early 2012 Middle 0499 ( October 27, 2012)

Benefits paid to directors in excess of the benefits of the representative director shall not be recognized as justifiable grounds.

Even if the plaintiff's director directly or indirectly participated in the decision-making and performance of duties, etc., the remuneration paid by the plaintiff cannot be seen as a reasonable consideration for the director's performance of duties, and therefore, it is difficult to recognize a justifiable reason for the plaintiff to pay the benefits in excess of the representative director's remuneration.

2012Guhap8336 Revocation of Disposition of Corporate Tax Imposition

XX Co., Ltd

Head of Ansan Tax Office

November 7, 2012

November 28, 2012

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition disposition of KRW 000 of corporate tax for the business year 2007 against the Plaintiff on September 16, 201 and KRW 000 of corporate tax for the business year 2008 shall be revoked.

1. Details of the disposition;

A. On July 24, 1990, the Plaintiff was established with the purpose of engaging in the manufacturing and wholesale business of steel products.

B. On December 24, 2007, the Plaintiff paid KRW 000 to the Song who is a director of the Plaintiff, and included the remuneration paid to the Song in the calculation of losses, and reported and paid the corporate tax base and tax amount for the business year 2007. In addition, the Plaintiff paid KRW 00 to the Song on June 27, 2008; and on December 30, 2008, the Plaintiff paid KRW 00 to the Song as the salary; and the tax base and tax amount for the business year 2008, by including each of the above remuneration paid to the Song as the deductible expenses.

C. Under Article 43(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20619, Feb. 22, 2008; hereinafter the same) on the ground that the Defendant, who conducted a tax investigation with respect to the Plaintiff, paid the Plaintiff’s salary exceeding the amount paid to the Plaintiff to both BB, the representative director of the Plaintiff (i.e., the Plaintiff) (i., the excess amount of KRW 007.00 + the excess amount of KRW 008.00; hereinafter referred to as the “instant wage”), the Defendant imposed a disposition on September 16, 201, imposing corporate tax (including additional tax) for the business year 2007 and corporate tax (including additional tax) for the business year 2008.

D. The Plaintiff appealed to the instant disposition and filed an appeal with the Tax Tribunal, but the Tax Tribunal dismissed the Plaintiff’s appeal on March 27, 2012.

[Ground of recognition] Facts without dispute, Gap evidence 1, Eul evidence 2, Eul evidence 2, the purport of whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) Song has been in office for a long time as the representative director of OO (hereinafter “OO”), and is in office as the chairperson of a group with O, YY (hereinafter “YY”), YG (hereinafter “GG”), and the Plaintiff, etc. as its affiliates. Meanwhile, as to the Plaintiff and Y as an executive officer, such as a controlling shareholder as prescribed in Article 43(3) of the former Enforcement Decree of the Corporate Tax Act, the decision-making authority to determine the overall major policies of the company, and is in fact responsible for the management of the company. However, both BB, the representative director of the Plaintiff, performed the duties of protecting Song while focusing on the duties of field and management personnel in relation to production and business, and thus, it cannot be simply compared with the status of Song and the status of both BB on the same line. Moreover, it was not satisfied that the Plaintiff did not pay wages to other executives, etc. as an executive officer.

(2) The Plaintiff’s appointment of the Plaintiff’s director one year prior to the first payment of the Plaintiff’s remuneration was made from 2006 to the Plaintiff’s management performance, and thus, the Plaintiff’s payment of benefits was sought from 2007. Meanwhile, Song did not receive benefits from the Plaintiff after the commencement of corporate rehabilitation procedures, etc. against OO on 2009, and contributed KRW 00,000,000,000,000,000,000,000,000,000,000

(3) From 2007 to 2008, Song has received approximately approximately KRW 000 as the sum of earned income and dividend income from O, etc., and most of them have been paid from O.O. In light of the O’s sales during each of the above periods ( approximately KRW 000, approximately KRW 008, approximately KRW 000), and operating income ( approximately KRW 000, KRW 000, KRW 008, KRW 000, around 2008), the earned income and dividend income received from OO was significant, and even if the total amount of wages received from the affiliated company was high, it should be determined as to whether Article 43 of the former Enforcement Decree of the Corporate Tax Act was Article 3, on the basis of individual benefits received by each of the affiliated companies, other than the total amount of wages received from the affiliated companies.

(4) Since Song had taken office as the Plaintiff’s director, since the Plaintiff’s liabilities have increased considerably since 2007, it cannot be readily concluded that the Plaintiff’s operating situation has deteriorated solely on the grounds that the Plaintiff’s liabilities increased considerably since 2007. Meanwhile, even though the Plaintiff’s sales and operating profits have increased considerably compared to the past, the occurrence of net losses was an excessive amount of operating expenses due to a difference in exchange rates in the U.S. financial crisis that occurred around the end of 2008. As such, the shortage of corporate interest costs may vary depending on the management’s decision on how to raise operating funds in any way from the increase of capital or the next pressure of funds. Thus, it cannot be deemed that the Plaintiff’s operating status has deteriorated from the date of 2007 to the date of 208.

(5) Therefore, in light of the aforementioned circumstances, the Defendant’s instant disposition taken by the Plaintiff in the entirety is unlawful, since it is deemed that there is a justifiable reason for the Plaintiff to receive the same amount of the instant benefits compared to bothB difficulties.

