early 2010west0897 ( December 07, 2010)

loans are not personal liabilities of the joint investment, but shall constitute liabilities related to the joint project.

There is no basis to interpret a loan as a "investment by a partner" in anywhere such as a parking lot business agreement and a joint business financial statement, and there is no statutory provision that considers a loan as a "investment by a partner". Thus, the disposition that the defendant considers the loan as a personal obligation for a joint business investment and imposed the loan by not including the interest paid by the defendant as necessary expenses is unlawful.

2011Guhap8093 Global Income and Revocation of Disposition

This Ordinance of the Ministry of Health and Welfare

○ Head of tax office

June 3, 2011

July 22, 2011

1. The Defendant’s imposition of global income tax of KRW 13,647,770 on December 10, 2009, KRW 68,089,79,790 on the year 2007, and KRW 40,689,100 on the year 2008, and imposition of global income tax of KRW 13,868,193 on the part exceeding KRW 35,806,320 on the part of KRW 13,868,193 on the part of KRW 35,806,320 on the Plaintiff UCC, and the imposition of global income tax of KRW 68,489,960 on the year 2007, and KRW 48,01,740 on the year 208.

2. The remainder of the Plaintiff’s UCC is dismissed.

3. The litigation costs shall be borne by the defendant.

B: This is as set out in the Disposition.

Plaintiff UCC: The Defendant’s imposition of global income tax of KRW 35,806,320 on December 10, 2009 against Plaintiff UCC on December 10, 2009, KRW 68,489,960 on December 2007, and KRW 48,001,740 on December 208.

1. Details of the disposition;

"A. The plaintiffs entered into a sales contract on June 15, 2006 in order to jointly operate the parking lot business as a couple, and entered into a sales contract to purchase the F building with the size of 6,183,910,000 won from the largestG to 6,183,90,000 won on the same day (hereinafter referred to as the "real estate of this case")." "B. The plaintiffs paid the purchase fund of this case to 5.2 billion won borrowed from their financial institutions (hereinafter referred to as "the loan of this case") on September 4, 2006, and each one/2 share transfer registration was made in the names of the plaintiffs on September 25, 2006," and "the plaintiffs are registered on September 25, 2006."

October 10, 2006

Business Services and Real Estate Services

2. Upon filing a global income tax return in 2006 through 208, the Plaintiffs included the interest on the instant loans in KRW 640,40,052 ( KRW 86,620,102, KRW 311,639,365, KRW 242,140,585, and KRW 242,140, 140, 208; 206.36.67.67.67.68.67.68.67.67.67.68.67.67.67.7.7.67.7.7.7, the Defendant’s loans were personal debt for joint investment, which is irrelevant to the Plaintiff’s own joint investment, as necessary expenses.

Facts without dispute over the basis of recognition, Gap's 2 (including additional numbers; hereinafter the same shall apply), 3 evidence, Eul's 1 to 4, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

1) The plaintiffs' assertion

The instant loan borrowed from a financial institution to purchase the land and building essential for the Plaintiffs to run the parking lot business, which is a joint business. Therefore, the instant interest paid should be included in the necessary expenses for the parking lot business, but the instant disposition that did not recognize it is unlawful against the substance over form principle, etc.

2) The defendant's assertion

The borrowings of this case are loans to the members of a joint business entity equivalent to the equity shares to be invested in the joint business place, and the burden of personal obligations for the joint business investment is not limited to the burden of personal obligations. Expenses not directly related to the business of this case cannot be included in necessary expenses.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) On June 15, 2006, the Plaintiffs entered into a partnership agreement to jointly operate the parking lot business (hereinafter “instant partnership agreement”). The main contents of the instant partnership agreement are as follows.

(The following omission):

2) On June 15, 2006, the Plaintiffs purchased the instant real estate from the largestG for KRW 6,183,910,000, and paid the down payment from KRW 1.1 billion to KRW 600 million. On July 28, 2006, the Plaintiffs paid KRW 1,236,780,000 for intermediate payment on July 28, 2006 and KRW 4,347,130,00 for the remainder on September 4, 2006, respectively, made a registration of the Plaintiffs’ co-ownership transfer (per 1/2 shares) with respect to the instant real estate on the payment date of the remainder.

3) On July 28, 2006, the Plaintiff UCC borrowed 500 million won from the LL bank (hereinafter “LL bank”) and paid intermediate payments pursuant to the instant real estate sales contract. On September 4, 2006, the Plaintiff UCC borrowed 4 billion won from the LL bank as collateral, and the Plaintiff KK paid 4,347,130,000 won in the remainder of the instant real estate as KRW 4.7 billion in the aggregate created by borrowing 700 million from the MMF bank on the same day. The remainder of 352,870,000 won was used as operating expenses of the instant joint business.

4) The Plaintiffs entered the following in the financial statements of the instant joint business entity.

In ○○ in 2006, the above 5.2 billion won for short-term loans 4.5 billion won for long-term loans 700 million won for long-term loans, and the interest paid 86,620,100 won for the loans was appropriated as non-business expenses under the income statement.

