Changwon District Court-2018-Nu-10074 ( October 17, 2018)

The special bonus of this case paid in excess of the standard of payment of benefits shall be excluded from deductible expenses.

Although the special bonus of this case is not immediately subject to non-deductible expenses solely on the ground that it was not paid according to the "standard for payment of benefits" under Article 43 (2) of the former Enforcement Decree of the Corporate Tax Act, it is reasonable to non-deductible expenses as it has the nature of disposal of actual profits.

Article 43 of the Enforcement Decree of the Corporate Tax Act

Busan High Court (Chowon) 2018Nu10074 Revocation of Disposition to Impose Corporate Tax

Korea00

The Director of the Z Tax Office

5. Judgment of the court of the previous trial

Chang*Method* 2015Guhap2062 decided December 19, 2017

September 12, 2018

October 17, 2018

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The part exceeding KRW 00,370,557 of the imposition disposition of corporate tax belonging to the business year 2008 against the Plaintiff on March 27, 2014, which exceeds KRW 00,370,557 of the imposition disposition of corporate tax belonging to the business year 2008, and the part exceeding KRW 00,971,272 of the imposition disposition of corporate tax belonging to the business year 2009 against the Plaintiff on April 1, 2014, which exceeds KRW 00,469,570 of the imposition disposition of corporate tax belonging to the business year 2009, KRW 00,109,983, which reverts to the business year 2010,

1. Details of the disposition;

The court's explanation on this part is identical to the corresponding part of the judgment of the court of first instance, except for the case where "No. 26, 2014.12.26" of the first instance court's 4th 4th 4th 4th 3th 4th 3th 4th 4th 4th 4th 30 " August 30, 2017" and "no. 17th 17th 2017" as "no. 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 201."

3. The parties' assertion

A. The plaintiff's assertion

1) The special bonus paid by the Plaintiff to Aa in the year 2008 to 2010 (hereinafter “the special bonus of this case”) is paid according to the officer bonus regulations decided at the Plaintiff’s general meeting of shareholders and the special bonus payment standards prescribed in the Council. The above provision and the standard (hereinafter “instant provision”) constitute the salary payment standards prescribed in Article 43(2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012; hereinafter “former Enforcement Decree of the Corporate Tax Act”). The special bonus of this case should be included in the calculation of losses as long as it was paid within the scope prescribed in the instant provision.

2) Even if the provision of this case does not meet the standard for payment of benefits under Article 43(2) of the former Enforcement Decree of the Corporate Tax Act, the defendant must prove that the special bonus of this case constitutes bonuses paid by the disposal of actual profits, or that it cannot be included in deductible expenses because it is excessive or unjust as personnel expenses. In light of the following circumstances, the defendant's proof is insufficient, and the special bonus of this case constitutes personnel expenses that can be reasonably included in deductible expenses.

(1) Aa, after the establishment of the Plaintiff, has served as the representative director and developed the Plaintiff as the superior company. During the composition procedure after the Plaintiff’s default, only received small amount of benefits and bonuses, and made a lot of contribution to the normalization of management by providing the individual real estate to repay the Plaintiff’s obligations.

② A introduced the HDR system to a steel plant, and made a special contribution to the Plaintiff’s gain of operating profits, such as saving mits and mits ( approximately KRW 8.5 billion in 2008, KRW 6.9 billion in 2009, KRW 7.6 billion in 2010, KRW 7.6 billion in 2010) during the steel manufacturing process.

③ The instant special bonus is merely 0.13 to 0.20% compared to the sales amount, and 1.82 to 5.00% compared to the net income, and it cannot be deemed that the instant special bonus is excessive compared with the bonus paid to other executives of the Plaintiff, or the bonus paid to executive officers of other corporations.

3) The instant disposition that was imposed without including the instant special bonus in deductible expenses should be revoked in an unlawful manner.

B. Defendant’s assertion

1) The instant provision only provides for the payment limit, but cannot be deemed as falling under the standard for payment of benefits under Article 43(2) of the former Enforcement Decree of the Corporate Tax Act because there is no substantial and specific standard. As long as the instant special bonus was paid without the standard for payment of benefits, it should be immediately excluded from deductible expenses, and the Plaintiff must prove that the instant special bonus is excessive or unreasonable as personnel expenses.

