Early High Court Decision 2008J 2496 ( October 24, 2009)

Global Income

Correction

In the case of reflecting the issues tax invoice confirmed as processed data, it is reasonable to correct the amount of income as the estimated investigation method by considering that the income rate reaches 51.6% and the false entry rate in necessary expenses reaches 50.19%.

Article 80 of the Income Tax Act / [Determination and Correction of the Income Tax Act Article 176-2 of the Enforcement Decree of the Income Tax Act]

The imposition of KRW 21,105,980 on global income for the year 2003 by the head of the OOO head of the tax office on April 13, 2008 shall be based on the estimated investigation and determination of the amount of income pursuant to the proviso to Article 80 (3) of the Income Tax Act and Article 143 (3) 1-2 of the Enforcement Decree of the Income Tax Act, and the tax base and amount of tax shall

1. Summary of disposition;

A. The claimant, who had been engaged in the furniture manufacturing business under the trade name called “OOOO”, was reported by simple account books at the time of global income tax return in 2003.

B. On April 13, 2008, the disposition agency confirmed the supply value of KRW 62,121,000, which the claimant received from the “OOOOOO” in 2003 (hereinafter “instant tax invoice”) as the processing tax invoice, and notified the claimant of global income tax amounting to 21,105,980, which reverts to the year 2003, by excluding it from the necessary expenses.

C. The claimant appealed and filed an appeal on July 1, 2008.

2. Opinions of the claimant and disposition agency;

A. The claimant's assertion

The claimant is 73,559,560 won in 2002 and is subject to the simple expense rate in 2003 as a simple account book-keeping for 73,55,000 won, and is subject to the application of the simple expense rate when the estimation is determined. Due to the characteristics of a large number of household manufacturing business, the claimant purchased materials, such as wood, but failed to receive a tax invoice, and failed to include a considerable portion of personnel expenses. When calculating based on the account statement of income in 2003 reported by the claimant based on the account statement of income in 2003, the false account book-keeping ratio of the controversial amount (the share of the sales cost) is 50.1% in 50.6% in the revenue amount, and the income amount determined by reflecting the key amount shall be 5.06 times in the income rate (10.2%) under the simple expense rate (89.8%) (10.6% in the revenue amount, or there are no necessary account books

(b) Opinions of disposition agencies;

The tax base and tax amount of global income tax shall, in principle, be determined by the method of on-site investigation and by the method of on-site investigation, there is no taxpayer's account books or documentary evidence, or there is no other reason to believe that the important part is incomplete or false, and the tax authorities are exceptionally allowed only when there is no other way to clarify the actual amount of income. Thus, even if some of the account books or documentary evidence kept by the taxpayer is included in the books or documentary evidence, if it is clear that the remaining part of the account books or documentary evidence kept by the taxpayer is consistent with facts and it is possible to calculate the tax base based on such fact, the tax base and tax amount shall be determined by the method of on-site investigation. The reason why the taxpayer wants to investigate and determine by the method of on

3. Hearing and determination

A. Key issue

In reflecting the issues tax invoice confirmed as processed data, whether the amount of income should be corrected by the method of estimated investigation in the absence of necessary account books and documentary evidence or because the important part is incomplete or false.

B. Relevant statutes

(i) Income Tax Act (amended by Act No. 7319 of Dec. 31, 2004)

【Determination and Correction】

(2) If a person who has made a final return on the tax base pursuant to Articles 70 through 72 or 74, falls under any of the following subparagraphs, the superintendent of the district tax office or the director of the regional tax office having jurisdiction over the

1. Where an omission or error exists in the contents of return;

(3) Where the head of a regional tax office or the head of a regional tax office having jurisdiction over the place of tax payment determines or revises the tax base and amount of tax in the current year under paragraphs (1) and (2), he shall make it based on the books and other documentary evidence: Provided, That if it is impossible to calculate the amount of income by books and other documentary evidence for

Article 160 【Keeping and Entry of Books】

(2) Where a business operator below a certain scale prescribed by Presidential Decree keeps a simple book prescribed by Presidential Decree (hereinafter referred to as "Simple book") and records faithfully the details of transactions in the relevant business, he/she shall be deemed to keep and record books under paragraph (1).

(3) A business operator who is smaller than the size prescribed by the Presidential Decree pursuant to the provisions of paragraph (2) shall be referred to as a "person subject to simple bookkeeping" and a business operator other than a person subject to simple bookkeeping shall be

Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18173 of Dec. 30, 2003)

§ 143. 【Estimated Decision and Revision】

(1) The term "reasons prescribed by Presidential Decree" in the proviso to Article 80 (3) of the Act means cases falling under any of the following subparagraphs:

1. Where necessary account books and documentary evidence are missing or important parts are incomplete or false in the calculation of the tax base;

2. Where the contents of the entry are obviously false in light of the scale of facilities, number of employees, raw materials, market prices, various charges, etc. of goods or products.

3. Where the contents of the bookkeeping are obviously false considering the quantity of raw materials used, electric power used and other operational conditions.

