Seocho 2012,0198 (Law No. 11, 2012.09)

If there is no tax payable due to the mixture of direct foreign tax credit and indirect foreign tax credit, the under-reported additional tax is levied.

In calculating the amount of foreign tax credit for a domestic corporation which has no foreign subsidiary, there is no error of imposing additional tax for underreporting where the remaining tax amount after mixing the amount of foreign tax credit and the indirect foreign tax credit under paragraph (4) remains in the calculation of deductible expenses and underreporting the tax base, but there is no tax amount

2012Guhap39353 Revocation of Disposition of Corporate Tax Imposition

Korea AAA Development Corporation

Head of Central Tax Office

May 24, 2013

July 26, 2013

1. All of the plaintiff's claims are dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The Defendant’s disposition of imposing corporate tax of KRW 000 and corporate tax of KRW 000 for the year 2008 against the Plaintiff on April 5, 2013 is revoked.

1. Details of the disposition;

A. The Plaintiff is a juristic person that concludes a distribution contract with state-owned enterprises, etc. in Indonesia, and only distributes profits in proportion to their share ratio, as the source of profit.

B. The Plaintiff reported tax amount of KRW 000,000, out of the foreign corporate tax amount paid in Indonesia when it returns corporate tax for the business year 2008, as the method of deducting from the corporate tax amount for the business year concerned (hereinafter referred to as "tax credit method"), the remaining 000 won was applied to the method of including it in deductible expenses in calculating the amount of income for each business year (hereinafter referred to as "deductible inclusion method"). The Plaintiff reported the tax base of KRW 000, the calculated tax amount of KRW 000, and the deducted tax amount of KRW 000, out of the amount of foreign corporate tax paid in Indonesia for the business year 2009 as the corporate tax amount attributed to the business year 209, and the remaining amount of KRW 000,000, the tax base of KRW 000, and the deducted tax amount of KRW 000,000, which was applied to the foreign corporate tax credit for

C. On January 25, 201 through March 28, 2011, the director of the Seoul Regional Tax Office conducted an integrated investigation of corporate tax against the Plaintiff for the business year from 2005 to 2009, that foreign tax credit is applied by selecting one of the methods of tax credit and the method of tax inclusion in deductible expenses. However, when the Plaintiff used the methods of tax credit and the method of tax inclusion in deductible expenses for the business year from 2008 and 2009, the amount of corporate tax base for the business year from 2008 and the calculated tax amount of 000 won was reduced. The Plaintiff confirmed that the corporate tax base for the business year from 2009 and the calculated tax amount of 000 won was insufficiently calculated, and notified the Defendant thereof.

D. (1) The Defendant: (a) selected the method of tax credit among directly paid foreign taxes favorable to the Plaintiff in relation to foreign tax credit; and (b) revised the corporate tax base for the business year 2008 to KRW 000, the calculated tax amount and the deductible tax amount to KRW 000, the additional tax amount to KRW 000, and the additional tax amount to the Plaintiff on June 2, 201. As a result, the Defendant imposed KRW 000,000, the corporate tax for the business year 2008 on the Plaintiff.

(2) In addition, in 2009, the Defendant selected the tax credit method among directly paid foreign taxes favorable to the Plaintiff in relation to foreign tax credit, and excluded 000 won from deductible expenses. In 2009, the corporate tax base for the business year 2009 was corrected by 000 won, 000 won, and 000 won, respectively. As a result, on June 2, 2011, the Defendant imposed corporate tax amount of 000 won on the Plaintiff for the business year 2009.

(3) The corporate tax belonging to the business year 2008 and 2009 that the Defendant imposed on the Plaintiff is included in the under-reported penalty tax pursuant to Article 47-3(1) of the Framework Act on National Taxes, since the total amount of corporate tax calculated for the business year 2008 and 2009 was deducted as the deducted

E. The Plaintiff, who was dissatisfied with the Defendant’s disposition of imposition on June 2, 2011, filed an appeal on December 5, 201 after filing an objection on September 8, 201, but the Tax Tribunal dismissed the appeal on September 11, 2012.

F. Meanwhile, during the instant lawsuit, the Plaintiff asserted that the disposition of imposition dated June 2, 201 by the Defendant on June 2, 201 was unlawful by stating only the total sum of the penalty taxes without disclosing the type of penalty taxes and the calculation basis thereof. Accordingly, on April 4, 2011, the Defendant revoked the disposition of imposition of KRW 000 of the corporate tax belonging to the business year 2008 and KRW 000 of the corporate tax belonging to the business year 2009, and imposed KRW 000 of the corporate tax belonging to the business year 2008 (hereinafter “the instant disposition of imposition”).

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 2, 4, 5, Eul evidence Nos. 1 through 4 (including branch numbers), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The plaintiff asserts that the disposition of this case is unlawful for the following reasons.

(1) In applying the indirect tax credit method under Article 57(4) of the former Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; hereinafter “Corporate Tax Act”), the Plaintiff only maintained the remainder remaining after inclusion in the calculation of earnings as losses by treating it as expenses on the settlement of accounts and did not combine the method of tax credit and the method of inclusion in the calculation of losses with respect to the paid foreign tax

(2) The tax amount to be paid in full in the calculation of the total amount of the foreign tax paid to the Plaintiff is equal to zero. In other words, the Plaintiff did not intentionally omit the revenue amount or appropriate the processing expenses.

