The time for determining necessary expenses for a revised return shall be when declared.

Value-added tax and customs duties are determined as necessary expenses only for the business year when a revised declaration is filed.

Article 27 of the Income Tax Act

2015Guhap59 Global Income and Revocation of Disposition

South AA

Head of tax office

November 12, 2015

November 26, 2015

1. All of the plaintiff's claims are dismissed.

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

The imposition of global income tax of KRW 411,401,040, and global income tax of KRW 574,012,01 for the year 2011 shall be revoked by the former Defendant on December 3, 2013.

1. Details of the disposition;

A. The plaintiff's status

The Plaintiff is an individual entrepreneur who sells teaching materials for young children under the trade name, i.e., Jeonnam-gun 00,000 Eup 221-2, '00 education'. B. The Plaintiff’s report on global income tax for the year 2010 and 2011

On May 31, 201 and May 31, 2012, the Plaintiff filed a final return on global income tax for 2010 and 2011. On 2010, the Plaintiff considered KRW 2,742,80,986 as necessary income for 2,645,70,770 as total income amount for 30 years and 400,700,700,700 and 4700 as total income amount for 205,70,70,000 and 270,000,000 won for total income amount for 5 years and 30,00,000,000 won for total income amount for 5 years and 10,000,000 won for total income amount for 5 years and 10,07,000 won for total income amount for 20,0000 won for total income amount for 27 years and 97,010.

2) Further recognized KRW 752,067,550 on the basis of the import tax invoice reported by the head of the customs office for the imported goods of the business year 201 as the necessary expenses for the business year 2011.

(e) Procedures of the previous trial;

On February 21, 2014, the Plaintiff rejected the Plaintiff’s appeal on October 16, 2014, although the Tax Tribunal filed an appeal with the Tax Tribunal on February 21, 2014.

[Ground of recognition] Facts without dispute, Gap evidence 1, 13, 14, Eul evidence 1 to 7 (including each number), the purport of the whole pleadings

2. The plaintiff's assertion and relevant Acts and subordinate statutes;

A. The plaintiff's assertion

As follows, the Plaintiff’s total value-added tax and customs duties related to the business year 2010, 2011 and the total amount of KRW 766,582,820 related to the Plaintiff’s revised return in 2013, and KRW 310,357,890 in China’s total expenses incurred in operating the office in China shall be recognized as necessary expenses for the business year 2010 and 2011, and each of the dispositions of this case based on different premise is unlawful.

1) As to value-added taxes and customs duties

In 2010, 2011, the Plaintiff filed a revised return and paid the amount of value-added tax and customs duties related to the amount of revenues for the business year 2011 (=value-added tax of 2010 + KRW 215,071,71,710 + KRW 231,090,080 + KRW 158,219,930 + customs duties of 2010 + KRW 162,201,10 + customs duties of 2011 + KRW 162,201,10). The Defendant recognized the necessary expenses for the business year 2013, which includes the date on which the value-added tax and customs duties were reported and paid. However, since the value-added tax and customs duties are related to the amount of revenues for the business year other than the taxable year to which the date of the revised return and payment belongs, it should be recognized as necessary expenses corresponding to the amount of revenues for the business year 2011).

The Plaintiff spent KRW 153,895,104 in 2010, and KRW 156,462,786 in 201, as stated in the evidence Nos. 3 and 4, such as office rent, material purchase cost, and personnel expenses, while operating an office in China. As such, the Plaintiff’s total amount of KRW 310,357,890 (=153,895,104 +15,104 +156,46,786) should be recognized as necessary expenses for the business year of 2011 and 2011.

(b) Related statutes;

It is as shown in the attached Table related statutes.

3. Determination

A. As to value-added taxes and customs duties

1) Relevant legal principles

Article 27(1) of the Income Tax Act provides that the amount to be included in necessary expenses shall be the sum of expenses corresponding to the total amount of income in the relevant taxable period, which is generally accepted, and Article 27(2) provides that, with respect to expenses corresponding to the total amount of income in the relevant taxable period, which are determined in the relevant taxable period, which are not appropriated as necessary expenses before the relevant taxable period, shall be deemed necessary expenses in the relevant taxable period only if such expenses are not appropriated as necessary expenses before the relevant taxable period. In relation to the provisions of Article 5 of the Income Tax Act concerning the taxable period and Article 39 of the same Act concerning the year to which the total amount of income and necessary expenses are attributed, the amount to be included in necessary expenses shall be deemed as prescribed in the so-called principle of profit and loss calculation and the principle of response to profit and loss among the expenses determined in the same period as the total amount of income and expenses. Article 27(2) of the same Act is interpreted as the necessary expenses in the relevant taxable period, not the expenses in the income taxable period (see, e.g., Supreme Court Decision 201Du3014, May 214, 201).

2) In the instant case:

As a result of the Defendant’s global income tax investigation on the Plaintiff from July 25, 2013 to November 27, 2013, the fact that: (a) based on the global income tax return for the year 2010, the amount of KRW 3,491,807,90, and KRW 3,795,523,676 as at the time of filing the global income tax return for the year 2011 was omitted; and (b) based on the determination that the amount of income for the business year 2011 was omitted; (c) adding each of the above amount of income to the global income tax for the year 2010 and the global income tax for the year 2011 was corrected and notified; (d) after receiving the notice of the results of the tax investigation, the Defendant paid the amount of KRW 76,582,820 as at the time of filing the revised report; and (d) the Defendant did not have any dispute over the Plaintiff’s total amount of income for the business year 20100 years as at the aforementioned.

B. As to the expenses paid in China

1) Relevant legal principles

In a lawsuit seeking revocation of income tax, the burden of proof of tax base, which serves as the basis of taxation, is on the tax authority, and the tax base is deducted from necessary expenses, so the tax authority shall bear the burden of proof of income and necessary expenses. However, considering that most of the facts that are favorable to the taxpayer and necessary expenses are located in the area under the control of the taxpayer and the burden of proof is easy, it is reasonable for the taxpayer to presume non-existence of necessary expenses without such verification. It is also consistent with the concept of fairness to recognize the necessity of proof to the taxpayer by allowing such presumption of non-existence (see, e.g., Supreme Court Decision 86Nu121, May 24, 198).

In light of the above legal principles, comprehensively taking account of the following circumstances acknowledged by comprehensively taking account of the evidence as seen earlier and the statements in Gap evidence Nos. 2 through 10 as a whole, the total amount of KRW 310,357,890, which the plaintiff asserted that the plaintiff spent, cannot be deemed as necessary expenses for the business year 2010,201, and there is no other evidence to acknowledge this. Accordingly, the plaintiff's assertion on this part is without merit.

① The Plaintiff alleged that the Plaintiff used KRW 310,357,890 in total for operating expenses of the Chinese office based on the documents set forth in the following items. However, it is difficult to view that the Plaintiff’s evidence Nos. 3 and 4 is only a document prepared by the Plaintiff, and there is objectivity in the content of the statement. Of the expenditure, the Plaintiff’s statement that “the Plaintiff spent the Plaintiff’s office in connection with the operation of the Chinese office.” Although it is difficult to readily conclude that the Plaintiff used the Plaintiff’s office expenses for KRW 10,000,000,000,000,000,0000,000,000,000,000,000,0000,000,000,000,000,000,000,000,000,000,000,000,00,000,00,000,00,00.

It is likely that the expenses paid as operating expenses of the national office would have been included in 2,645,701,133 and 4,900,465,013 as necessary expenses entered at the time of the final return of global income tax for the year 2010 and 2011.

4. Conclusion

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