National High Court Decision 2005No1298 (Law No. 12, 2006)

Whether the artificial park expenses can be depreciated as assets by type of business by dividing the costs of expanding the building into the cost of building and the artificial park expenses.

The cost of expanding the hospital building was depreciated by dividing it into the building portion and the artificial construction cost, and the extended construction cannot be regarded as clearly separating the building from the building or having an independent value, and the extended construction cost is added to the building value at the cost of extending the service life and the value of the building, and the capital expenditure of the building falls under the capital expenditure in view of the content and size of the interior construction.

The contents of the decision shall be the same as attached.

Article 63 (Durable Years and Depreciation Rate)

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of global income tax of KRW 108,75,920, global income tax of KRW 353,135,790, global income tax of year 2001, and global income tax of KRW 187,837,260 for year 202 is revoked.

1. Details of the instant disposition

The following facts are not disputed between the parties, or acknowledged by comprehensively taking account of the overall purport of the pleadings in each of the evidence Nos. 1, 2, 3, 2, 2, 3, 2 through 6, 7-1, 2, 3, 8, 9, 10, 11-1, 2, 3, 12-1, 2, 12-1, 2, and 18.

A. On August 31, 2000, the Plaintiff operated an Ansan Hospital (hereinafter referred to as the “instant hospital”) with the trade name called ‘○○○○○○○-5 building on the ground (hereinafter referred to as the “former Building”). On August 31, 200, the Plaintiff extended the building on the land located in the same 234-13 building adjacent to the said land, and completed the registration of ownership preservation on May 8, 2001 by combining the old building and the new building (hereinafter referred to as the “instant building”) with one unit of building (hereinafter referred to as the “instant building”). From around that time to around 202, the Plaintiff continued to operate the instant hospital and the instant building on the land located in the same 234-13 building.

B. During the period from 2000 to 2002, the Plaintiff confirmed the Plaintiff’s total revenue amount as KRW 4,110,515,301, KRW 4,973,016,026, KRW 4,347,55,041, KRW 113,013,013, KRW 408, KRW 1380,252, KRW 729, and KRW 889,73,605 for the year 2002.

C. However, from December 1, 2003 to February 14, 2004, the Defendant discovered that, during the period from 2000 to 2002, the Plaintiff filed a global income tax return by omitting the following (1) amount from the total income amount, including the excessive amount of paragraph (2) in necessary expenses.

(1) The omission of import

D Food Inspection Expenses 11,700,000 won (90,000 won for the year 2000, 4,100,000 won for the year 2001, 6,700,000 won for the year 2002), food operation expenses 2,80,000 (for the year 2001), ICL surgery expenses 6,000,000 (for the year 2002), 132,725,464 won for the revenue of ○○○○ (for the year 2001, 63,282,273 won for the year 2001, 69,43,191 won for the year 2002)

(2) Excessive inclusion of necessary expenses

(A) The amount of depreciation costs of a building exceeding 429,839,153 won (282,242,025 won for the year 201, 147,597,128 won for the year 200): The plaintiff shall be deemed as 1,014,326,255 won (45 won for the expansion of a building, 49,500, 49,5000, 1,064,000 and 1,064,80,000 won for the total lifespan of 20 years from 200,000 won for the building; the amount of depreciation costs of the building exceeding 20,000 won for the year 25,00 won for the building; the amount of depreciation costs of the building to be reverted to 40,50,000 won for the year 20,000 won for the total lifespan of the building; the amount of depreciation costs of the building to be reverted to 25, 45,5,05, etc.

(B) Welfare expenses, etc. 454,472,589 won (158,685,126 won for 200, 167,014, 668 won for 2001, 128,772,795 won for 2002): news-related expenses or irrelevant to duties;

(C) Interim retirement allowances of 181,204,00 won (96,304,000 won belonging to year 2001, and 84,900,000 won belonging to year 200): Processing disposition

(D) 8,838,280 won for automobile lease (29,612,760 won for year 200, 29,612,760 for year 200, 29,612,760 won for year 2001, and 29,612,760 won for year 202)

(E) 49,300,000 won for free food operation expenses for 17 fire officers (al.e., 202)

D. Accordingly, on April 10, 2004, the Defendant added the amount of the above C.(1) revenue, and added the amount of the above C.(2) to the necessary expenses. On April 10, 2004, the Defendant issued a correction and notification by increasing the amount of the above C.(1) revenue to the Plaintiff to KRW 128,945,547, global income tax for the year 2002, global income tax for the year 2001, global income tax for the year 371,190,837, global income tax for the year 2002, global income tax for the year 224,254,240 won for the year

E. On July 5, 2004, the Plaintiff filed an objection against the Defendant. The Defendant, on December 3, 2004, made a partial decision of acceptance that the amount of the above C. (2) (e) (e) should be included in the necessary expenses of the global income tax for the year 2002, and accordingly, made a correction and notification by reducing the global income tax amount for the year 224,254,240 won to 201,498,60 won.

