[Request Number] Trial Decision 2016west 2343 ( May 18, 2018)

[C] Correction of a corporation [Type of Decision]

[Determination] A disposition imposing corporate tax by deeming the amount equivalent to the profit plus the amount equivalent to the amount of the imported goods paid by the requesting corporation during the dispute period as the usage fee shall be deemed to have no other error. However, it is reasonable to apply the exclusion period of five years since it is difficult to regard the failure to submit a report on performance of withholding as the "declaration confirming the tax base or tax amount" in Article 26-2 of the Framework Act

[Related Acts] Article 93 of the Corporate Tax Act

The imposition of the corporate tax for the 2010 business year imposed on the applicant corporation on March 15, 2016 and July 1, 2016 by the head of the OOO office shall be revoked, respectively, and the remainder of the appeal shall be dismissed.

1. Summary of disposition;

A. A claimant corporation is a company that is established on September 11, 1997 and sells travel, office bags, etc., and OOO owns 100% shares of 100% shares of OOO, and OO owned 100% shares of OOO through OO is a world specialized manufacturing and sales company that currently holds 30% shares of 30% of the global virtual virtual market.

B. From September 17, 2015 to November 9, 2015, the director of the Seoul Regional Tax Office established the fact that the applicant corporation has conducted an integrated tax investigation on corporate tax for five business years (2010 to 2014 business years) of the applicant corporation, but the applicant corporation has paid O the user fee for the trademark right, but the applicant corporation has adopted the method of purchasing the amount equivalent to 21% of the cost of the imported product by including it in the purchase price of the imported product without paying the user fee in the purchase price of the imported product.

C. Upon receipt of the notice of the foregoing fact, the disposition agency determined and notified the OO on March 15, 2016 and July 1, 2016 for corporate tax 2010 pro ratas, OOO for the business year 2011, and OO for the business year 2012.

D. The applicant filed an appeal on June 13, 2016 and September 28, 2016.

2. Opinion of the requesting corporation and the disposition agency;

A. The claimant corporation's assertion

(1) The claimant corporation has paid the royalty corresponding to a certain ratio of the sales amount of domestic products, but by a group change, paid a certain rate of surcharge in lieu of the royalty as the price for imported goods.

(A) The claimant corporation paid 5% of the sales price of the imported goods by 2009. However, as the global economy has deteriorated in 2008 and the travel demand decreased, the subsidiary protection policy group introduced the subsidiary protection policy group. According to this policy, the ownership of excess earnings or operating losses generated in the Korean market during the key period belongs to the OO in charge of developing and utilizing intangible assets. The applicant corporation's status constitutes a re-distributor with limited risks, and thus, the applicant corporation paid 21% of the sales price of the imported goods instead of the brand usage fee originally paid.

(B) From July 1, 2012, until now, the status of a wholesaler whose general risk is borne by a requesting corporation was re-converted to the position of a wholesaler, and accordingly, 9% of the sales amount of imported goods was paid as usage fees. Since the above policy changes the legal form, the price of goods paid by the requesting corporation should be deemed as the price of goods.

Even in cases where the price fluctuations in domestic goods are considered as usage fees, such usage fees should be recognized within the scope of the arm's length price under the laws of the country, so only the amount corresponding to 5% of the sales during the relevant period, not the total price fluctuations in imported goods, shall be deemed as usage fees.

(2) When a withholding agent pays income, he/she shall withhold the relevant tax amount as corporate tax on income for each business year and pay it to the competent district tax office, etc. having jurisdiction over the place of tax payment by the 10th day of the month following the month to which the date of withholding belongs. A withholding agent is not obligated to submit a tax base return on the withheld tax amount, and only submits the payment and payment statement of the erroneous tax amount

Ultimately, the applicant corporation has no obligation to report the source tax from the beginning, and the exclusion period of the applicant corporation should be applied five years, and the withholding period of the corporate tax for the 2010 business year and the withholding amount for the 1st and fifth business year during the 2011 business year has to be the exclusion period of the national tax, so the disposition of imposition for the above period is unfair.

(b) Opinions of disposition agencies;

(1) The amount included in the import price is merely a portion of the amount that the applicant corporation made bypass and did not collect the corporate source tax.

