Busan High Court Decision 2017 Busan High Court Decision 0590 (No. 28, 2017)

The calculation of processing goodwill shall be subject to the application of wrongful calculation avoidance.

The depreciation costs of the processing business shall be excluded from deductible expenses, and the acquisition contract of the business rights shall constitute an act of unreasonably reducing the tax burden of the corporation's income through transactions with a related party.

Article 52 of the Corporate Tax Act: Denial of Wrongful Calculation

2017Guhap23477 Revocation of Corporate Tax Revision

Medical Corporations, △△ Medical Foundation; and

△△△ Director

2018.05.25

oly 2, 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 disposition of rectification of KRW 27,251,920 as corporate tax for the business year 2015 that was notified to the Plaintiff on December 7, 2016 shall be revoked.

1. Details of the disposition;

A. Details of the establishment of the Plaintiff corporation

1) On April 1, 200, 200 through Busan Metropolitan City Staff-gu 】 as stated 】 】 】 】 】 10 roads (x x x 10). In order to convert this into a medical corporation, on May 18, 2015, the former △△△△△ decided to hold an inaugural general meeting and establish the △△△△△ Foundation Medical Foundation (hereinafter referred to as “Plaintiff”) which is a non-profit medical foundation, and the former △△△△ was elected as the representative of the Plaintiff corporation, and enacted its articles of incorporation.

2) In order to establish the Plaintiff corporation, △△△△, which is equivalent to KRW 9,309,705,120, such as the building, land, machinery, apparatus, movable property, and automobiles in △△ Hospital operated by himself/herself, decided to contribute a total of KRW 9,545,228,542, as ordinary property, to the Plaintiff corporation without compensation. Article 5(3) and (4) and attached Table 1 of the articles of incorporation of the Plaintiff corporation specified the basic property and ordinary property of the Plaintiff corporation as mentioned above.

3) Accordingly, △△△△ concluded a transfer contract between the Plaintiff and the Plaintiff corporation with the following contents (hereinafter “instant transfer contract”).

A) Busan City siba x x x 】 】 10 real estate located in a 10-way 】 all matters on rights on June 1, 2016, and no premium exists.

(b) Details of transfer: ① Transfer of the business operation of the △ Hospital; ② Equipment (integrated with water treatment equipment, clinical equipment, bedrooms, and other medical devices); ③ Incidental facilities and air conditioners; ③ all ancillary facilities, cafeterias, cafeterias, and collection equipment, etc.

C) Implementation Agreements, etc.

(1) The time of transfer shall be October 01, 2015, and shall transfer all the rights to transfer from June 01, 2015.

(2) The transfer value shall be 5,59,705,120 won and shall be in arrears with free donation.

(3) All the employees of the transferor are to succeed to employment by the transferee.

(4) A transferor shall transfer all of the hospital patients and medical records to another transferee.

(5) The transferor shall comprehensively transfer all rights and duties related to the operation of the hospital to the transferee.

4) On June 1, 2015, the head of the private health clinic, the competent authority for the application for the establishment of the Plaintiff’s foundation, deemed that the total amount of the property contributed to the Plaintiff’s fundamental property and ordinary property is KRW 9,545,228,542, and the debt ratio of KRW 4,450,000,00, is 47.79% (based on the maximum amount of bonds) compared to the total amount of fundamental property stipulated in the guidelines for the establishment and operation of the Busan Metropolitan City Medical Corporation. As such, the head of the public health clinic, the competent authority for the establishment of the Plaintiff foundation, determined that the existing hospital established and operated the hospital as a medical corporation and operated the hospital by securing KRW 235,523,42, which contributed to medical income accrued from the operation

B. Follow-up measures after the incorporation of the Plaintiff Corporation

1) On June 2, 2015, 2015, before the incorporation of the Plaintiff corporation, ○○○○○, which is one’s own possession between the Plaintiff corporation and the Plaintiff corporation 】 (3 】 Dong 】 land 】 1,052 】 Dong 】 797 m3,00,000,000 won for the secured debt of the right to collateral security established on the said land and building, and for the facilities attached to the △△ Hospital; however, the Plaintiff entered into a real estate free contribution contract with the content that the Plaintiff corporation takes over KRW 3,750,000,000,000 for the total amount of the deposit for the right to collateral security established on the said land and building.