F. On February 28, 2005, the Plaintiff filed a request for adjudgment with the National Tax Tribunal. On May 12, 2006, the Director of the National Tax Tribunal made a partial decision of acceptance that the amount of the above C.(2)(d) should be included in the necessary expenses for each taxable period.

G. Accordingly, on May 26, 2006, the Defendant issued a correction and notification by reducing the global income tax amount of 128,945,547 won for the year 2000 as 108,754,920 won, the global income tax amount of 371,190,837 won for the year 2001 as 353,135,790 won, and the global income tax amount of 201,498,600 won for the year 2002 as 187,837,260 won (hereinafter “instant disposition”).

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The plaintiff asserts that the disposition of this case contains an error of law in misunderstanding the tax base as follows, and sought the revocation thereof.

(1) The portion of the income from a warning point

Of the revenue amount of the above C. (1) added by the Defendant to the total revenue amount at the time of the instant disposition, the ○○○○○ Branch was operated under the name of Song Young-young, an employee of the instant hospital, under the name of another employee, and the Plaintiff is not entirely related to the Plaintiff. Therefore, the part on the revenue of the above-mentioned store cannot be viewed

(2) Building depreciation cost part

In light of the characteristics of the Plaintiff’s construction work as part of the interior interior interior interior interior interior interior interior interior interior interior interior interior interior construction cost, etc. from around 2001 to around 2002, the part of KRW 58,166,648 spent during the repair process of the instant building should be mainly related to the landscape of the instant building, and its replacement construction should be carried out from time to time. However, the instant disposition is unlawful, even though the depreciation lifespan is not a capital expenditure for the instant building with 40-year reinforced concrete construction cost, but a depreciation lifespan is four years, not for the instant building. However, the disposition of this case, which the Defendant imposed the depreciation lifespan on the Defendant by deeming all of the aforementioned disbursement costs as a capital expenditure for the instant building and imposing the depreciation lifespan for 40 years.

(3) Part of interim retirement allowance

The Plaintiff paid an interim retirement allowance of KRW 181,204,00 to its employees with the consent of the instant hospital employees from 2001 to 2002, but the Defendant did not reflect it as necessary expenses in rendering the instant disposition. As such, the amount should be included in the necessary expenses.

(4) Parts of welfare expenses, etc.

The Plaintiff spent 454,472,589 won in total, including welfare expenses, entertainment expenses, and expendable goods, in relation to the business division of the instant hospital during the period from 2000 to 2002, but the Defendant did not reflect it in the necessary expenses in rendering the instant disposition. As such, the amount should be included in the necessary expenses.

B. Relevant statutes

Article 14 (Calculation of Tax Base of the former Income Tax Act)

Article 27 (Calculation of Necessary Expenses of the Gu Income Tax)

Article 33 (Non-Inclusion of Necessary Expenses)

Article 80 (Determination and Correction of former Income Tax Act)

Article 55 (Calculation of Necessary Expenses for Real Estate Rental Income, etc.)

Article 61 (Expenses Related to Household Affairs, etc.)

Article 62 (Calculation of Depreciation Costs as Necessary Expenses)

C. Determination

(1) The portion of the revenue from the border point of view [the above part claimed in paragraph (1)]

(A) As to whether the Plaintiff is the actual business owner of the above within the boundary point, the following circumstances, i.e., the name of the business owner of the above boundary point, prior to ○○ who is in office as the chief inspector of the hospital, is currently in office as the head of the public prosecutor’s office of the above hospital, and most of the principal deposit accounts of the above boundary points are being in office as the head of the above hospital’s office. Accordingly, the Plaintiff asserted that the actual business owner of the above within the boundary point was only in the name of the business owner under the title of ○○, and that only the name of the business owner was 0,00,000,000,000,000,000,000,0000,000,000,000,000,000,000,000,000,000,000,000,00,000,00,00,00.

(B) Accordingly, the Plaintiff’s assertion on this part is rejected.

(2) The part concerning the depreciation costs of the building [the part concerning the claim of the above A. (2)]

(A) Comprehensively taking into account the following facts: (a) No. 4, No. 7-1, 2, 3, and 12-1, 2-2, and 18-2, and the result of the on-site inspection and the purport of the pleadings of this court, the Plaintiff removed one wall of the 4-story buildings (98.75m2) used as the instant hospital; and (b) extended the construction cost of No. 2 to 40-6 new building (7m2) calculated on the land located in the same ○○-13m2, which was adjacent thereto, for 60-5m2; (c) the amount calculated on May 30, 200; (d) the amount calculated on the 205m2, which was calculated on the 40-year basis of the Enforcement Decree of the Corporate Tax Act, to be reverted to 160-5m25m2, the total construction cost of the instant building; and (d) the amount calculated on May 28, 2000.

