Seoul High Court Decision 200Na14488 decided May 1, 200

The Head of Nammun District Tax Office (Law Firm Mau, Attorney Jeong Jae-sik, Counsel for the plaintiff-appellant)

may 2, 2007

Seoul Administrative Court Decision 2003Guhap34271 decided Oct. 13, 2005

1. Of the judgment of the court of first instance, the part against the plaintiff falling under the order of revocation below shall be revoked.

The Defendant’s disposition of imposition of KRW 72,832,318 of corporate tax of KRW 2,553,306,280 against the Plaintiff on September 1, 2001 is revoked.

2. The remaining appeal by the plaintiff and the defendant are dismissed, respectively.

3. Of the total litigation costs, 90% is borne by the Plaintiff, and the remainder is borne by the Defendant, respectively.

1. Purport of claim

In the imposition of corporate tax and value-added tax on September 1, 2001 by the defendant against the plaintiff on September 1, 2001, the part of the "amount of tax claimed by the plaintiff" exceeds the "amount of tax determined" in each disposition of corporate tax and value-added tax on the amount stated in the "amount of tax determined" shall be revoked.

2. Purport of appeal

A. Plaintiff: The part of the judgment of the first instance against the Plaintiff which ordered revocation under the following is revoked. The Defendant’s imposition of KRW 425,280,50,503 in the disposition of imposition of KRW 17,914,706,660 in the business year 1996, and KRW 237,13,39 in the disposition of imposition of KRW 6,63,929,710 in the business year 197, and KRW 6,63,39 in the disposition of imposition of KRW 2,53,306,280 in the business year 1998, and KRW 637,429,429,242 in the disposition of imposition of KRW 12,475,934,380 in the business year 199.

B. Defendant: The part against the Defendant in the judgment of the first instance is revoked, and the Plaintiff’s claim corresponding to that part is dismissed.

1. Quotation of judgment of the first instance;

The reasons for the explanation of this case are as follows: 2. 5 p.m. 5 p. 5 p.m. “721,60,000” (721,60,00) and 4-p. 11 p.m. “298,583,00” and 3.m. “3,90,735,314 p.m. 3,90 p. 46 p.m. 46 p. 41 p.m. x 197 p. 97 p.m. 50 p. 97 p.m. “197 p. 98 p.m. 97 p. 97 p.m. 50 p. 97 p.m. “196m. 17 Nov. 17, 1997” x 197 p.m. 96 p. 1697 p.m.

2. Parts to be dried;

(a) From 55 up to 61 Happon and 3 Happon;

(A) As to the amount of debt repayment

1) Parties’ assertion

A) The plaintiff's assertion

① At that time, Nonparty 1, the representative director of the Plaintiff Company, at the time of the Plaintiff’s purchase price of 45,100,000 won for the server Doz. purchased on March 27, 1992, paid the purchase price to Nonparty 1 instead of the Plaintiff. After that, even though the Plaintiff paid the purchase price to Nonparty 1 fairly, it is unlawful that the Defendant deemed the above purchase price as a processing liability and excluded the amount from deductible expenses.

② The Plaintiff’s act of returning KRW 179,830,862, and the balance of credit purchase amount, which was disposed of as a deposit because it was impossible to return to the actual owner of the advertising deposit, is deemed difficult to actually return or repay the amount of KRW 75,766,560, which was impossible to confirm the creditor, and then withdrawing the amount, and used the amount as president’s incentive and reward for the business of the reporters belonging to the Plaintiff as expenses for the Plaintiff’s business, is unlawful.

③ The Plaintiff paid 570,080,000 won which had been properly disposed of as a deposit received from the representative director since the 1980s to the representative director, but was unlawful in the calculation of losses.

④ In order to impose tax on the amount of debt repayment on the basis of gains from debt exemption, etc., the Defendant must prove whether such gains from debt exemption exist or whether such gains from debt exemption accrued to the Plaintiff in the business year 1996 or 1998. The Defendant’s inclusion of the amount of debt repayment in deductible expenses without any proof is unlawful.

B) Defendant’s assertion

① Although the Plaintiff paid KRW 45,100,000 to Nonparty 1, it was falsely recorded as if Nonparty 1 paid the said purchase price instead of Nonparty 1, that the amount equivalent to the said purchase price was paid to Nonparty 1.

(2) KRW 179,830,862, and KRW 75,766,560, which the Plaintiff leaked in disguise of the refund of advertising fees, shall be excluded from deductible expenses, as it is each processed debt.

③ 570,080,000 won that the Plaintiff leaked to Nonparty 1 is the processed debt that was appropriated as a deposit without cash deposit on January 20, 1995 and was disposed of as if it were repaid, and the relevant expenses should be excluded from the deductible expenses.

2) Relevant statutes

[former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998)

Article 9 (Income for Each Business Year)

(1) The income of a domestic corporation for each business year shall be the amount obtained by deducting the total amount of losses which falls or comes to fall under the business year from the total amount of earnings which falls or comes to fall under the business year.

