It is reasonable to consider that the important part of books and documentary evidence is false and that it is reasonable to determine the amount of income by estimation.

In calculating the tax base of the global income tax by reporting the amount of income under-reported or under-reported, the important part of the account books and documentary evidence is false. The bad debt of each of the instant claims is not appropriated as necessary expenses, and thus, it cannot be recognized.

Article 27 (Calculation of Necessary Expenses of Business Income)

2013Guhap3431 Revocation of Disposition of Imposing income tax

A Kim A

000 director of the tax office

on October 24, 2015

on October 21, 2015

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s imposition of global income tax of KRW 51,758,520 for the year 209, global income tax of KRW 38,424,550 for the year 2010, and global income tax of KRW 10,227,740 for the year 201 is revoked.

1. Details of the disposition;

A. From around 2009, the Plaintiff is running a credit business with the trade name of "AAA", and was registered as the trade name of "AAA" on January 1, 2011, and closed the business on July 18, 2012. The Plaintiff was working as the representative director of the said legal entity after the closure of the loan of AA, and the Plaintiff was working as the representative director of the said legal entity.

B. The Defendant conducted a personal integration investigation against the Plaintiff. The Plaintiff did not report the amount of business income of KRW 000 in 2009, KRW 0000 in 2010, and KRW 000 in 2010 in 2009 and KRW 0000 in 2010 in 2009 and 2010 in 2011. In 2009, the Defendant confirmed that the amount of business income was under-reported as KRW 000 in 2000 in 2009, by applying the standard expense rate in 2009, KRW 00 in 2010 and 2011 to the Plaintiff on January 31, 2013, by estimating the Plaintiff’s global income amount by applying the standard expense rate in 2009, KRW 00 in global income tax for 200 in 200 in 200 in 2010 and KRW 00 in 2010 in hereinafter referred to as “instant”).

C. Accordingly, the Plaintiff filed an appeal with the Tax Tribunal on April 24, 2013, and the Tax Tribunal dismissed the said appeal on September 4, 2013.

[Ground of recognition] Unsatisfy, Gap evidence 1, 2, Eul evidence 1 to 6 (including branch numbers), the purport of the whole pleadings

2. The plaintiff's assertion

A. Although the Plaintiff submitted all books and documentary evidence to the Defendant at the time of the tax investigation to determine the tax base in 2009 and 2010, the Defendant determined the amount of income in 2009 and 2010 by means of an additional investigation, not an on-site investigation, and thus, the instant disposition is unlawful.

B. The Plaintiff set up a mortgage on real estate in the name of the United StatesA while lending KRW 000 to the debtor U.S.A., but the said mortgage registration was revoked, and ② the debtor’s leastA was revoked.

Along with the loan of KRW 000, a second priority mortgage was established on the real estate under the name of the largestA, but the above real estate was sold at a voluntary auction, which was impossible to recover the above claim, and ③ a loan of KRW 000 to the debtor Cho Jae-A, which was made by forging and lending the certificate of personal seal impression and resident registration certificate of Park Jae-A, which was thereby convicted of the crime of forging public documents, and thus, during the execution of the sentence. The plaintiff was under the judgment of conviction of Park Jae-A, and thus it is difficult to recover the claim because it was difficult to recover the principal because the plaintiff cancelled the above establishment registration at the request of Cho-A. ④ The debtor lent this amount of KRW 00 to Lee-A while making a provisional registration of the ownership transfer registration on the real estate under the name of thisA, but the above real estate was sold at a voluntary auction, and thus the principal could not be recovered.

1) Therefore, each of the instant claims constitutes “a claim which cannot be recovered due to the debtor’s bankruptcy, compulsory execution, execution of a punishment, discontinuance of business, death, disappearance, or missing” under Article 19-2(1)8 of the Enforcement Decree of the Corporate Tax Act, and thus, it should be recognized as necessary expenses as “large deductible expenses” under Article 55(1)16 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 23987, Jul. 24, 2012).

2) In addition, Article 19-2(3)2 of the Enforcement Decree of the Corporate Tax Act provides for the reasons under Article 19-2(1)8.

