Whether the trustee in bankruptcy is business income;

The trustee in bankruptcy is not a business income.

Seoul Administrative Court-2016-Gu Partnership-54862

leap*

Gangnam-west et al. 1

September 30, 2016

November 25, 2016

1. On January 4, 2016, the imposition of global income tax of 8,981,00 won (including additional tax of 2,960,478 won), global income tax of 2012, global income tax of 33,714,590 won (including additional tax of 9,181,624), global income tax of 2013, global income tax of 15,854,620 won (including additional tax of 1,28,897 won) for which the head of Gangnam-gu Seoul Metropolitan Government imposed on the Plaintiff on January 4, 2016, the imposition of additional tax of 15,854,620 won (including additional tax of 1,28,897 won) for which the head of Gangnam-gu Seoul Metropolitan Government belongs in 2011, local income tax of 3,371,460 won (including additional tax), local income tax of 2013, local income tax of 158, and 460 won (including additional tax).

2. The costs of lawsuit are assessed against the Defendants.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff, as a member attorney of a law firm** (Law Firm*, 2016, changed to*. hereinafter referred to as the “law firm of this case”), was appointed as a trustee in bankruptcy in multiple individual bankruptcy cases from 2011 to 2013, and performed his/her duties as a trustee in bankruptcy, and received a total of KRW 300,700,000 as remuneration (= + KRW 63,850,000 in 201 + KRW 137,60,000 in 2012 + KRW 99,250,000 in 201; hereinafter referred to as “the instant remuneration”).

B. The Plaintiff’s instant remuneration is Article 21(1)19(c) of the Income Tax Act, Enforcement Decree of the Income Tax Act

Considering that it is other income under subparagraph 1 (b) of Article 87, it is included in the amount of income for each year of taxation, and applying 80% necessary expenses, each comprehensive income tax for year 201 to 2013 was filed.

C. On January 4, 2016, the head of Gangnam-gu Tax Office deemed the instant remuneration as business income and notified the correction and notification of the tax amount of KRW 8,981,00 (including additional tax of KRW 2,960,478), global income tax of KRW 33,714,590 (including additional tax of KRW 9,181,624) for the year 2012, global income tax of KRW 15,854,620 (including additional tax of KRW 1,28,897) for the year 2013 (hereinafter referred to as “each imposition disposition of global income tax of KRW 1,28,897”). In addition, the imposition disposition of local income tax of KRW 15,20 before the enactment by Act No. 12153, Jan. 1, 2014; and the imposition disposition of local income tax of KRW 310,310,201) for the year 201.

D. On January 19, 2016, the Plaintiff, who was dissatisfied with the imposition of each global income tax in the instant case, filed an appeal on January 19, 2016, but the Tax Tribunal dismissed the said appeal on June 1, 2016.

[Ground of recognition] Facts without dispute, Gap's statements, Gap's evidence Nos. 2 through 5, 7, 9, 11, 12, 13, Eul's evidence Nos. 1, 2, 3, 12, 13, 14 (including relevant numbers), the purport of the whole pleadings

2. Whether each taxation of this case is legitimate

A. The plaintiff's assertion

1) As to the person liable for tax payment

Article 52 of the Attorney-at-Law Act, which provides that a partner or an affiliated attorney-at-law cannot perform his/her duties on his/her own account, does not violate Article 52 of the Attorney-at-law Act, inasmuch as the attorney's remuneration for a partner of the law firm is deemed a bankruptcy trustee's gross income, but the attorney-at-law's remuneration for an assistant can be treated as a corporation's deductible expenses. However, since the Defendants did not impose corporate tax on the law firm of this case and imposed a tax liability for global income tax and local income tax on the Plaintiff who is a partner attorney

2) As to whether the instant remuneration is business income

A) Since the instant remuneration is deemed as other income for the following reasons, each of the instant taxation dispositions rendered by deeming the instant remuneration as the business income is unlawful.

① Since the Plaintiff’s performance of official duties entrusted by the State and received remuneration for reimbursement of actual expenses, the Plaintiff’s performance of duties does not constitute “for profit-making activities.” Moreover, the trustee in bankruptcy is appointed by the court, and the number of cases and amount of duties are determined by the court, and the Plaintiff did not make a decision on autonomous management, so the Plaintiff’s trustee in bankruptcy is not “activities conducted under his/her own account and responsibility.”

