[1] Whether a person who was not registered as a representative on the corporate register and did not meet the requirements as an officer, such as a shareholder in the overall subparagraph of Article 106(1)1 of the former Enforcement Decree of the Corporate Tax Act, can be deemed as a representative under the above provision (negative)

[2] Whether the representative director, etc., who is the actual manager of a corporation, constitutes the outflow of assets as an expenditure for the corporation's funds (affirmative in principle), and the method of determining whether there are special circumstances that cannot be viewed as not premised on recovery from the time of utilization

[1] Article 67 of the Corporate Tax Act; Article 106(1)1 of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 26981, Feb. 12, 2016) / [2] Article 67 of the Corporate Tax Act; Article 106(1)1 and 2 of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 26981, Feb. 12, 2016)

[1] Supreme Court Decision 2010Du11108 Decided October 28, 2010 / [2] Supreme Court Decision 2007Du23323 Decided November 13, 2008 (Gong2008Ha, 1690)

The administrator of Central Biotex Co., Ltd. (Law Firm Han River, Attorneys Kim Jong-sik et al., Counsel for the plaintiff-appellant)

Head of Ansan Tax Office

Seoul High Court Decision 2016Nu36484 decided September 29, 2016

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the second ground for appeal

A. The part concerning the recognized contribution disposal

(1) Article 106(1)1 proviso of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26981, Feb. 12, 2016) upon delegation under Article 67 of the Corporate Tax Act (hereinafter “instant proviso”) shall be deemed to have been reverted to the representative in cases where it is unclear whether the amount of outflow from the company is reverted. In general, “where an executive who is not a minority shareholder, etc. and persons with a special relationship owns 30/100 or more of the total number of outstanding stocks or total amount of investment in the pertinent corporation, if the executive actually controls the management of the corporation, he/she shall be deemed to have been the representative,” and the meaning of the above provision shall be separately defined as the representative, other than the representative. Accordingly, the representative shall be a person registered as the representative on the corporate register, or a de facto controlling the corporation’s management among the executives meeting the requirements under the above overall subparagraph, and even if he/she does not have registered as the representative on the corporate register and fails to meet the requirements for overall management.

(2) According to the evidence duly admitted by the court below, the non-party was not registered as a representative in the corporate register at the time when he appropriated the funds of the company of this case. The non-party did not have registered the shares of the company of this case as the representative in its corporate register. The non-party held 4.37% as of December 31, 2008 and 3.68% as of December 31, 2009 in his name, respectively. The defendant was aware of the fact that the non-party notified the change in the income amount of this case, including the non-party's de facto representative in the year 2008 and 2009.

(3) Examining these facts in light of the legal principles as seen earlier, the Nonparty was not the representative on the corporate register. Therefore, the lower court should have first examined whether the Nonparty was a shareholder, etc. who satisfies the requirements set forth in the proviso of this case through holding a certain share ownership, and determined whether the amount of the outflow from the company, the ownership of which is unclear, can be deemed to have been reverted to the Nonparty.

(4) Nevertheless, without examining this point, the lower court determined that the Nonparty was a representative prescribed in the proviso of this case solely on the ground that the Nonparty was practically in charge of the management of the instant company at the time of misappropriation of funds. In so determining, the lower court erred by misapprehending the legal doctrine on the meaning of the representative prescribed in the proviso of this case, thereby failing to exhaust all necessary deliberations, thereby adversely affecting

B. The bonus disposal portion

(1) The act of a representative director, etc., who is the actual manager of a corporation, uses the corporation's funds on the premise of early recovery, and thus, it does not constitute an outflow from the company as an expenditure itself, barring special circumstances. As to special circumstances that cannot be deemed as not premised on recovery from the utilization time, it shall be determined individually and specifically by comprehensively taking into account various circumstances, such as where the intent of the representative director, etc. is identical to the intent of the corporation or where it is difficult to see that the representative director, etc. and the company's economic interest are in fact identical, through the representative director, etc., the main agent of the embezzlement, etc., the degree of substantial status within the corporation, control over the corporation, the circumstances leading to the embezzlement, and the measures taken after the embezzlement (see Supreme Court Decision 2007Du2323, Nov. 13,

(2) According to the evidence duly admitted by the court below, the company of this case was established on December 31, 2008 with shares held by the non-party as a corporation listed on the KOSDAQ, and 4.37% as of December 31, 2008 and 3.68% as of December 31, 2009, and the ratio of shares held by the non-party is 71.87% and 82.56% as of December 31, 2009, respectively, and the non-party was found guilty of the non-party's criminal embezzlement as to the non-party's criminal embezzlement since the non-party acquired the shares of the company of this case around September 2008 and neglected its manufacture and business activities, and the financial condition has deteriorated, such as the use of the company's funds. The administrator of the company of this case, appointed in the above rehabilitation procedure, was found to have been sentenced to imprisonment for the non-party's criminal embezzlement on September 30, 2010.

(3) As such, in the case of the instant company, which is a KOSDAQ-listed corporation with more than 70% of the company’s intent, along with the details leading up to a series of illegal acts such as embezzlement, etc., it is difficult to view that the Nonparty’s intent is identical to the company’s intent or that the economic interest between the company and the Nonparty, etc. is in fact identical with the company’s economic interest. There is no circumstance to deem that the instant company implied or ratified the Nonparty’s illegal act such as embezzlement, etc., and rather, immediately after the appointment of the administrator in the rehabilitation procedure, it is reasonable to deem that the instant company has a damage claim against the Nonparty, and it is difficult to view that the Nonparty’s assets equivalent to the instant company was released from the company immediately at the time of the

(4) Nevertheless, the lower court, solely based on its stated reasoning, immediately determined that the Nonparty’s appropriation of funds constitutes an outflow from the company by itself. In so determining, the lower court erred by misapprehending the legal doctrine on outflow from the disposition of income, thereby failing to exhaust all necessary deliberations,

2. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices

Justices Cho Jae-chul (Presiding Justice)