Seoul Administrative Court 2014Guhap5323 ( October 16, 2014)

Seocho 2013west 1578 ( November 29, 2013)

The part concerning the payment of retirement allowances under the retirement allowance provision of this case concerning the payment of high-amount retirement allowances at will to a specific officer.

Of the retirement allowance provisions of this case, the part concerning the payment of retirement allowances is a means to pay a high amount of retirement allowances to a specific executive officer at his/her discretion, and it cannot be viewed as a general and specific provision that the plaintiff has continuously and repeatedly applied.

Article 19 of the Corporate Tax Act; Article 442(4)1 of the Enforcement Decree of the Corporate Tax Act

2014Nu68838 Notice of change in income amount, or revocation of revocation thereof.

AAAA Corporation

Seoul 000 00,00 (000, 00 buildings)

BB of representative director BB

Attorney Park Jae-young, Counsel for the defendant-appellant -appellee 000, Counsel for defendant-appellant

00. Head of tax office

Litigation performers 000, 000, 000

Seoul Administrative Court Decision 2014Guhap53223 decided October 16, 2014

June 18, 2015

July 16, 2015

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The defendant's disposition of notice of change in income amount of KRW 4,979,423,00 against the plaintiff on January 2, 2013 shall be revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

A. The plaintiff is a juristic person established on October 1, 195* and engaged in 0000 business, and the non-party DD's shares were reduced for consideration at the time of December 9, 2009, which is the second shareholder, and then BB, the representative director of the plaintiff, became one shareholder of the plaintiff.

B. On January 26, 2010, the Plaintiff amended the articles of incorporation to ensure that the articles of incorporation stipulate retirement allowances for executive officers as a resolution of the general meeting of shareholders (Article 35 of the Plaintiff’s articles of incorporation; hereinafter “instant articles of incorporation”). On September 8, 2010, the Plaintiff enacted the criteria for the payment of retirement allowances (hereinafter “instant retirement benefits criteria”) which stipulated detailed details of the payment of retirement allowances through a temporary general meeting of shareholders (hereinafter “instant provisions”).

C. The Plaintiff made interim settlement of retirement benefits as of December 31, 201 with respect to BB and CCC’s representative director as of December 31, 201, and paid to BB the sum of KRW 5,043,452,00, and KRW 1,176,971,000, including KRW 1,176,971,000 (hereinafter “instant retirement benefits”) to CCC, and included this in deductible expenses for the business year of 2011.

D. 00 regional tax office conducted a tax investigation on the Plaintiff on November 2012, 201, and conducted a tax investigation on the Plaintiff, that “the instant retirement benefit standard was made only for a specific executive, and the instant retirement benefit was paid excessively.” In accordance with Article 44(4) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012; hereinafter “Enforcement Decree of the Corporate Tax Act”), among the instant retirement benefits, the amount exceeding KRW 4,241,00,423,00, equivalent to “the maximum amount of retirement benefits for executive officers other than those determined by the articles of incorporation,” and notified the Defendant of the disposition of the disposition of bonus of KRW 4,035,452,00 and KRW 943,971,00 against CCC, 200, the Defendant notified the Defendant of the disposition of the disposition of the amount of bonus of KRW 1,240,000 according to the above notice.

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on April 2, 2013, but dismissed on November 29, 2013, the Plaintiff filed the instant lawsuit on February 27, 2014.

[Ground for Recognition: Facts without dispute, Gap evidence 1 through Gap evidence 3, Gap evidence 5, Eul evidence 1, the purport of whole pleadings]

2. The parties' assertion and judgment

A. The parties' assertion

1) Plaintiff

The instant retirement benefit was properly paid according to the instant Articles of Incorporation and the instant retirement benefit standard enacted accordingly. Therefore, the instant disposition that excluded the amount of KRW 4,979,423,00 from deductible expenses was unlawful.

2) Defendant

A) In light of the fact that the Plaintiff’s amendment of the articles of incorporation and enacted the instant provisions on January 26, 2010, BB had not been in the Republic of Korea at the time of the general meeting of shareholders as of January 26, 2010, and that, even after the general meeting of shareholders as of September 8, 2010, the instant retirement benefit standard was established in a way different from the instant retirement benefit standard, each of the instant general meetings of shareholders cannot be deemed valid, and therefore, the validity of the instant retirement benefit standard cannot be recognized (hereinafter “section 1”).

B) Even if the instant retirement benefit was paid according to the instant retirement benefit standard that became effective due to the procedure, it is reasonable to deem that the instant retirement benefit was paid through the amendment of the articles of incorporation in violation of the purpose of unity under Article 19 of the Corporate Tax Act and Article 44(4)1 of the Enforcement Decree of the Corporate Tax Act, and thus, it cannot be included in the calculation of losses. The instant disposition based on such premise is lawful (hereinafter “section 2”).

