Seocho 207west 4863 (1.08, 2008)

Profit from the forward exchange transaction of the swap deposit shall not be deemed as interest income.

Income from the forward exchange transaction of the swap deposit is similar to the interest of the deposit, and cannot be deemed as interest income in the nature of the consideration due to the use of the money.

The contents of the decision shall be the same as attached.

1. The Defendant’s disposition of imposition of global income tax of KRW 2,046,210 for the Plaintiff ChoiS on March 2, 2007 and the disposition of refusal to rectify global income tax of KRW 2,046,210 for the Plaintiffs on August 14, 2007 shall be revoked.

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

The same shall apply to the order.

1. Details of the disposition;

A. From 2003 to 2004, the plaintiffs entered into a gift exchange contract (hereinafter referred to as "securities exchange contract of this case" and "securities exchange contract of this case") with KR Bank Co., Ltd. (hereinafter referred to as "K Bank"), (1) after the plaintiffs paid won currency to KR Bank, (2) after the plaintiffs deposited the NA currency currency and receive fixed interest at or before 0.25% per annum and receive interest at maturity (hereinafter referred to as "the deposit contract of this case" and "the deposit transaction of this case"), and (3) at the maturity of the above UN regular deposit contract, with the sale of the principal and interest of the UN currency deposit at the futures exchange rate agreed in advance to KR Bank and receive compensation in Korean won (hereinafter referred to as "securities exchange contract of this case," and "securities exchange transaction of this case") (hereinafter referred to as "securities exchange transaction of this case").

B. K Bank: (a) deemed the interest income under the former Income Tax Act (amended by Act No. 8144, Dec. 30, 2006; hereinafter “Income Tax Act”); and (b) on the premise that the portion arising from the gift exchange transaction in this case was not an interest income, K Bank did not withhold the tax on the premise that the portion arising from the gift exchange transaction in this case was not an interest income.

C. The Defendant issued a correction and notification of the Plaintiff’s global income tax amounting to KRW 2,046,210 (including the return and additional payment for arrears) on March 2, 2007, on the ground that the profits from the gift exchange transaction of this case also constituted interest income (hereinafter “instant disposition”).

D. On December 28, 2007, the National Tax Tribunal rendered a decision to rectify the tax amount of the instant disposition by excluding the portion of the returned tax and additional tax for arrears on the ground that the Plaintiff’s maximumS did not return and pay the comprehensive income tax on the interest arising from the gift exchange transaction in the instant case on the grounds that the justifiable reason is recognized, in light of the circumstances where the Plaintiff’s maximumS was made to make the instant transaction with the K Bank.

E. Meanwhile, the Plaintiffs reported and paid the global income tax on the entire profits from the instant transaction, which was entered into in around 2004, and then filed a request for correction claiming the refund of the tax amount related to the portion arising from the said futures exchange transaction among global income tax already paid by asserting that the portion of the pertinent transaction was not interest income. However, the Defendant rejected the Plaintiffs’ request for correction, as stated below, on the ground that the profits from the instant futures exchange transaction constituted income subject to taxation pursuant to Article 16(1)13 of the Income Tax Act, on the ground that the profits from the instant futures exchange transaction constituted income subject to taxation pursuant to Article 16(1)13 of the Income Tax Act (hereinafter “each of the instant dispositions and each of the dispositions rejecting the correction of global income tax against the Plaintiffs”).

[Reasons for Recognition: Facts without dispute, Gap evidence 1-2, Eul evidence, Eul evidence 2-2, Eul evidence 3-1 to 3, the purport of the whole pleadings]

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

(1) The instant transaction consists of two separate trades, namely, the instant forward exchange transaction, which is capital transaction, and the instant deposited transaction. The interest accrued from the instant deposited transaction constitutes interest income as stipulated in Article 16(1)3 of the Income Tax Act. However, the interest accrued from the instant forward exchange transaction does not constitute a consideration for monetary use as a profit from foreign exchange transaction. Thus, in light of the principle of no taxation without law and the principle of substantial taxation, the income similar to the income as stipulated in Article 16(1)3 of the Income Tax Act does not constitute “income as stipulated in Article 16(1)13 of the Income Tax Act.”

