Cho Jae-2016-China-1151 ( October 19, 2016)

Whether income tax is levied on illegal income for which collection is declared;

Where the judgment of confiscation and collection of illegal income becomes final and conclusive and the execution is not carried out, it shall be deemed that the taxpayer still controls and manages the illegal income subject to the obligation to return under public law in an economic way, so it shall not be excluded from the taxable income.

Article 143 of the Enforcement Decree

Incheon District Court 2017Guhap50977 Such revocation as Value-Added Tax, etc.

MaO

OO Head of the tax office

December 01, 201

December 22, 2017

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

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

Cheong-gu Office

The Defendant imposed on the Plaintiff on December 8, 2015, ① global income tax of 296,953,560 won, global income tax of 2010, global income tax of 1,247,708,830 won, global income tax of 2011, global income tax of 1,395,73,890 won, global income tax of 2012, global income tax of 153,63,430 won (including additional tax) of 2013, global income tax of 2013, and ② imposition disposition of value-added tax of 72,608,464 won, global income tax of 208, 2010, 205, 1,052, 07, 207, 208, 364, 206, 207, 3616, 207, 206, 365, 2016.

1. Circumstances and basic facts of the disposition;

A. The Plaintiff, along with ProfessorO, SO, EO, EO, EO, OO, GaO, GaO, GaO, and GaO, opened an illegal gambling site (hereinafter referred to as "Gambsite") in a foreign country, including China and the Philippines, and recruited domestic users (hereinafter referred to as "user") from May 30, 2010 to March 15, 2013. The Plaintiff was sentenced to KRW 202,625,810,053 in total through the 236 borrowed account, and was sentenced to KRW 102,625,00,000 in total, KRW 200,000 in total and KRW 10,000 in 20,000 in 200,000 in 20,0000 won in 00,0000 won in 20,00000 won in 20,0000 won in 20,00000.

B. From April 22, 2014 to July 5, 2015, the director of the Seoul Regional Tax Office conducted a tax investigation with the Plaintiff. ① The Plaintiff did not report value-added tax on the operating income acquired in Korea using the gambling site server in a foreign country without registering its business, and completed the registration procedures ex officio by using the “O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-the-the-the-the-law.

C. Accordingly, on February 26, 2016, the Plaintiff filed an appeal with the Tax Tribunal. On October 19, 2016, the Tax Tribunal rendered a decision that the amount of income, which serves as the tax base of value-added tax, should not be the money deposited in the borrowed account, but the money received as a result of the provision of gambling games. As such, the Plaintiff re-examineed the amount of money received as a end-of-date, and accordingly, determined that the value-added tax base and value-added tax should be corrected.

D. According to the decision of the Tax Tribunal mentioned in paragraph (c) above, a reinvestigation was conducted by the Seoul Regional Tax Office, and according to the results of the reinvestigation, the tax base of the value-added tax was reduced for the Plaintiff on December 1, 2016 as shown below, and the amount of the tax imposed on the Plaintiff on the imposition of value-added tax was reduced (hereinafter above, the imposition of value-added tax on the remaining amount after reduction from the amount of the tax imposed on the previous imposition of value-added tax stated in the table below).

[Ground of recognition] Facts without dispute, Gap evidence 1 to 6, Eul evidence 1 to 7 (including provisional number; hereinafter the same shall apply), the purport of the whole pleadings

2. Whether the imposition of global income tax and the imposition of value-added tax are legitimate

A. The plaintiff's assertion

1) The primary argument

① Since the Plaintiff’s imposition of the global income tax in this case became final and conclusive that the possibility of loss of economic benefits inherent in the illegal income by being sentenced to the collection of additional tax on the profits accrued from the operation of the gambling site is not realized due to the realization of the possibility of loss of economic benefits inherent in the illegal income due to the pertinent criminal judgment, the instant imposition of the global income tax in this case is unlawful. ② Even if the Plaintiff operated the gambling site, it is merely an illegal act subject to criminal punishment, and the instant imposition of the value-added tax in this case was made only by the speculative act that does not create the value added to

2) Preliminary assertion

Even if the Plaintiff did not lose economic benefits from operating the gambling site due to the imposition of additional charges on the relevant criminal judgment, and the Plaintiff’s provision of services to users, the Seoul Regional Tax Office determined the global income tax amount by calculating the Plaintiff’s global income tax amount based on the existing value-added tax supply value prior to the decision of the Tax Tribunal’s reinvestigation on October 19, 2016. Since the Plaintiff stated the actual income gained in the course of operating the gambling site to be true, the amount of KRW 1,340,000, which is the additional charges on the relevant criminal judgment, should be deemed as the Plaintiff’s income amount. Even though the Seoul Regional Tax Office unilaterally calculated the global income tax base without giving sufficient opportunity to explain to the Plaintiff, there was an error in calculating the global income tax amount in calculating the global income tax amount in the instant disposition, and the Plaintiff cannot be deemed to have provided services in Korea, and since the Plaintiff’s deposit in the tea account is merely a deposit for the Plaintiff, it should also be determined as the amount calculated by deducting the above tax amount from the calculation of the input tax amount.

