Whether a tax authority’s rectification of tax reduction or exemption of deficit incurred in the business year in which the first tax base was reported after the enforcement date of the latter part of Article 13 subparag. 1 of the former Corporate Tax Act (amended by Act No. 9898 of Dec. 31, 2009) constitutes an administrative disposition subject to appeal litigation (affirmative in principle)

Article 13 of the former Corporate Tax Act (amended by Act No. 9898 of Dec. 31, 2009) provides that “The corporate tax base on income for each business year of a domestic corporation shall be the amount calculated by deducting in sequence the amount and income under the following subparagraphs within the scope of income for each business year,” and subparagraph 1 provides that “The amount of losses incurred during the business year that began within 10 years before the beginning date of each business year, which were not deducted in calculating the tax base for each business year thereafter, shall be deducted as losses carried forward:

However, the latter part of Article 13 subparag. 1 of the Corporate Tax Act (amended by Act No. 9898, Jan. 1, 2010) newly established the provision that “In this case, losses shall be limited to losses under Article 14(2) which are determined or corrected pursuant to Article 60 or which are included in the tax base reported pursuant to Article 45 of the Framework Act on National Taxes or reported for revision pursuant to Article 66.” [the latter part of Article 13 subparag. 1 of the Corporate Tax Act amended by Act No. 10423, Dec. 30, 2010; Article 13(1)1 of the current Corporate Tax Act amended by Act No. 1608, Dec. 24, 2018; Article 13(1)1 of the amended Corporate Tax Act (amended by Act No. 16008) stipulates in the latter part of Article 13 subparag. 1 of the amended Corporate Tax Act to promote the legal stability of Article 13 subparag. 13 of the Corporate Tax Act.

In light of the developments leading up to the amendment of the relevant provision and the language, legislative intent, etc. of the latter part of Article 13 subparag. 1 of the amended Corporate Tax Act, in cases where a tax authority’s rectification of losses incurred during the business year in which the first tax base was reported on or after January 1, 2010, barring any special circumstance, inasmuch as there is no dispute as the legality at the stage of notification of reduction of losses, the taxpayer cannot assert that there was losses carried forward other than the amount of losses that were erroneously corrected or corrected by the tax authority in relation to the deduction of losses carried forward in the following business year, and thus, the tax authority’s rectification of losses is a tax authority’s act that directly affects the corporate tax liability which is the taxpayer in relation to the deduction of losses carried forward in the following business year, and is subject to administrative disposition

Article 13 Subparag. 1 of the former Corporate Tax Act (Amended by Act No. 9898, Dec. 31, 2009); Article 13 Subparag. 1 and Article 14(2) of the former Corporate Tax Act (Amended by Act No. 9924, Jan. 1, 2010);

Hansung (Attorney Seo-gu et al., Counsel for the defendant-appellant)

The director of the Southern Incheon District Office

Seoul High Court Decision 2017Nu50777 decided September 13, 2017

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Case summary

A. The Plaintiff filed a return on each corporate tax base for each business year from 2010 to 2014 that all losses incurred during the pertinent business year.

B. On May 28, 2015, the Defendant: (a) deemed that the Plaintiff delayed collection of sales claims against a specially related person compared to the average collection date of sales claims against a general trading agency, a non-specially related person, without justifiable cause; (b) denied the amount equivalent to the interest accrued from the delayed collection of sales claims as wrongful calculation; and (c) deducted or corrected the tax base deficit of each corporate tax for each business year from 2010 to 2014 by including the denied amount in the Plaintiff’s gross income for the business year from 2010 to 2014 (hereinafter “instant reduction or correction of losses”).

C. After that, on July 1, 2015, the Defendant issued a disposition imposing penalty tax on the Plaintiff on the ground of failure to obtain adequate evidence regarding the payment of the daily work personnel expenses, and notified the corrected tax base as above.

2. Determination as to whether a reduction or correction of loss is an administrative disposition subject to appeal litigation

A. Article 13 of the former Corporate Tax Act (amended by Act No. 9898 of Dec. 31, 2009) provides that “The corporate tax base on income for each business year of a domestic corporation shall be the amount calculated by deducting the amount and income under each of the following subparagraphs in the order within the scope of income for each business year,” and subparagraph 1 provides that “the amount of losses incurred during the business year that began within 10 years before the start date of each business year, which were not deducted in calculating the tax base for each business year thereafter, shall be deducted as losses carried forward:

However, the latter part of Article 13 subparag. 1 of the Corporate Tax Act (amended by Act No. 9898, Jan. 1, 2010) newly established the provision that “In this case, losses shall be limited to losses under Article 14(2) which are determined or corrected pursuant to Article 60 or which are included in the tax base reported pursuant to Article 45 of the Framework Act on National Taxes or reported for revision pursuant to Article 66.” [the latter part of Article 13 subparag. 1 of the Corporate Tax Act amended by Act No. 10423, Dec. 30, 2010; Article 13(1)1 of the current Corporate Tax Act amended by Act No. 1608, Dec. 24, 2018; Article 13(1)1 of the amended Corporate Tax Act (amended by Act No. 16008) stipulates in the latter part of Article 13 subparag. 1 of the amended Corporate Tax Act to promote the legal stability of Article 13 subparag. 13 of the Corporate Tax Act.

In light of the developments leading up to the amendment of the relevant provision and the language, legislative intent, etc. of the latter part of Article 13 subparag. 1 of the amended Corporate Tax Act, in cases where a tax authority’s rectification of losses incurred during the business year in which the first tax base was reported on or after January 1, 2010, barring any special circumstance, inasmuch as there is no dispute as the legality at the stage of notification of the reduction of losses, the taxpayer cannot assert that there was losses carried forward other than the amount of losses that were erroneously corrected or corrected by the tax authority in relation to the deduction of losses carried forward in the business year following the subsequent business year, and thus, the tax authority’s rectification of losses is a tax authority’s act that directly affects the corporate tax liability which is the taxpayer in relation to the deduction of losses carried forward in the following business year, and thus

B. In light of the foregoing legal principles, the Defendant’s rectification of the instant amount of loss ought to be deemed an administrative disposition that becomes the subject of appeal by the rectification that the tax authority reduces the amount of loss reported during the business year from January 1, 2010 to 2014, which was the Plaintiff’s business year after January 1, 2010, when the amended Corporate Tax Act was effective

Nevertheless, based on the reasoning of the first instance judgment, the lower court upheld the first instance judgment dismissing the instant lawsuit seeking revocation of the reduction of deficit on the ground that it cannot be deemed that the reduction of loss of this case did not directly cause any right or obligation to the Plaintiff or a direct change in its legal interest, and thus, does not constitute an administrative disposition subject to appeal litigation, based on the legal doctrine of the Supreme Court Decision 2001Du2652 Decided November 26, 2002, which was the case prior to the enforcement of the amended Corporate Tax Act. In so doing, the lower court erred by misapprehending the legal doctrine on administrative disposition subject to appeal, which affected the conclusion of the judgment. The allegation in the grounds of appeal assigning this error is with merit.

3. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kwon Soon-il (Presiding Justice)