Cho High Court Decision 2015Du4627 (O6.29)

A disposition to apply an unfair underreporting penalty tax by deeming an underreporting act as a fraudulent act with false data, etc. in a disguised direct export transaction is legitimate.

As long as value-added tax was underreporting by means of filing a tax return with false evidentiary data, it is difficult to view that there was no awareness of the country’s reduction of tax revenue, and thus, it is legitimate to apply an unfair underreporting penalty tax by deeming it as a fraudulent act.

Article 26-2 of the Framework Act on National Taxes and Article 45-3 of the former Inheritance Tax and Gift Tax Act

2018Guhap7586 Revocation of Disposition of Imposition of Additional Tax

AAAAA Rouritius, Inc.

CC director of the tax office

April 12, 2019

May 17, 2019

1. All of the plaintiff's claims are dismissed.

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

Cheong-gu Office

The imposition of additional tax for unfair underreporting of value-added tax on May 4, 2015 by the Defendant on the Plaintiff shall be revoked in all the parts exceeding each tax amount stated in the “political tax amount” column.

1. Details of the disposition;

A. The Plaintiff is a corporation established on October 12, 2010 for the purpose of trade business, manufacture and sale of clothing, and engaged in the business of producing raw materials necessary for the manufacture of clothing and exporting it to a foreign country. DDR (hereinafter “DD”) is a corporation established on January 5, 1994 for the purpose of trade business, manufacture and sale of clothing, etc., and supplied raw materials from the Plaintiff and produced clothing, and then exported them.

B. From January 7, 2015 to March 23, 2015, the Seoul Regional Tax Office determined that the Plaintiff’s results of the integrated investigation of corporate tax on Plaintiff and DD, and that the Plaintiff was directly exported to Indonesia corporation PET (hereinafter “PET”), despite having supplied original parts to DD, and that the transaction relationship was disguised. Accordingly, on April 1, 2015, the Seoul Regional Tax Office notified the Plaintiff of the imposition of additional tax for the aggregate of KRW 1 of the former Value-Added Tax Act (Amended by Act No. 12851, Dec. 23, 2014); Article 31(2)1 of the Enforcement Decree of the former Value-Added Tax Act (Amended by Presidential Decree No. 25945, Dec. 30, 2014); Article 31(1)1 of the Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 25945, Dec. 30, 2014; Presidential Decree No. 214015).

C. On May 4, 2015, the Defendant issued a correction and notification of the corporate tax and value-added tax as indicated in the following table to the Plaintiff on the basis of the foregoing taxation data. The penalty tax for unlawful underreporting by taxation period is as stated in the column of “tax amount for notice” in attached Table 1 (hereinafter “instant disposition”).

(unit: won)

Items of Taxation

Business year (Taxable Period)

Notice Tax Amount

Corporate Tax

(including additional tax)

2012

15,445,360

2013

159,896,200

Value-added Tax

(including additional tax)

1, 2012

6,468,600

(This tax: 3,399,164)

2012

1,361,340,960

(This tax:736,736,101)

1, 2013

1,508,125,060

(Main Tax:840,883,783)

2, 2013

1,032,164,210

(This tax: 593,77,950)

1, 2014

288,146,430

(This tax: 171,108,336)

D. On July 30, 2015, the Plaintiff filed an appeal with the Tax Tribunal on July 30, 2015, but the Tax Tribunal dismissed the appeal on June 29, 2018.

[Reasons for Recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1 to 3 (including branch numbers; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

1) The Plaintiff entered into a supply contract with the PET and supplied the original unit to the PET in fact, and thereafter, the PET again supplied the original unit to DD (hereinafter referred to as “the instant transaction”). In disregarding such transaction structure, the Plaintiff cannot be deemed to have supplied the original unit directly to DD without disregarding such transaction structure. Therefore, the instant disposition based on the Plaintiff’s violation of the duty to issue the tax invoice under the Value-Added Tax Act (hereinafter referred to as “the instant disposition”) on the ground that the Plaintiff directly supplied the original unit to DD and that the Plaintiff violated the duty to issue the tax invoice under the Value-Added Tax Act.

(2) Since the Plaintiff cannot be deemed to have committed “Fraud or other unlawful act (hereinafter “unlawful act”) in the course of the instant transaction, the instant disposition that applied 40% of the unfair under-reported additional tax rate is unlawful (hereinafter “instant second assertion”), or relevant statutes.”

