Cho-2013-west-1679 (O7, 2015),

Cho-2013-west-4144 (2015.07)

It is legitimate to exclude bonuses that do not meet the criteria for bonuses from deductible expenses, and to deny transactions by disguised business operators.

Although bonuses are substantially in the nature of disposal of profits, they are merely in the form of bonuses paid according to the standards of payment of benefits determined by the articles of incorporation, the general meeting of shareholders or the resolution of the board of directors, and the disposition denying the transaction of the disguised enterpriser is legitimate.

Article 43 of the Enforcement Decree of Corporate Tax Act

2015Guhap81126 Revocation of Disposition of Corporate Tax Imposition

O Publication Corporation, Inc.

Head of Mapo Tax Office

August 26, 2016

November 11, 2016

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of corporate tax of KRW 284,160,180 (including additional taxes; hereinafter the same shall apply) for the business year 2007, exceeding KRW 37,449,40 in excess of KRW 37,403 in the imposition of corporate tax of KRW 1,045,830,720 in the imposition of KRW 61,24,057 in the business year 2008, exceeding KRW 484,027,79 in the imposition of KRW 484,683,371 in the imposition of KRW 137,683,371 in the business year 209, exceeding KRW 607,707,709,470 in the imposition of corporate tax of KRW 92,208,278 in the business year 201, exceeding KRW 37,572,154,70 in the imposition of corporate tax of KRW 2045,604.

1. Details of the disposition;

A. From 1965 to 1965, KimA was engaged in a personal business with the trade name of the OB, and established the Plaintiff on August 14, 1986 with the purpose of publishing books, sculptures, printing, and printing as the main business. Meanwhile, on March 14, 2008, KimB registered as a personal business entity with the trade name of the OB (hereinafter “individual OB”).

B. The Seoul regional tax office conducted a tax investigation on the Plaintiff from April 16, 2012 to July 14, 2012, and notified the Defendant of the taxation data that “the Plaintiff paid bonus to KimA without bonus payment standards, and the Plaintiff included the purchase cost in the middle of the transaction between the Plaintiff and the foreign company, thereby underreporting the amount of income.”

C. Accordingly, on August 1, 2012, the Defendant imposed corporate tax of KRW 4,898,029,810 (hereinafter “the bonus in this case”) on the Plaintiff’s total amount of KRW 4,898,029,810 (hereinafter “the bonus in this case”) on each business year, including the Plaintiff’s total amount of KRW 7,960,366,150 from 208 to 2011, and necessary expenses 3,226,090,753 (hereinafter “the transaction profit in this case”) on each business year, including the Plaintiff’s inclusion of the transaction profit and loss in the Plaintiff’s gross income and deductible expenses for each business year, and imposed corporate tax of KRW 5,93,82,230 from the Plaintiff’s total amount of corporate tax stated in the Plaintiff’s claim for revocation of the corporate tax in this case (the Plaintiff’s disposition of imposition of corporate tax in excess of deductible expenses and the Plaintiff’s claim for revocation of the corporate tax in this case’s claim 171.

D. On November 7, 2012, the Plaintiff filed an objection with the Seoul Regional Tax Office. On December 26, 2012, the Seoul Regional Tax Office rendered a re-audit decision regarding the part regarding non-deductible of the bonus in this case, and the remaining parts were dismissed. On February 12, 2013, the Defendant notified the Seoul Regional Tax Office of the results of re-audit that it will maintain the initial disposition on the part regarding re-audit decision.