B. Relevant statutes

The same shall apply to debentures.

(c) Fact of recognition;

(1) At the time of December 31, 2007 and December 31, 2008, Y owned 100% of the Plaintiff’s issued shares, O owned 9% of Y’s issued shares, and 1% of Y’s issued shares, and ia owned 51.91% of O’s issued shares.

(2) On December 21, 2006, Song-A assumed office as the representative director of the Plaintiff on November 28, 201, and takes office as the Plaintiff’s representative director on November 28, 201. They serve as the chairperson of a group affiliated withO, Y, GG, Plaintiff, etc. as an affiliated company. The Plaintiff’s policy-making has been made, such as personnel management, salary and bonus of officers and employees, and construction of machinery equipment or real estate.

(3) On March 12, 2007, the Plaintiff held a general meeting of shareholders on March 12, 2007 to resolve the limit of directors’ remuneration amounting to KRW 000,000. On March 14, 2008, the Plaintiff held a general meeting of shareholders to resolve the limit of directors’ remuneration amounting to KRW 00,000.

(4) As the Seoul Central District Court 2009 Mahap24 applied for rehabilitation procedures, theO received a decision to authorize a sacrifice plan on March 6, 2009 and received the I decision to authorize a sacrifice plan on February 5, 2010. TheO received a decision to terminate the sacrifice procedure on May 18, 201.

(5) From February 2009, YY and the Plaintiff with financial liquidity crisis were extended to the end by Fast-Tack progm, and the Plaintiff’s debt status is as follows: (a) the Plaintiff’s debt status is as listed below.

(3) The following table 1 omitted:

(6) The twoB served as the representative director of the Plaintiff until October 28, 201 on October 14, 2005 and the status of salaries paid to the Plaintiff’s officers, including Song and YangB, are as follows.

[Attachment 2]

(2) The following Table 2 omitted:

[Reasons for Recognition] Facts without dispute, Gap evidence 3 through Gap evidence 7, Gap evidence 9 through 11, Gap evidence 13, Gap evidence 14, Gap evidence 17-1 and 2, the purport of the whole pleadings

D. Determination

(1) Under Articles 19(1) and 26 subparag. 1 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010), deductible expenses shall be the amount of losses incurred from transactions which reduce the net assets of the pertinent corporation, excluding refund of capital or financing, disposition of surplus pay, and those prescribed in this Act, and personnel expenses shall not be included in deductible expenses in calculating the amount of income of the domestic corporation for the business year as determined by the Presidential Decree. In addition, under Article 43(3) and (6) of the former Enforcement Decree of the Corporate Tax Act, where the corporation pays remuneration in excess of the amount paid to the officers other than controlling shareholders, etc. in the unification position without justifiable grounds to the officers who are controlling shareholders, etc. under Article 87(3) and (4), such excess amount shall not be included in deductible expenses, and officers under the above provision shall refer to the corporation’s cremation, president, president, representative director, members such as managing director, executive director, all members of the board of directors, auditors and other persons equivalent to them.

Personnel expenses to be included in the calculation of losses in the income amount of a corporation for the pertinent business year are paid for remuneration for work, and both remuneration, salary, allowance, bonus, and other similar wages are included in the calculation of losses in principle as personnel expenses, regardless of whether it is paid for the provision of labor. Meanwhile, Article 43(3) and (6) of the former Enforcement Decree of the Corporate Tax Act does not allow inclusion in the calculation of losses for the excess amount of remuneration paid to the officers who are controlling shareholders and other than the controlling shareholders in the same position, and it should not be determined that the amount of remuneration paid to the executives of the relevant corporation is excessive by taking into account the same amount of remuneration paid to the executives who are controlling shareholders and other than the controlling shareholders in the same position. However, it should not be determined that the amount of remuneration paid to the executives of the relevant corporation is excessive by taking into account the same amount of remuneration paid to the executives who are controlling shareholders and other reasonable reasons as the controlling shareholders in light of social norms such as the amount of remuneration paid to the executives of the relevant corporation.

(2) The following circumstances are difficult to recognize the facts of the Plaintiff’s above recognition. ① From 2007 to 2008, the number of sales indices, such as the Plaintiff’s sales revenue or gross sales profit, were improved compared to that of the Plaintiff. However, the improvement of the performance of the Plaintiff appears to have been dependent on the Plaintiff’s remaining ability to make decisions on the management transition, rather than the number of executives and employees, including Song and SongB, who are full-time executives, and the amount of the Plaintiff’s financial crisis occurred around the end of 2008, and the method of raising the Plaintiff’s operating funds could vary depending on the Plaintiff’s management performance’s judgment. Considering the above circumstances, it is difficult to recognize that the Plaintiff paid a certain amount of the Plaintiff’s operating funds to the 20th executive officer of the Plaintiff’s company for the above period from 007 to 208, the Plaintiff’s annual net income increase rate, total liabilities, and interest ratio, etc., and the Plaintiff’s financial institution’s total sales risk related to the Plaintiff’s 20000.

(3) Therefore, the Plaintiff’s assertion is without merit, and the Defendant’s disposition of this case is lawful.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.