A. The date the loss is appropriated as deductible expenses due to the occurrence of the business year in which the business operator subject to taxation continues to engage in the relevant business and pays income tax normally by reporting the income and necessary expenses for the relevant business year. Therefore, the above provision does not apply to cases where the taxpayer, like the Plaintiff, fails to have an opportunity to appropriate it as deductible expenses any longer due to the discontinuance of business.

3) The Plaintiff borrowed 000 won to LA and received only 000 won, which is the interest for three months, from LA to LA, and only 6/10 of interest was received after lending 000 won to LA. Even if the Plaintiff appears to have received the interest during the past business year, if it is impossible to recover the original claim and the amount of the claim that was regarded as the interest that cannot be collected, all of the incomes, the subject of taxation cannot be said to exist.

4) Therefore, the instant disposition is unlawful as it violates the principle of substantial taxation under Article 14 of the Framework Act on National Taxes and Article 18 of the Framework Act on National Taxes

3. Whether the instant disposition is lawful

(a) Relevant statutes;

The entries in the attached Table-related statutes are as follows.

B. Determination

1) Whether the calculation of the income amount by the method of estimated investigation is unlawful

Article 80 (3) of the former Income Tax Act (amended by Act No. 11611, Jan. 1, 2013; hereinafter the same shall apply) provides that "where the head of a regional tax office or the director of a regional tax office having jurisdiction over the place of tax payment determines or revises the tax base and the amount of tax in the relevant taxable period pursuant to paragraphs (1) and (2), he/she may determine or correct the amount based on the account books and other evidentiary documents: Provided, That where it is impossible to calculate the amount of income by the account books or other evidentiary documents on the grounds prescribed by Presidential Decree, he/she may determine the amount of income by estimation, as prescribed by Presidential Decree," and Article 143 (1) 1 of the Enforcement Decree of the same Act provides that "where necessary account books and evidential documents are nonexistent or important parts are incomplete or false in

However, as a result of the Defendant’s personal integration investigation with the Plaintiff, the Plaintiff confirmed that the Plaintiff engaged in credit business from 2009 to 201 and received interest income of KRW 000 in 2009, KRW 0000 in 2010, and KRW 0000 in 2011. However, the Plaintiff did not report the amount of income in 2009 and 2010, and reported the amount of income in 2000 won in 2009 and 2011. As seen earlier, it seems reasonable to deem that the Plaintiff’s gross income tax base for global income tax from 2009 to 201 constituted a false portion of the books and documentary evidence as necessary for calculating the global income tax base for global income tax for 2009 and that it constitutes a false portion of the books and documentary evidence. Accordingly, the Plaintiff’s aforementioned assertion is without merit.

2) Whether each of the instant claims constitutes necessary expenses as bad debt

(1) The plaintiff was 0.0 billion won for each of the above 00-A-200-Ga 1000-Ga 1000-Ga 200-Ga 200-Ga 200-Ga 200-Ga 1000-Ga 200-Ga 200-Ga 200-Ga 20-1000 for the above 0-10-Ga 10-20-Ga 200-Ga 10-100 for the above 0-20-Ga 20-Ga 20-Ga 1000 for the above 0-1-20-Ga 20-Ga 20-Ga 100 for the above 0-Ga 20-Ga 20-Ga 30-Ga 100 for the above 0-10-Ga 20-Ga 10

(B) Article 27 (1) and (3) of the former Income Tax Act; Article 55 (1) 16 of the former Enforcement Decree of the Income Tax Act

In full view of the provisions of Article 19-2(1)8 and (2) of the Enforcement Decree of the Corporate Tax Act, and Article 19-2(1)8 and (3)2 of the Enforcement Decree of the Corporate Tax Act, when calculating business income, bad debt corresponding to necessary expenses may be classified into cases where the relevant claim has not been legally extinguished and where the relevant claim has not been legally extinguished, but where, in light of the debtor’s asset situation, payment ability, etc., the financial perception that it is impossible to recover the existence of assets is impossible. "Claims which cannot be recovered due to the debtor’s bankruptcy, compulsory execution, execution of punishment, discontinuance of business, death, disappearance, missing, missing, etc." under Article 19-2(1)8 of the Enforcement Decree of the Corporate Tax Act shall be deemed as bad debt. Since the former becomes irrecoverable as a matter of course, it shall be included in the necessary expenses for the relevant taxable year (see, e.g., Supreme Court Decision 2007Du7375, Jun. 1, 2007).

