Whether a decision of estimation is legitimate on the ground that there is no evidence of sale of drugs

When there is no necessary evidence in calculating the tax base of value-added tax and global income tax, sales shall be calculated by applying the total profit ratio of the relevant type of business.

Article 21 of the Value-Added Tax Act

Article 80 of the Income Tax Act shall be decided and corrected.

All of the plaintiff's objection cases are dismissed.

Litigation costs shall be borne by the plaintiff.

The Defendant’s imposition of KRW 27,942,490 out of KRW 3,483,720 of value-added tax for the second period of 2002 against the Plaintiff for July 1, 2005, and global income tax for the second period of 2002 39,227,030 of global income tax for the year 202 shall be revoked.

1. Details of the disposition;

The following facts are not disputed between the parties, or may be recognized by taking into account each entry in Gap evidence 1 to 3 (including each number), Eul evidence 1, 2 (including each number), and Eul evidence 3 to 7.

A. The Plaintiff is an individual entrepreneur who registered his/her business with the trade name "00 pharmacy" around June 13, 1986 and runs a drug retail business in 00 -0 - 00 - 00 - 00 - 00.

B. The Plaintiff reported each value-added tax return for the first and second half years in 2002, and reported that tax base to KRW 94,260,000 and KRW 110,500.

C. As a result of the consolidated investigation for tax revenues for the year 2002, the Defendant denied each of the above value-added tax base reported by the Plaintiff on the ground that the Plaintiff was calculated by applying the value-added tax rate of 15 through 16% to the purchase price of medicines rather than by books, such as daily newspapers, etc. or other documentary evidence. The amount of the tax imposed at KRW 176,685,040, which was estimated by applying the total profit rate of 227,32,972, which was estimated by applying the total profit rate of 28.66% to the retail business of medical supplies and medical supplies retail business for the year 2002. Here, the Defendant calculated the amount of the tax imposed at KRW 22,562,972, which was calculated by deducting the total amount of the tax already reported by the Plaintiff as above, by including the total amount of KRW 204,760,972, Jul. 1, 2005 to the amount of gross income.

D. The plaintiff filed a request for adjudgment with the Director of the National Tax Tribunal on October 14, 2005, and received a decision of dismissal on March 6, 2006, following the procedure for filing an objection.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

With respect to the pharmaceutical sales (subject to tax exemption), the Plaintiff compiled the details of health insurance medical benefits, compiled the actual amount of revenue, and reported the actual sales (subject to taxation) to the Plaintiff as the base of value-added tax, and reported the amount of income calculated by double-entry bookkeeping. The Defendant calculated the Plaintiff’s sales by estimation method, which is extremely exceptional taxation method, solely on the ground that there is no account book on simple drug sales, and made a decision on the correction of value-added tax and global income tax based thereon is unlawful against the principle of taxation or the principle of substantial taxation. In addition, it is unreasonable standard to determine whether the Defendant’s gross profit ratio of 28.66% applied to the Plaintiff’s simple drug sales or the proportion applied to the pharmaceutical sales subject to tax exemption.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

In full view of the provisions of Article 21 of the Value-Added Tax Act, Article 69 of the Enforcement Decree of the same Act, Article 80 of the Income Tax Act, and Article 143 of the Enforcement Decree of the same Act, the tax authorities shall, in principle, based on tax invoices, account books, and other evidence in determining or revising the tax base and tax amount: Provided, That in calculating the tax base, the tax authorities may estimate the tax if there are reasons under the proviso of Article 21(2) of the Value-Added Tax Act, the proviso of Article 80(3) of the Income Tax Act, the proviso of Article 143(1)

The plaintiff's assertion is that even according to the above evidence, the plaintiff filed a return on the tax base of the value-added tax and the global income tax in this case and did not submit any documentary evidence (the deposit passbook that the plaintiff submitted during a national tax proceeding cannot be called the above documentary evidence). According to the above evidence, the plaintiff submitted to the tax authority on May 18, 2005 the confirmation that the reported amount of tax sales in 2002 is calculated and reported by applying approximately 15-16% added value ratio to the amount of tax purchase as it did not keep separate books on the sales of drugs, etc. Thus, the above tax base reported by the plaintiff constitutes a time when there is no necessary documentary evidence, such as tax invoice, etc., and thus, the tax base is estimated by applying the tax base of 28.6% corresponding to the total sales profit ratio of the retail business in 2002, such as medicine, etc., and accordingly, each of the above dispositions in this case is justifiable under the proviso to Article 21 (2) of the Value-Added Tax Act, Article 69 (14)4(d) of the Enforcement Decree.

