Seoul Administrative Court 2009Guu1751 ( October 01, 2010)

It can be viewed as an unfair act due to the absence of any circumstance that does not claim the outstanding amount of fees against the parent company for a long time.

The Plaintiff’s delay in collection of part of the OS fee against the parent company can be deemed an unfair act in view of the fact that there is no circumstance that the Plaintiff did not claim for a long period of time, and there is no time to claim damages for delay on the outstanding amount of fees despite the agreement on delay, and it is legitimate to exclude the interest paid from the deductible expenses in view of it

2010Nu36000 Revocation of disposition of imposing corporate tax, etc.

Appellant-Appellants

XXKorea Limited Liability Company

Appellant-Appellant

Head of the District Tax Office and one other

Seoul Administrative Court Decision 2009Guhap11751 Decided October 1, 2010

September 2, 2011

September 23, 2011

1. Of the judgment of the court of first instance, the part against the chief of the regional tax office of the defendant shall be modified as follows:

A. The director of the regional tax office against the plaintiff:

1) The portion exceeding KRW 60,88,380 of corporate tax for the business year 2000 on October 18, 2005; KRW 150,105,200 of corporate tax for the business year 2001; KRW 355,92,460 of corporate tax for the business year 2002; KRW 55,896,639 of corporate tax for the business year 35,92,460; the portion exceeding KRW 43,404,851 of corporate tax for the business year 2003; the portion exceeding KRW 44,494,54,545,530 of corporate tax for the business year 204; the portion exceeding KRW 44,514,220 of corporate tax for the business year 200, KRW 1,080, KRW 650 of value-added tax for the business year 201, KRW 35,2014, KRW 2015,29401.

2) Each disposition of imposition of corporate tax of KRW 29,56,480 for the business year 2005 on May 14, 2008 and KRW 175,230,910 for the business year 206 shall be revoked.

B. The plaintiff's remaining claims against the chief of the regional tax office are dismissed.

2. The plaintiff's appeal against the director of the Seoul Regional Tax Office and the appeal against the director of the Seoul Regional Tax Office are dismissed.

3. The plaintiff bears 10% of the total costs of the lawsuit between the plaintiff and the defendant, and the remaining costs of the appeal between the plaintiff and the defendant director of the Seoul Regional Tax Office respectively.

1. Purport of claim

A. The corporate tax for the 2000 business year ending October 18, 2005 against the Plaintiff: (a) the director of the regional tax office, (i) the director of the regional tax office,

60,88,380 won of corporate tax for 201, 150,105,200 won of corporate tax for 2002, 35,922,460 won of corporate tax for 202, 1,45,467,590 won of corporate tax for 2004, 4,494,545,530 won of corporate tax for 2004, 1,080 of value-added tax for 200, 2,432,100 of value-added tax for 201, 2,432,100, 2, 202, 203, 1,010 of corporate tax for 2, 203, 1,012, 200 of corporate tax for 204, 204, 1,54, 205, 206, 205, 209, 207.3

2. Purport of appeal

Of the judgment of the court of first instance, the part against the plaintiff shall be revoked. The notification of changes in the amount of income of KRW 341,365,000, aggregate as stated in the attached Table 2 List made by the director of Seoul Regional Tax Office on October 18, 2008 to the plaintiff shall be revoked

The Defendants: The part against the Defendants in the judgment of the first instance is revoked, and the Plaintiff’s claim corresponding to the revocation portion is dismissed.

1. Partial citement of judgment of the first instance;

The reasons for this court concerning this case are as follows: ① part of Article 2-3(c), ② part of Article 4-4(a)(13), ③ part of Article 4-4-2(3) and ④ part of Article 4-2(6) and ⑤ Paragraph(5) (the part concerning the assertion by the parties concerning 'the recognition of fee for a sos contract, interest on profits industry, etc.' which the plaintiff is considered as the grounds for appeal', and the decision thereof, and the conclusion based on the final conclusion of the parties' arguments at the court of first instance, which had not been calculated on October 18, 2005 by the director of the regional tax office having jurisdiction over the defendant had jurisdiction over the reasonable amount of tax in accordance with the calculation of the reasonable amount of tax among the corporate tax imposed on October 18, 2005).

