Seoul High Court Decision 2013No. 2018 ( July 25, 2013)

disposition imposing corporate tax on the omission of the account for the revenue of a private teaching institute

Unless special circumstances exist, such as where a tax authority has received a written confirmation from a person liable to pay tax in the course of a tax investigation as a person who has a certain taxable requirement fact against the will of the person who prepared the written confirmation, or it is difficult to consider the written confirmation as a supporting material for the specific fact due to lack of the content thereof, it is difficult to readily deny

Article 15 of the Corporate Tax Act [Scope of Gross Income]

Article 19 (Scope of Losses)

2013Guhap27463 Revocation of Disposition of Corporate Tax Imposition

AA education corporation AA

Head of the District Tax Office

May 16, 2014

June 20, 2014

1. All of the instant claims are dismissed.

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

Cheong-gu Office

"The defendant's disposition of the corporate tax for the business year of 2006 against the plaintiff on January 18, 2010, the corporate tax for the business year of 2007, the corporate tax for the business year of 2007, and the corporate tax for the business year of 2008 is revoked (the corporate tax for the business year of 2006 stated in the complaint's claim is deemed to be a clerical error, so the above correction is made)", and the reasons are as follows.

1. Details of the disposition;

A. From January 201 to January 2013, the Plaintiff operated a foreign language driving school with a maximum of nine points in Seoul and Seoul metropolitan areas, as a corporation with the purpose of developing and selling English teaching materials, developing and selling Internet images, and providing consulting services.

B. Seoul regional tax office in January 201, (1) omitted OOO members from the tuition fees paid by the representative director and employees' personal account in the business year 2006, (2) included OO members in the business year 2007 and OO members in the business year 2008, and notified the Plaintiff of inclusion of the amount in gross income or non-Inclusion in deductible expenses to impose corporate tax, etc. (c). Accordingly, the Defendant included 2000 won in each of the 202 business years, O208, 100, 200, 2000, 300,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,00 won.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) In relation to corporate tax for the business year 2006

The Plaintiff received tuition fees, etc. through a private teaching institute’s personal financial account for business convenience, but all relevant revenues were faithfully recorded and reported. Although the Plaintiff was found to have omitted cash revenue in the business year 2003 to 2005, omission of revenue amount by the same water method again goes against the empirical rule. A certificate prepared in the course of a tax investigation is only less severe than that of a tax official that he/she is entitled to heavy taxation, not consistent with the truth.

2) As to corporate tax for the business year 2007, 2008

The Plaintiff did not operate a management department jointly with the BA and the AA language institute, or executed the cost of the website operation and advertising and publicity. Nevertheless, the Defendant rendered the instant disposition based on the confirmation document reasonably prepared in the course of the tax investigation on the premise that the relevant cost falls under common expenses, which is an unlawful disposition for which the facts of taxation are not proven.

B. Relevant statutes

Attached Form is as shown in the attached Form.

(c) Fact of recognition;

1) In relation to corporate tax for the business year 2006

A) From January 1, 2006 to December 31, 2006, the Plaintiff received tuition fees, etc. from OOOO members in total through 22 personal financial accounts in the name of 16 persons, including the JejuCC, etc., the representative director of which was the Plaintiff at the time.

B) At the time of the tax investigation in November 2009, the StateCC prepared the following confirmations:

○ The Plaintiff failed to faithfully keep the tuition fees received from the borrowed account under the name of its employees, and did not keep the detailed data, such as the date of receipt, student name, and amount of receipt, with respect to the details processed en bloc by cash sales, and did not submit the detailed data.

○ In 2008, a system failure of a private teaching institute program is not kept by date from 2006 to 2008.

○○ Cash Receipt issued in 2006-2008 is bound for each branch, but the amount of data is limited, and there is no student name, and it is difficult to check whether cash receipts have occurred for the amount deposited in the borrowed account due to the difference between the deposit time and the cash receipt issuance time.

C) In view of the fact that the ratio of the Plaintiff’s cash receipt issuance to the Plaintiff is 31.83% [OOOO(reported amount ± (reported amount of reported revenue - OOO's credit card payment - OO's amount of tax invoice issuance - O's amount of tax invoice issuance)], the tax authority deemed that the total amount of OO's cash sales - OO's cash receipt issuance amount -O's cash receipt issuance amount in consideration of the ratio of cash receipt issuance - O's cash receipt issuance amount - O's cash receipt issuance amount in consideration of the income amount at the time of filing the corporate tax.

D) Accordingly, at the time of the tax investigation in November 2009, the StateCC additionally prepared a letter of confirmation as follows:

○ The Plaintiff received tuition fees from a private teaching institute during the period from January 1, 2006 to December 31, 2006 on-line and in cash, but there was a fact that the Plaintiff used the OOO director by omitting a report on the amount of income.

2) As to corporate tax for the business year 2007, 2008

A) DaD, a business owner of AAF and the husband of the StateCC, held the shares issued by the Plaintiff and BA from 2007 to 2008 as follows.

Issuing Company

Time of Criteria

Total outstanding shares

Par value

DD Shares

Ratio of Shares

December 31, 2007

80,000 note

OOOE

36,800 Shares

46.0%

December 31, 2008

80,000 note

OOOE

26,377 Shares

32.9%

BAA

December 31, 2007

Ten thousand weeks

OOOE

4,500 Shares

45.0%

December 31, 2008

Ten thousand weeks

OOOE

4,500 Shares

45.0%

B) The Plaintiff, while operating the management department with the BBA and the AAC Research Institute, jointly spent the relevant expenses by jointly operating the website and advertising activities as follows.

