Dai Construction (Law Firm Hong, Attorney Park Jae-hoon, Counsel for the plaintiff-appellant)

Head of Dong District Office

July 10, 2014

1. The disposition taken by the Defendant against the Plaintiff on January 2, 2013, including the imposition of corporate tax for the year 2009 KRW 1,916,145,541 and the notice of changes in the amount of income, shall be revoked.

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

The same shall apply to the order.

1. Details of the disposition;

A. On June 1, 2005, the Plaintiff (a limited company before the merger) was established and engaged in the housing construction business, etc. The Plaintiff was merged with the Plaintiff on September 28, 2009. On April 29, 2010, the Plaintiff was merged with the target construction company, the Dominss Domins Domins Domins (hereinafter “Wing Domins”) and the Limited Company Construction (hereinafter “Wing Domins Construction prior to the merger”) (hereinafter “Wing Domins”). Thereafter, the Plaintiff’s trade name was changed from the Domins Limited Company on July 12, 2010 to the Damin Construction (hereinafter “Bing Domins”). Meanwhile, after the merger, the Plaintiff comprehensively succeeded to the rights and obligations of the Domins and Domins Construction prior to the merger, but then divided the Plaintiff into each of the above corporations under the convenience of the merger.

B. The mining of the merger before the merger, key construction, and Healthy are an affiliated company of the original construction company (hereinafter “original construction”), which was established for the purpose of construction and sale of the old apartment located in Kimhae-si in 2005. After the completion of the sale of apartment units, only one corporation was merged with the Plaintiff company and continued to exist. The current shareholder status of each of the above corporations prior to the merger at the time of the business year 2009 is as indicated in the list of shareholders by each of the following corporations.

The number of shareholders of the corporation prior to the merger as to the number of the number of the number of the shareholders of the listed corporation included in the main sentence shall be 32,000 minton Construction Co., Ltd. 32,12,400 Gaon Construction Co., Ltd. 813,950 Gaon Construction Co., Ltd. 16,200 Gaon Engineering 12,400 Gaon Engineering 65,580 Gaon Engineering 12,400 Gaon Co., Ltd. 65,580 23,100 16,40 16,40 23,100 Gaon and 42,170 Non-party 42,170 Gaon 91,550 Gaon Construction

C. Article 21(2) of the Articles of incorporation of the Korea Development Bank prior to the merger provides that “the retirement allowance of an executive officer shall be governed by the rules on the payment of retirement allowances for executive officers determined by a resolution at a general meeting of members,” and Article 25 (Transitional Provisions) provides that “the provisions on retirement allowances under Article 21(2) shall apply from July 1, 2009.” The above company, after holding a temporary general meeting of members on October 30, 2009, adopted a resolution on the payment of retirement allowances for executive officers with the contents of “the average wage for the three months immediately preceding the retirement 】 the number of years of office 】 the payment rate of the retirement allowances for executive officers 】 (20 times). Accordingly, on December 31, 2009, the company paid the retirement allowances for executive officers Nonparty 2 (the date of entry: June 1, 2005) who retired on December 31, 2009, as set forth below the rules on temporary retirement allowances in the minutes.

1. Table 1. Officers (Directors and Auditors)’ remuneration included in the main sentence shall be determined by the resolution of the general meeting of shareholders. 2. The retirement allowance shall be paid to retired executives as follows. The payment rate of the scope of persons eligible for payment, the average wage for the three months prior to the retirement of directors and auditors x the payment rate x 20 times x 3.20 times x the payment rate; and 4. The period of his/her continuous service under paragraph (2) shall be from the date of his/her continuous service shall be excluded until the date of his/her continuous service, but the period of his/her continuous service shall be less than one year, and the period of his/her continuous service shall be less than one month shall be less than one month. 4. The retirement allowance shall be paid even if his/her continuous service period is less than one year; 5. If an officer who has contributed specially to the development of the company retires, he/she may be paid a separate retirement allowance within the limit of 100

D. Article 21(2) of the Articles of Incorporation (Remuneration and Retirement Allowance) provides that “The retirement allowance of an executive officer shall be governed by the rules on the payment of retirement allowances for executive officers determined by a resolution at a general meeting of members,” and Article 25 (Transitional Provisions) provides that “the provisions on retirement allowances under Article 21(2) shall apply from July 1, 2009.” The above company held a temporary general meeting of members on October 30, 2009 and resolved on the payment of retirement allowances for executive officers with the contents of “the average wage for the three months immediately preceding the retirement x the number of years of office x the payment rate of payment (20 times)” and accordingly, on September 28, 2009, paid 1,963,05,383 won to executive officers Nonparty 1 (the date of entry: June 1, 2005) (the date of temporary retirement allowance) who retired from office on September 30, 2009.

