National Agricultural Cooperative Federation (Law Firm LLC, Attorneys Kang Sung-mo, Counsel for defendant-appellant)

The director of the Nam-gu Tax Office (Law Firm, Attorneys Lee Jae-sin et al., Counsel for the plaintiff-appellant)

May 9, 2012

Seoul Administrative Court Decision 201Guhap1785 decided December 16, 2011

1.The judgment of the first instance shall be modified as follows:

A. The Defendant’s imposition of KRW 120,712,741,116 of corporate tax for the business year 2004 from each of the dispositions listed in the separate sheet No. 1 that the Defendant issued to the Plaintiff exceeds KRW 121,015,70 of corporate tax for the business year 2004; the amount exceeding KRW 9,146,333,272,346 of corporate tax for the business year 2005; the amount exceeding KRW 8,720,707,170 of corporate tax for the business year 2008; the imposition of KRW 3,920,80 of education tax for the business year 4 years 2004; KRW 12,230,920 of education tax for the four years 205; KRW 50,807,150 of education tax for the business year 207; and the imposition of KRW 5,198,30 of education tax for the four years 2008.

B. The Defendant’s imposition disposition of KRW 890, 235, 960 on August 17, 2009 against the Plaintiff on KRW 134,398,377 on KRW 166,346,86,766 on KRW 163,86,766 on KRW 825,752,67 on KRW 825,752,67 on KRW 2006 on the imposition of KRW 166,692,52,52, and value-added tax on KRW 207 on KRW 916,692,52,520 on KRW 212,65,068 on the imposition of KRW 208 on KRW 1,00 on the imposition of KRW 86,346,820,620 on the imposition of KRW 274,224124 on the imposition of KRW 20 on the Plaintiff.

C. The remaining claims of the plaintiff are dismissed.

2. Of the total litigation costs, 90% is borne by the Plaintiff, and the remainder is borne by the Defendant, respectively.

1. Purport of claim

The part of each taxation by the Defendant against the Plaintiff, which exceeds the legitimate tax amount as stated in the same list, shall be revoked.

2. Purport of appeal

A. In the judgment of the court of first instance, the part against the plaintiff is revoked. Each disposition of value-added tax exceeding the legitimate amount of corporate tax stated in the separate sheet 121,015,707,770,709,194,320,8,321,897,290, and each disposition of value-added tax exceeding the legitimate amount of corporate tax stated in the separate sheet 121,015,707,770, which the defendant made against the plaintiff shall be revoked.

B. Defendant: The part against the Defendant in the judgment of the first instance is revoked, and the Plaintiff’s claim corresponding to the above revocation is dismissed.

1. cite the judgment of the first instance;

The reasoning for use in this case is as follows: “1. Disposition process of the first instance court; 2. Whether each disposition of the instant case is legitimate; (a) the relevant laws and regulations; (c) the judgment of the issues and ① issues; (d) the judgment of the issues and ② issues; (e) the judgment of the first instance court; (f) the judgment of the issues and ② issues; (f) the judgment of the first instance court; and (f) the facts admitted to the Plaintiff’s assertion 2 are as stated in the corresponding part of the first instance judgment (from the second first to the fourth below to the fourth below), except in the following cases.”

B. From 14th to 16th, “209.14th,” the second 14th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th 27,593,51,551,180th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th th 2009, 206th th th th th th th 2005th th th th th 206.

From 204 to 6th six years of the date of the last transaction, the Defendant: (a) deemed that the deposit the remainder of which has been completed after five years from the date of the last transaction with respect to the deposit in excess of 100,000 won should be appropriated as miscellaneous income in the business year to which the date on which five years have passed from the date of the last transaction; (b) 223,802,342, 207, 7,981, 643, 831 won in 208 and 9,487, 507,221 won in the calculation of corporate tax for each business year from 2008; (c) deemed that the deposit should be counted as miscellaneous income in the business year to which the date on which the five years have passed from the date of the last transaction belongs; and (d) deemed that the amount of education tax imposed on the Plaintiff by 206,58,689,97 won in excess of gross income in the pertinent business year (amended by Presidential Decree No. 214, 20197.

The term "fees" that reduces the third 10th of the 00th shall be the "Fees for gift certificates" from the first to the second 2008 of the 2004, such as the attached Table 5.

