Distributions received from the Non-Performing Loan Resolution Fund shall be gross income in the year of receipt.

Non-profit Non-Profit Loan Resolution Fund is applicable to non-profit domestic corporations, shares are distributed to the contributor's residual assets, and the time when the profits accrue to the amount of dividends shall be the year of receipt and the provisions for exclusion from the gross income of revenue dividends shall not apply

Article 18-3 of the Corporate Tax Act, Article 13 of the Framework Act on National Taxes

The Seoul Administrative Court 2016Guhap72655 revocation of revocation of corporate tax amendment

○ Bank

○ Head of tax office

March 2, 2017

February 1, 2018

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The defendant's rejection of correction of corporate tax of KRW 000 in the business year 2011 against the plaintiff on October 12, 2015 and revocation of correction of corporate tax of KRW 000 in the business year 2012.

1. Details of the disposition;

A. The Plaintiff (the 00 bank of the 00 bank of the 00 bank was merged with the 00 bank of the 00 bank on October 1, 2015, and changed its trade name from the same day to the 00 bank of the 00 bank of the 00 bank. The hereinafter referred to as the “Plaintiff”) was changed to the Korea Assets Management Corporation (the 6073 corporation of December 31, 199 was changed to the 6073; hereinafter referred to as the “Korea Assets Management Corporation”) established in the Korea Assets Management Corporation (the 200 bank of the 00 bank was changed to the 00 bank of the 00 bank of the 00 bank.)

B. The Plaintiff received a dividend of KRW 000 and KRW 000 from the business of the Fund in 2011 and 2012 (hereinafter “distributions of this case”) and reported and paid corporate tax as total income dividends in the business year 2011 and 2012.

C. The Plaintiff filed a claim for correction with the Defendant for refund of KRW 00 of the corporate tax for the business year 2011 and 2012 and KRW 000 of the corporate tax for the business year 201 and KRW 000 of the corporate tax for the business year 2012, on the ground that the time when the amount of profit and loss belonging to the instant shares is attributed to the business year 201 and the provision for exclusion of the dividend amount should be applied to the said shares, but the Defendant rejected the Plaintiff’s claim for correction (hereinafter “instant disposition”).

D. On January 15, 2016, the Plaintiff appealed to the instant disposition and filed a petition for an inquiry with the Tax Tribunal, but was dismissed on May 24, 2016.

[Ground of recognition] Facts without dispute, Gap's statements in Gap's evidence 1 to 5 (including each number; hereinafter the same shall apply), the purport of whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's 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 principles as to joint business or trust property. According to such legal principles, the time when the instant shares accrue is not the business year 2011, 2012 that the Plaintiff received the said shares but the previous business year that actually accrued, and even if not in accordance with the legal principles as seen earlier, insofar as the Fund is not treated as a juristic person or an organization that is not treated as a juristic person, so the time when the said shares accrue to the Plaintiff should be deemed to be the same as above, so long as it cannot be deemed the entity that reverts to profits or the entity that is liable for tax payment under the tax law. Therefore, the instant

2) Preliminary assertion

Even if the Fund is recognized as a corporation, the instant shares received from the instant funds shall be subject to the exclusion provision of dividend income under Article 18-3 of the Corporate Tax Act, but the prior disposition is unlawful on a different premise.

B. Relevant statutes

It is as shown in the attached Form.

(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, Aug. 22, 1997; Act No. 5505, Jan. 13, 1998; Act No. 6073, Dec. 31, 1999; Act No. 10682, May 19, 201; Act on the Efficient Disposal of Non-Performing Assets, etc. of the Financial Institutions and the Establishment of the Korea Asset Management Corporation; hereinafter referred to as the "former Asset Management Corporation Act"). The Fund was established on November 24, 1997 based on the contributions of financial institutions, including the Plaintiff, the assets transferred from the Corporation, and the funds created through the issuance of Non-Performing Loan Resolution Fund Bonds, etc. from financial institutions to 2008 (hereinafter referred to as the following).