2. As to the recognition of OS contract fee, interest on earnings industry, etc.

A. The parties' assertion

1) The Defendants

The Plaintiff borrowed funds at an annual interest rate of 10% from theO, a special-related corporation, without collecting the outstanding amount for a long time to the XX global. As a result, the loans from the special-related corporation at 10% per annum to the XX Global, which is an overseas special-related corporation, and the loans from the special-related corporation and does not receive any interest thereon. Therefore, the Defendants calculated the interest rate applied to the amount that the Plaintiff should have received, as a reasonable interest rate, and added the amount of the paid interest to gross income and excluded the amount related to the delayed collection from deductible expenses. The Defendant’s aforementioned act is justifiable in the calculation of gross income and deductible expenses.

2) Plaintiff

A) As to the recognized interest and inclusion in the gross income

① According to the service agreement between the Plaintiff and XX global, in the event that the Plaintiff borrowed funds equivalent to the unpaid amount of fees and pays interest therefrom, the Plaintiff has the right to receive 110% of the interest payment again as a os fee, and the Plaintiff cannot be deemed as an unfair loan.

② The Plaintiff’s failure to recover KRW 20.7 billion equivalent to 9.1% of the total fee for housing in the business year 2002-2004 and collect the remaining KRW 9% of the total fee, and thus, it is difficult to view that economic rationality was lacking in light of the scale of the entire transaction.

③ As the Plaintiff did not receive part of the os fees from XX global, the Plaintiff’s burden of interest on the unrepaid fee increases. The Plaintiff’s payment of 110% of the interest paid as service fees increases the corporate tax burden by generating more profits than 10% of the amount to be included in deductible expenses as the interest paid. In other words, the Plaintiff did not receive part of the os fees from each letter, and there is no unreasonable reduction in tax.

④ Nevertheless, considering that the Plaintiff’s failure to receive part of the fee from the XX global was an unfair act, the Defendants’ recognized interest and inclusion in the gross income is unlawful.

B) As to the non-Inclusion of interest paid in deductible expenses

As above, insofar as the Plaintiff cannot be deemed to have received part of the price from the XX global, it is also unlawful to exclude the Plaintiff’s paid interest from deductible expenses on the premise of provisional payment without office of work, as long as the Plaintiff cannot be deemed to have received the provisional payment against XX global.

B. Determination

1) Facts of recognition

A) The Plaintiff agreed to add “out-of-business expenses” to “out-business expenses” to “out-of-business expenses” and to receive 110% of the amount obtained by deducting “out-of-business expenses” from “out-business expenses” (hereinafter referred to as “out-of-business expenses”) according to the s contract concluded with the XX global, and to pay damages for delay of 18% per annum for the payment of unpaid fees. The Plaintiff provided housing services to the XX global, and agreed to receive 9,693,656,772 won for the business year 2001, and 4,735,672,202 won for the business year 2002, 3,984,552,369 won for the business year 203, 286,506,500 won for the business year 204, 2757, 2779,779,757, etc.

B) In order to cover internal costs under the XX Global and os contract, the Plaintiff received operating funds in advance from the XX Global in cash and entered them in the account book as the payable amount, and used them for internal costs. Moreover, the Plaintiff later treated only an amount equivalent to the internal cost out of the commission that is 110% of the internal cost claimed to the XX Global as offset against the unpaid amount. Accordingly, the Plaintiff did not receive KRW 2,340,416,081 out of the 22,700,577,893 Sos fee incurred in the business year 201-204 from the XX Global.

C) The Plaintiff continued to dispose of the amount equivalent to 10% of the internal cost corresponding to profit from the price of the os to be received from the XX global in the business year 2002-2004, and did not claim the outstanding amount against the XX global or claim damages for delay, despite the agreement, at all.

