt used directly for the purpose of gaining gross revenue shall be appropriated as necessary expenses. The term “paid interest” refers to the interest paid on the loan and other debt for the business, which is limited to the interest on the debt used directly for the business in question, and such interest shall be limited to the interest on the debt used directly for the business in question.

Meanwhile, it is a matter of whether a resident will operate a real estate rental business with his/her own capital or by means of a loan. Thus, in calculating the real estate rental income of a resident, in cases where the original loan used as expenses for acquiring real estate for rent has been repaid with another loan thereafter, and where the real estate used as expenses for acquiring real estate for rent was acquired with his/her own capital and then used as expenses for capital withdrawal for collecting invested capital, barring special circumstances such as the excess discount (if the total amount of business assets, which are non-taxable items, falls short of the total amount of debts), the loan debt shall be deemed as a debt directly used for business and corresponding to assets necessary for carrying on the real estate rental business, and therefore, the loan interest shall be deemed as necessary expenses (see, e.g., Supreme Court Decision 2009Du11874, Jan. 14, 2010).

However, even if it is found that the amount of excess is directly used for business, if the total amount of the business assets falls short of the total amount of the business assets and there is an excess withdrawal equivalent to the difference, the reason why the excess withdrawal occurs is various, such as where the debts increase due to the business loss, etc. of the business, and where the debts increase due to the expenses not related to the business, and where the debts increase due to the domestic business, and where the debts increase due to the expenses not related to the business, etc. of the business, the household-related expenses are deemed to be in violation of the substance over form principle, and there is no rationality or feasibility (see, e.g., Supreme Court Decision 88Nu97491, Nov. 27, 1990). In light of such legal principles, Article 61(1)2 of the Enforcement Decree of the Income Tax Act should be interpreted to the effect that if the debts increase with respect to the business regardless of the domestic business, it is reasonable to exclude the paid interest from the necessary expenses.

B) With respect to the instant case, the detailed details of the liabilities to the instant business establishment: (a) in the case of 2008, OOOOwon of the lease deposit, long-term loan OOOOOOwon, long-term loan OOOOOOOwon of the current debt in the case of 2009; (b) the above long-term loan means the loan of this case that the Plaintiff borrowed the instant real estate from CC on September 4, 2006 from CC bank as collateral; and (c) the fact that the above amount was used to acquire the instant real estate was used to acquire the instant real estate. According to the above facts of recognition, as long as the total amount of the instant loan was used to acquire the instant real estate, it should be deemed that it constitutes a debt directly used for the instant business, and the interest paid therefrom constitutes necessary expenses for the interest paid on the debt directly used to obtain the total amount of the loan.

Therefore, the Plaintiff’s assertion that interest paid in connection with the instant loan is not subject to necessary expenses is well-grounded.

3) Sub-determination

Therefore, the Defendant’s disposition that deemed the interest paid therefrom to be excluded from the necessary expenses was unlawful after determining whether the amount of excess withdrawal occurred after classifying each place of business of this case.

3. Conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is so decided as per Disposition.

"꽉웰양 훌념-낱홉' l' _11 __",웰i 、 휩rue