Suwon District Court-2016-Guhap64655 ( November 28, 2017)

In principle, the price for services provided by attorneys-at-law of a law firm shall be regarded as the revenue of the law firm unless there are special circumstances.

Although internally, the case was independently accepted and employed by the so-called separate accounting method, it is nothing more than that agreed as to the distribution of economic benefits arising from the practice of an attorney-at-law handled by a partner attorney.

Article 39 (Secondary Tax Liability of Investors)

2018Nu32493 Revocation of Disposition of Imposing Corporate Tax, etc.

O

O Head of tax office

Suwon District Court Decision 2016Guhap64655 Decided November 28, 2017

July 23, 2018

October 24, 2018

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance court is revoked. The defendant revoked the disposition of imposition of KRW 32,858,120 for corporate tax of 2010 for the plaintiff on July 28, 2015, corporate tax of KRW 1,000,300,270 for the year 2011, value-added tax of KRW 15,50,160 for the year 2010, value-added tax of KRW 493,317,980 for the year 201, value-added tax of KRW 1,351,659,540 for the year 201, and earned income tax of KRW 65,220,920 for the year 20, and imposition of KRW 58,100 for the year 2017 for the plaintiff on April 30, 2017, respectively.

1. Details of the disposition;

A. “OO of a law firm (hereinafter “instant legal entity”) is a legal entity established on September 13, 2002 for the purpose of carrying out the duties, etc. of an attorney-at-law. At the time of the establishment of the instant legal entity, its members attorneys-at-law were both the Plaintiff and KimO, OO, OO, and Kim XX. The Plaintiff continued to serve as a member attorney-at-law of the instant legal entity and retired from the instant legal entity on June 30, 2015. (B) the OO airfield and the neighboring residents of the airfield and the Republic of Korea (hereinafter “the instant legal entity”).

C. On December 29, 2010, the instant lawsuit for damages became final and conclusive on January 20, 201 (O airfield-related lawsuit) and on January 20, 201, respectively. Accordingly, the Republic of Korea deposited 18,071,454,120 won (i.e., compensation related to O airfield-related damages + 624,484,810 won + 17,168,70 won + 30,681,430 won in reimbursement of litigation costs related to O airfield-related litigation costs + 247,578,320 won in the name of the UO bank in the title of the instant lawsuit from March 11, 2011 to July 6, 2012.

D. The Defendant: (a) deemed that the instant corporation omitted the amount of KRW 4,012,952,227 (hereinafter “instant fees, etc.”) that was not paid to residents from the amount of damages as stated in the foregoing Section (c) from the amount of income; (b) on May 2, 2014, the Defendant imposed corporate tax of KRW 32,858,120 for the instant corporation; (c) KRW 1,000,300,270 for the corporate tax of 2011; and (d) value-added tax of KRW 19,50,160 for the second year of 2010 for value-added tax of KRW 501,717,980 for the first year of 2011 for the inclusion of the omitted amount of income in its gross income; and (c) notified the change in the amount of income that was disposed of as bonus to the corporation, the person to whom the income belongs, as a bonus.

E. The Defendant imposed KRW 50,000,000 on the instant corporation, respectively, on April 3, 2015, when the instant corporation received the notice of change in the amount of income under the foregoing paragraph, and did not submit a payment statement of earned income by the deadline prescribed in Article 164 of the Income Tax Act, without paying the income tax withheld therefrom. On the other hand, the Defendant imposed KRW 1,351,659,540 on the instant corporation in 201, and KRW 65,220,920 on the earned income tax in 2012. On September 25, 2015, the Defendant imposed KRW 50,000 on the corporate tax (additional tax submitted) in 2014.

F. In all or part of the corporate tax imposed by the corporation as above, the defendant designated the plaintiff who was a member attorney at the time of establishing the liability for tax payment as the second taxpayer and imposed corporate tax, etc. as stated below (the part concerning the amount in arrears in the disposition of tax imposition as stated in paragraphs 1 through 6 above is referred to as "the first disposition in this case", and Serial 7 is referred to as "the second disposition in this case").