2) Furthermore, the instant special bonus is paid excessive compared to other executives, and it cannot be deemed that it constitutes bonuses paid by the disposal of substantial profits, or constitutes excessive or unfair personnel expenses, and cannot be included in deductible expenses.

3) The instant disposition that was imposed without including the instant special bonus in deductible expenses is lawful.

4. Determination

(a) Facts of recognition;

1) Plaintiff’s establishment and officers

A) Aa on September 15, 1990, established the Plaintiff and served as the representative director, and resigned on June 29, 2010. Aa owns 14.27% of the Plaintiff’s shares as the controlling shareholder, bbb, the same student of Aa, and cc owns 14.27% of the Plaintiff’s shares, 12.69%.

B) DD entered on December 17, 1990, and was appointed as a senior director (non-registration) on January 1, 2004, and on September 20, 2004, and retired on March 31, 2014 after having taken office as a registration director on March 30, 2004.

C) On April 1, 1999, e was appointed as a general secretary (non-registration) or an executive director (non-registration) on September 20, 2004, and retired on March 31, 2014 after he/she was appointed as a registration director and a representative director on February 6, 2007.

D) On January 15, 2002, Fff was reappointed and appointed as production director (non-registration) and managing director (non-registration) on September 20, 2004 and retired on September 30, 2013.

E) The Gg was appointed as a registration director on March 30, 2001, but retired on March 30, 2013.

2) Plaintiff’s default and completion of composition procedures

A) After the Plaintiff was in bankruptcy on April 21, 1998, the Plaintiff applied for the commencement of composition on April 25, 1998 as the Changwon* Method* 98Ra00, decided on August 28, 1998. The composition was approved at the creditors meeting on October 9, 1998, and the Chang* Method * on October 19, 198.

B) On August 29, 2007, the Plaintiff was exempted from the obligation to report to the court on its original date* Method* The composition procedure was completed.

3) The process of enacting the instant provision

A) On October 10, 2007, the Plaintiff held a temporary general meeting of shareholders to present the “Rules on Bonuses for Officers” as an agenda and passed a resolution to approve it. The main contents are as follows.

B) On January 25, 2008, the Plaintiff held a board of directors to present the “case concerning the payment of special bonus” as an agenda and passed a resolution to approve it. The main contents are as follows.

2. Criteria for and limits of payment;

C) On March 28, 2008, the Plaintiff decided on the limit of the amount of executive remuneration for the year 2008 at the regular general shareholders’ meeting as KRW 2 billion, including salaries, bonuses, etc. for all officers. On March 30, 2009, the Plaintiff decided on the amount of KRW 3.5 billion at the regular general shareholders’ meeting, and on March 26, 2010, decided the amount of KRW 4.5 billion at the regular general shareholders’ meeting.

4) The amount of remuneration paid by the Plaintiff to Aa and its officers

a)the amount of remuneration received by Aa until the business year of 2007

C) The amount received by the officers of the Plaintiff, including aa, in 2008-2010

5) The ratio of the instant special bonus to the Plaintiff’s business performance

The Plaintiff’s sales, operating profits, net income, and net income during the 2008-2010

The ratio of the special bonus shall be as follows (the ratio shall be rounded up to two decimal places):

[Ground of recognition] Facts without dispute, Gap evidence 2 through 11, 17, 20, 29 evidence, Eul evidence 2, 4 and 5 (including each number), the purport of the whole pleadings

B. Whether loss can be excluded pursuant to Article 43(2) of the former Enforcement Decree of the Corporate Tax Act

1) Whether the provision of this case constitutes the “standard for payment of benefits” under Article 43(2) of the former Enforcement Decree of the Corporate Tax Act

Article 43(2) of the former Enforcement Decree of the Corporate Tax Act provides that "if a corporation pays more than the amount to be paid 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, such excess amount shall not be included in deductible expenses." However, it is difficult to view that the resolution of the limit of remuneration for executive officers does not constitute the above standard for payment of benefits (see Supreme Court Decision 2013Du4842, Jul. 12, 2013).