B. Relevant statutes

Attached Form is as shown in the attached Form.

C. Determination

1) As to the main argument

A) Regarding the instant disposition imposing global income tax

The purpose of confiscation or collection under the Criminal Act is to deprive a person of benefits from a crime, such as bribe, good offices, and breach of trust, and prevent such person from holding illegal benefits. Therefore, if confiscation or collection has been made for such illegal income, it shall be deemed that the possibility of loss of economic benefits inherent in the illegal income is realized.

Therefore, in such a case, since the income is not ultimately realized, it is reasonable to allow taxpayers to file a request for reduction by proving the relevant fact by deeming that there has occurred a change in the tax base and the basis for calculating the amount of tax due to a subsequent cause that occurred after the establishment of the tax liability. In other words, even if the tax liability was established upon meeting the taxation requirements, if the possibility of loss of economic benefits inherent in the illegal income, such as confiscation or collection, becomes realistic, and the tax liability established at the same time becomes null and void due to the occurrence of a subsequent event that the possibility of loss of economic benefits inherent in the illegal income, such as confiscation or collection, became final and conclusive as not realized, barring special circumstances, the taxpayer may be deemed to have been exempted from the tax liability by filing a request for correction after the subsequent demand for correction stipulated in Article 45-2(2) of the Framework Act on National Taxes, barring any special circumstance. In addition, if a tax disposition was made on the grounds that the tax authority had established the tax liability for the original illegal income even though the grounds for request for correction exist, such taxation is unlawful, and thus the taxpayer can seek revocation through an appeal (see en banc Decision 514.

However, in order to realize the possibility of loss of economic benefits inherent in illegal income, the actual economic control and management should be lost. However, if confiscation and collection judgment becomes final and conclusive, and the execution is not yet completed, the taxpayer still controls, manages, and manages the illegal income subject to the obligation to return under the public law. In such a case, it is reasonable to deem that the income cannot be excluded from the income subject to the taxation because it is difficult to view it as not ultimately realizing the income. Accordingly, the Plaintiff’s act of gambling with his accomplice for profit such as operating the gambling site from May 30, 2010 to March 15, 2013, and receiving it for the purpose of profit-making, as seen earlier, three years of imprisonment with prison labor and the collection order, as stated in the judgment of the relevant criminal court, but there is no evidence to deem that the Plaintiff was executing the portion of collection imposed in the relevant criminal judgment, or that the Plaintiff paid the additional collection charges voluntarily in full in accordance with the relevant criminal judgment, and therefore, the Plaintiff still has to manage and manage the income under the economic name of the website.

Therefore, the plaintiff's primary argument is without merit.

B) Regarding the imposition of value-added tax of this case

Article 2 subparag. 3 of the Value-Added Tax Act defines a person who independently supplies goods or services for business regardless of whether the business purpose is profit-making or non-profit. Article 4 subparag. 1 of the same Act provides that the supply of goods or services by an entrepreneur is subject to value-added tax, and Article 29(1) of the same Act provides that the tax base of value-added tax on the supply of goods or services shall be the total amount of supply values supplied for the pertinent taxable period. Meanwhile, Article 29(5) provides that, when the goods or services are supplied in accordance with the quality, quantity, conditions of delivery or payment method, or other terms and conditions of supply, the amount of direct reduction of a certain amount from the ordinary price shall be the value of the returned goods or services, the value of the goods that are damaged or destroyed before reaching the recipient, the value of the goods or services that are not directly related to the supply of the goods, and the overdue interest received due to delayed payment of the price for the supply of the goods or services shall not be included in the supply value.

As can be seen, when comprehensively considering the form and content of the Value-Added Tax Act, the taxable object and tax base of value-added tax are, in principle, the supply of services or services for the use of goods, facilities or rights under all contractual grounds. Thus, even if the supply of goods or services is a criminal act of which legal invalidation, it shall be subject to value-added tax, and the price received therefrom shall be also included

Therefore, the plaintiff's primary argument is without merit.

