[1] The scope of application of Article 94-2 (1) 1 of the former Enforcement Decree of the Corporate Tax Act, where an executive officer or employee embezzleds the corporation's assets, so that he/she may dispose of the corporation's bonus as a bonus to the vested person and impose

[2] In a case where a representative director who is not a substantial manager of a corporation and merely employed representative director embezzled funds of the corporation, whether such embezzlement constitutes earned income by deeming that it was discharged from the representative director (negative)

[1] Where an officer or an employee embezzleds the corporation's assets, in case where the act of embezzlement is ratified by waiver of or exemption from the damage claim, etc. that the corporation acquired to an officer or employee without receiving any equivalent consideration, it shall be deemed that the amount of embezzlement (compensation) was reverted to an officer or employee at that time, and thus, it may be deemed as a bonus to an officer or employee, and thus the disposition of income may be taken as a disposal of income. Thus, the disposition of income under each item of Article 94-2 (1) 1 of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15797 of May 16, 1998) provides that the corporation has reverted the corporation's profits to an officer or employee in a normal manner or confirmed the act of embezzlement of an officer or employee, and it shall not apply to cases where the officer or employee embezzled the corporation's assets against the corporation's intent and did not confirm it.

[2] Even if a representative director has a position as a representative director, it is not practically in control of the corporation, and in the case of the representative director (so-called employment president) employed by the corporation, there is no reason to treat it differently from the case of other employed officers or employees, and therefore, it is not allowed to dispose of the amount as a bonus to the representative director by deeming that the amount of embezzlement was out of the company, and as a result, it is not allowed to pay the corporation withholding tax.

[1] Article 32(5) of the former Corporate Tax Act (amended by Act No. 553 of Sep. 16, 1998; see current Article 67); Article 94-2(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15797 of May 16, 1998; see current Article 106(1)1); Article 32(5) of the former Corporate Tax Act (amended by Act No. 5553 of Sept. 16, 1998; see current Article 67); Article 94-2(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15797 of May 16, 1998; see current Article 106(1)1)

[1] Supreme Court Decision 87Nu760 delivered on January 31, 1989 (Gong1989, 362), Supreme Court Decision 87Nu880 delivered on March 28, 1989 (Gong1989, 687) / [2] Supreme Court Decision 89Nu2233 delivered on October 10, 1990 (Gong1990, 2308), Supreme Court Decision 95Nu9365 delivered on October 12, 1995 (Gong195, 3816), Supreme Court Decision 98Du7350 delivered on December 24, 199 (Gong200Sang, 326), Supreme Court Decision 9Du32034 delivered on September 14, 201 (Gong200, 326).

Plaintiff (Attorney Lee Dong-soo, Counsel for the plaintiff-appellant)

Head of Seo-gu District Tax Office and one other (Attorney Kim Jong-sik, Counsel for the plaintiff-appellant)

Daejeon District Court Decision 2000Gu4133 delivered on October 19, 2001

1. Of the original judgment, the part imposing income tax on the plaintiff by the head of Seo-gu Daejeon District Tax Office and the part imposing resident tax on the plaintiff by the head of Seo-gu Daejeon Metropolitan City shall be revoked.

2. On December 14, 1999, the head of Seo-gu Daejeon District Tax Office imposed a tax of KRW 24,638,516,190 on the Plaintiff and the head of Seo-gu Daejeon District Office imposed a tax of KRW 2,710,236,70 on the Plaintiff on February 10, 200, respectively.

3. The plaintiff's remaining appeal is dismissed.

4. The costs of the lawsuit shall be ten minutes in total, including the first and second instances, and one shall be the plaintiff's and the remainder shall be the defendants' joint and several burdens.

The judgment of the court below is revoked, and the disposition of imposition of KRW 176,470,370 on October 4, 1999 against the plaintiff by the head of the Seo-gu District Tax Office and the judgment of the court below as stated in Paragraph 2 of this Article shall be revoked.

Details of the disposition

The plaintiff was established on March 8, 1994 as an affiliated company of group 1 operating a discount store worldwide with its headquarters in France and was established on March 8, 1994 for the purpose of operating a general retail store in Korea.

After its establishment from October 1994 to February 1996, the Plaintiff purchased land in Busan, Daejeon, Busan, and Incheon to establish a discount store. From April 11, 1996 to November 11, 1996, the Plaintiff created a discount store by selling the commercial buildings in Incheon, Busan, Busan, and Ansan.

After that, around September 196, 1996, a four-year business plan was formulated to expand domestic discount stores across the country, and the Plaintiff allocated 2,63.5 billion won to the Plaintiff in the 1997 additional investment budget for the purchase of the site for a discount store.

