Seoul Administrative Court 2007Guhap47145 ( November 26, 2008)

Cho High Court Decision 2006Do1115 ( October 09, 2007)

It is unreasonable that low-risk transactions are subject to comparison in order to calculate the normal interest rate of high-risk transactions.

In selecting comparative transactions for calculating the normal interest rate of bonds-backed securities transaction, which is a high risk transaction based on bad loan bonds, the fact that the collection amount of basic bad loan bonds is provided as security and the amount directly contributed by the debtor is also the comparative transaction that serves as a security device is so big that the intrinsic difference is too big as well as the reasonable interest rate adjustment to the extent that it is almost impossible to eliminate the intrinsic difference.

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

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The Defendant’s disposition of imposition of KRW 33,435,590 for the business year of October 14, 2005, and KRW 467,706,510 for the business year of October 2001, corporate tax of KRW 1,396,826,080 for the business year of October 14, 2005, corporate tax of KRW 119,754,30 for the business year of October 203, 2003, corporate tax of KRW 8,711,740 for the business year of 2003, and corporate tax of KRW 5,464,540 for the business year of 204.

2. Purport of appeal

The judgment of the first instance shall be revoked. The plaintiff's request shall be dismissed.

1. Circumstances of the disposition;

The following facts are not disputed between the parties, or may be acknowledged by comprehensively taking into account the whole purport of pleadings in each entry in Gap evidence 1-1 through 6, Gap evidence 3, 5, 7, 9, 10, 11-1 through 10, Eul evidence 1-1 through 10, Eul evidence 3-1 through 10, Eul evidence 4-1 through 12, Eul evidence 5-1 through 10, Eul evidence 6-1 through 10, Eul evidence 6-1 through 10, and Eul evidence 8.

(a) Status of the parties;

"(1) The plaintiff (1) is a domestic corporation established for the purpose of the acquisition, management, operation, and disposal, etc. of loans and all rights incidental thereto, which ○○○○-Assian Investment (hereinafter referred to as "○○○") was transferred by 100% from the Luxembourg Corporation (hereinafter referred to as "Financial Corporation") in accordance with an asset-backed securitization plan pursuant to the Asset-Backed Securitization Act (hereinafter referred to as "asset-Backed Securitization Act"), which is a Luxembourg corporation on 16.04.16. 2001, "(2) Dok Fac, III (U.S.), L.P. (hereinafter referred to as "LuxembourgF") is a 3rd LS corporation established under the Asset-Backed Securitization Act (hereinafter referred to as "U.S. Corporation").

(3) ○○○, △F, and △F 3KC, etc. were established and operated by ○○, △△F, and were corporations with dominant control of ○○ Fund. With respect to the investment of domestic non-performing loans, △○ Fund established and operated the Korea Wide Road, Korea LLC (hereinafter referred to as ○○K), and HHF Korea Co., Ltd. (hereinafter referred to as “HAK”), and ○○ Fund was mainly engaged in the decision-making on the real estate color and investment of non-performing loans invested in Korea, and HAK performed the asset management and the entrusted business of a special purpose company established by Pacific Fund as its main business.

(b) Purchase of defective loan claims, etc. and transfer of the status of transferee of △F;

On October 8, 2001, △F entered into an asset acquisition agreement with △F to transfer the lease loan claims amounting to KRW 277.2 billion to △F, and around October 2001, the △F transferred the status of the transferee according to the asset acquisition agreement to the Plaintiff around 2001.

(c) Issuance of asset-backed securities on the Plaintiff’s loan business loan claims;

(1) On October 07, 2001, the Plaintiff, based on the underlying asset of the foregoing lease office loan loan claim, issued 1/7 of the issue value as shares-type securities equivalent to KRW 21.7 billion; ② the issue value 6/7 of the 6/7th issue value as shares-type securities with USD 70,000,000 ($ 91.7 billion), five-year maturity, 12% interest per annum, senior bond-type securities with USD 29,529,160 ($38.7 billion), seven-year maturity, and 18% interest per annum as subordinated bond-type securities (ABS).

(2) On May 07, 2001, 000, ○○○ subscribed the instant stock-backed securities, and 3KK on the same day (hereinafter referred to as “mortgage-backed securities”) acquired the entire amount of senior and subordinated bond-type securities on the same day, and sold all of them to △F on May 08, 2001.

(d) Borrowing of funds from △F and paying interest to the Plaintiff’s △F;

(1) On May 07, 2001, in order to purchase bond-backed asset-backed securities from △F 3K, △F borrowed US$69,670,436, equivalent to 70% of the initial issue value of bond-backed securities from the non-party Seoul Bank until November 20, 2003, on the terms of interest rate annual LIBR (LOR) +3.5% (LOBR interest rate between the London banks) + the loaned 4.27%.