Business year

Items of Expenses

drawee.

Amount

Jinay

2007

Personnel Expenses of the management department

OOOE

Pay for the executive staff;

Maintenance Costs of homepage

OOOE

Fees Payment Fees

Joint Advertising Expenses

OOOE

Program production support expenses, commercial caption expenses, online advertising expenses, and newspaper advertising expenses;

BAA

OOOE

AAAC Research Institute

OOOE

Sub-committees

OOOE

Business year

Items of Expenses

drawee.

Amount

Jinay

208

Personnel Expenses of the management department

OOOE

Pay for the executive staff;

Maintenance Costs of homepage

OOOE

Fees Payment Fees

Joint Advertising Expenses

OOOE

Program production support expenses, commercial caption expenses, online advertising expenses, and newspaper advertising expenses;

BAA

OOOE

AAAC Research Institute

OOOE

Sub-committees

OOOE

C) The tax authorities held that the amount exceeding the ratio (63.98% of the business year 606, 54.11% of the business year 2007) of the Plaintiff’s sales amount to the total sales amount in the immediately preceding business year (OOO of the business year 2007, 2008, OOO of the business year 2008) out of the expenses jointly executed by the Plaintiff with BBA and AAF (OO of the business year 208)

[Liwon unit: Liwon]

Business year

Classification

Advertisement Expenses

Personnel Expenses of Management Division

Expenses for the homepage

Sub-committees

2007

Total amount of occurrence

OOO

OOO

OOO

OOO

Maximum amount (63.98%)

OOO

OOO

OOO

OOO

Amount of appropriation for expenses

OOO

OOO

OOO

OOO

Excessive Shares

OOO

OOO

OOO

OOO

208

Total amount of occurrence

OOO

OOO

OOO

OOO

Maximum amount (54.11%)

OOO

OOO

OOO

OOO

Amount of appropriation for expenses

OOO

OOO

OOO

OOO

Excessive Shares

OOO

OOO

OOO

OOO

D) At the time of the tax investigation in November 2009, the StateCC set out the following confirmations:

It is confirmed that, during the period from January 1, 2007 to December 31, 2008, common expenses, such as advertising expenses, personnel expenses, and payment fees, in relation to BA and BD with the related company BA during the period from January 1, 2007 to December 31, 2008, have been overpaid at the time of filing corporate tax return for excess of the expenses as follows:

- OOO in the business year 2007

Advertising expenses : OOOOO + personnel expenses OOOOO + fee OOOOO won

- OOO in the business year 2008

Advertising expenses : OOOOO + personnel expenses OOOOO + fee OOOOO won

[Ground for recognition] Unsatisfy, entry of Gap evidence 2 through 8 (including each number in case of additional number) and the purport of whole pleadings

D. Determination

1) If a tax authority received a written confirmation from a taxpayer to a certain taxable fact in the course of conducting a tax investigation, barring special circumstances, such as that it is difficult for the taxpayer to take the written confirmation as evidence of the specific fact due to forced preparation against his/her will or lack of its content (see, e.g., Supreme Court Decisions 9Du2928, May 22, 1998; 2001Du2560, Dec. 6, 2002).

(6) According to the reasoning of the judgment below, the Plaintiff did not faithfully keep the tuition fees received by the representative director of the Plaintiff at the time of the tax investigation by the tax authorities, and did not secure specific data about the en bloc cash sales. Of the tuition fees received in cash, the Plaintiff prepared a written confirmation that “OO was omitted from the return of revenue amount.” In other words, the following circumstances revealed that ① the details of the sales omitted at the time of the import declaration, whether the pertinent data were secured, omitted amount, and the details of the deposit in the borrowed account are relatively detailed; ② the fact that the submission of the written confirmation seems to have high value as evidentiary materials for the specific facts is insufficient; ② the fact that the number of students or the parents of the above OO did not receive more than 20 out of the total amount of tuition fees received by the OO for the purpose of collecting more than 200 out of the total amount of tuition fees received by the OO for the purpose of collecting more than 300 out of the total amount of the 2000-100-20-200-0-000.

In light of the following circumstances, i.e., the overall purport of the pleadings, which can be seen by comprehensively considering the facts acknowledged as above, i.e., (1) DaD, the operator of a AA language private teaching institute, has more than 30% equity interest in the Plaintiff and BBA as her husband, and thus falls under a specially related person under Article 87(1) of the Enforcement Decree. (2) As such, the Plaintiff and BBA and AA language private teaching institutes jointly pay personnel expenses and advertising expenses to the Plaintiff and BBA and AA language private teaching institutes, and the payment of expenses and advertising expenses together constitutes common expenses, and thus can be included in deductible expenses only within the scope of the ratio of sales for the immediately preceding business year pursuant to Article 48(1)2 (a) of the Enforcement Decree. (3) Nevertheless, the Plaintiff’s disposal of OOO for 207 business year and 208 OOA’s total amount of sales revenue during the 20-year period, and the Plaintiff’s submission of confirmation document for each item’s credibility is not included in the above.

3. Conclusion

The plaintiff's claim is dismissed without merit, and all costs of lawsuit are assessed against the plaintiff who has lost. It is so decided as per Disposition.