Busan District Court Decision 2008Guhap5675 ( August 28, 2009)

Cho High Court Decision 2008 Deputy0727 (Law No. 29, 2008)

Non-deductible expenses paid for purchasing high-quality art goods and receiving investment in kind in a golf range;

In the event that high-priced art goods are purchased and held as investments in kind in a golf range, the provision on non-deductible expenses of paid interest shall be applied, and it shall not be viewed differently from non-business assets invested

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

1. The plaintiff's appeal is dismissed.

2. Costs of appeal shall be borne by the Plaintiff.

Purport of claim and appeal

The judgment of the first instance shall be revoked. Each disposition of KRW 74,381,10 of corporate tax of KRW 74,381,110 of August 8, 2007 against the plaintiff and corporate tax of KRW 14,295,540 of corporate tax of KRW 2006 belonging to the plaintiff, and notification of change in income amount of August 6, 2007 (income earner KimA, kinds of income, bonus of KRW 205 of the year to which the income belongs, income amount of KRW 295,824 of income amount) shall be revoked.

1. Circumstances of the disposition;

The following facts are either disputed between the parties, or acknowledged by the whole purport of the pleadings in each entry in the evidence Nos. 1, 2, 3, 4, 5-2, 6, 7, and 8 of the evidence Nos. 1, 2, 3, 4, and 5-2.

A. The Plaintiff is a legal entity established on December 27, 2002 for the purpose of engaging in sports facility business, sports supplies lending and sales business, and food and beverage sales business, and the main issue is a golf course. The representative director on the registry is 0B, and the director KimA is a de facto manager on the registry.

B. (1) On December 30, 2002, the Plaintiff received a total of KRW 757,552,411 from a non-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-party-appellee, and purchased art works worth KRW 500,000 in total on October 30, 2006 (hereinafter “instant art works”).

(2) The Plaintiff included the interest paid on the loan, entertainment expenses, welfare expenses, travel expenses, transportation expenses, and book printing expenses in deductible expenses, and paid corporate tax for the year 2005 and the year 2006.

C. (1) After conducting a tax investigation with respect to the Plaintiff, the Defendant deemed the art related loans of this case as assets unrelated to its business and assessed the tax base of each corporate tax in the year 2005 and the amount of each tax in the year 2006 and the year 2006. On August 8, 2007, the Defendant notified the Plaintiff of each tax assessment after deducting 158,713,024 won from the entertainment expenses and 137,239,80 won from the entertainment expenses on the ground that the acquisition price of the art related loans of this case was equivalent to the total loans of this case compared to the total loans of this case, and that the expenses paid by KimA regardless of its personal purpose or excessive expenses were paid regardless of its personal purpose (hereinafter referred to as "amount of each tax assessment") from the total expenses of 158,713,024 won from the entertainment expenses and 137,239,952,824 won from the total expenses of welfare expenses, transportation expenses, and printing.

(2) On August 6, 2007, the Defendant issued a notice of change in the amount of income equivalent to the above amount to the Plaintiff on 295,952,824 won (hereinafter “the notice of change in the amount of income”).

D. On November 2, 2007, the Plaintiff’s objection was raised to the Defendant on November 2, 2007, and was dismissed on November 28, 2007. The Plaintiff filed an appeal with the Tax Tribunal on February 22, 2008, but the Tax Tribunal dismissed all the Plaintiff’s appeal on September 29, 2008.

2. Whether each of the instant taxation dispositions and notice of change in the amount of income is legitimate

A. The plaintiff's assertion

The plaintiff asserts that Article 28 (1) 4 (a) of the Corporate Tax Act provides that ① to acquire or hold assets deemed not directly related to the business of the pertinent corporation under Article 27 (1) 1 of the Corporate Tax Act (2) shall apply to the case where interest is paid on borrowed funds (3) and the disposition of notifying the change in the income amount of each of the instant taxation

(1) The assertion that the art of this case does not constitute non-business assets

The plaintiff is a property that is necessary for future business or income creation for the purpose of investing in kind or purchasing the art of this case in the art service business for the purpose of investing and participating in the art service business, which is a new business of the industry at issue. Therefore, the art of this case does not fall under the property for non-business use of a corporation under Article 27 subparagraph

(2) Violation of the substance over form principle

Article 28 (1) 4 of the Corporate Tax Act applies to the assets acquired by the business entity that is required to borrow funds directly or indirectly for the purpose of purchasing assets. Of the art assets of this case, the part in which the Plaintiff received an investment in kind from the business that is at the time of the time of the delay in the place of the auction among the art assets of this case is not likely to incur a loan at the beginning, and there is no interest paid thereon. Therefore, each taxation of this case on the art property invested in kind by the Plaintiff is extended or analogically interpreted without reasonable grounds, and thus violates