E. On March 25, 2013, the Plaintiff filed a request for a trial with the Tax Tribunal on the part of the decision to dismiss the said objection (see, e.g., Supreme Court Decision 2013Do1679), and filed a request for a trial with the Tax Tribunal on May 10, 2013 (see, e.g., Supreme Court Decision 2013Do4144), but all of the orders of dismissal were dismissed on September 7, 2015.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 5 (including branch numbers; hereinafter the same shall apply), the purport of whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Part of the bonus in this case

In 207 to 2011, the Plaintiff set the criteria for the payment of benefits through the resolution of the general meeting of shareholders and the resolution of the board of directors, and paid the instant bonus to KimA within the limits of such criteria. KimA actually disbursed a considerable portion of the instant bonus for the Plaintiff’s business activities, and was eligible for payment of bonuses by developing a new profit model and business sector of the Plaintiff. Article 43(2) of the Enforcement Decree of the Corporate Tax Act provides that “If a corporation pays the bonus to an officer in excess of the amount of the amount of the payment determined by the resolution of the articles of incorporation, the general meeting of shareholders, the general meeting of members or the board of directors, such excess amount shall not be included in the calculation of losses.” Thus, the instant bonus paid by the Plaintiff under the criteria for the payment of benefits shall

2) Part of the transaction profit and loss of the instant case

KimB leased an office after filing a business registration and a publishing company report in order to operate an individual OB business. In addition, KimB concluded a contract with a third party for the relevant transaction with an individual OB publishing company, and made a normal business activity, such as receiving a tax invoice by paying the price for the relevant transaction, and filed an annual comprehensive income tax return from 2008 to 2011. Nevertheless, the defendant denied any transaction made between KimB and an individual OB as the trade name of the individual OB. This is unlawful in light of the legal basis, and the defendant judged that the transaction profit or loss in the instant case actually belonged to KimB, while the defendant judged that the transaction profit or loss in the instant case belongs to KimB, it is unlawful in violation of the principle of substantial taxation and the principle of satisfaction burden, etc.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) As to the instant bonus portion

A) Article 19(1) and Article 20 subparag. 1 of the Corporate Tax Act and Article 43(1) of the Enforcement Decree of the Corporate Tax Act provide that "in principle, bonuses paid by the disposal of profits shall not be included in deductible expenses." Article 26 of the Corporate Tax Act provides that "the amount deemed excessive or unjust as prescribed by Presidential Decree among the following losses shall not be included in deductible expenses when calculating the amount of income of a domestic corporation for each business year," and Article 43(2) of the Enforcement Decree of the Corporate Tax Act provides that "labor expenses" in subparagraph 1 and Article 43(2) of the Enforcement Decree of the Corporate Tax Act provides that "if a corporation pays bonuses paid to executive officers in excess of the amount paid by the standards for payment of wages determined by articles of incorporation, general meeting of shareholders, general meeting of employees

B) Comprehensively taking account of the following circumstances acknowledged by the background of the above disposition and evidence, the bonus of this case seems to be merely in the form of bonus paid according to the standards for the payment of benefits determined by the articles of incorporation, the general meeting of shareholders and the resolution of the board of directors, even though the bonus of this case is substantially in the nature of disposal of profits. Therefore, the Defendant’s non-deductible of the bonus of this case is lawful.

① According to Article 37(1) of the Plaintiff’s articles of incorporation, remuneration for directors and auditors shall be determined by a resolution of the general meeting of shareholders (No. 2-4.12), and the general meeting of shareholders, the board of directors, the board of directors, the limit on the remuneration for executives, the limit on the limit on the special bonus for executives, and the special bonus for KimA at the beginning of each business year (Evidence A through 10) is recognized (Evidence A).

② However, the instant bonus amount is within the limits set forth in each of the above resolutions, but is not the amount calculated according to specific standards. KimA from time to time withdrawn funds from the Plaintiff in the name of bonus (e.g., almost twice or five times a month in the business year from 2007 to 2011) and there is no basis for calculating the amount of such withdrawal. When comparing the Plaintiff’s net income before the reduction of corporate tax and the changes in the bonus of this case by each business year, it is difficult to find relevance to the outcome of the instant bonus differently from the name of the special performance. KimA, as the Plaintiff’s chairman is a major shareholder, has an absolute influence on the above general meeting of shareholders and the resolution of the board of directors. Comprehensively taking account of these, each of the above resolutions is merely based on the form supporting the withdrawal of the funds of KimA.

