No deductible expenses shall be included in the calculation of losses, if the representative director's interim settlement of retirement benefits is not converted to the annual salary system.

Where an annual salary system was already implemented at the time of the payment of interim settlement retirement allowances for executives, it cannot be deemed that "the conversion to the annual salary system" was not made.

Article 26 (Non-Inclusion of Excessive Expenses in Loss)

revocation of revocation of rejection to correct corporate tax of Suwon District Court 2017Guhap6257

AA

00. Head of tax office

on October 08, 2017

on October 29, 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’s imposition disposition of KRW 24,081,220 of corporate tax for the business year 2014 against the Plaintiff on June 23, 2016 exceeds KRW 3.52,516,00,000, and each disposition of KRW 24,081,220 of corporate tax for the business year 2015 is revoked.

1. Details of the disposition;

A. The Plaintiff is a company that manufactures and sells automatic control equipment.

B. On January 10, 2014, the Plaintiff held a board of directors and decided to not pay the Plaintiff’s representative director KK retirement pay after July 1, 2014. On July 4, 2014, the Plaintiff held a board of directors and decided to pay KK KRW 1.56 billion as the interim settlement of retirement pay as of June 30, 2014 (hereinafter “instant interim settlement retirement pay”).

C. The Plaintiff reported corporate tax for the business year 2014 to the Defendant, and included the interim settlement retirement pay in deductible expenses.

D. From April 7, 2016 to May 2, 2016, the Defendant conducted an integrated corporate tax investigation with respect to the Plaintiff. As a result, the Defendant: (a) deemed the interim retirement pay in this case as a non-business-free one; (b) deemed the interim retirement pay in this case as a non-business-related one; and (c) deducted the recognized interest, KRW 134,991,459 ( KRW 27,351,459, KRW 107,640,000, and interest paid in 10,347,311 from gross income and non-deductible expenses; (d) deducted the Plaintiff from the total amount of KRW 352,516,080 (calculated tax amount of KRW 355,612,109, KRW 65,930, KRW 240 from the total amount of KRW 609,266, KRW 205, KRW 2314,2057.

E. The Plaintiff sought revocation of each of the instant dispositions and filed a tax appeal with the Tax Tribunal, but the Tax Tribunal rendered a decision to dismiss the Plaintiff’s claim on December 14, 2016.

[Reasons for Recognition] Unsatisfy, Gap evidence 8-4, 5-5, Eul evidence 1-1 and 2-2, the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiff's assertion

Article 44(2)4 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26068, Feb. 3, 2015) (hereinafter “instant provision”) provides that, according to the conversion of a corporation’s benefits to an annual salary system for executives, if the retirement benefits are calculated and paid on the condition that subsequent retirement benefits will not be paid, it shall be included in the calculation of losses.

The meaning of "transfer to the annual salary system" in the above provision should be interpreted as conversion to the salary system, such as the annual salary system, in which retirement benefits can be paid.

The Plaintiff’s articles of incorporation provide that “The payment of retirement pay to directors shall be governed by the rules on the payment of retirement pay to executives who have passed a resolution of the general meeting of shareholders.” However, on December 1, 201, the Plaintiff enacted the rules on the payment of retirement pay to executives, etc., and decided on January 10, 201 to not pay retirement pay after holding the board of directors on or after July 1, 2014, and paid interim settlement of retirement pay to K in accordance with the resolution of the board of directors on July 4, 2014.

Therefore, the interim retirement allowance of this case constitutes retirement allowance included in deductible expenses pursuant to the provisions of this case, and each of the dispositions of this case is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

B. Whether each of the dispositions of this case is legitimate

1) The meaning of "the conversion to annual salary system" among the provisions of this case

Article 44 (1) and (2) 4 of the Enforcement Decree of the Corporate Tax Act provides that the retirement benefits that a corporation pays to an executive shall be included in the calculation of deductible expenses only when the executive actually retires. In addition, the provision provides that "when the retirement benefits are calculated and paid on the condition that the retirement benefits will not be paid in the future by converting the benefits to the annual salary system."

In this context, the ‘annual salary system' means the hourly wage system of the ability to evaluate the individual's capabilities and achievements and to pay the annual wage in installments each month, and the opposite concept is that there is a salary system of the year of service or the year of service that the salary is paid differently according to the number of years of service or age.

Therefore, in the instant provision, when there is a substantial change in the overall wage system to the extent that it corresponds to the actual retirement of an officer, it is reasonable to view that the salary system is changed to the annual salary system that determines the total amount of monthly wages every year from the salary system that is determined in advance according to the number of years of continuous service, etc. to the annual salary system that is paid in installments.

2) Whether the Plaintiff’s salary payment system for officers has been converted into the annual salary system

In full view of the following circumstances, the Plaintiff appears to have implemented an annual salary system for executives since 2011, and thus, cannot be deemed to have been converted from the salary system to the annual salary system for the Plaintiff’s officers, in light of the following: (a) the Plaintiff’s interim payment system for the executives was written in the form of 1, 2, 7, and evidence Nos. 8-1 through 4, 6, 7, and 2 through 5 (including the serial serial numbers) and the entire purport of the argument as to whether the payment system for the executives was converted from the salary system.

① Articles of 45 of the Plaintiff’s articles of incorporation stipulate that directors shall be paid by a resolution of a general meeting of shareholders. From January 201 to January 2016, the Plaintiff held a board of directors meeting and determined the total annual salary for KK, company directors JJ and audit U.S.U.

② Article 6 of the Rules on Payment of the Plaintiff’s Officers’ Bonuses, enacted on January 1, 2012, provides that “The annual salary specified in the annual salary contract in force as of the payment date shall be the base salary.”

③Y in the course of the Defendant’s tax investigation, the Plaintiff’s performance of personnel affairs is paid to both the Plaintiff’s representative, executive officers, and employees as annual salary system, and the annual salary contract was made for the employees, and the Plaintiff made an oral salary contract for the executive officers, and made a statement that there was no fact that the Plaintiff made the principal salary table or salary table on the basis of wage payment. The Plaintiff’s change of director in the process of the said tax investigation also accords with the contents of the Plaintiff’s statement.

3) Sub-decisions

Therefore, the plaintiff's assertion that the provision of this case shall apply to interim settlement retirement pay of this case and be included in deductible expenses is without merit.

3. Conclusion

Therefore, each of the claims of the plaintiff in this case is dismissed as it is without merit, and it is so decided as per Disposition.