Cho High Court Decision 2016Da980 ( November 08, 2018)

claim the revocation of the total amount of the increased corporate tax due to the reasons for the disposition.

The substance of the relevant corrective disposition of reduction can be deemed not to have partially canceled the amount of tax increased by the corrective disposition, but to have partially canceled the original return. Since the increased corporate tax as the cause of the relevant disposition is within the remaining amount of tax reduced by the corrective disposition, it can be claimed to revoke the total amount of tax as the object of the appeal.

Article 22-2 (Effect of Correction, etc.)

2019Guhap5384 Revocation of Disposition of Corporate Tax Imposition

AAAAA Corporation

BB Director of the Tax Office

May 30, 2019

July 18, 2019

1. The Defendant’s imposition of KRW 2,245,381,006 of corporate tax for the business year 2010 that the Plaintiff rendered on December 3, 2015 (including KRW 13,173,056 of additional tax for underreporting, and KRW 335,51,64 of additional tax for underreporting, and KRW 2,119,415,584 of corporate tax for the business year 2011 shall be revoked.

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

Cheong-gu Office

The primary purport of the claim is as stated in the text.

Preliminary claim: Preliminaryly, the Defendant’s disposition of imposition of KRW 2,245,381,006 (including additional taxes for underreporting KRW 13,173,056, additional taxes for unfaithful payment; KRW 335,51,64) and corporate tax of KRW 2,119,415,584 for the business year 201, which the Defendant rendered to the Plaintiff on May 2, 2016, shall be revoked.

1. Details of the disposition;

A. The Plaintiff is a corporation that has established in 1973 and manufactures and sells ships, offshore structures, plants, engines, etc.

B. From April 1, 2015 to October 8, 2015, the commissioner of the SS Regional Tax Office conducted an integrated tax investigation of corporate tax against the Plaintiff (hereinafter “instant tax investigation”) and notified the Defendant of the correction and notification of corporate tax from 2010 to 2014 by reflecting the parts of each tax investigation set out in the following table:

Classification

Items of Investigation

Grounds for Disposition 1

When the Plaintiff entered into a shipbuilding contract with vessel owners;

Fees paid to the company designated by the prior injection;

It constitutes non-deductible expenses

Grounds for Disposition 2

The plaintiff was established within the shipbuilding yard for shipbuilding.

The inner wall falls under the assets subject to depreciation.

Since related depreciation costs are not included in deductible expenses,

Grounds for Disposition 3

The plaintiff's claim for indemnity against the related corporation shall expire by the extinctive prescription in 2006 and shall be 2010

The bad debt in the business year is included.

Since it is illegal, loss of related expenses is excluded from deductible expenses.

Grounds for Disposition 4

The Plaintiff: HM Heavy Industries Co., Ltd.

trademark, even though it used a trademark owned, such trademark

Since no user fee has been collected,

Income from failure to pay trademark fees in gross income;

Grounds for Disposition 5

Tax credit for research and human resources development expenses reported

Restatement in part not meeting the requirements

Grounds for Disposition 6

Reserves for research and human resources development;

Other reasons for the disposition

Non-business real estate-related interest and non-deductible

Other Items

C. As a result of the instant tax investigation, the Plaintiff filed an application for early determination on part of the grounds for disposition 1 through 3 and other grounds for disposition. Accordingly, on December 3, 2015, the Defendant issued a disposition to rectify and notify the Plaintiff of the increase in corporate tax of KRW 8,306,327,920 for the business year 2010 and to notify the Plaintiff of the increase in corporate tax of KRW 4,560,193,230 for the business year 2011 (hereinafter “instant order for correction”).

D. On November 5, 2015, the Plaintiff filed a request for pre-assessment review with the National Tax Service on part of the grounds for disposition 4, 5, 6, and other grounds for disposition. On April 21, 2016, the Commissioner of the National Tax Service rendered a decision of partial adoption and re-examination on the grounds for disposition 5, the decision of adoption on the grounds for disposition 6, and the decision of non-acceptance on the grounds for disposition 4.

