In case of interim settlement of retirement allowances for officers on the grounds of conversion of annual salary system, the amount of retirement allowances shall be excluded from deductible expenses

Where an interim settlement of retirement allowances for officers is made on the grounds of the conversion of the annual salary system, a disposition to pay an amount equivalent to retirement allowances as deductible expenses is legitimate because the actual conversion of the annual salary system

Article 44 of the Enforcement Decree of Corporate Tax Act

2014Guhap16316 Revocation of Disposition of Corporate Tax Imposition

AAAA Corporation

BB Director of the Tax Office

July 3, 2015

1. All of the plaintiff's claims are dismissed.

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

The Defendant’s revocation of each portion exceeding KRW 66,829,883 of corporate tax for the business year 2010 for the Plaintiff on June 3, 2013; the portion exceeding KRW 526,50 of corporate tax for the business year 2010; the portion exceeding KRW 14,136,544 of corporate tax for the business year 39,39,450; the portion exceeding KRW 17,406,302 of the notification of the change in the amount of income for the business year 2010 for the Plaintiff on the same day; the portion exceeding KRW 34,126,305 of the notification of the change in the amount of income for the business year 2010; the portion exceeding KRW 13,211,673 of the notification of the change in the amount of income for the business year 2011; and the portion exceeding KRW 14,222,688 won among the notification of the change in amount of income for the business year 2012.

1. Details of the disposition;

A. On June 21, 1993, the Plaintiff was a corporation established with the purpose of manufacturing, wholesale, retail and export of main products (main iron pipes and other) as its objective business, trade business, etc., and the CCC is working as the representative director from the time of its establishment to the date of its establishment.

B. On October 31, 2010, according to the resolution of the regular general meeting of shareholders on March 31, 2010, the Plaintiff paid CCC a retirement allowance of KRW 1,631,769,840 by converting the annual salary system (hereinafter “retirement allowance in 2010”), and included it in deductible expenses at the time of filing a corporate tax return for the business year 2010.

C. The Director of the Regional Tax Office: (a) as a result of the tax investigation against the Plaintiff, on October 31, 2010, on the ground that the Plaintiff could not be deemed to have actually retired from the CCC as of October 31, 2010, the Commissioner of the Regional Tax Office excluded retirement allowances in deductible expenses in the business year 2010; and (b) deemed the amount as the provisional payment for the CCC and notified the Defendant of the assessment data

D. Accordingly, on June 3, 2013, the Defendant imposed the Plaintiff KRW 526,50,440 of corporate tax for the business year 2010, and KRW 39,399,450 of corporate tax for the business year 2011 (hereinafter collectively referred to as “each of the instant dispositions”). On the same day, the amount of bonus disposal for CCC including interest rate for retirement allowances in 2010 was the same as the bonus disposal amount for the business year 34,126,35 of business year 2010, KRW 151,912,109 of business year 201, and KRW 114,22,68 of business year 2012 (hereinafter referred to as “each of the instant notifications”).

E. The Plaintiff appealed and filed an appeal with the Tax Tribunal on July 23, 2013, but the Tax Tribunal dismissed all the Plaintiff’s claims on June 10, 2014.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 8.9, 11, 12, and 20 (including each number), the purport of the whole pleadings

2. The plaintiff's assertion

The Plaintiff filed a tax return on the amount of retirement allowance of 23,831,440 won (hereinafter “retirement allowance of 2003”) to CCC when converting the wage system for executives and employees (excluding CCC, the representative director), into the annual salary system in 2003. However, this is actually made by mistake in the person in charge, although CCC’s benefits were not converted to the annual salary system or paid to 100, the above retirement allowance was not paid. On the other hand, the Plaintiff, through a resolution of the general shareholders’ meeting in 2010, converted the amount of wages to the annual salary system, and paid the CCC in 2010 in accordance with the above general shareholders’ meeting resolution, the payment of retirement allowance in 2010 constitutes “when the retirement benefits was settled on the condition that subsequent retirement benefits were not paid until the date of conversion into the annual salary system for executives of a corporation” under Article 44(2)4 of the Enforcement Decree of the Corporate Tax Act. Accordingly, the amount of retirement allowance in 2010 should be included in deductible expenses for each of 30 years.

3. Relevant statutes;

As shown in the attached Form.

4. Determination

(a) Facts of recognition;

1) As of 2010, the Plaintiff was established by converting CCC, a representative director, into a private corporation. As of 2010, 40% of the Plaintiff’s issued stocks is below 00%, 30% of CCC’s DD, 10%, EE, a partner of CCC, and 20% of the remainder is held by FF, a vice president of the Plaintiff. The registration officer is registered with CCC (representative), DDD (internal director), EE (auditor), and FF (internal director).

