A court has ruled that education tax cannot be imposed on fees credit card companies receive for soliciting insurance products. The reasoning is that even if the money is received by a card company, it cannot be included in the education tax base if it is not revenue generated from the credit card business itself.
On the 3rd, according to legal sources, the Administrative Division 8 of the Seoul Administrative Court (Presiding Judge Yang Soon-ju, Director General) recently ruled in favor of the plaintiff in a lawsuit filed by Hyundai Card seeking to overturn the denial of correction of education tax against the head of the Yeongdeungpo Tax Office.
Education tax is a tax imposed on revenue earned by financial and insurance businesses through their main operations. The issue in this case was whether the fees Hyundai Card received for soliciting insurance company products on their behalf could be viewed as revenue generated from the credit card business.
Hyundai Card received fees from insurance companies in return for insurance solicitation. When filing its education tax for the 2018 fiscal year, Hyundai Card included these fees in the tax base, but later requested a recalculation, saying "insurance agency fees are not subject to education tax." It was a claim for correction seeking a reduction or refund on the grounds that the tax already paid was excessive.
The Yeongdeungpo Tax Office did not accept this. The tax office viewed that because Hyundai Card is a financial business, the insurance agency fees also constitute fee revenue or other operating revenue of a financial and insurance business. Hyundai Card objected and filed a lawsuit seeking to cancel the imposition of education tax of about 130 million won.
The court reached a different conclusion. The panel found that the insurance agency business is distinct from Hyundai Card's main business of credit cards. Specialized credit finance companies may engage in other businesses in addition to their inherent operations such as the credit card business, and the insurance agency business falls under such "ancillary business." As the term suggests, an ancillary business is conducted alongside, but separate from, the main business.
The panel determined that money received by a credit card company while conducting insurance agency business is difficult to regard as revenue generated from the credit card business. This means that it does not immediately become subject to education tax merely because it is a fee received by a card company.
The panel said, "Compensation paid for performing the insurance agency business, which is an ancillary business of a credit card company, does not fall under the revenue amount of a financial and insurance business and must be excluded from the education tax base."
It also found that whether education tax applies cannot be decided solely based on the taxpayer's legal status. The point is that what matters more than being a card company is the actual business activity through which the money was earned.
The panel canceled the Yeongdeungpo Tax Office's denial of correction, holding that fees earned from the insurance agency business are not included in the education tax base.