Seoul High Court-2016-Nu-77362 (Law No. 21, 2017)

Cho Jae-2013-west-3353 (2015.09)

The propriety of the disposition imposing corporate tax on the time when the profit or loss accrued from the cancellation of the apartment sale contract is deemed the business year to which the cancellation date belongs.

If a contract for sale in lots cannot be deemed to have been concluded any longer after the cancellation of the contract, the portion included in the original gross income shall be reduced regardless of when the time of cancellation is when.

Article 69 of the Enforcement Decree

2017Du44251, revocation of disposition imposing a corporation, etc.

○○ Co., Ltd.

○ Head of tax office

Judgment of the court below

Seoul High Court Decision 2016Nu77362 Decided March 21, 2017

September 21, 2017

The appeal is dismissed.

The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. A. Article 45-2(2)5 of the former Framework Act on National Taxes (amended by Act No. 13552, Dec. 15, 2015; hereinafter the same) and Article 25-2 subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 27833, Feb. 7, 2017; hereinafter the same) stipulate “a case where a contract related to the effect of transaction, act, etc., which served as the basis for calculating the tax base and the amount of tax, is cancelled by exercise of the right of rescission or is cancelled or cancelled due to unavoidable reasons that occurred after the formation of the relevant contract.”

In addition, in principle, corporate tax also constitutes grounds for filing a subsequent claim for correction in principle for the exercise of the right to cancel or the cancellation of a contract due to unavoidable reasons under Article 45-2 (2) 5 of the former Framework Act on National Taxes and Article 25-2 (2) 2 of the former Enforcement Decree of the Framework Act on National Taxes. However, in special circumstances where the Corporate Tax Act or relevant regulations stipulate the amount of income not realized due to the cancellation of a contract, as the grounds for deducting the amount of income in the business year to which the date of such cancellation belongs, or the taxpayer has filed a corporate tax return in the manner of deducting the amount of income in the business year to which the date of such cancellation belongs in accordance with corporate accounting standards or practices, such cancellation of contract cannot affect the tax liability that was initially established, and thus, cannot be the grounds for filing a subsequent claim for correction (see, e.g., Supreme Court Decision 2012Du106

Meanwhile, Article 40(1) of the Corporate Tax Act provides that "the business year in which earnings and losses of a domestic corporation accrue shall be the business year which includes the date on which the concerned earnings and losses are determined." Article 69(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 24357, Feb. 15, 2013) provides that "the earnings and losses incurred from construction, manufacturing, or provision of services, including contracting construction and reservation sales, shall be included in the calculation of earnings and losses for the pertinent business year, respectively." However, Article 69(3) of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012; hereinafter "Enforcement Decree of the Corporate Tax Act") provides that "where the profits and losses incurred due to the cancellation of the contract for construction, the amount of income for the first time after the cancellation of the contract shall be included in the calculation of losses for the business year belonging to the date of cancellation or cancellation".

B. The principle of confirmation of right allows a prior taxation on an uncertain income under the premise of realizing the future. If income is confirmed to be not realized due to an occurrence of a certain subsequent cause, the tax liability initially established ought to lose its premise. Therefore, Article 45-2(2) of the former Framework Act on National Taxes and Article 25-2 of the former Enforcement Decree of the Framework Act on National Taxes recognize the ex post facto request for correction that allows exclusion from the income of the original business year. As can be seen, the purpose of the ex post request for correction is to increase the taxpayer’s right to remedy by allowing the taxpayer to prove the fact and request a reduction of the initial tax base and tax amount in cases where there is a change in the basis of the initial tax base and tax amount due to the occurrence of a certain subsequent cause, such as the extinction of the tax liability after the establishment of the tax liability, etc. In addition, allowing the taxpayer to reflect only the profit or loss for the business year when the subsequent cause occurred or when there is no profit to be deducted due to the suspension or closure of business, which would be insufficient to remedy against the taxpayer’s right to claim for correction.

However, Article 1 of the Addenda to the Enforcement Decree of the amended Act provides that "the date of entry into force shall enter into force on the date of its promulgation," and Article 2 provides that "the same shall apply from the first beginning business year after January 1, 2012 of this Decree," and does not provide for individual cases of application concerning the provision of this case separately. This provision provides that where goods or services are not supplied due to the cancellation of a contract under Article 59 (1) 2 of the Enforcement Decree of the former Enforcement Decree of the Value-Added Tax Act as amended by Presidential Decree No. 23595, Feb. 2, 2012, Article 7 of the Addenda provides that "the date of entry into force on the date of entry into force on the date of entry into force on the date of entry into force, shall apply to individual cases of application from the date of entry into force on which the cause of issuance of the revised tax invoice arises on or after July 1, 2012, regardless of the date of cancellation of the contract and the date of application for correction.

2. A. The lower court acknowledged the following facts in full view of the adopted evidence.

(1) The Plaintiff, a corporation operating apartment and housing sales business, constructed a AAA apartment house 00 households, etc. (hereinafter referred to as the “instant apartment house”) located in the Si/Gu, and sold all of the instant apartment units in the year of 2006.

(2) The Plaintiff reported and paid corporate tax based on the progress rate of work of the instant apartment from the business year 2006 to the business year 2008, and reported and paid corporate tax for the business year 2009, on the ground that the sales contract of 00 households among the instant apartment in the business year 2009, to which the remaining payment date belongs, was rescinded due to the reasons such as the unpaid balance, etc.

(3) Accordingly, the Defendant imposed an increase in corporate tax for the business year 2009 on February 1, 2013 on the ground that the sales contract with 000 households was not rescinded in the business year 2009, and that the gross income and deductible expenses related to the sales contract for partial cancellation after the business year 2009 should be reflected in the profit and loss for the business year in which the cancellation date belongs.

(4) On June 9, 2015, the Plaintiff filed an appeal with the Tax Tribunal. On June 9, 2015, the Tax Tribunal dismissed the Plaintiff’s claim with respect to ① 00 households whose sales contract was cancelled for the business year 2010 and 2011, whereas ② 00 households that cannot be deemed to have cancelled the sales contract, and ③ 00 households whose sales contract was cancelled for the business year 2012 (hereinafter “the instant at issue household”) (hereinafter “the instant disposition”).

B. Next, the lower court rejected the Defendant’s assertion on different premise on the ground that the instant provision applies to the subsequent request for correction regarding the business year beginning on January 1, 2012, regardless of the date of rescission of the contract, even if the sales contract for the instant household was rescinded in the business year 2012, and thus, the instant provision applies to the subsequent request for correction as to the business year ending on January 1, 2012, regardless of the date of rescission of the contract, does not apply to the instant case that contests the disposition imposing corporate tax for the business year 2009. However, inasmuch as the sales revenue of the instant household at issue, in principle, ought to be deducted from the corporate tax calculation for each business year, which was recognized as earnings in accordance

C. Examining the records in light of the aforementioned provisions and legal principles, the lower court did not err in its judgment by misapprehending the legal doctrine on the application scope of the instant provision, contrary to what is alleged in the grounds of appeal.

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.