The notification of change in the amount of income shall not be contested in an appeal litigation against the collection disposition unless the notification of change in the amount of income is void automatically.

In the event that the tax authorities' disposition of income and the notice of change in the amount of income are made, the tax authorities should dispute about the obligation to pay withheld income in the appeal litigation on the notice of change in the amount of income determined.

Article 67 of the Corporate Tax Act

2015Guhap60540 Revocation of taxation

AAA, Inc.

Head of Ansan Tax Office

September 9, 2015

October 14, 2015

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

Each taxation disposition of KRW 31,821,890, wage and salary income tax for year 201, wage and salary income tax for year 2012, wage and salary income tax for year 2012, wage and salary income tax for year 2013, and wage and salary income tax for year 2013 shall be revoked.

1. Details of the disposition;

A. The Plaintiff’s representative B’s spouse, maximumGG and DongCC’s wage in the business year 2010, 84,800,000 won in the business year 2011, and 51,500,000 won in the business year 2012 as a stock company operating high-tech parts redevelopment, etc., and completed the Plaintiff’s corporate tax return by appropriating it as deductible expenses in the business year 2012.

B. As a result of the tax investigation conducted with respect to the Plaintiff between August 29, 2013 and September 17, 2013, the Defendant denied the appropriation of the aforementioned benefits appropriated as deductible expenses by deeming them as processing allowances, and then disposed of them as bonus to BB, and issued a notice of change of income amount (hereinafter “instant notice of change of income amount”).

C. As the Plaintiff did not pay the withholding labor income tax following the notice on the change in the amount of income in this case, on December 6, 2013, the Defendant issued a notice of KRW 31,821,890 (i.e., the main tax of KRW 30,390,50 + penalty tax of KRW 1,431,392, and penalty tax of KRW 10,431,392; hereinafter the same shall apply), tax on withheld labor income for the year 2012 (=principal tax of KRW 34,286,690 + penalty tax of KRW 1,614,90 + penalty tax of KRW 1,614,90 + penalty tax of KRW 24,026,140 for withheld labor income for the year 2013 (= principal tax of KRW 22,945,420 +1,080,729) (hereinafter “instant disposition”).

D. On March 5, 2014, the Plaintiff filed an objection against the instant disposition and received a decision of dismissal from the Defendant on April 10, 2014, and again filed an appeal with the Tax Tribunal, but received a decision of dismissal from the Tax Tribunal on October 21, 2014.

Facts without any dispute, Gap 1, 2, Eul 1 through 4 (including each number), and the purport of the whole pleadings.

2. Determination on this safety defense

A. The defendant's assertion

The Plaintiff’s obligation to withhold the Plaintiff’s earned income tax arises by the notice of change in the amount of income, and the instant disposition is merely a demand for the performance of such tax obligation, so the instant disposition cannot be deemed an administrative disposition that is subject to appeal litigation as it does not affect the taxpayer’s rights and obligations. Therefore, the instant lawsuit is unlawful by determining the eligible status.

B. Determination

However, in a case where there is a dispute over the existence or scope of the obligation to withhold income tax (in this case, whether the notice of change in the amount of income is valid, etc.) as in the instant disposition, it would be in line with the principle of administration under the rule of law to resolve legal uncertainty by disputing the legality of the relevant disposition (see, e.g., Supreme Court Decision 2011Du29144, Dec. 13, 2012). Thus, the Defendant’s defense prior to the merits is without merit.

3. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) As long as the Plaintiff paid the amount equivalent to the above personnel expenses to the largestG andCC even if the labor expenses were to be processed, since the Plaintiff could not be deemed to have been attributed to BB, a representative of the Plaintiff, as long as the amount equivalent to the above personnel expenses was not attributed to BB, the Plaintiff cannot be deemed to have been disposed of as a bonus to the representative.

2) The LG andCC received a loan from a financial institution and lent a total of KRW 970,00,000 to the Plaintiff with operating capital, and the Plaintiff bears KRW 82,469,99 as to the above loan interest rate. Since the Plaintiff is obligated to pay the above interest rate to the maximumG andCC, it is consistent with the substance over form principle to allow the Plaintiff to appropriate it as deductible expenses by recognizing the cost processing equivalent to the above amount as equivalent to the above amount. Therefore, the above amount equivalent to interest should be deducted from the bonus amount to B.

B. Determination

1) Where a tax authority’s disposition of income and a notice of change in the amount of income thereby issued, a tax withholding agent is deemed to have paid the relevant amount to the person to whom the income recorded in the notice was given on the date of receipt of the notice of change in the amount of income and becomes final and conclusive at the same time, and thus, the notice of change in the amount of income is subject to appeal litigation as an act of the tax authority directly affecting the corporate tax liability, which is the withholding agent (Supreme Court en banc Decision 2002Du1878 Decided April 20, 206). Furthermore, as a tax withholding agent fails to perform his/her tax liability, the notice of change in the amount of income constitutes a disposition ordering the payment of the finalized amount of tax, and even if the defect is found in the notice of change in the amount of income which is the preceding disposition, it shall not be succeeded as it is as it is to the subsequent disposition, unless the defect falls under a ground for invalidation. Therefore, in a case where the tax authority’s disposition and the notice of change in the amount of income arising therefrom are withheld, it must be disputed in an appeal litigation (see Supreme Court Decision 2009Du.

With respect to the instant case, it is unreasonable for the Plaintiff’s assertion that all of the Plaintiff is liable to withhold income tax, such as the content of the notice of change in income amount, and it is merely a ground for disputing the notice of change in income amount, and it is not an illegal ground inherent in the instant disposition. As such, it is examined whether such unlawful ground is a ground for invalidity of the notice of change in income amount, and whether the defect is succeeded to the disposition

2) Determination as to the assertion that the outflow from the company did not belong to the representative

However, according to Article 67 of the Corporate Tax Act and Article 106 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 24357, Feb. 15, 2013), where the amount of outflow has been included in the gross income, the person to whom it belongs shall first be deemed as having been disposed of and having been reverted to the representative, and only where it is unclear that the amount of outflow has been attributed to him/her. Thus, whether the amount of outflow from the processing benefit for the largestG andCC belongs to BB, the representative of the plaintiff, or whether it is unclear or not can be determined by the fact-finding. Thus, even if the defendant erred in determining the relationship of outflow from the company, the plaintiff's assertion in this part is without merit.

3) Determination on the assertion that the amount equivalent to interest should be deducted

Even if the Plaintiff, as alleged by the Plaintiff, is liable to borrow money from the MaximumG andCC for operating funds and pay interest thereon, it cannot be deemed that such consideration should be given in the disposition of income as to the amount out of the company under the pretext of processed personnel expenses, and since the amount equivalent to the above interest is merely the result of the Plaintiff’s failure to account as separate deductible expenses, and as long as the inclusion of loss is prohibited, it cannot be deemed that the notice of change in the amount of income in this case violates the substance over form principle. Thus, the notice of change in the amount of income in this case cannot be deemed as a ground for invalidation as alleged by the Plaintiff. Thus, this part of the Plaintiff’s assertion is without merit.

4. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so decided as per Disposition.