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

(c) Fact of recognition;

The following facts shall be acknowledged, either in dispute between the parties or in full view of Gap evidence of Nos. 3, 4, 15, and Eul evidence of No. 2 through 14 and the purport of all pleadings:

1) The relationship between the Plaintiff and D and PET, etc.

A) The Plaintiff’s joint representative director is KimB and MaF, and the Plaintiff’s shareholders from 2012 to 2013 were the relatives of KimB as shown in the following table. D’s joint representative director is KimB, Park GG, and D’s shareholders are KimB (60% of their equity ratio), KimB (60% of their equity ratio) and Kim H(40% of their KimB). KimB from 2010 to 2010 has overall control over all business affairs of the Plaintiff and D’s actual representative.

Stockholders

Relation

Number of Stocks

Ratio of Shares

○ Kim

KimB's Children

57,300 Shares

25%

○ Kim

KimB's Children

57,300 Shares

25%

○ Kim

KimB Mak

57,300 Shares

25%

○ Kim

KimB Mak

45,840 Shares

20%

○ ○

KimB Mak

11,460 Shares

5%

B) PET was established in Indonesia around May 2012, PET was established as Indonesia, the head of PET’s corporate entity shall be instructed by KimB in connection with the establishment of the PET, and the actual owner and operator of the PET shall be KimB.

2) The transaction process of the instant case and relevant criminal case judgment, etc.

A) Until June 2012, the Plaintiff sold the original unit directly to DD, but entered into a supply contract with PET and original supply contract from June 30, 2012 with KimB’s instructions. PTPPE entered into an original supply contract with DD to supply the original unit supplied by the Plaintiff to DD.

B) Based on the above original supply contract, the Plaintiff reported to the Defendant from January 2012 to January 2014 that the Plaintiff directly exported the original body to PET, but the original body was delivered to D immediately without going through PET.

C) The Director of the Seoul Regional Tax Office accused the Plaintiff, KimB, and D (hereinafter referred to as the “Plaintiff, etc.”) as a suspicion of violating the duty to issue the tax invoices under Article 10(1)1 and Article 10(2)1 of the Punishment of Tax Evaders Act.

D) On November 15, 2016, the Seoul Central District Court recognized all the facts charged including the violation of the Punishment of Tax Evaders related to the PTS E-related Punishment Act, and sentenced KimB to the suspended sentence of ten months, and sentenced the Plaintiff and DD to a fine of KRW 500 million (2016 Height546).

Punishment of the crime

o KimB

KimB, in order to avoid the taxation of gift tax on the PET established and operated by KimB in Indonesia, was in fact the Plaintiff directly sold the PET to DD, but the Plaintiff exported the original part to PET, and it was believed that DD imports the original part from PET.

In fact, around June 30, 2012, KimB sold to DD a supply price of KRW 33,941,549 directly, while the Plaintiff had to issue a tax invoice to DD, the Plaintiff did not issue a tax invoice equivalent to the same amount to DD by way of a disguised transaction as the Plaintiff exported the above original unit to PET and again imported the said original unit from PET, and DD did not issue a tax invoice equivalent to the same amount.

KimB, including this, from that time until May 16, 2014, the sum of supply values of KRW 23,386,473,321 in total from that time to that of May 16, 2014 was not issued by the Plaintiff, but the Plaintiff did not issue a tax invoice from the Plaintiff.

o Plaintiff

KimB, the representative director of the plaintiff, did not issue a tax invoice to D in relation to the plaintiff's business as above.

o D

The KimB, the representative director of DD, did not receive a tax invoice from the Plaintiff on the business of D.

E) The plaintiff et al. appealed 20 XX. XX. However, the appellate court (Seoul Central District Court)

20XX노XXXX)은 아래와 같은 이유로 '원고는 DD에게 실제로 재화를 공급한 자로서 세금계산서를 작성하여 발급할 의무가 있는 자에 해당하고, 원고 등 역시 원고가 실제 원단을 공급하는 상대방은 PT EE이 아니라 DD이라고 인식하였으므로 원고 등에게 조세범처벌법위반의 범의도 충분히 인정할 수 있다'고 판단하여 20XX. X. XX. 원고 등의 항소를 기각하였다. 원고 등은 20XX. X. XX. 상고(대법원 20XX도XXXX)를 제기하였으나, 20XX. XX. XX. 상고기각 판결이 선고됨으로써 위 판결은 확정되었다.

Judgment

① From 2010 to 2010, KimB has overall control over all business affairs of each company as the representative director of both the Plaintiff and D.