(A) From July 1, 1999 to December 31, 2009, the applicant corporation paid an amount equivalent to 5% of the net sales of all imported goods and domestic manufactured goods as royalties. From January 1, 2010 to June 30, 2012, the applicant paid royalties only for imported goods, including royalties, but also for imported goods and domestic manufactured goods. Since July 1, 2012, both the imported goods and domestic manufactured goods are paid to 9% of the net sales. In other words, changes in the type of income for imported goods are “user income” before 199, “business income” from January 1, 2010 to June 30, 2012, and “user income” after July 1, 2012.

(B) The applicant corporation paid royalties, instead of royalties, in accordance with the policies of the head office, to the goods price, and accordingly, did not submit evidence to the applicant corporation’s business process. The difference between the transaction structure at the time of classifying “user fee income” and “business income” and “business income” and the transaction structure at the time of classifying “business income”, trade details, trademark rights, and domestic monopoly’s right to sell. Thus, the applicant corporation appears to have reduced taxable income by arbitrarily changing the classification of income.

Specifically, the applicant corporation has the exclusive right to sell the OO in Korea before 2010, from 2010 to June 2012, and from July 2012, and is entitled to use the OO trademark, design and design rights, and there is no change in the applicant corporation's business activities such as advertising and promotional activities related to the OOO.

(C) The amount equivalent to 21% of the goods included in the goods purchased by the claimant corporation is as listed below table 1, and the amount equivalent to 21% of the import price is almost similar to the amount equivalent to 5% of the sales price after the purchase of the imported goods in the Brazil Agreement concluded before January 1, 2010 by the claimant corporation. The amount included in the import price is merely a change in the subject of the claim corporation's assignment of the amount equivalent to 5% of the sales price after the purchase of the imported goods.

OO

(2) Although the claimant corporation asserts that the tax base was not reported for the portion not paid for the collection of the fee but did not pay the tax amount, it is legitimate to apply 7 years of the exclusion period in accordance with Article 26-2 of the Framework Act on National Taxes. The income tax imposed as a result of the application of the provision on the calculation of wrongful acts constitutes “non-return” if the taxpayer did not report the tax base for the relevant year, and it was determined as non-declaration of return even if the taxpayer did not report the tax base for the pertinent year.

3. Hearing and determination

A. Key issue

(1) The propriety of the principal disposition of the amount equivalent to the additional amount out of the amount of imported goods paid by the requesting corporation

(2) Where a withholding tax return is not filed, the propriety of the disposition that applied 7 years for the exclusion period of imposition by deeming that the tax base was not reported.

(b) Relevant statutes;

(1) Article 26-2 of the Framework Act on National Taxes [Period of Exclusion from Imposition of National Taxes] (1) No national tax may be levied after the following period expires: Provided, That where a mutual agreement procedure is in progress in accordance with the treaty concluded to prevent double taxation (hereinafter referred to as "tax treaty"), Article 25 of the Adjustment of International Taxes Act shall govern:

2. Where a taxpayer fails to file a tax base return by the statutory due date of return, for seven years from the date on which the national tax is assessable;

3. If a taxpayer does not fall under subparagraphs 1, 1-2 and 2, it shall be for five years from the date on which the national tax is assessable;

(2) Corporate Tax Act

Article 93 [Domestic Source Income] Domestic source income of a foreign corporation shall be classified as follows:

8. Where any of the following rights, assets, or information (hereafter referred to as "rights, etc." in this subparagraph) is used in Korea or the price therefor is paid in Korea, the consideration therefor, and income accruing from the transfer of such rights, etc.: Provided, That where the double taxation agreement on income prescribes whether the income falls under the domestic source income in terms of the place of use, the consideration for the rights, etc. used overseas shall not be deemed domestic source income, notwithstanding whether the income is paid in Korea. In such cases, where the relevant patent, etc. is registered overseas and it is used in manufacturing, selling, etc. in Korea, the consideration for the rights, etc. used overseas shall not be deemed domestic source income.