(2) Profits arising from the instant futures exchange transaction are only foreign exchange trading profits, and there is no nature of financing. Moreover, the instant futures exchange transaction does not retain repurchase rights between the parties, unlike repurchase agreements of bonds or securities, and thus, it does not constitute income as income similar to income under Article 16(1)9 of the Income Tax Act under the principle of no taxation without law and the principle of substantial taxation, and does not constitute income under Article 16(1)13 of the Income Tax Act.

(3) Even if the profit accrued from the forward exchange transaction of this case constitutes income under Article 16 (1) 13 of the Income Tax Act, in light of the fact that most commercial banks, including KK Bank, handle the currency swap deposit from around 2002 to handle it as non-taxation on the profit accrued from the forward exchange transaction, but the defendant did not be subject to taxation until the time of each disposition of this case, and that the National Tax Counseling Center has re-K to the purport that the profit accrued from the forward exchange transaction of this case is not subject to taxation on the question as to whether the profit accrued from the forward exchange transaction of this case is subject to taxation on September 2003, each disposition of this case violates the principle of trust protection.

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

(1) From around 2002, K Bank developed a financial product that carries out the international currency deposit transaction and forward exchange transaction to a customer with the name of 'NS Exchange Deposit', and made a public relations and sale as more favorable to the ordinary regular deposit at the later effective return rate compared with the ordinary deposit. The customer who made the instant transaction entered into a foreign currency deposit contract at the same time as the maturity of the international currency deposit contract at the same time as the maturity of the international currency deposit contract at the maturity date, and entered into a gift exchange contract at the maturity of the rate of exchange at the maturity, with the content that the customer would sell the international currency exchange rate at the rate of exchange (the rate of exchange calculated as follows) to the bank at the fixed rate of exchange (the rate of exchange).

(2) According to the instant transaction, the customer made a deposit of the won currency owned by him in the United Nations with the deposit of KK. At maturity, there is little interest on the deposit, but at the time of the conclusion of the contract, the gift redemption profits based on the futures exchange rate as agreed upon at the time of the conclusion of the contract (in Korean won and KRW 3% per annum at the time of the contract). Accordingly, it is similar to the fixed interest rate, and the gift redemption profits under the Income Tax Act are exempt from the comprehensive taxation of financial income, so it is possible to secure high profits in comparison with the regular deposit in Korean won.

(3) Since the UN/original exchange rate market did not exist in the Republic of Korea until May 29, 2006, KR Bank concluded a gift exchange rate agreement with TPP Korea Co., Ltd. for the purpose of determining the gift exchange rate, as the number either premiumed or discounted from the spot exchange rate, which is to be increased or discounted in order to determine the gift exchange rate, and /N swap points are to be provided with USD /N swap points to adjust actual profits and losses between the parties by revising the interest rate difference in two currencies exchanged in the exchange swap transactions, and US/N swap points are to be applied to any forward exchange rate calculated by aggregating US/N exchange rate with US/N exchange rate calculated by adding US/N exchange rate with the gift exchange rate calculated by US/N exchange rate with the gift exchange rate calculated by dividing US/N exchange rate in kind by the gift exchange rate, but the rate of exchange rate of /N currency exchange rate per hour is to be provided with the same rate of exchange rate as /N currency exchange rate per day.

(4) When running the instant transaction, if there is no separate declaration of intention from the customer on the repurchase agreement prior to maturity, KK Bank automatically terminated the UN Fixed-Term Deposit Agreement and a gift exchange contract and made the deposit into the customer’s account designated in advance. In the event of termination of the UN Fixed-Term Deposit Agreement, KK Bank also terminated the gift exchange contract.

