Seocho 2010west0276 (2010.05.06)

Methods of calculating research and development expenses paid for the immediately preceding four years if there is no research and development expenses;

Even if there is no research and human resources development expenses incurred for four preceding years retroactively from the commencing date of a taxable year, if such expenses exceed the annual average of four years based on the research and human resources development expenses incurred during the current year, the amount in excess may be deducted.

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

1. The Defendant’s disposition of imposing corporate tax of KRW 204,625,730 against the Plaintiff on November 1, 2009 shall be revoked.

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

It is the same as the disposition.

1. Circumstances of dispositions;

A. The Plaintiff is a company established on June 24, 199 with the development, supply, etc. of software as its business purpose.

B. On July 26, 1997, the Plaintiff Company was recognized by the head of the Korea Industrial Technology Promotion Association of Korea as a research institute affiliated with the Plaintiff Company, and operated the Plaintiff Company as a research institute affiliated with the Plaintiff Company, until the recognition is revoked on July 19, 2003.

C. On August 24, 2007, the Plaintiff Company was recognized by the head of the Korea Industrial Technology Promotion Association as a research institute affiliated with the Plaintiff Company “(State) △△△△ Research Institute(hereinafter “instant research institute”) and operates the said research institute from that time.

D. From July 1, 2007 to June 30, 2008, the Plaintiff spent 522,424,239 won (hereinafter “research and development expenses of this case”) for the Defendant’s operation of the research institute during the business year from July 1, 2007 to June 30, 208 (hereinafter “the instant business year”) as expenses for research activities, such as personnel expenses, and subsequently, paid 52,424,239 won (hereinafter “research and development expenses of this case”) to the Defendant under Article 10(1)1(a) of the former Act on the Restriction of Special Taxation (amended by Act No. 8827 of Dec. 31, 2007; hereinafter the same shall apply) for the amount equivalent to 50% of the research and development expenses of this case (=522,424,239x05, but less than KRW 5,000) to the corporate tax amount for the instant business year.

E. The Defendant, on November 1, 2009, notified the Plaintiff Company of the correction of corporate tax of KRW 204,625,738 (including additional tax of KRW 21,777,254) for the pertinent business year, on the ground that the Plaintiff Company did not have paid research and human resources development expenses for 4 years immediately preceding the pertinent business year and only KRW 78,363,635 (i.e., 52,424,239x 0.15, and less than KRW) equivalent to 15% of the instant research and development expenses pursuant to Article 10(1)1 (b) of the former Restriction of Special Taxation Act (hereinafter “instant disposition”).

[Ground of recognition] Facts without dispute, Gap 1-13 evidence, Eul 1 evidence, Eul 2-1-10 evidence, the purport of the whole pleadings

2. Whether the disposition of this case is legitimate

A. The plaintiff's assertion

Where there is no research and human resources development expenses disbursed for four years retroactively from the beginning date of the relevant taxable year, 50% of the increased portion should be deducted from the corporate tax amount pursuant to Article 10(1)1(a) of the former Restriction of Special Taxation Act, considering the whole research and human resources development expenses disbursed for the relevant taxable year as the increased portion. However, the instant disposition based on a different premise is unlawful.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

Article 10 (1) 1 of the former Restriction of Special Taxation Act provides that "Where a small or medium enterprise has expenses prescribed by Presidential Decree among expenses for research and human resources development for each taxable year not later than the taxable year ending on or before December 31, 2009, such expenses may be deducted from corporate tax in the relevant taxable year: (i) where research and human resources development expenses incurred in the relevant taxable year exceed annual average of research and human resources development expenses incurred for four years retroactively from the commencing date of the relevant taxable year, an amount equivalent to 50/100 of such excess amount may be deducted from corporate tax in the relevant taxable year; (ii) where the amount calculated by multiplying research and human resources development expenses incurred in the relevant taxable year by 15/100 (b) may be deducted from corporate tax in the relevant taxable year; and (d) Article 9 (4) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 21307, Feb. 4, 2009) provides that the research and human resources development expenses incurred for four months converted from the relevant taxable year beginning date.

Therefore, in light of the legislative intent of Article 10 of the former Restriction of Special Taxation Act that intends to promote research and human resources development by granting more tax credits to taxpayers for research and human resources development investment, and Article 10(1)1(a) of the former Restriction of Special Taxation Act that does not exclude the cases where research and human resources development expenses have not been paid for the period of the preceding 4 years from the application thereof, and Article 9(4) of the former Enforcement Decree of the Restriction of Special Taxation Act provides that where research and human resources development expenses have not been paid for 48 months from the beginning date of the taxable year in which research and human resources development expenses have been incurred for the first 4 years from the beginning date of the taxable year in which the first 48 months from the beginning date of the taxable year in which such expenses have been incurred, the amount calculated by converting the total amount of research and human resources development expenses incurred during the relevant period into the total amount of research and human resources development expenses incurred for 4 years retroactively from the commencement date of the relevant taxable year shall be deemed the full increase in the investment amount for the pertinent taxable year immediately preceding 4 years (see Supreme Court Decision 2009Du424.

In light of the above legal principles, it is legitimate for the Plaintiff Company to report corporate tax of this case for the business year of this case with 261,212,19 won equivalent to 50% of the research and development cost of this case as the object of corporate tax deduction pursuant to Article 10 (1) 1 (a) of the former Restriction of Special Taxation Act. Thus, the Plaintiff Company’s assertion of this case is reasonable, and the prior disposition of this case is unlawful on a different premise.

3.In conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is decided as per Disposition by the assent of all participating Justices.