(2) The Plaintiff paid interest on the bonds-backed securities to △ Fund as follows.

(e) A report or revised report on corporate tax related to consulting services rendered by the plaintiff;

(1) On December 08, 200, Austria paid USD 1,840,183.80 to the Hong Kong Road, and Ltd (hereinafter referred to as "SSA") as the consulting service cost for a special purpose company, and HAK paid 693,096,320 won (excluding value-added tax) for the consulting service cost distributed to five special purpose companies, including the Plaintiff, as a result, HAK distributes the above consulting service cost to five special purpose companies including the Plaintiff, and filed a report on the corporate tax base by including it in the deductible expenses for the business year.

(2) During the second tax investigation process, the Plaintiff made a tax adjustment with the content that the above consulting service costs were paid without the actual provision of services not to deductible expenses and that the consulting service costs were disposed of as other income. On the other hand, the Plaintiff: (a) held a provisional general meeting of members on September 30, 2005 and applied for an additional tax deduction of 693,095,320 won after subtracting 1,000 won from the consulting service costs of 693,096,320 won, which was deducted from the consulting service costs of 693,09,096,320 won; and (b) applied for a revised return of income deduction of 4,580,567,330 won from the earned income for the business year of October 209, 202; and (c) applied for a revised return of income deduction of 4,58,373,561 won from the dividend amount of 4,500,201.

F. The Seoul Regional Tax Office’s tax investigation and the Defendant’s disposition of this case

(1) During the period from April 2003 to September 2005, the Seoul Regional Tax Office conducted the Plaintiff’s tax investigation (hereinafter “the first tax investigation”) on the business year from April 16, 2001 to September 30, 2002 with respect to the Plaintiff, and thereafter, conducted a tax investigation (hereinafter “the second tax investigation”) with respect to the Plaintiff and other special purpose companies related to the YB Fund from April 2005 to September 2005.

(2) On October 14, 2005, the director of the Seoul Regional Tax Office: (1) deemed that the interest rate on bonds-backed securities paid by the Plaintiff to the △F, a foreign related party, is higher than the normal interest rate stipulated in Article 5 of the Adjustment of International Taxes Act (hereinafter “International Tax Act”); (2) deemed that the Plaintiff’s loan transaction with the Seoul Bank is the comparative transaction; (3) calculated the fixed interest rate of 7.7% based on LIBR + 3.5% of the loan transaction with the Seoul Bank as the normal interest rate, and then calculated the fixed interest rate of 7.7% based on the normal interest rate of 7.7% as the normal interest rate, and (3) made a tax adjustment as non-deductible inclusion in deductible expenses; and (2) notified the Plaintiff of the result of the tax investigation as to the aggregate amount of corporate tax from April 16, 2001 to December 31, 2004.

(3) On October 14, 2005, the defendant issued a disposition of imposition of corporate tax of 33,435,590 won on June 14, 2001, corporate tax of 467,706,510 won on September 2001, corporate tax of 1,396,826,080 won on September 2002, corporate tax of 1,396,826,080 won, corporate tax of 119,754,300 won on March 3, 2003, corporate tax of 8,711,740 won on September 203, 203, corporate tax of 5,464,540 won on March 3, 204 (hereinafter “instant disposition of imposition”).

2. Determination as to whether the imposition disposition of this case is proper

A. Whether the disposition imposing corporate tax on the portion of the difference between the interest rate on the bond-backed securitization securities issued by the Plaintiff and the normal interest rate calculated by the Defendant is appropriate

(1) Party’s proposal

(A) The plaintiff

1) The bond-backed asset-backed securities issued by the Plaintiff are high-risk bonds with bad loans as underlying assets. Meanwhile, the interest rate for loan transactions on the Seoul Bank, which is not determined between the Plaintiff and an independent company, was not the interest rate determined between the Plaintiff and the independent company. There was no adjustment of the difference between the interest rate on bond-backed securities in terms of the risk and collateral, maturity, fluctuations in the interest rate, real interest rate due to the loan conditions, such as deposit, etc., and the trend of accepting the risk of the lender, and other significant situations different from the bonds-backed securities. Even if the difference is adjusted, it is fundamentally important from the issue transaction of bond-backed securities. Thus, the interest rate for loan transactions on the Seoul Bank, LuxembourgF, cannot be deemed a comparative transaction to calculate the normal interest rate on bond-backed securities issued by the Plaintiff, and it cannot be deemed that the normal interest rate calculated based on this is reasonable.