E. Article 34 (Remuneration and Retirement Allowance) of the articles of incorporation prior to the merger provides that "the remuneration or retirement allowance of an executive officer shall be determined by the resolution of the general meeting of shareholders." According to the minutes of the general meeting of shareholders as of July 1, 2009, the above company held the same day and held the general meeting of shareholders, and then decided to pay the retirement allowance to the executive officer's retirement allowance at the time of retirement x "average wage of three months prior to the retirement x holding x payment rate x 20 times (20 times)". Since then, the above company paid 1,812,193,286 won to the executive officer's non-party 4 (the date of entry: May 27, 2005) who retired on December 23, 2009 (the minutes of the general meeting of shareholders as of July 1, 2009, each of the above provisions concerning the payment of the retirement allowance to the executive officer's retirement allowance of each of the above cases hereinafter referred to as "non 2".

F. The officer Nonparty 2 and Nonparty 1, who received each of the above retirement allowances from minging minging, KIKOing, and Heathing (hereinafter referred to as “the following”) prior to the merger, is the child of Nonparty 3, the president of the original Construction, who is an affiliated company of the Plaintiff, and Nonparty 4 is the non-party 3’s fraud (hereinafter referred to as “non-party 1, etc.”), and the officer Nonparty 4 is the non-party 3’s fraud (hereinafter referred to as “non-party 1, etc.”).

G. Meanwhile, the details of benefits paid in 2008 and 2009, immediately before the merger, by Nonparty 1, etc., to the officers, etc., prior to the retirement are as follows:

Of January 2008 to December 2009 from January 2009 to August 2009, 2009, Nonparty 15,389 5,389 5,389 30,000,500 - 30,000 - Nonparty 25,3895,389 5,3895,389,389 5,389 20,000, 2000,25,2000,200,000, 2000,000, 2000,000, 200,000, 200,000,000, 200,000, 2005, 2008, 2000, 2000, 2008, 2000, 2000

H. The Defendant calculated the maximum amount of retirement benefits paid by each executive officer (hereinafter “the maximum amount of retirement benefits payment”) as indicated below according to the statement of “the details of re-calculation of retirement benefits x one year salary x one-one year salary x five times)” which was applied at the time of 2004 (hereinafter “former retirement benefits payment criteria”) on the ground that the retirement benefits paid to Nonparty 1, etc. who was an affiliated company of the Plaintiff, etc. before the merger, deeming that the retirement benefits paid to the executives Nonparty 1, etc. were excessive under the social norms, and excluded the amount exceeding the maximum amount of each retirement benefits payment under each of the above reports made by Nonparty 1, etc. as excessive retirement benefits.

(a) The estimated amount of retirement allowance (b) paid (c) for the year immediately preceding the year (b) year of retirement allowance (b) (c) year (c) year of retirement allowance (c) (e) (i.e., excessive payment (excluding deductible expenses) (d) (i.e., non-deductible 1,963,05, 383 64,674, 400 28,025,025, 400 140,126,99 1,822, 928, 384 non-party 21,795,71,6064,674,674, 29, 305, 505, 1605, 5016, 5016, 505, 1964, 1665, 1667, 1964, 1667, 2084, 1667, 1967

I. Accordingly, on January 2, 2013, the Defendant issued a revised and notification of corporate tax for the business year 2009 as indicated below in the table of “the details of notification of changes in corporate tax and income amount,” and disposed of each excess amount as the recognition of each officer, and notified the changes in income amount (hereinafter “instant disposition” in addition to the disposition of imposition of corporate tax and notification of changes in income amount).

In the table (unit: prime) included in the main sentence, the notice of change in the income amount of the corporate tax to which the corporate corporation was reverted prior to the merger shall be included in the income amount of the 680,205,03 non-party 1,822,928,384 Key Construction, June 21, 2009,075, non-party 21,657, non-party 21,650,195,100 Hebling f14,865, non-party 41,66, 676,786, 209.