(3) Violation of the underlying taxation principle and the substance over form principle

Of the Defendant’s non-deductible expenses, KRW 40,266,50,00 is the purchase cost of a gift gift to be granted to golf course members. KRW 2,056,650 is the purchase cost of gift gift certificates, etc. to prevent a civil petition by neighboring residents of a golf course. KRW 1,013,00 is the entertainment expenses of the principal transaction personnel, KRW 3,804,931 is the entertainment expenses of external auditors and advisory agencies, KRW 10,034,511 is the travel expenses to enter the market for functional health foods, KRW 2,975,50,00 is the transportation expenses to enter the market for functional health foods, and KRW 1,975,50,00 is the expenses related to the Plaintiff’s business as welfare expenses to the employees. Nevertheless, the Defendant, a representative director of the industry, notified each of the instant tax dispositions based only on the confirmation and notification of changes in tax assessment of each of the instant tax dispositions.

(b) Related statutes;

The attached Form shall be the same as the attached Form.

(c) Fact of recognition;

The following facts are not disputed between the parties, or acknowledged by Gap evidence 5-1, Eul evidence 2-1, Eul evidence 1, Eul evidence 12-2, Eul evidence 12-1, Eul evidence 13, part of Gap evidence 6, and evidence of the first instance court witness KimD and party KimCC (excluding each part not trusted in the rear).

(1) On December 26, 2002, the Plaintiff is a corporation established by the investment of 100% by the business in which the business in which the place of the residence is located, and KimA is the Maximum E, the largest shareholder of the business in which the place of the residence is located.

(2) On April 11, 2003, the business at issue added public performances and viewing to profit-making business purposes, and around that time, art gallery service was added to business registration as a sub-business.

(3) In 2005, the largest EE, the largest shareholder of the industry where the place of residence is located, purchased 74-1 and 65,430 square meters for ○○○○○○-gun, ○○○○○, and 7 lots.

(4) When filing a corporate tax return for the business year 2005 and the business year 2006, the Plaintiff treated the limit of entertainment expenses in excess of 164,514,784 won among the expenditures of 50,000 won or more as non-Evidence of evidence, and treated it as other outflow of the company. From June 4, 2007 to June 4, 2007, the Defendant conducted a consolidated investigation of the corporate tax for the business year 2005 for the business year 164,514,713,024 of the non-deductible of the above non-deductible of expenses as non-deductible of 164,514,784 won, which was actually the Plaintiff’s manager, as a private person without connection with the Plaintiff’s business.

(5) On June 25, 2007, when undergoing a tax investigation, the auditor KimCC, the representative of the industry in which the time limit to suspend the sale of goods, and the Plaintiff’s auditor: ① on June 25, 2007, 158,713,024 out of the above entertainment expenses, 8,832,100 out of the entertainment expenses, paid 8,832,100 out of the entertainment expenses to a person who is not directly related to his/her business, and 4,467,70 out of the travel expenses and transportation expenses, was traveled overseas without direct connection with his/her business, and 1,90,000 out of the printing expenses for books and books, and 1,90,000 out of the printing expenses for books and books were used at his/her discretion by KimA to submit to the Defendant a written confirmation that the interest paid on the art of this case was excessive, and ② on June 27, 2007, the Plaintiff’s construction of the construction of the building site or the art gallery was not prepared.

(6) At the time of filing an objection and filing a tax appeal, the Plaintiff purchased and displayed high-priced artistic works in order to enhance the level of the rest room operated by the Plaintiff at the time of raising the Plaintiff’s filing of an objection and filing a tax appeal. The Plaintiff asserted that the amount of money used for personal purposes is a cost for responding to a large number of customers in various ways. As a result of the Defendant’s confirmation, three points were displayed in the rest room, but the instant art works were not exhibited.

(7) On April 10, 2008, after the completion of the tax investigation, the Plaintiff submitted defense materials related to the art works and entertainment expenses of this case to the Tax Tribunal.

D. Determination

(1) Generally, the burden of proof based on the facts requiring taxation in a tax lawsuit is a taxable person, but considering that most taxation data in the tax practice are not easy to collect in the taxpayer's control area, it cannot be readily concluded that the pertinent tax disposition is an illegal disposition, unless the other party proves that there are special circumstances where the pertinent facts cannot be applied to the pertinent facts in question, unless it is proved that there are special circumstances that the pertinent facts cannot be applied in light of the empirical rule in the specific litigation process (see Supreme Court Decision 97Nu9895, Mar. 4, 1998).