2) Therefore, the instant disposition imposing corporate tax by deeming the interest amount equivalent to the difference between the interest rate of bonds issued by the Plaintiff and the normal interest rate computed by the Defendant as the transfer price is unlawful.

(B) Defendant

1) The loan transaction of △F with the Seoul Bank can be a comparative transaction for the following reasons in calculating the normal interest rate on bonds-backed securities according to the comparable third-party pricing method stipulated in Article 5(1) of the International Tax Act:

A) In lending funds to Luxembourg, the Seoul Bank recognized the real value of underlying assets of asset-backed securities issued by the Plaintiff and determined whether it is possible to lend funds as the sole collateral. In that process, the credit rating of △F was not considered in all. If the Seoul Bank fails to recover the principal and interest of the loan from asset-backed securities, which are collateral for the loan, the Seoul Bank’s financial resources for collecting the principal and interest of the Seoul Bank, and the possibility of recovery, etc. depends only on asset-backed securities issued by the Plaintiff, and thus, it is not different in fact from lending funds to the Plaintiff.

B) A special purpose company, such as the Plaintiff, etc., established by △△ Fund, may borrow funds at a low interest rate of 8 to 10% per annum from a domestic bank if it had made a reasonable decision as an independent company, but it borrowed funds by issuing asset-backed securities with a high interest rate of 17-19% per annum to △F, a foreign person with a special relationship, and subsequently, the Plaintiff, etc. evaded tax by transferring income to △F.

2) The Defendant calculated the reasonable reasonable interest rate through the process to adjust the difference between the bond-backed asset-backed securities issued by the Plaintiff and the loan transactions between △F, which was the subject of the comparison, with the Seoul Bank as follows.

A) Since the issue transaction of bonds-backed securities and the loan transaction of DolF with Seoul Bank provided the same underlying assets as collateral, both transactions are highly likely to be compared. The bond-backed securities issued by the Plaintiff are issued in the order of priority and post-issuance. However, since DolF was fully acquired by both parties, the issue amount of bonds-backed securities is substantially identical to that of 13.78% of the weighted average interest rate, in substance. Even if there is a defect in taxation based on the weighted average interest rate, the transfer income amount should be calculated by applying the difference between interest rates among the amount of senior asset-backed securities by deeming the loan transaction of Seoul Bank as the comparative transaction with respect to the loan amount equivalent to the Seoul Bank

B) LTV (referring to the rate of issuance of asset-backed securities (ABS) on the entire asset-backed asset-backed securities for the entire asset-backed securities (hereinafter “LTV”) is about 86%. LTV on the asset-backed securities for the Seoul Bank is about 70%. LTV on the entire asset-backed asset-backed securities for the loan-backed securities for the Seoul Bank is about 60% (=86% X70%). However, in applying the normal interest rate, the Plaintiff’s assertion was substantially adjusted since it was included in deductible expenses only for the portion equivalent to 70%, which is the LTV, on the debt-backed asset-backed securities for the Seoul Bank.

C) Since the Seoul Bank’s lending of funds to Luxembourg does not substantially differ from the lending of funds to the Plaintiff, there is no need to consider the lending of funds as it did not affect the size of the principal and interest recovered from the relevant loan and the possibility of recovery due to the difference in maturity, the difference in other terms and conditions of borrowing, such as reserves, and the possibility of recovery. In particular, since the Plaintiff repaid the principal and interest of the loan to Luxembourg before the maturity of bond-backed securities much more than the maturity maturity, and the Luxembourg also repaid the loan principal and interest to the Seoul Bank before the maturity of the loan transactions with the Seoul Bank, there is no need to consider the circumstances such as the maturity difference or the increase in the fixed interest rate.

D) The taxing authority established the legality of the normal interest rate to the extent reasonably acceptable. The difference between the issue of bond-backed securities and the loan transaction between △F to the Seoul Bank. The burden of proving that there was a lack of rationality in calculating the normal interest rate and the normal interest rate in the subordinate part of bond-backed securities is all the Plaintiff.

(2) Facts of recognition

The following facts are either disputed between the parties, or acknowledged by Gap evidence 2, 4, 6, 7, 8, 12, and 13-1, 2, 3, and 14-1, 2, 15, 16, and 18-1, and 2, respectively.

(A) According to the Plaintiff’s asset-backed securitization plan, specific plans for redemption of principal and interest of asset-backed securities are as follows.

1) The plaintiff shall pay to the underwriter of asset-backed securities each month an amount smaller than [the sum of interest on asset-backed securities and the amount equivalent to 98.6% of the purchase price of assets recovered in the preceding month] and [the sum of interest on asset-backed securities and the amount equivalent to 98.6% of the purchase price of assets recovered in the preceding month].

