Article 27 of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006) shall be calculated as necessary expenses.

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

A. The Plaintiff, a person operating the “○○○○○○○○○○” in the household manufacturing business chain, filed a return on the global income tax base and its tax amount for each of 2001 and 2002, and filed a return on the aggregate of 21,925,000 won and 81,50,000 won in total on the tax invoice under Chapter II received during the second period of 2001 from Nonparty ○○○ Co., Ltd. (hereinafter “Nonindicted Co.”), and six tax invoices received during the second period of 2002, as the necessary expenses for each business income.

B. The head of ○○ Tax Office discovered that the whole tax invoice was received by fraudulent means without real transactions. On June 2, 2006, the Defendant issued a corrective disposition against the Plaintiff on the following grounds: (a) the processing purchase amount of KRW 21,925,00, and KRW 81,050,000 on the above tax invoice was excluded from necessary expenses for each business income in 2001 and 2002; and (b) the Defendant additionally imposed KRW 56,595,380 on the global income tax for the year 201 and the total amount of KRW 13,422,188, and KRW 43,173,200 on global income tax for the year 202 (hereinafter “instant disposition”).

C. The plaintiff appealed and filed a request for examination with the Commissioner of the National Tax Service on June 2, 2006, but was dismissed on December 13, 2006.

Grounds for Recognition: Facts without dispute, Eul evidence 1-2, Eul evidence 4-1 to 8-4, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The party's assertion

The Defendant asserted that the instant disposition is lawful on the grounds of the above disposition and relevant statutes, and against this, the Plaintiff received a false tax invoice from the non-party company and paid the purchase value-added tax that was deducted therefrom. However, from November 2001 to December 2002, the instant disposition is unlawful since the Plaintiff paid KRW 122,796,880 in total of the cost for the external processing of the supply price in the instant tax invoice on the pattern of household affairs, which is essential for household production, to Non-party ○○ and ○○○ (hereinafter referred to as “non-party 1”) from November 2001 to December 2, 2002. However, in calculating the global income tax base on the Plaintiff’s global income tax, the aforementioned cost for external processing should be deducted as necessary expenses.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(1) On the other hand, in the administrative litigation seeking the revocation of a taxation disposition on the grounds of the illegality of taxation disposition, the tax authority bears the burden of proof as a matter of principle on the legality of the taxation disposition and the existence of the taxation requirements. Therefore, in principle, the tax authority bears the burden of proof on the taxpayer as necessary expenses which are the basis of the determination of taxable income. However, since the tax authority is not only favorable to the taxpayer, but most of the facts constituting the basis of necessary expenses are located within the control area of the taxpayer, and thus it is difficult for the taxpayer to prove the burden of proof. Thus, if it is reasonable to have the taxpayer prove the burden of proof by taking into account the difficulty of proof or equity between the parties, it is proved that the tax invoice on some of the expenses reported by the taxpayer was falsely prepared without real transaction by the defendant of the tax authority, and it is difficult for the taxpayer to dispute whether the tax invoice is real expenses and if it is proved that the other party to the tax payment was actually spent, it is necessary to prove that all the data such as the account books and documentary evidence about such expenses.

(2) However, with respect to the fact that the Plaintiff paid a total of KRW 122,796,880 to the Nonparty as an external processing cost from November 2001 to December 2002, the Nonparty did not report on the Nonparty’s income, such as the Nonparty’s business income or earned income (each of the evidence Nos. 2 and 3-1, 2-2) with respect to the external processing cost that the Nonparty had registered business as a personal business operator at the competent tax authority or received from the Plaintiff, and the external processing cost that the Plaintiff appears to occupy a considerable portion of the household manufacturing cost, and the Nonparty did not submit financial transaction documents, such as the details of withdrawal of passbooks that can support the payment of approximately KRW 10 million monthly to the Nonparty. According to the Plaintiff’s assertion, the Nonparty did not have any evidence to acknowledge the Plaintiff’s delivery of the product completed to the Plaintiff based on the date on which the Plaintiff’s work was delivered. However, the Nonparty’s assertion that there was no other evidence to support the Plaintiff’s supply of the product.

3. Conclusion

Therefore, the defendant's disposition of this case is legitimate, and the plaintiff's claim of this case seeking its revocation is not reasonable, and it is so decided as per Disposition as per Disposition.

Article 14 of the Framework Act on National Taxes

(1) If the ownership of income, profit, property, act or transaction subject to taxation is merely nominal and a person to whom such ownership belongs exists, the tax-related Acts shall apply to such person to whom such person actually belongs as a taxpayer.

(2) The provisions concerning the calculation of tax base in tax-related Acts shall apply according to the substance, notwithstanding the name or form of income, profit, property, act or transaction.

Article 27 of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006) shall be calculated as necessary expenses.

(1) In calculating real estate rental income, business income, temporary property income, other income, or forest income, the necessary expenses to be included in the calculation shall be the sum of the expenses corresponding to the total amount of income in the year concerned, which is generally accepted (the sum of expenses corresponding to the total amount of income in the year concerned). < Amended by Act No. 5038,

(2) With respect to the expenses corresponding to the total amount of incomes before the relevant year, limited to those not appropriated as the necessary expenses prior to the relevant year, shall be deemed the necessary expenses.

(3) Matters necessary for calculation of necessary expenses shall be prescribed by Presidential Decree.

Article 80 of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006) and its correction

(1) If a person liable to make a final return on the tax base pursuant to Articles 70 through 72 or 74 fails to make such return, the chief of the district tax office or the director of the regional tax office having jurisdiction over the place of tax payment shall determine the

(2) If a person who has made a final return on the tax base under Articles 70 through 72 or 74, falls under any of the following subparagraphs, the head of a regional tax office having jurisdiction over the place of tax payment or the director of a regional tax office shall correct the tax base and amount of tax for the year concerned: < Amended by Act No. 5580, Dec. 28, 1998; Act No. 6

1. Where an omission or error exists in the contents of return;

2. Where the whole or part of the total account statements by sale and by purchaser under Article 163 or of the payment records under Articles 164 and 164-2 is not submitted;

3. Where the business operator designated as one to become a credit card merchant or a person to become a cash receipt merchant under Article 162-2 of this Act and Article 32-2 of the Value-Added Tax Act fails, without any justifiable reason, to become a credit card merchant or a cash receipt merchant, and the reported details

(3) Where the head of a regional tax office or the head of a regional tax office having jurisdiction over the place of tax payment determines or revises the tax base and amount of tax in the current year under paragraphs (1) and (2), he shall make it based on the books and other documentary evidence: Provided, That if it is impossible to calculate the amount of income by books and other documentary evidence for

(4) If any omission or error is found in the decision or rectification of the tax base and rates, the director of the regional tax office having jurisdiction over the place of tax payment shall immediately correct it again.