Cho High Court Decision 2013 Deputy 3629 ( October 23, 2014)

In the case where there are evident evidence to prove the suspicion of tax evasion, duplicate investigation is allowed.

Determination of the amount of total revenue of a taxpayer by investigating the amount deposited in the financial institution account of the taxpayer is subject to objectivity-based on-site investigation, and double investigation is allowed in case there is clear evidence to prove the suspicion of tax evasion.

Article 16 of the Framework Act on National Taxes

Article 81-4 (Prohibition of Abuse of Tax Investigation Authority)

2014Guhap2111 Disposition of revocation of Imposition of Value-Added Tax, etc.

OO

1. The director of the AA tax office;

2. BB director of the tax office.

May 28, 2015

June 25, 2015

1. The plaintiff's claims against the defendants are all dismissed.

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

Cheong-gu Office

1. On June 3, 2013, the head of a tax office’s disposition of imposition of KRW 000 on the first-year value-added tax for the Plaintiff in 2008, KRW 000 on the second-year value-added tax for 2008, KRW 000 on the first-year value-added tax for 2009, KRW 000 on the second-year value-added tax for 2009, KRW 000 on the first-year value-added tax for 2010, KRW 000 on the second-year value-added tax for 2010, KRW 000 on the first-year value-added tax for 201, and KRW 000 on the second-year value-added tax for 2011 is revoked.

2. On June 3, 2013, the head of Defendant BB tax office revoked each disposition imposing global income tax of 000 won for the Plaintiff in 2007, global income tax of 000 won for the year 2008, global income tax of 000 won for the year 2009, global income tax of 000 won for the year 2010, global income tax of 000 won for the year 2010, and global income tax of 000 won for the year 201.

1. Details of the disposition;

A. From November 30, 2004, the Plaintiff was engaged in beauty and beauty business, such as eyebrow surgery, with the trade name “CC,” and closed on February 13, 2012.

B. From August 29, 201 to September 16, 2011, the AAtax secretary conducted a tax investigation (hereinafter “the first tax investigation”) with respect to the Plaintiff from July 1, 2006 to June 30, 201: Value-Added Tax Investigation; Value-Added Tax Investigation; and Investigation Grounds: as a result of reviewing the contents of the report, it is analyzed that there is any omission of revenue amount; and thus, it is analyzed that there is an omission of revenue amount; and it is selected as a person subject to investigation in order to verify the propriety of the report; and confirmed the omission of cash sales; the fact that the Plaintiff filed a non-report on KRW 000 and KRW 000 of the rental revenue of real estate for the commercial buildings owned by the Plaintiff; the sum of KRW 00,000,000,000 in total for the second period from July 1, 2006 to KRW 1, 2006 to KRW 200,000.

C. On November 29, 2012, the OO regional tax office received a report on tax evasion (hereinafter referred to as “the report on tax evasion”) with the following contents from the Plaintiff’s neighboring figures, and confirmed the acquisition and transfer of assets, including real estate owned by the Plaintiff, and determined that the Plaintiff had considerable credibility in the contents of the instant report on tax evasion, and conducted a tax investigation on January 17, 2013: The investigation period from January 21, 2013 to February 28, 2013: the individual entrepreneur’s integrated investigation (income tax, value-added tax, etc.), and the grounds for investigation from 2007 to 2011, to verify the appropriateness of the report, and then to select a person subject to tax investigation (hereinafter referred to as “the next report”).

Information Contents

Omission

(d) The head of the regional tax office, through the second tax investigation of this case, has four (***********-***************-**-**************************************************************************************************************** through the above account) and OB account (hereinafter referred to as the "the account in this case") after subtracting the amount of transfer from the total cash account, the deposit period for a short period of time, the amount of deposit interest, etc. - value-added tax, and the amount of cash supply (hereinafter referred to as "B) of the plaintiff's place of business after the decision of business (the defendant).

