Cho-2014-west-4491 (Law No. 10, 2015)

Since Non-Performing Loan Resolution Fund constitutes a non-profit domestic corporation under the Corporate Tax Act, the Plaintiff’s Note, which is written on different premise, is not accepted.

The Non-Performing Loan Resolution Fund shall be a foundation with basic property for the public interest under Article 13 (1) 2 of the Framework Act on National Taxes, which falls under a nonprofit domestic corporation under the Corporate Tax Act.

Article 5 of the Education Tax Act and paragraph (3) of the same Article

2015Guhap62415 Revocation of Disposition of Rejecting Corporate Tax

○ Bank and 14

○ Head of Tax Office and 8

March 11, 2016

April 8, 2016

1. All of the plaintiffs' claims are dismissed.

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

Cheong-gu Office

[Attachment 1. Of the list of the rejection dispositions of corporate tax for the business year 2010, the Defendants’ “Plaintiffs” as stated on the corresponding date is revoked all the dispositions of rejection of corporate tax for the business year 2010 and the “Plaintiffs” as stated on the corresponding date in the list of the rejection dispositions of corporate tax for the business year 2011, and the list of the rejection dispositions of corporate tax for the business year 2012, the “Plaintiffs” as stated on the corresponding date in the list of the rejection dispositions of corporate tax for the business year 2011, and the “the date of disposition” as stated on the corresponding date in the list of the rejection dispositions of corporate tax for the business year 2012.

1. Details of the disposition;

A. The Plaintiffs are financial institutions that have contributed to the Non-Performing Loan Resolution Fund established in the Korea Asset Management Corporation (hereinafter “Korea Asset Management Corporation”) (hereinafter “Korea Asset Management Corporation”) (hereinafter “Korea Asset Management Corporation”) (hereinafter “Korea Asset Management Corporation”) on December 31, 1999.

B. The Plaintiffs received a dividend from 2010 to 2012 as the profits accrued from the business of the Fund (hereinafter “distribution of this case”) and reported and paid corporate tax from 2010 to 2012 as the total income dividends for each business year from 2010 to 2012.

C. The Plaintiffs filed a request for correction of the tax base and tax amount of each corporate tax for the business year 2010, 2011, and 2012 to the Defendants on the grounds that the time when the instant dividend falls under the period prior to the business year 2009. However, the Defendants refused to file a request for correction as stated in the separate sheet on the ground that the instant dividend does not be subject to the exclusion of gross income (hereinafter “instant disposition”). While the Plaintiffs filed a request with the Tax Tribunal for adjudication on the instant disposition, the Plaintiffs were dismissed on February 10, 2015.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4 (including paper numbers; hereinafter the same shall apply), the purport of the whole pleading

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

1) The primary argument

Since the Fund is not a juristic person or an organization treated as a juristic person, the instant shares ought to be handled in accordance with the legal doctrine as to joint business or trust property. According to such legal doctrine, the time when the instant shares accrue is not the business year in which the Plaintiffs actually received but the actual profits accrued during the business year 2009, which was not the business year in which the Plaintiffs actually received. Therefore, the instant disposition was unlawful on the premise that the instant shares accrue in the business year 2010, 2011, and 2012.

2) Preliminary assertion

If the Fund is recognized as a corporation, the instant disposition that did not apply the provision that excluded the dividend income amount under Article 18-3 of the Corporate Tax Act shall apply to the instant dividend amount received by the Plaintiffs from the instant funds, is unlawful.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

(c) Fact of recognition;

1) The Fund was established on November 24, 1997 based on the former Act on the Establishment of the Non-Performing Assets Management Corporation of the Non-Performing Assets, etc. of the Republic of Korea (amended by Act No. 5371 of Aug. 22, 1997, amended by Act No. 5505 of Jan. 13, 1998, as Act No. 6073 of Dec. 31, 1999, as Act on the Establishment of Assets and Profit Corporation of the Republic of Korea, and was amended as Act No. 10682 of May 19, 201 as Act on the Efficient Disposal of Non-Performing Assets, etc. of the Republic of Korea and the Establishment of the Korea Asset Management Corporation. The Fund was established on November 24, 1997, under the Act on the Establishment of the Non-Performing Assets Management Corporation of the Republic of Korea ("the former Asset Management Corporation Act"), and there was no change in the status of the Fund from 2008 to 2008.