In 2007, 4.7 billion won (short-term loans 4 billion won, long-term loans 700 million won) have been remaining by investing 500 million won in capital in 2007 and repaying 500 million won in short-term loans, and 311,639,365 won interest paid thereon have been appropriated as non-business expenses.

In 2008, 242,140,585 won interest paid on the loan 4.7 billion won was appropriated for non-business costs.

Facts without dispute over the basis of recognition, entries in Gap evidence 1, 5, 16, the purport of the whole pleadings

D. Determination

Ultimately, the key issue of the instant case is whether the instant loan can be deemed to be for the payment of investment to a joint business place, and the legal relationship under the instant business agreement ought to be examined as a premise of the determination thereof.

1) Legal relations pursuant to the instant trade agreement

○ Time of establishment of partnership

Article 703(1) of the Civil Act provides that a partnership (contract) shall take effect by promising two or more persons to make a joint investment and operate a joint business, and since a partnership agreement is a scarcity and an instigious contract, only the agreement between the parties shall be concluded. According to the case, the Plaintiffs’ establishment of an association to operate the instant parking lot business by entering into the instant partnership agreement on June 15, 2006, and the Plaintiffs’ completion of their business registration on September 25, 2006 is merely the registration with the tax authority of the joint proprietor, which is the unit of calculating taxable income under the tax law. Accordingly, the bearing of debt obligations of the instant loan accrued after June 15, 2006, which was established by the partnership, may be deemed as part of the ordinary partnership activities.

○ Details of the Plaintiffs’ investment obligation

According to the instant business agreement, the Plaintiffs shall invest KRW 50 million in total as the equity capital (Article 2 and Article 3 of the Agreement), and the part not appropriated as the capital from the funds to purchase the real estate of this case shall be borrowed from the banks (Article 4 of the Agreement). If the Plaintiffs become able to borrow funds according to the future circumstances in the course of running the instant joint business, the Plaintiffs shall pay additional contributions and repay bank loans (Article 6 of the Agreement). The Plaintiffs shall thereafter have additionally invested KRW 50 million in 2007 and repaid part of the loans.

○ Nature of the loan debt of this case

Normally, partnership obligations take place by legal act in the name of all union members or by proxy. The loan obligations in this case are assumed in the name of each individual of the plaintiffs, and since the plaintiffs' associations do not take the name, they are not the partnership obligations.

○ Ownership of the instant real property

In a case where several persons jointly purchase real estate, the legal relationship between the buyers is merely a co-ownership relationship, and the seller bears the duty to transfer the ownership of the share to the buyer, and there may also be cases where the seller bears the duty to transfer the ownership of the same enterprise purchased from the same enterprise with several members (see, e.g., Supreme Court Decision 94Da54894, Sept. 15, 1995). In light of the fact that the plaintiffs concluded the instant business partnership agreement at the time of entering into the instant real estate sales contract and jointly engaged in the parking lot business, it is deemed that the partnership for the business purpose of the plaintiffs, composed of the plaintiffs, acquired the instant real estate as the property of the partnership.

However, the plaintiffs did not register the real estate in this case as a partnership and completed the registration for the transfer of shares in common. Article 271(1) of the Civil Code provides that "if several persons own an article as a partnership under the provisions of law or a contract, the right of the partnership shall be vested in all of the property." Article 704 of the Civil Code provides that "if a partnership acquires the ownership of an article as a partnership's or partnership's property, the investment and other property of the partnership shall be owned jointly by the union members." Thus, if a partnership for business purposes acquired the ownership of the real estate as a partnership's or partnership's property, it naturally becomes a partnership's property pursuant to Article 271(1) of the Civil Code. However, if the partnership did not make the registration for the combination's ownership and instead, they shared each share in the name of the union members, it shall be deemed that the partnership held title trust for each of the union members (see, e.g., Supreme Court Decision 200Da3264, Jun. 26, 2002).

2) Whether the loans of this case met the Plaintiffs’ individual investment obligation

In full view of the following circumstances, the Plaintiffs appears to have invested only 1.1 billion won from the instant trade agreement to the purchase date of the instant real estate, and do not seem to have fulfilled their duty of investment by the Plaintiffs, a member of the instant loan.

① The Plaintiffs explicitly invested 1.1 billion won in the instant business agreement and expressed their intent to appropriate the remaining funds to purchase real estate in separate borrowings, namely, a separate loan. There is no ground to interpret the instant business agreement as “investment by partners” in anywhere including the instant joint business agreement and the financial statements of the instant joint business.

② However, as long as the obligation of the instant loan is not in the form of the partnership’s obligation, but in the event that the individual bears the obligation under the name of the individual of the Plaintiffs, there is room to interpret that the individual of the Plaintiffs lent the instant loan to the partnership and contributed to the partnership (based on these logic, the actual Defendant appears to have rendered the instant disposition). However, the Plaintiff’s act of transferring goods, etc. to the partnership to provide economic means to achieve the partnership’s objectives does not constitute the act of making the goods remain as the equity capital of the partnership. As long as the Plaintiffs limited the amount of equity capital in the instant business agreement to 1.1 billion won, and the balance sheet of the instant business place also includes the same as the above, the Defendant, who is the tax authority, asserting that such form of transaction is a tax avoidance act, may deny the validity of its calculation in accordance with the economic observation method or the substance over form principle, there is a need to establish individual and specific denial regulation under the principle of no taxation without law (see, e.g., Supreme Court Decision 95Nu5031, May 10, 1996).

