In cases where a petroleum retailer sells petroleum to farmers, fishermen, etc. at a tax-free price and refund of individual consumption tax, etc. pursuant to Article 106-2 (2) of the former Restriction of Special Taxation Act, and where the amount of refund is not included in total income pursuant to Article 26 (10) of the Income Tax Act, whether the amount of individual consumption

In cases where a petroleum retailer sells tax-free petroleum under Article 106-2 of the former Restriction of Special Taxation Act (amended by Act No. 11133, Dec. 31, 2011; hereinafter “Adjustment Special Act”) at a tax-free price not added to individual consumption tax, traffic, energy, and environment tax, education tax, and driving tax (hereinafter “individual consumption tax, etc.”) to farmers, fishermen, etc., it is clear that the amount of individual consumption tax, etc. may not be included in the total amount of income. However, necessary expenses refer to the expenses used or consumed to obtain the total amount of income. However, even if a refund of individual consumption tax, etc. is scheduled at the time of sale and a subsequent tax office receives individual consumption tax, etc. after a petroleum retailer purchases petroleum from a oil refining company, etc., it cannot be deemed that the amount, such as the individual consumption tax, etc. spent by the initial petroleum retailer is an expense used or consumed to obtain the total amount of income, and the amount of tax-free petroleum seller can not be included in the total amount of income to be refunded.

Articles 19(2) and 26(10) of the Income Tax Act; Article 106-2(2) of the former Restriction of Special Taxation Act (Amended by Act No. 11133, Dec. 31, 201)

Plaintiff (Appointed Party)

Kimhae Tax Office et al.

Busan High Court (Chowon) Decision 2014Nu1178 decided June 10, 2015

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

The grounds of appeal are examined.

1. Article 19(2) of the Income Tax Act provides that business income shall be the amount calculated by subtracting necessary expenses incurred therein from the total amount of income in the pertinent taxable period. Article 26(10) of the same Act provides that “The amount of tax refunded by a petroleum retailer pursuant to Article 106-2(2) of the Restriction of Special Taxation Act shall not be included in the total amount of income when calculating the amount of income in the pertinent taxable period.” In addition, Article 106-2(2) of the former Restriction of Special Taxation Act (amended by Act No. 11133, Dec. 31, 2011; hereinafter “Special Act”) provides that where petroleum products supplied by a petroleum retailer to farmers, fishermen, etc. supplied with petroleum products subject to individual consumption tax, traffic, energy and environment tax, education tax, and driving tax (hereinafter “individual consumption tax, etc.”) fall under petroleum products for use in agriculture, forestry, or fisheries, a petroleum retailer may receive a refund of the amount of tax, such as individual consumption tax, or receive a deduction from the amount of tax.

Therefore, it is clear that if a petroleum retailer sells tax-free petroleum under Article 106-2 of the Special Adjustment Act at the tax-free price which does not add the individual consumption tax, etc. to farmers, fishermen, etc., it may not include the amount of total income in the amount of total income. However, necessary expenses refer to the expenses used or consumed to obtain the tax-free petroleum, etc., and even if a seller is expected to refund the individual consumption tax, etc. at the time of sales and thereafter a seller is entitled to refund the amount of individual consumption tax, etc. from a tax office, the refund tax is not included in the amount of total income. Thus, the amount of individual consumption tax paid by the first petroleum retailer when he purchases petroleum from a oil company, etc. is not the expenses used or consumed to obtain the total amount of total income. Furthermore, Article 106-2(2) of the Special Adjustment Act and the provision of this case which does not include the amount of tax-free petroleum in the amount of total income to be refunded to farmers and fishermen, etc., the amount of tax-free petroleum is not separately intended to be included in the amount of total income.

2. A. Review of the reasoning of the lower judgment and the record reveals the following.

(1) The Plaintiffs were entrepreneurs engaged in wholesale and retail business, such as duty-free oil, under the trade name, “○○○○○○ Gas station” in the city of Kim Sea. The Plaintiffs were entrepreneurs of joint business with 50% shares until 2010, respectively. Since 2011, the Plaintiff (Appointed Party) is a sole proprietor.

(2) After selling tax-free oil in 2010 and 2011, the Plaintiffs received a refund of totaling KRW 261,590,390 (hereinafter “instant refund”) of individual consumption tax, etc. (hereinafter “instant refund”) in accordance with Article 106-2(2) of the Special Consumption Act, pursuant to Article 106-2(2) of the same Act. The Plaintiffs included the individual consumption tax, etc. corresponding to the instant refund, which was paid by petroleum manufacturers when they purchased tax-free oil, etc. (hereinafter “instant individual consumption tax, etc.”) in the sales cost, including the individual consumption tax, etc. corresponding to the instant refund, etc. that was paid when they purchased tax-free oil from petroleum manufacturers, and filed a comprehensive income tax return instead of including the instant refund in the total amount of income.

(3) The Defendants notified the Plaintiffs of the instant refund money by adding it to the global income tax base in 2010 and 2011 pursuant to the audit and inspection records by the Board of Audit and Inspection. The Plaintiffs, on March 22, 2013, added the instant refund money to the gross income and paid the amount of tax accordingly.

(4) Thereafter, the Plaintiffs filed a claim for correction against the above revised return, but the Defendants did not reflect the Plaintiffs’ amount of the individual consumption tax, etc. to be deducted from necessary expenses (sales cost) and filed a provisional disposition for correction on the ground that they filed a tax return for comprehensive income tax without reflecting it.

B. Examining these facts in light of the legal principles as seen earlier, since the refund money of this case, which the plaintiffs sold tax-free oil and received pursuant to Article 106-2(2) of the Special Taxation Act, is not included in the total amount of income pursuant to the instant provision, the corresponding individual consumption tax, etc., corresponding thereto cannot be deducted from the total amount of income by taking the individual consumption tax, etc. as necessary expenses

Nevertheless, solely on the grounds indicated in its reasoning, the lower court determined that the instant disposition was unlawful by deeming that the Plaintiffs could include the instant individual consumption tax, etc. in the necessary expenses in 2010 and 2011. In so doing, the lower court erred by misapprehending the legal doctrine on necessary expenses under the Income Tax Act and the interpretation of the instant provision. The allegation contained in the grounds of appeal on this point is with merit.

3. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

[Attachment] List of Appointeds: Omitted

Justices Park Sang-ok (Presiding Justice)