(j) On December 12, 2013, 2013, the Director of the Tax Tribunal dismissed each request for adjudication on February 13, 2014, against the instant disposition.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 7, Eul evidence 1 to 6, and Eul evidence 9 (including branch numbers), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Articles 19 and 26 of the Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; hereinafter “Corporate Tax Act”) provide that personnel expenses shall be included in deductible expenses, in principle, and that personnel expenses deemed excessive or unjust as prescribed by the Presidential Decree shall not be included in deductible expenses. Accordingly, Article 44(4) of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 21972, Dec. 31, 2009; hereinafter “Enforcement Decree of the Corporate Tax Act”) provides that where the amount to be paid as retirement benefits is determined by the articles of incorporation, the amount exceeding the amount stipulated by the articles of incorporation of the corporation shall be excluded from deductible expenses among the retirement benefits paid by the corporation to the officers. The maximum retirement benefits of the officers prior to the merger shall be included in deductible expenses. However, the Defendant’s arbitrary payment of retirement allowances to the officers prior to the merger should also be included in deductible expenses, which goes against the principle of no taxation without the law.

2) The wrongful calculation panel under Article 52 of the Corporate Tax Act applies to cases where a specific corporation’s tax burden on the corporation’s income is deemed to have been unjustly reduced due to transactions with a specially related person. It cannot be viewed as an individual transaction by setting, mining, etc. that paid retirement benefits to the executives through a temporary general meeting of members pursuant to the articles of incorporation, and the above officers’ payment of retirement benefits to each of the above companies is not in the position of a specially related person. As such, the unfair calculation panel cannot be applied to retirement benefits payment acts such as mining, etc. before the merger. However, the instant disposition that was made based on the premise that the payment of retirement benefits falls under an unfair act

3) Even if the programming prior to the merger does not include the excessive amount of retirement benefits paid to the officers, the former retirement allowance payment criteria applied by the Defendant in calculating the maximum amount of retirement benefits paid by each officer does not have any legal basis. Thus, the instant disposition is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Relevant regulations and legal principles

A) Article 52(1) of the Corporate Tax Act provides that “Where the head of a tax office or the head of a regional tax office having jurisdiction over the place of tax payment deems that a domestic corporation’s act or calculation of its income amount has reduced unreasonably the tax burden on the corporation’s income through transactions with a person with a special relationship prescribed by Presidential Decree (hereinafter “person with a special relationship”), he/she may calculate the income amount for each business year of the corporation regardless of the corporation’s act or calculation of its income amount (hereinafter “Calculation by wrongful acts”), and Paragraph (2) of the same Article provides that “in applying paragraph (1), it shall include sound social norms and commercial practices, and prices applied or deemed applicable to normal transactions between persons who are not a person with a special relationship (including rates, interest rates, rents, exchange rates, and other similar rates; hereafter in this Article “market price”) and Paragraph (4) of the same Article provide that “the person with a special relationship with the corporation concerned” under Article 87(1)2 of the Commercial Act shall be excluded from the category of wrongful acts and determination of its market price.” Under delegation, Article 87(1) of the Corporate Tax Act provides that “person with a special relationship”

In this context, the denial of wrongful calculation is a system that, in a case where a corporation’s transaction with a person with a special relationship without a reasonable method and without using a certain type of transaction listed in each subparagraph of Article 88(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20058, Dec. 13, 2007; Presidential Decree No. 20058, Dec. 13, 2007; Presidential Decree No. 20058, Feb. 23, 2007; Presidential Decree No. 200687, Feb. 22, 2007; Presidential Decree No. 20135, Feb. 23, 2007; Presidential Decree No. 200687, Feb. 3, 200, etc.).

In addition, Article 26 of the Corporate Tax Act provides that "the amount deemed excessive or unreasonable as prescribed by the Presidential Decree among the following losses shall not be included in the calculation of losses in calculating the income amount of a domestic corporation for each business year." Article 43 of the Enforcement Decree of the Corporate Tax Act provides that "the amount in excess of the amount paid by a corporation to an executive officer according to the standards for the payment of benefits determined by the articles of incorporation, the general meeting of shareholders, the general meeting of shareholders or the resolution of the board of directors among bonuses paid by the corporation to an executive officer shall not be included in the calculation of losses." Paragraph (3) provides that "if the remuneration paid by a corporation to an executive officer or employee who is the controlling shareholder (including a person in a special relationship with the controlling shareholder; hereinafter the same shall apply) exceeds the amount paid to an executive officer or employee other than the controlling shareholder in the same position without justifiable grounds, such excess amount shall not be included in the calculation of losses." Paragraph (4) provides that "the remuneration paid to a part-time executive officer of a corporation shall be included in the calculation of losses."