(B) According to Article 55(1)14 of the Enforcement Decree of the Act, the cost of repairing fixed assets for business is added to the acquisition value as capital expenditure for the extension of the lifespan or the actual increase of the value thereof. Therefore, such cost is not wholly included in necessary expenses for the pertinent year, but only the depreciation costs within the scope of scope of scope through depreciation based on acquisition value may be included in necessary expenses (see, e.g., Supreme Court Decision 98Du18374, Dec. 10, 1999).

(C) Comprehensively taking into account the facts acknowledged in the above paragraph (a) and the legal principles as seen in the above and the relevant statutes, the above part of the construction cannot be deemed clearly distinguishable from the building in physical structure or form, and it cannot be deemed as having independent value. The above construction cost appears to have been added to the value of the building in this case as the cost for extending the durable years of the building in this case or increasing the value of the building. The plaintiff also included the depreciation cost calculated for the building in the calculation of the depreciation cost for the building in this case at the time of reporting the global income tax for 2000, the plaintiff included the depreciation cost for the building in the necessary expenses, and the content and scale of the interior interior interior interior interior interior interior interior decoration construction as alleged by the plaintiff. As long as the building in this case constitutes capital expenditure of the building in this case, so long as the building in this case constitutes the building in reinforced concrete building, it is reasonable to deem the standard durable years to be 40 years, and the scope of durable years of the building in this case cannot be included in the total depreciation cost calculated according to the construction cost.

(D) Accordingly, we cannot accept the Plaintiff’s assertion on this part.

(3) Part of the interim retirement allowance [the part concerning the claim in paragraph (1)(3)];

(A) Examining whether the Plaintiff paid KRW 181,204,00 to the employees of the instant hospital during the period from 2001 to 202, considering the fact that the Plaintiff’s interim retirement allowance was paid to the employees of the instant hospital with KRW 181,20,00, Party 2, Party 3-1, Party 2, Party 7, Party 8, Party 15, Party 18, Party 19, Party 20, Party 20, Party 2, and Party 3’s witness Kim Jong-○, each of the testimony was 8, Party 10, Party 10, Party 20, Party 20, Party 20, Party 20, Party 20, Party 20, Party 20, Party 20, Party 20, Party 20, Party 20, Party 30, Party 20, Party 20, Party 30, Party 30, Party 20, Party 20, Party 3.

(B) Accordingly, we cannot accept the Plaintiff’s assertion on this part.

(4) Parts of welfare expenses, etc. [the part on the claim of the above A. (4)];

(A) Since the tax authority bears the burden of proving the legality of taxation, necessary expenses, which are the basis of the determination of taxable income, in principle, the tax authority bears the burden of proving the burden of proof. However, as necessary expenses are more favorable to the taxpayer, and most of the facts constituting the basis of necessary expenses are located within the control area of the taxpayer, so the tax authority has difficulty in proving the burden of proof, and thus it is reasonable to have the taxpayer prove the burden of proof in consideration of the difficulty of proof or equity between the parties concerned (see, e.g., Supreme Court Decisions 91Nu10909, Jul. 28, 1992; 97Nu13894, Jul. 10, 198). In particular, it is necessary to prove that a tax invoice on some of the expenses reported by the taxpayer has been falsely prepared without real transactions, so that it is considerably proven whether it is an actual cost, and that it is easy for the taxpayer to prove the amount of expenses, such as the cost claimed by the taxpayer and the other party to the payment.

(B) Examining the above legal principles as follows: (a) the Plaintiff’s total of KRW 5 and KRW 100 were not included in the necessary expenses; (b) KRW 512,57,268; (c) total of KRW 72,424,94; (d) KRW 2310,201; (e) KRW 116,729,124; (e) total of KRW 74,70,75,85,260; (e) total of KRW 30,770; (e) KRW 70; (f) KRW 70; (f) KRW 70; (f) KRW 30; (f) KRW 40; (f) KRW 75; (f) KRW 70; (f) KRW 30; (f) KRW 40; (f) KRW 75; (f) KRW 260; (f) KRW 360; (f) KRW 360; and (c) KRW 25460,25,200.

(C) However, according to the evidence submitted by the plaintiff, each of the plaintiff evidence Nos. 5 and 6 was a document stating or arranging the statement, etc. of the staff of the hospital of this case. With respect to the disbursement without the receipt of the article No. 16-1 through 267, No. 17-1 through 37, No. 17-17, and No. 39 through 43, each of the above evidence Nos. 17 was merely a written disbursement resolution prepared by the hospital of this case. The evidence No. 38 of the evidence No. 17 was not revealed related to the operation of the hospital of this case. Each of the evidence No. 18, No. 19, and No. 20 was a document submitted by the plaintiff at the time of investigation No. 1.C., and most of the documents submitted by the defendant were consistent with the above documents and the necessary expenses reported by the plaintiff. Thus, the defendant submitted evidence No. 18, No. 19, and No. 20 was no longer acceptable as necessary expenses for the plaintiff No. 45 of this case.

(E) Therefore, we cannot accept the Plaintiff’s assertion on this part.

3. Conclusion

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