D) In addition, when the tax investigation was conducted by the Defendant, the Plaintiff confirmed that the Plaintiff had the outstanding amount of os fees against the XX global, and demanded the Plaintiff to appropriate the interest rate for recognition of the outstanding amount to the Plaintiff, the Plaintiff calculated the interest rate for each outstanding amount for each business year of 2002-2004 as follows and submitted it to the Plaintiff by including the recognized interest rate in the gross income as follows. Accordingly, the Defendant calculated each corporate tax by adding the above recognized interest to the gross income for

E) As above, the Plaintiff delayed the collection of the outstanding amount of os fees against the XX global, and then borrowed funds at the annual interest rate of 10% from theO, a special-purpose corporation, etc. to appropriate the funds for the operating fund.

[Ground of recognition] Evidence Nos. 9-1, 2, 3, Eul evidence Nos. 1, 9, Eul evidence No. 30, Eul evidence No. 31, Eul evidence No. 32, Eul evidence No. 1, 2, Eul evidence No. 33, and the purport of the whole pleadings

2) Relevant legal principles

Article 52 of the Corporate Tax Act provides that a taxpayer’s act of wrongful calculation means an act of reducing or removing taxes imposed at the time of normal transaction by taking advantage of the bypassing act, multi-stage act and other abnormal transaction forms, and the determination of whether such economic rationality exists shall be based on whether the transaction is abnormal in light of sound social norms or commercial practices (see, e.g., Supreme Court Decisions 2002Du1479, Feb. 13, 2004; 2006Du125, Nov. 10, 206). 206. The determination of whether a taxpayer’s act of wrongful calculation under Article 52 of the Corporate Tax Act refers to an act of reducing or removing taxes imposed at the time of normal transaction forms. The determination on whether such act of wrongful calculation is reasonable should be made based on whether the transaction was conducted in light of the substance of the loan and its related interest collected from a person with a special relationship under Article 28(1)4 (b), and Article 53(1) of the Enforcement Decree of the Act should be based on the amount of the loan in question.

3) Whether the Plaintiff’s delay in recovering ment fees constitutes wrongful calculation can be seen as an abnormal act lacking economic rationality

In full view of the following circumstances known from the above facts, the Plaintiff’s failure to recover the completion of the instant ment fee from the XX global during the given period constitutes an abnormal act that disregards economic rationality.

(1) The Plaintiff received an amount equivalent to approximately 90% of the sales fee of the 2002-2004 business year from the XX Global, and did not receive the remainder of 10%. This is because the Plaintiff agreed to receive 110% of the internal cost from the XX Global as a os commission, but in fact only received in advance only the amount equivalent to the internal cost (10% of the internal cost) out of the sales fee, and there is no actual receipt of the amount equivalent to the profit (10% of the internal cost). Furthermore, even though the Plaintiff did not claim damages for delay, the Plaintiff did not have any amount equivalent to the amount equivalent to the sales cost (10% of the internal cost).

(2) In light of the actual transaction relationship between the Plaintiff and the XX Global, it is doubtful whether the Plaintiff intended to claim an amount equivalent to 10% of the internal cost incurred in relation to profit as an outstanding amount, since the Plaintiff only received and used the amount equivalent to 10% of the internal cost incurred in relation to profit, unlike the os contract, in the account books.

(3) In addition to the Plaintiff’s existence of XX global and special relationship, there seems to be no circumstance that the Plaintiff would not claim the outstanding amount to the XX global for a long time.

(4) The Plaintiff asserts that even if the Plaintiff was unable to receive the outstanding amount from the XX global, the interest on the loan is included in the internal cost and receives 110% service charges for all the expenses including the interest therefrom, and thus, the recognition of the collection amount is unreasonable. However, such an agreement is merely a result of an agreement on the calculation method of the service payment, and there is no evidence to deem that the cost calculation for the outstanding amount was made pursuant to such agreement, the mere fact that such agreement does not constitute an unfair act. (If the Plaintiff did not continuously receive the amount equivalent to 10% of the internal cost corresponding to the global profit continuously, it cannot be deemed that there is no additional profit on the outstanding amount, as alleged by the Plaintiff).