E. According to the aforementioned pre-assessment review decision, the Defendant: (a) on May 2, 2016; (b) on the aggregate of 5,189,706,00 won of the corporate tax for the business year 2010 (the amount which was not paid for trademark rights of KRW 8,621,346,845 in the business year 2010 as the grounds for disposition 4 was included in the gross income; (c) and (d) increased corporate tax of KRW 2,245,381,06 (the amount which was paid for trademark rights of KRW 1,896,696,306, KRW 13,173,056, KRW 335,511,644); (c) on the grounds that the amount of corporate tax for the business year 5, 2010 was reduced to KRW 5,189,706,000 for the business year 201,3716,3746,67,3747, etc.

F. According to the decision of pre-assessment review, the commissioner of the SS Regional Tax Office conducted re-audit on the remainder of five grounds for disposition from April 26, 2016 to May 25, 2016. As a result, the Defendant issued a disposition to reduce or notify the Plaintiff of corporate tax amounting to KRW 2,079,250,687 for business year 201 (hereinafter “the second corrective disposition”).

G. On February 26, 2016, the Plaintiff filed an appeal seeking revocation of the instant disposition for rectification with the Tax Tribunal. On July 22, 2016, the Plaintiff filed an appeal seeking revocation of the instant disposition for rectification (the two cases were consolidated and tried).

H. On November 8, 2018, the Tax Tribunal accepted the Plaintiff’s appeal on the part related to the grounds of disposition 2, 3 among the instant disposition of increase in the number of grounds for disposition, and rendered a decision to dismiss the instant disposition on the ground that “The instant disposition of reduction in the number of grounds for disposition of reduction in the number of grounds for disposition is not subject to appeal litigation unless the amount of tax has decreased as a result of the instant disposition of increase in some items and reduction in other items” (hereinafter “instant administrative appeal”).

I. On September 20, 2018, the Defendant revised ex officio corporate tax of 446,936,704 and corporate tax of 610,255,557 for the business year 2011 (hereinafter “instant tax reduction ex officio”).

(j) On November 15, 2018, the Defendant issued a disposition to reduce or correct corporate tax of KRW 1,988,494,079 for the business year 2010 according to the result of the instant administrative appeal regarding grounds 2 and 3 for disposition on November 15, 2018, and to correct corporate tax of KRW 787,154,738 for the business year 201 (hereinafter referred to as “reduction or revision under the Administrative Appeals Act”).

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, Eul evidence Nos. 1 through 6 (including branch numbers), the purport of the whole pleadings

2. The plaintiff's assertion

(a) The primary claim

1) In the case of corporate tax for the business year 2010, an increase in corporate tax under the grounds of disposition 4 is illegal, and the amount of tax increased by the grounds of disposition 4 is remaining remaining after a reduction by ex officio reduction, correction by authority and administrative appeal due to the increase in the amount of tax increased by the instant disposition of disposition. As such, the Plaintiff may seek revocation against the disposition of imposition of KRW 2,245,381,006 of the amount of tax increased by the grounds of disposition 4 in the instant disposition of the increase in tax amount.

2) In the case of corporate tax for the business year 2011, the increase in corporate tax pursuant to the grounds for disposition is illegal and prior to the lapse of the period for filing a request for correction as to corporate tax, and thus there is a disposition of correction as to corporate tax in this case, and thus, in the appeal litigation as to the disposition of correction in this case, the plaintiff may dispute not only the amount increased by the disposition of correction in this case but also the amount initially reported as well as the amount of tax. Thus, the plaintiff may seek revocation of the disposition of imposition of KRW 2,19,415,584, which was increased by the grounds for disposition in this case among the disposition of correction in this case (hereinafter in this case, the disposition of imposition of KRW 2,245,381,06 and KRW 2,119,415,584, which was increased by the grounds for disposition in this case among the disposition of correction in this case, "the disposition of imposition in this case").

(b) Preliminary claim

Since an increase in corporate tax pursuant to the grounds for disposition in the instant case among the corrective disposition for reduction is illegal, and in the instant corrective disposition for reduction, a separate means of litigation should be recognized. As such, the Plaintiff may seek revocation of each disposition on imposition on the increased portion (2,245,381,06, and 2,119,415,584, among corporate tax for the business year 2010, and 2,119,415,584, among corporate tax for the business year 2011) of the instant corrective disposition for reduction.