The portion of pharmaceutical products manufactured is not subject to taxation, but subject to interest at a certain ratio depending on the pharmaceutical cost, so it is not related to the application of the above ratio of gross profit. However, it is not favorable for the Defendant to apply 28.66% of the sales cost, which is not the gross profit ratio of less than 50 million won but the gross profit ratio of less than 50 million won, which is the sales cost of less than 29.66%, which is the gross profit ratio of not less than 50 million won, to the Plaintiff, and it is not unfavorable for the Plaintiff to apply the sales profit ratio of not less than 176,685,040 won which is the gross profit ratio of not less than 176,66,162 won (=the sales profit ratio of 1/66,162 won). In calculating the total profit ratio of the pharmaceutical products at KRW 28.66% (the same shall apply to the Plaintiff to the total profit ratio of 227,322,972).

Therefore, each of the dispositions by the Defendant is legitimate, and the Plaintiff’s above assertion is without merit.

3. Conclusion

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

Related Acts and subordinate statutes

[Framework Act on National Taxes]

Article 14 (Real Taxation)

(1) Where the ownership of income, profit, property, act or transaction subject to taxation is nominal, and there is another person to whom such ownership actually belongs, tax-related Acts shall apply to such person to whom such ownership actually belongs as a taxpayer.

(2) The provisions pertaining to the calculation of tax base in tax-related Acts shall apply according to the substance, notwithstanding the name or form of the income, profit, property, act or transaction.

Article 16 (Ground of Taxation)

(1) If any person liable for tax payment keeps and enters a book under tax-related Acts, the investigation and determination of the tax base of the national tax shall be based on the book kept and entered and related documentary evidence.

(2) In examining and determining national taxes under paragraph (1), if the contents of the entry are different from facts or are omitted from the entry, only such part may be determined in accordance with the facts examined by the Government.

(3) When the Government examines and determines any fact different from the contents of entry or omission in the entry under paragraph (2), the fact examined and ground for determination by the Government shall be stated additionally in the determination note.

[Valued Tax]

Article 21 (Settlement and Correction)

(2) Where the head of a district tax office having jurisdiction over the place of business, the Commissioner of the competent Regional Tax Office or the Commissioner of the National Tax Service determines or revises the tax base and amount of tax payable or refundable for each taxable period pursuant to paragraph (1), he/she shall do so on the basis of tax invoices, account books and other evidence:

1. Where tax invoices, books, and other evidence necessary for calculating the tax base do not exist or important parts are incomplete;

[Enforcement Decree of the Value-Added Tax]

Article 69 (Methods of Estimation, Determination and Correction)

(1) Estimations under the proviso to Article 21 (2) of the Act shall be made according to the following methods:

4. Calculation method by either of the following criteria determined by type of business or by region by the Commissioner of the National Tax Service:

(d) A sales profit rate which determines the ratio of the sales to the gross sales profit during a fixed period;

[Income Tax]

Article 80 (Settlement and Correction)

(3) Where the head of a regional tax office or the head of a regional tax office having jurisdiction over the place of tax payment determines or revises the tax base and amount of tax in the current year under paragraphs (1) and (2), he shall make it based on the books and other documentary evidence: Provided, That if it is impossible to calculate the amount of income by books and other documentary evidence for

[Enforcement Decree of the Income Tax]

Article 143 (Determination and Revision through Estimation)

(1) The term "reasons prescribed by Presidential Decree" in the proviso to Article 80 (3) of the Act means the cases falling under any of the following subparagraphs:

1. Where necessary account books and documentary evidence are missing or important parts are incomplete or false in the calculation of the tax base;

Article 144 (Calculation of Amount of Income at Time of Estimation, Determination and Revision)

(1) Where it is impossible to calculate the income amount of the businessman by the account books and other documentary evidence, the income amount shall be the amount calculated by the method falling under any one of the following subparagraphs

4. Calculation according to the standards falling under any of the following items determined by the Commissioner of the National Tax Service by type of business and region:

(d) The ratio of the sales to the gross sales profit to the total sales profit during a fixed period shall be set at the end; and