(3) Where the income amount is estimated, determined or revised under the proviso of Article 80 (3) of the Act, the method falling under each of the following subparagraphs shall be applied: Provided, That the provisions of subparagraph 1-2 shall apply only to persons subject to the application

1. The method of determining or revising, as the relevant income amount (hereafter in this Article, referred to as the “standard income amount”). In this case, if the amount to be deducted exceeds the income amount, the amount in excess shall be deemed non-existent: Provided, That if the standard income amount is in excess of the amount calculated by multiplying the income amount under subparagraph 1-2 by the ratio stipulated by the Commissioner of the National Tax Service, the amount calculated by multiplying such ratio may be decided as the income amount:

(a) Purchase expenses (excluding those for fixed assets for business: hereafter the same shall apply in this Article) and rent expenses on the fixed assets for business which are paid or payable by the documentary evidences;

(b) The amount paid or payable by the relevant documentary evidence as wages and retirement benefits for employees;

(c) The amount obtained by multiplying income by standard expense rate;

1-2. The method of determining or revising as income amount the amount obtained by deducting the amount obtained by multiplying the income amount by simple expense rate;

(4) The term "persons subject to the application of simple expense rate" in the proviso to paragraph (3) means the businessmen falling under any of the following subparagraphs:

2. A businessman whose aggregate of revenue amount in the immediately preceding taxable period (including the revenue amount increased by a determination or revision) falls short of the amount under any of the following items:

(b) Manufacturing, lodging and restaurant, electricity, gas and water supply, construction, consumer product repair, transportation, storage and telecommunications, finance and insurance: 48 million won; and

§ 208. 【Keeping and recording books】

(5) The term “business operator under a certain scale prescribed by the Presidential Decree” in Article 160 (2) and (3) of the Act means a business operator falling under any of the following subparagraphs:

2. A businessman whose aggregate amount of revenue for the immediately preceding year (including the amount of revenue increased by a determination or revision) falls short of the amount in the following items:

(b) Manufacturing, lodging and restaurant, electricity, gas and water supply, construction, consumer products repair, transportation, storage and telecommunications, finance and insurance: 150 million won; and

Sub-laws (Presidential Decree No. 17032, Dec. 29, 2000)

Article 21 【Special Cases concerning Persons Subject to Application of Simple Expense Rates】

In applying the amended provisions of each item of Article 143 (4) 2, in cases of each taxable period that ends within December 31, 2005 from the enforcement date of this Decree, the revenue amount shall, notwithstanding the amended provisions of each item of the same subparagraph, be as follows:

The respective taxable periods ending within the period from January 1, 2004 to December 31, 2003, which ends within the period from January 1, 2002, each taxable period which ends within the period from January 1, 2003. The agricultural, hunting and forestry (including forestry income), fisheries, mining, wholesale and retail, real estate sales, and other business not falling under items (b) and (c) of 150 million won; and the manufacturing business, lodging and restaurant business, electricity, gas and water supply business, construction business, consumer goods repair business, transportation, warehouse and communication business, financial and insurance business. The real estate rental business, business service business, educational service business, social welfare business, social welfare service business, household service business, 648 million won.

C. Facts and determination

(1) According to Article 21 of the Addenda of the Enforcement Decree of the Income Tax Act amended by Presidential Decree No. 17032, Dec. 29, 2000, the claimant is a business operator operating a furniture manufacturing business under the trade name of "OOO" which was opened on March 2, 2002 and closed on June 30, 2005, and the amount of income for the immediately preceding taxable period is 73,559,560 won and the amount of income for the immediately preceding taxable period is less than 90 million won pursuant to Article 21 of the Addenda of the Enforcement Decree of the Income Tax Act.

Amount of June 2003 73,559,584137,083,5006,776,00049,976,000,000

Luxembourg The claimant filed a comprehensive income tax return for the year 2003 by the simple book, but the issue tax invoice is confirmed as the processed purchase tax invoice, the disposition agency excluded the amount (value 62,121,000) of the issued tax invoice from the necessary expenses, thereby making the claimant's corrective income rate of 51.6%, and reached 5.06 times the income rate (10.2%) under the simple expense rate (10.2%). The amount of the tax invoice is confirmed to be 50.19% of the amount of the processed purchase price, compared to the sales cost (123,753,012 won) reported by the claimant.

(Units: 137,083,508,613, 46951.6, 2003, 2003, 137,083, 5070, 734, 46951.6

Article 80(3) proviso to Article 80(3) of the Income Tax Act and Article 143 of the Enforcement Decree of the Income Tax Act, since the tax base and tax amount of global income tax should be determined by the method of field investigation, and the method of field investigation is allowed in exceptional cases. Thus, even if some of the books or documentary evidence kept and recorded by the taxpayer contains false information, if all of the remaining parts excluding such portion are consistent with the facts, it is reasonable to determine the income amount by the method of field investigation rather than the method of field investigation. However, considering the fact that the issue amount reported by the claimant, which is included in the necessary expenses, is imposed without recognizing the necessary expenses, and the income rate reaches 51.6% and the necessary expenses rate reaches 50.19%, it is reasonable to determine that the applicant's global income tax is reasonable to estimate and correct the tax base and tax amount by investigating and determining the amount of income pursuant to the proviso to Article

4. Conclusion

This case shall be decided in accordance with Article 81 and Article 65 (1) 3 of the Framework Act on National Taxes because the petition for the trial results is well-grounded.