Appropriateness of the disposition of non-deductible loss in consideration of business expenses

Among the amounts appropriated as deductible expenses, non-deductible expenses shall be deemed as expenses unrelated to the business and special compensation paid by a specific executive at the time of his/her retirement, and a disposition of non-deductible expenses shall be appropriate

Article 19 (Scope of Deductible Expenses)

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of KRW 178,594,982 against the Plaintiff on August 19, 2004 is revoked.

1. Details of the disposition;

A. On May 2, 2003, the Plaintiff sold a fiber factory located in 00-0 ○○○○-dong, Seoul, and thereafter made an interim prepayment of corporate tax of KRW 331,17,100,00 for the sum of KRW 155,58,559 on September 1, 2003 and October 6, 200 for the household accounts by the end of June of the same year, after selling the Textiles factory located in 00-0 ○○-dong, Seoul.

B. When the Plaintiff reported the tax base and tax amount of corporate tax for the business year 2003, the Plaintiff paid KRW 85,140,000 in total to the officers Kim ○○ and Kim ○○○ on Nov. 1, 2003, the Plaintiff paid KRW 757,920,000 in total to the officers Kim ○○ and Kim○○ on Nov. 1, 2003, (3) was paid KRW 8,871,260 in the business year’s salary and KRW 8,200 in the business year’s salary for 203 business year’s salary for 2003 business year’s salary for 203,200, 980, 980, 207, 2407, 2406, 2406, 206, 206, 206, 206, 306, etc. of each tax base and tax amount.

C. As a result of the tax investigation, the Defendant selected the Plaintiff as a corporation subject to corporate tax, and conducted a tax investigation, and conducted the tax investigation, it did not include expenses paid by the Plaintiff as expenses for the management of motor vehicles that are not directly used for the business. ② Benefits paid to ○○○ shall be paid to non-standing officers who do not engage in their duties, and thus shall not be included in deductible expenses. ③ Retirement benefits paid to ○○○○, etc. are deemed to lack economic rationality as the Plaintiff paid to a specific officer voluntarily, without any special contribution criteria and content, and thus, the Plaintiff should not be included in deductible expenses by denying the calculation of unfair acts. The Defendant notified the Plaintiff of the result of tax investigation on August 10, 2004, that each amount was disposed of as a result of recognizing each person to whom it belongs, and that the Plaintiff would impose corporate tax of 245,058,272 won for the business year 2003, and that only 4,588,690 won out of the amount claimed by the Plaintiff.

D. On December 23, 2004, the Plaintiff filed an appeal with the National Tax Tribunal on the above disposition. On July 21, 2005, the National Tax Tribunal: (a) included the Plaintiff’s 2002 annual salary of 8,871,260 won and the 8,200,980 business year salary of 2003, while (b) included KRW 286,90,000 among the retirement allowances paid to Kim ○ and Kim ○○, in deductible expenses; (c) decided to rectify the tax base and tax amount; (d) dismissed the remainder of the claim; (d) accordingly, the disposition of imposition of the corporate tax of this case was reduced to KRW 178,594,980 and corrected (hereinafter referred to as the “instant disposition”).

[Reasons for Recognition] 1, 2, 23 evidence, 1-9 of evidence 1, 2-1 and 2 of evidence 2

2. Determination on the legitimacy of the instant disposition

A. The plaintiff's assertion

(1) The issue of whether a motor vehicle is directly related to the business of the juristic person is determined by considering the nature of the juristic person, the status of the executive who uses the motor vehicle, the activity area, the maintenance of dignity, the performance of business, etc. Therefore, it cannot be readily concluded that the motor vehicle in this case was used for personal purposes, such as Kim○, etc., and it is unlawful

(2) As the Plaintiff paid retirement allowances to retired executives according to the criteria for payment of retirement allowances for executive officers decided at a general meeting of shareholders upon delegation of the articles of incorporation, the amount equivalent to the above retirement allowances paid by the Plaintiff shall be included

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

(1) The Kim○○ is a major shareholder who owns 99.4% of the Plaintiff’s shares as the owner of the Plaintiff’s establishment. By February 2, 2002, Kim○ held office as the representative director of the Plaintiff, and thereafter until November 28, 2003, as the president. Kim○ was an infant of the above Kim○○, and held office as the representative director of the Plaintiff from February 2, 2002 to November 28, 2003.

(2) In addition to the two vehicles of this case, the Plaintiff was holding two vehicles for business purpose. At the time of the tax investigation, ○○○, the representative director of the Plaintiff, confirmed that the two vehicles of this case were actually used for the personal purpose of Kim○○ and Kim○○, without connection with the Plaintiff’s business.

(3) Article 37 of the Plaintiff’s articles of incorporation provides that “The payment of retirement allowances to directors and auditors shall follow the rules on the payment of retirement allowances for officers which have gone through a resolution of the general meeting of shareholders.” The Plaintiff paid KRW 142,50,000 to Kim○○ and KRW 144,40,000 to Kim○○ as retirement allowances computed in accordance with Articles 4 through 6 of the above rules on the payment of retirement allowances. In addition, the Plaintiff paid KRW 241,020,000 to Kim○○ and KRW 230,000 as special compensation.

(4) However, there is no provision regarding the payment of special compensation under the articles of incorporation of the Plaintiff company. However, Article 7 of the above provision on the payment of retirement allowances for executives provides that if an executive who has contributed to the Plaintiff retires, the special compensation may be paid within the limit of 500% of retirement allowances, separately from retirement allowances, upon a resolution of the board of directors.