○○ 4th second, “The inclusion of gross income was made in the calculation of corporate tax and imposed corporate tax on the omitted interest income during the period from 2004 to 4th, 2008 (see attached Form 6 education tax).

“Reduction” in the fourth fifth half of corporate tax was 28,946,852,680 won (including 6,523,843,410 won in the business year 2004, 8,703,849,470 won in the business year 2005, 8,386,460,590 won in the business year 2,401,746,700 in the business year 207, 2007, 2,930,952,510 in the business year 2,930,952,510 in the attached Form 6, and 407,97,60 won in the aggregate of education tax (see the “reduction according to the adjudication”) in the second half to April 208.

The "relevant Acts and subordinate statutes added" shall be added to the "relevant Acts and subordinate statutes" that will be 12th.

The "additional Dues" that will be reduced to the fourth 20th 20th , shall be added to "Additional Taxes".

○ 7th (1.27%) "(1.27%) shall be regarded as "(0.127%)."

○ 6th, the term “instant shares” means “stocks acquired by conversion into equity investment by a creditor financial institution, including the instant shares.”

It is assumed that “other ordinary transactions have been made in full” in the seventh seventh place was “designated as the management issues on March 27, 2004, and rescinded on March 29, 2005.”

○○ 8 2th (based on recognition) adds “A No. 15 and A No. 16 11” to the column.

○ From the fifth to the nineth day of the nineth day, the following amounts:

(3) Although the LG card shares were suspended three times, and were designated as one-year management issues from March 27, 2004, the Plaintiff did not have been suspended at the time of debt-equity swap. Although the Plaintiff was designated as a management issue at the time of debt-equity swap, a lot of LG card shares have been continuously traded at the time of debt-equity swap, but a lot of time of debt-equity swap was constantly traded at the time of debt-equity swap.

(4) As listed stocks are traded by the Exchange as well as the present value of the company as well as the future value, the closing price of the Exchange can be deemed an objective exchange value of LG card stocks at the time of conversion of investment.

○ The following shall be added to “The extinctive prescription will have been interrupted” to the second following:

In the year 2004, the deposit included in the calculation of the extinctive prescription in the gross income is a deposit in which five years have elapsed since the date of the last transaction. Since the period of prescription has not expired until five years from the date of the last transaction, the Plaintiff paid normal interest by 2004. The Plaintiff paid the last interest in 2004, the extinctive prescription period has expired again from the date of the last payment of interest. As such, the deposit which was terminated in the year 1999 was not completed. In this case, it was erroneous in the inclusion of gross income in the calculation of earnings. Likewise, it was erroneous in the calculation of gross income in 2005, 2007, and 2008, deeming that five years have elapsed from the date of the transaction or the extinctive prescription has expired.

From 4th to 15th, the following amounts shall be raised from 14th:

Since the extinctive prescription has not been completed in each taxable year, this part of the plaintiff's assertion is not necessarily required to be judged.

If the extinctive prescription has expired, the obligee’s right shall be extinguished even without recourse of the parties. Upon the lapse of the five-year extinctive prescription period without interruption of the extinctive prescription, such as approval of the obligation with respect to deposits, the financial institution’s interest is realized, by which the extinction of the obligation becomes final and conclusive upon the expiration of

The grounds for not deeming that it has become considerably mature and conclusive as much as possible to recognize it as profit at the time the extinctive prescription has expired are as follows. ① At the time of the Plaintiff’s continuous payment of interest, the Plaintiff continues to pay the deposit with the completion of prescription at any time and have the customer confirm his/her rights through Internet banking or telebankinging. ② The Plaintiff promoted through the media or the place of business, etc., and performs a campaign to find a dormant deposit with the content that the deposit obligation is not extinguished even after the lapse of five years from the date of the final transaction, and the Financial Supervisory Service, a supervisory agency, demands that the Plaintiff transfer the dormant deposit into miscellaneous profit and return it to the customer on the ground that the extinctive prescription has expired. The Plaintiff, a supervisory agency, at any time, pays the dormant deposit at any time, and has a trust to the effect that the deposit owner may find the deposit.