(3) Even if the Plaintiff filed a proper return, it does not affect the national finance because there is no additional tax payable, and thus, it does not constitute a case where the Plaintiff neglected tax liability by unfairly infringing the Defendant’s exercise of the right to impose taxes or the realization of tax claims

(4) In the Indonesia Tax Treaty between the Republic of Korea and the Indonesia, both the indirect foreign tax credit method and the direct foreign tax credit method are applied. Therefore, imposing penalty tax on an increase in the tax base due to the difference in its application is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) With respect to foreign tax credit

Article 57 of the Corporate Tax Act provides that, in order to promote overseas expansion of Korean enterprises by preventing international double taxation on the same foreign source income and to secure neutrality between domestic investment and foreign investment in the tax burden, Article 57 of the Corporate Tax Act provides that "if the tax base of a domestic corporation for each business year includes any foreign source income, the foreign corporate tax amount as prescribed by the Presidential Decree for such foreign source income may be applied by selecting one of the methods of tax credit within a certain amount in the calculation of the foreign corporate tax amount ("direct foreign tax amount"), and Article 57 (4) of the Corporate Tax Act provides that "if the income amount of a domestic corporation for each business year includes any profit dividends or surplus distribution from a foreign subsidiary, among the amount of the foreign corporate tax levied on the income of the foreign subsidiary, the foreign corporate tax amount calculated as prescribed by the Presidential Decree corresponding to the dividend income amount shall be included in the calculation of the foreign corporate tax amount under the provisions of paragraph (1) and the method of tax credit or the method of tax credit under the provisions of paragraph (1) shall be included in the calculation of the foreign corporate tax amount of dividend income for each business year."

(2) As to the Plaintiff’s first argument

According to the above facts, the plaintiff paid directly the foreign corporate tax amount for profit distribution funds received from the State enterprises in Indonesia, and it does not receive dividend or surplus distribution from the foreign subsidiary. Thus, the plaintiff can only choose the method of tax credit under Article 57 (1) of the Corporate Tax Act, and cannot choose the method of tax credit under Article 57 (4) of the Corporate Tax Act. Nevertheless, since the plaintiff applied Article 57 (1) and (4) of the Corporate Tax Act to the amount of tax credit under Article 57 (1) 1 of the Corporate Tax Act, the plaintiff erred in applying the provisions of the Corporate Tax Act on the method of tax credit for the business year (in the case of tax credit under Article 57 (1) 1 of the Corporate Tax Act, the foreign corporate tax amount shall not be included in the deductible expenses under Article 21 (1) 0 of the Corporate Tax Act, and the amount of the foreign corporate tax amount shall not be included in the deductible expenses within the limit of 00 won under Article 57 (1) 1 of the Corporate Tax Act for the remaining amount of tax credit for the business year.

(3) As to the second assertion by the Plaintiff

(A) The Plaintiff’s total amount of corporate tax for the business year 2008 and 2009 was deducted as the deductible tax amount, and the corporate tax for the business year 2008 and 2009, which the Defendant imposed on the Plaintiff, constitutes only the under-reported penalty tax under Article 47-3(1) of the Framework Act on National Taxes.

(B) In order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under the tax law is an administrative sanction imposed under the conditions as prescribed by the individual tax law in cases where a taxpayer violates various obligations, such as a return and tax payment, without a justifiable reason, and the taxpayer’s intent or negligence is not considered. On the other hand, such a sanction is not a legitimate one because the taxpayer could not be deemed to have known of his/her obligations, or there are circumstances where it is unreasonable for the taxpayer to expect the performance of his/her obligations to do so, unless there are justifiable grounds for not being able to cause the failure to perform his/her obligations (see Supreme Court Decision 2009Du23747, May 13, 2010). According to the above facts, since Article 57 of the Corporate Tax Act on a foreign tax amount imposed by the Plaintiff to the Plaintiff for the reason that the Plaintiff did not know the provisions of Article 57 of the Corporate Tax Act on the tax amount paid to him/her in excess of the tax base amount in the business year 2008 or 2009.

(4) As to the third assertion by the Plaintiff

Article 47-3 of the Framework Act on National Taxes provides that "the tax base amount to be returned, which shall be the basis for determining whether to be subject to the additional tax for underreporting as provided for in Article 47-3 of the Framework Act on National Taxes, refers to the tax base amount calculated after adding and deducting the amount to be added as provided for in the relevant Acts and subordinate statutes, such as the Corporate Tax Act, based on the tax base amount returned by the tax authorities, and after deducting the amount to be deducted. Even if the Plaintiff did not have the amount to be paid after deducting the total amount of tax, it is reasonable to view that the amount of tax base amount is subject to the additional tax for underreporting as long as the amount of tax base

In addition, it cannot be deemed that the provision on foreign tax credit under the tax treaty between the Republic of Korea and the Indonesia can be applied in duplicate directly and indirectly to the foreign tax credit method, and the above tax treaty does not directly relate to the imposition of additional tax, and thus, the above assertion by the Plaintiff cannot be accepted on a different premise.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.