[Reasons for Recognition] Documents Nos. 3, 4, 9-1, 2, 13-1, 2, 4, 5, and the purport of the whole pleadings

D. Determination

(1) Whether the automobile maintenance expenses are included in deductible expenses

According to the above facts, as long as the plaintiff himself/herself has used the vehicle of this case for personal purposes, such as Kim○, etc. at the time of tax investigation, the defendant's measure that does not include the management cost in deductible expenses by deeming the vehicle of this case as an asset not directly related to the business is lawful.

(2) Whether a special compensation is included in deductible expenses

Article 44(3) and (4) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18706, Feb. 19, 2005); Article 44(3) and (4) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18706, Feb. 19, 2005); and Article 44(3) and (4) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18706, Feb. 19, 2005) provides that where

However, as seen earlier, the articles of incorporation stipulate that the Plaintiff shall follow the rules on the payment of retirement allowances which have gone through the resolution of the general meeting of shareholders, and does not have any separate delegation provision on the payment of special compensation, but the Plaintiff may pay special compensation within the scope of 500% of retirement allowances separately from retirement allowances by a resolution of the board of directors under the rules on the payment of retirement allowances for officers. In fact, there is no specific standard on the payment of retirement allowances, and there is no specific standard on the calculation of the payment rate. Kim ○ and Kim ○, a retired executive officer, holding 9.4% of the Plaintiff’s shares issued by the Plaintiff. As a major shareholder and a director who are in a position of the Plaintiff and a person in a special relationship, the contents of the resolution of the general meeting or the board of directors at the time of the resolution for the payment of special compensation for the Plaintiff, as well as the payment of special compensation, the portion on the payment of special compensation for the Plaintiff’s employee’s retirement allowance cannot be deemed as “the provisions on the payment of retirement benefits delegated by the articles of incorporation.”

3. Conclusion

Therefore, the plaintiff's claim seeking the revocation of the disposition of this case is dismissed as it is without merit, and it is so decided as per Disposition.

Related Acts and subordinate statutes

【Corporate Tax Act】

Article 27 (Non-Inclusion of Expenses not Related to Business in Calculation of Losses)

The following amounts of expenses paid by a domestic corporation for each business year shall not be included in the calculation of losses in the calculation of the income amount for the concerned business year:

1. The amount prescribed by Presidential Decree, such as expenses incurred from the acquisition and management of assets prescribed by Presidential Decree, which are deemed not directly related to the business of the relevant corporation;

2. The amount of expenditure that is deemed not directly related to the business of the juristic person as prescribed by the Presidential Decree other than subparagraph 1.

Article 52 (Dispudiation of Wrongful Acts)

(1) Where the head of the district tax office having jurisdiction over the place of tax payment or the Commissioner of the competent Regional Tax Office deems that the tax burden of a domestic corporation has been unjustly reduced through transactions with persons with a special relationship prescribed by Presidential Decree (hereinafter referred to as "specially related persons"), he/she may calculate the amount of income for each business year of the relevant corporation regardless of the activities or calculation of the amount of income of the relevant corporation (hereinafter

(2) In the application of the provisions of paragraph (1), the standard for determination shall be the prices applied or to be applied in sound and generally accepted practices and normal transactions between persons without a special relationship (including rates, interest rates, rents, exchange rates and other equivalent rates; hereafter referred to as "market price" in this Article).

(3) A domestic corporation shall submit a detailed statement describing transactions with a specially related person for each business year as prescribed by the Presidential Decree.

(4) In applying paragraphs (1) through (3), matters necessary for the types of wrongful calculation, assessment of market price, etc. shall be prescribed by Presidential Decree.

Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18706 of Feb. 19, 2005)

Article 43 (Non-Inclusion of Bonuses in Calculation of Losses)

(4) Remuneration paid to executives of a non-permanent corporation shall be included in the calculation of losses, except in cases falling under Article 52 of the Act.

Article 44 (Non-Inclusion of Retirement Allowances in Calculation of Losses)

(3) The amount in excess of the amount falling under any of the following subparagraphs among retirement allowances paid to officers by a corporation shall not be included in the calculation of losses:

1. Where the amount to be paid as retirement allowance (including retirement consolation money, etc.) is determined by the articles of incorporation, an amount determined;

2. In cases other than those under subparagraph 1, the amount obtained by multiplying the amount equivalent to 1/10 of the floor pay to the relevant executive for one year retroactively from the date of his retirement (to the amount under Article 20 (1) 1 (a) and (b) of the Income Tax Act, but to exclude the amount that is not included in deductible expenses under Article 43), by the number of years of continuous service calculated by the method as

(4) The provisions of paragraph (3) 1 shall apply to the cases where the articles of incorporation stipulate the standards for calculating the retirement allowances of executives, and where the articles of incorporation provide for the payment of the delegated retirement benefits, such provisions shall apply to such provisions.

Article 49 (Scope of Non-Business Related Assets)

(1) "Assets prescribed by Presidential Decree" in subparagraph 1 of Article 27 of the Act means the following assets:

2. Any of the following movables:

(b) Automobiles, ships, and aircraft not directly used for business: Provided, That this shall not include automobiles, ships, and aircraft which have been acquired to exercise mortgages or to receive payment of bonds and for which three years have not passed and which have any inevitable reasons prescribed by the Ordinance of the Ministry of Finance and Economy,

(3) "Amount prescribed by Presidential Decree" in subparagraph 1 of Article 27 of the Act means expenses, maintenance expenses, repair expenses and other expenses related thereto incurred by acquiring and managing assets referred to in each subparagraph of paragraph (1).