[1] Requirements and scope of fixed assets subject to depreciation

[2] In a case where the representative director of a corporation abused the power of representation or entered into a sales contract for leased articles with a related financial lessee without going through a resolution of the board of directors and returned the articles, the case holding that the leased articles shall be subject to depreciation of the corporation until they are returned, as long as the corporation purchased the leased articles from the related company for the consideration of the leased articles and actually controlled in practice while using them for manufacturing, etc.

[3] In a case where a corporation does not directly lease from a lease company and a special relationship company already used or concluded a new lease contract with a lease company paid in cash at a fixed price, whether it constitutes a “free lending of money, etc.” under Article 20 of the former Corporate Tax Act and Article 46(2)7 of the former Enforcement Decree of the Corporate Tax Act, and thus, constitutes a “free lending of money, etc.,” and the scope of recognition thereof (affirmative)

[4] Articles 5(1) and 27(1) of the former Regulation of Tax Reduction and Exemption Act, and Article 24(1) and (2) of the former Enforcement Decree of the Regulation of Tax Reduction and Exemption Act (amended by Presidential Decree No. 24(1) of the same Act)

[5] Whether the "disposition of assets" under Article 124 subparagraph 3 of the former Regulation of Tax Reduction and Exemption Act includes a case where the ownership cannot be acquired finally due to defects in the act of causing the acquisition of the assets, and thus, it is also included in the case where the ownership is returned voluntarily (affirmative)

[6] The case holding that even if a corporation entered into a sales contract for an article for lease with a specially related financial lessee and used the article, the return of the article to the lessee after the bankruptcy of the company for the related party constitutes "disposition of the property" under Article 124 subparagraph 3 of the former Tax Reduction and Exemption Control Act and the reason for additional collection has occurred in the business year of returning the article, the imposition of corporate tax for the business year before the return of the article is not legitimate

[1] In full view of the purport of Article 9(1) and (3) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998); Article 12(2)5 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998); and the contents of relevant Acts and subordinate statutes, fixed assets subject to depreciation include not only the assets owned by the corporation but also the assets owned by the corporation and exercising real control by the corporation, and the act of acquiring the assets must not be deemed lawful and effective.

[2] In a case where the representative director of a corporation abused the power of representation or entered into a sales contract for leased articles with a related financial lessee without going through a resolution of the board of directors and returned the articles at the request of the leasing company after the default of the related company, the case holding that as long as the corporation purchased leased articles from the related company for the consideration of the related company and actually controlled them in the process of using the leased articles in manufacturing, etc., the corporation still purchases the leased articles, and the leased articles still become subject to depreciation as assets which the corporation actually provided for business while exercising practical control, until they are returned.

[3] The provision of financial benefits to a special relationship company without direct lease from a lease company for the leased goods which the special relationship company already used or newly concluded a lease contract by setting the total amount of the lease fees in cash at a lump sum is an abnormal transaction with no economic rationality, which constitutes an unfair transaction with no economic rationality as provided by Article 20 of the former Corporate Tax Act (wholly amended by Act No. 5581 of Dec. 28, 1998) and Article 46 (2) 7 of the former Enforcement Decree of the Corporate Tax Act (wholly amended by Presidential Decree No. 15970 of Dec. 31, 1998). However, it is reasonable to view that a special relationship between the sale price and the lease contract deposit, initial lease fee, etc. that the company already paid to the lease company is subject to unfair calculation and avoidance.

[4] In light of the purport and structure of Article 5(1) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5584 of Dec. 28, 1998) and Article 24(1) and (2) of the former Enforcement Decree of the Regulation of Tax Reduction and Exemption Act (amended by Presidential Decree No. 15820 of Jul. 1, 1998), investment, which is the requirement for deduction of small and medium enterprise investment tax and temporary investment tax, is clearly limited to "acquisition of a new product other than used goods," and on the other hand, the taxpayer bears the burden of proof of non-taxation requirements, deduction requirements, etc.

[5] In full view of the legislative intent and contents of Article 124 subparag. 3 of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5584 of Dec. 28, 1998) and the concept of disposal of assets compared with the acquisition of assets, etc., the "disposition of assets" under the above provision shall be deemed to include the cases where the ownership cannot be acquired definitely due to the defect in the cause of acquiring the assets, and thus, it shall be deemed that the disposal of assets is also included in cases where the ownership is returned voluntarily.

[6] The case holding that the disposition of corporate tax shall not be legitimate for the business year prior to the return of the goods, on the grounds that the return of the goods to the lessee company after the bankruptcy of the related company constitutes "disposition of the assets" under Article 124 subparagraph 3 of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5584 of Dec. 28, 1998) and the reason for additional collection occurred in the business year where the goods were returned, since the disposition of additional collection was separate from the initial disposition of corporate tax, and in particular, the deducted amount of tax is not collected in addition to the initial corporate tax, but in addition to the corporate tax for the business year where the reason for additional collection occurred, since it was not legitimate to impose corporate tax for the business year where the goods were returned.