2) The instant fund paid KRW 24,002,00,000 for the taxable year 1999; KRW 160,11,000,000 for the taxable year 2008; KRW 64,100,000 for the corporate tax for the taxable year 2009; KRW 362,549,000 for the taxable year 2010; and KRW 42,03,000 for the corporate tax for the taxable year 2011; and KRW 42,03,000 for the corporate tax for the taxable year 200,000 for the tax base was either zero, or zero, for the tax base from 2000 to 2002; and was exempt from corporate tax from 2003 to 207).

3) Article 2 of the Addenda to the former Asset Management Corporation Act provides that the remaining assets of the Fund shall be returned to the invested financial institution after the end of the operating period of the Fund. However, the foregoing provision was amended on December 21, 2007 and the grounds for returning the remaining assets of the Fund even before the end of the operating period were prepared (Article 2(3) of the Addenda). Pursuant to the foregoing amendment, the Fund paid dividends from 2010 to 2012 to the Plaintiff, including the Plaintiff, and the Asset Management Committee decided not to pay a separate interest at the time of repayment of the Fund.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 7, 12 through 15, Eul evidence Nos. 1 through 3, 6 and 7, and the purport of the whole pleadings

D. Judgment on the main argument

(i)order of determination;

The Plaintiffs are disputing the time when the instant shares accrue. The issue of when the time when the shares accrue are deemed to be included in the calculation of the fiscal year is connected to the legal nature of the instant fund. If the instant funds are recognized under the tax law of the instant fund, the instant funds revert to the Plaintiffs when paying the instant shares to the Plaintiffs. On the contrary, if it is not recognized as a legal entity under the tax law of the instant fund, the profits accrued from the instant fund will be attributed to the beneficiaries of the instant fund, and it should be examined whether the Plaintiffs are beneficiaries.

2) The legal nature of the Fund

A)Provisions of the Framework Act on National Taxes

Article 13 (1) of the former Framework Act on National Taxes (amended by Act No. 8830 of Dec. 31, 2007) provides that if an unincorporated association is established with the permission or authorization of the competent authority, or an unregistered association, foundation, or other organization registered with the competent authority under the Act and subordinate statutes (Article 1 (1)), and an unregistered basic property contributed for the purpose of public interest (Article 2 (2)), among non-corporate organizations, it shall be deemed a corporation under tax law (amended by Act No. 8830 of Dec. 31, 2007). Such an organization constitutes a non-profit domestic corporation under the Corporate Tax Act (Article 1 (2) 2 (c) of the former Corporate Tax Act). In the case of the Fund of this case, it is established in the Asset Management Corporation under Article 38 of the former Asset Management Corporation Act, which was created as a financial resource under Article 39 (1) of the same Act, and its basic property is not registered as a foundation for public interest in the following light of the following circumstances:

B) The Fund has its basic property contributed for the public interest.

(1) The Fund was established for the efficient liquidation of non-performing loans, etc. owned by the financial institutions (Article 38 of the former Asset Management Corporation Act). The financial resources for the establishment of the Fund are not only the financial institutions’ contributions, such as the Plaintiffs, but also the funds raised through the issuance of insolvent reorganization fund bonds, and the funds borrowed from the Bank of Korea (Article 39(1) of the former Asset Management Corporation Act). In the case of insolvent reorganization fund bonds issued at the expense of the Fund, the Government guarantees the repayment of principal and interest (Article 40(4) of the former Asset Management Corporation Act), and the funds borrowed from the Bank of Korea are designated as government agencies under the Bank of Korea Act (Article 39(3) and 40(1) of the former Asset Management Corporation Act). The Fund is not the Asset Management Corporation, but also the Fund is responsible for the financial resources

(2) The instant funds established as above can be used only for the purposes prescribed in the Asset Management Corporation Act, and the non-performing assets or other interested parties deemed necessary to take over in particular for public interest can be preferentially acquired as non-performing assets with a large effect of disposal (Article 6(1)1 and 2 of the Enforcement Decree of the Asset Management Corporation Act). The Asset Management Corporation shall prepare the settlement of accounts, balance sheets, and profit and loss statements concerning the instant funds, and shall settle the fund operation plan before the fiscal year begins, and shall account them separately from the corporation’s accounts (Articles 42 and 43 of the Asset Management Corporation Act). As such, the instant funds are operated as a foundation separate from the corporation’s assets.