(2) The term "gross income" in paragraph (1) means the amount of profits generated by transactions which increase the net assets of the concerned corporation, except for capital input or financing and those provided for in this Act.

Article 17 (Timing for Belonging of Profit and Loss and Calculation of Acquisition Value)

(1) The fiscal year of accrual of earnings and losses of a domestic corporation shall be the fiscal year which includes the date on which the concerned earnings and losses are settled.

Article 32 (Settlement and Correction)

(5) In filing a report on the corporate tax base under the provisions of Article 26 or determining or revising the corporate tax base under the provisions of paragraphs (1) through (4), the amount included in gross income shall be disposed of according to the person to whom the corporate tax is reverted as bonus, dividend, other outflow, internal reserve, etc. as prescribed by Presidential Decree.

[Enforcement Decree of the former Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998)

Article 12 (Definition of Profits and Losses)

(1) The term "profit" in Article 9 (2) of the Act means any of the following subparagraphs, except as otherwise provided for in the Act and this Decree:

7. The reduced amount of liabilities due to the exemption from or expiration of debts;

Article 94-2 (Disposition of Income)

(1) The amount included in the calculation of earnings under the provisions of Article 32 (5) of the Act shall be disposed of pursuant to the provisions of the following subparagraphs. The same shall apply to non-profit domestic corporations and non-profit

1. Where the amount included in the calculation of earnings has clearly leaked out of the company, it shall be any bonus, dividend, other income, or other outflow from the disposal of profits as follows according to the person to whom such profits accrue: Provided, That where the accrual is unclear, it shall be deemed as accrual to the representative (where an executive who is an investor and a stockholder with a special relationship under Article 46-2 (3) together holds not less than 30/100 of the total number of issued stocks or equity shares of the relevant corporation and the executive actually controls the operation of the relevant corporation, he/she shall be deemed the representative, and where a corporation is exempted from withholding taxes pursuant to Articles 36 (5) and 40-5 (6) of the Regulation of Tax Reduction and Exemption Act and there is a separate person representing the relevant corporation among the directors who are investors, the reported person shall be the representative, and where there are not less than two representatives, the actual representative;

(iii) the facts of recognition

A) On March 27, 1992, the Plaintiff purchased a server 45,100,000 won from Non-Party 7 Co., Ltd. and received a tax invoice, but paid the purchase price for the said van, on January 17, 1996, on the ground that Non-Party 1, the representative director of the Plaintiff, paid the purchase price on the ground that Non-Party 1, a long-term debt, was paid by Non-Party 1.

B) The purchaser column in the tax invoice issued by Nonparty 7 Co., Ltd. is written as “(State) Chosun Shipbuilding Co., Ltd. 1” and the payment column as “passed” rather than “request,” and there is no data that Nonparty 1 paid the purchase price to Nonparty 7 Co., Ltd. in lieu of the above bid price.

C) The Plaintiff could not confirm the subject of refund or repayment, and thus, the Plaintiff leaked the amount of KRW 179,830,862, which was recorded in the deposit account, the debt account of the account books, from 1994, as if the advertising fee was refunded from December 7, 1998 to December 11, 1998, and used it as light expenses or parking expenses of the advertising station.

D) In addition, on December 14, 1998, the Plaintiff, as it is impossible to verify the person liable to repay, distributed and used the above amount by preparing a false revolving table under the name of "Guario", a processed object, for the obligations of KRW 75,766,560, which was carried over as they were, after being appropriated in the credit purchase account, which was the debt purchase account for the business year 1987 on the account book.

E) Although most of the other credit purchase obligations, the extinctive prescription of which has been completed with a long-term debt, were appropriated as miscellaneous income, the Plaintiff did not appropriate the above credit purchase amount as the Plaintiff’s miscellaneous profit.

F) On January 20, 1995, the branch office slip of the Plaintiff stated that the Plaintiff received KRW 570,080,000 from Nonparty 1, who was the representative director at the time, in cash and lent the same amount as advance payment to the officers and employees. However, it is not confirmed whether the Plaintiff received KRW 570,080,000 from Nonparty 1 in January 20, 1995.

G) On December 30, 1995, the Plaintiff offsets the short-term loans of 467,858,620 won for the short-term loans of 570,080,000 won for the representative director’s deposit, and adjusted the balance of the deposit account to 102,221,380 won for the representative director’s deposit, and re-resumed the same amount to 467,858,620 won for the representative director’s deposit, and the short-term loans of 467,858,620 won for the representative director’s deposit to 467,858,620 won for the short-term loans of 196.

H) After that, the plaintiff returned KRW 307,710,00 to the representative director on December 30, 1996, and deposited KRW 307,710,000 on January 16, 1997, and returned KRW 201,837,420 on December 31, 1997, and deposited KRW 201,837,420 on January 20, 1998, and each of the above deposits deposited KRW 201,837,420 on January 20, 1998, but no cash deposit or withdrawal was made during the above period.

