The meaning of "amount appropriated as income by the end of the immediately preceding business year" in calculating earnings for construction works with a construction period of not less than one year pursuant to Article 17 (1) of the former Corporate Tax Act, Article 36 (1) 7 of the Enforcement Decree of the Corporate Tax Act, and Article 14-3 of the Enforcement Rule of the former Corporate Tax Act.

In full view of the provisions of Article 17(1) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), Article 36(1)7 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998), and Article 14-3 of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 86 of May 24, 1999), with respect to construction projects with a construction period of not less than one year, the amount calculated by subtracting the amount calculated by the end of the immediately preceding business year from the amount calculated by multiplying the estimated income amount arising from such construction projects by the rate of work progress, i.e., the total construction cost estimate amount generated by the end of the relevant business year (the estimated construction cost at the time of commencement by applying the accounting standard of the construction industry, reflecting the changes in the construction industry by the end of the relevant business year).

Article 17(1) and (see current Article 40(1) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998); Article 36(1)7 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998); Article 69(2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 199); Article 14-3 of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 86 of May 24, 199); Article 34 of

New Master Construction Co., Ltd. (Law Firm Marina, Attorneys Lee Jae-chul, Counsel for the plaintiff-appellant)

Head of Seocho Tax Office

March 9, 2005

1. The Defendant’s disposition of imposing corporate tax of KRW 2,698,347,030 for the business year of 1998 against the Plaintiff on September 1, 2003, which exceeds KRW 965,289,205, shall be revoked.

2. The plaintiff's remaining claims are dismissed.

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

The portion of corporate tax of KRW 2,698,347,030 on September 1, 2003, which is imposed by the Defendant against the Plaintiff for the 1998 business year (in the case of the Director, '1988 business year'), which is written on September 1, 2003 (in the case of the Director, the Director seems to be written on July 1, 2003), shall be revoked.

1. Details of the disposition;

A. The Plaintiff is a legal entity that constructs apartment units and sells apartment units on the three floors of the Seocho-gu Seoul Metropolitan Government Seocho-gu 1307-37 New Building.

B. On June 15, 1997, the Plaintiff calculated the estimated amount of sales in lots as KRW 106,572,849,458 for the first apartment construction project (the construction of this case was completed on October 30, 200, hereinafter referred to as the "the construction of this case") of the Jung-gu government, which started the construction of the first apartment construction project on June 15, 1997, and calculated the estimated amount of total construction in accordance with the standard income ratio of the Housing Construction and Sales Business Act, referring to the estimated amount of sales in lots as stated in the corresponding column 1, 95,915,564,513, as stated in the corresponding column, after calculating the amount of income for the business year 197 and the amount of corporate tax for the business year 1998, the tax base and amount of corporate tax for the business year 1998 reported by the Plaintiff shall be as stated in the corresponding column in the corresponding column 2.

C. After that, the Plaintiff calculated the expected amount of sales in the instant construction by changing it to KRW 105,845,041,516, and calculated the estimated amount of sales in the instant construction to KRW 83,338,762,659 by applying the accounting standards for construction business, and filed a report on each of the tax base and tax amount of the corporate tax attributed to the business year 1999 and the corporate tax attributed to the business year 2000, based on the rate of work progress calculated

D. The Defendant did not recognize that the amount of KRW 1,908,70,200 for the business year 1998 due to the instant construction project reported by the Plaintiff was not calculated according to the method prescribed in Article 14-3 of the former Enforcement Rule of the Corporate Tax Act (amended by the Ordinance of the Ministry of Finance and Economy No. 86 of May 24, 1999, hereinafter referred to as the "former Enforcement Rule of the Corporate Tax Act"), i.e., the rate of work progress calculated based on the estimated cost for total construction work calculated by applying the accounting standards for the business year 1999, and the corporate tax belonging to the business year 2000, the amount of KRW 83,338,762,659 for the total construction work progress calculated by applying the accounting standards for the business year 198 and calculated based on the revised rate of work progress, i.e., [Attachment 1] the amount of income reported by the Plaintiff as the income amount of the changed business progress, i.e., the amount of the Plaintiff 190808.