2) The instant fund paid KRW 000 of corporate tax for the taxable year 1999, KRW 000 of corporate tax for the taxable year 2008, KRW 000 of corporate tax for the taxable year 2009, corporate tax for the taxable year 2010, corporate tax for the taxable year 2010, and KRW 000 of corporate tax for the taxable year 201 (from 2000 to 2002, there was no income or tax base for the taxable year 0 won, and was a non-taxation period from 2003 to 2007).

3) Article 2(3) of the Addenda to the former Asset Management Corporation Act (No. 5371, August 22, 1997) provides that the remaining property of the Fund shall be returned to a financial institution making contributions after the end of the operation period of the Fund. However, pursuant to the proviso to Article 2(5) of the Addenda to the former Asset Management Corporation Act (amended by Act No. 8698, Dec. 21, 2007; hereinafter referred to as the “former Addenda to the Asset Management Corporation Act”), there was a ground for returning the remaining property of the Fund even before the end of the operation period. The Fund paid the instant shares to the Plaintiff in 201 and 2012 pursuant to the foregoing amendment, and at the time, the Asset Management Committee of the Asset Management Corporation (hereinafter referred to as the “Management Committee”) decided not to pay interest.

[Ground of recognition] Facts without dispute, Gap's statements in Gap's 7 through 10, 14 through 16, the purport of the whole pleadings

D. Judgment on the main argument

1) Legal nature of the instant 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, among non-corporate organizations, "unregistered associations, foundations, or other organizations established with the permission or authorization of the competent authority or registered with the competent authority under the Acts and subordinate statutes (Article 1 (1))," and "unregistered foundations with basic property contributed for the purpose of public interest (Article 1 (2)" shall be deemed corporations under tax law (Article 1 (1) of the Corporate Tax Act was added to the condition that "not distributing profits to the members" as above through the amendment of Act No. 8830 of Dec. 31, 2007). Such organizations constitute "non-corporate non-profit domestic corporations under the Corporate Tax Act" (Article 1 (2) 2 (c) of the 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, and has been raised with the financial resources provided for in Article 39 (1), and it is a foundation with an endowment contributed for public interest in the following light of the following circumstances.

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

(1) The Fund was established for the efficient settlement of non-performing loans, etc. held by financial institutions (Article 38 of the former Asset Management Corporation Act). The financial resources for the establishment of the Fund are not only the contributions of financial institutions, such as the Plaintiff, but also the funds created through the issuance of Non-Performing Loan Resolution Fund Bonds, and the funds borrowed from the Bank of Korea (Article 39(1) of the former Asset Management Corporation Act). In addition, in the case of Non-Performing Loan Resolution 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). For the funds borrowed from the Bank of Korea, the Fund is designated as a government agency under the Bank of Korea Act (Article 39(3) of the former Asset Management Corporation Act).

The Fund 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 persons deemed necessary to take over in particular for the public interest can be preferentially acquired with the effect of liquidation (Article 41(2) of the Asset Management Corporation Act and Article 6(1)1 and 2 of the Enforcement Decree of the same Act). The Asset Corporation shall prepare a statement of accounts, balance sheet, and profit and loss concerning the Fund, and prepare a statement of accounts, balance sheet and profit and loss statement before the fiscal year begins, and keep separate accounts from its accounts (Articles 42 and 43 of the Asset Management Corporation Act). In addition, the Fund shall be operated as a foundation separate from its assets corporation. In addition, the Fund subject to the National Finance Act, such as the Fund of this case, should be managed and operated in compliance with its purpose of establishment and public interest (Article 62 of the National Finance Act). The Government shall have the National Assembly submit its fund operation plan to the National Assembly by 120 days before the fiscal year begins (Article 68 through 68 of the same Act).

