[1] Standard for determining whether a tax official’s investigation constitutes “tax investigation” prohibited from re-audit

[2] In a case where the business subject to reduction or exemption under Article 121-2 (1) of the former Restriction of Special Taxation Act, along with other business that does not do so, can be evaluated as creating an income as a whole for the pertinent corporation, whether the portion of the whole income from the business subject to reduction or exemption should be separately calculated (affirmative), and the method of calculating the "income accrued from the business subject to reduction or exemption" if the corporation uses the products produced in the course of engaging in the business subject to reduction or exemption,

[1] Whether an investigation by a tax official constitutes “tax investigation” prohibited from re-audit shall be determined individually in a specific case by comprehensively taking into account the purpose and details of the investigation, the subject, method, and contents of the investigation, the data obtained through the investigation, the scale and period of the investigation, etc

[2] Article 121-2(1)1 of the former Restriction of Special Taxation Act (amended by Act No. 10406, Dec. 27, 2010; hereinafter the same) provides that a certain amount of foreign investment in order to operate an industry-supporting service business that is essential for strengthening the international competitiveness of the domestic industry and a business that carries on high technology shall be exempted from corporate tax under subparagraph 1 of Article 121-2(1) of the former Restriction of Special Taxation Act (amended by Act No. 10406, Dec. 2

Therefore, in cases where the above business subject to reduction or exemption can be evaluated as creating a single income as a whole for the pertinent business along with other businesses, the entire income from the business subject to reduction or exemption should be calculated by classifying the parts arising from the business subject to reduction or exemption. However, inasmuch as the former Restriction of Special Taxation Act, etc. does not separately provide for the detailed methods for the classification and calculation of the income of each business in cases where the products produced by the corporation operating the business subject to reduction or exemption are used in the manufacture of other non-business subject to reduction or exemption, it is reasonable to view that “income accrued from the business subject to reduction or exemption” can be calculated by objective and reasonable methods, taking into account

[1] Article 81-4(2) of the Framework Act on National Taxes / [2] Article 121-2(1)1 and (2) of the former Restriction of Special Taxation Act (amended by Act No. 10406, Dec. 27, 2010)

[1] Supreme Court Decision 2014Du8360 Decided March 16, 2017 (Gong2017Sang, 790)

Rano Motor Vehicle Co., Ltd. (Law Firm LLC, Attorneys So-young et al., Counsel for the plaintiff-appellant)

Head of North Busan District Tax Office

Busan High Court Decision 2016Nu21640 decided November 18, 2016

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

The grounds of appeal are examined.

1. As to the grounds of appeal Nos. 1 and 2

Whether an investigation conducted by a tax official constitutes “tax investigation” prohibited by re-audit shall be determined individually in a specific case by comprehensively taking into account the purpose and details of the investigation, the subject, method and contents of the investigation, materials acquired through the investigation, the scale and period of the investigation, etc. (see Supreme Court Decision 2014Du8360, Mar. 16, 2017).

The court below affirmed the judgment of the court of first instance and acknowledged the facts as stated in its holding. Then, the court below determined that the consolidated investigation of the plaintiff conducted after 207 through 2011 on behalf of the public official in charge of audit and inspection is not illegal, in light of the following: ① the defendant corporate tax and the public official in charge of reporting the plaintiff's corporate tax on the ground that the details of the plaintiff's corporate tax are complicated in the regular comprehensive audit process against the defendant of the Deputy Director of the District Tax Office; ② the plaintiff's head of the accounting team and the tax consultant provided a simple explanation about the basis of calculation for about 30 to 1 hour focusing on the data submitted by the plaintiff at the time of the initial report of corporate tax on behalf of the public official in charge of audit and inspection on behalf of the defendant.

Although some inappropriate part of the reasoning of the judgment of the court of first instance cited by the court below, the conclusion that the consolidated investigation of the above corporate tax does not constitute a re-investigation prohibited by the above legal principles is based on the above legal principles. In so doing, contrary to the allegations in the grounds of appeal, there were no errors by misapprehending

2. As to grounds of appeal Nos. 3 and 4

Article 121-2(1)1 of the former Restriction of Special Taxation Act (amended by Act No. 10406, Dec. 27, 2010; hereinafter the same) provides that the corporate tax shall be reduced or exempted for a certain amount of foreign investment in order to operate a business that is essential for strengthening the international competitiveness of the domestic industry and a business that is accompanied with high technology. Paragraph (2) provides that only the “income accrued from the business that is subject to reduction or exemption” shall be reduced or exempted.

Therefore, in cases where the above business subject to reduction or exemption can be evaluated as creating a single income as a whole with other business, the entire income from the business subject to reduction or exemption should be calculated by classifying the parts of the business subject to reduction or exemption. However, in the former Restriction of Special Taxation Act, etc., if the corporation uses the products produced in the course of operating the business subject to reduction or exemption in the manufacturing of other business subject to reduction or exemption, it is not separately prescribed in the detailed method on the classification and calculation of income by each business, and in such cases, “income accrued from the business subject to reduction or exemption” can be calculated by objective and reasonable methods in consideration of the characteristics of the relevant business, such as cost-based

Based on adopted evidence, the lower court acknowledged the following facts: (a) the Plaintiff installed the instant engine produced from the business subject to reduction or exemption in the business year 2008 through 2010 and used it for the manufacture of automobiles which are non-business subject to reduction or exemption; and (b) the Defendant applied the cost ratio of the instant engine to the finished vehicle’s sales price to calculate the sales volume of the instant engine, etc.

Next, the lower court rejected the Plaintiff’s assertion that the sales price of an engine for maintenance, not the cost-based law applied by the Defendant, should be applied on the ground that the Plaintiff, on the following grounds: (a) the engine installed in a completion vehicle for three years from 2008 to 2010, was not only 12 vehicles (08, 008, 9, 2009, and 3 vehicles) but also 12 vehicles (12 vehicles).

Examining the reasoning of the lower judgment in light of the aforementioned provisions and legal principles, such determination by the lower court is justifiable, and contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine

3. As to the fifth ground for appeal

The lower court, on the grounds indicated in its reasoning, determined that the tax authority cannot apply the principle of trust and good faith to the tax authority’s act on the grounds that it cannot be deemed that the tax authority expressed a public view

In light of the relevant legal principles and records, the judgment of the court below is just, and there is no error of law by misapprehending the legal principles on the principle of good faith.

4. Conclusion

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 Kim Shin (Presiding Justice)