2) On June 1, 2015, the Plaintiff corporation started operating the Plaintiff corporation, completed the registration of incorporation of the Plaintiff corporation on June 2, 2015, and registered its business in the Seosan Tax Office on June 9, 2015, and the Seosan Medical Care Center closed its business on June 30, 2015.

C. Conclusion of a contract for comprehensive acquisition of business with the former △△ and the Plaintiff corporation

(1) On June 10, 2015, 201, after the opening of the business by the Plaintiff corporation, △△△△, the representative of the Plaintiff corporation, entered into an overall agreement on business takeover between the Plaintiff corporation and the Plaintiff corporation with the following terms and conditions (hereinafter referred to as “instant business takeover agreement”); and (A) the Plaintiff corporation takes over all rights and all obligations regarding the business of the △△ Hospital operated by the △△△△△△△ Hospital; and the date on which the former △△△△△ Hospital entirely transfers its business to the Plaintiff corporation shall be June 10, 2015; the date on which the former △△△△△ Hospital entirely transfers its business shall be 1,00,000,000 won; and the Plaintiff corporation shall pay the sales amount to △△△△△△△.

B) On December 31, 2014, the Plaintiff’s corporation shall evaluate the assets (excluding land and buildings) and liabilities to be acquired as the book value after supervising the balance sheet submitted by the former △△△△△△△△, and evaluate land and buildings according to the supplementary assessment methods under the Inheritance Tax and Gift Tax Act, except in extenuating circumstances.

C) As of the date of business transfer, all transaction partners who are in transactions with the Seocho Long-Term Care Hospital shall ensure that the Plaintiff Company accepts and continues to engage in transactions.

D) In a case where a person retires after acquiring the entire employees of the former △△△△ through new employment, as well as after acquiring the entire employees of the former △△△△, the Plaintiff shall pay the retirement allowance by recognizing the total number of years of service in the previous △△△ business as being employed

2) With respect to the appraisal of goodwill at the time of the acquisition of the instant goodwill, the Plaintiff Company calculated the assessed amount of KRW 1,719,367,00 by cash flow discount Act, KRW 1,170,747,00 by premium analysis method (three months), KRW 440,679,00 by the Compensation Act (based on operating profit) and the assessed amount of KRW 1,016,210,00 by applying the Compensation Act (based on the Standard Monthly Income Standards), and KRW 672,17,00 by applying the method of appraisal of goodwill under the Inheritance and Gift Tax Act, respectively, and finally determined the assessed amount of KRW 1,01,00,386,000 by adding the assessed amount under the Inheritance and Gift Tax Act to the assessed amount under the Inheritance and Gift Tax Act as the assessed amount of the instant goodwill.

3) Meanwhile, in the process of the National Tax Service’s request for review regarding the instant disposition, the Plaintiff corporation requested to vindicate the details of payment of other income from the instant goodwill on June 14, 2016, and submitted an appraisal report appraised by thisA as of June 1, 2015 as KRW 97,970,000 on the instant goodwill.

D. The defendant's corporate tax assessment process against the plaintiff corporation

1) On June 1, 2015, the Plaintiff Company appropriated KRW 1,00,000,000 as an asset to the president of each account for goodwill, and thereafter, on December 31, 2015, included the amount of KRW 116,66,667 per annum for the instant goodwill in KRW 116,66,67, and included KRW 956,00,00 in the president of each account for demand for temporary payment in the name of the representative. In addition, the Plaintiff Company deemed the sales license price of KRW 1,00,000 as the other income of the ○○○○○○○, which is the representative, as the income tax of KRW 44,00,000 and submitted the statement of other income payment.

2) On December 7, 2016, the head of Busan Regional Tax Office notified the Defendant of a resolution on the correction of the corporate tax base and tax amount to the effect that the Plaintiff corporation’s property list, except the instant goodwill, submitted to the Defendant, and obtained permission from the competent authorities, and to include the high amount of sales license in the account book after acquiring the instant high amount of sales license from the Plaintiff corporation established by the competent authorities and the Plaintiff’s representative, the Plaintiff’s former representative, constitutes subject to the denial of wrongful calculation under Article 52 of the Corporate Tax Act.

3) On December 7, 2016, the Defendant issued a notice of correction and notification of corporate tax of KRW 27,251,920 to the Plaintiff corporation for the business year 2015 (hereinafter “instant disposition”) and disposed of KRW 1,00,000,000 as the bonus of △△△△, the representative director, as a bonus of the former △△△△.

4) On January 18, 2017, the Plaintiff Company filed an appeal with the Tax Tribunal on January 18, 2017, but was dismissed on September 28, 2017.