2) From the year of issuance in the case of senior bonds-backed securities, the principal and interest of subordinate bonds shall not be paid until the principal and interest of senior bonds-backed securities are fully repaid. The priority in repayment of senior bonds-backed securities is the interest of senior bonds, the principal and interest of senior bonds, the interest of subordinated bonds, and the order of principal of subordinated bonds.

3) The remaining balance after redemption of bonds-backed securities in the above manner is used for the payment and redemption of dividends on stock-backed securities.

(B) The terms and conditions of the contract on redemption of principal and interest payment are as follows in the lending transaction from the Seoul Bank in order to acquire bonds-backed securities by △F.

1) The maturity shall be the 20th day (20 November 20, 2003) of the month in which the date of the loan contract falls, and the date the underlying assets of asset of asset-backed securities are finally disposed of, whichever comes earlier. 2) In the event of delay in repayment of principal and interest, interest in arrears added 5% to the loan interest rate (LIBOR + 3.5%) shall be appropriated, and where the final repayment is overdue, interest in arrears shall be charged for the total amount of principal and interest concerned.

3) An operating account, a custody account, and a reservation account must be opened in the Seoul Bank, and the Plaintiff must keep the separate operating account until the loan is repaid in full.

4) HAK shall ensure that all amounts recovered from the underlying assets of the issuance of asset-backed securities are deposited into the Plaintiff’s operating account. If there is dividends that will accrue from the recovery amount to ○○○○, a shareholder of the Plaintiff, the dividends shall be paid, and if there is any dividends that will accrue to ○○, a ○○, a shareholder of the Plaintiff, it shall be paid so that △F may use them for the redemption of the principal and interest of

5) If the payment agent for bond-backed securities received payment from the bond-backed asset-backed securities, the Seoul Bank shall deposit the amount equivalent to the interest on the loan’s three-month interest in the reserved account of the △F, deposit the amount in the depository account as of the date of payment, and deposit the balance in the operating account if any. △F shall have the right to freely use the amount deposited in the principal’s operating account.

6) Until the full repayment of the loan is made, the amount deposited in the △F’s custody account shall be used compulsorily for the repayment of the loan.

(C) The interest rate on the asset-backed bonds issued by a special purpose company around 2000 is generally diverse in scope as 7.73% in the case of senior bonds, 10-25% in the case of subordinated bonds, and 10% in the case of subordinated bonds.

(3) Relevant statutes

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

(4) Determination

(A) The arm's length price computation method and selection criteria

(1) Method of computation

Article 2 (1) 10 of the National Tax Adjustment Act, Article 5 (1) of the International Tax Adjustment Act provides that the arm's length price shall be the price applied or deemed applicable to ordinary transactions with a resident, domestic corporation, or domestic business place with a foreign related party (Article 2 (1) 10 of the National Tax Adjustment Act); Article 5 (1) of the International Tax Adjustment Act provides that the arm's length price shall be the price calculated by the "reasonable method" among the methods in the following subparagraphs; subparagraph 4 provides that the arm's length price shall not be calculated by the methods in subparagraphs 1 through 3; subparagraph 2 provides that the comparable third party's price method in subparagraph 3; subparagraph 4 provides that the resale price method in subparagraph 3; the cost plus method in subparagraph 4; and other reasonable methods as prescribed by Presidential Decree in Article 4 of the Enforcement Decree of the same Act provides that the method in subparagraphs 1 and 4 of the same Article shall be applied only to cases where it is deemed reasonable in light of the ratio of gross sales profit to sales expenses in subparagraph 3;

2) Selection Criteria

The arm's length price is to be calculated at the price calculated according to the "reasonable method". In selecting the arm's length price computation method above, as provided in Article 5 (1) of the Enforcement Decree of the International Trade Act, the most reasonable method should be determined by taking into account the following factors: ① high possibility of comparison (Article 5 (1) of the Enforcement Decree of the International Trade Act), ② high possibility of securing and using the data to be used (Article 5 (2) 2); ③ high level of correspondence on the economic conditions, business environment, etc. established to be compared (Article 3); ④ impact on the arm's length price calculated due to defects in the data to be used or established families (Article 4). In order to raise a high possibility of comparison, in principle, the difference between the comparable third party and the relevant international trade is not significantly affected (Article 5 (1) 1 (b)), but if a reasonable adjustment can be made by such impact, it can be said that there is a high possibility of comparison if it is possible to eliminate such difference (Article 1 (2) 1).