3. Determination on the defense prior to the merits

A. The defendant's assertion

1) As to the main claim

A) Since the instant disposition to revise corporate tax for the business year 2010 was already revoked with respect to the amount exceeding KRW 681,191,140 due to the instant disposition to revise the reduction, ex officio reduction, or the administrative appeal, the revocation of the disposition to revoke the disposition to impose corporate tax for the business year 2010, which exceeds KRW 681,191,140, among the disposition to rectify the increase, is sought again against the disposition to revoke the disposition to impose corporate tax for the business year 2010, and is unlawful

B) Since the instant disposition to revise corporate tax for the business year 201 was entirely revoked by the instant disposition to revise the reduction, the secondary disposition to revise the reduction, the ex officio reduction, and the administrative appeal, the instant disposition to seek revocation of the disposition to impose corporate tax amounting to KRW 2,19,415,584 in the business year 2011, among the instant disposition to revise the reduction, the instant disposition to seek revocation of the disposition to impose corporate tax for the business year 201, and is unlawful as there

2) As to the conjunctive claim

Since a disposition of reduction or correction cannot be the subject of an appeal litigation which brings a favorable effect to the taxpayer, such as partial revocation of the amount of tax, the Plaintiff’s preliminary claim is unlawful.

B. Determination as to the defense prior to the main claim

1) Relevant legal principles

In a case where an increase or decrease is made, the original return or determination shall lose its independent existence value by absorbing the original return or determination, and as a matter of principle, regardless of the lapse of the objection period against the initial return or determination, etc., a taxpayer shall be subject to adjudication in an appeal litigation (see Supreme Court Decision 2006Du17390, May 14, 2009). However, Article 22-2(1) of the former Framework Act on National Taxes (amended by Act No. 16097, Dec. 31, 2018; hereinafter referred to as the “former Framework Act on National Taxes”) provides that “an increase in the amount of tax initially determined by tax-related Acts shall not affect the rights and obligations provided for in this Act or tax-related Acts concerning the amount of tax initially determined, and a taxpayer may seek revocation of the initial return or determination, regardless of the lapse of the objection period, if the original return or determination was made by the tax-related authority’s determination or revocation of the amount of tax ex officio.”

2) Determination

A) In full view of the following facts and circumstances, upon examining the claim for revocation of the disposition imposing corporate tax of KRW 2,245,381,006 for the business year 2010, among the instant disposition of rectification, the substance of the instant disposition of rectification is not to cancel part of the amount increased by the instant disposition of rectification, but to cancel part of the Plaintiff’s initial return, and the corporate tax increased by the ground for disposition No. 4 can be deemed to have been partially canceled. Of the corporate tax of KRW 8,306,327,925, the remaining amount of tax reduced by the ex officio reduction and administrative appeal of the instant case within the limit of KRW 5,870,897,142, and the Plaintiff may seek revocation of the entire amount of corporate tax for the business year 2010,245,381,06, which was increased by the ground for disposition No. 4,000, if any, 204.

① The instant disposition was made on the basis of 4,5, and 6 grounds for disposition irrelevant to the grounds for disposition 1, 2, 3, and other grounds for disposition, which are grounds for the instant disposition for the rectification of the increase.

② On May 2, 2016, the Defendant rendered a disposition for reduction or correction of the instant case in accordance with a pre-assessment review ruling relating to the grounds for disposition 1, 2, and 3, and other grounds for disposition, which are grounds for disposition of the instant increase or exemption, which are grounds for disposition of the instant increase or exemption, and grounds for disposition 4

③ Among the instant adjustment disposition, reduction pursuant to Articles 5 and 6 irrelevant to the grounds for the instant adjustment disposition, which are irrelevant to the grounds for the instant adjustment disposition, may be deemed to have been conducted irrespective of the litigation procedure against the instant adjustment disposition. In light of the legal principles as seen earlier, it is difficult to deem that the instant adjustment disposition partially reduced the amount of tax increased due to the instant adjustment, and it is reasonable to deem that the Plaintiff reduced part of the amount of tax initially reported.

