Business loss compensation amount is business income included in the total amount of income, and the necessary expenses shall not be deducted by the estimated taxation.

In cases where a tax assessment is made with respect to the omitted income amount by the on-site investigation decision, the taxpayer shall prove his/her assertion, and when the income amount can be determined by the method of the on-site investigation, the necessary expenses corresponding to the omitted portion shall not

Article 27 (Calculation of Necessary Expenses of Business Income)

2018Guhap137 Global Income and Revocation of Disposition

ProfessorO et al.

O Head of the tax office and one other

October 23, 2018

November 13, 2018

1. All of the plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

Cheong-gu Office

The imposition of global income tax of KRW 726,756,390 on May 16, 2017 by Defendant AA head of the tax office and the imposition of global income tax of KRW 460,962,180 on May 16, 2017 by Defendant BB head of the tax office shall be revoked on May 16, 2017.

1. Details of the disposition;

A. The Plaintiffs, from around August 5, 2002, run inland fish farming business in the name of ‘OO-fishing grounds (hereinafter referred to as the “instant business place”) from OO-si 252-6 from O-si to O-si 252-6.

B. On December 20, 2006, the basic plan for the "Korea-do flood control dam construction project" was published in the OO-si, O-si, O-si, and the instant business was incorporated into the flood control area (No. 2006-551 of the Ministry of Construction and Transportation’s notification).

C. The Korea Water Resources Corporation, while accepting the instant plant in relation to the construction of the Han River, paid KRW 3,030,427,090 as compensation in attached Table 1 to the Yongsan-gu, around January 201.

D. As a result of the tax investigation of door XX, the director of the CCC tax office deemed the Plaintiffs as the actual operator of the instant workplace and notified the Defendants of the taxation data. Defendant BB head of the tax office, deeming that the amount of KRW 896,452,811, out of KRW 1,182,00,00, which belongs to the Plaintiff KimO, was as business income and imposed KRW 461,626,040 as global income for the year 201 on Plaintiff KimO on May 16, 2017. Defendant AA head of the tax office, deeming that the amount of KRW 1,848,427,09, which belongs to the Plaintiff ProfessorO, was as business income and imposed KRW 1,848,427,09,00 as global income for the year 2017 on May 16, 2017.

E. The plaintiffs filed an objection against each of the above dispositions. During the process of filing an objection, the director of the tax office of defendant BB considered KRW 896,452,81 as the business income of the plaintiff KimO, KRW 895,301,531, excluding KRW 1,151,280 as the amount of compensation for the fixed business property, as the business income of the plaintiff KimO, and corrected the tax amount to KRW 460,962,180 as the business income of the plaintiff KimO. The director of the tax office of defendant AA corrected the tax amount to KRW 460,962,180, 180, 40, 343,419 (hereinafter referred to as the "business loss compensation amount" of KRW 1,848,427,09 as the business income of the plaintiff KimO, excluding KRW 448,581,00 as the business income of the plaintiff KimO (hereinafter referred to as "business loss compensation amount of this case").

F. The Plaintiffs were dissatisfied with each of the instant dispositions and filed an appeal with the Tax Tribunal on December 8, 2017, but the Tax Tribunal dismissed the Plaintiffs’ claim on April 11, 2018.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 5 (including paper numbers), Eul evidence 1 to 4 (including paper numbers), the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiffs' assertion

(1) On the grounds delineated below, each disposition of this case should be revoked on the grounds of illegality.

① Around October 18, 2016, the Plaintiff’s POO transferred the resident registration to OO-gu OO-gu No. 237,702, 402 (OO-dong and O-O-village) and did not actually reside, and the Plaintiff’s PO did not delegate the authority to receive postal items to apartment security guards who received a notice of tax disposition. As such, the global income tax claim for the year 201 expires by prescription on May 31, 2017.

② Of the instant business loss compensation amount, KRW 722,714,00, KRW 1,000, and KRW 1,008,193,00, and KRW 1,000,00, in fact, the amount of damages for losses incurred from the destruction of the iron bags prior to the pertinent business cannot be deemed as business income, since it is not a compensation for losses incurred in relation to the pertinent business.

③ Of the instant business loss compensation amount (three months), 440,183,00 won, the Plaintiffs did not have business profit during the pertinent period, and the Plaintiffs continued to engage in fish farming activities and continued to engage in such activities, and thus, did not constitute business income, since they acquired compensation temporarily and indirectly due to public expropriation.

④ Even if the instant amount of business loss compensation falls under business income, if it is apparent that such expenses as purchase costs, aquaculture expenses, management expenses, maintenance expenses, taxes and public charges, and mining heat costs, etc. are incurred for the steel lock farming, and if it is impossible to calculate necessary expenses due to the lack of evidential documents, such as the purchase of raw and secondary materials, it is necessary to impose an estimated tax. However, the Defendants deemed the necessary expenses and imposed a comprehensive income tax on the instant amount as the income amount without deducting the expense.

B. Relevant statutes

Attached Form 2 shall be as shown in attached Table 2.

C. Determination as to the argument ①

1) Relevant legal principles

In cases where a person to receive documents, such as a person liable for duty payment, who is the other party to a taxation, has expressly or explicitly delegated the right to receive mail or other documents to another person, such delegated person shall be deemed to have lawfully served the documents on the person to receive the documents, and the delegated person shall not necessarily have to be an employee or a person living together with the delegating person (see, e.g., Supreme Court Decision 2000Du164, Jul. 4, 2000).