Article 3(2) and (3) of the Addenda to the former Asset Management Corporation Act (Article 5371, Article 2(5) of the Addenda to the former Asset Management Corporation Act; Article 155(1) of the Enforcement Decree of the Act on the Efficient Disposal of Non-Performing Assets, etc. of Non-Performing Assets, and the Establishment of Korea Asset Management Corporation (Article 15511, Article 13(2) and (3) of the Enforcement Decree of the Act on the Establishment of Korea Asset Management Corporation) shall be prepared in advance, and the remaining assets shall be returned at the fund contribution ratio after the completion of the operation of the Fund.

In light of the purpose of the establishment of the Fund in this case, financing method, restriction on the use of the Fund in this case, and preferential acquisition of non-performing assets according to the need for public interest, the purpose of the Fund in this case is not only to merely improve the liquidation and liquidity and soundness of financial institutions, but also 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 in this case is a basic property contributed for public interest purpose.

C) The instant fund has the substance of the Foundation.

(i)Unregistered as a foundation means a group of property incorporated for a certain nonprofit purpose, which is a group of property independently and uniformly managed by contributors or other specific individuals, but has not yet been registered as a foundation, and therefore has no legal personality.

As seen above, the Fund is a group of property consisting of funds contributed or raised by a certain method, and its accounting is conducted separately from the Asset Corporation, and the Non-Performing Loan Resolution Fund Bonds issued by the Fund and the Bank of Korea bears the obligation independently from the Asset Corporation with respect to loans borrowed from the Non-Performing Loan Resolution Fund Bonds and the Bank of Korea. In addition, the grounds, purposes, methods of creation, methods of management and operation of the Fund, accounting and executive agencies, etc. are prescribed in Articles 38 through 43 of the former Asset Management Corporation Act.

In full view of these circumstances, the Fund should be deemed to have the substance of the Foundation.

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

(1) The Foundation constitutes a funded property and cannot be deemed a member of the Foundation. As such, given its nature, there is no problem of distributing revenues to its members. The same is also the Fund as long as the Fund has the substance of the Foundation.

Article 2(5) of the Addenda to the former Asset Management Corporation Act provides that the property shall be returned 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 above provision cannot be deemed a provision on the distribution of profits.

E) Meanwhile, the following provisions are premised on the premise that the instant fund is a corporation under tax law.

(1) 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" refers to corporations that carry out public projects or functions on behalf of 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 former Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009); Article 56(1)3 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010) provides that "a fund established under the Act and subordinate statutes as an organization corresponding to a non-profit domestic corporation that can appropriate reserve funds for its proper purpose business as deductible expenses."

Article 2(1)8(d) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17826, Dec. 30, 2002; Presidential Decree No. 20619, Feb. 22, 2008) specifies the business related to the acquisition and liquidation of non-performing loans through the Fund as an item excluded from the profit-making business of a non-profit corporation.

Article 34(1) of the former Corporate Tax Act (wholly amended by Act No. 5581, Dec. 28, 1998); Article 61(2)19 of the former Enforcement Decree of the Corporate Tax Act (wholly amended by Presidential Decree No. 15970, Dec. 31, 1998) provides that "where the Korea Assets Management Corporation (limited to Non-Performing Loan Resolution Fund) established under the Act on the Disposal of Non-Performing Assets, etc. of Non-Performing Loan Resolution Fund Act (wholly amended by Presidential Decree No. 15970, Dec. 31, 1998) appropriates allowance for bad debts as deductible expenses, it shall be included in deductible expenses within a certain percentage." Since the accounts of the Asset Corporation and the Fund of this case are separated and carried out, it is meaningful in the accounting of the Fund of

F) Sub-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. Therefore, the Plaintiff’s primary assertion on a different premise is without merit.