[1] Article 9(1) and (3) (see current Article 14(1) and Article 19(1)) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998); Article 12(2)5 (see current Article 19 subparag. 5) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998); Article 12(2)5 (see current Article 19 subparag. 5) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998); Article 12(2)5 (see current Article 19 subparag. 5 of the Restriction of Special Taxation Act) of the former Enforcement Decree of the Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) / [3] Article 20(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 258 subparag. 1948 of the former Enforcement Decree of the Act)

[4] Supreme Court Decision 94Nu12708 delivered on April 26, 1996 (Gong1996Sang, 1757), Supreme Court Decision 2008Du7830 Delivered on October 23, 2008 / [6] Supreme Court Decision 99Du11677 delivered on March 9, 2001 (Gong2001Sang, 899) Supreme Court Decision 99Du2000 delivered on June 29, 2001 (Gong2001Ha, 1755) (Gong2002Du516 delivered on September 26, 2003)

Plaintiff (Attorney Il-il et al., Counsel for the plaintiff-appellant)

Head of Chungcheong Tax Office

Daejeon High Court Decision 2006Nu86 decided January 18, 2007

The part of the judgment of the court below against the defendant for the imposition of corporate tax for the business year 197 is reversed, and that part of the case is remanded to the Daejeon High Court. The defendant's remaining appeal is dismissed.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

Article 9(1) and (3) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998; hereinafter the same) and Article 12(2)5 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998; hereinafter the same) stipulate the depreciation costs of fixed assets as one of the losses to be deducted from total amount of gross income in calculating the amount of income for each business year of the corporation.

In full view of the purport of the above provisions and the contents of the relevant Acts and subordinate statutes, fixed assets subject to depreciation are substantially offered to the business of a corporation, including assets owned by the corporation as well as assets which the corporation exercises practical control by acquiring real ownership, and the act of causing the acquisition of such assets does not necessarily have to be lawful and effective.

According to the reasoning of the judgment of the court of first instance cited by the court below, the plaintiff purchased the leased article in total of 6.373,513,593 won from Hanil Finance Co., Ltd. (hereinafter "lease Co., Ltd.") in 15 times from November 8, 1996 to October 1, 197, by paying a total of 6.33,513,593 won from Hanil Finance Co., Ltd. (hereinafter "Lease") under a financial lease agreement. The plaintiff requested the return of the leased article in this case after the non-party 1's bankruptcy after the delivery of the leased article in this case, and returned the leased article in whole at the end of 198, and the plaintiff appropriated the leased article in total as depreciation costs in 1.47,204,254 won in 197, and 6.43,501,508 won in 198.

In full view of the aforementioned facts and records, insofar as the Plaintiff paid for the lease of this case from Nonparty 1 Co., Ltd. and actually controlled it in the process of using it in manufacturing products, etc., the Plaintiff’s purchase of the lease of this case cannot be deemed as having no substance of acquiring assets, as alleged by the Defendant. Furthermore, in light of the aforementioned legal principles, even if Nonparty 2, who was the representative director of Nonparty 1 Co., Ltd. and the representative director of Nonparty 1 Co., Ltd, entered into a sales contract for the lease of this case with Nonparty 1 Co., Ltd., who was not the legal owner, without abusing the power of representation or making a resolution by the board of directors as alleged by the Defendant, even if the lease of this case was to be returned to Nonparty 1 Co., Ltd., the original owner due to the defect of such legal act, etc., the lease of this case still becomes subject to depreciation as assets which the Plaintiff actually provided

Although the decision of the court below to the same purport is somewhat insufficient in its reasoning, it is just in its conclusion that the lease property of this case constitutes the property subject to depreciation of the plaintiff, and there is no error in the misapprehension of legal principles as to the depreciation property as otherwise alleged in the ground of appeal.

2. Regarding ground of appeal No. 2

According to the reasoning of the judgment of the court of first instance cited by the court below, the court below acknowledged the fact that the plaintiff did not directly lend the leased company and provided financial benefits to the non-party 1 corporation with the total amount of the lease fees already used or newly concluded the lease contract by the non-party 1 corporation without any direct lease from the leased company and with a special relationship as a sale price, through a bypassing method to pay them in lump sum, shall be deemed as an abnormal transaction with no economic rationality, and thus, it shall be deemed as an object of unfair calculation and calculation as it constitutes a "loan of money, etc." under Article 20 of the former Corporate Tax Act and Article 46 (2) 7 of the former Enforcement Decree of the Corporate Tax Act. However, since the part which the plaintiff can be deemed as having actually lent funds to the non-party 1 corporation, it is reasonable to view that the difference between the sale price and the initial lease fees already paid to the non-party 1 corporation and the amount of the loan interest already paid to the non-party 1 corporation, the difference between the entire lease amount and the remainder.

