Cho Jae-2015-Seoul Government-3937 (Law No. 12, 2016)

Retirement allowances under the provisions for the payment of high-amount retirement allowances to specific executives at their discretion shall not be included in deductible expenses.

The retirement benefits provision of a corporation is a means to pay a certain amount of retirement allowances at will, and unless the corporation has a general provision that has continuously and repeatedly applied to a specific executive, it cannot be deemed a provision that pays retirement allowances for executive officers pursuant to the articles of incorporation, and the retirement benefits paid pursuant to such provision shall not be included

Article 44 of the Enforcement Decree of the Corporate Tax Act

2016Guhap72082 global income and revocation of such disposition

Ack ○

AA Head of the Tax Office

April 20, 2017

May 18, 2017

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 000 on April 28, 2015 against the Plaintiff on April 2015 is revoked.

1. Details of the disposition;

A. BB (hereinafter “B”) is a corporation established around July 2003 and engaged in real estate development business, etc. (hereinafter “○○ District Court 2014Hahap000, which was declared bankrupt on October 22, 2014), and the Plaintiff worked as a director of BB from February 1, 2004 to March 31, 2009.

B. On January 10, 2008, BB held a temporary general meeting of shareholders (hereinafter “temporary general meeting of shareholders”) and revised the provisions on retirement benefits for executives (hereinafter “instant retirement benefit provisions”), and the Plaintiff retired on March 31, 2009, and around that time paid KRW 750,000,000 as retirement benefits to the Plaintiff (hereinafter “instant retirement benefits”) based on the instant retirement benefit provisions, and included them in the deductible expenses for the business year 2009.

C. On the ground that the instant retirement benefit provision was made only for specific executives and the instant retirement benefit was paid excessively due to the investigation into corporate tax against BB from March 4, 2015 to December 23, 2015, the director of theCC Tax Office notified the Plaintiff of the inclusion of KRW 59,279,202, which is the amount exceeding the “the retirement benefit payment limit for officers other than the case where the amount to be paid as retirement benefits is determined by the articles of incorporation pursuant to Article 44(4)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22035, Feb. 18, 2010; hereinafter “former Enforcement Decree of the Corporate Tax Act”) among the instant retirement benefits, and the Defendant issued a correction and notice of KRW 00,00 for global income tax for the Plaintiff on April 28, 2015 (hereinafter “instant disposition”).

D. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on July 8, 2015, but was dismissed on May 12, 2016.

[Ground of recognition] Facts without dispute, Gap evidence 1, 3, 4, Eul evidence 1 (including branch numbers), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant retirement benefit was duly paid pursuant to the B’s articles of incorporation and the instant retirement benefit provision enacted accordingly. Therefore, the instant disposition that was premised on the exclusion of part of the instant retirement benefit from deductible expenses is unlawful.

B. Relevant statutes

Attached Form is as shown in the attached Form.

(c) Fact of recognition;

1) The status of shareholders as of the end of the 2008 business year of BB is as follows:

(unit: State, %)

Name of shareholders

Number of Stocks Held

Holding shares

D Co., Ltd.

63,000

30

○ ○

29,400

14

○ ○

21,000

10

Maap○

21,000

10

F. F

16,800

8

J Co., Ltd.

14,700

7

○ ○

14,700

7

Other stockholders

29,400

14

guidance.

210,000

100

2) Article 29(2) of the BB’s Articles of incorporation provides that “retirement allowances of directors and auditors shall be determined separately by a resolution of the general meeting of shareholders.”

3) Meanwhile, the main contents of the minutes of the temporary shareholders’ meeting of this case are as follows.

Minutes of Provisional General Meeting

On January 10, 2008, the company will hold a temporary general meeting of shareholders at this time.

210,000 shares of the total number of shareholders 11 shares

15,500 shares in the number of four shareholders present;

As the representative director F is present at the meeting of the chairman in accordance with the provisions of the articles of incorporation, this meeting was duly established and the meeting was declared and then the following bill was presented and deliberated, and the approval is adopted as follows.