(3) Upon the completion of the operation of the Fund, a list of assets and balance sheets of the Fund in this case shall be prepared in advance, and the remaining assets shall be returned at the fund contribution ratio with the approval of the Committee, and a settlement of accounts shall be prepared and reported to the Committee without delay (Article 5371 and Article 2(5) of the Addenda of the Act on the Establishment of the Non-Performing Assets Management Corporation of Non-Performing Assets, etc. (Article 15511 and Article 3(2) and (3) of the Addenda of the Enforcement Decree of the Act on the Establishment of the Non-Performing Assets Management Corporation of Non-Performing Assets, etc. (Article 55

(iv)In the case of a suit;

Considering the purpose of the establishment of the Fund, the method of financing, the restriction on the use of the Fund, and the preferential acquisition of non-performing assets in accordance with the need for public interest, the Fund seems to have more public interest purpose than simply improving the liquidation and liquidity and soundness of the financial institution, but rather to prevent damages that can be seen by the majority of the public in advance due to the failure to secure such liquidity and soundness. Accordingly, the Fund constitutes a case where the basic property contributed for public interest purpose exists.

C) The Fund has the substance of the Foundation.

In the event that a foundation is not registered as a foundation, it shall be a group of property incorporated for a certain nonprofit purpose, and shall be an organization for uniform management independently from contributors or other specific individuals, but not yet registered, and thus, it shall not be granted legal personality. As seen above, the Fund is a group of property financed or created by funds in a certain manner, and its accounting is carried out separately from the Asset Corporation, and the Non-Performing Loan Resolution Fund Bonds issued by the Fund and the Bank of Korea bears an obligation independently from the Asset Corporation. In addition, with respect to the establishment basis, purpose, method of creation, methods of management and operation, accounting and enforcement agencies, etc. of the Fund, separate articles of incorporation is not required in accordance with Articles 38 through 43 of the former Asset Management Corporation Act. In full view of these circumstances, the Fund in this case shall be deemed to have the substance of the Foundation.

D) The Fund satisfies the condition that it will not distribute profits to its members.

Since the Foundation constitutes a property contributed by it and cannot be deemed as a member of the Foundation, there is no problem of distributing profits to its members in view of its nature. It is also the same as the Fund so long as the Fund has the substance of the Foundation. Article 2(5) of the Addenda of the former Asset Management Corporation Act provides that the Fund shall return residual property to the contributor after the expiration of the operating period of the Fund, but this constitutes a provision on the reversion of residual property after the dissolution of the Foundation, and thus, the foregoing provision cannot be deemed as a provision on the distribution of profits.

e)On the other hand, the following provisions are premised on the fact that the Fund is a corporation under tax law:

○ The funds of this case are deemed to have been designated as government agencies under the Bank of Korea Act with respect to the funds borrowed from the Bank of Korea (Article 39(3) of the former Asset Management Corporation Act). The term "government agencies" in this context means corporations designated by the Government as corporations performing public projects or functions for the Government in the production, purchase, sale or distribution (Article 85 of the former Bank of Korea Act (amended by Act No. 5491 of Dec. 31, 1997).

Article 29(1) of the Corporate Tax Act and Article 56(1)3 of the Enforcement Decree of the Corporate Tax Act are based on the premise that “funds established by the Act and subordinate statutes” is one of the organizations deemed corporations under the Corporate Tax Act, and that funds shall be allowed to include the reserves for the proper purpose business in deductible expenses (Article 15797 of May 16, 1998).

Article 2 (1) 8 (d) of the Enforcement Decree of the Corporate Tax Act, amended by Presidential Decree No. 17826, Dec. 30, 2002, on the premise that the Fund is a nonprofit corporation, considers the business related to the acquisition and liquidation of non-performing loans through the Fund under the Asset Management Corporation Act as a profit-making business and is subject to taxation.