G. The Plaintiff was dissatisfied with the instant disposition No. 1 and filed an appeal with the Tax Tribunal on September 2, 2015, but the Tax Tribunal dismissed the Plaintiff’s appeal on March 15, 2016. Meanwhile, the Plaintiff was dissatisfied with the instant disposition No. 2 and was not notified of the decision to the Tax Tribunal on June 9, 2017.

[Ground of recognition] Facts without dispute, Gap evidence 1, Gap evidence 2-7 through 12, Gap evidence 6, 39, 40, Eul evidence 1-1, 2, Eul evidence 2, 3, 4 and the purport of the whole pleadings

2. Whether the instant disposition is lawful

The reason why this Court is used for this part is as follows: (a) and (2) and (3) and (4) of the reasoning of the judgment of the court of first instance except for adding the following judgments to the pertinent part as to the contents asserted by the plaintiff in the trial; and (b) therefore, it is acceptable in accordance with Article 8(2) of the Administrative Litigation Act and the text of Article 420 of the Civil Procedure Act.

【Additional Judgment Matters】

A. The plaintiff's assertion

1) The instant legal entity had a branch office operated by the Plaintiff and BB branch and AA branch office operated by the Plaintiff in addition to the O principal office. The O principal office and BB branch and AA branch were operated not only by accounting but also by an independent accounting system ( separate accounting system) in which personnel and other services are separately and separately operated. The instant disposition is related to the fees incurred after an OO, which operated AA branch as separate accounting system, independently proceeds from the instant lawsuit for damages, and thus, the Plaintiff, who is a separate business entity, is not liable to pay taxes in arrears. Accordingly, the instant disposition that the Defendant imposed the amount of delinquent taxes, etc. on the Plaintiff on the ground of the instant legal entity’s delinquency is unlawful as it violates the principle of substantial taxation.

2) Even if the instant fee, etc. ought to be viewed as the corporation’s profit, considering various circumstances, such as the background, motive, form, and amount of the instant fee, etc. paid to the ChoO, the instant fee, etc. ought to be deemed not to be a bonus from the ChoO, but to constitute the expenses under Article 19(2) of the Corporate Tax Act.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

1) At the time of establishment on September 13, 2002, the instant corporation established a principal office in OO-dong 707-3, an OO-dong 1706-3, and established a branch office in AA-dong 1706-3. On December 8, 2003, a corporation established a branch office in O-dong 448, O-dong 448, while closing the said branch office on June 28, 2004.

2) The instant legal entity operated the so-called separate accounting system, such as where its principal office and branch offices independently accept cases, employ employees, and open and manage passbooks in the name of the instant legal entity. The AA branch has been operated by MO, and BB branch has been operated by the Plaintiff.

3) On June 28, 2010, the instant legal entity dismissed the KOO from its representative attorney-at-law, and around July 31, 2010, AA branch was closed, and the KO completed its business registration with the trade name "OOO of the law office" on August 5, 2010. The KO was withdrawn from the instant legal entity on March 28, 201 and registered on April 12, 201.

4) From March 11, 2011 to July 18, 2012, the instant corporation remitted the instant fees, etc. to a bank account in the name of MaO or MaO, an employee of MaO or MaO.

[Ground of recognition] Facts without dispute, Gap 1, 6 evidence, Eul 1-1, 2-1, and the purport of the whole pleadings

D. Determination

1) Determination on the first argument

In full view of the following circumstances, which can be acknowledged by adding the aforementioned facts and the purport of the entire argument in the relevant Acts and subordinate statutes, the instant fee, etc. cannot be deemed as violating the principle of substantial taxation by deeming the instant fee, etc. as the income of the corporation. The Plaintiff’s first argument is unacceptable.

Article 52 (1) of the Attorney-at-Law Act prohibits a partner of a law firm from performing his/her duties in his/her own account or on the account of a third party.

Although each office of the instant legal entity was operated by the so-called separate accounting method, such as accepting cases independently and employing employees, it is merely an agreement with respect to the distribution of economic benefits arising from the practice of an attorney-at-law handled by a partner attorney-at-law, and the right to a litigation delegation contract, etc. cannot be deemed as falling under the legal category of a member attorney-at-law.