② The trustee in bankruptcy is a lawyer's duties as general legal affairs and litigation affairs (exercise of avoidance power, civil litigation, etc.). However, if the remuneration of this case is the business income of this case, it violates Article 52 of the Attorney-at-Law Act prior to this.

③ As the Plaintiff, a partner attorney-at-law of a law firm, as well as the deposit, rent, remuneration, etc. paid to an employee of a law firm who is an assistant, can only be included in the deductible expenses of the law firm and cannot be treated as the amount corresponding to the trustee’s remuneration. Therefore, when considering the instant remuneration business income as the amount of business income, it would result in a violation

④ From the business income of the trustee in bankruptcy, a trustee in bankruptcy, who is an individual attorney-at-law, shall keep records of office rents and personnel expenses and handle expenses. Therefore, tax burden is reduced. However, as the Plaintiff, a trustee in bankruptcy, who is an attorney-at-law of a law firm, as a partner of a law firm, would be at a disadvantage, such as receiving standard expense rate due to weapons. The imposition of tax on the remuneration of the trustee in bankruptcy, such as the

B) In light of the fact that most of the bankruptcy cases except for a person under obligation to pay, an administrator was appointed and a new personal bankruptcy system, which greatly lower the remuneration of an administrator, was implemented after February 1, 2012, and the tax authorities understood as business income for the trustee in bankruptcy from this point of time, and that it is difficult to recognize that the trustee in bankruptcy case continues to engage in the business of the trustee in bankruptcy and repeated business before the new personal bankruptcy system was implemented, at least the amount corresponding to the amount corresponding to the year 2011 and the remuneration of the trustee in bankruptcy for the case that the Plaintiff was appointed before February 1, 2012 (the case before the date of bankruptcy declaration), shall not be subject to increased correction. Nevertheless, each taxation of the instant case was unlawful by deeming the entire remuneration of the instant case as business income.

3) As to the violation of the principle of trust protection

Around 200, the National Tax Service, by interpreting that the remuneration of the trustee in bankruptcy constitutes other income, expressed the public view that the remuneration of the trustee in bankruptcy will be imposed as other income. Moreover, the National Tax Service, in 15 years since the above authoritative interpretation, treated the remuneration of the trustee in bankruptcy as other income, and thus, granted legitimate trust to the same trustee in bankruptcy as the Plaintiff. However, the Defendants modified the past interpretation contrary to such trust and imposed retroactive taxation. As such, each of the instant taxation dispositions was unlawful in violation of the principle of trust protection.

4) As to the violation of good faith principle

Inasmuch as 80% of necessary expenses are recognized when filing a return as other income, the Plaintiff’s trustee in bankruptcy, such as the Plaintiff, did not take measures to keep records or prepare evidence of the expenses incurred in relation to the business of the trustee in bankruptcy. Under a new personal bankruptcy system enforced from February 1, 2012, the Defendants should have been informed and guidance to the court and the trustee in bankruptcy, who is a withholding agent, to return and pay the remuneration as the business income of the trustee in bankruptcy. However, the Defendants did not take such measures and imposed the tax on the Defendants on the amount of the remuneration as the business income of the trustee in bankruptcy. As such, even if the Plaintiff and the trustee in bankruptcy were unable to keep records without their own negligence, even if the standard expense rate was applied as the result of the application of the weapons, the burden of income tax was increased. Accordingly, each of the instant taxation dispositions is unlawful in violation of the good faith principle

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) As to the person liable for tax payment

In full view of the above evidence and evidence evidence Nos. 5 and the purport of the entire argument, the Seoul Central District Court may recognize the fact that the Plaintiff, an attorney-at-law, is not the law firm of this case from 2011 to 2013, and appointed the Plaintiff as a trustee in bankruptcy and paid the Plaintiff the instant remuneration. According to the above facts of recognition, the instant remuneration shall be deemed to belong to the Plaintiff’s income, not the law firm of this case, and thus, the duty to pay tax on the income accrued from the instant remuneration

