The Supreme Court has ruled that loan brokerage fees paid in excess of the limits set by the Loan Business Act cannot be treated as deductible corporate expenses under the Corporate Tax Act.

The Second Division of the Supreme Court (Justice Oh Kyung-mi presiding) recently upheld a lower court ruling against KB Financial Group and KB Capital in a lawsuit they filed against the local tax office to cancel corporate tax assessments.

KB Capital had been paying loan brokerage fees to affiliated dealerships while operating its auto installment finance business.

An investigation revealed that the company had bypassed legal limits by paying excess brokerage fees under the guise of inventory finance fees and additional promotional expenses.

In a 2018 comprehensive audit, the Financial Supervisory Service (FSS) determined that this fee structure violated the brokerage fee caps stipulated by the Loan Business Act and issued a corrective order.

Based on the FSS audit, tax authorities also excluded the fees paid by KB Capital in excess of the legal limits during the 2017–2018 fiscal years from deductible expenses and imposed corporate taxes accordingly.

This exclusion means that even if an expense is recognized in corporate accounting, it is not accepted as a deductible expense for tax purposes, thereby increasing the taxable income and the corporate tax burden.

In response, KB Capital filed a lawsuit seeking to cancel the 3.6 billion won corporate tax assessment.

The first and second trials both ruled that the fees paid by KB Capital were expenses incurred in violation of the loan brokerage fee caps and could not be included as deductible expenses.

KB Capital argued that the brokerage fees were expenditures related to the company's business, were ordinary, and were directly linked to revenue, and therefore were not expenses incurred in violation of social order. However, this argument was not accepted.

The Supreme Court also upheld the lower court's decision.

The Supreme Court determined that excessive loan brokerage fees cannot be recognized as deductible expenses because they lead to higher loan interest rates, increase the burden on ordinary citizens, and can induce high-interest lending.

The Supreme Court stated, "For a lender or a credit finance institution to pay brokerage fees in violation of the cap system is an act that directly contradicts the purpose of the former Loan Business Act, which is to protect financial consumers," adding, "Such brokerage fees constitute expenses incurred in violation of social order."

(Photo: Yonhap News)