On the other hand, Article 5(2) of the Enforcement Decree of the International Trade Law requires an analysis of the function of business activities that may affect price or profit, contractual terms, risks accompanying trades, kinds and features of goods or services, changes in market conditions, economic conditions, etc. by assessing the difference between comparable third party trade and the relevant international trade, and Article 6(7) of the International Trade Law newly established on August 24, 2006 lists the amount of debt, maturity of debt, guarantee of debt, and debtor's credit level as consideration in determining the normal interest rate.

(B) Whether the selection of the comparable transaction in this case is lawful

1) In calculating the normal interest rate on bonds-backed asset-backed securities, the director of the Seoul Regional Tax Office has selected the comparable third party price method (in international trades between a resident and a special related party, the method of regarding the transaction price between an independent business operator who has no special relation with the relevant transaction as the arm's length price) under Article 5 (1) 1 of the International Tax and Trade Act, and has selected a loan transaction with the Seoul Bank of △F on the basis of the comparison.

2) Article 6(2) of the Enforcement Decree of the International Tax Act provides that when a normal price is calculated in accordance with Article 5 of the International Tax Act, if there is a difference in the price, profit, or net trade profit applicable due to a difference in functions performed between the relevant trade and unrelated parties, risks borne, or transaction terms and conditions, etc., the relevant difference in the relevant price, profit, or net trade profit shall be reasonably adjusted. The burden of proof on the legality of a taxation is borne by the tax authority (see, e.g., Supreme Court Decision 2003Du5235, Oct. 15, 2004). Thus, in order to impose a taxation on the premise that the transfer price with a foreign related party is different from the arm's length price calculated under the International Tax Act, the burden of proving that the arm's length price computed by the Defendant has been reasonably adjusted and calculated in cases where the difference has a significant impact on the transfer

3) However, in the instant case, the difference between the issue of bond-backed securities and the loan transactions with the Seoul Bank of Luxembourg (the difference between the degree of risk, LTV, maturity, and fixed or decreased interest rates) is not only significant in the calculation of the normal interest rate, but also the difference in each situation is an important factor that is applied to the calculation of the interest rate. The difference in each situation is too significant as follows. Even if considering all the circumstances asserted by the Plaintiff as to the appropriateness of comparative transactions or the reasonableness of the normal interest rate calculation, it is difficult or nearly impossible to reasonably adjust the interest rate to the extent that the difference was removed, and further, it is difficult to view that the situation was a reasonable adjustment to remove the difference, even if such adjustment was made.

(A)risk difference;

The bond-backed securities issuance transaction is based on the bond-backed securities and constitutes a high-risk transaction with no collateral except for the underlying bad loan-backed claims. The loan transaction with the Seoul Bank by DolF is a party to the loan transaction, in addition to the collection of the basic bad loan-backed claims as a party to the loan transaction and the amount of 30% directly contributed by DolF out of the bond-backed bonds-backed securities is also a relatively low risk transaction because the risk of default has decreased by acting as a collateral for the loan transaction.

B) Difference in LTV

The collateral value ratio of bond-backed securities (LTV) is 86%, and the collateral value ratio of the loan proceeds of this case is 60% ( =86% X70%) and it is more likely that the bond-backed securities will be subject to default, than the loan transactions with the Seoul Bank of △ Fund.

(c)the maturity difference;

The maturity of bond-backed securities is five years in case of senior bonds and seven years in case of subordinated bonds, while the maturity of the loan transactions with the Seoul Bank of △ Fund is about 2.5 years and the maturity is about 2.5 years, so the uncertainty due to changes in the economic situation increases and the risk is high.

D) a difference arising from the fixed or change of interest rates;

The interest convergence of bond-backed securities is a fixed interest rate, and the interest rate of transactions on the Seoul Bank of △F is a floating interest rate, taking into account the fluctuation risk of market interest due to the issuance of fixed interest rate, the fixed interest rate is generally formed higher than the floating interest rate.

E) Other circumstances

As can be seen as a transaction purchased at KRW 1,55.2 billion at a face value from the reorganization financing corporation, it may be deemed that there is a possibility of gaining a large amount of profit and a possibility of causing many damages due to nonperformance, and the risk of transaction is greater than any other transaction. However, there is a high possibility that the Plaintiff, who was transferred the buyer’s status from the Treasury, may directly borrow funds from a domestic bank at a lower interest rate of 8 to 10% per annum on the sole basis of credit and bad loan claims, and even if both the Plaintiff and DolF are companies affiliated with Dolsung Fund, they cannot be said to be identical to the Plaintiff’s loan transaction as a different legal entity, even if both the Plaintiff and DolF are companies affiliated with Dolsung Fund. Furthermore, it is difficult or impossible to calculate the normal interest rate for bond-backed securities through a large number of other bond-backed bonds issued in the event that the Plaintiff issued the asset-backed securities on the basis of the occurrence of a large number of bad loan claims arising from the financial institution around 1997.