2) Whether the instant remuneration is business income

A) According to Article 19(1) of the former Income Tax Act (amended by Act No. 13558, Dec. 15, 2015; hereinafter the same), income (excluding research and development business prescribed by Presidential Decree) generated from specialized, scientific and technological services (excluding research and development business) in the pertinent taxable period, (2) income generated from associations and organizations (excluding associations and organizations prescribed by Presidential Decree), repair and other personal service business (Article 18) or income similar to income under subparagraphs 1 through 19, which accrues from continuous and repeated activities under their own calculations and responsibilities for profit-making purposes (Article 21(1)19(c) of the former Income Tax Act. Meanwhile, income, other than interest income, earned income, pension income and capital gains, from which an attorney receives temporarily and repeatedly a service provided by taking advantage of his/her knowledge or skills, constitutes other income.

��어떤 소득이 사업소득에 해당하는지 여부는 당사자 사이에 맺은 거래의 형식 명칭 및 외관에 구애될 것이 아니라 그 실질에 따라 평가한 다음, 그 거래의 한쪽 당사자인 당해 납세자의 직업 활동의 내용, 그 활동 기간, 횟수, 태양, 상대방 등에 비추어 그 활동이 수익을 목적으로 하고 있는지 여부와 사업활동으로 볼 수 있을 정도의 계속성과 반복성이 있는지 여부 등을 고려하여 사회통념에 따라 판단하여야 한다.

B) The trustee in bankruptcy is a person who is granted an independent status from the bankrupt to perform the bankruptcy procedure in an appropriate and fair manner. The trustee in bankruptcy has the authority to perform any act necessary for the bankruptcy procedure, such as managing and disposing of the bankruptcy estate based on such legal status, and bears the fiduciary duty [Article 361(1) of the former Debtor Rehabilitation and Bankruptcy Act (amended by Act No. 12595, May 20, 2014; hereinafter “former Debtor Rehabilitation and Bankruptcy Act”)]. Meanwhile, where the trustee in bankruptcy is under the court’s supervision as to the performance of duties and intends to perform certain acts, such as selling real estate, property, property, etc. (Article 358 of the former Debtor Rehabilitation Act) or final distribution (Article 492 of the former Debtor Rehabilitation Act) (Article 520 of the former Debtor Rehabilitation Act). In light of such legal status, the trustee in bankruptcy cannot be said to be “for profit-making activities” under his/her own account and responsibility.

Furthermore, remuneration received by a trustee in bankruptcy in return for the performance of such duties is public interest costs necessary for the performance of bankruptcy procedures, which are naturally expected to be paid for the management of the bankruptcy estate. Considering such characteristics, the remuneration of the trustee in bankruptcy shall be treated as “expenses concerning the management, realization and distribution of the bankruptcy estate,” which is an estate claim provided for in Article 473 subparag. 3 of the former Debtor Rehabilitation Act, and shall be paid from the bankruptcy estate in preference to the bankruptcy claim (Article 476 of the former Debtor Rehabilitation Act). (Article 475 of the former Debtor Rehabilitation Act), and the amount of remuneration shall be determined by the court (Article 30(1) of the former Debtor Rehabilitation Act). In light of such public interest costs, it is difficult to view that the remuneration of the trustee in bankruptcy constitutes income obtained through activities conducted under his/her own account and responsibility for profit-making purposes. In conclusion, the remuneration of the trustee in bankruptcy shall not constitute “income accrued continuously and repeatedly through his/her calculation and responsibility” as provided for in Article 19(1)20 of the former Income Tax Act.

C) Therefore, each taxation disposition of this case, which is calculated based on the Plaintiff’s global income tax and local income tax for the year 2011 through 2013, should be revoked as it is unlawful. The Plaintiff’s assertion on this part is with merit.

3) As long as the Plaintiff’s assertion as to business income is accepted and the revocation of each taxation disposition of this case is ordered, the remainder of the Plaintiff’s assertion is not separately determined.

3. Conclusion

The plaintiff's claim against the defendants is justified, and the costs of lawsuit are assessed against the losing defendants. It is so decided as per Disposition by the court below.