(C) However, the Plaintiff’s establishment and cancellation of a mortgage on the real estate of United StatesA for the purpose of securing the instant claim ① does not constitute “a claim which cannot be recovered due to the debtor’s bankruptcy, compulsory execution, execution of punishment, discontinuance of business, death, disappearance, or missing” under Article 19-2(1)8 of the Enforcement Decree of the Corporate Tax Act.

(D) In addition, even in the case of the instant claim ②, insofar as the Plaintiff acquired the ownership of the said real estate at a voluntary auction procedure for the instant real estate held by the largestA, it cannot be deemed that it constitutes “a claim which cannot be recovered due to the debtor’s bankruptcy, compulsory execution, execution of punishment, discontinuance of business, death, disappearance, or missing” under Article 19-2(1)8 of the Enforcement Decree of the Corporate

(E) In the case of the instant claim No. 3, the actual debtor of the instant claim was sentenced to 6 years of imprisonment with prison labor for the crime of forging an official document, etc., and the execution of the instant claim is in progress.

However, in light of the aforementioned legal principles, it is reasonable to view that the Plaintiff’s obligation to keep and record books that enable the Plaintiff to calculate the amount of income pursuant to Article 160(1) of the former Income Tax Act does not include it as necessary expenses for the pertinent taxable year pursuant to Article 19-2(3)2 of the Enforcement Decree of the Corporate Tax Act, unless it is appropriated as necessary expenses for the pertinent taxable year. Meanwhile, since the Plaintiff closed its business on July 18, 2012, it is argued that Article 19-2(3)2 of the Enforcement Decree of the Corporate Tax Act does not apply to the Plaintiff’s report on closure of business, but the Plaintiff did not have any room for applying Article 19-2(3)2 of the said Enforcement Decree. However, in light of the above fact that the Plaintiff continued to engage in credit business in the name of 000 after reporting the closure of business, the Plaintiff did not have the opportunity to appropriate it in the books as necessary expenses.

As alleged by the Plaintiff, even if Article 19-2(3)2 of the Enforcement Decree of the Corporate Tax Act does not apply to the closure of a business by a taxpayer, if following the facts acknowledged earlier, the Plaintiff appears to have already known around January 20, 2010, when the Plaintiff cancelled the registration of the establishment of a new mortgage, and around December 28, 201, when the provisional registration of the right to claim ownership transfer was cancelled, the Plaintiff was closed on July 18, 2012. Accordingly, the Plaintiff was able to recognize the necessary expenses of the instant case No. 3, 4, 2010 and 2011 before the closure of business. Nevertheless, the Plaintiff failed to appropriate his claim No. 3 and 4 as necessary expenses. Thus, the Plaintiff’s aforementioned assertion is unreasonable.

3) Whether there is no taxation when the recovered loan principle falls short of the principal

In calculating the amount of gross income of non-business profits (Article 16 (1) 11 of the former Income Tax Act, and interest or commission received by a person who does not have the purpose of lending money for business temporarily and preferentially) which is one of interest income, if the relevant non-business profits fall under bad debts claims and thus the amount recovered is less than the principal, the total amount of gross income shall not be collected (Article 51 (7) of the former Enforcement Decree of the Income Tax Act). However, the Plaintiff’s interest income falls under a credit service provider that continuously and repeatedly lends money and constitutes a business income, not interest income (Article 19 (1) 11 of the former Enforcement Decree of the Income Tax Act) and Article 51 (7) of the former Enforcement Decree of the Income Tax Act does not apply. Accordingly, the Plaintiff’s above assertion is groundless.

4. Conclusion

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