[Ground for Recognition: Facts without dispute, Gap 2 through 5, Gap 7-1, 2, Gap 8-1 through 3, Gap 10, 14, Eul 5-1, and the purport of the whole pleadings]

D. Determination

(1) Provisions of the Income Tax Act

The Income Tax Act lists interest and discount amounts of deposits (including installment savings, installment savings, deposits, and postal transfers) received in Korea under Article 16(1)3 and 9 as interest income, and repurchase agreement marginal profits on bonds or securities as prescribed by the Presidential Decree, by newly creating subparagraph 13 on December 31, 201, which is similar to those under subparagraphs 1 through 12 on December 31, 2001, includes interest income in the nature of consideration following the use of money, thereby taking a tangible comprehensive principle in determining interest income subject to taxation. On the other hand, the Income Tax Act only imposes income tax only on income prescribed by the Act, and does not impose tax on income not listed as taxable objects such as foreign exchange transaction profit arising from exchange rate difference in foreign exchange transactions.

(2) Whether the interest income from the gift exchange transaction of this case constitutes interest income in the nature of payment due to the use of money as income similar to the interest of deposit interest

(A) Although the transaction form, which the parties take place, is an act to avoid the burden of tax, it shall be deemed valid unless there are special circumstances, such as that the above act constitutes the disguised act. Therefore, to deny this, a specific legal basis is required in light of the demand for legal stability or predictability to protect taxpayers from the person with the power (see Supreme Court Decision 90Nu3027, May 14, 1991).

In full view of the following circumstances revealed from the aforementioned facts and the purport of the entire pleadings, it is difficult to view that the instant futures exchange transaction is merely a fictitious act, or that the instant transaction is merely a single won deposit transaction taking the form of foreign currency regular deposits and futures exchange transactions. Rather, it is reasonable to deem that the instant securities exchange transaction, the instant deposit transaction, and the instant futures exchange transaction were effective as a separate juristic act, respectively.

① Although the Plaintiffs did not specifically recognize the structure of the instant transaction and the actual condition of the forward exchange transaction at the time of concluding the instant transaction contract with KR Bank, they were engaged in the instant transaction with the awareness that, at least, financial income tax can be imposed, and thus, it would be able to obtain tax revenues higher than general deposits through forward exchange transaction. Therefore, it cannot be deemed that there was an explicit or implicit agreement between the Plaintiffs and KR Bank that a forward exchange contract was concluded only formally, and that the fact that the forward exchange contract was invalid.

② At the time of the instant transaction with KK Bank, the Plaintiffs: (a) separately entered into the instant deposit contract and forward exchange contract with each other; and (b) the agreed exchange rate applied to the instant forward exchange transaction is not arbitrarily determined by KK Bank; (c) the actual exchange rate in the foreign exchange market at the time of each transaction is determined by reflecting the actual exchange rate in each transaction.

③ In the event that there is no separate declaration of intention on the re-agreement from the customer before maturity while selling the swap deposit, KK Bank would automatically terminate the UN prescribed deposit contract and futures exchange contract and deposit into the customer account designated in advance. In the event that the UN ordinary deposit contract is terminated, the gift exchange contract is also terminated at the same time, but it is deemed that the instant forward exchange contract is closely combined with the instant deposit contract for the purpose of achieving the UN prescribed exchange deposit transaction.

④ The final and conclusive determination of profits and losses to be gained by the parties to a transaction according to the futures exchange rate and the spot exchange rate at the time of conclusion of the contract is reasonable in light of the general futures exchange transaction’s nature. In particular, if the futures exchange rate at the time of conclusion of the contract is higher than the spot exchange rate as at the time of execution of the contract as at the time of the instant transaction, i.e., the UN/C. swap point at the time of conclusion of the contract, ＋, it is determined definitely to gain profits during the pertinent period. Therefore, it is difficult to deem that the Plaintiffs’ profits derived from the instant transaction are final and conclusive. Furthermore, the meaning of the meaning of the profits earned by the Plaintiffs through the instant futures exchange transaction is merely the meaning that the gift exchange rate at the time of conclusion of the contract is higher than the spot exchange rate and thus, it is difficult to deem that there is no risk of exchange at all, since the gift exchange rate at the time of conclusion of the contract is more than the currency exchange rate agreed at the time of execution of the contract.