With respect to the director bonus regulations set by the special shareholders' general meeting of October 10, 2007, the above provision is 200% of the annual salary, and the special bonus is determined by a resolution of the board of directors, and only the payment limit of bonus by allowing the payment within the limit of the executive salary approved at the general shareholders' meeting, and there is no content regarding the specific criteria for allocating bonuses to the executives. In addition, the payment criteria for the special bonus set by the board of directors of January 25, 2008 are limited to the maximum amount of payment within 10 times the annual salary for the representative director in the case of the representative director. In addition, there are no specific criteria for payment, for example, specific criteria for payment, management performance of the company concerned, personal career, job ability evaluation, and dividend of the executives, etc.

As such, the provision of this case only sets the limit of the executive's remuneration, and there is no specific standard for bonus payment, so it cannot be viewed as the "standard for payment of salary" under Article 43 (2) of the former Enforcement Decree of the Corporate Tax Act.

2) Whether a bonus paid to an officer can be excluded from deductible expenses pursuant to Article 43(2) of the former Enforcement Decree of the Corporate Tax Act, if there is no standard for paying benefits.

Article 26 subparagraph 1 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter referred to as the "former Corporate Tax Act") provides that an amount deemed excessive or unjust as prescribed by Presidential Decree among personnel expenses shall not be included in deductible expenses in calculating the amount of income for each business year of a domestic corporation. Article 43 (2) of the former Enforcement Decree of the Corporate Tax Act provides that an amount in excess of the standard shall not be included in deductible expenses in the calculation of the amount of income for each business year of the domestic corporation. Article 43 (2) of the former Enforcement Decree of the Corporate Tax Act provides that an amount in excess of the standard shall not be included in deductible expenses, but it does not provide that an amount in excess of the standard shall be included in deductible expenses in the calculation of the total amount of the bonus paid to an officer without the standard of payment of benefits.

Therefore, the special bonus of this case is not immediately subject to non-deductible expenses solely on the ground that it was not paid in accordance with the payment standard of benefits under Article 43(2) of the former Enforcement Decree of the Corporate Tax Act.

C. Whether the special bonus in this case can be seen as the bonus paid by the disposal of actual profits

1) Relevant legal principles

According to Article 19(1) and the main sentence of Article 20 subparag. 1 of the former Corporate Tax Act, the amount calculated as losses in the disposal of profits shall not be included in the calculation of losses in principle. Article 26 subparag. 1 of the former Corporate Tax Act provides that the amount deemed excessive or unjust as prescribed by the Presidential Decree among personnel expenses shall not be included in the calculation of losses in the calculation of the income amount of a domestic corporation for each business year, and Article 43(1) of the former Enforcement Decree of Corporate Tax Act provides that "the bonus paid by a corporation to its officers or employees by the disposal of profits shall not

In light of the language and text of the above provisions and the legislative purport of Article 26 of the former Corporate Tax Act and Article 43 of the Enforcement Decree of the Corporate Tax Act to prevent unfair reduction of corporate income, the remuneration paid by a corporation to an executive officer is, in principle, subject to an inclusion in deductible expenses. However, even if the corporation paid the remuneration to an executive officer who is a controlling shareholder (including its specially related executive officer), it shall be deemed that the remuneration is identical to the bonus subject to inclusion in deductible expenses as a disposition of profits and its substance, and thus, cannot be included in deductible expenses pursuant to Article 43 of the Enforcement Decree of the Corporate Tax Act.

In addition, in light of difficulties in proof or the concept of fairness, if such circumstances are proved to a considerable extent, the entire amount of remuneration should be deemed as subject to non-deductible expenses, and the fact that the above remuneration includes part of the cost of performing duties and the said part is subject to inclusion in deductible expenses need to be proven by a taxpayer who is easy to submit specific data on the calculation process of remuneration or the details of its composition (see Supreme Court Decision 2015Du60884, Sept. 21, 2017).

2) Determination

In full view of the following circumstances acknowledged by adding the whole purport of the pleadings to each of the above facts and the evidence mentioned above, Gap evidence Nos. 12 through 16, 18, 19, evidence Nos. 21 through 28, evidence Nos. 30 through 35, and evidence No. 6 (including each number), the special bonus of this case is nothing more than taking the form of bonus externally in order to distribute profits reserved to a corporation mainly rather than a normal price for the performance of duties under Aaa, and this is the same as the bonus subject to non-taxation as a disposition of profits, so the special bonus of this case cannot be included in deductible expenses pursuant to Article 43 (1) of the former Enforcement Decree of the Corporate Tax Act.