Accordingly, from March 1997 to November 1, 1997, the Plaintiff acquired a total of 121,969 square meters of land located in Daegu Dong-dong, Daegu-dong, 94-5 and 50 square meters of land located in eight areas across the country (hereinafter “each land of this case”) as a discount store site. Despite the fact that the actual acquisition value was KRW 104,842,969,557, the account book shall include the acquisition value as KRW 55,996,627,712 (hereinafter “excess amount”) higher than the actual acquisition value as KRW 160,839,597,269, and based on this, the Defendant reported the corporate tax base and tax amount for the business year of 197 to the head of the tax office.

After that, it is revealed that the excessive appropriation amount in this case was leaked to a foreign country by an investigative agency, the plaintiff filed a report on the tax base and tax amount of the corporate tax for the business year of 1998 with the head of Seo-gu Daejeon District Tax Office (hereinafter referred to as the "head of the tax office of the defendant") on March 1999, and replaced the outflow amount of KRW 52,493,323,589, which was revealed until that time, with the outstanding amount (damage claim against the former representative director) as the outstanding amount, and included the amount of KRW 525,425,014 as the bad debt allowance for

In regard to this, the head of the tax office of the defendant corrected the value of each land of this case as KRW 104,842,969,557, the actual acquisition value of which is the amount reduced thereby, that is, the amount of KRW 55,96,627,712 of the above excessive amount was included in the calculation of earnings as the item of provisional payment. The above excessive amount included in the calculation of earnings is deemed to have been separated from the calculation of earnings, and accordingly disposed of as a bonus for the representative. Accordingly, on October 4, 1999, the defendant notified the Plaintiff of the change in the amount of income on December 14, 1999, imposed the amount of KRW 24,638,516,190 on the plaintiff on December 14, 199, while imposing the amount of Class A earned income tax of KRW 525,425,014, which was set up by the plaintiff as the allowance for bad debts, and imposed the income tax of the plaintiff on October 198.

In addition, the head of Seo-gu Daejeon Metropolitan City(hereinafter referred to as the "head of Seo-gu") notified the defendant to the head of the tax office of the imposition of Class A earned income tax as above. Pursuant to Article 178 (1) and (2) of the former Local Tax Act (Act No. 6124, Jan. 12, 2000), the head of Seo-gu Daejeon Metropolitan City(hereinafter referred to as the "head of Seo-gu") imposed the plaintiff a resident tax amount of KRW 2,710,236,70, which is to be imposed on the plaintiff as the tax base of the above Class A earned income tax (hereinafter referred to as the "each of the above tax imposition dispositions taken by the defendants against the plaintiff").

[Evidence] Facts without dispute, Gap evidence 1-1, 2, 3, Gap evidence 3, Eul evidence 1-1, 2-2, Eul evidence 2-1 through 4, Eul evidence 10-1, 2-1 and 14-2, and the whole purport of oral argument

Whether each disposition of this case is legitimate

Plaintiff’s assertion

The Plaintiff asserts that the excessive appropriation amount of the Plaintiff’s capital was unlawful on the following grounds on the premise that Nonparty 1, the former representative director of the Plaintiff, embezzled the Plaintiff’s capital in collusion with Nonparty 2 and Nonparty 3, the former vice president of the Plaintiff, in the process of acquiring a discount store site, and distributed it to the bank account of Hong Kong, Malaysia, and Switzerland, in an excessive manner than the actual transaction price.

The representative’s embezzlement of corporate funds and disposal of income is deemed as a bonus for the representative’s embezzlement. In the case where the representative’s embezzlement is accepted by the representative’s act of embezzlement, or where the representative’s intent to seek the return of the embezzled money to the representative’s relationship with the representative’s controlling shareholder, it is a legal system under tax law imposing withholding obligation on the representative as it discharges the money to the representative’s private company and pays it as bonus to the representative. The Plaintiff did not allow Nonparty 1’s embezzlement. Rather, after Nonparty 1’s embezzlement was confirmed, all possible legal measures such as holding the deposit account accounts of the Switzerland Bank in order to recover the claim and filing criminal complaints and civil litigation at home and abroad were taken. Nonparty 1 was an employee of group 1 and appointed as the representative’s representative director. Thus, Nonparty 1’s embezzlement is not leaked to the Plaintiff’s claim for damages, but reserved in the company. Therefore, the income tax disposition of this case is unlawful.

As such, it is apparent that the Plaintiff has a damage claim against Nonparty 1, etc., the head of the Defendant’s tax office denies the Plaintiff’s appropriation of the damage claim as the outstanding amount, and further, the corporate tax imposition disposition of this case is unlawful unless the Plaintiff did not include the allowances for bad debts for the outstanding amount

As long as the imposition of the income tax of this case is illegal, the imposition of the resident tax of this case by the head of defendant Seo-gu based on the imposition of the income tax is also unlawful.

