If a real estate is leased at a low price to a related party, it shall be calculated in accordance with the method provided by Article 89(4)1 of the former Enforcement Decree of the Corporate Tax Act.

Where there is no market price or unclear at the time of the rental of real estate at a low price, and where the appraisal value is not applicable, it shall be calculated by the method prescribed in Article 89(4)1 of the former Enforcement Decree of the Corporate Tax Act.

Tax base under Article 29 (4) 2 of the Added Value Act

revocation of revocation of imposition of value-added tax, etc., Suwon District Court 2018Guhap61032

AA

00. Head of tax office

on 14, 2018

October 02, 2018

1. All of the plaintiffs' claims are dismissed.

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

Cheong-gu Office

The imposition of each value-added tax (including additional tax) stated in attached Form 1 against the plaintiffs on August 8, 2017 by the defendant shall be revoked.

1. Details of the disposition;

A. From June 1, 2006, Plaintiff LL is running a telecom accommodation business with the trade name of 00 -0 -0 - 00 - 000 - 000 - from the above ground buildings.

B. Plaintiff LL, AAA, and GG are both parties, and their mother are Plaintiff JJ, and their father are GG. Plaintiff LL, AA, and their father are shareholders of YG Steel Co., Ltd. (Representative Director GGG, hereinafter “YG Steel”), and Plaintiff LL, AAA’s respective 19,400 shares of total issued shares, and GG owned 11,200 shares of each of 50,00 shares (the Plaintiff LL, AA’s respective 19,400 shares, and 11,200 shares of GG), Plaintiffs, and GG are shareholders of DD industry Co.,, Ltd (hereinafter “DDD industry”), (the Plaintiff among total issued shares 9,300 shares, Plaintiff LL, 3,906 shares, Plaintiff AA, 2,418 shares, Plaintiff JJ, 148 shares, respectively).

C. On April 9, 2012, Plaintiff LL and AA leased 00:0 00 -00 - 00 - 00 - 00 - 00 - 00 - 00 - 00 - 00 - 00 - 00 - 2864 m2,000 - 2,864 m2 (hereinafter referred to as “point land ①”) to 850 million - 12 months as joint business operators, and the lease period was 12 months. In addition, on March 15, 2012, the Plaintiffs leased to the DD industry as joint business operators, the Plaintiffs leased the land lease contract (hereinafter referred to as “land lease contract”) with the same 00-0 - 00 - 00 - 00 - 00 - 2,661 m2,000 - 2,661 mal. (hereinafter referred to as “land lease contract”).

D. From 2012 to 2016, the Plaintiffs reported and paid value-added tax to the Defendant based on the value of supply the amount equivalent to his/her share of the deemed rent calculated by multiplying the deposit under the instant lease agreement by the fixed deposit interest rate.

E. From April 13, 2017 to May 2, 2017, the director of the tax office: (a) conducted a personal integration investigation for Plaintiff LL 2014 regarding the Plaintiff from April 13, 2017 to May 2, 2017; (b) omitted Plaintiff LL 135,261,000 won in cash sales in 2014; and (c) deeming that the Plaintiffs leased the disputed land to the Y Steel, etc. with a special relationship and unfairly reduced the tax burden, thereby notifying the Defendant of the taxation data.

F. Accordingly, on August 8, 2017, the Defendant issued a correction and notification of each value-added tax stated in [Attachment 1] to the Plaintiffs (hereinafter “each of the above dispositions”) (hereinafter “each of the dispositions in this case”).

G. On September 5, 2017, Plaintiff LL and AA filed an appeal with the Tax Tribunal on each of the instant dispositions, etc., but the Tax Tribunal dismissed the said appeal on December 4, 2017.

2. Relevant statutes;

[Attachment 2] The entry is as follows.

3. Whether the plaintiff JJ’s action is legitimate

In the case of Plaintiff JJ, although it did not follow the procedure of the previous trial on each of the dispositions in this case (attached Form 2, Plaintiff J has filed a request for a trial on the imposition of income tax from 2012 to 2015). Plaintiff J has the same obligation by the same administrative disposition, as in the case of prior disposition or when one of its taxpayers has followed legitimate procedures of prior trial, the Commissioner of the National Tax Service and the Tax Tribunal provided an opportunity to re-determine the basic facts and legal issues, and in the event there is a justifiable reason, the taxpayer may file an administrative lawsuit for the revocation of the disposition even without undergoing the procedure of the previous trial (see, e.g., Supreme Court Decision 2005Du10170, Apr. 14, 2006); Plaintiff LL and AA shall also be deemed legitimate in the case of Plaintiff JJ as long as the previous procedure of the previous trial was followed by the same administrative disposition in this case.

