[1] Whether the “ex post facto request for correction” under Article 45-2(2)5 of the former Framework Act on National Taxes and Article 25-2 subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes becomes grounds for the ex post facto request for correction (affirmative in principle), and where the ex post request for correction cannot be grounds for ex post request for the ex post request for correction

[2] Whether a provision restricting a subsequent request for correction affects the right to file a subsequent request for correction for an erroneous taxation that was made before the enforcement of the provision (negative in principle) / Whether Article 69(3) of the Enforcement Decree of the Corporate Tax Act amended by Presidential Decree No. 23589, Feb. 2, 2012, which was amended by Presidential Decree No. 23589, with respect to the taxation of the amount of taxation for the business year before January 1, 2012 where the subsequent request for correction was filed after January 1, 2012 (negative)

[1] In principle, corporate tax shall also constitute a ground for ex post facto request for correction as stipulated in Article 45-2(2)5 of the former Framework Act on National Taxes (amended by Act No. 13552, Dec. 15, 2015) and Article 25-2 subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 27833, Feb. 7, 2017). However, in cases where the Corporate Tax Act or the relevant provision separately provides that the amount of income in the business year to which the date of cancelling a contract is the date of cancelling the contract is the date of cancelling the contract, or where there are special circumstances such as that the taxpayer has reported corporate tax by deducting the amount of income in the business year to which the date of cancelling the contract belongs according to corporate accounting standards or practices, such revocation cannot affect the tax liability that was initially established, and thus, a ground for filing a subsequent request for correction cannot be the ground for filing a claim for ex post facto request for correction.

[2] Article 45-2(2) of the former Framework Act on National Taxes (amended by Act No. 1352, Dec. 15, 2015) and Article 25-2 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 2783, Feb. 7, 2017) recognize a system for ex post facto request for correction that allows the exclusion from taxable income in the initial business year. As can be seen, where income is determined based on the premise of the realization of the future. 200. The revised Enforcement Decree No. 25 of the Corporate Tax Act provides that the initial tax base and the amount of taxes after the establishment of tax liability shall be reduced by 100,000. The revised Enforcement Decree No. 251 of the Corporate Tax Act provides that “Where there is a change in the basis for calculating the initial tax base and the amount of taxes after the revised Enforcement Decree No. 250, supra. 1, 2010.”

Therefore, Article 69(3) of the amended Enforcement Decree of the Corporate Tax Act applies to a subsequent claim for rectification for the taxation for the business year that begins from January 1, 2012, and it does not apply to a subsequent claim for rectification for the taxation for the previous business year even if the grounds for subsequent claim for rectification have occurred.

[1] Article 45-2(2)5 of the former Framework Act on National Taxes (Amended by Act No. 13552, Dec. 15, 2015); Article 25-2 subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes (Amended by Presidential Decree No. 2783, Feb. 7, 2017); / [2] Article 45-2(2)5 of the former Framework Act on National Taxes (Amended by Act No. 13552, Dec. 15, 2015); Article 25-2 subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes (Amended by Presidential Decree No. 2783, Feb. 7, 2017); Article 40(1) of the Corporate Tax Act; Article 69(1) of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 24357, Feb. 15, 2013); Article 25(2)301 of the former Enforcement Decree of the Value-Added Tax Act (2)

[1] Supreme Court Decision 2012Du10611 Decided March 13, 2014 (Gong2014Sang, 857)

Daeyang Industrial Development Co., Ltd. (Law Firm Woo and two others, Counsel for the plaintiff-appellant)

Goyang Tax Office (Law Firm Aionion, Attorneys Gangnam-gu et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2016Nu34426 decided October 26, 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. Article 45-2(2)5 of the former Framework Act on National Taxes (amended by Act No. 13552, Dec. 15, 2015; hereinafter the same) and Article 25-2 subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 27833, Feb. 7, 2017; hereinafter the same) provide for “where a contract related to the effect of transaction, act, etc., which served as the basis for calculating the tax base and the amount of tax, is terminated by the exercise of the right of rescission or is cancelled or cancelled due to unavoidable reasons that occurred after the formation of the relevant contract” as one of the grounds for a request for subsequent correction.

In addition, corporate tax also constitutes a ground for ex post facto request for correction under Article 45-2 (2) 5 of the former Framework Act on National Taxes and Article 25-2 (2) 2 of the former Enforcement Decree of the Framework Act on National Taxes, “ex post facto request for correction of the contract due to the exercise of the right to cancel or the unavoidable reasons for the cancellation of the contract: Provided, That in special circumstances where the Corporate Tax Act or relevant regulations stipulate the income not realized due to the cancellation of the contract separately as the grounds for deducting the income amount for the business year to which the date of cancellation belongs, or where the taxpayer has filed corporate tax return in the manner of deducting the income amount for the business year to which the date of cancellation belongs in accordance with corporate accounting standards or practices, such cancellation of the contract cannot affect the tax liability which was initially established, and thus, cannot be the ground for ex post request for correction (see, e.g., Supreme Court Decision 2012Du106

Meanwhile, Article 40(1) of the Corporate Tax Act provides that “The business year in which earnings and losses of a domestic corporation accrue shall be the business year which includes the date on which the relevant earnings and losses are determined.” Article 69(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 24357, Feb. 15, 2013) provides that “the earnings and losses incurred from construction, manufacturing, and other services, including contracting and pre-contract sales, shall be included in the calculation of earnings and losses for the pertinent business year, respectively.” However, the Enforcement Decree of the Corporate Tax Act (hereinafter “Enforcement Decree of the Corporate Tax Act”) amended by Presidential Decree No. 23589, Feb. 2, 2012, newly established Article 69(3)(hereinafter “instant provision”) provides that “Where the difference between the amount determined as a result of the cancellation of a construction contract and losses, the amount of income for the first time after the date of cancellation shall be included in the calculation of losses for the business year belonging to the date of cancellation or cancellation.”