① However, according to the internal rules, the Plaintiff shall treat the deposit as miscellaneous income and, if there is a claim for refund from the deposit owner, pay it as miscellaneous loss. It is only to appropriate the deposit extinguished by prescription as profit, but return the deposit as the Plaintiff incurred to the Plaintiff in order to prevent the customer’s trust and good faith. ② According to Article 62(1) and (3) of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 21302 of Feb. 4, 2009), the loans, etc., the extinctive prescription of which has expired, shall be deemed as losses for the business year which includes the date on which the pertinent cause occurred. Accordingly, upon the expiration of the extinctive prescription, it appears that the creditor’s profit has become definite.

The plaintiff's assertion in this part is without merit.

From the 15th seventh to the 10th 10th , the Defendant’s deposit liabilities included in the gross income for each business year of 2004, 2005, 2007, and 2008, or for which 5 years have elapsed from the date of the final transaction with other operating profits under the Education Tax Act, are suspended due to the Plaintiff’s approval of obligations, and thus, cannot be deemed as gross income or other operating profits. The instant disposition 2 premised on this, is unlawful.

○○ The first seventeenth day of the report is that “The Plaintiff reported, and there is no reason to treat the Plaintiff’s fee for gift certificates received from the general member shop and for gift certificates received from the agricultural cooperative contract sales store differently.”

○ From 17th to 14th.

○○ 17th (15th (ma)) is regarded as “(d)”.

2. A new part.

3) Determination

According to the contract for the purchase and supply of agricultural chemicals concluded on January 18, 2005 by the Plaintiff and Youngbu District Co., Ltd. (Evidence A No. 12), the principal obligation of the Plaintiff and Youngbu District Co., Ltd. under this contract is as follows. The Plaintiff is obligated to pay the contract amount to the Youngbu District. Agrochemicals payment may be made in advance, and they shall be deposited into the settlement account opened by the Plaintiff, Youngbu District. Youngbu District Co., Ltd. shall pay 2% of the total amount supplied to the Plaintiff to the Plaintiff as the handling expenses. Youngbu District Co., Ltd. shall pay to the Plaintiff the amount equivalent to a certain percentage of the supplied amount by item of the supplied goods to promote the supply of agricultural chemicals. Youngbu District Co., Ltd shall supply the goods to the Plaintiff as the partnership warehouse directed by the Plaintiff in accordance with the contract for the supply of agricultural chemicals by the Plaintiff. In the event of failure to supply the goods on the date designated by the Plaintiff, compensation for delay corresponding to 1.5% of the goods price shall

There is no provision that the Plaintiff would delay any service to the pesticide manufacturer in return for the payment of the handling expenses. There is no evidence that the handling expenses are the consideration for the service provided by the Plaintiff to the pesticide manufacturer.

The defendant asserts that the handling expenses should be used as financial resources in preparation for losses of agrochemicals caused by force majeure that may cause part of the handling expenses to the plaintiff's member cooperatives, and market improvement expenses such as facilitation of the supply of pesticides, etc. in light of the specific circumstances that the handling expenses should be used as financial resources in preparation for losses of agrochemicals caused by accidents (water damage, fire, etc.) caused by the plaintiff's member cooperatives, and that the handling expenses should be viewed as the price that the plaintiff performed on behalf of the plaintiff when

The necessity of raising financial resources for market development, such as the promotion of the supply of pesticides, from pesticide products to the Plaintiff’s member cooperatives, is required to purchase agrochemicals from pesticide products and sell them to the Plaintiff to the Plaintiff. The Plaintiff’s use of handling and management expenses is determined in a contract for the purchase and supply of pesticide products, and such use is not construed as the purpose of pesticide products investigation. The Plaintiff’s interpretation is no more than that of services provided by pesticide manufacturers.

Unlike the handling management expenses related to the purchase of agrochemicals, the defendant asserts that the plaintiff is also subject to value-added tax, on the premise that the handling management expenses or handling fees, which are received from the manufacturing of hybrids, land improvement materials, and farming soil, are the cost for providing services for the manufacture.

Given that the Plaintiff reported value-added tax on the above goods, the handling and management fees related to pesticide purchase do not necessarily mean that it is a cost for providing services.

