[1] In a case where money and valuables provided and received as temporary personal services are deemed to exceed the scope of the price for the services as a whole, as well as the nature of reward, such as remuneration for the provision of services, etc., and as a whole, whether such money and valuables constitute “compensation” under Article 21(1)17 of the Income Tax Act (affirmative)

[2] In a case where Eul, who had worked for a long time in Gap corporation, was under detention investigation and criminal trial against Byung who is the substantial largest shareholder of Eul corporation for about one year and three months, performed activities such as liaison between Byung and his/her family members, gathering data necessary for criminal trials, Byung's detention house, support for hospital life, etc., and Byung was released from Byung after the suspended sentence was released by Byung, but received a total of 7.5 billion won through civil litigation, the case affirming the judgment below holding that Eul's amount received from Byung constitutes an honorarium under Article 21 (1) 17 of the Income Tax Act

[1] In full view of the contents, language, and system of Article 21(1)17, Article 19, Article 37(2), Article 37(2) of the Income Tax Act, and Article 87 subparag. 1(b) of the Enforcement Decree of the Income Tax Act, other income under each item of subparagraph 19 must fall under any one or “price for the provision of personal services.” Thus, even if income is acquired in relation to the provision of services, it shall not be deemed income under subparagraph 19 if it exceeds the nature of the consideration for the provision of services. It is also understood that Article 21(1)19 of the Income Tax Act provides that income under subparagraph 19 of the same Article shall be included in the calculation of necessary expenses at least 80/100 at a fixed rate, while it is reasonable to view that the amount of remuneration under subparagraph 17 of the same Article should be included in the scope of remuneration under subparagraph 17 of the same Article, in consideration of the nature of the provision of personal services or personal services as a whole, the motive for the provision of services and the consideration.

[2] In a case where Eul, who had worked for a long time in Gap corporation, was under detention investigation and criminal trial against Byung who is the substantial largest shareholder of Eul corporation for about one year and three months, performed such activities as contact between Byung and his family members, gathering data necessary for criminal trials, Byung's detention house, support for hospital life, etc., and Byung received a total of 7.5 billion won through civil litigation after Byung's release under a suspended sentence, the case affirming the judgment below that Eul's involvement in Eul's criminal trial was deemed to have been due to Eul's long-term employment in Eul company for a long time, and the contents of Eul's service were to deliver Byung's house or materials necessary for trial based on the relationship between Eul and Eul's branch, and since Eul's funds received from Byung merely exceed the objective value of Eul's service provided by Byung, it can be deemed that Byung's relative relation with Byung's service was more likely to affect Eul's remaining amount under Article 17 (1) 1 of the Income Tax Act.

[1] Article 21 (1) 17, 19, and (2) of the Income Tax Act, Article 37 (2) of the Income Tax Act, Article 87 subparagraph 1 (b) of the Enforcement Decree of the Income Tax Act / [2] Article 21 (1) 17 of the Income Tax Act

[Judgment of the court below]

The director of the tax office.

Seoul High Court Decision 2016Nu45242 decided December 14, 2016

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Article 21(1) of the Income Tax Act provides that "other income shall be income other than interest income, dividend income, business income, labor income, annuity income, retirement income, and capital gains, which are stipulated in the following subparagraphs." subparagraph 17 of the same Article provides that "compensation" shall be paid for temporarily furnishing personal services (excluding services subject to subparagraphs 15 through 17) falling under any of the following items (hereinafter referred to as " subparagraph 17" and " subparagraph 19, etc." refers to each of the above provisions). In addition, each of the items of subparagraph 19 above, "services for lectures to many people without employment relations and receiving remuneration for lectures, etc. [ Item (a)], "services for remuneration or other similar consideration received through radio, etc. [Article 17 (b)], "other services provided by an attorney-at-law, certified public accountant, etc. or any other person having special knowledge or special skills [Article 21(3) (c) or other similar consideration].

Meanwhile, the amount of other income shall be calculated by deducting necessary expenses from the total amount of income in the pertinent taxable period (Article 21(2) of the Income Tax Act), and the necessary expenses shall be calculated as “the total amount of expenses corresponding to the total amount of income in the relevant taxable period, which is generally accepted,” except as otherwise provided for in Article 37(2) of the Income Tax Act (Article 37 of the Income Tax Act), and the necessary expenses shall be calculated in accordance with such principle, as there is no other provision regarding honorarium 17 of the said Act. On the other hand, for other income in subparagraph 19, the “amount equivalent to 80/100 of the received amount” shall be deemed as necessary expenses, and if the actual amount exceeds the amount equivalent to 80/100, the excess amount shall also be included in necessary expenses [Article 37(2)2 of the Income Tax Act, Article 87 subparag. 1(b)

In full view of the contents, language, and regulatory structure of the aforementioned provisions of the Income Tax Act, other income under each item of subparagraph 19 must fall under any one or “price for the provision of personal services.” Thus, even if income is obtained in connection with the provision of services, it cannot be deemed income under subparagraph 19 if it exceeds the nature of the consideration for the provision of services. It can be understood that the provision of subparagraph 19 through subparagraph 17 excludes the consideration for the provision of services subject to subparagraph 17. In addition, the same purport is that income under subparagraph 19 can be included at least 80 percent in necessary expenses calculation at a fixed rate, while it is intended that at least 80 percent of the income under subparagraph 17 should be applied to the honorarium under subparagraph 17. Therefore, in full view of the contents of services or business affairs provided by a temporary personal service, the motive and practical purpose of receiving the relevant money, the scale of the amount thereof, and relations with the other party, it is reasonable to classify the income under subparagraph 17 as a whole, as well as remuneration for the service.

2. The lower court found the following facts: (a) during the period when the Plaintiff worked in the treatment information system corporation (hereinafter “foreign company”) from March 2008 to June 28, 2009 in the custody investigation and criminal trial against the Nonparty, the actual largest shareholder of the non-party company, the Nonparty and his/her family members, who were in charge of contact between the non-party and his/her defense counsel; (b) collection of data necessary for a criminal trial; and (c) support for the non-party’s detention house and hospital life; (d) on June 12, 2009, after the non-party was released from the suspended sentence pursuant to the judgment, the Plaintiff was to receive the shares of the non-party company from the non-party on January 30, 2013; and (e) received a total of KRW 7.5 billion through civil litigation.

Then, the court below held that the disposition of this case on the premise of this premise is lawful, in light of the following: (a) the reason why the plaintiff was involved in the proceedings of the non-party's criminal trial is deemed to be due to the plaintiff's long-term employment in the non-party company and the long-term relationship with the non-party, and (b) the content of the service provided by the plaintiff was about the non-party's garment or delivery of materials necessary for the trial on the basis of the relationship with the non-party; and (c) the amount received by the plaintiff from the non-party is more severe than the objective value of the service provided by the plaintiff; and (d) it seems that the relationship between the plaintiff and the non-party was more affected by the relationship with the non-party.

Examining the above legal principles and records, the above determination by the court below is justifiable. Contrary to the allegations in the grounds of appeal, the court below did not err by misapprehending the legal principles on personal service income under Article 21 (1) 17 of the Income Tax Act or Article 21 (1) 19 (d) of the same Act.

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kwon Soon-il (Presiding Justice)