C) The instant retirement benefit is subject to the avoidance of unfair acts under Article 52(1) of the Corporate Tax Act and Article 88(1)9 of the Enforcement Decree of the same Act. In this case, the “market price under Article 89(1) of the Enforcement Decree of the Corporate Tax Act” is the retirement benefit under Article 44(4)2 of the Enforcement Decree of the same Act. Thus, the instant disposition is legitimate, excluding the remainder of the retirement benefit under the above Enforcement Decree from the instant retirement benefit from the deductible expenses (hereinafter “third-party disposition”).

D) Preliminaryly, BB received the payment from the Plaintiff in the same position as BB in 2011 that the director CCC paid to BB in 2016 times the amount that the Plaintiff paid to BB in 2011, and thus, the excess amount of the total benefits paid to CCC in 2011, out of the total benefits paid to BB in 2011, shall be deemed as subject to non-deductible.

B. Relevant statutes

Attached Form is as shown in the attached Form.

C. Determination

1) With respect to the part on the recognition of the validity of the retirement benefit standard of this case (the part on the part on the part on the part on the part on the part on the part on the part on the part on the part on the part on the part on the part on the part on the part on the part on the part on which the court of first instance shall dismiss the "non-performance" of No. 18 of the first instance judgment as the "non-performance" of No. 5, and the "no. 3, and No. 4" cannot be a legitimate ground for the disposition of this case. The "no. 3," is justified in the assertion that the validity of the retirement benefit standard of this case cannot be recognized as the legitimate ground for the disposition of this case."

A) Relevant regulations and legal principles

(1) Article 19(1) of the Corporate Tax Act provides that "deductible expenses shall be the amount of losses incurred by transactions which reduce the net assets of the relevant corporation, except as otherwise provided for in this Act and other Acts," and Paragraph (2) of the same Article provides that "the losses under paragraph (1) shall be losses or expenses incurred in connection with the business of the relevant corporation which are generally accepted or directly related to profits, except as otherwise provided for in this Act and other Acts, and Paragraph (4) of the same Article provides that "the matters necessary for the scope, classification, etc. of losses under paragraphs (1) through (3) shall be prescribed by Presidential Decree" and Article 19(3) of the Enforcement Decree of the Corporate Tax Act provides that "the expenses shall be one of the losses under the provisions of the Corporate Tax Act."

In addition, Article 26 of the Corporate Tax Act provides that "any person with a special relationship as prescribed by the Presidential Decree" under Article 87 (1) of the Enforcement Decree of the Act on the Calculation of Income Amount for each business year of a domestic corporation refers to a person with a special relationship falling under any of the following subparagraphs with the corporation" under Article 52 (1) of the Enforcement Decree of the Corporate Tax Act, and subparagraph 1 provides that "a person who actually exercises influence over the management of the relevant corporation, such as exercising the right to appoint and dismiss officers or determining business policies (including a person to be treated as a director under Article 401-2 (1) of the Commercial Act), his relative, and his relative (excluding a minority shareholder)" under Article 88 (1) of the Corporate Tax Act provides that "the person with a special relationship as prescribed by the Presidential Decree, among losses under the following subparagraphs, shall be a person with a special relationship under the following subparagraphs."

In this context, the term "prohibitation of wrongful calculation" means a system in which a corporation unfairly evades or reduces tax burden by abusing the various forms of transactions listed in each subparagraph of Article 88(1) of the Enforcement Decree of the Corporate Tax Act without a reasonable method with a person in a special relationship. It applies only to cases where the person who has the authority to impose tax is deemed to have neglected the economic rationality due to the wrongful and unreasonable calculation of an income which appears objective and reasonable by the method prescribed in the laws and regulations, in light of the economic person's viewpoint. Determination of whether the economic rationality exists shall be made based on whether the transaction is abnormal in light of sound social norms or commercial practices, taking into account the various circumstances of the transaction act, and shall also be taken into account such as the transaction price between non-specially related persons, special circumstances at the time of the transaction (see, e.g., Supreme Court Decision 2005Du14257, Dec. 13, 2007).