② Comprehensively taking into account the fact that the source of the PET E E is KimB, that the head of the PET E E EE’s corporate establishment was approved by DD in relation to the establishment of the PET, and that the KimB reported the funds log of the PET to the KimB by June 2014, and received an annual operational plan and operation order from KimB, that the shareholder of the PETE was changed from ○○○○ 97.5%, ○○○ 5%, from ○○○ 55%, and from ○○ 55%, from ○○○○ 55%, and from ○○ 45%, the children of the KimB teachingco.

③ From June 2012, the Plaintiff sold the original unit directly to DD, but entered into a supply contract with TPP EE in June 2012 with KimB’s instructions, and PTPP E entered into a supply contract with the original unit with the content of supplying the original unit to DD.

④ At the time of the instant crime, PET failed to meet the conditions for performing a series of business affairs imported from the Plaintiff and exported to DD, and thus, the Plaintiff was in charge of all the duties, including ordering, customs and export of the PET, and settlement of the price.

⑤ At the time of the instant crime, the Plaintiff stated to the effect that “○○○, in comparison with the Plaintiff’s direct transaction with DD, did not significantly change the work at the time of the instant case.”

6. KimB had a significant amount of gift tax reduction and sales performance of PET due to the instant trade structure.

F) Meanwhile, on May 1, 2015, the director of the Seoul Regional Tax Office imposed a sum of KRW 76,856,32 on the Plaintiff’s shareholders, who are relatives of KimB in relation to the disguised export transaction of the Plaintiff, etc. on May 1, 2015, the sum of the gift tax (including additional tax) on the Plaintiff’s gift on the ground of the Plaintiff’s donation of profits through transaction with the specially related juristic person (i.e., Kim○○ 20,890,093 + KRW 20,890,093 + KRW 20,890,093 + Kim○○○○ 20,890,093 + KRW 12,828,050 + KRW ○○○,358,003).

C. Determination

1) Determination as to the allegation No. 1 of this case

A) The Plaintiff was convicted of having supplied DD with a total sum of supply values of KRW 23,386,473,321, in fact from June 30, 2012 to May 16, 2014 on the ground that the Plaintiff was not issued a tax invoice equivalent to the above supply value due to the fact that DD exported the original unit to PET, and as DD imported the original unit from PET, and that it did not issue a tax invoice equivalent to the above supply value, and that the judgment became final and conclusive.

B) In the relevant criminal trial that became final and conclusive as above, the actual party to the instant transaction cannot reject such fact-finding unless there are special circumstances, and readily recognize the Plaintiff’s assertion opposed thereto in the administrative litigation (see, e.g., Supreme Court Decisions 96Da9621, May 28, 1996; 98Du10424, Nov. 26, 199). However, it is insufficient to reject the fact-finding in the said criminal trial solely on the basis of each description of evidence Nos. 5 through 14 submitted by the Plaintiff.

C) Therefore, this part of the Plaintiff’s assertion on the premise that the transaction partner is the Plaintiff and PET, PET and D is without merit.

2) Determination as to the second argument of this case

A) Article 47-3(2) of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014; hereinafter the same) provides for the imposition and collection of penalty taxes in cases of underreporting by unlawful means to induce a person liable for duty payment to faithfully file a tax base by imposing penalty tax at a significantly higher rate than for general underreporting that is not caused by unlawful means, since it is impossible or considerably difficult to impose and collect taxes, in cases where all or part of the facts that serve as the basis for calculating the tax base or the amount of national tax are concealed or pretended to be concealed or concealed. Therefore, the term “unlawful act” under the former Framework Act refers to a deceptive scheme or other active act that makes it impossible or considerably difficult to impose and collect taxes, and it does not constitute merely failure to file a tax return under the tax law or filing a false tax return without accompanying any other act. However, in cases where active concealment intent, such as failure to file a tax return or underreporting, revenue, sales, etc., appears difficult to impose or collect taxes (see, 2015).

In such a case, whether active concealment intention can be objectively revealed should be determined based on whether the basic book stating import or sale was falsely prepared, as well as on whether the method of determining the relevant tax is a tax return method or a tax imposition method, the developments leading to a failure to file a return or a false return, etc. and degree different from facts; the specific details of the false matters in the case of a false report; and the method that pretends to be false in the case of a false report; and the function of the document related to the calculation of the tax base if a false document is submitted, etc. (see, e.g., Supreme Court Decision 2013Do13829, Feb. 21, 2014).

