2018Du3230 Revocation of revocation of revocation of corporate tax rectification

Korea Local Administration Mutual Aid Association

Law Firm (LLC) LLC et al.

[Defendant-Appellant] Plaintiff 1 and 5 others

Head of Yongsan Tax Office

Law Firm (LLC) LLC et al.

Attorneys Cho Jae-ho et al., Counsel for the defendant-appellant

Seoul High Court Decision 2017Nu60859 Decided November 23, 2017

May 28, 2020

The original judgment shall be reversed, and the case shall be remanded to the Seoul High Court.

The grounds of appeal are examined (to the extent of supplement of the grounds of appeal in case of supplemental appellate briefs not timely filed).

1. The judgment of the court below concerning the first ground for appeal

A. The lower court acknowledged the following facts as a whole by establishing and operating an efficient mutual aid system for public officials, etc. of local governments. The Plaintiff is a non-profit corporation (hereinafter “non-profit corporation”) established pursuant to the Korea Local Administration Mutual Aid Association Act in order to promote their livelihood stability and welfare. 2) The Plaintiff made an investment in various financial products, real estate, etc. with the amount of retirement benefit charges received from its members, charges for deposit of Han-man Savings, etc., 300 won plus an additional amount according to the standard for payment set forth in the Plaintiff’s articles of incorporation, etc. 480 won, 200 won plus an additional amount of KRW 408 won, 300 won plus an additional amount of KRW 400 won per 10 old shares, 40 won plus an additional amount of KRW 50 million per 200 won per 100 won or less per 200 won, 300 won or less per 400 won per month. The Plaintiff’s retirement benefit reserve was paid within the amount of KRW 507.

4) On March 27, 2014, Plaintiff 235,948,158,220 won of the above retirement benefit reserve and the deposit benefit reserve of Han-man money (hereinafter “the surcharge in this case”) out of the charged amount for the reserve fund for the proper purpose business (hereinafter “the surcharge in this case”) is included in the deductible expenses for profit-making business, and the remaining amount of the reserve fund for the proper purpose business is appropriated as the reserve fund for the proper purpose business (interest expenses) and the balance of the reserve fund for the proper purpose business (4,44,510,178,000,000,000,000,000,000 within the limit of the total amount of the reserve fund for the proper purpose business under the name of adjustment of the reserve fund for the proper purpose business within the limit of the reserve fund for the proper purpose business, Plaintiff 2 rejected Plaintiff’s request for correction as deductible expenses for the reason that it does not constitute “the non-profit business sector” under the above disposition of correction.

B. Based on the facts acknowledged as above, the court below held that the disposition of refusal of this case on the ground that the non-profit corporation can be included in the deductible expenses for the profit-making business of the plaintiff as interest expenses on the ground that the additional amount can be included in the deductible expenses for the profit-making business in light of the following circumstances, where the additional amount is paid as interest expenses by adding the amount of the contribution of the member, payment period, and the additional amount calculated according to the agreed interest rate with the operating profit derived from the profit-making business using the contributions received from the members.

1) As for the Plaintiff’s deposit of charges, regardless of its management performance, the amount calculated according to a certain rate of payment was set as the surcharge in this case pursuant to the prior agreement, regardless of its management performance, the payment of the surcharge in this case is intrinsicly similar to the payment of interest on the loan. 2) It is logical to view that the surcharge in this case is subject to interest income tax under the Income Tax Act from the standpoint of the members who receive as consideration for the use of money, and that it falls under interest expenses from the Plaintiff who disbursed the surcharge in this case. 3) The Plaintiff takes the management method of receiving the charge from the members and paying the surcharge in return for the profit derived from investing it in various financial institutions, real estate, etc., which is different from the operation method of banks and other financial institutions.

2. Judgment of the Supreme Court

However, it is difficult to accept the judgment of the court below for the following reasons.

A. Article 3 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter the same) provides that a non-profit corporation shall impose corporate tax only on its income for each business year and on its capital gains, such as land, for a non-profit corporation. Article 3 provides that a non-profit corporation’s income for each business year shall accrue from its business or revenue (hereinafter “profit-making business”) under each subparagraph. In addition, Article 113(1) of the former Corporate Tax Act provides that where a non-profit corporation operates a profit-making business, its assets, liabilities, and profits and losses shall be accounted for separately from those belonging to the pertinent profit-making business.

Meanwhile, Article 29(1) of the former Corporate Tax Act provides that where a non-profit corporation appropriates reserve funds for special purpose business to its deductible expenses for each fiscal year in order to disburse them for the proper purpose business of the corporation, it shall be included in deductible expenses within the limit of a certain limit in the calculation of the income amount for the pertinent fiscal year, and Article 29(3)4 of the former Corporate Tax Act provides that where the reserve funds for special purpose business is not used for the proper purpose business by no later than five years after the end of the fiscal year in which the reserve funds for special purpose business is appropriated to deductible expenses, the balance shall be included in the calculation of the gross income in calculating the income amount for the fiscal year which includes the date on which the relevant cause occurs.This provision provides that the portion appropriated as reserve funds for special purpose business of a non-profit corporation shall be included in the calculation of deductible expenses in lieu

The purpose is to ensure that non-profit corporations can carry out public activities smoothly by deferred taxation during the above period on the premise that the expenditure for their proper purpose business, etc. should be carried out until the day (see Supreme Court Decision 2016Du59249, Mar. 9, 2017, etc.).

In full view of the language and structure of the above-mentioned regulations, especially the purport that the former Corporate Tax Act separates non-profit corporations into profit-making business and its proper purpose business, and imposed the income only on the income accrued from profit-making business, but allows them to include the proper purpose business reserve fund for profit-making business in the deductible expenses within a certain limit, barring any special circumstance, even if the income accrued from the profit-making business in the revenue-making business is spent for the proper purpose business, it shall not be deemed the expenses paid for the profit-making business in order to obtain the income from the profit-making business. Thus, it is reasonable to deem that it can be included in the deductible expenses within the limits of the inclusion limit of the proper purpose business reserve fund for profit-making business, and it is not allowed to separately include the expenses in the deductible expenses by considering the expenses corresponding to the profit-making

B. In light of the above legal principles, since the reasoning of the judgment below and the following facts revealed by the evidence lawfully adopted by the court below, the surcharge of this case is limited to the salary business which is the proper purpose business and cannot be viewed as the expense paid by the plaintiff for profit-making business. Thus, according to the provisions of the former Local Administration Mutual Aid Association Act (amended by Act No. 11491, Oct. 22, 2012; hereinafter the same shall apply) and the articles of incorporation of the plaintiff, it is difficult to find that the surcharge of this case was included in deductible expenses for the purpose of promoting the stability of the lives of the members and the promotion of their welfare, and it constitutes the plaintiff's proper purpose business. The surcharge of this case is not included in deductible expenses for profit-making business, which is the proper purpose business of the plaintiff 2. The surcharge of this case is not included in deductible expenses for profit-making business, and it is not included in deductible expenses for profit-making business within the scope of the amount of additional funds for profit-making business of this case.

C. Nevertheless, solely on the grounds indicated in its reasoning, the lower court determined that the instant disposition of refusal was unlawful on the premise that the instant surcharge that was paid in the proper purpose business sector cannot be included in deductible expenses in the profit-making business sector. In so determining, the lower court erred by misapprehending the legal doctrine on the legal nature of the instant surcharge payment, thereby adversely affecting the conclusion of the judgment. The ground of appeal assigning this error is with merit.

3. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Jong-hwan

Justices Park Sang-ok

Lee In-bok and Lee In-chul

Justices Noh Jeong-hee