2) The nature of the shares of this case

In light of the provisions of the former Asset Management Corporation Act and the interpretation thereof, it is reasonable to view that the provision that the residual property of the Fund shall be returned to the relevant institution after the expiration of the period of operation of the Fund under Article 2 of the Addenda of the former Asset Management Corporation Act in accordance with the criteria for disposal taking into account the contribution ratio, etc. is rather than the return of profits to investors. Therefore, the first Plaintiff’s primary assertion is without merit in this respect on the premise that the instant shares are profits from the investment of the financial institution.

A) Article 39(1) of the former Asset Management Corporation Act provides for an “contribution of a financial institution” as one of the financial resources to create the instant fund. However, in light of the fact that Article 9 of the same Act provides that the capital of the Asset Management Corporation is comprised of investments by financial institutions and the Government, and that the meaning of the contribution refers to an increase in property losses and losses by paying money or bearing obligations according to one’s own intent.” In addition, the said financial institution’s contribution means a payment of money and valuables, and it does not mean an investment in which the financial institution intends to make profits.

B) Article 39(1) of the former Asset Management Corporation Act provides for “1. Financial resources from the creation of the Fund of this case, funds transferred from the Corporation, 2.3. Funds created by the issuance of Non-Performing Loan Resolution Fund Bonds, 4. Loans from the Bank of Korea, 5. Loans from persons other than the Bank of Korea, 6. Operational earnings and other revenues.” This is distinguishable from contributions, transferred funds, funds from the creation of bonds, borrowed funds, borrowed funds, profits, and other revenues. Therefore, it cannot be deemed that the members of the Fund, which are the premise for return of profits from the investment, are presented.

C) As long as financial institutions, including the Plaintiff, do not have invested in the Fund, it is deemed that the former Asset Management Corporation Act, Article 2 of the Addenda to the former Asset Management Corporation Act, had the relevant institution return residual property after the expiration of the period of operation of the Fund in accordance with the guidelines for disposal taking into account the contribution ratio, etc., it is a policy provision stipulating the method of disposal of residual property after the expiration of the period of operation, and it cannot be deemed that the financial institutions, including the Plaintiff, have the right to

D) Furthermore, the Fund is established for the efficient liquidation of non-performing loans, etc. owned by financial institutions, and is used for the liquidation business of non-performing loans, etc., so it does not directly aim at generating profits (Articles 38 and 41 of the former Asset Management Corporation Act).

3) The time when the amount distributed was reverted to gross income

(A) Article 40(1) of the Corporate Tax Act provides that “The business year to which the profits and losses of a domestic corporation accrue shall be the business year which includes the date on which the profits and losses are determined.” It shall be deemed that the income has been realized when the rights that constitute the cause of the income have not been actually accrued, and shall adopt the so-called principle of confirmation of rights that calculates taxable income. Such principle of confirmation of rights shall be deemed as the date when the rights that constitute the cause of income have been realized, and shall not be the time when the income has been finally determined, and it shall be deemed that the amount of the remaining assets of the Fund shall be imposed in advance on the premise that it would be realized in the future. However, the concept of “determined” in the principle of determination of rights shall not be defined as a general principle that does not include any exception to the time of accrual of the income, and the amount of the remaining assets of the Fund shall be returned to the Plaintiff at the end of the business year after the settlement of accounts based on the provisions of the former Act No. 1960, Dec. 16, 2019.

C) On the other hand, as of the end of June 2006 and the end of December 2007, the Government inspected the assets and liabilities of the Fund. On September 26, 2008, the 8th Commission on the 2008 Operational Plan of the Non-Performing Loan Resolution Fund decided to newly establish items to be refunded to financial institutions and increase the amount of KRW 9,81.4 billion in the expenditure plan in 2008, and thereafter the National Assembly approved the payment of the amount of KRW 981.4 billion in the above financial institution. Accordingly, the remaining assets were first returned to the financial institutions including the Plaintiff on December 29, 2008, and the 2nd Commission on the 2nd Operational Plan of the Non-Performing Loan Resolution Fund in March 6, 2009 decided to amend the Operational Plan of the Non-Performing Loan Resolution Fund in 2009, and the financial institutions were reduced from the initial 00 billion won to the Plaintiff before the payment of the remaining assets is made.

