Seoul Administrative Court 2008Guhap1962 (208.04)

National High Court Decision 2007Du2848 ( October 18, 2007)

Whether the development cost received from a buyer for the purpose of publicity of commercial buildings, etc. falls under the gross income;

The amount of development cost received by a shopping mall seller from a buyer falls under the price for which the plaintiff provided services pursuant to an agreement, and its execution and management are determined by the seller, and the buyer is unable to raise any objection thereto, and the tax invoice for the revenue and expenditure of the development cost is received, and thus, constitutes gross income.

The contents of the decision shall be the same as attached.

Article 15 (Scope of Gross Income)

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked.

The Defendant’s disposition of imposing corporate tax of KRW 622,102,010 against the Plaintiff on April 2, 2007 shall be revoked.

1. The court's explanation concerning the instant case is identical to the statement of the reasons for the judgment of the court of first instance, and thus, citing it as it is in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the

2. If so, the judgment of the first instance is legitimate, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.

[Seoul Administrative Court 2008Guhap1962 (2008.04)]

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposing corporate tax of KRW 622,102,010 against the Plaintiff on April 2, 2007 shall be revoked.

1. Details of the disposition;

A. The Plaintiff was a developer who newly built and sold a main complex building (contest, composed of apartment, officetel, and commercial building; hereinafter referred to as the “instant commercial building”) under the name of “○○○○○○○○○ City on the land outside ○○○○-2, and one parcel of land in Seoul, and entered into a commercial building sales agreement with the buyer of the instant commercial building, and separately entered into a development cost agreement with the buyer of the instant commercial building to receive “development cost” for the purpose of using the advertisement, public relations, and basic interior works, etc. of the instant commercial building for the purpose of using “development cost” (hereinafter referred to as the “instant agreement”) for the business year from 203 to 205.

B. The Plaintiff accounts for the instant development costs received from the buyer in advance, which is the debt account, and accounts for the amount of KRW 592,705,000 paid for the actual development costs by offsetting the amount of KRW 592,70. However, on November 6, 2006 through January 12, 2007, the Defendant conducted a tax investigation with respect to the Plaintiff, and conducted a tax investigation with respect to the instant development costs, and thus, the Plaintiff appropriated the instant development costs for the Plaintiff’s debt as deductible expenses for the business year in which the date of payment falls, and added the amount of under-paid other under-paid income, such as the interest recognized as provisional payment, to the gross income for the business year in which the Plaintiff corrected and notified the amount of KRW 622,102,010 for corporate tax in the business year of 205.

C. On July 3, 2007, the Plaintiff appealed to the National Tax Tribunal, but was dismissed on October 19, 2007.

[Ground of recognition] Gap evidence Nos. 1 through 3, Gap evidence No. 4-1, 2, Eul evidence Nos. 1 and 2, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff only received, stored and managed development expenses from the buyers of the commercial building of this case, and actually used the development expenses of this case is ○○○○ City Co., Ltd. (hereinafter referred to as “non-party Co., Ltd.”). Moreover, the development expenses of this case could be withdrawn only after obtaining approval from ○○ Construction Co., Ltd. (hereinafter referred to as the “non-party Co., Ltd.”) and there was certain restrictions for its use, and the balance of the development expenses was expected to be transferred to the management body after the establishment of the commercial building management body. In other words, the development expenses of this case cannot be deemed as the assets of the buyers of the commercial building of this case, but they cannot be deemed as the Plaintiff’s profit, and thus, the disposition of this case was unlawful.

(b) Related statutes;

(c) Fact of recognition;

1) The Plaintiff, a corporation engaged in the investment, lease, management, sale, and real estate development business with respect to real estate, concluded the instant agreement with the buyers of the instant commercial buildings, and received the instant development cost from the buyers over the business year of 2003-2005. The main contents of the instant agreement are as follows.

2) Since the mid-2004, the Plaintiff had the non-party company, who is in charge of the management of the instant commercial building, determine the details of use, amount, etc. of development expenses, received a written claim for development expenses and a detailed statement from the non-party company, and then paid development expenses to the non-party company. However, the non-party company has the same location as the Plaintiff and the non-party company, which is a person with a special relationship, the representative director of the Plaintiff company, owns the share of 80%.

3) Upon receipt of development costs, the Plaintiff issued a sales tax invoice to the buyer at the request of the non-party company, and issued a tax invoice on the revenue and expenditure amount of the development costs of this case by receiving the purchase tax invoice from the non-party company, and reported and paid value-added tax.

[Ground of recognition] Gap evidence 6 to 8 (including paper numbers), Eul 3 and 4 evidence, the purport of the whole pleadings

C. Determination

In light of the following circumstances revealed in the above facts, i.e., (1) the Plaintiff received the development costs of this case for the provision of services under the Convention; (2) the use, execution, and management of the development costs are required to comply with the decision of the Plaintiff; and (3) the non-party company appears to be a company established by the Plaintiff pursuant to Article 7(4) of the Convention; (4) the person providing services in relation to the buyer is the Plaintiff, and the non-party company is merely providing services under the Convention on behalf of the Plaintiff pursuant to the contract with the Plaintiff; and (4) the Plaintiff issued a tax invoice for the revenue and expenditure of the development costs of this case, and reported and paid value-added tax, the receipt of the development costs of this case is deemed to be the Plaintiff’s profit accrued pursuant to the Convention; and (2) the Plaintiff’s withdrawal of the development costs in relation to the contractor, as argued by the Plaintiff, was restricted, and the balance is expected to be transferred to the management body of the development costs of this case. Accordingly, the Plaintiff’s assertion that the development costs of this case cannot be counted into the Plaintiff’s profits.

3. Conclusion

Therefore, the plaintiff's claim of this case is justified, and it is so decided as per Disposition by the assent of all participating Justices.