In light of the relevant legal principles and records, the above judgment of the court below is somewhat insufficient, but it is just in its conclusion, and there is no error in the misapprehension of legal principles as to the scope of denial of wrongful calculation or the burden of proof as otherwise alleged in the ground of

3. As to the third ground for appeal

A. Whether the acquisition of the leased object of this case constitutes subject to deduction of the amount of small and medium enterprise investment tax and the amount of temporary investment tax

Article 5 (1) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5584, Dec. 28, 1998; hereinafter the same) provides that in case where a small and medium enterprise newly acquires any business property and invests (excluding any investment in used goods), the amount equivalent to 3/100 of the investment amount shall be the small and medium enterprise investment tax, and Article 27 (1) of the same Act, and Article 24 (1) and (2) of the former Enforcement Decree of the Regulation of Tax Reduction and Exemption Act (amended by Presidential Decree No. 15820, Jul. 1, 1998) shall provide that if the Government deems it necessary for business adjustment, a national engaged in the manufacturing industry shall deduct the tax amount equivalent to the amount calculated by multiplying the amount of investment (excluding any investment in used goods) made by 10/100 for newly acquiring the business property or facilities, from the amount of temporary investment tax, respectively.

In light of the purport and structure of the above provisions, it is clear that the investment, which is the requirement for deduction of small and medium enterprise investment tax and temporary investment tax, is limited to "acquisition of a new product, not used goods." On the other hand, the burden of proof of non-taxation requirements, deduction requirements, etc. is, in principle, imposed on the taxpayer (see, e.g., Supreme Court Decisions 94Nu12708, Apr. 26, 1996; 2008Du7830, Oct. 23, 2008). The fact that the leased goods of this case are not used goods should be proved by the plaintiff who asserts the deduction of investment tax amount under the above provisions.

Nevertheless, under the premise that the Defendant, who denies the deduction of the above investment tax amount, bears the burden of proving that the leased goods in this case were used as used goods, the part of the leased goods in this case can be viewed as used goods since the Plaintiff acquired them after being delivered under a financial lease agreement. However, since the Defendant did not have any specific assertion or proof as to the part of the leased goods and amount paid, the Defendant’s disposition imposing corporate tax for the business year of 1997, which denied the deduction of each of the above investment tax amounts in this case is judged to be unlawful. In so determining, the lower court erred by misapprehending the legal doctrine on the burden of proof of the requirements for deduction in a lawsuit seeking revocation of tax disposition, which affected the conclusion of the judgment,

B. Whether the return of the leased object of this case constitutes grounds for additional collection

The lower court rejected the Defendant’s assertion that the part denying the deduction of each of the above investments in the disposition imposing corporate tax for the business year 197 of this case is legitimate, on the ground that the Plaintiff’s demand from the lessee for the return of the leased object of this case and the Plaintiff’s right to possess the leased object inevitably returned at the end of 1998 due to its lack of possession does not constitute “disposition”, which is the grounds for additional collection under Article 124 subparag. 3 of the former Regulation of Tax Reduction and Exemption Act.

However, Article 124 subparag. 3 of the former Regulation of Tax Reduction and Exemption Act provides that where a national who has received a deduction of a small and medium enterprise investment tax amount, a temporary investment tax amount, etc. disposes of the relevant asset before 3 years elapse from the end of the taxable year to which the date on which the investment is completed belongs, an amount equivalent to the interest calculated as prescribed by the Presidential Decree shall be added to the corporate tax. In full view of the legislative intent, content, and the concept compared to the acquisition of assets, etc., the disposal of assets in this context includes the cases where the ownership cannot be acquired finally due to the defect in the cause of the acquisition of the relevant assets, and thus, it shall be deemed that

Therefore, the court below erred in holding that the return of the leased article to the lessee company of this case does not constitute a reason for additional collection under Article 124 subparagraph 3 of the former Tax Reduction and Exemption Control Act, but it is justified in finding that the additional collection under the above provision does not correspond to a reason for additional collection under Article 124 subparagraph 3 of the former Tax Reduction and Exemption Control Act. In particular, since the amount of the deducted tax should not be collected in addition to the initial corporate tax and the corporate tax for the business year in which the reason for additional collection occurred, the plaintiff's return of the leased article of this case constitutes a disposition under the above provision, and thus, it is not legitimate to impose corporate tax for the business year of 1997 (see Supreme Court Decision 9Du1677, Mar. 9, 201). The ground for appeal on this part is without merit.

4. Conclusion

Therefore, the part of the judgment of the court below against the defendant regarding the disposition imposing corporate tax for the business year 1997 is reversed, and that part of the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices.

Justices Ahn Dai-hee (Presiding Justice)