[Defendant-Appellee] Defendant 1 and 2 others

Head of Eastern Tax Office

May 13, 2016

1. The Defendant’s imposition of KRW 161,811,470 (including additional tax of KRW 67,040,485) for the Plaintiff on October 1, 2014 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On October 12, 2004, the Plaintiff acquired 6559 square meters of land in North-gu, Chungcheongnam-si and 2244 square meters of the above ground (a total of 1800 square meters of a factory, 228 square meters of office, 216 square meters of welfare building) from 621,100,000 won by auction at 621,000 won, and on February 26, 2012, the Plaintiff transferred the above land and buildings to 1,350,000,000 won to the Asia Heavy Industries Co.,, Ltd. (Gu2 Engineering Co., Ltd., Ltd., and the transferee corporation of this case) (hereinafter, the transferee corporation of this case).

B. Upon reporting the transfer income tax on April 27, 2012, the Plaintiff filed a report on the instant construction cost of KRW 285,000,000 on the ground that the Plaintiff paid KRW 26,500,000 for the instant construction cost to Tae light Industry Development Co., Ltd. (hereinafter “Construction Co., Ltd”) by conducting remodeling construction for the instant real estate building (hereinafter “instant construction work”) between November 1, 2004 and June 1, 2005, and paid KRW 26,50,000 for the electric pressure construction cost.

C. From October 4, 2012 to October 23, 2012, the head of the Gangnam District Tax Office conducted a tax investigation (hereinafter referred to as the “first tax investigation”). On December 19, 2006, the Plaintiff submitted the construction contract and construction specifications for the instant construction project; Nonparty 1’s confirmation to the effect that the instant acquiring corporation was a remodeling construction work on the instant real estate building at the time of leasing the instant real estate from the Plaintiff; and the financial transaction details indicating the details of the instant construction project; the head of the Gangnam District Tax Office denied the said electrical pressure construction cost; and concluded the tax investigation as deemed necessary expenses.

D. After that, the National Tax Service conducted an audit of the business affairs of the Gangwon Provincial Tax Office, and failed to issue a tax invoice for the construction cost to the contractor, and the payment details of the construction cost presented by the Plaintiff are not reliable due to non-verification of the recipient, etc., and issued a corrective order to re-revision the transfer income tax on the Plaintiff.

E. On July 23, 2014, from July 25, 2014 to July 25, 2014, the head of the Gangnam District Tax Office: (a) ordered a public official in charge of the investigation to visit the instant real estate; (b) made inquiries to Nonparty 1 and Nonparty 2, who is the representative of the transferee corporation and Nonparty 2; and (c) forged the said confirmation document; and (d) received a written statement and relevant books to the effect that the instant construction was not performed on the instant real estate building (hereinafter the instant investigation); and (c) denied the instant construction cost by deeming that the instant construction was not actually performed on the part of the Plaintiff; and (d) on October 1, 2014, the Defendant having jurisdiction over the Plaintiff’s domicile issued a disposition imposing additional tax (including additional tax of KRW 67,040,485) on the Plaintiff for the year 2012 (hereinafter the instant disposition).

F. The Plaintiff filed a request for review with the Tax Tribunal, but was dismissed on May 6, 2015.

[Ground of recognition] Facts without dispute, Gap 1, 3, 5, 6, Eul 1, 2, 3, 7, 10, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) The instant investigation is a separate tax investigation conducted after the first tax investigation. Accordingly, the instant disposition is unlawful as a disposition based on a duplicate tax investigation.

2) At the time the Plaintiff was awarded a successful bid for the instant factory, the Plaintiff was unable to use the factory without substantial repair because the factory was too worn out. It is true that the Plaintiff did not submit objective evidentiary data that was paid to the instant business entity and paid the construction cost to the construction business entity.

B. Determination

1) First, it is deemed illegal that the instant disposition was based on an illegal duplicate investigation. Tax investigation means questioning to determine or correct the tax base and amount of national tax, or inspecting, investigating, or ordering submission of the relevant account books, documents, or other articles (Article 81-2(2)1 of the Framework Act on National Taxes). The purpose of tax investigation is to prevent tax evasion by having the tax authority verify the accuracy of the collection of taxation data and the details of the return, thereby securing taxpayers’ sincere return, thereby ultimately ensuring a proper and fair taxation.