[Ground of recognition] Facts without dispute, Gap evidence 1 through Gap evidence 9, Gap evidence 13, Eul evidence 1 through Eul evidence 9 (including provisional number, hereinafter the same), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

1) The plaintiff corporation's assertion

The previous △△△△△ intended to establish the Plaintiff corporation in the form of business transfer with respect to the care hospital operated by himself. Since it is possible to establish the Plaintiff corporation after having contributed to the basic property, the medical corporation established the Plaintiff corporation, and subsequently, through the instant business license acquisition agreement, allowed the Plaintiff corporation to comprehensively acquire the instant business rights, including all human resources, such as employees and inpatients, claims, and debts. The transfer of such business rights is recognized as a profit-making corporation, and it is difficult to see that the non-profit corporation does not prohibit the transfer of such business rights, and that it is against the purpose of the medical corporation system to recognize a certain degree of rights to the contributors during the process of establishment. Therefore, the instant disposition imposed on deeming the instant business license acquisition agreement as falling under the object of the denial of unfair calculation under Article 52 of the Corporate Tax Act is unlawful, contrary to the principle of no taxation without law, and Article 15 of the Framework Act on National Taxes

2) The defendant's assertion

The instant disposition is lawful, since the instant goodwill is not an asset subject to depreciation as a processed asset for the use of the Plaintiff’s funds, and even if the instant goodwill is not a processed asset, the value of the instant goodwill claimed by the Plaintiff is not assessed in accordance with the appropriate assessment methods.

B. Relevant statutes

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

C. Determination

1) Relevant legal principles

Wrongful calculation means the calculation of an act that reduces or excludes the tax burden incurred when a taxpayer takes a normal and rational transaction form without using a normal business form, a multi-stage act and other abnormal transaction form. Article 52 of the Corporate Tax Act provides for the denial of wrongful calculation under the provision of Article 88 (1) of the Enforcement Decree of the Corporate Tax Act, inasmuch as it is recognized that a taxpayer abused all types of transaction forms with a corporation and a related party under the provision of Article 88 (1) of the Enforcement Decree of the same Act and disregards the economic rationality from a legal point of view that it is unfair from a legal point of view that the taxation authority imposed income objectively deemed reasonable, with the intention of ensuring fair taxation and preventing tax evasion. Article 88 (1) of the Enforcement Decree of the same Act provides for the individual and specific type of act under subparagraphs 1 through 8 of the same Article, and subparagraph 9 of the same Article provides for "an act that is deemed to unreasonably reduce the tax burden, not an act with a special relationship under subparagraphs 1 through 8 of the same Article.

2) Whether the instant business license acquisition contract constitutes an object of being denied by wrongful calculation

A) Comprehensively taking account of the facts acknowledged earlier and the following circumstances acknowledged by the evidence as seen earlier, it is reasonable to view that the former △△△ has contributed not only to the Plaintiff corporation without compensation through the instant transfer/acquisition agreement entered into in the process of the establishment of the Plaintiff corporation, but also to contribute to the instant business right by comprehensively succeeding all employees, patients, etc. at the same time by taking over all of the rights and obligations. Even if there is no business right to transfer, it is reasonable to deem that the former △△△ has made a withdrawal of KRW 1,00,000 from the proceeds of the instant business right with the Plaintiff corporation by taking advantage of the status as the representative of the Plaintiff corporation and by concluding the instant business right transfer agreement with the Plaintiff corporation by taking advantage of the status as the representative of the Plaintiff corporation, thereby making a withdrawal of KRW 1,00

(1) In the instant transfer and acquisition contract which entered into with the Plaintiff corporation prior to the instant transfer and acquisition contract with the Plaintiff corporation, the former △△△△ concluded with the Plaintiff corporation without compensation, and transferred the employees of the said hospital to the Plaintiff corporation, while succeeding to the employment of the Plaintiff corporation, and transferred all of the rights and obligations relating to the operation of the said hospital to the Plaintiff corporation, and comprehensively transferred all of the rights and obligations of the patient and the medical records to the Plaintiff corporation, and there was no premium for this. In addition, the former △△△ concluded a contract for transfer of medicine with the content that transfers the remaining drugs and the remainder of the payments in the hospital used in △△△ Hospital. In addition, it is difficult to present an intangible business right that can be separately disposed of, notwithstanding the transfer or succession of all the physical facilities, hospital operation personnel, and equipment including medicine, etc. of the individual hospital, which