D) Therefore, the time when the Plaintiff can be deemed to have secured the taxpayer’s money by enabling management and control of the shares of this case. Therefore, it is reasonable to deem that the business year to which the shares of this case accrue is 201 and 2012. In this regard, the Plaintiff’s assertion is without merit.

E. Judgment on the conjunctive assertion

1) The amendment history of the provision on exclusion of import dividends from taxable income

A) Although the Monopoly Regulation and Fair Trade Act has been prohibited from establishing a holding company in the past, when there was a need to introduce a holding company for corporate restructuring, the establishment of a holding company whose main business is to control the domestic company’s business through stock ownership was limited (see Articles 8, 8-2, and 8-3). In addition, the Corporate Tax Act amended by Act No. 6047, Dec. 28, 1999, newly established a provision for exclusion from taxable income (Article 18-2) that allows the holding company to exclude the amount equivalent to a certain rate of dividend income that it receives from its subsidiary from the taxable object of corporate tax, in consideration of the characteristics of the holding company whose main business is to control its business through stock ownership (see Articles 8, 8-2, 8-3).

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

2) Determination

A) 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; hereafter the same shall apply in this Article) receives a certain amount of dividend from another domestic corporation in which the corporation has made an equity investment, the excess amount shall not be included in the gross income in calculating the amount of income for each business

B) However, considering the following circumstances that are acknowledged by comprehensively taking account of the above facts acknowledged and the overall purport of oral argument, Article 18-3 of the Corporate Tax Act cannot be applied when calculating the Plaintiff’s income amount. Therefore, the Plaintiff’s conjunctive assertion is without merit.

① 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 invested in a domestic corporation that is not a non-profit domestic corporation. As seen earlier, the Plaintiff contributed money to the Fund, which is a non-profit domestic corporation. However, the Plaintiff refers to the contribution of money, property, etc. to a corporation, etc. with the capital to run a business. The contribution includes the act of raising property losses by either paying money or bearing an obligation on the basis of its intent, and there is no room to apply the above provision premised on the act of contribution, so long as the Plaintiff made a contribution having the nature of the contribution to the Fund.

② In addition, Article 18-3 of the Corporate Tax Act may apply to cases where a non-profit domestic corporation that is not a non-profit domestic corporation receives dividends from a domestic corporation that is not a non-profit domestic corporation. The amount of dividends or surplus distributions and the amount deemed dividends or distributions under Article 16 of the Corporate Tax Act (see Article 18-2 of the Corporate Tax Act). This case’s dividends paid to the Plaintiff by the Fund, a non-profit domestic corporation, may not constitute dividends or surplus distributions. Moreover, since the instant dividends were paid before the end of the operating period of the Fund, they cannot be deemed as dividends or surplus distributions due to dissolution of the Fund, and thus, they cannot be deemed as dividends or distributions pursuant to Articles 18-2(1) and 16(1)4 of the Corporate Tax Act. Accordingly, Article 18-3 of the Corporate Tax Act of this case is not applicable

③ The purpose of Article 18-3 of the Corporate Tax Act is to prevent double taxation on a single income by imposing corporate tax on the income already imposed at the stage of the corresponding domestic corporation in cases where a domestic corporation received dividend income from another invested domestic corporation. However, the instant fund is merely a corporate tax recognized as a corporation pursuant to the relevant provisions and paid corporate tax, which cannot be deemed the advance payment of the tax to be paid by the Plaintiff as the tax paid for a separate reason by the Plaintiff. Thus, the taxation on the instant dividend cannot be deemed as a taxation on the same income as the tax already paid by the Fund, and cannot be deemed as a double taxation.

3. Conclusion

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