The defendants' assertion

As the Plaintiff voluntarily acknowledged, since Nonparty 1, the representative director of the Plaintiff, embezzled the excessive appropriation amount in this case by taking advantage of his position, it was in itself and it was reverted to Nonparty 1. Therefore, the Defendant’s chief of the tax office deemed the above excessive appropriation amount as the bonus to Nonparty 1 and deemed it lawful to dispose of it.

In addition, as long as the funds have been released from the company, it should be interpreted that whether the corporation has damage liability against the embezzlement person, the possibility of recovery, and how much effort has been made by the corporation for the recovery does not affect the disposition of income as above. If it is not so, it is expected that the corporation will be the victim of the increase in this case, so it is not possible for the corporation to accept the act of embezzlement, and as a result, the recognition contribution system itself is nullified.

As long as it is legitimate to dispose of the excess appropriation amount that was released from the company as bonus to Nonparty 1, the Plaintiff cannot set up another account for the excess appropriation amount that was already disposed of as a result of the disposal of the Plaintiff’s damage claim against Nonparty 1, etc., and the tax accounting has already been completed, and the allowance for bad debts cannot be set up. Therefore, the corporate tax imposition disposition of this case is legitimate by denying the account for the outstanding amount and adding the bad debts to deductible expenses

As long as the imposition of the income tax of this case is legitimate, the imposition of the resident tax of this case by the head of defendant Seo-gu, which was conducted based on the imposition of the income tax is legitimate.

Relevant statutes

[Attachment] The entry is as follows.

Facts of recognition

The Plaintiff purchased each of the instant lands as seen earlier from March 1997 to November 1 of the same year in accordance with the four-year business plan established at the group 1 head office around September 1996.

At the time, Nonparty 1 was the representative director of the Plaintiff. Nonparty 1, in collusion with Nonparty 3, who was the actual manager of Nonparty 2 and Group 2, who was the vice president of the Plaintiff at the time, entered into a contract to purchase each of the instant land and pay a large amount of advisory fee up to 30% of the total purchase amount, and entered into a company’s account book as payment of the purchase amount, including the advisory fee, to the land owner as the purchase amount. The company’s book entered into a contract to pay a large amount of advisory fee up to the 30% of the total purchase amount, and only the first agreed purchase amount to the land owner, and the amount equivalent to the advisory fee, which is the difference, was paid by Nonparty 4, 5, and 6 to the Hong Kong Bank’s deposit account by converting 5,96,627,712 won from the Plaintiff’s funds.

Around December 197, the case was investigated after being recognized as an investigative agency and the investigation was started. At first, group 1 was investigated as if group 1 committed an act organized to raise funds. The Plaintiff, upon its own investigation, concluded that this case was an individual embezzlement by Nonparty 1, etc., and filed a complaint with the prosecutor of our country on August 28, 1998, with Nonparty 1, Nonparty 2, and Nonparty 3, etc. with the police around November 1 of the same year. At the Hong Kong police around the same year, the Plaintiff filed a complaint with Nonparty 3, etc. against Nonparty 3, etc. at the Switzerland Police, and filed a civil suit against Nonparty 3, etc. at the Hong Kong court. However, most of the related persons who escape from Korea were not aware of the right of prosecution and the right of reference in the Hong Kong court to the criminal investigation procedure and the right of reference in the Republic of Korea. The Plaintiff did not appear to have been under the jurisdiction of the Hong Kong court.

[Evidence] In the absence of dispute, the statements in Gap evidence Nos. 4 to 21, the witness in the trial of the party, the witness in the trial of the party, the testimony of Tolian, and the whole purport of the pleading

Maz.

As to the imposition of income tax of this case

In the event of embezzlement of a corporation’s assets, a corporation acquires property rights (in the case of embezzlement of assets other than money, the right to claim the return of the object, in the case of embezzlement of money, and in the case of embezzlement of money, the right to claim the return of unjust enrichment, or in the case of embezzlement of money, hereinafter referred to as “liability for damages”) equivalent to the profits that have been lost due to the embezzlement against its officers or employees. In general, the amount equivalent to the assets cannot be deemed to have been immediately out of the company due to the embezzlement, and is still reserved in the form of a damage claim. If the damage claim is recovered thereafter, the amount equivalent to the recovered amount shall be deducted from the damage claim, and if it is impossible to recover all of the measures, the said damage claim can be treated as bad debts at the time it can be objectively proved objectively.

However, in case where a corporation has ratified the embezzlement act by giving up or exempting the damage claim against an officer or employee as above without receiving any equivalent consideration, it shall be deemed that the amount of embezzlement (amount of damage) was reverted to an officer or employee as a bonus for the officer or employee at that time. Thus, the income disposition may be conducted by deeming it as a bonus for the officer or employee (see, e.g., Supreme Court Decisions 87Nu880, Mar. 28, 1989; 87Nu760, Jan. 31, 1989; 2-3-49-29, and 2-16-920, respectively; see, e.g., General Rule 2-3-49-29, and 2-16-920, and 46012-10477 established rules by the National Tax Service on March 13, 2002).