(a) Copyrights, patent rights, trademark rights, designs, models, and drawings of scientific or artistic works (including motion picture films), secret formula or processes, films and tapes for radio and television broadcast, and other similar assets or rights;

(1) Notwithstanding Article 97, a person who pays a foreign corporation an amount of income (including an amount paid to a foreign corporation with no domestic place of business) that is not substantially related to the domestic source income under subparagraphs 1, 2, and 4 through 10 of Article 93, which is not belonging to the domestic place of business, to the foreign corporation, shall withhold an amount classified as follows as corporate tax on the income of the relevant corporation for each business year, and pay it at the tax office having jurisdiction over the place of tax payment, etc. by the 10th of the month following the month in which the date of withholding falls, as prescribed by Presidential Decree, when he/she pays it:

3. Income under subparagraphs 1, 2, 8, and 10 of Article 93: 20/100 of the amount paid (the amount prescribed by Presidential Decree for income under subparagraph 10 (c) of Article 93) shall be omitted.

(4) If a withholding agent fails to withhold corporate tax on income for each business year of a foreign corporation under the provisions of paragraphs (1) and (5) through (12) or fails to pay the withheld amount by the deadline under paragraph (1), the head of the tax office having jurisdiction over the place for tax payment shall, without delay, collect the corporate tax by adding the amount under Article 47-5 (1) of the Framework Act on National Taxes to the amount collected from

(3) The withholding agent under the provisions of Article 185 of the Enforcement Decree of the Income Tax Act shall pay the withholding income tax at source within the period under the provisions of Article 128 of the Act, along with the statement of payment under the National Tax Collection Act, to the district tax office having jurisdiction over withholding, the Bank of Korea, or a postal agency, and shall submit (including submission via the national tax information and communications network) the report of performance of withholding as

C. Facts and determination

(1) According to the psychological data submitted by the claimant corporation and the agency, the claimant corporation imported the goods by adding 21% to the value of the goods instead of paying royalties to the imported goods to the OO during the issues period.

(2) We examine the issues ①.

(a) The amount of the royalty paid by the requesting corporation and the amount treated as the cost of new sales on behalf of the requesting corporation is as follows:

OO

(B) The applicant corporation submitted a research report on the establishment of the transfer pricing policy prepared by the accounting corporation, and the main contents are as follows.

OO

(C) Comprehensively considering the facts and relevant laws and regulations above.

Although the claimant corporation claims that the royalty instead of the user fee was paid as the price of the goods in lieu of the user fee according to the policy of the head office and that the business method of the claimant corporation was changed accordingly, it is not required to submit detailed evidence. The difference in the transaction structure, transaction contents, trademark rights, domestic monopoly sales right, etc. before and after the key period is not discovered and thus the amount similar to the user fee is deemed to have been paid additionally in addition to the previous price of the goods. Even if the claimant corporation considers the amount added at the time of import of the goods as the user fee income, it is not deducted from the customs tax base of the imported goods, so the claimant corporation has obtained the tax avoidance effect through the change of the income form, and even during the key period, the claim corporation has sold the goods domestically after obtaining the exclusive right to use the OO brand, and thus, the 21% substance added to the imported goods is considered to be a royalty. In light of the fact that the claim corporation did not err in the taxation disposition in this case as the royalty equivalent to the profits amount paid by the applicant

(2) We examine the issues ②

(A) There is no dispute between the requesting corporation and the disposition agency where the requesting corporation did not pay the withheld tax amount for usage fees and submitted a report on the performance of withholding tax.

(B) Under Article 185 of the Enforcement Decree of the Income Tax Act, a withholding agent shall pay withheld tax amount and require the head of the competent tax office to submit a report on the performance of withholding tax.

(C) In full view of the above facts and relevant laws, the disposition agency did not report the tax base for the portion for which tax withholding was not performed during the key issue period, and the disposition agency did not voluntarily pay the withheld tax amount, and thus applying seven years to the exclusion period. However, it is reasonable to apply five years to the exclusion period since the applicant corporation is obligated to submit the source collection report on behalf of the non-resident, and it is difficult to regard the applicant corporation as the return that determined the tax base or the amount of tax at the time of application of the exclusion period of imposition under Article 26-2 of the Framework Act on National Taxes.

Therefore, it is judged that the disposal agency's corporate tax for the year 2010 and the national tax for the year 201 and the national tax for January 5, 201 are too excessive.

4. Conclusion

This case has some grounds for a petition for adjudication as a result of the hearing, so it shall be decided as ordered by Article 81, Article 65 (1) 2 and 3 of the Framework Act on National Taxes.