3. Judgment on the Plaintiff’s additional assertion

A. Claim as to the issue ①

1) Plaintiff’s assertion

Even under Article 63(1)1 (b) and Article 53(2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax Act”), where trading is suspended or is designated and publicly announced as an administrative issue in accordance with the standards set by the Korea Exchange within six months before or after the base date of appraisal, the closing price of the exchange shall not be deemed the market price, and the net assets and net profits and losses as unlisted stocks shall be evaluated and assessed by averaging the average of the net assets and net profits and losses, such as unlisted stocks. Thus, with respect to the LG card stocks whose trading was suspended or designated as an administrative issue within six months after the date of the instant conversion into investment, the closing

2) Determination

The provisions of the Inheritance Tax and Gift Tax Act, not the Corporate Tax Act, do not apply to the determination of acquisition value for the imposition of corporate tax on LG card stocks acquired through debt-equity swap. Since the Inheritance Tax and Gift Tax Act cited by the Plaintiff is not related to listed stocks, but to the Association-registered stocks, it is not applicable to the determination of acquisition value of the LG card stocks, which are listed stocks

B. The argument as to the issue No. 3

1) Plaintiff’s assertion

Value-added tax shall be exempted for the supply of goods or services supplied for a certain business as an organization for the government business prescribed by the Restriction of Special Taxation Act. The issuance of merchandise coupons for the promotion of the sale of agricultural and livestock products constitutes “agricultural and economic business or credit business, and any business related thereto,” which is the Plaintiff’s own business, and even if the Plaintiff provided services in relation to the Plaintiff’s merchandise coupon sales store, it is exempt from value-added tax because it is not a merchandise coupon issuance service for merchandise coupons

2) Determination

According to Article 106 (1) 6 of the Restriction of Special Taxation Act (amended by Act No. 9272 of Dec. 26, 2008), goods or services supplied by a government agency prescribed by Presidential Decree as an agent for government affairs, which are prescribed by Presidential Decree, shall be exempted from value-added tax. According to Article 106 (7) 5 and (8) of the Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 21196 of Dec. 31, 2008), the Plaintiff constitutes an agent for government affairs prescribed in Article 106 (1) 6 of the Restriction of Special Taxation Act, and the Plaintiff is exempt from value-added tax on goods or services supplied for a business prescribed by Ordinance of the Ministry of Strategy and Finance as an inherent purpose business of the Plaintiff: Provided, That according to the proviso to Article 48 (1) 105 of the Enforcement Rule of the Restriction of Special Taxation Act (amended by Ordinance of the Ministry of Strategy and Finance of Dec. 31, 2008).

Fees for merchandise coupons received by the Plaintiff from the agricultural affiliate sales store as well as general member shops are for general member shops or agricultural cooperative sales stores to use merchandise coupons issued and sold by the Plaintiff, and for which support services related to the operation of the franchise store, such as sales of merchandise coupons necessary for the increase of sales of general member shops or agricultural cooperative sales stores, and public relations activities for promotion of sales. It is for merchandise coupons excluded from value-added tax exemption or services similar thereto.

4. Calculation of a justifiable tax amount;

A. In relation to the instant disposition 2, it is unlawful for the Plaintiff to impose corporate tax or impose education tax by including deposits for which five years have elapsed from the date of the final transaction in gross income for each year or in other operating income. The corporate tax calculated by deducting this portion from gross income is KRW 120,712,116 in the business year of 204, as described in the “reasonable tax amount” in attached Table 7, and KRW 8,333,272,346 in the business year of 205 and KRW 0 in the business year of 2008. The imposition of corporate tax exceeding the reasonable tax amount shall be revoked. This part shall be revoked. The imposition of education tax (see the remaining amount of education tax item in attached

B. The instant disposition 4, which the Plaintiff imposed treatment management expenses received from pesticide manufacturing as consideration for the provision of services, is unlawful. The value-added tax calculated after deducting this portion, is as indicated in the column for each legitimate tax amount in attached Table 8. The imposition of value-added tax exceeding the legitimate tax amount

5. Conclusion

The judgment of the court of first instance shall be altered as follows: (i) the portion exceeding 120,712,741, and16 of the disposition of imposition of corporate tax for 204, 1207, 7777, 7770, 2057, 2067, 367, 367, 367, 20768, 367, 207, 367, 20768, 367, 367, 207, 205, 2067, 207, 36767, 367, 205, 2066, 367, 207, 369, 207, 3667, 367, 205, 207, 207, 507, 207, 209, 367, 2975, 2767, 294

[Attachment]

Judges Kim Jong-dae (Presiding Judge)