Article 34(1) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) and Article 61(2)19 of the Enforcement Decree of the same Act provide that "where an asset corporation under the Act on the Disposal of Non-Performing Assets, etc. of Non-Performing Assets (including the fund in this case) appropriates allowance for bad debts as deductible expenses, it shall be included in deductible expenses within a certain percentage of amount." The above provision is meaningful in the accounting of the fund in this case because the asset corporation and the fund in this case are separated from the accounts of the fund in this case. However, since inclusion in deductible expenses is based on the calculation of corporate tax base, it is also a provision premised on

(f) small decision;

In full view of the above circumstances, the Fund constitutes a non-profit domestic corporation under the Corporate Tax Act on the ground that it constitutes a foundation with basic property contributed for the purpose of public interest under Article 13(1)2 of the Framework Act on National Taxes, which is not registered. Accordingly, the Plaintiffs’ assertion on a different premise is rejected.

E. Judgment on the conjunctive assertion

(i)the history of the amendment to the provisions for exclusion of import dividends;

A) Although the Monopoly Regulation and Fair Trade Act has been prohibited from establishing a holding company in the past, upon the occurrence of the need to introduce a holding company for corporate restructuring, the said Act was amended by Act No. 5813 on February 5, 199, and limited the establishment of a holding company whose main business is to control the domestic company’s business through stock ownership. In addition, the Corporate Tax Act amended by Act No. 6047 on December 28, 1999, which was amended by Act No. 6047 on December 28, 199, enacted a provision for exclusion from taxable income that allows the holding company to exclude an amount equivalent to a certain ratio of dividend income that the holding company received from its subsidiaries from taxable income (Article 18-2).

B) The Financial Holding Companies Act was enacted on October 23, 200 to ensure that a financial holding company that controls a company engaged in financial business can be established in order to enhance the competitiveness of a financial institution through the largeization and concurrent operation of financial institutions. Accordingly, Article 18-2 of the Corporate Tax Act amended by Act No. 6293, Dec. 29, 200 included a financial holding company under the Financial Holding Companies Act in a holding company. In addition, to promote the taxation equity with a holding company, Article 18-2 of the Corporate Tax Act newly established a provision on the exclusion of taxable income (Article 18-3) that allows a general domestic corporation, other than a holding company, to adjust double taxation and resolve double taxation on the revenue dividends

ii)judgments

Article 18-3(1) of the Corporate Tax Act provides that "Where a domestic corporation (excluding a non-profit domestic corporation as defined in subparagraph 2 of Article 1; hereinafter the same shall apply in this Article) exceeds a specified amount of dividend received from another domestic corporation invested by the relevant corporation, such excess amount shall not be included in the gross income for the purpose of calculating the amount of income for each business year." Considering the following circumstances that can be known in full view of the overall purport of arguments as seen earlier, the provisions of Article 18-3 of the Corporate Tax Act cannot be applied when calculating the amount of income

① Article 18-3 of the Corporate Tax Act provides that where a domestic corporation that is not a non-profit domestic corporation receives an import dividend from a domestic corporation that is not a non-profit domestic corporation, some of them may not be included in its gross income, and even if the plaintiffs constitute a domestic corporation that is not a non-profit domestic corporation, the Fund of this case constitutes a non-profit domestic corporation, and there

② In addition, Article 18-3 of the Corporate Tax Act may apply to cases where a domestic corporation that is not a non-profit domestic corporation has made an investment in a domestic corporation that is not a non-profit domestic corporation. As seen earlier, the Plaintiffs contributed money to the Fund of this case, which is a non-profit domestic corporation. However, the Plaintiffs refer to the contribution of money and other property to a corporation, etc. for operating a business. The contribution refers to the contribution of capital to a corporation, etc., and the contribution includes an act of increasing property losses by either paying money or bearing an obligation, and there is no room to apply the above provision premised on the act of investment unless the Plaintiffs made an investment in the Fund

③ Next, Article 18-3 of the Corporate Tax Act may apply to cases where a domestic corporation that is not a non-profit domestic corporation has received dividends from a domestic corporation that is not a non-profit domestic corporation. However, since dividends are paid to shareholders, etc. by a profit-making corporation, the instant shares paid by the Fund to the Plaintiffs cannot be deemed as dividends, and it does not constitute cases where dividends or shares are deemed dividends pursuant to Articles 18-2(1) and 16 of the Corporate Tax Act. Therefore, the foregoing provision of the instant case cannot be applied.

3. Conclusion

Therefore, the plaintiffs' claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.