Seoul Administrative Court 2010Guhap14879 ( November 18, 2010)

disposition imposed by deeming it as a "representative who actually controls the management of a corporation"

At the time of 2006, the Plaintiff was not a representative director on the corporate register of the instant company, and was not an executive officer or stockholder of the instant company. Even if it was de facto controlling the management of the instant company, the disposition imposing tax on the Plaintiff by deeming the Plaintiff as the representative of the instant company and deeming the Plaintiff to be an unlawful disposition.

2010Nu42678 Total income and revocation of disposition

XX

Head of Central Tax Office

Seoul Administrative Court Decision 2010Guhap14879 decided November 18, 2010

June 15, 2011

August 10, 2011

1. Revocation of a judgment of the first instance;

2. The Defendant’s disposition imposing global income tax of KRW 4,120,108,920 on the Plaintiff on October 1, 2009 shall be revoked.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of disposition;

A. From March 28, 2007 to May 28, 2007, the Defendant conducted a tax investigation with respect to the company XX(hereinafter “instant company”) and confirmed that the instant company omitted the sales revenue amounting to KRW 9,768,300,00 from sales in the year 2006.

B. The Defendant calculated the total amount of wholesale sales omitted on June 4, 2007 for the business year of 2006, including the business revenue amount of the instant company, and notified the instant company of the total amount of KRW 1,221,393,560 in the business year of 2006 and the total amount of KRW 1,221,393,560 in the instant company. On June 7, 2007, the Defendant issued a notice of the change in the amount of income when disposing of KRW 10,745,130,00 in the corporate register of the instant company as bonus.

C. After that, on September 2008, the Plaintiff submitted to the Defendant a self-denunciation statement that the Plaintiff is the actual representative of the instant company. Accordingly, the Defendant deemed the Plaintiff as the representative prescribed in Article 67 of the former Corporate Tax Act (amended by Act No. 8831, Dec. 31, 2007; hereinafter the same shall apply) and Article 106(1)1 proviso of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20619, Feb. 22, 2008; hereinafter the same shall apply) and revoked the notice of change in the amount of income to both A. On February 19, 2009, the Defendant disposed of KRW 10,745,130,000 as a bonus and notified the change in the amount of income.

D. On October 1, 2009, the Defendant decided and notified the Plaintiff of the global income tax of KRW 4,427,109,250 for the year 2006 on the premise of the notice of change in the amount of income. The Plaintiff filed a request for national tax review on November 12, 2009. On December 30, 2009, the Commissioner of the National Tax Service decided that the Plaintiff would pay the global income tax at KRW 9,465,759,562. According to the national tax review decision, the Defendant reduced the global income tax for the Plaintiff from KRW 4,427,109,250 for the year 206 to KRW 4,120,100 for the global income tax of KRW 4,120,108,920 for the year 206 (hereinafter “the disposition of imposition of global income tax of KRW 4,120,108,920 for the remaining amount”).

[Ground for Recognition: Facts without dispute, Gap evidence 1 through 5, Eul evidence 1-1, 2, Eul evidence 2, Eul evidence 7-1 through 4, the purport of whole pleadings]

2. Whether the disposition is lawful;

A. Article 67 of the former Corporate Tax Act and the proviso of Article 106(1)1 of the former Enforcement Decree of the Corporate Tax Act recognize the representative of a corporation based on the disposal of income, rather than based on the fact that such income has accrued to the representative, and the purport thereof lies in allowing a corporation to consider a certain fact recognized as a bonus to a de facto representative without regard to an act under tax law. In such a case, the representative of a corporation subject to bonus disposition shall be strictly interpreted as driving away from his/her language (see Supreme Court Decision 92Nu3120, Jul. 14, 1992). The proviso of Article 106(1)1 of the former Enforcement Decree is deemed as belonging to the representative if it is unclear that the amount discharged from the corporation should be attributed to the representative, and the representative who is not a minority shareholder and a person with a special relationship should also be deemed as a de facto representative of the corporation who actually owns at least 30/100 of the total number of issued stocks or total amount of investment in the corporation, and thus, the above provision shall not apply to the representative.

B. According to the evidence Nos. 17 and 18, the Plaintiff was not a representative director on the corporate registry of the instant company as of 2006, and was not an executive officer of the instant company, and was not a shareholder of the instant company (the twoAs, which were registered as the representative director on the corporate registry, owned 40% of the instant company’s shares). Even if the Plaintiff had de facto control over the management of the instant company, it does not constitute “representative” as stipulated in the proviso of Article 106(1)1 of the Enforcement Decree.

The instant disposition that reported the Plaintiff as the representative prescribed in the proviso of Article 106(1)1 of the Enforcement Decree of the above Act is unlawful.

3. Conclusion

The judgment of the first instance shall be revoked. The disposition of this case shall be revoked.