Entrusted Management of 10 Billion Fund... Court Rules "Not a Net Asset Increase Transaction, Corporate Tax Canceled"

SK Broadband, which received a fund of 10 billion KRW for public interest purposes such as supporting small and medium-sized broadcasting channel operators (PPs), won the first trial after filing an appeal against the tax authorities that imposed tens of billions of won in corporate tax by classifying it as a 'net asset increase transaction.'

According to the legal community on the 17th, the Seoul Administrative Court Administrative Division 5 (Chief Judge Kim Sun-yeol) ruled in favor of SK Broadband in the first trial of the cancellation lawsuit worth about 2.5 billion KRW against the Dong Suwon Tax Office Chief and the Seoul Regional Tax Office Commissioner. The litigation costs were also ordered to be borne by the tax authorities.

Seoul Administrative Court, Seocho-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

Earlier, T-broad signed a 'Joint Cooperation Memorandum of Understanding for the Operation and Support of Small and Medium-sized PPs' in March 2017 with former Taekwang Group Chairman Lee Hojin, its individual major shareholder. T-broad received 10 billion KRW from former Chairman Lee and paid a total of 3.839 billion KRW to 21 small and medium-sized PPs from September 2017 to July 2019. In December 2019, T-broad and former Chairman Lee mutually terminated the memorandum of understanding, and T-broad returned the unused settlement amount of 6.179 billion KRW to former Chairman Lee.

However, the tax authorities that conducted a tax investigation on T-broad pointed out that "donations and their interest income should be regarded as income generated from transactions that increased T-broad's net assets," and "the returned amount of about 6.1 billion KRW should be treated as dividends to former Chairman Lee and recognized as income." Accordingly, the Seoul Regional Tax Office notified that the 6.1 billion KRW was included in SK Broadband's 2020 taxable income, which had absorbed T-broad through a merger. The Dong Suwon Tax Office notified SK Broadband to pay about 2.555 billion KRW in corporate tax for the 2017 fiscal year.

SK Broadband filed an appeal. In court, it argued that "the legal relationship under the memorandum of understanding corresponds to a mandate under civil law or a trust under trust law. Therefore, the transferred 10 billion KRW cannot be regarded as T-broad's actual money, so it is not subject to corporate tax," and "the income adjustment notice that treated the returned amount as dividends to former Chairman Lee is also illegal."

The first trial ruled in favor of SK Broadband, stating that "both the income adjustment notice and the corporate tax imposition are illegal."

The court said, "The 10 billion KRW donation cannot be considered as profit or income generated from transactions that increased T-broad's net assets," and "the transaction between T-broad and former Chairman Lee was a legal relationship in which the trustor transferred trust property to the trustee for a specific purpose such as supporting small and medium-sized PPs, and the trustee managed and disposed of it. In other words, it was a trust or an atypical contract with similar characteristics."

Furthermore, "It is difficult to recognize that the transaction was formally restructured to conceal a gift," and "T-broad spent the fund for small and medium-sized PPs according to the purpose set out in the memorandum of understanding, and there is no reason to believe it was used for unrelated purposes. It was also not accounted for as T-broad's assets," the court added.

The tax authorities appealed against the first trial ruling.

This content was produced with the assistance of AI translation services.