In a lawsuit seeking the revocation of a tax imposition disposition, where a taxpayer’s account in a financial institution falls under sales or revenues and the amount omitted in the report is proven / Where it is difficult to readily conclude that the method of proving that the amount deposited in the account in a financial institution account in the taxpayer’s return constitutes sales or revenues, and the standard for determining whether it can be inferred and that it constitutes sales or revenues omitted

Article 16 of the former Framework Act on National Taxes (Amended by Act No. 9911, Jan. 1, 2010)

[Plaintiff-Appellant-Appellee] Plaintiff 1 and 1 other (Law Firm Gyeong, Attorneys Lee Jong-soo et al., Counsel for plaintiff-appellant-appellee-appellant-appellee-appellant-appellee-appellant-appellee-appellant-appellee-appellant-Appellee-

Plaintiff

Head of Seocho Tax Office

Seoul High Court Decision 2009Nu40751 decided February 23, 2012

The part of the lower judgment against the Plaintiff is reversed, and that part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Since the tax authority bears the burden of proving the fact of taxation requirement in a lawsuit seeking revocation of a tax imposition disposition, the taxpayer’s account constitutes sales or revenue (import). The taxation requirement of the amount omitted from the return is a principle proving that the tax authority bears the burden of proving that the amount deposited in the account of the financial institution. However, the taxpayer’s account constitutes sales or revenue may also be proved by disclosing or explaining indirect facts that can be presumed in light of the empirical rule in the specific litigation process (see Supreme Court Decision 2003Du14284, Apr. 27, 2004, etc.). In such cases, whether such presumption can be determined by comprehensively taking into account whether the relevant financial institution’s account was used as the principal deposit or management account for sales or revenue, and whether it constitutes sales or revenue regardless of the volume of sales or revenue transaction in the account, possibility of being mixed with funds other than sales or revenue, and circumstances that can easily be presumed as having been deposited in the pertinent account or revenue deposit account can not be determined as an individual account or account deposit type.

Meanwhile, the principle of free evaluation of evidence under Article 202 of the Civil Procedure Act, which is applied mutatis mutandis by Article 8 of the Administrative Litigation Act, is not necessary to be bound by the formal and legal rules of evidence, and does not allow a judge’s arbitrary judgment. Thus, the fact finding shall be in accordance with logical and empirical rules based on the principle of justice and equity based on the admissibility of evidence that has gone through legitimate evidence examination procedures, and even if the fact finding falls under the discretion of the fact-finding court, it shall not go beyond the said limit (see, e.g., Supreme Court Decision 2009Da7198, 77204, Apr. 13, 2012).

2. For reasons indicated in its holding, the lower court determined that: (a) the Plaintiff: (a) deemed that the sum of KRW 614,480,122 out of the amount deposited in the national bank account, which is the Plaintiff’s business-related account (hereinafter “instant account”) was omitted from the Plaintiff’s return of value-added tax; (b) the Defendant imposed an increase in value-added tax on the Plaintiff from February 2, 2001 to February 2, 2003 and reduced in part (hereinafter “the remaining portion”); (c) provided that most of the amount deposited in the instant account falls under the delegation fee; (d) the Plaintiff could not be excluded from paying the fees in cash; and (e) the remainder of the amount of the amount of the instant account that the Plaintiff had already been paid to the instant account, barring any special circumstances, falls under the scope of the amount of the Plaintiff’s license fees that the Plaintiff had already been paid to each of the instant account.

3. Examining the reasoning of the judgment below in light of the aforementioned legal principles and the evidence duly admitted, it is acceptable to accept the judgment below to the effect that the amount deposited in the instant account constitutes the principal account that manages the Plaintiff’s attorney’s attorney’s office fees and constitutes a high probability of constituting the Plaintiff’s office fees sales. However, it is difficult to accept for the following reasons to readily conclude that all of the remainder except the amount indicated in the “attached Form 4” constitutes a commission fee or a fee for which the report on

A. (1) First, even if there is a high probability that the instant account falls under the principal account managing the Plaintiff’s attorney’s office fees and the amount deposited into the instant account falls under the Plaintiff’s office fees sales, if there is evidence supporting that the Plaintiff was an amount irrelevant to the Plaintiff’s sales or revenue for a specific amount of deposit, and that there was a external characteristic different from the sales or revenue or that there was a transfer for other reasons in light of the date and amount of deposit, and transaction counterpart, etc., it would be difficult to readily conclude the amount of deposit as sales or revenue.

(2) In addition, according to the evidence duly admitted, it can be seen that the Plaintiff’s admission amount includes the amount of money which can be recognized as unrelated to the royalty sales, including the transactions deemed as follows, among the amount of money to be admitted that the Plaintiff raised.