[Reasons for Recognition] Evidence Nos. 1 through 5, Evidence Nos. 1 through 14, Evidence Nos. 2-1 through 10, and Evidence Nos. 3, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) The plaintiff's assertion

As the instant construction project is a single construction project, it is necessary to calculate the gross income for each business year according to the rate of work progress calculated by the same standard through the entire construction period. However, in calculating the gross income after 198 business year from the instant construction project, the Defendant recognized the gross income according to the rate of work progress calculated by applying the rate of work progress based on the estimated total construction cost calculated by applying the rate of construction business accounting to the total construction cost, but only for the business year of 1997, the period of exclusion of corporate tax has elapsed. Accordingly, in calculating the gross income for the business year of 1998 due to the instant construction project, the Defendant applied not the amount of revenue appropriated to be properly appropriated in the business year of 1997, but the amount of revenue erroneously reported by the Plaintiff. Thus, the instant

Even if the amount of the revenue appropriated for the business year 1997 reported by the Plaintiff in calculating the profit of the business year 198 due to the instant construction, in such a case, it is deemed that the construction or manufacturing of the object cannot be calculated, and thus, it should be imposed as the profit for the business year which includes the date of delivery of the object. Therefore, the instant disposition is unlawful.

(2) The defendant's assertion

In the case of long-term construction, the "amount appropriated as income by the end of the immediately preceding business year" which should be deducted from the "contract amount 】 work progress rate" under Article 14-3 (2) 1 of the former Enforcement Rule of the Act means the amount actually appropriated as income by the end of the immediately preceding business year. The amount reported by the plaintiff as earnings for the business year 1997 due to the construction of this case shall be corrected as it is based on the amount of total construction scheduled, but it shall not be corrected after the expiration of the exclusion period for imposition of corporate tax for the business year 1997. Therefore, it is legitimate that the defendant calculated the earnings for the business year 198 due to the construction of this case on the basis of the amount reported by the plaintiff as the revenue amount for

B. Relevant statutes

former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998, hereinafter referred to as the "former Act")

Article 17 (Timing for Belonging of Profit and Loss and Calculation of Acquisition Value)

(1) The fiscal year of accrual of earnings and losses of a domestic corporation shall be the fiscal year which includes the date on which the concerned earnings and losses are settled.

(4) Matters necessary for the business year of accrual of profits and losses under paragraph (1), calculation of acquisition value under paragraph (2), and evaluation of assets and liabilities, etc. shall be prescribed by Presidential Decree.

The former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998, hereinafter referred to as the "former Enforcement Decree of the Corporate Tax Act")

Article 36 (Business Year in which Profit and Loss accrue)

(1) The business year which includes the date on which the gross income and the deductible expenses under the provisions of Article 17 (1) and (4) of the Act are confirmed shall be as follows:

7. Where a long-term contract for construction or manufacturing is concluded with a contract period of not less than one year, any profits and losses for each business year from the business year which includes the date of the commencement of the construction or manufacturing to the business year which includes the date of its delivery shall be included in the earnings and expenses calculated on the basis of the degree of the completion of the construction or manufacturing of the object under the conditions as prescribed by the Ordinance of the Ministry of Finance and Economy

Enforcement Regulations of the Gu Act

Article 14-3 (Calculation, etc. of Work Progress Rate)

(1) "The level of completion of the construction or manufacture of an object, as prescribed by Ordinance of the Ministry of Finance and Economy" in Article 36 (1) 7 of the Decree means the rate calculated by the following formula (hereinafter referred to as "rate of work progress"). In such cases, "total estimated cost of construction" means the cost of construction reasonably estimated by reasonably reflecting the fluctuation by the end of the relevant business year into the estimated cost of construction project by applying the standards for accounting of construction business:

The rate of work progress = the cumulative total construction cost/total construction cost calculated by the end of the concerned business year

(2) The amount included in the gross income and deductible expenses for each business year pursuant to Article 36 (1) 7 of the Decree shall be calculated by the following formula:

1. The following profits:

Contract amount ¡¿ Work progress rate - Amount appropriated as revenue by the end of the immediately preceding business year.

