Professor 2017-Divisions-2500 ( December 19, 2017)

Since it cannot be deemed as retirement allowance following the conversion of the annual salary system, non-deductible of retirement allowance cannot be regarded as legitimate parties.

Retirement allowances paid by the plaintiff to the representative director, etc. shall not be deemed to have been paid under the condition that retirement allowances are not received due to the conversion of annual salary system.

Article 44 of the Enforcement Decree of the Corporate Tax Act

2018Guhap20956 (Revocation of Disposition of Imposing corporate tax)

△△ (State)

○○ Head of tax office

July 19, 2018

August 23, 2018

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s portion of KRW 617,386,882 out of KRW 722,484,263 of corporate tax for the business year 2015 against the Plaintiff shall be revoked.

1. Details of the disposition;

A. The Plaintiff was established on August 28, 1990 and engaged in the business of manufacturing and selling leather products, and rubber products manufacturing and selling.

B. On December 24, 2015, the Plaintiff paid KRW 2,873,456,287 to the representative director Park Park and Park B, a total of KRW 2,873,456,287 as retirement allowances according to the conversion of annual salary system.

C. From November 23, 2016 to January 3, 2017, the Defendant conducted an integrated investigation of corporate tax for the Plaintiff’s 2015 business year from November 23, 2017, and conducted an interim settlement of KRW 2,586,82 among the retirement allowances paid to ParkA and ParkB on the ground that the said retirement allowances do not constitute retirement allowances paid as a practical reason for retirement. The Defendant excluded the non-deductible amount from deductible expenses; ② the portion not paid at the time of exporting the goods as entertainment expenses; ③ the non-deductible amount from deductible expenses as entertainment expenses; ③ the Plaintiff imposed corporate tax of KRW 797,185,302 on the Plaintiff on February 1, 2017 (hereinafter “instant disposition”).

D. On April 28, 2017, the Plaintiff filed an administrative appeal with the Tax Tribunal on the grounds (i). On December 19, 2017, the Tax Tribunal dismissed the Plaintiff’s claim (i) as to KRW 722,484,263 (= KRW 797,185,302 – KRW 74,701,039) remaining after reducing the amount of KRW 74,701,039 from the disposition of the instant case by including the amount of labeling on the grounds (i) in deductible expenses.

E. The Plaintiff’s lawsuit in the instant case pertains only to KRW 617,386,882 of the relevant tax amount, which was performed by excluding the interim settlement of the retirement pay in deductible expenses among the instant disposition.

[Ground of recognition] Unsatisfy, Gap evidence Nos. 1-3, Eul evidence No. 1

Each entry, the whole purport of the pleading; hereinafter the same shall apply)

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

ParkA, ParkB, on June 28, 2015, intended to convert wages into an annual salary system and not receive a retirement allowance in the future. Accordingly, the Plaintiff completed the interim settlement of the retirement allowance by paying ParkA and ParkB a retirement allowance of KRW 2,873,456,287 in accordance with the retirement allowance payment rules for officers. Therefore, the disposition denying the retirement allowance should be included in the calculation of losses, but the disposition of this case was unlawful.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

(c) Fact of recognition;

1) Status of ParkA and ParkB

The Plaintiff is a company that was established by ParkA by converting the Plaintiff into a private entity, and ParkB is working as a representative director or a representative director up to the date of establishment of the Plaintiff, and ParkB is a shareholder of ParkB from March 31, 2006 to the date of March 2015, and was appointed as the Plaintiff’s internal director on March 21, 2017.

(ii) details of changes in the salaries of ParkA and ParkB;

A) On February 4, 2008, the Plaintiff held a temporary general meeting of shareholders to determine the amount of remuneration for directors and auditors in 2008. The Plaintiff decided to pay 12,00,000 won for monthly remuneration for the 2008 representative director, 144,000,000 won for annual remuneration, 9,16,671 won for the monthly remuneration for directors Park K and Audit and Inspection, and 110,000 won for annual remuneration, respectively, and to pay 12,00,000 won for the same manner as the method of payment for employees.

B) From July 2015, the Plaintiff: (a) held a temporary general meeting of shareholders on June 29, 2015; (b) decided that the representative director’s remuneration shall be KRW 240,000,000 per year; and (c) the auditor’s remuneration shall be KRW 200,000 per year; and (d) on March 31, 2017, the regular general meeting of shareholders held on March 31, 2017, the amount of annual remuneration of Park Jong-A’s representative director’s annual remuneration shall be KRW 3,00,000,000; and (e) the annual remuneration of 2,70,000,000,000.

C) A withholding receipt for wage and salary income prepared by the Plaintiff, and a detailed statement of wage and salary income payment (No. 9)

According to the AA’s total benefits in 2016 are KRW 1,200,00,000, the total benefits in 2017 are KRW 3,00,000,000, and the total benefits in 2016 are KRW 2,762,963,408, and the total benefits in 2016 are KRW 2,762,963,408,00,000.