4) Ultimately, it cannot be deemed that the loan transaction of △ Fund with the Seoul Bank cannot be the comparable transaction with the bond-backed securities issued transaction because the possibility of comparison is low, and it does not constitute an arm’s length price under the International Tax Law, computed by the Defendant through a reasonable adjustment of the normal interest rate.

5) Furthermore, in a case where the tax office shows a difference between the reasonable arm's length price calculated based on the data secured by the best effort to request a taxpayer to submit data and documentary evidence under Article 19(1) of the Enforcement Decree of the International Trade Union Act pursuant to Article 11(2) of the same Act with respect to whether the arm's length price calculation is converted, it shall be deemed that the taxpayer needs to prove that the transaction price among the independent business operators who are comparable can constitute a range of arm's length price due to the trustable value, and that the transfer price with the relevant overseas specially related person cannot be deemed to lack economic rationality due to the lack of the arm's length price's length price (see Supreme Court Decision 9Du3423, Oct. 23, 2001). However, in calculating the normal interest rate on bond-backed securities, it is difficult to view that the Defendant's borrowing of insurance IF transactions from the Seoul Bank as the comparative calculation of the arm's length price within the scope of the arm's length price.

(5) Sub-committee

Therefore, among the disposition of this case, the part of the disposition of this case regarding the non-deductible of the amount exceeding 7.770/10 of the fixed interest rate out of the interest paid by the Plaintiff to the bonds-backed asset-backed securities, which is calculated based on LIBOR +3.5% of the floating interest rate, is deemed as comparative transaction, and the portion of the disposition imposing corporate tax is unlawful.

B. Determination as to whether the revised return of this case and the deduction of dividend income is legal

(1) The parties' assertion

(A) The plaintiff

The dividend under Article 51-2 of the Corporate Tax Act refers to a dividend resolution, and under the principle of strict interpretation under the principle of strict interpretation of the principle of no taxation without law, the validity of the resolution of dividend cannot be denied solely on the ground that the resolution of dividend is for tax avoidance. In the case of a special purpose company, only 90% of the distributable profit can be distributed, and the dividend that can be distributed in excess of the distributable profit should not be the source of the distributable profit. As such, the instant revised return and the application for income deduction made after the resolution of additional dividend of consulting service costs are lawful, the instant taxation denying this is unlawful.

(B) Defendant

1) Even if the expenditure of consulting service costs is based on the embezzlement of STV, the representative director of Dol K, this is merely merely due to the internal situation of the tax obligor who has a common interest between the Plaintiff and STV, and it constitutes “Fraud or other unlawful act stipulated in Article 26-2(1) of the Framework Act on National Taxes,” and thus, the Plaintiff cannot be exempted from liability.

2) According to Article 17 of the Asset-Backed Securitization Act and Articles 447, 449, and 583 of the Commercial Act, a special purpose company shall determine the amount to be distributed by a director in each business year and enter the amount to be distributed as a dividend in each business year, and submit the statement of accounts, such as other financial statements, to a regular general meeting of members and obtain approval. The Plaintiff’s resolution of additional dividend at a temporary general meeting of members on September 30, 2005 when several years have passed since the resolution of dividend in the business year 202 became final and conclusive by approval of a regular general meeting of members, rather than the resolution of actual dividend, cannot be deemed as a dividend under Article 51-2 of

3) Even though it is allowed to distribute dividends in excess of the distributable profits pursuant to Article 30(3) of the Asset-Backed Securitization Act, the excess dividend does not constitute a refund of capital, since it does not constitute an income from the beginning. Therefore, it cannot be the object of income deduction.

4) Even though the amount of income generated from a business year has increased as a result of the Plaintiff’s non-deductible of processing costs such as consulting service costs in deductible expenses, since the portion of income generated from non-deductible expenses was already out of the company as reported in the revised return of this case, it cannot be divided and deducted from income. Even if a revised return was filed after the commencement of the tax investigation, the amount of the last outflow from the company cannot be treated as internal reserve in light of the purport of Article 106(4) of the Enforcement Decree of the Corporate Tax Act, which is not treated as internal reserve, the consulting service costs also recovered the

5) Therefore, the revised return and the application for income deduction based on the premise that a legitimate dividend exists is unlawful.