③ The Plaintiff asserted that KimA used considerable portion of the instant bonus at the Plaintiff’s expense, but even if the Plaintiff paid expenses that cannot be legally treated as losses under the Corporate Tax Act instead of KimA, such circumstance cannot be viewed as the grounds for recognizing the instant bonus as losses. Furthermore, the Plaintiff asserted that the instant bonus is eligible to receive the instant bonus because KimA developed a new profit model and business sector of the Plaintiff in the past. However, as seen earlier, it is difficult to view that the instant bonus was not related to the Plaintiff’s performance, but if the instant bonus was paid on the grounds of its past contribution, it is difficult to view that it would be losses that would accrue in the business year from 2007 to 2011.

④ While the Seoul Regional Tax Office stated that the bonus in this case was paid as a contribution to the achievements that KimA had led to the company up to now, on the other hand, the bonus in this case was paid for KimA. The amount is irrelevant to the Plaintiff’s net income or income amount. The dividends should be paid to the entire shareholders, and thus, were treated as bonuses to pay only KimA.

2) As to the part of the transaction profit of this case

A) Article 14(1) of the Framework Act on National Taxes provides that “If the ownership of income, profit, property, act, or transaction subject to taxation is merely nominal, and there is another person to whom such income actually belongs, the person to whom such income actually belongs shall be liable to pay taxes.” Since Article 14 of the Framework Act on National Taxes intends to impose a tax burden on the person to whom such income actually accrues, not the person to whom the income formally accrues, the ownership of income is not determined by formal business name, legal relationship, but by the relationship of attribution of profit arising from actual business activities (see, e.g., Supreme Court en banc Decision 2008Du8499, Jan. 19, 2012; Supreme Court Decision 9Do2165, Apr. 9, 2002).

B) First of all, the Defendant’s denial of the transaction of an individual publishing company is deemed lawful. According to the evidence Nos. 12 through 17, it is recognized that: (a) an online publishing company trades with an individual publishing company; (b) an online publishing company, etc. appears to have been issued to an external publishing company; and (c) KimB endorsed endorsed the Plaintiff’s trade name on the Plaintiff’s bill in the name of the external publishing company. However, according to the evidence Nos. 6 through 15, the Plaintiff’s personal O publishing company’s business registration, trade price management, and global income tax report was conducted at the Plaintiff’s re-market; (d) transactions between the individual publishing company, the Plaintiff, and the external publishing company were conducted by the Plaintiff’s employees; and (e) KimB was not only the publishing company without any other work experience at the time of the personal publishing company’s business registration; and (e) it is difficult for the individual publishing company to intervene in the trading between the Plaintiff and the existing external publishing company; (e) however, it appears that the Plaintiff’s individual executive director or the company did not intervene in the business.

C) Next, it is reasonable that the Defendant reverted the instant transaction profit and loss to the Plaintiff, not KimB, not the Plaintiff. As seen earlier, since the individual O publishing company was formally involved in the transaction relationship between the Plaintiff and the outsourcing processing company, if the part in which the individual O publishing company participated is denied, the entity in which the transaction effect actually belongs to the Plaintiff. In addition, the said transaction was performed by the Plaintiff’s employees under the direction of KimA, the Plaintiff’s chairperson, and if the individual O publishing company did not intervene, all of the profits and losses arising from the transaction should be reflected in the Plaintiff’s gross income and profit and loss, which hold the transaction network with the foreign company. Accordingly, even if KimA ultimately possessed the profit and loss by using the Plaintiff’s transaction relation and employee, it can be deemed that KimA would arbitrarily bring the profit and loss to the Plaintiff, and it is difficult to regard KimA as the entity in which the actual income and loss actually accrue.

D) This part of the Plaintiff’s assertion is without merit.

3. Conclusion

The plaintiff's claim is dismissed as it is without merit, and the costs of lawsuit shall be borne by the plaintiff who has lost. It is so decided as per Disposition.