④ The increased tax amount of KRW 8,306,327,925 due to the instant order to reduce ex officio, shall be reduced to KRW 446,936,704 due to the instant order to reduce ex officio, and KRW 5,870,897,142 due to the reduction reduction due to the administrative appeal and reduction in KRW 1,988,494,079 due to the remainder of KRW 5,870,897,142 due to the reduction in the amount due to the administrative appeal. This is the amount exceeding KRW 2,245,381,06 of corporate tax for

(5) In an appeal litigation seeking revocation of a disposition of increase or decrease, whether the amount of tax exceeds a legitimate tax amount should be determined on the basis of whether the amount of tax exceeds a reasonable amount of tax, and the reason for excessive filing of the original return or for taxing the tax authority’s revocation of increase or decrease is merely an individual illegal reason supporting the illegality of the disposition of increase or decrease (see, e.g., Supreme Court Decision 2002Du9261, Aug. 16, 2004). A claim for revocation of part of the increased tax amount due to the instant disposition of increase or decrease on the ground of illegality of 4 other grounds for disposition, not a ground for disposition of increase or decrease

B) With respect to a request for revocation of a disposition of increase in the tax base and amount of corporate tax for 2011 business year 2,119,415,584, the disposition of increase in the tax base and amount of corporate tax is not a disposition to additionally determine the tax base and amount of tax for the original taxpayer without having the tax base and amount of tax determined by the tax authority as they are, but a single tax base and amount of tax are re-determined including the tax base and amount of tax determined in the initial return or determination. Thus, regardless of the lapse of the objection period against the initial return or determination, only the disposition of increase in the tax base and amount of tax becomes subject to adjudication in appeal litigation (see, e.g., Supreme Court en banc Decision 2006Du17390, May 14, 2009; 201Du4855, Mar. 29, 2012). In light of the fact that an appeal suit seeking revocation of the increase in the tax base and amount of tax for rectification should be determined by whether the tax amount exceeds justifiable grounds for rectification.

Meanwhile, in light of the language and text of Article 22-2(1) of the former Framework Act on National Taxes and the purport of the main legislative purport thereof, even if a corrective disposition is taken to increase or decrease the amount of tax in the initial return or decision made after the lapse of the appeal period, etc., if the period for filing a claim for correction as to the amount of tax in the initial return or decision has not expired, it shall be deemed that not only the amount increased by the corrective disposition but also the amount of

In light of the aforementioned legal principles, the Defendant, on April 30, 2012, before the expiry of the period of filing a request for correction from April 30, 2012, the statutory due date of filing the corporate tax for the business year of 2011 to December 3, 2015, the Plaintiff, as well as the amount of the tax initially reported as corporate tax for the business year of 2011, can seek revocation of the said increased tax amount. However, in the instant case, the Plaintiff, as the corporate tax for the business year of 2011, 2,119,415,584 won, which was sought revocation due to the Plaintiff’s unlawful act of disposition 4, 2011, added the amount of the tax initially reported as corporate tax for the business year of 2011 and the tax amount increased by the adjusted disposition of this case, 545,454,438,614, 2015, 2014).

C) Sub-determination

Therefore, the Plaintiff may seek the revocation of the full amount of corporate tax for the business year 2010,201, increased due to the disposition ground 4, if there is an error in the disposition ground 4. Thus, the Defendant’s prior defense of the main claim related to the prior claim is without merit (as long as the Defendant’s prior defense of the main claim concerning the prior claim is without merit, the Defendant’s prior defense of the prior claim should not be examined further as to the preliminary claim and decide on the main claim).

4. Whether the instant disposition is lawful

In full view of the following facts and circumstances that can be recognized in addition to the purport of the entire arguments revealed in the above evidence, i.e., ① the Tax Tribunal recognizes the increase of the tax amount pursuant to the grounds for disposition 4 as illegal in the administrative appeal decision of this case; ② the Defendant does not dispute the instant case as to the illegality of the increase of the tax amount pursuant to the grounds for disposition 4; ③ the Defendant, on the premise that the increase of the tax amount pursuant to the grounds for disposition 4 was illegal, reduced or corrected the portion included in the tax base of corporate tax for the business year 2012, 2013, and 2014, which included the non-payment of trademark fees in the calculation of gross income; ④ the Plaintiff appears to have received the vessel owner support fee including the trademark fees from HM Heavy Industries, and thus, it is reasonable to deem that the increase of corporate tax pursuant to the grounds for disposition 4 out of the increase of the corporate tax due to the amendment

Therefore, the instant disposition should be revoked in an unlawful manner.

5. Conclusion

Therefore, the plaintiff's primary claim is reasonable, and it is so decided as per Disposition by the assent of all participating Justices on the preliminary claim.