B) In light of the aforementioned legal principles, in light of the relationship and type of operation between the parties to the instant transaction, the purpose, background and mode of the instant transaction, and the process of movement of real goods, etc., which can be known based on the facts acknowledged earlier and the purport of the entire pleadings, it is reasonable to view that the Plaintiff’s disguised act of the instant transaction with DD through direct export transaction between the Plaintiff and PETE through active concealment, etc., constitutes an act that makes it impossible or considerably difficult for the Plaintiff to impose and collect the Defendant’s tax by means of active concealment. Therefore, the instant disposition that applied the unfair underreporting penalty tax by deeming the Plaintiff’s act as “unlawful act”

① In fact, the PET was established, directed and controlled by the Plaintiff and KimB, the representative of DD, and his will.

② The Plaintiff entered into a false original supply contract with the PET in accordance with the direction of KimB, and the Plaintiff’s employees performed all of the instant trade-related business activities on behalf of the PET, and operated all export-related documents as if they were directly prepared by the PET. In the instant transaction, the PTPP E does not actually have any effect on the part of the Plaintiff.

③ Although the Plaintiff supplied the original unit directly to D, the Plaintiff falsely forged the appearance of the instant transaction in direct export transaction between the Plaintiff and PET, and accordingly omitted the output tax amount equivalent to the total amount of KRW 2,345,905,334 (the total amount of the principal tax of value-added tax for each taxable period) at the time of filing and paying the value-added tax. The Plaintiff also omitted the total amount of KRW 175,341,560 (including the total amount of corporate tax (including additional tax) for each business year).

④ The reason why KimB conducted a disguised export transaction between the Plaintiff and the Plaintiff for the instant transaction appears to have been aimed at evading gift tax pursuant to Article 45-3 of the former Inheritance Tax and Gift Tax (amended by Act No. 11609, Jan. 1, 2013) arising from direct transaction between the Plaintiff and DD, as well as at the time of the instant transaction. As seen earlier, KimB-friendly relatives of KimB-related relationship were imposed KRW 76,856,32 in total (including additional tax) on the Plaintiff’s shareholders. Accordingly, the Plaintiff asserted to the effect that KimB-B did not avoid gift tax due to the so-called sunset only in some taxable periods, but this cannot be accepted as a assertion that there was a violation of criminal facts against KimB-B recognized in the criminal final judgment as seen earlier.

⑤ Meanwhile, in the past, the original supply transaction between the Plaintiff and D is the form that the Plaintiff supplied to D, an exporter, the raw materials for foreign exchange earnings, and was in the structure that is subject to zero tax rate through a purchase confirmation, and it is recognized that the Plaintiff is currently receiving zero tax rate while engaging in direct supply transaction with DD. Based on the above circumstances, the Plaintiff asserts to the purport that even if there was a direct supply transaction between the Plaintiff and D during the taxable period of the instant disposition, this is a transaction that can be applied to zero tax rate, and at least, there is no problem such as reduction of tax revenues in the value-added tax portion.

However, the instant disposition is based on the premise that, even if the Plaintiff was not a direct export transaction to which zero tax is applied, the Plaintiff filed a false return of the output tax amount of value-added tax during each taxable period by means of a direct export transaction. Accordingly, as alleged by the Plaintiff, it is difficult to deem that the Plaintiff had had the possibility of being subject to zero-rate tax through a purchase confirmation, and even if the Plaintiff did not choose such a transaction structure, the tax revenue reduction in the value-added tax was not generated

(6) Although the Plaintiff asserted that it did not recognize the reduction of national tax revenue in the course of the instant transaction, insofar as the value-added tax was a tax on the method of filing a return, and was falsely and under-reported by the Plaintiff with false evidentiary data, it seems that the Defendant would have significantly impeded the Defendant’s legitimate exercise of the right to impose taxes. It is difficult to deem that the Plaintiff did not have awareness of the reduction of national tax revenue in the course of such act

7) The circumstances that the Plaintiff, etc. was indicted and punished only for a violation of the Punishment of Tax Evaders Act or the Punishment of Tax Evaders Act, which was not a tax evasion, do not interfere with the Plaintiff’s act of making the imposition and collection of taxes impossible or remarkably difficult, thereby leading the Plaintiff to a disguised export transaction in the instant transaction.

3. Conclusion

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

1) As examined below, the Value-Added Tax Act applicable to each of the instant dispositions differing from each of the instant dispositions in different taxable periods. However, there is no significant difference in legal content to determine the issues of the instant case, and thus, it is arranged based on the Value-Added Tax Act applicable to the last taxable period (1 January 2014).