National Tax Service Review Division 2010-0204 (No. 22, 2011)

The judicial effect of the supply contract concluded by a related corporation with a supplier of ready-mixed can not be deemed to belong to the plaintiff.

Even if a related corporation did not prepare a separate commission or user fee for the production of ready-mixed using the Plaintiff’s manufacturing facilities, such circumstance alone does not lead to the existence of a separate commission or user fee. However, it cannot be deemed that the legal effect of a contract for supply of ready-mixed concluded by a related corporation with the counterparty is immediately reverted to the Plaintiff.

2011. Revocation of the imposition of corporate tax and value-added tax

XX Industry Corporation

Director of the Tax Office

December 29, 2011

February 2, 2012

1. The Defendant’s disposition of imposing corporate tax and value-added tax on June 1, 2010 on the Plaintiff shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff was established on May 25, 1979, and is a company that manufactures and sells private or government-managed ready-mixeds under Article XX00 of the XXL, and the non-party XXD Co., Ltd. (hereinafter referred to as "non-party company") was established on September 12, 2001 and was established on September 12, 2001 and manufactures and sells private or government-managed ready-mixeds under Article 207-7 of the OO-dong 207.

B. On July 6, 2010, the Director of the Korean Industrial Technology Institute issued a disposition of suspension of indication six months and suspension of sales on the ground that "the director of the Ministry of Knowledge Economy, on the ground that "the plaintiff, on the ground that the person who obtained the certification, displayed the certification on the non-party company's product disguisedly with another person's product manufactured by himself/herself," and that "the person who obtained the certification marks the certification on the non-party company's product disguised with another person's product."

C. Based on the above facts, the Defendant conducted a tax investigation with respect to the Plaintiff and the non-party company from 2004 to 2008, and confirmed the fact that the non-party company sold the products produced at the Plaintiff’s factory as if they were produced, then estimated the revenue amount and purchase amount of the Plaintiff and the non-party company based on the average power consumption of the Plaintiff and the non-party company for the same type of business as the Plaintiff. On June 1, 2010, the Defendant issued a tax disposition with each of the following tax assessment guidelines (i) including the total amount of KRW 4,575,562,937 (from the next 2nd 2nd 2nd 2004) that the non-party company omitted sales and added the corresponding purchase price to deductible expenses, and then added the corresponding purchase price to the deductible expenses from 2004 to 208 until the 2008th 204nd 1st 2004 to 208.

D. The Plaintiff filed a request for examination with the Commissioner of the National Tax Service against the instant disposition. On April 22, 2011, the said request for examination was dismissed.

[Ground of recognition] Facts without dispute, Gap evidence 1, Gap evidence 5, Gap evidence 10 through 12, Eul evidence 1, Eul evidence 2 (including the number of branches), and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

1) Since the non-party company, which has a legal personality with a separate human and physical organization from the plaintiff, supplied ready-mixed pursuant to a valid ready-mixed supply contract with the other party, and was paid the sales proceeds of ready-mixed pursuant to the contract, the sales proceeds of this case belong to the non-party company. Nevertheless, the disposition of this case on the premise that the sales proceeds of this case belong to the plaintiff is unlawful.

2) Without reasonable standards or grounds, the Defendant estimated the amount of income and purchase of the Plaintiff and the Nonparty Company based on the volume of electric power used by the Plaintiff and the Nonparty Company for the same type of business as that of the Plaintiff and the Nonparty Company. The method of estimation is not only a method recognized by relevant statutes, such as the Value-Added Tax Act, but also a method of estimation is not a method recognized by relevant laws

3) Among the instant dispositions, the imposition of corporate tax for the business year 2004 against the Plaintiff and each imposition of value-added tax for the first and second years 2004 was made after the lapse of five years from the exclusion period of imposition, and is unlawful.

B. Relevant statutes

Attached Form 3 is as shown in the relevant statutes.

(c) Fact of recognition;

1) The Plaintiff’s capital amounting to 600,000, is KimAA (33.3% of shares), ParkB (33.33% of shares), ParkCC (33.33% of shares), and the Plaintiff’s capital amounting to 50,000,000 won is KimA (30% of shares), ParkB (40% of shares), and ParkCC (30% of shares ratio).

2) From 2004 to 2008, the Plaintiff and the Nonparty Company separately employed each officer or employee.

3) The Plaintiff is equipped with manufacturing facilities, such as ready-mixed manufacturing facilities, ready-mixed transport vehicles, etc. at places of business located in XX 000 in the city of Yongsan-si, and the non-party company is equipped with manufacturing facilities of the above ready-mixed at places of business located in 000-0, 000 OO-dong.

4) From around 2004 to 2008, most of the Plaintiff’s workplace produced ready-mixed with the Plaintiff’s manufacturing facilities using the Plaintiff’s above ready-mixed manufacturing facilities. Some of them produced using the Plaintiff’s above ready-mixed manufacturing facilities at the Plaintiff’s workplace. Since the two companies did not clarify their distinction, it was impossible to accurately calculate the amount of ready-mixed produced by the Nonparty company by using its manufacturing facilities. The executives and employees of the Nonparty company worked in most of the Plaintiff’s workplace and worked in the Nonparty company’s workplace only when they produced ready-mixed using the Nonparty company’s manufacturing facilities.