2) Determination

According to the following circumstances, it is reasonable to view that the security guards delegated with authority to receive on May 23, 2017 receive the notice of imposition, which is duly delivered upon receipt of the notice of imposition, according to the following circumstances, which are acknowledged by comprehensively considering the purport of the entire pleadings in each of the statements in Eul evidence Nos. 5 through 9 (including virtual numbers). Thus, the above assertion by the Plaintiff Professor is without merit.

① On October 18, 2016, the Plaintiff’s POO reported the transfer to 237,702, and 402 OOO on October 18, 2016, but moved to another place on July 7, 2017. The said apartment security guard received registered mail against the residents and delivered it to the residents, and there is no other objection by the residents.

② The notice of imposition against the Plaintiff ProfessorO was sent to the above apartment, and apartment security guards received it on May 23, 2017.

③ Around that time, the Plaintiff’s ProfessorO was tried as the OO District Court 2015 Gohap16 case. Around May, 2017, around the time when the disposition was sent as the apartment, the order to change the date of trial of the instant case was sent to the said apartment, and the Plaintiff’s O’s son’s son’s son’s son’s son was served upon

D. (2) Determination on the assertion

1) Relevant legal principles

Business income under the former Income Tax Act (amended by Act No. 11146, Jan. 1, 2012; hereinafter the same) refers to income generated from a business that continues to be and repeatedly conducted in an independent position for profit-making purposes. Whether a certain income constitutes business income or other income, which is a lump-sum income, ought to be determined in accordance with social norms, by taking into account the details, period, frequency, mode, and all the circumstances before and after the activities of a person liable to pay tax, in which the income was generated, and whether the income is for profit-making purposes and whether the income has continuity and reflectness (see, e.g., Supreme Court Decision 2017Du36885, Jul. 11, 2017).

The amount of compensation paid by a business operator in connection with the expropriation or transfer of a business place due to such expropriation or transfer of a business place shall be deemed capital gains if the content of compensation is compensation for losses of assets other than capital gains, business compensation, compensation for temporary closure or closure of business, transfer compensation, etc., which are reduced in connection with the business concerned, or compensation for losses incurred in relation to the business concerned, as business income under the mode of the business (see, e.g., Supreme Court Decision 2006Du9535, Jan. 31, 2008). In addition, Article 51(3)5 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 23588, Feb. 2, 2012; hereinafter the same applies) provides that the amount of compensation for losses that has already accrued or will accrue to the business operator shall be included in the amount of gross income, and it shall be deemed that the amount of compensation for losses related to the business has been paid continuously to a new place, and it shall be included in the amount of total income (see, referring to 9010.

On the other hand, when a tax assessment is conducted based on the on-site investigation decision as to the omission of income amount, the taxpayer shall assert and prove the necessary expenses corresponding to the omission amount, and when the amount of income can be determined by the on-site investigation method, it cannot be determined by the method of the on-site investigation. If the tax authority found necessary expenses corresponding thereto by the on-site investigation and imposed global income tax by recognizing the necessary expenses corresponding thereto through the on-site investigation, it cannot be deemed impossible to make a decision on the on-site investigation. If necessary expenses not recognized by the tax authority exist, the taxpayer shall assert and prove it, and the income cannot be determined by the method of the on-site investigation to deduct the necessary expenses (see, e.g., Supreme Court Decision 2001Du4399, Mar. 11, 2003).

2) Determination

In light of the legal principles as seen earlier, the following circumstances acknowledged by comprehensively considering the purport of the entire pleadings, the instant business compensation amount falls under the business income included in the total amount of the Plaintiffs’ income, and the necessary expenses shall not be deducted by the estimated taxation. Therefore, each of the instant dispositions is lawful, and the Plaintiffs’ assertion is without merit.

① Since August 5, 2002, the Plaintiffs were to be engaged in inland fish farming business as seen earlier, and even if there was no income reported to the tax authorities in relation to the instant business establishment, the instant business compensation amount was paid to compensate for the income, expenses, etc. reduced in relation to the business that would have continued if the instant business establishment had not been expropriated.

② The instant business loss compensation amount of KRW 2,295,644,950 (Plaintiff’s literature 1,40,343,419 won, Plaintiff KimO 895,301,531 won) is the sum of the expenses other than the expenses for the relocation of aquaculture facilities (property compensation) and other expenses incurred for the relocation of aquaculture from the amount of attached Table 1 (3) 1 plus 440,183,000 + 114,619,950 + 2,935,00 + 2,000 + 5,000 + 5,000 + 1,000 + 440,183,000 + 114,619,950 + 2,935,000 + 2,000 + 5,000,000)

Among the above compensation, the amount of depreciation losses and business losses (three months) corresponding to the previous compensation is about the income reduced in relation to the business of the plaintiffs, and the expenses for relocation of iron bars and other expenses are about the losses incurred in relation to the business suspension and transfer and are about the expenses incurred in order to continue the business after moving to a new place. Thus, according to the legal principles as seen earlier, it constitutes revenues related to the plaintiffs' business.

③ There is no evidence to acknowledge that the Plaintiffs actually paid the purchase cost, aquaculture expenses, management expenses, maintenance expenses, taxes and public charges, and mining heat expenses for the steel farming. In light of the aforementioned legal principles, it is not allowed to calculate the business income by the estimation research method in order to deduct the necessary expenses from the aforesaid necessary expenses.

3. Conclusion

Then, the plaintiffs' claims are dismissed in its entirety as it is without merit. It is so decided as per Disposition.