3) Whether the interest paid in the instant case can be included in the necessary expenses

Article 27 of the Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006; hereinafter the same) defines necessary expenses as "the expenses corresponding to the total amount of income in the relevant year which are generally accepted as ordinary expenses." Article 55 subparagraph 13 of the Enforcement Decree of the Income Tax Act defines them as "interest paid on the liabilities directly used to obtain the total amount of income by embodying them." Meanwhile, Article 33 (1) 5 of the Income Tax Act provides that "the expenses for domestic affairs as prescribed by the Presidential Decree and the expenses related thereto shall be excluded from the necessary expenses." Article 61 of the Enforcement Decree of the Income Tax Act provides that the expenses shall be excluded from the expenses, and Article 61 of the Enforcement Decree of the Income Tax Act provides that "the expenses verified as used by the business operator in connection with domestic affairs" (Article 1).

Examining the instant case’s back to the point of view, as seen earlier, that the purchase of real estate through the instant loan cannot be deemed as the performance of the obligation of the Plaintiffs to contribute to the purchase of real estate, and the interest paid in this case constitutes Article 55 subparag. 13 of the Enforcement Decree of the Income Tax Act, which is the interest paid in the instant loan obligations borne by the Plaintiffs for the purpose of operating the parking lot business, and the total amount of the business assets of the instant joint business (as approximately 6.18 billion won) exceeds 5.2 billion won (as 4.7 billion won after 2007) of the instant loan obligations, it is reasonable to include the interest paid in this case as necessary expenses in addition to the foregoing reasons.

① The Plaintiffs are not operated in the form of a joint business, and if one of the Plaintiffs operates a parking lot business as an individual entrepreneur, it would be deemed that the interest paid in the instant case may be deemed necessary expenses. However, the instant parking lot business is in the form of a joint business, and it seems that the instant parking lot business would cause discriminatory treatment with respect to the same economic substance without reasonable grounds.

② According to Article 43 of the Income Tax Act, in the case of a joint business, the joint business shall be deemed as one resident and the amount of income by joint business proprietor shall be calculated. On such premise, even though the Defendant calculated the amount of income by deeming the joint business of this case as one resident, it is unreasonable that only the loan debt of this case incurred to operate the joint business of this case was returned to the Plaintiffs’ individual rent and irrelevant to the joint business of this

③ The issue of whether a resident will operate a real estate rental business with his/her own capital is attributable to a resident’s individual’s choice. Thus, in calculating the amount of real estate leased income, even in cases where a resident acquired a real estate leased with his/her own capital and used the newly borrowed money for capital withdrawal to recover the invested capital, barring special circumstances, such as excess discount (if the total amount of business assets, which are items not to be included in necessary expenses, falls short of the total amount of liabilities, the deficient amount) shall be deemed as a debt corresponding to assets necessary for carrying on a real estate rental business and directly used for business (see, e.g., Supreme Court Decision 2009Du11874, Jan. 14, 2010). Thus, even if the Plaintiffs were to have fulfilled their personal investment obligation through the loan of this case, it is difficult to find a reasonable reason to assess the amount of interest paid to the association as a matter of course when the Plaintiffs incurred a separate partnership debt corresponding to the loan of this case and redeem the newly paid amount in the form of the original debt.

4) Sub-committee

Therefore, the instant disposition on different premise is unlawful. However, as seen earlier, the part concerning the amount added to the amount of income recognized by the said Plaintiff among the disposition on global income tax in 2006 is still legitimate. In a case where the Plaintiff’s global income tax in 2006 is calculated based on the total amount of the subject matter of the lawsuit seeking revocation of the said disposition, even if the taxpayer’s intent is to object of the said disposition only for a certain reason and only for a part, the taxpayer may ask for a judgment on the whole amount of the tax subject to the taxation, and the substantial total amount of the tax is different. Therefore, this court’s determination on the tax amount based on the objective tax base and tax amount submitted by the parties concerned, and only the exceeding part shall be revoked. In principle, as indicated in the separate sheet, the Plaintiff’s global income tax in 2006 minuss the amount of tax calculated based on the amount calculated by subtracting the amount of tax calculated by the Defendant’s global income from the global income tax in 13,86,1386,3963.

3. Conclusion

If so, the remaining parts of the Plaintiff B’s claim and the Plaintiff UCC’s claim, excluding the part pertaining to global income tax for the year 2006, are with merit. The part pertaining to global income tax for the year 2006, among the Plaintiff UCC’s claims, are justified within the scope of the above recognition, and the remaining claims are dismissed as they are without merit. It is so decided as per Disposition.