(1) Cases of the provisions on retirement allowances for officers in subparagraph (1);

It is approved without objection by all the shareholders present at the meeting, which is the request for approval of the provision on retirement allowances for officers as attached.

January 10, 2008

BB Corporation

The Speaker's representative director and the Speaker's seal.

Directors: DuF (Signature)

Directors: Kim H (Signature)

Directors: Maximum ○○ (Affixing)

4) The main contents of the instant retirement benefit provision are as follows.

Provisions on Retirement Allowance for Officers

Article 1(Purpose)The purpose of this section is to ensure the continuous strengthening of the relationship with officers and companies by prescribing all matters concerning retirement allowances to be paid to retired officers.

Article 2 (Definition of Officers) The term "executives" in this provision means officers in continuous service for not less than three years, directors and auditors appointed at a general meeting of shareholders.

Article 5 (Retirement Allowances) (1) When an executive retires, an amount calculated in accordance with the ratio of payment of retirement allowances for the following officers shall be paid as retirement allowances:

Positions and Positions

land-class rate

Chairperson of the representative director

25 times the total amount of salaries per year before retirement

President of the Office

10 times the total amount of salaries per year before retirement

Directors, Vice-President, Managing Director

10 times the total amount of salaries per year before retirement

Executive Directors, Directors, and Standing Auditors

5 times the total amount of salaries per year before retirement

Addenda

This Regulation shall enter into force on January 10, 2008.

5) On the other hand, BB had a retirement allowance payment provision with respect to employees as follows:

Retirement Allowance Payment Regulations

Article 2 (Scope and Coverage) This provision shall apply to all employees employed in us.

Article 4 (Basic Wages for Calculation of Retirement Allowances) The basic wages for calculation of retirement allowances for employees shall be the sum of the following:

1. The amount calculated by dividing the wages paid to the employee (basic pay + various allowances) in three months before the date a cause for payment of retirement allowances occurs;

2. 퇴직금 지급사유가 발생한 날 이전 1년분의 상여수당 및 연��월차휴가보상수당을 12등분한 금액

Article 6 (Payment Rate) The payment rate of retirement allowances for employees shall be calculated on the basis of one year of service year.

Article 7 (Calculation Method of Retirement Allowances) The calculation of retirement allowances shall be the amount obtained by adding the payment rate under Article 6 to the basic wages under Article 4.

Article 8 (Calculation of Period of Service) (1) The period of service shall be from the date of employment to the date on which grounds for the payment of retirement allowances under Article 5 arise.

(2) In calculating the continuous service period, any period less than one year shall be calculated on a monthly basis, and any period less than one month shall be calculated on a monthly basis.

6) BB paid retirement pay to the Plaintiff, Kim H, and Lee K, retired on March 11, 2009, in accordance with the instant retirement benefit provision, as follows:

Name

Title

Term of Service

An annual salary for one year before retirement;

Payment Rate

Ceiling Amount

Retirement allowances actually paid;

H Kim H

Vice President;

5 years;

65,083,00 won

10 times

6,650,830 won

1,800,000 won

EK

Planning Director

5 years;

76,674,00 won

5 multiples

383,370,00 won

300,000 won

Management Director

5 years;

296,499 thousand won

5 multiples

1,482,495,00 won

750,000 won

7) On January 31, 2009, BB retired from office ○○○○, a managing director ○, a director ○○○, and an adviser ○○○ retired on January 31, 2009. BB paid only the following retirement consolation benefits, not the amount stipulated in the instant retirement benefit provision, and withheld it as earned income.

(unit: Won)

Name

Retirement Pay

Retirement consolation benefits

Tax withholding in 2009

Gross pay in 2008

Classification of Income

Gross pay

Ansan ○

30,000,000

Wage and salary income

40,000,000

120,000,000

○○

16,250,000

Wage and salary income

21,666,670

63,750,030

○ ○

17,500,000

Submission of a statement of payment

Gangwon ○

12,692,300

Submission of a statement of payment

8) BB did not apply the instant retirement benefit provision to the director ○○○○, the executive KimL, the executive ○○○, and the director ○○○, who was employed by the Plaintiff after retirement, and did not pay retirement benefits or paid only the small amount of retirement benefits as follows, unlike the Plaintiff.

