[1] Where the tax authority proves that a false tax invoice on a part of the expenses reported by the taxpayer was prepared, the person who bears the burden of proving that it is an actual cost (=taxpayer)

[2] The case holding that the advance payment cannot be included in deductible expenses where a corporation paid advance payment for the purchase of goods but was not provided with goods equivalent to the advance payment

[3] Where a corporation included the input tax amount of processing and the input tax amount of value-added tax on the account books, but filed a corporate tax base return without including the input tax amount of the value-added tax in the deductible expenses, whether the amount equivalent to the input tax amount of the processing that was released from the corporation is excluded from the income disposition (negative

[1] In a case where a tax invoice on a part of the expenses reported by a taxpayer has been prepared for a false transaction without real transactions, which is proved to a considerable extent by the tax authority as to whether it is an actual cost, and the purpose of use of the expenses claimed by the taxpayer and the other party to the payment thereof have been proved to a considerable degree, it is necessary for a taxpayer to prove that it is easy to present data, such as account books and evidence

[2] The case holding that in case where a corporation paid an advance payment for the purchase of goods, but did not receive a supply of goods equivalent to the advance payment, the profit from the sale of the goods only accrues from the sale of the goods, and thus, it is not possible to present the profit from the sale of the goods in question, and there is no possibility that the purchase price, which is the expense corresponding to the profit, can not be included in the calculation of

[3] Article 21 subparagraph 1 of the former Corporate Tax Act (amended by Act No. 8831 of Dec. 31, 2007) stipulates the input tax amount of value-added tax (excluding the tax amount where value-added tax is exempted) as one of the items not included in deductible expenses in the calculation of the income amount for each business year among taxes and public charges. Thus, even if a corporation has included the input tax amount processed and the input tax amount of value-added tax in the account book, if it filed a corporate tax base return without including the input tax amount of the value-added tax in the calculation of deductible expenses, it shall revise the corporate tax base by adding only the purchase amount equivalent to the input tax amount for the processing to gross income. However, the amount equivalent to the input tax

[1] Article 26 of the Administrative Litigation Act / [2] Article 40 of the Corporate Tax Act, Article 68 (1) 1 of the Enforcement Decree of the Corporate Tax Act / [3] Article 21 subparagraph 1 of the former Corporate Tax Act (amended by Act No. 8831 of Dec. 31, 2007)

[1] Supreme Court Decision 96Nu8192 delivered on September 26, 1997 (Gong1997Ha, 3327) Supreme Court Decision 2004Du14168 delivered on June 10, 2005, Supreme Court Decision 2005Du16406 Delivered on April 14, 2006

Plaintiff (Law Firm Barun, Attorneys Kim Young-hoon et al., Counsel for the plaintiff-appellant)

Samsung Head of Samsung Tax Office

Seoul High Court Decision 2006Nu3287 delivered on December 13, 2006

All appeals are dismissed. The costs of appeal are assessed against each party.

The grounds of appeal are examined.

1. Plaintiff’s ground of appeal

A. Violation of the rules of evidence regarding imposition of value-added tax

The gist of the Plaintiff’s allegation in this part of the grounds of appeal is that the Plaintiff’s 10 Chapter 10 of the tax invoice issued by Nonparty 1 Company (hereinafter “instant tax invoice”) was not prepared in the middle of January 2003, which was after the lapse of the second value-added tax taxable period of 2002, but was prepared around December 2002, which was within the pertinent taxable period, and it reflects actual transactions. Thus, the lower court’s determination otherwise deemed unlawful even though it does not constitute a tax invoice stating differently from the facts, since it does not constitute a tax invoice stating the necessary entries under the main sentence of Article 17(2)1-2 of the former Value-Added Tax Act (amended by Act No. 8826, Dec. 31, 2007). However, this is ultimately attributable to the selection of evidence or fact-finding, which belongs to the exclusive jurisdiction of

B. Part concerning the misapprehension of legal principle as to the burden of proof of losses under the Corporate Tax Act

In the event that a tax invoice on a part of the expenses reported by a taxpayer has been prepared in a false manner without a real transaction, which is proved to a considerable extent by the tax authority as to whether it is an actual cost and the other party to the payment of the expenses claimed by the taxpayer has been proved to a considerable extent, a taxpayer who is easy to present data such as books and evidence about the fact that such expenses have been actually paid should prove it (see Supreme Court Decision 2005Du16406, Apr. 14, 2006, etc.).