2. Losses; and

Total expenses incurred in the business year concerned;

Basic Act

Article 26-2 (Period for Excluding Assessment of National Tax)

(1) No national tax may be imposed after the period prescribed in the following subparagraphs expires:

1. Where a taxpayer evades a national tax, or receives a refund or deduction by fraudulent or other unlawful means, ten years from the date on which the national tax is assessable;

2. Where a taxpayer fails to file a tax base return within the legal return term, seven years from the date on which the national tax is assessable;

3. If it does not fall under subparagraphs 1 and 2 above, for a period of five years from the day on which the national tax is assessable; and

(c) Markets:

(1) Comprehensively taking account of the provisions of Article 17(1) of the former Act, Article 36(1)7 of the former Enforcement Decree, and Article 14-3 of the former Enforcement Decree of the Act, where the construction period is not less than one year, the earnings for the pertinent business year shall be calculated by subtracting the amount of income appropriated by the end of the immediately preceding business year from the amount calculated by multiplying the estimated income amount generated by the construction work by the rate of the total construction cost scheduled (the estimated cost at the time of commencement of construction work by applying the standards for accounting of construction work) by the rate of the total construction cost scheduled (the reasonably estimated cost reflecting the fluctuation by the end of the pertinent business year) until the end of the pertinent business year. In this case, the "amount appropriated as revenue by the end of the immediately preceding business year" shall be deemed as being "amount properly appropriated as income by the end of the immediately preceding business year" and it shall not be deemed as "amount appropriated as income by the tax authority for the immediately preceding business year, which shall not be calculated as income by the total amount appropriated as income by the preceding business year."

In addition, the exclusion period of the right to impose national taxes stipulated in Article 26-2 of the Framework Act on National Taxes refers to setting a period for exercising the right to impose national taxes, which is established with respect to the authority of the tax authority to determine the amount of tax liability when the tax liability is established upon meeting the requirements for taxation under individual tax laws. If a tax imposition disposition is not made within the said period, the tax authority is unable to impose taxes for the determination of national taxes, and as a reflective effect, the taxpayer is exempted from the obligation to pay the tax liability. The exclusion period of the right to impose national taxes is to restrict the tax authority’s exercise of the right to impose national taxes for the prompt determination of legal relations. It is not intended to limit the tax base of the tax liability meeting the requirements for taxation under individual tax laws and regulations, the method and scope of calculating the tax amount. In calculating the income for the business year 1998 due to the construction of the instant case, the corporate tax attribution itself cannot be properly adjusted due to the exclusion period of the right to impose national taxes for the business year itself, which results in the Plaintiff’s payment of national taxes may be less.

Thus, the disposition of this case based on the amount which the plaintiff arbitrarily appropriated as income for the business year of 1997, not by the law, in calculating the income for the business year of 198 due to the construction of this case is unlawful.

(2) Calculation of a reasonable amount of tax

In full view of the purport of the arguments in Gap evidence 5, Gap evidence 6, Eul evidence 3, Eul evidence 4, and Eul evidence, in calculating the income of the 1997 business year and the 1998 business year, the estimated total construction cost to be based on the construction business accounting standards pursuant to Article 14-3 (1) of the former Enforcement Decree of the Act shall be calculated. This is the same as the estimated total construction cost calculated by the plaintiff in filing a report on the corporate tax belonging to the business year 1999 and the corporate tax belonging to the business year 2000, and the total construction cost to be calculated by the end of the business year 1998 due to the construction of this case. The total construction cost to be calculated by the end of the business year 24,70,327,029, and the sale rate of apartment houses due to the construction of this case can be acknowledged as the construction cost to be 15,041,472,577, etc.

Therefore, the reasonable amount of income for the business year 1998 due to the instant construction project is KRW 2,125,173,308, such as the entry in the “justifiable Amount” column of Attached Table 1, and KRW 3,734,837,779, which the Defendant recognized in the instant disposition, is less than KRW 5,860,01,087,087. Based on this, when the Plaintiff calculates the reasonable amount of tax to be paid more than the amount reported as the corporate tax for the business year 1998, it shall be KRW 965,289,205, such as the entry in the annexed Table 2.

3. Conclusion

Therefore, the part exceeding KRW 965,289,205 among the dispositions of this case is unlawful, and thus, it shall be revoked. The remaining claims of the plaintiff shall be dismissed as it is without merit. It is so decided as per Disposition.

Judges Lee Jae-in (Presiding Judge)