In light of the language and structure of the above provisions, legislative purport, and the following circumstances as well as the contents and purport of the wrongful calculation of pinine, i.e., ① labor cost paid by a corporation to its executives and employees (wages, salary and allowances, bonuses, pensions, retirement allowances, or other similar salaries) cannot be deemed as losses for all business years, and the amount deemed excessive or unjust for labor cost should be deemed as non-deductible expenses; ② Article 43(4) of the Enforcement Decree of the Corporate Tax Act provides that remuneration paid to an officer of a corporation who is not a full-time employee shall not be included in deductible expenses if it falls under the object of the wrongful calculation under Article 52 of the Corporate Tax Act; ③ when a corporation pays retirement allowances to an officer, the corporation and the officer who received retirement allowances is a specially related person under the Corporate Tax Act, and it is reasonable to view that the payment of retirement allowances to an officer of the corporation was made in excess of a certain standard, and thus, it is reasonable to view that there was an unfair calculation under Article 88(1) of the Corporate Tax Act that the said Act has been made for the same officer’s profit.

B) Meanwhile, Article 44(4) of the Enforcement Decree of the Corporate Tax Act provides that "the amount in excess of the amount falling under any of the following subparagraphs from among retirement benefits paid to an executive of a corporation shall not be included in the calculation of losses;" subparagraph 1 provides that "where the amount to be paid as retirement benefits (including retirement benefits, etc.) is determined by the articles of incorporation;" subparagraph 2 provides that "in cases other than subparagraph 1, the amount of gross pay paid to the relevant executive for one year retroactively from the date of his/her retirement (excluding non-taxable income under Article 20(1) 1 (a) and (b) of the Income Tax Act (excluding non-taxable income under Article 12 of the same Act), but the amount not included in the calculation of losses pursuant to Article 43 shall be excluded) by the number of years of continuous service calculated by the method prescribed by Ordinance of the Ministry of Strategy and Finance." In such cases, where the relevant executive has not been paid from his/her employee, the period of continuous service may be included in the calculation of retirement benefits under Article 14(5).2).

Article 44(4)1 of the Corporate Tax Act provides that “The provision on the payment of retirement allowances for executives stipulated in the articles of incorporation of a corporation must be amended by the articles of incorporation in order to increase retirement allowances as a fundamental rule on the operation of the corporation.” Thus, it is difficult for the corporation to pay excessive retirement allowances for its executives to a relatively low risk of reducing its income.” (2) As seen earlier, if the corporation’s remuneration, bonuses, retirement allowances, etc. paid to specific executives, etc. are abnormal economic rationality in light of sound social norms or commercial practices, the corporation’s tax burden on its income shall be reduced unfairly by allocating profits to specific executives, and it is reasonable to deem that the above provision on the payment of retirement allowances for executives under the articles of incorporation of a corporation should not be arbitrarily determined by the articles of incorporation of the corporation, and the above provision on the payment of retirement allowances for executives under the articles of incorporation of a corporation should not be applied to a certain amount of retirement allowances for each of its executives without any specific reason.”

2) Whether the calculation is subject to the avoidance of wrongful calculation, and whether the payment provisions of each officer retirement allowance in the instant case are applied

In light of the above legal principles, it is reasonable to see the following circumstances that can be seen as admitting the purport of the entire argument as seen earlier, namely, ① the principal shareholder, such as the prime shareholder prior to the merger, including the original Construction Chairperson, his family members, and relatives, etc., exercises de facto influence on the management of the original construction before the merger. In particular, Nonparty 2 and Nonparty 1 are the children of the original Construction Chairperson, Nonparty 3, Nonparty 4 was Nonparty 3’s deceptive act, ② Nonparty 1’s annual salary for the year immediately before the merger, which was 4 years before the merger, was 6,400 won in total, while Nonparty 1’s retirement allowance received from each of the above companies reaches KRW 1.8 billion to KRW 1.9 billion in consideration of the fact that, in light of the fact that: (a) the former establishment of the merger, etc., took place with Nonparty 1’s financial burden on the officers, etc.; and (b) it is reasonable to 300 times in view of the fact that Nonparty 1 paid the above amount of retirement benefit to the officers.

However, as seen earlier, Nonparty 1’s respective retirement allowances paid to Nonparty 2, etc. according to the articles of incorporation or a temporary retirement allowance of 30 million won for each of the above officers’ 10th and 10th and 30th and 10th and 5th and 10th and 10th and 5th and 10th and 10th and 10th and 10th and 5th and 10th and 5th and 10th and 10th and 10th and 5th and 10th and 4th and 5th and 5th and 10th and 10th and 6th and 6th and 6th and 6th and 3th and 6th and 5th and 6th and 6th and 10th and 6th and 6th and 6th and 5th and 6th and 5th and 106th and 5th and 14th and 106th and 106th and 3th and 10.

3. Conclusion

Therefore, the plaintiff's claim of this case is justified and it is so decided as per Disposition.

Judges Lee Woo-man (Presiding Judge)