According to the reasoning of the judgment below, the court below presumed that the Plaintiff, a taxpayer, needs to prove that there was a real transaction corresponding to the supply value under the tax invoice of this case, which is different from the fact, and found that the Plaintiff was supplied with clothing equivalent to KRW 201,280,454 from the non-party 1 corporation in the latter part of 2002 (from July 1, 200 to December 31, 200), and determined that only the above KRW 201,280,454 among the total supply value under the tax invoice of this case, should be included in the deductible expenses in calculating the Plaintiff’s income for the business year of 202.

In light of the above legal principles and records, the above judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the burden of proof of losses under the Corporate Tax Act.

C. Part of the misapprehension of legal principle as to the principle of profit cost response

Article 40(1) of the Corporate Tax Act provides that "the fiscal year of accrual of earnings and losses of a domestic corporation for each fiscal year shall be the fiscal year which includes the date on which the concerned gross income and losses are determined." Paragraph (2) provides that "necessary matters concerning the scope of the fiscal year of accrual of gross income and losses under the provisions of paragraph (1) shall be determined by the Presidential Decree." Article 68(1)1 of the Enforcement Decree of the Corporate Tax Act provides that "the fiscal year of accrual of gross income and losses from the sale of commodities (excluding real estate), products, or other products shall be the fiscal year which includes the date on which the commodities are delivered." Since profits from the sale of commodities accrue only from the sale of commodities, if a corporation paid an advance payment for the purchase of commodities, but fails to be supplied with the commodities equivalent to the advance payment, the profits from the sale of the commodities concerned shall not be presented, and therefore, there is no room for occurrence of the purchase price, which is

According to the reasoning of the judgment below, even if the plaintiff paid advance payment to the non-party 1 corporation for the purchase of clothes in the business year 2002, the court below held that the above advance payment amount cannot be included in deductible expenses in calculating the plaintiff's income amount for the business year 2002. In light of the related statutes and the above legal principles, the above judgment of the court below is just and there is no error in the misapprehension of legal principles as to the profit-sharing principle as otherwise alleged in the ground of appeal.

D. Part on the misapprehension of legal principles as to the object of disposal of income

Article 21 subparagraph 1 of the former Corporate Tax Act (amended by Act No. 8831 of Dec. 31, 2007; hereinafter the same) stipulates the input tax amount (excluding the tax amount where value-added tax is exempted) of value-added tax as one of the items not included in deductible expenses in the calculation of the income amount for each business year among taxes and public charges. Thus, even if a corporation has included the purchase amount and the input tax amount of value-added tax in the account book, if it reported the corporate tax base without including the input tax amount of the value-added tax in the calculation of deductible expenses, it is necessary to revise the corporate tax base by adding only the purchase amount equivalent to the input tax amount for the processing to gross income. However, the amount equivalent to the input tax amount of the processing

According to the reasoning of the judgment below, the court below determined that the remaining 1,287,294,183 won after deducting the above 201,280,454 won from the supply price of 1,488,574,637 won in the tax invoice of this case, and the value-added tax amount of 128,729,418 won, which is the value-added tax, shall also be subject to the disposition of income, pursuant to Article 67 of the former Corporate Tax Act and Article 106 (1) 1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20619, Feb. 22, 2008) shall be deemed to have been reverted to the non-party 2 who was the representative at the time of the plaintiff's 202 business year pursuant to Article 106 (1) 1 of the former Enforcement Decree of the Corporate Tax Act.

In light of the above legal principles and records, the above judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the object of disposition of income as otherwise alleged in the ground of

2. As to the Defendant’s ground of appeal

The defendant's ground of appeal is without merit due to the selection of evidence or fact-finding which belongs to the exclusive jurisdiction of the court below, and it cannot be deemed a legitimate ground of appeal.

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against each party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Cha Han-sung (Presiding Justice)