5) In addition to being supplied with cement from Nonparty C Cement Co., Ltd., Nonparty Co., Ltd., purchased ready-mixed raw materials, such as cement and aggregate, and paid the price upon receipt of a tax invoice during the instant taxable period. The above supplied ready-mixed raw materials did not distinguish them from the raw materials purchased by the Plaintiff from the warehouse located in the Plaintiff’s place of business.

6) Upon receipt of an order from the other party to the transaction for the supply of ready-mixed, the cattle and the company: (a) put the raw materials stored in the Plaintiff’s warehouse into the Plaintiff’s ready-mixed manufacturing facilities; (b) prepare a daily package of ready-mixed with the Plaintiff’s customers, on-site names, specifications, vehicle numbers, departure time, supply volume, etc.; and (c) prepare a delivery note and supply it using the Plaintiff’s own or the Plaintiff’s ready-mixed transport vehicle; and (d) made a transaction in the manner of receiving the supply price after issuing the tax invoice.

(7) Around 2004, the non-party company received a request for the supply of ready-mixed with 240 square meters in total, and issued a tax invoice after preparing a supply sheet. The non-party company received 12,504,745 square meters in the supply price of ready-mixed from △ Construction. During the instant taxable period, the non-party company entered into a transaction of supply of ready-mixed with the non-party company during the instant taxable period, and most of the owners of ready-mixed did not know that the non-party company supplied the non-party company was produced by using the Plaintiff’s research theory. (8) The non-party company reported and paid corporate tax and value-added tax on the price received by selling ready-mixed including the sales of this case during the instant taxable period.

9) Meanwhile, the non-party company did not pay a separate commission or usage fee to produce ready-mixeds using the plaintiff's manufacturing facilities, and did not prepare the above production contract and consignment production contract between the plaintiff and the non-party company.

10) On December 14, 2010, the Defendant issued a false tax invoice to the head of the Jeju District Prosecutors' Office, and the non-party company issued a false tax invoice to the Plaintiff and the non-party company as if it actually manufactured the ready-mixed, and the Plaintiff accused the Plaintiff and the non-party company of the violation of the Tax Evaders Act on the ground that the Plaintiff did not issue the tax invoice even after manufacturing the ready-mixed. On December 14, 2010, the Jeju District Prosecutors' Office issued a non-prosecution disposition against the Plaintiff and the non-party company on the ground that the non-party company did not issue the false tax invoice.

[Ground of recognition] In the absence of dispute, Gap evidence Nos. 3, Gap evidence Nos. 4, Eul evidence Nos. 13 through 16, Eul evidence Nos. 4 through 11, and Eul evidence Nos. 4 through 11 (including various numbers), witness DD, ParkCC's testimony, each of these testimonys by this court's △△△△△, △△ Construction, △△△ Construction, ▽ industry cooperative, △△ industry federation, Y general energy, YB, AA, YDD Construction, CE, CED Construction, EE Construction, FG Construction, GG Construction, H General Construction, and KS Development, the purport of the entire arguments, as a result of the inquiry of each fact about △△△

D. Determination

1) Review of relevant legislation

A) Article 14 of the Framework Act on National Taxes provides that if the ownership of the income, profit, property, act or transaction subject to taxation is merely nominal and there is another person to whom such income, profit, property, act or transaction belongs, the tax law shall apply to the person to whom such income, profit, act or transaction belongs, and the provisions on the calculation of the tax base shall apply according to the substance regardless of the name or form of the income, profit, act or transaction, and where it is deemed that the benefit of the tax law is to be unduly obtained by the method of indirect method through a third party, or by the method of performing an act or transaction above water, the relevant party shall be deemed to have made a direct transaction according to

B) In addition, Article 4 of the Corporate Tax Act provides that where the corporation to which all or part of the revenues generated from assets or business legally accrue and the corporation to which the revenue actually accrues are different, this Act shall apply to the corporation to which the revenue actually accrues, and the provisions on the calculation of the amount of taxable income of the corporate tax shall apply to the calculation of the amount of taxable income, notwithstanding the name or form of the income

C) Meanwhile, when a taxpayer initially engages in economic activities, one of the several legal relations may be selected in order to achieve the same economic purpose, and the tax authority shall respect the legal relations chosen by the parties, except in extenuating circumstances.

2) Determination

A) Comprehensively taking into account the facts acknowledged earlier and the overall purport of oral arguments, ① the Plaintiff and the non-party company have a special relationship with the non-party company operating the same kind of business as its shareholders, but the non-party company is operating for its own account with the Plaintiff. ② The non-party company supplied the non-party with the name of its own upon receipt of an order from the consumers of ready-mixed during the pertinent taxable period, and issued the tax invoice to the other party as a supplier. The owner knew the supplier, and received value-added tax input tax deduction with the non-party company's tax invoice. ③ The above ready-mixed contract concluded with the non-party company was concluded with the non-party company, and its effect including its duty to supply ready-mixed, payment claims, etc. is not effective, and even if the non-party company manufactured the non-party company with the non-party company and supplied the non-party company with the non-party company with the products manufactured and supplied them for the purpose of manufacturing and supplying them directly to the other party to the contract.

B) Therefore, the Defendant’s instant disposition based on the premise that the instant sales amount belongs to the Plaintiff is unlawful without having determined the remainder.

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.