I) On December 28, 1998, the Plaintiff: (a) received KRW 20 million from the representative director; and (b) deposited KRW 370,080,000 from the representative director on December 29, 200; and (c) deposited KRW 370,080,000 in cash; and (d) deposited KRW 358,925,850 in total with KRW 11,154,150 in cash; and (e) deposited KRW 358,925,850 in promissory notes received from the business partner, respectively.

(j) In the Plaintiff’s statement of deposit received on December 31, 1994, Nonparty 1’s deposit is not indicated separately. At the time, Nonparty 1’s data such as the slips or the statement of classification that can prove the amount of deposit received against the Plaintiff do not exist.

(k) In calculating the corporate tax reverted to the business year 1996, the Defendant considered the amount of KRW 45,100,000 for the above server line purchase price as a fraudulent debt and disposed of it as a bonus to the representative director. In calculating the corporate tax reverted to the business year 1998, the Defendant deemed the above non-verification deposit amount of KRW 179,830,862,862, the credit purchase amount of KRW 75,766,560, and the representative director’s deposit amount of KRW 570,80,000 as a fraudulent debt, and disposed of it as a bonus to the representative director.

[Reasons for Recognition] Gap evidence 19, Gap evidence 37-6, Gap evidence 79, Eul evidence 5-12-18, the purport of the whole pleadings

4) Determination

A) In light of the aforementioned circumstances, it is reasonable to deem that the Plaintiff paid KRW 45,100,000 at its own expense on the following grounds: (a) there is no evidence, including evidence, as to the fact that Nonparty 1 paid the purchase price on behalf of the Plaintiff; and (b) if Nonparty 1 paid the purchase price, it is in principle that the account of Nonparty 1’s deposit should be kept as a savings deposit; or (c) the Plaintiff did not account as such, and there is no reason to obtain the payment of the purchase price. Therefore, the Plaintiff’s aforementioned assertion on a different premise is without merit.

B) Since the Plaintiff’s obligation of KRW 179,830,862 and the obligation of KRW 75,766,560 as stated in the credit purchase account cannot be refunded or repaid, it is recognized that the Plaintiff’s account settlement as if it was actually refunded or repaid without including the interest on debt exemption equivalent to the credit purchase deposit and the credit purchase deposit in gross income, thereby bringing about a decrease in taxable income for the business year that should be included in gross income for the pertinent business year. However, in order to impose the amount equivalent to the credit purchase deposit and the credit purchase in gross income for the pertinent business year 1998, it is presumed that the interest on debt exemption should be attributed to the pertinent business year. Under the legal principle of the right and duty settlement, it is difficult to view that the interest on debt exemption due to the absence of deposit and the extinction of the credit purchase deposit and the credit purchase account was attributed to the pertinent business year 198 business year, and there is no other evidence to recognize otherwise. Moreover, the Plaintiff’s assertion that the amount of credit purchase and the credit purchase account did not affect the relevant business year.

C) In addition, as seen in the above facts, there is no evidence to prove that the Plaintiff received KRW 570,080,000 from the representative director of the instant case from Nonparty 1, and the deposit received from the representative director of the instant case is a false debt. Since there is no evidence to prove that the Plaintiff actually received the above money from Nonparty 1, the deposit received from the representative director of the instant case is a false debt, so it is legitimate that the above representative director's deposit was regarded as a false debt, and the Defendant's non-deductible of the amount of

(b) From 80, up to 5, up to 81, up to 11,00 square meters;

(9) Justifiable tax amount

Therefore, with respect to the corporate tax to be paid by the Plaintiff for each business year of 196 through 199, the sum of 15,724,607 won (7,164,186 won for the business year of 196 + 7,704,284 won for the business year of 1997 + 45,638 won for the business year of 1998 + 400,4999), the amount of corporate tax to be paid by the Defendant for 196 through 199; 1,082,695 won for each of the instant entertainment expenses; 1,082,695 won for each of the instant entertainment expenses; 205 won for the purpose of calculating the amount of corporate tax to be paid by the Defendant; 305 won for each of the instant entertainment expenses; 30 won for the purpose of calculating the amount of corporate tax to be paid in deductible expenses; 40 won for 50 won for each of the instant entertainment expenses; 7065 won for the instant entertainment expenses

3. Conclusion

Therefore, the plaintiff's claim of this case is justified within the above scope of recognition, and the remaining claim is dismissed for reasons. Since part of the part against the plaintiff in the judgment of the court of first instance is unfair, part of the plaintiff's appeal is accepted, and it is revoked, and 72,832,318 won in the disposition of imposition of corporate tax of 2,53,306,280 won [138,830,711 won (2,53,306,280 won - 2,414,475,569 won) in excess of 2,414,469 won in the disposition of imposition of corporate tax of 1998, and 65,98,393 won (2,5306,280 won - 2,5306,287,307,8787,8787) in the judgment of the court of first instance shall be revoked as well as the remaining part of the defendant's appeal.

【Corporate Tax Exemption】

Judges Cho Yong-ho (Presiding Judge)