E. Accordingly, on June 3, 2013, the head of the Defendant AAB tax office issued the Plaintiff a corrective notice of KRW 000 for the first year value-added tax in 2008, KRW 000 for the second year value-added tax in 2008, KRW 000 for the first year value-added tax in 2009, KRW 000 for the second year value-added tax in 2009, KRW 000 for the first year value-added tax in 2010, KRW 000 for the second year in 2010, KRW 000 for the second year in 201, and the second year value-added tax in 200 for the second year in 200 for the Plaintiff, and each of the above corrective disposition for the global income tax in 200 for the second year in 200, KRW 200 for the global income tax in 200 for each of the above global income tax in 200 for the Plaintiff.

F. The Plaintiff appealed to the instant disposition and filed an appeal with the Tax Tribunal, but the said appeal was dismissed on May 23, 2014.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1, 2, 3, 6, 7, 8, Eul evidence Nos. 1 through 5, 16, 22 and 23 (including branch numbers), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant disposition should be revoked because it is illegal and unjust for the following reasons.

1) The Defendant’s determination that cash deposited to the instant account without objective proof is a cash receipt (cost for supply) of theCC business is in violation of the principle of reasonable taxation (hereinafter “instant Chapter 1”).

2) Although AAtax secretary confirmed the instant account at the time of the instant tax investigation, and investigated the lease status of real estate owned by the Plaintiff, as well as the omission of sales from the second to the first period of 2006 to the first period of 2011, and imposed value-added tax and comprehensive income tax, it constitutes an illegal tax investigation that overlaps with the first tax investigation of this case based on the instant account again by OO regional tax office constitutes an illegal tax investigation that goes against the principle of prohibition of duplicate investigation. Among the instant dispositions, the value-added tax for the second year of 2011, which is not overlapped with the year of the investigation at the time of the instant tax investigation, was also conducted by the data acquired by the second tax investigation of this case, and thus, it is also unlawful in accordance with the principle of monopoly and exclusion (hereinafter referred to as “section 2”).

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Determination as to the first proposal

A) In rectifying the tax base return of a taxpayer pursuant to the provisions of the Income Tax Act because there is an error or omission in or a mistake in the books or evidence, but if it is recognized that there is an error or omission in the details of a tax return by other data and it is possible to conduct a field investigation, it may be corrected by other data. On the other hand, on-site investigation is no specific method that can be said to be objective by means of realizing income distribution. As such, determination of a taxpayer's total revenue by means of investigating the amount deposited in the financial institution account of the taxpayer is a legitimate on-site investigation. In general, if the burden of proving the facts in the revocation of the disposition imposing tax should be borne by the taxpayer, but if it is proved that the facts in question were proved to be eligible for the application of the empirical rule in light of the empirical rule in the specific litigation process, it cannot be concluded that the other party were illegal dispositions that failed to meet the taxation requirements (see, e.g., Supreme Court Decision 2003Du14284, Apr. 27, 2004).

B) In light of the following circumstances, the Defendant’s determination of the key amount of the instant case as the cash income amount (cost of supply) is justifiable, and thus, the Plaintiff’s Chapter 1 is without merit.

① The Defendant calculated KRW 000 as cash income amount after subtracting KRW 000,000,000, which is the total amount of cash deposited to the instant account from the total amount of cash deposit, the amount deposited in a short term, the amount verified by the Plaintiff that the Plaintiff is not related to the instant business, and the deposit interest. The determination of cash income amount by such method appears to be an objective and legitimate field investigation.

② In light of the fact that the Plaintiff did not have any other source of income as well as the business income through the operation of theCC, that a certain amount of cash has been deposited in the instant accounts regularly and repeatedly each day during theCC operation period, that the Plaintiff was mainly paid cash instead of the card settlement, and that the Plaintiff was a majority of the cases of reporting the refusal to issue cash receipt. At the time of the second tax investigation of the instant case, the Plaintiff sent the cash revenue amount of theCC to the instant account (see evidence 6 and No. 7).