D) The Plaintiff, ParkA, and ParkB did not separately prepare an annual salary contract, and on June 29, 2015, the details of the resolution of the general meeting of shareholders were to substitute the annual salary contract from the temporary general meeting of shareholders to the annual salary contract.

3) The interim settlement process of retirement pay

A) On March 31, 2011, the Plaintiff: (a) held a regular general meeting of shareholders to establish a provision on the payment of retirement allowances for executive officers in accordance with the articles of incorporation; (b) Article 3 of the same Act provides that “retirement allowances for executive officers shall be calculated as average wages for three months before the date on which the grounds for the payment thereof accrue; (c) multiplied by the standard rate of payment of retirement allowances and the number of years of continuous service as specified in attached Table 1; and (d)

B) The Plaintiff’s written application for interim settlement of retirement pay between ParkA and ParkB prepared as of June 28, 2015

(Evidence A No. 4) provides that "I, from July 1, 2015 to annual salary system, I will apply for interim adjustment of retirement pay on condition that I will not receive retirement pay in the future."

C) On December 24, 2015, the Plaintiff borrowed KRW 3 billion from ○○, Inc., Ltd., and paid KRW 2,873,456,287 to ParkA and ParkB in total as retirement allowances for interim settlement.

4) Plaintiff’s financial status, etc.

A) In around 2009, the Plaintiff: (a) around 2009, when an on-site employee retired from office, the Plaintiff paid the entire general employees’ wages as annual salary system; (b) from that moment, the Plaintiff prepared an annual salary contract and paid the corresponding wages.

B) The net income per business year of the Plaintiff is as listed in the following table (no data can be recognized as non-existent);

5) Contents of the statement of the person concerned

A) At the time of the tax investigation conducted on December 29, 2016, KimD, working as the Plaintiff’s financial director, was serving in the financial team from October 2000, and the Plaintiff paid the annual salary system since 2009, and the employee prepared annual salary contract every year, but the officer stated that he/she paid the annual salary according to his/her business performance without preparing the annual salary contract.

B) At the time of the tax investigation conducted on December 8, 2016, KimP, who works as the head of the general affairs department, stated that the Plaintiff implemented the annual salary system for all employees from 2009, and the total annual salary is determined according to the highest management’s decision, instead of preparing an annual salary contract for an officer, and that the amount of salary is paid when the employee was promoted to an officer from the staff.

C) Meanwhile, on July 2, 2018, after the instant lawsuit was filed, KimP stated that, although its financial director was a financial director, the Plaintiff, at the time of the tax investigation, did not intervene in the payment of benefits and did not change the payment of benefits into the annual salary system into the annual salary system, it was limited to employees and that all executives were not converted into the annual salary system. The KimD stated that, at the time of the tax investigation on July 13, 2018, the matters concerning the remuneration of executive officers was not the personnel management team, but did not know of the details about the officer’s payment system or the implementation of the annual salary system, etc., and that the executive did not reply to the time of changing the annual salary system (Evidence A 10).

[Reasons for Recognition] A without dispute, Gap evidence Nos. 2-11, Eul evidence Nos. 2-5, 8, and 9, the purport of the whole pleadings

D. Determination

1) Article 44(1) and (2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26068, Feb. 3, 2015; hereinafter the same) provides that “The retirement benefits that a corporation pays to an executive officer shall be included in the calculation of losses only when the executive officer actually retires. The actual retirement benefits include any of the following cases where the corporation actually paid the retirement benefits.” Article 44(1) and (2) provides that “Where the retirement benefits are calculated and paid by settling accounts for the retirement benefits of an executive officer of the corporation under the condition that the retirement benefits will not be paid in the future by converting the corporation

2) In the instant case, the Plaintiff’s interim settlement of accounts made to Park Jong and ParkB on the ground of “actual retirement benefits” under the above Enforcement Decree, namely, whether the Plaintiff constitutes retirement benefits calculated on the ground that the Plaintiff did not pay an annual salary system for its officers until the business year, under the condition that the Plaintiff would not pay an annual salary system, the following circumstances, namely, ① the annual salary system was established on the basis of the level of achievement of goals for the employees’ achievements, and the Plaintiff’s annual salary system was established on the basis of annual salary system in 209, and it was difficult to find a substantial reason to view that the Plaintiff’s annual salary system would vary from the 200-year annual salary system to the 20-year annual salary system, and that the amount of the Plaintiff’s annual salary system would vary from the 20-year annual salary system to the 20-year annual salary system, and that the amount of the Plaintiff’s annual salary system would not vary from the 20-year annual salary system to the 20-year annual salary system.

3. Conclusion

The plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.