(A) Establishment of special bonus payment regulations and payment of bonuses thereunder;

① After October 10, 2007, the Plaintiff decided the instant provision at the general meeting of shareholders and the board of directors, and prepared a special bonus so that the amount of the general bonus would be limited to less than 200% of the annual wage, while the Plaintiff would have contributed to the interest of the company. In light of the fact that the Plaintiff had already paid bonuses to the executives even during the composition procedure before the enactment of the instant provision, and that the amount of the general bonus under the instant provision would be limited to less than 20% of the annual wage, it appears that it was the primary reason for establishing the instant provision to provide the grounds for payment of the special bonus.

② The amount of bonuses paid to Aa in the year 2008-2010-2010 exceeds 455-735% of annual wage, while the amount of bonuses paid to other executives is merely 107-237% of annual wage, and the person who gains substantial profits upon the enactment of the instant provision that limited the amount of regular bonus and provided the grounds for special bonus payment, appears to have been only a person who gains profit by enacting the instant provision.

(A) After resignation on June 29, 2010, the Plaintiff did not submit to the effect that other executives have received a special bonus equivalent to a Aa (a). The amount of a special bonus to Aa seems to have been ever many examples.

③ Only abstract requirements that a special bonus may be paid in cases where there is a special contribution to the interests of the company, and there is no specific standard on whether a special bonus is paid or the amount of the special bonus is possible, with the exception that the amount is limited to the total remuneration of the officers. Also, there is no specific examination or resolution as to whether a special bonus in this case has contributed to the interests of the company at the time of paying a special bonus in this case to Aa.

④ The Plaintiff was included in KRW 44,976,816,771, but the earned surplus was 26,120,502,346 won at the settlement of accounts in 2007. This is because the 69,276,956,542 won was reflected in the debt exemption profit accrued upon the completion of the composition procedure. However, the Plaintiff paid a bonus of KRW 604,947,460 to Aa from 207, which was immediately after the completion of the composition procedure, to June 29, 2010, including that the Plaintiff paid a bonus of KRW 604,947,460 to Aa, which was immediately after the completion of the composition procedure, to June 29, 2010, and that the Plaintiff paid KRW 4,628,535,110 (=604,947,460 + KRW 208,252,970,1201,2010

(B) The remuneration gap with other executives;

① Comparing the amount of bonus itself, aa’s bonus paid in the business year 2008 KRW 1,252,963,70 is about seven times the amount of bonus (172,573,660-182,384,640 won) paid by other executives; the bonus paid in the business year 2009 KRW 1,754,111,240 is about 11-12 times the amount of bonus paid by other executives (143,679,460-152,877,570 won); the bonus paid in the business year 2010 KRW 1,016,512,710 is about 1,00,000 of the amount of bonus paid by other executives (143,679,460-152,877,570 won); the bonus paid in the business year 2010 KRW 1,010 or about 201Da601601000.1.

② Compared with the percentage of the amount of benefits, aa’s bonus paid in the business year 2008 exceeds 735% of the amount of benefits, whereas aa’s bonus paid in the business year 2008 is limited to 214-237% of the amount of benefits, while the bonus paid in the business year 2009 exceeds 45% of the amount of benefits, while the bonus paid in the business year 2009 is limited to 178-189% of the amount of benefits, while the bonus paid in the business year 2010 exceeds 506% of the amount of benefits, the bonus paid in the business year 2010 is merely 107-15% of the amount of benefits.

③ The Plaintiff asserts that since aa was responsible for the overall management of the company and the general meeting of shareholders and the chairperson of the board of directors, the bonus paid to other executives cannot be simply compared to the bonus paid to them. However, aa has received higher benefits than other executives in the year 2008-2010, and the difference in the above position and scope of duties is already reflected in the salary, and the above circumstances asserted by the Plaintiff do not constitute “the case where the interest of the company, which is the requirement for payment of special bonus, particularly contributed to the interest of the company.”