In principle, the price for the service provided by an attorney-at-law who is a partner of the law firm shall be deemed the revenue of the law firm, barring special circumstances. Therefore, the instant fee, etc. ought to be deemed the revenue of the legal entity of this case, which was an attorney-at-law in the instant lawsuit for damages claim. In the instant lawsuit for damages claim, there is no special circumstance to deem that the instant legal entity is a nominal owner of the instant transaction, such as entering into a contract of delegation

In light of the fact that the instant legal entity’s dismissal of the KO as the representative attorney around June 2010, the AA branch was closed around July 2010, and the KO opened and operated an individual office from around August 2010, as seen earlier. However, even if the instant legal entity maintained its legal representative status until the judgment on the claim for damages became final and conclusive, the instant legal entity maintained the pertinent legal representative status and ordered the payment of damages, etc. in the said judgment, and the instant legal entity’s payment of the instant fees, etc. to KO may be deemed to have been paid as compensation for its performance of its duties. In light of the fact that the instant legal entity’s payment of the instant fees, etc. to KO cannot be deemed to have violated the principle of substantial taxation on the sole basis

2) Determination on the second argument

In full view of all the circumstances as seen earlier, including the facts and the overall purport of the arguments, the instant case’s fee, etc. paid by the instant corporation to ChoO cannot be deemed as falling under the expense under Article 19(2) of the Corporate Tax Act. The Plaintiff’s assertion on this part cannot be accepted.

As seen earlier, the instant legal entity dismissed the KO as a representative attorney around June 2010, and around July 2010, the AA branch was closed, and the KO opened and operated an individual office from around August 2010. However, it cannot be deemed that the KOO immediately lost its status as a member of the instant legal entity on the ground that the KOO retired from the instant legal entity on March 28, 2011, and the KOO maintained its status as a member of the instant legal entity until the judgment on the instant claim for damages became final and conclusive.

In light of the fact that the instant fee, etc. falls under the deductible expenses (expenses) stipulated in Article 19(2) of the Corporate Tax Act and becomes subject to deduction, if it is deemed that it can be deducted as deductible expenses, and the bonus paid by the corporation to its officers can be deducted as deductible expenses within a certain scope, etc., it is not possible to discuss whether the amount paid by the instant corporation to the ChoO constitutes bonus (or whether disposal of income can be made as bonus pursuant to Article 67 of the Corporate Tax Act) and whether the amount falls under deductible expenses (expenses) stipulated in Article 19(2) of the Corporate Tax Act. Accordingly, this part of the Plaintiff’s assertion that the instant fee, etc. falls under the expenses, not bonus, is difficult to accept in itself.

When a tax assessment is conducted on the omitted income by the on-site investigation decision, barring any evidence to deem that there was a separate expense corresponding to the omitted income, the total amount of such income should be added to the amount of income, and the cost corresponding to the omitted income has also been reported or omitted, a taxpayer who seeks a separate deduction shall assert and prove it (see Supreme Court Decision 2010Du28076, Apr. 28, 201).

In this case, as seen earlier, the Defendant: (a) deemed that the instant corporation omitted fees, etc. were omitted from the amount of income; and (b) accordingly, as to the fact that the expenses corresponding to the omitted amount were omitted in the report, the Plaintiff seeking deduction must assert and prove that the expenses were omitted. Meanwhile, Article 19(4) of the Corporate Tax Act provides that “the necessary matters concerning the scope and classification of losses under the provisions of paragraphs (1) through (3) shall be prescribed by Presidential Decree; and (b) Article 43(2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26981, Feb. 12, 2016) provides that “if the amount exceeds the amount paid by the articles of incorporation, the general meeting of shareholders, the general meeting of partners, or the board of directors’ meeting of directors, among bonuses paid to the executives of the instant corporation, such excess amount shall not be included in the calculation of losses.” Therefore, this case’s fees, etc. paid to ChoO shall not exceed the standard of benefits determined by the articles of incorporation’s.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and the judgment of the court of first instance is unfair with some different conclusions (the part of the disposition of this case No. 2 is also subject to appeal litigation, and therefore, it cannot be deemed that the part of the disposition of this case concerning the disposition of the above additional dues is illegal). However, in the case of this case where only the plaintiff appealed against the plaintiff, who is the appellant under the principle of prohibition of disadvantageous alteration, it cannot be ruled to dismiss the appeal against the plaintiff. Thus, the plaintiff's appeal is dismissed only, and it is so decided as per Disposition.