2) As to the conjunctive argument

A) Regarding the instant disposition imposing global income tax

(1) In full view of the purport of each entry and pleading in the evidence No. 5, No. 5, and No. 2, the Seoul Regional Tax Office may recognize the fact that, in determining the global income tax on the Plaintiff, the amount applying 14.5% (bO-related) or 2.5% (O-related) of the amount deposited in the borrowed account managed by the Plaintiff is calculated by deducting the amount calculated according to standard expense rate from the Plaintiff’s annual report’s income (not “amount of income calculated pursuant to the table below is consistent with the amount written in the “amount of global income” among the “amount of global income tax calculated” under the evidence No. 2). This part of the Plaintiff’s conjunctive assertion is without merit.

(2) Meanwhile, the main sentence of Article 80(3) of the former Income Tax Act (amended by Act No. 12169, Jan. 1, 2014; hereinafter the same) provides that where tax base and tax amount are determined or corrected, in principle, the basis of account books and other evidentiary documents shall be in principle. However, in calculating the tax base pursuant to the proviso of Article 80(3) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereinafter the same) Article 143(1) of the former Enforcement Decree of the Income Tax Act, where necessary account books and evidential documents are nonexistent or important parts are incomplete or false, the amount of income may be determined by estimation. Article 143(3) of the former Enforcement Decree of the Income Tax Act provides that the application of standard and simple expense rates, and the method of calculating the amount of income pursuant to each expense rate, which applies to this case. Ultimately, in the absence of account books or other evidentiary documents as in this case, the Plaintiff’s statement cannot be accepted.

(3) Lastly, the facts that the director of the Seoul Regional Tax Office requested the Plaintiff to submit books or other documentary evidence that can verify the details of the revenue amount and necessary expenses, etc. to the Plaintiff in the course of conducting a tax investigation with the Plaintiff do not conflict between the parties, and considering the overall purport of the entries and arguments in the evidence No. 8, it is recognized that the Seoul Regional Tax Office sent official documents with the following contents on September 24, 2015. Thus, the Plaintiff’s preliminary assertion that the Defendant unilaterally decided to conduct a preliminary investigation without giving sufficient opportunity to explain to the Plaintiff is also without merit.

Title: Answer to the written opinion on the disposition of tax offense

○ On September 18, 2014, your opinion on the disposition of a tax offense by shipment to our Office is scheduled to be referred to it by reflecting the opinion of the taxpayer at the time it is referred to the tax offense deliberation committee.

○, however, in order to prove the factual relations based on your assertion, it is necessary to provide evidence, such as the President of the Slives Institute, etc., that he/she claimed at the time of the preparation of the examination protocol, and it is during the prime period (it is not submitted by the co-owners, who have requested the submission of relevant data, and has not been submitted until now on the grounds that he/she did not have such data).

B) Regarding the imposition of value-added tax of this case

(1) We examine the following circumstances, which can be seen by comprehensively taking into account the following circumstances: ① the Plaintiff, upon being investigated by the prosecution as the instant case, while living in Korea and operating the gambling site server in China (No. 7 evidence No. 6); and ② the office of operating the business site in receipt of a tax investigation conducted by the director of the Seoul Regional Tax Office at the time of receiving a tax investigation from the director of the Yeonsu-gu Incheon District District Tax Office, stated that the office of operating the gambling site was 0-dong apartment 0-dong, Yeonsu-gu, Incheon. Under the direction of the operator of the main office in Korea, the Chinese call center was providing counseling related to the gambling site in Korea (No. 5-15, No. 6), and the reason why the police center was located in China and the Republic of Korea was stated to be above the Plaintiff’s control over the investigation agency’s business activities (No. 6-11 and No. 1 of the Seoul District Tax Office).

(2) Meanwhile, as recognized earlier, the tax Tribunal’s revenue, which serves as the tax base of value-added tax, should not be the money deposited in the borrowed account, but the money received as a result of the provision of gambling games. As such, a reinvestigation of the Seoul Regional Tax Office’s re-audit was conducted according to the decision that the Plaintiff would correct the tax base and the amount of tax, and as a result, the tax base was determined and the amount of value-added tax would be reduced accordingly, on December 1, 2016. Therefore, the Plaintiff’s preliminary assertion on this part is without merit.

(3) Lastly, there is no objective evidence that the Plaintiff paid the cost of building and operating the server and the cost of managing subordinate organizations and deducted input tax amount while operating the gambling site. Thus, the Plaintiff’s conjunctive assertion on this part is without merit.

3. Conclusion

Therefore, all of the plaintiff's claims are dismissed as it is without merit. It is so decided as per Disposition.