However, if a taxpayer, etc. who is the other party to a tax investigation refuses it, he/she shall be subject to sanctions for fines for negligence and shall respond to the tax investigation in fact. In the process, certain parts of fundamental rights such as property rights, privacy and freedom of business should be restricted.

In order to promote taxpayers' rights and interests and advance tax administration, Article 81-4(2) of the Framework Act on National Taxes provides for the principle of prohibition of double-tax investigations that "tax officials shall not, in principle, conduct a secondary tax investigation on the same items of taxation and the same taxable periods." However, in all cases, in order to prevent unreasonable consequences that go against the equity of tax by prohibiting double-tax investigations in a uniform manner, the provisions of each subparagraph of the same Article exceptionally stipulate cases where double-tax investigations can be conducted, thereby achieving balance between public interest, and individual fundamental rights.

Since repeated tax investigations on the same tax item and taxable period are likely to seriously undermine the taxpayer's freedom of business and legal stability as well as to lead to abuse of the right to tax investigation, it is necessary to prohibit it except in exceptional cases where it is manifestly contrary to the principle of fair taxation (see Supreme Court Decision 2004Du12070, Jun. 2, 2006).

2) After conducting the first tax investigation, the head of the Gangnam District Tax Office visited the real estate site of this case in order to correct the transfer income tax for the year 2012 for the Plaintiff’s 2012, and received the written statement and received the related account books. ① This is included in the definition of the above tax investigation; ② although the investigation of this case was conducted against the Plaintiff’s transferee corporation, the Plaintiff’s transferee corporation of this case, the investigation of this case may bring about psychological anxiety that the investigation can be conducted against the other party to the transaction, and the investigation of the other party to the transaction may result in infringement of the Plaintiff’s freedom of business and privacy. Thus, the investigation of this case constitutes a tax investigation. This constitutes an investigation, and it is unlawful as a re-investigation of the same tax item and the same taxable period unless there are special circumstances to the effect that it constitutes an exception under each subparagraph of Article 81-4(2) of the Framework Act on National Taxes.

3) As to this, the Defendant asserts that the investigation of this case is merely “on-site confirmation” under Article 3 of the Regulations on the Management of Investigation Affairs, and does not constitute a tax investigation.

Article 3 subparag. 2 of the Regulations on the Management of Investigation Affairs defines the concept of on-site verification, separate from the tax investigation, and according to this, collecting evidentiary materials for the tax investigation only constitutes on-site verification and not tax investigation. In addition, according to the statement of evidence No. 8, it is recognized that the Gangwon-do superintendent of the tax office carried out the re-investigation of this case under the name of “

However, the above provision is merely an administrative regulation as a direction of the National Tax Service, and it does not constitute a tax investigation solely on the ground that the investigation of this case constitutes on-site confirmation under the above National Tax Service’s instruction, as seen earlier, insofar as the investigation of this case falls under the concept of tax investigation under Article 81-2(2)1 of the Framework Act on National Taxes, regardless of its name and form, as seen earlier, in light of the definition of the tax investigation under the Framework Act on National Taxes, legislative intent, etc.

4) In addition, the Defendant asserts that the instant disposition was not based on the investigation of the instant case, but that the instant disposition is not unlawful even if the investigation of the instant case was unlawful.

If it is possible to take the instant disposition only with the taxation data confirmed through the first tax investigation as Defendant’s assertion, the Gangwon-do chief of the tax office conducts a tax investigation without any necessity to implement the audit and inspection of the National Tax Service. This is not only serious violation of taxpayers’ freedom of business or legal stability, but also abuse of the right to tax investigation, which is not permissible in light of the purport of Article 81-4(2) of the Framework Act on National Taxes as seen earlier. ② In addition, the instant disposition was conducted based on the data obtained from the instant investigation, namely, the evidence of Nonparty 1’s confirmation submitted by the Plaintiff in the first tax investigation, and the statement that was asked Nonparty 1 and Nonparty 2 about the existence of the instant construction. Accordingly, it cannot be said that there is no causation between the instant investigation and the instant disposition.

5) Therefore, without having to further examine the remainder of the Plaintiff’s assertion, the instant disposition ought to be revoked in an unlawful manner.

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.

Judge Park Han-chul