(2) Facts of recognition

The following facts are not disputed between the parties, or may be acknowledged by comprehensively taking into account the overall purport of the pleadings as stated in Gap evidence 2, 19, 24 through 26, Eul evidence 1-2, Eul evidence 2-2, Eul evidence 3-2, Eul evidence 5-2, Eul evidence 6-2, and Eul evidence 7:

(A) On December 17, 2000, Luxembourg paid USD 1,840,183.80 to White as consulting service cost even though it did not receive consulting service from Luxembourg, and requested SHK, an asset management company of a special purpose company like the Plaintiff, including the Plaintiff, to bear the asset management cost. HAK divided the amount paid to 5 special purpose companies including the Plaintiff, and the Plaintiff paid KRW 693,096,320 as consulting service cost.

(B) Despite the fact that the SA did not provide any consulting service in the second tax investigation process, it was confirmed that the funds of a special purpose company, such as the Plaintiff, were disbursed as consulting service expenses, and the △Star, etc. requested an independent investigation and requested an investigation into a legal company of the Madson located in the United States. As a result of the investigation, the Mad TV, the representative director of the MaddongK, who was revealed to have embezzled the amount equivalent to the consulting service expenses, returned to the Plaintiff the amount equivalent to the consulting service expenses received from the Plaintiff on May 26, 2006.

(C) On October 18, 2005, the Plaintiff submitted to the Defendant a revised return of this case and an application for dividend income deduction related to consulting service costs. On October 18, 2005, the Plaintiff received a written notice of the instant disposition around 15:58.

(D) On June 2001, the Plaintiff distributed income of KRW 5,137,034,764, and KRW 7,104,532,414 in the business year of September 2001, and KRW 4,586,067,330 in the business year of September 2002, and KRW 3,278,022,216 in the business year of March 2003, and filed an application for income deduction.

(3) Relevant statutes

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

(4) Determination

(A) The embezzlement of STV interest and the Plaintiff’s tax liability

Inasmuch as consulting service costs paid by Luxembourg to STV are found to be processing costs, it shall be deemed that the portion already included in deductible expenses is subject to tax adjustment, such as non-deductible, and additional corporate tax liability shall be borne by the Plaintiff. However, insofar as the Plaintiff did not make a public offering in the embezzlement of STV, it shall not be held that the Plaintiff is not liable to make any error or error in the accounting or to make any increased dividends as modified, as long as the Plaintiff did not make any public offering in the embezzlement of STV. Furthermore, the Plaintiff is an officer of an affiliated company that is not the Plaintiff. As such, the act of embezzlement of STV interest is merely an internal situation of a tax obligor with common interest, such as the Plaintiff and STV D, or it shall not be deemed that tax evasion falls under the “time or other unlawful

(B) Whether the resolution of additional dividend at a temporary general meeting of members constitutes the dividend stipulated in Article 51-2 of the Tax Act

1) Article 51-2 (1) of the Corporate Tax Act provides that "where a special purpose company, etc., such as a plaintiff, distributes dividends not less than 90/100 of distributable profits prescribed by the Presidential Decree, such amount shall be deducted from the income amount for the pertinent business year," and Article 186-2 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by the Presidential Decree No. 19328, Feb. 9, 2006; hereinafter referred to as the "former Enforcement Decree of the Corporate Tax Act") provides that "for the purpose of the main sentence of Article 51-2 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by the Presidential Decree No. 19328, Feb. 9, 2006, excluding profits and losses from the ordinary period of securities; hereinafter the same shall apply)" means the amount obtained by subtracting earned surplus or carried-over losses from the financial statements prepared in accordance with the corporate accounting standards.

The purpose of the income deduction system for dividends of a special purpose company is to exempt corporate tax and impose corporate tax at the stage of its members by deducting all the dividend amount from the income amount of a specialized purpose company, and to facilitate the financing of financial institutions, etc. and enhance the soundness of the financial structure by facilitating the liquidation of non-performing loans of financial institutions, etc. by promoting the liquidation of non-performing loans of financial institutions, etc.

2) However, in cases where dividends have been distributed 90% or more of the distributable profits, the business year during which the dividend income is deducted refers to the business year in which the profits that are the object of dividend rather than the dividend year have accrued, and in cases where the dividend income increases by modifying the accounting due to an accounting error after the dividend, etc., it constitutes a case where additional dividends are distributed within the scope of increased profits by a resolution of the board of directors or the temporary general meeting of shareholders. In this case, an application for additional income deduction shall be made by filing a revised return under Article 45 of the Framework Act on National Taxes and a request for correction under Article 45-2. In light of the legislative intent of the related Acts and subordinate statutes such as Article 51-2 of the Corporate Tax Act, the existence of tax avoidance through dividend income deduction does not affect whether