4. Whether each of the dispositions of this case is legitimate

A. Whether each disposition imposing value-added tax on the lease of the pertinent land is legitimate

1) The plaintiffs' assertion

A) The Plaintiffs received a security deposit for the key land, and the price for the service of lease (the deemed rent that the Plaintiffs received by multiplying the security deposit by the fixed deposit interest rate) is higher than the market price of the lease service calculated by the Defendant. Nevertheless, the Defendant calculated the supply price by adding up the value of deemed rent calculated by the Defendant on the premise that the Plaintiffs received KRW 0 in return for the service of lease on the key land.

B) The instant lease agreement was explicitly renewed after the termination of the initial lease term, and the remainder of the terms and conditions of lease was the same. The Defendant calculated the supply price by denying wrongful calculation on the ground that there was an agreement to renew the instant lease agreement every year.

C) The Defendant calculated the market price pursuant to Article 89(4) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 28640, Feb. 13, 2018; hereinafter referred to as the “former Enforcement Decree of the Corporate Tax Act”). To this end, the case must be the case where there is no price under Article 62 subparag. 1 and 2 of the Enforcement Decree of the Value-Added Tax Act or where the price cannot be calculated, and there is no confirmation

2) Determination

A) Whether calculating the value of supply is illegal

(1) Article 29(4)2 of the Value-Added Tax Act provides that "the market price of the goods or services supplied to a related party shall be deemed the market price of the goods or services supplied when a price for the supply of such services is unfairly low," and Article 62(3)3 of the Enforcement Decree of the Value-Added Tax Act provides that the market price under Article 98(3) and (4) of the Enforcement Decree of the Income Tax Act or Article 89(2) and (4) of the Enforcement Decree of the former Corporate Tax Act shall be deemed the market price if the price under subparagraph 1 or 2 does not exist or is unclear. Article 98(4) of the Enforcement Decree of the Income Tax Act provides that the provisions of Article 89(3) through (5) of the former Enforcement Decree of the Income Tax Act shall apply mutatis mutandis to the calculation of the income amount, and Article 89(4) of the former Enforcement Decree of the Corporate Tax Act provides that the market price of the fixed deposit interest rate of 50/100 of the provided assets multiplied by the rental deposit interest rate of the market price (5).

(2) According to the contents and purport of the aforementioned relevant Acts and subordinate statutes, the pertinent lease contract amount is directly based on the calculation of deemed rent, which is the supply price of real estate rental services (Article 65(1) of the Enforcement Decree of the Value-Added Tax Act). However, in the calculation of the reasonable rent for the denial of unfair calculation (Article 89(4)1 of the former Enforcement Decree of the Corporate Tax Act), the determination of the reasonable rental price shall be based on the difference between the market price and the actual rental fee under which the contribution to the deposit is deducted from the amount equivalent to 1/2 of the officially assessed land price of the pertinent land as listed below, and thus, the income equivalent to the deemed rental fee cannot be included in the actual rental fee, and ultimately, the supply price of the rental service should be calculated by adding up the reasonable rental price as listed below to the reasonable rental price. Accordingly, this part of the Plaintiffs’ assertion is rejected

B) Determination as to the implied renewal argument

In principle, whether Article 29(4) of the Value-Added Tax Act applies shall be determined as at the time of the act, and the value-added tax is imposed for each taxable year. However, even if a lease without a fixed period of time due to implied renewal under the Civil Act exists, if the lease is maintained over several taxable periods, the distribution of profits arising therefrom would continue while the lease is maintained during several taxable periods. Therefore, it is reasonable to deem that a wrongful calculation through the non-exercise of the right to terminate the contract continues corresponding thereto.

Therefore, in order to determine whether to deny unfair calculation, applying the officially assessed individual land price and the fixed deposit interest rate of the relevant assets as of the time of calculation that vary each taxable period in calculating the market price of the appropriate rent of the lease contract in order to determine whether to deny unfair calculation, does not go against the intent of the denial of unfair calculation.

