The loan interest, etc. for acquiring inventory assets shall not be added to the cost for acquisition and shall be included in the deductible expenses for the relevant business year.

Loan interest, etc. for the acquisition of inventory assets, other than fixed assets for business, shall not be added to the cost for acquisition, but shall be included in the loss for the relevant business year incurred.

Article 28 (Non-Inclusion of Interest Paid in Loss)

Article 52 (Scope of Interest on Loans appropriated for Construction Funds under the Enforcement Decree of the Corporate Tax Act

2018Guhap72413 Disposition of revocation of refusal to correct corporate tax

AAA, Inc.

a) the Director of the Tax Office

April 5, 2019

May 17, 2019

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The defendant's rejection disposition against the plaintiff on December 27, 2017 is revoked.

1. Details of the disposition;

A. The Plaintiff is a corporation that engages in real estate trade, construction business, etc. as a target business, and is engaged in an urban development project for constructing multi-family housing in the land lot of Pyeongtaek-si B-1, Pyeongtaek-dong (hereinafter “instant land”).

B. On March 29, 2017, when the Plaintiff filed a corporate tax return for the business year in 2016, the Plaintiff reported and paid the corporate tax xx members for the business year 2016 after deducting the total of KRW 000,000,000,000,000,000,000,000 for the business year in 2009, from the income amount for the business year 2016, as the tax base.

C. On November 27, 2017, the Plaintiff filed a correction with the first deduction of KRW 00 ( KRW 000 in 2005, KRW 000 in 2006, KRW 000 in 2007, KRW 000 in 2008, KRW 2000 in 2008, KRW 2000 in 200), which was not a loss carried forward in the business year from 2009 to 2011, not a loss carried forward in the business year from 2005 to 2008, which was deducted at the time of filing a corporate tax return for the business year in 2006 to 2015 (hereinafter referred to as "interest, etc. in this case"), and the Defendant subsequently dismissed the Plaintiff’s disposal of the land in each business year from 206 to 200 to 2016 in the amount of income for each business year (the acquisition price of the land in this case).

D. On January 26, 2018, the Plaintiff filed a request for review with the National Tax Service on January 26, 2018, but was dismissed on April 26, 2018.

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 to 5, purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) In calculating the amount of income of a domestic corporation for each business year, Article 43 of the Corporate Tax Act provides that "where the corporation applies corporate accounting standards or practices generally deemed fair and reasonable with respect to the business year to which profits and losses accrue and the acquisition and evaluation of assets and liabilities, or continuously applies such practices, such corporate accounting standards or practices shall apply except as otherwise provided in the Corporate Tax Act and the Restriction of Special Taxation Act." However, the Corporate Tax Act does not provide for the timing of recognizing losses with respect to the interest, etc. on the instant land for the purpose of the construction of multi-family housing, which is not fixed assets for business purposes, and on the other hand, the general corporate accounting standards (Article 18 Chapter 18.4) do not provide for the time of recognizing losses with respect to the interest, etc. on the instant land for the purpose of acquiring the instant land for the purpose of manufacturing, purchasing, constructing or developing the inventory assets which require more than one year from the date of commencement to the time when it can be used or sold as acquisition funds of the inventory assets." The Plaintiff’s accounting of the instant interest, etc.

2) Since an urban development project performed by the Plaintiff requires ten or more years of maturity, it accords with the principle of profit-sharing cost doctrine to recognize the interest, etc. of this case as a long-term cost for each business year, rather than recognizing the interest, etc. of this case as a long-term cost for each business year, in view of the constituent elements

(Plaintiff) In this lawsuit, the Plaintiff did not make any assertion on the part of the main claim for correction.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Interpretation of the Corporate Tax Act and the Enforcement Decree of the former Corporate Tax Act

Article 14(1) of the Corporate Tax Act provides that "income for each business year of a domestic corporation shall be the amount calculated by subtracting the total amount of losses incurred during the business year from the total amount of gross income accrued during the business year," Article 19(1) provides that "deductible expenses shall be the amount of losses or expenses incurred by transactions which reduce the net assets of the corporation, except as otherwise provided for in this Act, such as refund of capital or financing, disposal of surplus funds, and other transactions which reduce the net assets of the corporation." Article 19 subparagraph 7 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 28640, Feb. 13, 2018; hereinafter "former Enforcement Decree of the Corporate Tax Act") provides that "loan interest" as one of losses. Thus, in principle, when a loan is paid by a lender to reduce the net assets of the corporation

However, Article 28 (1) 3 of the Corporate Tax Act provides that "interest on loans appropriated for construction funds prescribed by Presidential Decree" shall not be included in deductible expenses in calculating the amount of income of a domestic corporation for each business year, and Article 52 (1) of the former Enforcement Decree of the Corporate Tax Act provides that "interest on loans appropriated for construction funds prescribed by Presidential Decree" in Article 28 (1) 3 of the former Enforcement Decree means interest on loans used for the purchase, production, or construction of fixed assets for business ("specific loans") or other similar expenses regardless of the name thereof." Article 28 (2) provides that "interest on loans used for the construction of fixed assets for business purposes shall be included in deductible expenses until the date on which the construction is completed, and interest on loans used for the construction of fixed assets for business purposes shall not be included in deductible expenses in calculating the amount of income for each business year.

2) Specific determination

A) The land used by a real estate dealer for sale is not used for a business of a company, and is classified into inventory assets, which are possessed for sale or production purposes in the normal course of business, and does not constitute fixed assets, which are acquired for the purpose of use in the normal course of business of a company, and do not constitute a general term referring to assets with a long-term and continuous nature (see, e.g., Supreme Court Decision 95Nu16950, Jul. 25, 197). Since the Plaintiff acquired the instant land for sale after the construction of apartment houses, it is reasonable to view the instant land as inventory assets rather than

B) As long as the instant land falls under inventory assets, the instant interest, etc., which is the interest on loans and fees for the acquisition thereof, shall not be added to the cost for acquisition, as seen earlier, and be included in deductible expenses for the relevant business year (where the period required for the development and sale of the instant land is long time, as alleged by the Plaintiff, the Plaintiff’s tax burden may be increased due to the violation of profit cost response, but such circumstance alone is basically a matter of legislative policy, and such circumstance alone cannot determine the period of inclusion of deductible expenses differently from

C) The Plaintiff asserts to the effect that adding the interest, etc. in this case according to the general corporate accounting standards is permitted under the Corporate Tax Act, but Article 43 of the Corporate Tax Act is merely a supplementary application of corporate accounting standards or practices with respect to the business year to which the corporation’s gross income and deductible expenses accrue. As seen earlier, insofar as the provisions of the above Corporate Tax Act and the Enforcement Decree of the former Corporate Tax Act do not add the cost for acquisition of the interest, etc. in this case and include it in deductible expenses for the pertinent business year, there is no room to apply the general corporate accounting standards asserted by the Plaintiff. Furthermore, even though the Plaintiff had been aware of the interest, etc. in this case for several years, which was continuously operated for the pertinent business year, became disadvantageous to the Plaintiff, it is difficult to say that it is the corporate accounting standards or practices that lose fairness and validity.

D) Therefore, the Plaintiff’s assertion is without merit.

3. Conclusion

The plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.