3) Regarding the instant case, as seen earlier, the Plaintiff revealed that consulting service costs were processed expenses paid without actual provision in the secondary tax investigation process, and conducted an investigation, and confirmed that STV interest, the representative director of Y, embezzled, embezzled the amount equivalent to the above consulting service costs, and approved an additional dividend plan and an amendment to the appropriation of retained earnings at a temporary shareholders’ meeting after re-including the accounting and tax adjustment for consulting service costs and then re-involving the consultation service costs and the interim shareholders’ meeting. Accordingly, the amount equivalent to the consulting service costs that were initially processed as losses and the amount equivalent to the consulting service costs that were handled as losses. As such, the Plaintiff’s increased profits or income increase by 693,095,320 won excluding 1,000 won out of 693,00,095,320 won, and applied for dividend income deduction. Thus, the additional dividend resolution constitutes a dividend as provided in Article 51-2 of the Corporate Tax Act, irrespective of the purpose of tax avoidance.

(C) Whether the dividend income deduction should be a financial resource for the prone dividend income.

1) Article 51-2(1) of the Corporate Tax Act and Article 86-2(1) of the former Enforcement Decree of the Corporate Tax Act provide that dividends may be paid only within the scope of distributable profits. Article 86-2(6) of the former Enforcement Decree of the Corporate Tax Act provides that where dividends equivalent to dividends deducted pursuant to Article 51-2(1) of the Corporate Tax Act exceed the amount of income for the pertinent business year, the excess amount shall be deemed nonexistent. However, Article 30(3) of the Asset-Backed Securitization Act provides that "a special purpose company may, notwithstanding Article 462 of the Commercial Act which is applicable mutatis mutandis pursuant to Article 583 of the same Act, pay dividends in excess of its profits (referring to the amount obtained by subtracting liabilities, capital and reserves from assets on the balance sheet) in accordance with its articles of incorporation, a special purpose company may pay dividends in excess of distributable profits. However, where dividends exceed the amount of income for the business year, a special purpose company

2) As to the instant case, the Plaintiff re-contributed the accounting and tax adjustment of consulting service costs, and approved the additional dividend proposal and the revised statement of appropriation of retained earnings at a provisional shareholders’ meeting to increase both distributable profits and business year income as much as the amount equivalent to the consulting service costs initially disposed of as the initial costs and losses. As such, the Plaintiff’s application for dividend income deduction within the increased income scope is lawful.

(D) Whether it is possible to distribute dividends in case of disposal of outflow from the company

1) In general, in cases where a corporation embezzled its assets by deceiving a corporation, so long as the corporation does not confirm its embezzlement or waive its right to claim compensation for damages, the amount equivalent to the embezzled amount cannot be disposed of as it was out of the company (see Supreme Court Decision 2002Du9254, Apr. 9, 2004). Although the Plaintiff disposed of the consulting service costs as other income (e.g., outflow) without disposing of it as retained earnings in the course of exclusion of consulting service costs from the deductible expenses, the Plaintiff had the right to claim compensation for damages or a right to claim restitution for unjust enrichment against the consulting service costs, and did not waive it or not ratified the act of embezzlement. Furthermore, since the Plaintiff recovered the amount equivalent to the consulting service costs from Mak on May 26, 2006, the increase in the income resulting from the exclusion of consulting service costs is reserved to the Plaintiff.

2) Since Article 106(4) of the Enforcement Decree of the Corporate Tax Act aims to induce a voluntary revised report by a corporation that directly disbursed processing expenses, etc., the said provision cannot be applied to the Plaintiff that paid consulting services due to the embezzlement of STV Y’s representative director.

3) Therefore, the Plaintiff’s application for dividend income deduction on the reserved income is lawful.

(5) Sub-committee

Therefore, the part of the disposition of this case where the revised return of this case and the application for income deduction of this case are excluded from deductible expenses of 693,096,320 won under the premise that it is illegal and the corporate tax

C. Any other determination

In addition, the plaintiff argues that the second tax investigation conducted in duplicate for the same tax item and taxable period as the first tax investigation has no exceptional grounds for permission under each subparagraph of Article 81-4(2) of the Framework Act on National Taxes, and that the part concerning the disposition of this case, i.e. the transfer price, based on the second tax investigation, is unlawful. However, as long as the disposition of this case is unlawful due to the substantive defect as seen earlier, it is not necessary to examine the plaintiff's argument of the duplicate tax investigation, and therefore, it is not necessary to separately determine the plaintiff

3. Conclusion

Therefore, the plaintiff's claim of this case is justified, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed as it is without merit. It is so decided as per Disposition.