Considering the language and structure of the aforementioned provisions, legislative intent, and the following circumstances revealed by comprehensively taking into account the aforementioned legal principles, i.e., ① wages and allowances paid by a corporation to its executives and employees (e., salaries, bonuses, pensions, retirement allowances, or other similar allowances) and the amount deemed excessive or unjust for labor expenses cannot be deemed as deductible expenses for the business year during which the corporation’s employees and employees are paid. ② Article 43(4) of the Enforcement Decree of the Corporate Tax Act provides that remuneration paid to an officer of a corporation who is not a full-time employee shall not be included in deductible expenses if it falls under the subject of the avoidance of wrongful calculation under Article 52 of the Corporate Tax Act. ③ Where retirement allowances are paid to an officer of a corporation, the corporation and the officer who received retirement allowances are specially related persons under the Corporate Tax Act. If retirement allowances paid to the officer are unreasonably high in excess of a certain standard, it would be reasonable to view that the Plaintiff’s unfair calculation under Article 88(2) of the Corporate Tax Act has reduced the Plaintiff’s economic benefits, such as the Plaintiff’s payment of the same position.

(2) On the other hand, Article 44 (4) of the Enforcement Decree of the Corporate Tax Act provides that "the amount exceeding any of the following amounts out of retirement benefits paid to an employee of a corporation shall not be included in deductible expenses." Paragraph 1 of the same Article provides that "where the amount of retirement benefits (including retirement benefits, etc.) is determined by the articles of incorporation," and Paragraph 2 of the same Article provides that "in cases other than subparagraph 1, it shall be the amount under Article 20 (1) 1 (a) and (b) of the Income Tax Act (excluding non-taxable income under Article 12 of the same Act), but excluding the amount not included in deductible expenses pursuant to Article 43) shall be the amount calculated by multiplying the amount equivalent to 1/10 of the total amount of retirement benefits paid to the relevant employee for one year retroactively from the date of retirement, the period of service as an employee may be added to the number of years of continuous service." Paragraph (5) of the same Article provides that "in cases where retirement benefits have not been paid to an employee, the amount delegated by the articles of incorporation shall be included separately."

In addition to the contents and purport of the above-mentioned provision, the reason for recognizing the provision on the payment of retirement allowances for officers stipulated in the articles of incorporation as the basis for the inclusion of the corporation’s retirement allowances in deductible expenses is that the articles of incorporation requires strict procedures for amendment of the articles of incorporation under Article 433 of the Commercial Act in order to increase the retirement allowances. As such, the reason for recognizing the provision on the payment of retirement allowances for officers under the articles of incorporation is due to the lack of risk of unreasonably reducing the corporation’s income because it is relatively difficult to pay excessive retirement allowances for officers. ② As seen earlier, if the corporation’s remuneration, bonuses, retirement allowances, etc. paid to specific executives, etc., which are related persons, are abnormal in economic rationality in light of sound social norms and commercial practices, it is reasonable to view that the provision on the payment of retirement allowances for officers under Article 44(4)1 or (5) of the Enforcement Decree of the Corporate Tax Act is a specific provision on the payment of retirement allowances for officers under the articles of incorporation or a specific provision on retirement allowances under the articles of incorporation without any specific reasons.

2) Application to the instant case

In light of the relevant statutes and legal principles as seen earlier, the following circumstances revealed as to the instant case, namely, ① BB was a shareholder who was the representative director of the Plaintiff after a capital reduction of DD’s shares, a second shareholder as of December 9, 2009. CCC appears to have practically been operating the Plaintiff. Since CCC entered the Plaintiff company on November 1, 1980, it appears that it was in a position to exercise substantial influence over the Plaintiff’s important decision-making and business process, ② The instant retirement benefit standard was established as well as BB and CCC on the ground of the conversion of annual salary system, and was established at the general meeting of shareholders from December 31, 201 to December 9, 201, and thus, it cannot be deemed that the instant provision was applicable to BB and CCC’s retirement benefit payment standard and CB’s retirement benefit payment standard under Article 200 of the Corporate Tax Act, which was the first 0 B and CCC’s retirement benefit payment standard under Article 400 of the Enforcement Decree.

3) Sub-determination

Therefore, the instant retirement benefit standard cannot be deemed to fall under the case where the articles of incorporation under Article 44 (4) 1 of the Enforcement Decree of the Corporate Tax Act provides for the amount to be paid as retirement benefits or where there is a separate provision for payment of retirement benefits delegated by the articles of incorporation under Article 44 (5) of the same Act. On the premise of this, the instant disposition that the Defendant notified the Plaintiff of the change in the amount of income amount of KRW 4,949,423,000 pursuant to Article 52 of the Corporate Tax Act and Articles 88 (1) 9 and 44 (

3. Conclusion

Therefore, the disposition of this case is legitimate, and thus, the plaintiff's claim shall be dismissed, and the judgment of the court of first instance is unfair, so the defendant's appeal is accepted, and the judgment of the court of first instance is revoked, and the plaintiff's claim is dismissed. It is so decided