Cho High Court Decision 2008Do3044 ( December 30, 2008)

Whether bonuses are subject to inclusion in deductible expenses under the standard for payment of benefits;

In light of the circumstances leading up to the payment of bonuses, the details of the loan certificate, the subsequent performance relationship, the statement of related persons revealed in the investigation process of the Plaintiff’s occupational embezzlement, etc., the bonus is not actually paid to the executive officers, and the bonus is deemed to have been used in full for the repayment of the loan to the non-party company after taking the form of lending the bonus.

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

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 corporate tax of 693,185,250 won for the business year of 2002, and corporate tax of 1,340,591,830 won for the business year of 2003 as to AA development of a corporation on December 1, 207 is revoked.

1. Details of the imposition;

A. AAA Development Co., Ltd. (hereinafter referred to as a "non-party company") paid an officer special bonus of KRW 1.5 billion in the business year 2002 and KRW 3.1 billion in the business year 2003 (hereinafter referred to as "the special bonus of KRW 4.6 billion in total) to the officers such as the plaintiff, the GangwonB, etc. after completing the registration of incorporation on May 15, 199.

C. The director of the Seoul Regional Tax Office conducted a special investigation on the corporate tax against the non-party company, and the decision and the issue bonus correspond to the bonus paid by the disposition of profits under Article 20 subparagraph 1 of the former Corporate Tax Act (amended by Act No. 7838, Dec. 31, 2005; hereinafter referred to as the "Act") and Article 43 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18706, Feb. 19, 2005; hereinafter referred to as the "Enforcement Decree") and notified the defendant that they be excluded from deductible expenses.

D. In accordance with the above taxation data notification, the Defendant rendered the disposition of this case imposing corporate tax of 693.185,250 won for the business year of 2002 and corporate tax of 1,340,591,830 won for the business year of 2003 on December 1, 2007.

[Ground of recognition] Facts without dispute, Gap evidence 2-1, Gap evidence 4, Eul evidence 1-1 to 14, Eul evidence 2-1 to 15, and the purport of the whole pleadings

2. Whether the disposition of imposition is lawful.

A. The plaintiff's assertion

Article 19(1) of the Act and Article 19 subparag. 3 of the Enforcement Decree of the Act provide that "the amount exceeding the amount paid by a corporation according to the standards for payment of benefits determined by the articles of incorporation, the general meeting of shareholders or the resolution of the board of directors among bonuses paid to executive officers shall not be included in the calculation of losses." The issue bonus is paid within the scope of the standards for payment of benefits determined by the resolution of the general meeting of shareholders of the non-party company, and shall be included in the calculation of losses. The defendant's disposition of this case, which reported otherwise, is unlawful."

It is as shown in the attached Form.

(c) Fact of recognition;

(1) According to the minutes of the non-party company's shareholders' meeting (A evidence 1-1) on March 20, 202, the non-party company held the shareholders' meeting among the 10 shareholders' total shareholders of the non-party company, including the plaintiff, while seven members of the non-party company attend the meeting, and held the shareholders' meeting and held the "where the goal of increasing the profit above 50% of the total net profit of the non-party company in 2001 is achieved based on the net profit of the whole company, the "amount of benefits and bonus (e.g., bonus)" of the executive officer's salary (e., bonus)"

(2) According to the minutes of the meeting of the non-party company on March 2, 2003 (A evidence 1-2), among the 10 shareholders' total shareholders of the non-party company, five members, including the plaintiff, from among the 10 shareholders' total shareholders of the non-party company, hold the meeting and pay the 2003 salary and bonus (performance-based bonus) within the limit of 15% based on the 2002 total profit.

(3) According to the minutes of the board of directors' meeting (Evidence A2-1) of the non-party company on December 20, 202, the non-party company presented a meeting of the board of directors among five directors of the non-party company, including the plaintiff, among five directors of the non-party company, and stated that "the non-party company's total number of directors shall be paid KRW 90 million to the plaintiff and KRW 600 million to the plaintiff among the above KRW 1.5 billion on December 30, 2002, as the non-party company's total number of directors is anticipated to achieve the goal of business performance in February 28, 2002 by the resolution of the general meeting of shareholders' meeting of February 28, 2002."

(4) According to the minutes of the board of directors of the non-party company on November 24, 2003 (Evidence A2-2), the board of directors shall be held among five directors of the non-party company, including the plaintiff. "The special bonus for executives (e.g., performance rating) 3.1 billion won is anticipated as the performance-based goal of the non-party company's total directors is over 2003" (However, the above agenda is based on the board of directors' bill (Evidence A-2) of the non-party company's board of directors, and accordingly, the non-party company's director senior HH was referred to December 4, 2003, which was subsequent to the date on which the board of directors held the above board of directors. Accordingly, on December 4, 2003, the resolution to pay KRW 90 million to the plaintiff among the above 3.1 billion won of the above 3.1 billion won to the Gangwon, Gangwon, Kim J., Kim HCC, and each five billion won to the plaintiff.