C) Whether the market price calculation is illegal

(1) Article 62 subparagraph 1 of the Enforcement Decree of the Value-Added Tax Act provides that "the price of continuous transactions between a person who is not a specially related person or between a third party, or the price of goods or services (referring to the price of continuous transactions between a person who is not a specially related person and a third party under similar circumstances with the person who is not a specially related person, or the price of the goods or services concerned or the price of general transactions between a third party) received in return for such transactions shall be the market price. Article 62 subparagraph 1 of the Enforcement Decree of the Value-Added Tax Act provides that the price under Article 98 (3) and (4) of the Enforcement Decree of the Income Tax Act or Article 89 (2) and (4) of the Enforcement Decree of the Income Tax Act provides that Article 89 (3) through (5) of the former Enforcement Decree of the Income Tax Act shall apply mutatis mutandis to the calculation of the amount of income, and Article 89 (4) 2 of the former Enforcement Decree of the Corporate Tax Act provides that "if an appraisal business operator or a specially related person is not a specially related person, the market price, the price shall be 10 percent.".

In full view of the provisions of the above Act and subordinate statutes, the market price under the Value-Added Tax Act on the provision of real estate leasing services is a generally traded price between a person who is not a specially related person and a third party who is not a specially related person, and where there is no or unclear market price, it shall be based on the appraised value by an appraisal corporation, and where the appraisal value cannot be applied, it shall be calculated according to the method stipulated in Article 89(4)1

(2) In full view of the aforementioned evidence, Eul evidence Nos. 4 through 10 and the purport of the entire arguments, the key land ① consists of three lots of land, and land No. 2, the key land No. 4 lots of land, and the entire land No. 1 contract is leased (YY Steel or DD industry appears to have been already established and operated before the plaintiffs acquire the ownership of the land at issue. The plaintiffs' agent stated that YY and DD industry is aware of the fact that YY and DD industry were not subject to the lease of the land from all owners of the land at issue on the fourth legal date for pleading).

As to the provision of land-lease services, Article 62 subparag. 1 and 2 of the Enforcement Decree of the Value-Added Tax Act, and Article 89(1) of the Enforcement Decree of the former Corporate Tax Act apply to the absence of market price. It is reasonable to view that the appraisal price under Article 89(2) of the former Corporate Tax Act is inapplicable in calculating the market price as to the provision of land-lease services, considering that there is a difference in the area of each seven parcels of land at issue and the difference in the

(3) Therefore, the instant disposition that calculated value-added tax on the basis of the market price calculated by the Defendant by applying Article 89(4)1 of the former Enforcement Decree of the Corporate Tax Act is legitimate, and thus, this part of the Plaintiffs’ assertion is rejected

B. Whether the imposition of value-added tax on MM is legitimate

1) Plaintiff LL’s assertion

The Defendant imposed value-added tax by calculating the amount of KRW 135,261,00,00 (=22,8190,0000 - 92,929,0000 - KRW 92,8190,000,000,000, which was paid by MM employees BB to the Plaintiff’s account, as the sales amount of the Plaintiff’s LL, as the omitted amount of cash sales (i.e., KRW 22,819,000 - KRW 92,929,000), but the said amount includes not only MM but also Plaintiff’s golf course (representative Plaintiff LL), 00 Moel (representative Plaintiff AA), and 00 hotel representatives (representative GG)’s cash revenues. Accordingly, the instant disposition based on a different premise is unlawful.

2) Determination

Each of the above evidence, Gap evidence Nos. 7 and 8, witness BB testimony and the purpose of oral argument as follows. BB transferred 200,000 won to the bank account in the name of the plaintiff's name (hereinafter "the money of this case") 137 times after deposit of 40,000 won to 50,000 won of 70,000 won of 50,000 won of 70,000 won of 40,000 won of 70,0000 won of 70,0000 won of 5,000 won of 70,000 won of 30,000 won of 4,000 won of 5,000 won of 7,000 won of 30,000 won of 4,000 won of 30,000 won of ,00 won of 7,000,00 won of 3,000 won of Ga,0.

Therefore, the instant disposition based on the premise that the instant money is an omission amount of cash sales by MF is legitimate, and thus, the Plaintiff LL cannot be accepted this part of the allegation.

5. Conclusion

Therefore, each claim of the plaintiffs is dismissed in its entirety as it is without merit. It is so decided as per Disposition.