(unit: Won)

Name

Retirement Benefits Conditions for Employment Products

Term of Service

Payment of retirement benefits

Jinay

○ ○

Non-entry

From April 13, 2009 to March 28, 2011

Unpaid

KimL

1/13 Accumulation of annual salary

From September 14, 2009 to December 31, 2009

Unpaid

Continuous service for less than one year;

○ ○

Inclusion in the annual salary

Above October 7, 2009 to February 28, 2011

9,673,330

○ ○

Inclusion in the annual salary

From October 9 to December 31, 2009

Unpaid

Continuous service for less than one year;

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, Eul evidence Nos. 9, 10, 22 (including each number), the purport of the whole pleadings

D. Determination

1) Whether the retirement benefit provision of this case can be recognized as effective

In light of the following circumstances: (a) The retirement benefit provision of this case was adopted at the temporary shareholders meeting of this case on January 10, 2008; (b) ○○, ○○○, and ○○○○, among the shareholders of this case, did not attend the temporary shareholders meeting of this case; (c) the total number of shares of the shareholders present at the meeting of this case appears to be only 15,500 shares (including DD63,00 shares + F16,80 shares + 16,80 shares + the number of shareholders present at the temporary shareholders meeting of this case; and (d) the shareholders of this case did not appear to have the effect of the temporary shareholders meeting of this case on the sole basis of the circumstances that the above provision was not legitimate, i.e., the total number of shares of the shareholders present at the meeting of this case; and (d) the shareholders of this case did not appear to have the effect of the temporary shareholders meeting of this case; and (d) the shareholders of this case did not appear to have the effect of the above temporary shareholders meeting of this case.

2) Whether the instant retirement benefit should be included in deductible expenses

A) Relevant regulations, etc.

Article 19 (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 "deductible expenses shall be the amount of losses incurred from transactions which reduce the net assets of the relevant corporation, excluding refund of capital or financing, disposal of surplus funds, and what is prescribed in this Act." Paragraph (2) provides that "deductible expenses under paragraph (1) shall be generally accepted as losses or expenses incurred in connection with the corporation's business or directly related to profits, except as otherwise provided in this Act and other Acts and subordinate statutes." Paragraph (4) provides that "the scope and classification of losses under paragraphs (1) through (3) shall be prescribed by Presidential Decree." Article 19 (1) 3 of the former Enforcement Decree of the Corporate Tax Act provides that "the amount of retirement benefits paid by an officer shall be included as one of the deductible expenses under the provisions of the former Corporate Tax Act, and Article 26 of the Corporate Tax Act provides that "the amount paid by an officer shall not be included in deductible expenses for the following business year."

In light of the above-mentioned provisions: ① The reason for recognizing the payment provision of retirement allowances for executives stipulated in the articles of incorporation of the former Corporate Tax Act as the basis for inclusion in deductible expenses is that the articles of incorporation requires strict amendment procedures under Article 433 of the Commercial Act in order to increase retirement allowances as a fundamental rule for the operation of the corporation; thus, it is difficult to pay excessive retirement allowances for executives to a relatively difficult and thus, there is a risk that the corporation’s income would be reduced unfairly; ② the remuneration, bonuses, retirement allowances, etc. paid by a corporation to a specific officer, etc. are inappropriate in light of the sound social norms or commercial practices; ② the tax burden on the corporation’s income is unjustly reduced by allocating profits to a specific officer, etc.; and thus, it is reasonable to view that Article 44(4)1 or (5) of the former Enforcement Decree of the Corporate Tax Act as the provision providing for the payment of retirement allowances for executives under the articles of incorporation is legitimate; and the procedure for resolution and resolution under the Commercial Act as a general and specific standard that makes it impossible to pay retirement allowances at once of executives.