③ In the course of a tax investigation by a tax authority, barring special circumstances, such as: (a) if a person liable to pay tax prepares a written confirmation that a certain part of a transaction is a processing transaction, it may not be readily denied the evidence of the written confirmation, barring any such special circumstance as where the written confirmation was forced against the intent of the person who prepared the document; or (b) it is difficult to regard the specific fact as a supporting material due to lack of its content (see, e.g., Supreme Court Decision 2001Du2560, Dec. 6, 2002); (c) the Plaintiff signed a written confirmation (Evidence 3) stating that “The key amount of the instant case deposited to the account in the case is the revenue amount for cosmetic business and for the

④ The Plaintiff acquired real estate equivalent to KRW 0 billion, including officetels and land, from March 9, 2005 to January 26, 2012 during the period for the operation of theCC, and considering that the Plaintiff did not have any special income, other than the business income from the operation of theCC, the acquisition price of the said real estate cannot be deemed as the instant key issue amount.

2) Determination as to the second proposal

A) Whether the second tax investigation of this case constitutes a duplicate tax investigation

According to Article 81-4(2) of the former Framework Act on National Taxes (amended by Act No. 12162, Jan. 1, 2014; hereinafter referred to as the "former Framework Act on National Taxes"), whether a case constitutes a duplicate tax investigation is basically determined on the basis of the identity of the tax items and the taxable period.

According to the above facts, the first tax investigation of this case and the second tax investigation of this case are identical to value-added tax, and the period is also the same as the second tax investigation of this case except for the second tax year of 2011. At the time of the first tax investigation of this case, it is recognized that AAAT was aware of the omission by the plaintiff's lease income and imposed by the time of global income until the time of global income. The part recognized as identical to the above items of tax and taxable period in the second tax investigation of this case

B) Whether the case constitutes an exception to the principle of prohibition of duplicate tax audits

(1) A tax investigation must be conducted within such minimum scope as may be necessary for appropriate and fair taxation. Further, re-audit of the same tax item and taxable period may seriously infringe on taxpayers’ rights and interests, such as taxpayers’ freedom of business, as well as the risk of arbitrary tax investigation by the tax authorities. Thus, it is necessary to prohibit a tax investigation except in exceptional cases significantly contrary to the principle of fair taxation. In addition, it is subject to preferential tax investigation due to the exclusion of taxpayers from the presumption of good faith. “Where there is specific information on taxpayers under Article 63-4(1) of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 15968 of Dec. 31, 1998),” rather than “where there is clear evidence to acknowledge a suspicion of omission or error in the return,” it is difficult to view that a re-audit is strictly limited to cases where a taxpayer is permitted, and the legislative purport prohibiting re-audit includes not only substantial protection of taxpayers’ rights and interests, but also advancement of tax investigation technology, and thus, it is difficult to view that it constitutes a tax evasion under Article 2818-1 of the former Framework Act.

Luxembourg returned to the instant case and the following circumstances, i.e., the Plaintiff’s annual average sales volume, operating method, the Plaintiff’s real estate size as well as the name of the financial institution used by the Plaintiff, which are reasonably indicated in the circumstances at the time of the instant tax investigation, and the following circumstances, which are acknowledged by comprehensively taking into account the following facts: (i) the instant tax evasion report was conducted by near the Plaintiff; (ii) the Plaintiff’s annual average sales volume, operating method, and the Plaintiff’s real estate size as well as the Plaintiff’s real estate size and the name of the financial institution used by the Plaintiff; and (iii) the Defendant’s internal review of the details of the instant tax evasion report reveals that the Plaintiff’s basic facts, such as the Plaintiff’s acquisition scale of real estate, the Plaintiff’s business method, the Plaintiff’s tax evasion imposed after the instant tax investigation, and the Plaintiff’s tax evasion report were deemed to have considerable credibility in the instant tax evasion report; and (ii) the Defendant, as a result of the instant tax evasion investigation, did not have any special reasons for the Plaintiff’s second tax evasion of the instant real estate income tax evasion.

3. Conclusion

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