(5) In the criminal investigation process against the Plaintiff’s occupational embezzlement, etc., the records of the above general meeting of shareholders, the minutes of each board of directors’ meeting, etc. are as follows.

(A) NewD (in charge of accounting as belonging to the financial team of the company outside Korea)

The 2002 and the 2003 minutes of the Board of Directors (Evidence B 2-2) were prepared by inserting the phrase "special", "special", and "performance grade" on the date ordered by the KimCC representative of the company other than the U.S. and ParkE directors. The 2002 and the 2003 minutes of each general meeting of shareholders also have been prepared by adding the phrase "if the 2002 and 203 minutes exceed a certain ratio compared to the operating income ratio for the previous year, a special bonus may be paid to the officers within a certain ratio." The defendant's disposition of this case was submitted retroactively in order to assert that the defendant paid special bonus corresponding to the above ratio to the officers and employees who have made special contributions." (b) the 2002 and 203 minutes of each general meeting of shareholders may also be paid to the officers and employees of the company other than the U.S.

In relation to the disposition of this case, the non-party company gave advice to the effect that there are grounds for the payment of special bonuses, such as the " bills of the board of directors" and the "Minutes of the board of directors", etc. Accordingly, the non-party company's date should be favorable to the contrary. Accordingly, the non-party company's bill and the minutes of the board of directors' meeting (the evidence No. 2-1, No. 2-2) were prepared in 202 and 203, by inserting the phrase "special", "special", "performance", and "performance" retroactively.

(C) HaH (director of a company outside the Republic of Korea)

The proposal of the board of directors in 2002 and 2003 did not present any agenda on the payment of special bonus to executives, and the proposal of the GaG, which was the auditor in the minutes of the board of directors in 2002 and 2003, stated that the GaG actually attended the meeting of the board of directors.

(D) Park E (Accounting Director of the Foreign Company)

In order to respond to the instant disposition, the non-party company made fraudulent evidence materials, such as the officer benefit rules, special contributions, agenda items of the board of directors, minutes of the board of directors, etc., but it was an inevitable choice to avoid the tax burden.

(6) The Plaintiff prepared a loan certificate with the content of lending the given bonus from other officers who received the pertinent bonus as follows, but the Plaintiff did not pay interest to other officers or pay the principal.

(A) The loan certificate dated December 30, 2002 (No. 3: 600 million won from the strongB on the same day; the loan period from December 31, 2002 to December 31, 2007; the interest rate of the Plaintiff shall be 5% per annum.

(B) The loan certificate dated December 10, 2003 (No. 3-2): the Plaintiff borrowed KRW 700 million from BB on the same day; the loan period from December 11, 2003 to December 11, 2008; and the interest rate shall be 5% per annum.

(C) The loan certificate dated December 4, 2003 (No. 3-3): the Plaintiff borrowed KRW 500 million from PH on the same day; the loan period from December 4, 2003 to December 4, 2008; and the interest rate shall be 5% per annum.

(D) The loan certificate dated December 4, 2003 (No. 3-4): the Plaintiff borrowed KRW 500 million from KimCC on the same day; the period of the loan from December 5, 2003 to December 5, 2008; the rate of interest shall be 5% per annum;

(E) The loan certificate dated December 7, 2003 (No. 3-5): the Plaintiff borrowed KRW 500 million from Kim J on the same day; the period from December 8, 2003 to December 8, 2008; and the interest rate shall be 5% per annum.

(7) On December 31, 2002, 1.5 billion won, 1.4 billion won on December 4, 2003, 400 billion won on December 5, 2003, 450 billion won on December 5, 2003, 50 billion won on December 8, 2003, and 4.6 billion won on December 11, 2003, respectively, were accounted for as the collection of provisional payment to each plaintiff.

(8) In the course of the investigation of the Plaintiff’s occupational embezzlement, etc., with respect to the attribution of the key bonus, the statement made by Nonparty Company’s director KimCC and HaH is as follows.

(A) KimCC

① In fact, there was no actual bonus paid to the Plaintiff, the strongB representative director, Kim J, Kim J KimCC auditor, and QHH director, and the issue bonus was in the form of the Plaintiff, the chairperson of the National Tax Tribunal, using a false loan certificate, submitted data to the National Tax Tribunal as if the false details were true, and again submitted data for administrative litigation.