2. The reasoning of the lower judgment reveals the following facts.

A. The Plaintiff, a corporation that runs the housing construction and sales business, etc. from January 2008, constructed a total of 3,634 households of apartment and commercial buildings within the high-style city development project zone of 344 members of the Yongsan-gu meal 344, Yongsan-gu, Seoul (hereinafter “instant apartment, etc.”), and sold 96.4% of the total number of households from 2008 to 2010 to 2010.

B. The Plaintiff reported and paid corporate tax for the business year 2008 or 2010 on the basis of the work progress rate and sale rate of the instant apartment, etc. (However, in the business year 2008, the income amount was deducted as a loss carried forward and did not pay corporate tax).

C. The sales contract of the instant apartment, etc. was rescinded by approximately 17% in the business year of 2011, approximately 6% in the business year of 2012, and about 11% in the business year of 2013 due to the outstanding payment of the buyers, etc.

D. Upon reporting corporate tax for the pertinent business year, the Plaintiff appropriated the cancellation of the sales contract as “non-business losses” in the business year to which the date of cancellation belongs. On March 29, 2013, based on the sales rate reduced by the cancellation of the sales contract, the Plaintiff set the corporate tax for the business year from 2008 to 2010, and filed a request for correction to the Defendant for refund of corporate tax for the business year of 2009, but the Defendant rejected it on May 8, 2013 (hereinafter “instant disposition”).

E. On January 12, 2015, the Plaintiff filed an appeal with the Tax Tribunal on the instant disposition, and the Tax Tribunal decided that the sales contract cancelled from January 12, 2015 to the date of commencement of the business year after January 1, 2012 was not the first sales contract, and thus, the tax base and tax amount for the business year 2009 was corrected, and the remainder of the appeal is dismissed.

Accordingly, with respect to the cancellation of the sales contract during the business year 2012 and 2013 as of January 1, 2012, which was newly established and applied the instant provision among the instant dispositions, only the part rejecting a subsequent claim for correction of corporate tax for the business year 2009 (hereinafter “instant request for correction”) (hereinafter “the remaining disposition”), and the Plaintiff sought revocation by the instant lawsuit.

3. Based on its stated reasoning, the lower court determined as follows with respect to the remaining disposition of the instant case.

A. The “business year to which the date of termination belongs” referred to in the instant provision is the business year for which the relevant contract was rescinded, and where the business year during which the contract was rescinded on or after January 1, 2012 pursuant to Article 2 of the Addenda to the Enforcement Decree of the amended Act, the instant provision applies. As such, the amount of income not realized due to the cancellation of the contract after January 1, 2012 shall be deducted from the business year to which the date of cancellation belongs.

B. Even if the provision of this case does not apply, there are special circumstances in which the Plaintiff reported corporate tax in a manner that deducts the amount of income for the business year to which the date of cancellation belongs according to the Plaintiff’s practice with respect to the cancellation of the sales

C. Therefore, the cancellation of a sales contract made in the business year 2012 and 2013 after January 1, 2012 cannot be a ground for filing a subsequent claim for correction of corporate tax for the business year 2009.

4. However, in light of the above legal principles, we cannot accept the above judgment of the court below for the following reasons.

A. The principle of determination of rights permits taxation in advance on the premise of realizing the future income substantially uncertain. If the tax liability initially established becomes final and conclusive as not realizing income due to the occurrence of a certain later cause, the liability to pay taxes would lose its premise. As such, Article 45-2(2) of the former Framework Act on National Taxes and Article 25-2 of the former Enforcement Decree of the Framework Act on National Taxes recognize the ex post facto request for correction so that it may be excluded from the inclusion of earnings in the initial business year. As such, the purpose of this Decree is to extend the protection of taxpayers’ rights by proving that there is a change in the initial tax base and the amount of taxes due to the occurrence of a specific later cause, such as the extinction of the tax liability after the establishment of the tax liability, etc. In addition, Article 25-2(2) of the former Enforcement Decree of the Framework Act on National Taxes and Article 25-2 of the former Enforcement Decree of the Framework Act on National Taxes, which provides for the first revision of the Enforcement Decree of the Value-Added Tax Act to be applied only for the first time after the amendment.

Therefore, the instant provision applies to a subsequent request for correction for the taxation for the business year that begins after January 1, 2012, and the taxation for the portion of the previous business year does not apply even if the grounds for subsequent request for correction arose after the subsequent request for correction. Ultimately, the instant provision does not apply to the remaining request for correction concerning corporate tax for the business year 2009.

B. Furthermore, in the event that the sales contract of apartment houses, etc. was cancelled as in the instant case, it cannot be deemed that there exist the standards or practices of corporate accounting deemed fair and reasonable to deduct the amount of income for the business year in which the subsequent event occurred, as well as the sales reduction or sales exchange under the sales contract generated on ordinary and repeated grounds for the profit and loss arising from such cancellation.

5. Nevertheless, the lower court determined otherwise, solely on the ground that the cancellation of the sales contract was made after January 1, 2012 with respect to the apartment of this case, etc. sold in 2009, it cannot serve as a ground for filing a subsequent claim for correction as to corporate tax for the business year 2009. In so determining, the lower court erred by misapprehending the legal doctrine on the period of application of the provision of this case and special circumstances where the subsequent claim for correction is limited to corporate tax, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds

6. Therefore, without examining the remaining grounds of appeal, we reverse the judgment below, and remand the case to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Sang-ok (Presiding Justice)