B) Whether the act can be seen as an act to reduce or eliminate the tax burden

According to the above facts, it is recognized that the Plaintiff did not recover the outstanding amounts of os for a long time without good cause, and that the Plaintiff did not receive due interest despite the uniform effect of lending XX global funds.

Furthermore, it is reasonable to view that the delay of the collection of the fee corresponding to the profit by the Plaintiff is an act to reduce or exclude the burden of taxation.

C) Sub-decision

Therefore, since the plaintiff's delay in the collection of part of sss fees can be seen as an unfair act, it is legitimate that the defendant's interest rate as to the outstanding amounts of sss fees was included in the calculation

4) As to whether the above outstanding amounts should be deemed as non-deductible expenses of the pertinent interest in view of the temporary payment without office, or not, the Plaintiff’s act of delaying the collection of the price of os from the XX global. As such, the Plaintiff’s measure of non-deductible expenses of KRW 43,424,00 for the business year of 2002, among the interest paid by the Plaintiff in relation thereto, in view of the provisional payment without office, and the Plaintiff’s measure of non-deductible expenses of KRW 54,626,00 for the business year of 203, the sum of the interest paid by the Plaintiff is legitimate.

C. Sub-committee

The head of the regional tax office of the defendant had applied the interest rate of 9% for the business year 200,810,000, 108,327,000, 108,327,000, and 132,228,365,000, and 341,365,000 won in total for the business year 2004 in the gross income, and disposed of the amount of the interest paid by the director of the regional tax office by deeming the above amount as the provisional payment for the business year 43,424,00, and 11,202,62,00, 54,626,000, among the interest paid by the director of the regional tax office by deeming it as the provisional payment for the business year 2002, and it is justifiable that the director of the regional tax office of the Seoul Regional tax office has notified the change in the amount of income in accordance with the above distribution disposition.

Meanwhile, each recognized interest rate of KRW 100,810,00 for the business year 2002, KRW 108,327,000 for the business year 203, and KRW 132,228,00 for the business year 2004, and each recognized interest rate of KRW 43,424,00 for the business year 202, and KRW 11,202,00 for the business year 11,202,00 for the business year 203 shall be included in the calculation of corporate tax amount for the business year 2002-204 (attached Form 3).

Ultimately, the portion exceeding KRW 5,896,639 out of corporate tax of 35,92,460 for the business year 2002 against the plaintiff on October 18, 2005; the portion exceeding KRW 43,404,851 out of corporate tax of 1,45,467,590 for the business year 2003; the portion exceeding KRW 44,514,220 out of corporate tax of 4,494,545,530 for the business year 2004; and the portion exceeding KRW 44,514,220 of the corporate tax of 204; and the amount exceeding the Seoul Regional Tax Office's notification on October 18, 2005 by the Seoul Regional Tax Office with the exception of KRW 10,810,00,000 for the business year 203,327,000 for the business year 203; and

4. Conclusion

Therefore, the plaintiff's claim against the defendants shall be accepted within the above scope of recognition, and the remaining claims shall be dismissed for lack of reasonable grounds. However, since the part of the corporate tax amount of the business year 2002-2004, which was imposed on the plaintiff on October 18, 2005, which was revoked in whole by the director of the regional tax office, is unfair by a different conclusion, as to the whole revocation of the above legitimate tax amount, the part as to the above part of the judgment of the court of first instance as to the plaintiff's appeal by the director of the regional tax office of the regional tax office shall be modified in accordance with Paragraph (1). The plaintiff's appeal against the director of the regional tax office of Seoul and the appeal by the director of the Seoul regional tax office of the regional tax office shall be dismissed.