② Reviewing the financial position of the non-party company at the time of entry, the loan to the plaintiff was confirmed to have exceeded 4 billion won. The profit was disposed of as bonus, and the return of the loan to the plaintiff was decided to be settled. Accordingly, the draft presented to both board of directors, which was decided normally by the board of directors, was adjusted to have been paid the bonus to the executive officers in excess of the company’s profit, and the company’s profit was adjusted to have been paid to the executive officers. The executive officers, other than the plaintiff, received the key bonus and lent the loan to the plaintiff. The key bonus was not actually paid, but it was not a loan to the plaintiff.

(B) HaH

The issue bonus is not the amount actually received as bonus, but it does not lend to the Plaintiff. The issue bonus is that the Plaintiff made a loan certificate and prepares false related documents to conceal illegal use by using executive officers.

(9) The Plaintiff was the largest shareholder holding 15.15% of the shares issued by the non-party company during the business year 2002 and 2003. The Plaintiff’s strongB (10.35% of the shares ratio) is the Plaintiff’s siblings relationship with the Plaintiff, and the literatureG (7.5% of the shares ratio) is the Plaintiff’s spouse, KK, and LL (10.15% of each shares ratio).

[Reasons for Recognition] Unsatisfy, Gap evidence 1, 2-1.2, Gap evidence 3-1 through 3, Gap evidence 4, Eul evidence 3-1 through 5, Eul evidence 4-1 through 7, Eul evidence 5-1 through 3, Eul evidence 8, 11, 12, Eul evidence 13-1, 2, Eul evidence 14, and 15 respectively, the purport of the whole pleadings and arguments

D. Determination

(1) According to the relevant provisions such as Article 19(1) and (3) and Article 20 subparag. 1 of the Act, Article 20(1)4, and Article 43(1) and (2) of the Enforcement Decree of the Act, disposal of surplus earnings shall not be included in deductible expenses in principle, inasmuch as the disposal of surplus earnings does not fall under deductible expenses in its concept. However, among bonuses paid to an officer by a corporation, it may be included in deductible expenses in the calculation of deductible expenses, regarding the amount paid according to the payment standards determined by the articles of incorporation, the general meeting of shareholders or the resolution of the board of directors

(2) In light of the purport and contents of the relevant laws and regulations, we examine whether the non-party company had the criteria for payment of benefits determined by the resolution of the articles of incorporation, the general meeting of shareholders or the board of directors, and whether the pertinent bonuses were paid according to such criteria.

In light of the following circumstances that can be seen by comprehensively taking account of the above facts and the purport of the entire argument, the issue bonus is merely the fact that the Plaintiff took the form that the Plaintiff distributes profits generated in the business year 2002 and 2003 to executive officers in the name of a special bonus, and the method of disposal of the surplus actually determined in order to contribute the entire issue bonus to the Plaintiff and use it in repayment of the loan borrowed to the non-party company. Accordingly, the issue bonus is not subject to the loss industry.

(A) In light of the statements of the interested parties revealed in the process of investigating the Plaintiff’s occupational embezzlement, etc., the minutes of each general meeting of shareholders, minutes of the board of directors, etc. of the non-party company, which the Plaintiff asserted that the payment criteria were established, and the minutes of each general meeting of shareholders (A evidence 1-2), the minutes of December 20, 202, the minutes of each general meeting of shareholders (A evidence 1-1-2), the minutes of each board of directors (A evidence 2-1-2), etc. of December 24, 2003, and the minutes of each board of directors of November 24, 2003, all relevant documents appear to have been prepared retroactively for the purpose of avoiding the tax burden upon the disposal of surplus.

(B) Even if the content of the minutes of each general meeting of shareholders of the non-party company dated March 20, 2002 and March 2, 2003 (Evidence 1 and 2 of Evidence 1), it is limited to the payment limit or scope of the excess profit due to an increase of profit in comparison with the preceding year, and the payment limit or scope of the three preceding years within 15% prior to the preceding year, and there is no specific payment criteria or method of performance evaluation for paying bonuses to executives (in fact, the non-party company or the plaintiff does not present reasonable criteria for the difference in the payment rate for each executive officer). It is difficult to view the above contents of the resolution of the general meeting of shareholders as falling under the "articles of incorporation", "general meeting of shareholders", or "the payment criteria determined by the resolution of the board of directors" as stipulated in Article 43 (2) of the Enforcement Decree.

In light of the circumstances leading up to the payment of the pertinent bonus, the details of the loan certificate, the subsequent performance relationship, and the statement made by the related parties revealed in the investigation process of the Plaintiff’s occupational embezzlement, etc., the issues bonus did not have been actually paid to the executives, and the above hospitalization took the form of lending the pertinent bonus to the Plaintiff, and immediately used the Plaintiff’s entire repayment of the loan to the Nonparty Company.

3. Conclusion

The defendant's disposition of this case is legitimate, and the plaintiff's claim is not accepted as it is without merit.