(2) Determination as to the assertion that the art of this case does not constitute non-business assets

According to Articles 28(1)4(a) and 27 subparag. 1 of the Corporate Tax Act (amended by Act No. 8141, Dec. 30, 2006; hereinafter the same) and Article 49(1)2(a) and (c) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 19815, Dec. 30, 2006; hereinafter the same shall apply), paintings, curios, and other similar assets, except for permanent display in spaces such as offices and corridors for the purpose of decoration and environmentally beautifying, in which many people, such as office and corridor, can be seen, shall not be included in deductible expenses.

The following circumstances revealed from the above recognition, namely, ① the Plaintiff asserted that the Plaintiff purchased the art goods of this case in order to take care of the golf club room operated by the Plaintiff at the time of filing an objection or a tax appeal, but the Plaintiff changed this in the lawsuit of this case and claimed that it was acquired for the purpose of investment and participation in the art goods service business, which is a new business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the business of the place of the place of the entertainment, ② even if the Plaintiff purchased the land, it is difficult to view that the business of the business of the business of the place of the business of the place of the business of the place of the entertainment, and there is no other evidence to deem that the Plaintiff is an additional property for the business of the business of the business of the plaintiff, which is the business of the business of the business of the plaintiff.

Therefore, the plaintiff's assertion on the premise that art works of this case are assets used for the plaintiff's business is without merit.

(3) Determination as to the violation of the substance over form principle

The legislative intent of Article 28 (1) 4 (a) and Article 27 (1) of the Corporate Tax Act and Article 53 (2) of the Enforcement Decree of the same Act is to prevent the aggravation of the financial structure of an enterprise from depending on other person's capital due to unreasonable corporate expansion, and to restrain the speculation on assets for non-business use with financial assets of a large enterprise and the reckless corporate expansion on non-productive business types, thereby inducing the sound economic activities of an enterprise through the productive management of corporate funds (see, e.g., Supreme Court Decision 2005Du12527, Feb. 106). In light of the above legislative intent, non-Inclusion in deductible expenses is not limited to interest paid on borrowings borrowed for the acquisition of assets unrelated to the business of the corporation, but also in cases where a domestic corporation purchases or exchanges loans, contributions in kind, or acquires assets for non-business use without the above provision of Article 28 (1) 4 (a) and Article 27 (1) of the Corporate Tax Act.

Therefore, each of the tax dispositions in this case, which the defendant excluded the amount calculated by the formula under Article 53 (2) of the Enforcement Decree of the Corporate Tax Act, by deeming the art of this case as non-business assets that the plaintiff received from the business of selling the real estate in kind, is legitimate in calculating the income amount for each business year.

(4) Determination as to the violation of the substance over form principle and the substance over form principle

(A) In the event that a tax authority received a written confirmation from a taxpayer that a certain portion of a transaction is a processing trader in the course of conducting a tax investigation, barring special circumstances, such as where the written confirmation was drafted compulsorily against the intent of the originator, or it is difficult to take the written confirmation as evidence for specific facts due to insufficient details, etc., the evidence of the written confirmation cannot be readily denied (see Supreme Court Decision 2001Du2560, Dec. 6, 2002).

(B) In the course of the Defendant’s tax investigation against the Plaintiff, it is found that the Plaintiff disposed of entertainment expenses paid by the Plaintiff without relation to his duties as non-deductible expenses or other outflow from the company, and instead of his duties, it was found that it was paid with welfare expenses, travel expenses, transportation expenses, book printing expenses, etc. Accordingly, as described in paragraph (5) of 2.0, the Defendant prepared and issued a confirmation document stating that KimCC spent personal or regardless of his duties. The above confirmation document contains details such as entertainment expenses, welfare expenses, transportation expenses, and travel expenses, book printing expenses, and the amount illegally appropriated in each item of the above confirmation document, and it does not seem that there are any special circumstances such as the Defendant’s forced preparation of the above confirmation document.

According to the above facts, the plaintiff can sufficiently prove the fact that entertainment expenses, welfare expenses, travel expenses, transportation expenses, book printing expenses, etc. are unfairly calculated, and contrary thereto, part of Gap evidence 6, and each testimony of the witness KimD and KimCC of the court of first instance is a statement of a person who was submitted after the KimCC submitted a written confirmation according to his/her intention or is not in a neutral position as the plaintiff's employee, it is difficult to believe that each statement of Gap evidence 7-1 through 40, Gap evidence 8-1 through 18 is insufficient to reverse the above recognition.

Therefore, the defendant's each taxation of this case and the notification of changes in income amount based on the letter of confirmation prepared by KimCC are lawful. Therefore, the plaintiff's above assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.