Therefore, the disposal of income under each item of Article 94-2(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15797, May 16, 1998; hereinafter referred to as the "Enforcement Decree") stipulates that the disposal of income reverts to an officer or employee in a normal way from a corporation, or the act of embezzlement of an officer or employee is ratified by a corporation. It does not apply to the case where an officer or employee embezzled the assets of a corporation against the intent of the corporation and has not ratified it.

In this interpretation, if the above provision is applied to the embezzlement of an officer or employee and the above provision is treated as a bonus for the officer or employee, the current tax law system that imposes a withholding duty on the corporation, even if the corporation, which is only the victim, has no reason to do so, should be paid on behalf of the corporation in addition to the amount of damage caused by the embezzlement in addition to the amount of damage caused by the embezzlement, and it is not necessary to conclude that this is unreasonable.

In addition, according to the precedents, if a representative director or actual manager of a corporation uses his/her position as an embezzlement and uses the corporation's funds, it is not conducted on the premise of the initial recovery, and the disbursement of the amount is already regarded as an outflow from the company itself (see, e.g., Supreme Court Decisions 9Du3324, Sept. 14, 2001; 98Du7350, Dec. 24, 1999; 95Nu9365, Oct. 12, 1995). This is because, although the representative director or actual manager of a corporation knew of such fact at the time of the act, it is very low possibility that the corporation exercises its right to claim damages against the above representative director or actual manager, etc., even if the corporation knew of such fact, it shall be deemed that the corporation has no intention to recover or actually accepted such act.

Therefore, even if the representative director has a position as a representative director, it is not practically in control of the corporation, and there is no reason to treat the representative director (so-called employment president) employed by the corporation differently from the case of other employed executives or employees. Thus, in the act of embezzlement low by Nonparty 1, the representative director employed as the case in this case, as the first principle, it is not allowed to dispose of the amount as a bonus for the representative director, and as a result, it is not allowed to pay the plaintiff the withholding tax to the corporation.

Resolution

Therefore, in this case where Nonparty 1, the representative director of the Plaintiff employed by the Plaintiff, embezzled the amount equivalent to the excessive appropriation of this case from the Plaintiff’s funds, thereby holding a claim for damages equivalent to the same amount with respect to Nonparty 1, and there is no fact that the Plaintiff ratified the above embezzlement by waiver or exemption, etc., and rather, he made efforts to recover as soon as possible, the above excessive appropriation cannot be deemed to have been out of the country, and therefore, the disposition of imposition of the income tax of this case against the Plaintiff by the head of the tax office pursuant to the withholding system is unlawful. The Plaintiff’s assertion in this part is with merit.

As to the disposition of imposition of resident tax on the income tax of this case

As seen earlier, as long as the imposition disposition of the income tax of this case is unlawful, the imposition disposition of the resident tax of this case against the Plaintiff by the head of Seo-gu cannot be deemed unlawful. This part of the Plaintiff’s assertion is with merit.

As to the disposition of imposition of corporate tax of this case

The allowance for bad debts refers to the amount calculated by calculating the bad debt estimated in accordance with reasonable and objective standards with respect to a claim the recovery of which is uncertain and which is deducted from the claim in question. However, in full view of the provisions of relevant laws and regulations, it is interpreted that all claims are limited to claims arising from legitimate business relations, such as credit account receivables and loans.

Therefore, in this case, it is not permissible for the plaintiff to appropriate the damage claim against the non-party 1 as the claim subject to the establishment of the allowance for bad debts as the allowance for bad debts. Accordingly, the defendant's chief of the tax office denies the above allowance for bad debts and instead does not include the amount embezzled by the non-party 1 as the bonus to the plaintiff. Thus, the disposition imposing the corporate tax of this case is legitimate (However, the defendant's calculation of the amount embezzled by the non-party 1 as the bonus to the non-party 1 should be deemed to be erroneous (the above amount is deemed to have been retained in the form of the damage claim against the non-party 1 and should be included in the gross income in the accounts for outstanding amount.) However, in calculating the corporate tax assessment basis, the amount is deemed to have been accumulated as a bonus and the outstanding amount is to be included in the gross income, so it shall not affect the above error as a result). The plaintiff

Conclusion

Therefore, the part of the plaintiff's claim seeking the revocation of the imposition of the income tax and the resident tax to be imposed on the income tax is justified, and the part seeking the revocation of the imposition of the corporate tax of this case is dismissed as it is without merit. The judgment of the court below is just in its conclusion as to the imposition of the corporate tax of this case, but it is unfair in its conclusion as to the imposition of the income tax of this case and the imposition of the resident tax to be imposed on the income

Judges Min Il-young (Presiding Judge)