⑤ In the instant case, there is insufficient evidence to support the fact that KK Bank engaged in the instant transaction with a view to avoiding exchange risks arising from the instant transaction. However, whether to engage in the instant transaction or to avoid exchange risks without having engaged in the said transaction is a matter of choice by the financial institution according to the situation and prospects of the foreign exchange market. Thus, even if there was no covered transaction related to the instant transaction, it is not a circumstance that may affect the nature of the instant transaction even if there was no covered transaction related to the instant transaction.

6. Generally, interest refers to the amount of money received or its substitute in proportion to the original amount and the lending period. The Plaintiffs’ profit derived from the instant futures exchange transaction is not proportional to the trading period, and even if the transaction amount and the period are identical, it differs depending on the agreed futures exchange rate at the time of such transaction.

7) Since KK Bank was paid in Korean won at the maturity from most customers at the time of the instant transaction, it is almost rare that it actually paid in Korean currency at the time of maturity. However, according to each of the statements in the evidence Nos. 1 through 5 of the evidence No. 13-5, KK Bank concluded the instant deposit contract and entered the amount of deposit into the instant deposit contract, and entered it into various books such as financial statements, etc. into the account, and accordingly, it is recognized that the foreign currency deposit from 2003 to 2004, which was at the time of the instant transaction on the foreign currency balance sheet of the KK Bank, was considerably increased compared to 2002. Thus, it is difficult to readily conclude that KK Bank operated Korean currency funds from its customers as Korean won funds in violation of the general corporate accounting principles and deposit operation guidelines.

(B) When a taxpayer engages in economic activities, he/she may choose any of the various legal relations in order to achieve the same economic purpose by taking into account the efficiency of the objectives and the degree of the burden of relevant expenses, such as taxes, among the various legal relations, and the tax authority shall respect the legal relations chosen by the parties, except in extenuating circumstances (see Supreme Court Decision 2000Du963, Aug. 21, 2001).

As seen earlier, insofar as all transactions constituting the instant gift exchange contract and the instant gift exchange contract are valid as separate legal acts, it is reasonable to view that the content and scope of taxation are individually determined in accordance with the relevant legal relationship. Although the instant gift exchange contract was closely combined with the instant deposit contract, the Plaintiffs were under close combination with the instant securities exchange contract, and there was a decrease in income tax burden compared with the case where the Plaintiffs entered into a general deposit contract and received interest by taking such transaction form, such circumstance alone does not require the same treatment under the tax law regardless of the difference in the legal form (the same is more true in the instant case where the legitimacy of taxation assessment as to the income before the establishment of Paragraph (3) by the amendment of Article 14 of the Framework Act on National Taxes on December 31, 2007 is problematic in view of the nature of the benefits derived from the instant gift exchange transaction is not a kind of foreign exchange profit, and it is reasonable to deem that the said transaction is not a consideration for the use of money as income similar to the interest on a deposit.

(3) Whether profits from the instant futures exchange transaction constitute interest income in the nature of the consideration for the use of money, as income similar to trading with repurchase/back agreement of bonds or securities

Article 16 (1) 9 of the Income Tax Act and Article 24 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010) stipulate interest income as a kind of interest income under the premise that the profit from repurchase agreement is profit margin of "bonds" or "securities". However, in the case of repurchase agreement marginal profit under Article 16 (1) 9 of the Income Tax Act, compared to other interest income listed in each subparagraph of the same paragraph, the nature of the consideration for use of money is essentially weak, and in light of the fact that Article 16 (1) 9 of the Income Tax Act and Article 24 of the Enforcement Decree of the same Act restrict the scope of the profit from repurchase agreement as interest income, even if considering that Article 16 (1) 13 of the Income Tax Act has been defined in the form of comprehensive taxation, it is reasonable to deem that the expansion of the subject matter to repurchase agreement to foreign currency, other than bonds or securities, can not be permitted under the principle of no taxation without law.

(4) Sub-determination

Therefore, each of the dispositions of this case based on the premise that the profit accrued from the gift exchange transaction of this case constitutes interest income as stipulated in Article 16 (1) 13 of the Income Tax Act is unlawful without considering the remaining arguments of the plaintiffs.

3. Conclusion

The plaintiffs' claims are justified, and all of them are accepted.