(C) Comparison with net income, etc. of another company

The bonus of representative of the same or similar enterprise in the area of Busan and Gyeongnam, the bonus compared to the sales amount, and the bonus compared to the net income for the current term are as follows, and compared to this, the bonus aa receives is excessive.

(d) Other circumstances that can be seen as bonuses paid by the disposal of profits.

① The Plaintiff, which had gone through the composition procedure from 1998 to 2007, has been liable for a lot of debts due to bad management. However, even if the management performance has been improved during the composition procedure, it is derived from the result of the Plaintiff’s discharge of existing debts rather than due to the Plaintiff’s management’s outstanding business performance.

② Aa appears to have been in a position to freely determine the enactment of the provision of this case or the payment of the special bonus of this case as the controlling shareholder, representative director, and chairman of the board of directors, and there is no special discussion or opposition in the actual process of determining the payment of the special bonus of this case.

③ The Plaintiff paid more special bonuses to Aa in the year 2009, 2010, when compared to the business year 2008, while the sales, operating, and net income for the business year 2009, the Plaintiff paid more special bonuses to Aa in the business year 2009 (aa can be deemed to have increased compared to the business year 2009, when considering that aa does not work for six months in the business year 2010, the bonus paid in the business year 2010 may be deemed to have increased compared to the business year 209), and it is difficult to deem that the special bonus paid to A was paid in relation to the company’s interest.

④ The Plaintiff did not pay dividends to the shareholders in spite of the occurrence of operating income and net income in the year 2008-2009, and distributed KRW 12,610,000,000 out of the earned surplus accumulated in the year 2010, which was after a resignation by Aa, in March 28, 2011.

(e) Whether there has been a special contribution of Aa

(1) Aa appears to have received wages in a relatively small amount compared with other officers by the year 2007 in which the Plaintiff had been in composition procedures. However, Aa as a controlling shareholder and representative director of the Plaintiff, is primarily responsible for the Plaintiff’s insolvency and the creation of composition procedures, so aa’s receipt of a relatively small amount of wages in the composition procedures can be deemed to have been performed as a manager who once again provided an operating opportunity, and Aa appears to have received a considerable amount of bonuses in the composition procedures by receiving bonuses in KRW 604,947,460 in the year 207 after the completion of the composition procedures on August 29, 2007 (aaa receives a large amount of bonuses in KRW 665,501,60-207 in total remuneration paid by each other as KRW 915,929,207).

In the case of a Aa, taking account of the fact that the Plaintiff’s composition procedure as a controlling shareholder can gain profit from the increase in share value upon the termination of the Plaintiff’s composition procedure, it is difficult to view that the Plaintiff’s receipt of small benefit

② Aaa Real Estate owned by the Plaintiff was provided as a security for the Plaintiff’s obligation, and used as a collateral for the Plaintiff’s obligation, and Aa was individually and severally guaranteed for the Plaintiff’s obligation. However, considering that (a) as a controlling shareholder of the Plaintiff, the shareholder’s act of making the Plaintiff’s personal property contributions to preserve the value of his/her shares; and (b) Aa was repaid by exercising the Plaintiff’s claim for indemnity equivalent to his/her own property, it is difficult to deem that the Plaintiff either made contributions to or jointly guaranteed the Plaintiff’

③ The Plaintiff asserts that the HDR system was introduced at the risk of its employees’ opposition, thereby contributing to the company’s interest by reducing the costs of HDR. However, even if the amount of HDR system was reduced due to the introduction of HDR process replacing the existing heating process, it cannot be readily concluded that there was a cost reduction only due to the amount of HDR usage, and the total amount of HDR cost cannot be said to have been directly the Plaintiff’s interest without considering new costs. In fact, the Plaintiff introduced the HDR system around January 2007, but it is not clearly confirmed whether the cost of the product was reduced after the introduction of the HDR system. Moreover, even if the effect of cost reduction, as otherwise alleged by the Plaintiff, it is difficult to view that the Plaintiff’s other officers and employees who were not superior to aa, and the Plaintiff’s special bonus amount is not a “special bonus amount” under this case’s bonus.

5. Conclusion

Therefore, the judgment of the court of first instance is just and the plaintiff's appeal is dismissed. It is so decided as per Disposition.