2) The Plaintiff’s annual salary system provision for employees of the company (hereinafter “instant annual salary provision”) enforced on January 1, 2004 (hereinafter “the instant annual salary system”) stipulates that the said provision shall be subject to the block application for all employees of the company, as well as the seal of the members, some employees, and executives of the board of directors, along with the corporate seal.

3) The Plaintiff, at the end of 2003, filed an interim tax return related to the interim settlement of retirement allowances, which pays statutory retirement allowances, while converting the wages of the officers and employees into the annual salary system, and filed a tax return related thereto. At the time, the Plaintiff, a representative director, paid retirement allowances of 23,631,440 won to the CCC, thereby including it in deductible expenses,

4) 2003. 12. 31. 작성된 CCC의 2004년도 연봉계약서는 '본 연봉제는 2003년까지 근무한 퇴직금을 일괄 정산(지불)한 후 최초년도 연봉제이다'라고 하면서 총 연봉금액을 '48,116,000원'으로 기재하고 있고, 2004. 12. 31. 작성된 CCC의 2005년도 연봉계약서는 '본 연봉제는 당해년도의 퇴직금 1개월분을 포함한 연봉제이다'라고 하면서 총 연봉금액을 '98,000,000원', 당해년도의 퇴직금을 '' 7,538,460(월급여 1개월분상당)'으로 기재하고 있으며, 2006. 1. 31. 작성된 CCC의 2006년도 연봉계약서에는 마찬가지로 '본 연봉제는 당해년도의 퇴직금 1개월분을 포함한 연봉제이다'라고 하면서 총 연봉금액을 '96,000,000원', 당해년도의 퇴직금을 '' �7,384,615(월급여 1개월분상당)'으로 기재하고 있다.

5) In the course of a tax investigation conducted by a regional tax office with the Plaintiff 00 representative director, the CCC, submitted to the investigating official a written confirmation stating that “I would not actually retire during the 2010 business year and not fall under a realistic reason for retirement as stipulated in Article 44(2) of the Enforcement Decree of the Corporate Tax Act.” However, I would like to confirm that I would like to pay retirement allowances to the representative director CCC (1,631,769,840 won) and vice president FF (182,204,115 won, but did not adjust at the time of corporate tax return.”

[Ground of recognition] Facts without dispute, Gap evidence 1, 3, 5, Eul evidence 1 and 8 (including each number), the purport of the whole pleadings

B. Whether each of the dispositions and notifications of this case are lawful

1) Article 44(1) and (2)4 of the Enforcement Decree of the Corporate Tax Act provides that a corporation’s retirement benefits that it pays to an executive shall be included in the calculation of losses only when the executive actually retires” is included in the calculation of losses. Meanwhile, as a result of converting the benefits to the annual salary system for executive officers, “when the retirement benefits are calculated and paid by settling accounts for the retirement benefits until the time when the retirement benefits are not paid.”

2) According to the Plaintiff’s 20-year retirement allowance plan’s 20-year retirement allowance plan’s 20-year retirement allowance plan’s 20-year retirement allowance plan’s 20-year retirement allowance plan’s 20-year retirement allowance plan’s total amount of 30-year retirement allowance plan’s total amount of 20-year retirement allowance plan’s total amount of 0-year retirement allowance plan’s 20-year retirement allowance plan’s total amount of 30-year retirement allowance plan’s retirement allowance plan’s 20-year retirement allowance plan’s total amount of 20-year retirement allowance plan’s total amount of 20-year retirement allowance plan’s total amount of 0-year retirement allowance plan’s 20-year retirement allowance plan’s total amount of 30-year retirement allowance plan’s total amount of 20-year retirement allowance plan’s total amount of 30-year retirement allowance plan’s total amount of 20-year retirement allowance plan’s total amount of 30-year salary plan.

In addition, it is difficult to see that a resolution of the general meeting of shareholders is required about the executive's salary system, i.e., whether to implement the annual salary system, and therefore, in light of the fact that there is no resolution of the general meeting of shareholders despite the instant annual salary system and the CCC's annual salary contract, it cannot be deemed that the CCC's salary has already been converted to the annual salary system since 2004, and there is no data to recognize that the annual salary system has been returned to the previous method, it is reasonable to see that there is no "real retirement" following the conversion of the annual salary system again in 2010. Accordingly, each of the dispositions of this case and each of the instant notifications are legitimate, and the Plaintiff's assertion is without merit.

5. Conclusion

The plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.