(2) In addition, it is reasonable to view that the contents of the instant goodwill claimed by the Plaintiff corporation, other than tangible things, such as business facilities and fixtures of the △ Hospital, even if it is deemed that it is remuneration for the transfer of intangible property value, such as the customer, credit, business know-how, or the business interest in accordance with the location of the store, etc. related to the hospital's business, which the former △△△△ has accumulated for a long time while operating the △△ Hospital for a long time. However, it is reasonable to deem it as so-called premium. Since it is clearly stated that there is no separate premium between △△△△ and the Plaintiff corporation at the time of the instant transfer or acquisition contract, it is difficult for the Plaintiff corporation to conclude

(3) 】 The head of the Gu public health center 】 (the total amount of the property contributed by the Plaintiff corporation is KRW 9,545,228,542, and the debt ratio is KRW 4,450,00,000,000, the total amount of the property contributed by the Plaintiff corporation 47.79% below the total amount of fundamental property and the requirements for the establishment and operation guidelines were met; and thus, (10,000,000,000 won were included in the acquisition of the instant goodwill of KRW 10,309,705,705,120,000, the debt ratio was 52.8% below the maximum debt ratio was 52.8% (the debt ratio was 5,450,000,000,100,309,705,1205,000).

(4) The purpose of a medical corporation is to pursue excessive profits, to whom the contribution of profit is prohibited, and to which the property of the medical corporation is strictly protected. If the Plaintiff corporation grants permission for the establishment of the foundation to acquire the business right, which is the remainder of the property not in the property list, after having obtained the establishment permission from the competent authority by contributing some property as asserted by the Plaintiff corporation, it is contrary to the Civil Act recognizing only the gratuitous contribution to the establishment of the foundation, and it is contrary to the purport of the medical corporation system, and it is contrary to the purpose of the medical corporation system, and it is contrary to the Medical Corporation Act by again returning the property which is the foundation foundation’

(5) In addition, a medical corporation, as an incorporated foundation, shall comply with the relevant provisions of the Civil Act. Article 64 of the Civil Act provides that a special agent is appointed for matters that conflict with the interests of the corporation and its directors for the protection of the incorporated foundation. However, although the instant business license acquisition agreement falls under the act of conflicting interest between the Plaintiff corporation and the former △△△△, the former △△△, without appointing the special agent of the Plaintiff corporation, it is difficult to deem that the instant business license acquisition agreement was concluded lawfully as a party to both of the Plaintiff and it is difficult to deem that the instant business license acquisition agreement was concluded lawfully without undergoing internal procedures such as the resolution of the board of directors under Article 22 of the Articles of incorporation of the Plaintiff corporation.

(6) The Plaintiff corporation under-reported corporate tax of KRW 23,33,33 by adding the depreciation costs of the instant operating right to KRW 116,66,66,67 to deductible expenses for the business year 2015. If it is assumed that the depreciation costs calculated by applying the straight line method to the instant operating right are included in deductible expenses for each business year for the period of five years in the service life, the Plaintiff corporation would result in unfairly under-reported corporate tax of KRW 100,000 (for corporate tax rate of KRW 10%), maximum of KRW 200,000,000 (for corporate tax of KRW 20%), for five years.

(7) In addition, even on the tax side imposed on △△△△, the representative of the Plaintiff corporation, in cases where the amount of KRW 1,00,000,000 for the instant goodwill is deemed to be the other income of △△△△△△, the tax is imposed on KRW 76,00,000. On the other hand, in cases where the income is disposed of as the bonus of △△△△△△△△△, it shall not be deemed that the amount of income tax was reduced unfairly due to the instant business license acquisition agreement even if it was withheld according to the revised return.

B) Therefore, depreciation costs of the instant goodwill, which is a processed asset, shall be excluded from deductible expenses, and 1,000,000,000,000, which was paid to the previous △△△△△△△, which was paid to the Plaintiff Company, regardless of the business affairs of the former △△△△△, is reasonable. Therefore, it is reasonable to deem the Defendant to be subject to the application of wrongful calculation, which constitutes an act of unfairly reducing the tax burden on the corporation’s income due to a transaction with a related party under Article 52(1) of the Corporate Tax Act and Articles 87(1)1 and 88(1)9 of the Enforcement Decree of the Corporate Tax Act. Therefore, the Plaintiff’s assertion that

3. Conclusion

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