(A) At the time of the original adjudication, the amount of KRW 1 million deposited in the name of Nonparty 1, No. 218, May 22, 2002, No. 2002, the amount of KRW 9 million deposited in the name of Nonparty 1, No. 217, No. 217, May 22, 2002, and KRW 9 million deposited in the name of Nonparty 1, May 22, 2002

Nonparty 1 filed an application for formal trial with a summary order of KRW 2,50,000 for the crime of occupational injury and death, and delegated the Plaintiff with the legal representation for the above criminal case case. The Plaintiff issued a tax invoice of KRW 1,00,000 on April 23, 2001 with respect to the fees for the civil and criminal case of Nonparty 1, and a tax invoice of KRW 1,50,000 on August 6, 2001 with respect to the fees for the civil and criminal case of KRW 1,50,000 for each civil case, and reported the sales of KRW 1,50,000 for each criminal case, and Nonparty 1 deposited KRW 1,50,000 on the part of the victim under the pretext of agreement while the civil case is in progress, and thus, it is highly probable that each of the above fees for the civil and criminal case under the name of Nonparty 1 constitutes a part of the fees for acceptance or adjustment to the victim.

(B) Attached Form 2, No. 281 No. 281, March 31, 2003, deposited in Nonparty 2’s name

The plaintiff owned ○○ apartment 317 Dong 1602 in Seongbuk-gu, Sungnam-si. However, on May 14, 2003, the plaintiff's children resided in the above apartment and went to the director on May 14, 2003. On March 31, 2003, Nonparty 2 transferred KRW 22 million to the account of this case in the name of the plaintiff. The non-party 2 reported the transfer to the above apartment on June 18, 2003 and resided until January 19, 2005. Thus, it is highly likely that the above entry amount in the name of the non-party 2 constitutes part of the lease deposit for the above ○ apartment owned by the plaintiff.

(3) In addition to the above circumstances and the circumstances acknowledged by the court below, considering the fact that a considerable amount of money is unrelated to the commission fee, it shall not be readily concluded as the commission fee sales or revenue, without examining whether there exists any material supporting the transfer of money due to external characteristics, such as the date and number of deposits, the transaction partner, and the circumstances, etc., separated from the sales or revenue, or any other reason, as alleged by the plaintiff, in light of the fact that the considerable amount of money was irrelevant to the commission fee.

B. (1) Next, even if it is highly probable that the amount deposited in the instant account falls under the Plaintiff’s fee, if the Plaintiff asserts that the amount deposited is the amount reported as a commission fee and the materials supporting the relationship between the amount deposited and the amount reported as a commission fee are submitted, it is doubtful whether it can be readily concluded that all the amount deposited is an omitted fee in the report on sales.

(2) In addition, according to the evidence duly admitted, it can be seen that the amount of the Plaintiff’s admission includes the following amount of input fees that can be deemed overlapping with the fees reported on sales, including transactions deemed as follows:

On September 23, 2002, when the Plaintiff entered into an agreement on the acceptance of the case with Nonparty 3 and Nonparty 4 for a criminal case (Appeal Court), the Plaintiff determined the acceptance fee as “paid money: KRW 2.5 million (excluding value added tax), and the contingent fee: KRW 5 million at the time of the judgment of innocence: The Plaintiff received from Nonparty 3 the transfer of KRW 2.75 million to the instant account from Nonparty 3 on September 27, 2002. The Plaintiff issued a tax invoice of KRW 1.5 million with respect to the above criminal case fees and reported the sale of KRW 1.5 million with the acceptance fees. Accordingly, it is highly probable that the Plaintiff constitutes the above criminal case fees and filed a report on the sale of KRW 1.5 million with respect to the portion thereof.

(3) In light of the above circumstances, with respect to the amount deposited in the instant deposit account disputing the Plaintiff’s amount of sales already reported as commission fees, it shall not be readily concluded as sales or revenues, without specifically determining whether the amount overlaps with the commission fees already reported, in light of the date, amount, circumstances, and transaction counterpart, etc. of deposit.

4. Nevertheless, the lower court concluded otherwise based on the following circumstances: (a) based on the circumstance that the instant account constitutes the principal account that manages the Plaintiff’s commission fees, and without sufficiently examining and determining the probability that the amount of deposits is not paid or the amount already reported, based on the details of deposits, the relationship between the depositor and the Plaintiff, and the number of deposits, etc., expressed by the Plaintiff by each type of individual admission fees or the amount of deposits; and (b) concluded that the instant account constitutes the principal account that manages the Plaintiff’s commission fees, all of the amount of deposits except the amount specified in the attached Table

In conclusion, the lower court erred by misapprehending the legal doctrine regarding the burden of proof of sale and omission of a taxpayer, or by failing to exhaust all necessary deliberations beyond the bounds of the principle of free evaluation of evidence against logical and empirical rules, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning

5. Therefore, the part of the lower judgment against the Plaintiff is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim So-young (Presiding Justice)