Therefore, immediately after the establishment or amendment of a provision on the payment of retirement allowances for officers, the articles of incorporation was applied to a specific executive, such as the retirement of the representative director, by means of the controlling shareholder, etc., in order to pay the retirement allowances at his/her own discretion, or the articles of incorporation set the retirement amount to a specific executive, or set the amount to a specific executive at a higher level without justifiable grounds, or set the payment rate discriminatoryly higher than the payment rate in the articles of incorporation, the above articles of incorporation is merely the means for the specific executive to pay the retirement allowances at his/her own discretion, and cannot be deemed as a general and specific provision that has been applied continuously and repeatedly by the pertinent corporation. Thus, it cannot be deemed as a "the provision on the payment of retirement allowances for executives by the articles of incorporation"

B) Determination

In light of the above evidence and the overall purport of the arguments, the following circumstances are revealed. ① Since the Plaintiff entered BB on February 1, 2004, the Plaintiff was in charge of the overall business of the company as a director of BB at the time of the enactment of the retirement benefit rules, and the vice president Kim H and planning director at the same time as the Plaintiff, including the Plaintiff, appears to have been in a position to exercise substantial influence over BB’s important policy decision-making and business affairs. ② The instant retirement benefit rules merely provide that the Plaintiff, the vice president, and planning director at ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○’s retirement benefit rules were amended on March 31, 2009, the Plaintiff could not be considered to have paid the retirement benefit benefits more than 1B00.

Therefore, the first-party plaintiff's assertion on a different premise is without merit, and the instant disposition taken pursuant to Article 44 (4) 2 of the former Enforcement Decree of the Corporate Tax Act is legitimate.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

Relevant statutes

director of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010)

Article 19 (Scope of Losses) (1) Deductible expenses shall be the amount of losses incurred by transactions which reduce the net assets of the concerned corporation, excluding refund of capital or financing, disposition of surplus funds and what is provided for in this Act.

(2) The losses under the provisions of paragraph (1) shall be losses or expenses generated or spent in connection with the business of a corporation which are generally accepted as normal or directly related to profit, except as otherwise prescribed by this Act and other Acts and subordinate statutes.

(4) Matters necessary for the scope and types of losses under the provisions of paragraphs (1) through (3) shall be prescribed by Presidential Decree.

Article 26 (Non-Inclusion of Excessive Expenses in Calculation of Losses) The amount deemed excessive or unreasonable as prescribed by Presidential Decree among losses falling under any of the following subparagraphs shall not be included in the calculation of losses in calculating the income amount for each business year of a domestic corporation:

1. Personnel expenses;

(1) The former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22035, Feb. 18, 2010)

Losses under Article 19 (Scope of Losses) (1) of the Act shall be those provided for in the following subparagraphs, except as otherwise provided for in the Act and this Decree:

3. Personnel expenses;

Article 44 (Non-Inclusion of Retirement Benefits in Calculation of Losses) (1) The retirement benefits (referring to the benefits under the provisions of subparagraph 5 of Article 2 of the Guarantee of Workers' Retirement Benefits Act; hereinafter the same shall apply) paid by a corporation to an officer or employee shall be included in the calculation of losses, limited to the cases where the employee actually retires (hereafter in this

(4) The amount in excess of any of the following amounts among retirement benefits paid by a corporation to its executives shall not be included in deductible expenses:

1. Where the amount to be paid as retirement benefits (including retirement consolation benefits, etc.) is determined by the articles of incorporation, an amount determined;

2. In cases, other than those referred to in subparagraph 1, the amount calculated by multiplying the amount equivalent to 1/10 of the total salary [referring to the amount referred to in Article 20 (1) 1 (a) and (b) of the Income Tax Act (excluding the non-taxable income referred to in Article 12 of the same Act), but excluding the amount not included in deductible expenses as prescribed in Article 43] paid to the relevant executive for one year retroactively from the date of his/her retirement by the number of years of continuous service calculated in accordance with the method prescribed by Ordinance of the Ministry of Strategy and Finance. In such cases, where retirement benefits have not been paid when the relevant

(5) Paragraph (4) 1 shall include the cases where the articles of incorporation stipulate the criteria for calculating the retirement benefits of executives, and where the articles of incorporation stipulate otherwise the payment of the retirement benefits delegated, it shall be governed by the corresponding provisions.