Court: "Taxation on Unregistered Lender Charging 1381% Annual Interest Is Justified"

The court ruled that the taxation by the tax authorities on an unregistered lender sentenced to imprisonment for lending money at an exorbitant annual interest rate of 1381%, far exceeding the legal interest rate limit, is justified.

According to the legal community on the 4th, the Administrative 8th Division of the Seoul Administrative Court (Chief Judge Lee Jeong-hee) recently ruled against lender A in a lawsuit seeking to cancel the comprehensive income tax imposition filed against the tax authorities.

From March 2016 to January 2018, Mr. A lent over 700 million won to 10 debtors without registering as a lender and received more than 460 million won in interest. In particular, he charged an annual interest rate of 1381%, far exceeding the legal interest rate ceiling, to one victim who borrowed 8.2 million won. Mr. A was sentenced to eight months in prison for these criminal acts, and the ruling was finalized in the appellate court in January 2020.

According to the Loan Business Act, anyone intending to engage in loan business or loan brokerage must register with the special mayor, metropolitan mayor, special self-governing mayor, governor, or special self-governing governor who has jurisdiction over the business office. Unregistered lenders are prohibited from charging interest exceeding the presidential decree limit of 20% per annum, with an upper limit of 25% per annum.

The tax authorities regarded the 460 million won in interest recognized in the criminal ruling as non-operating income of Mr. A and imposed taxes amounting to approximately 220 million won in comprehensive income tax and additional tax. Mr. A filed an administrative lawsuit, claiming that he was merely an employee who lent his name and received a salary while performing the work.

The court, based on the criminal ruling, judged that the interest income belonged to the plaintiff and rejected Mr. A’s claims. The court stated, “It is reasonable to presume that the interest income in this case belonged to Mr. A, and the evidence submitted by Mr. A alone is insufficient to overturn this. Mr. A admitted and confessed in the related criminal ruling that he lent over 700 million won to 10 victims and received interest income.”

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