Cho Jae-2014-Seoul Government-4782 (Law No. 19, 2015)

Where income to be reverted to a corporation is reverted to the representative, the exclusion period shall be determined.

Since the person to whom the instant revenues accrued is BB, even though AA received direct revenues from FF, the retained earnings of BB were paid to AA, and the right to the instant revenues is premised on BB’s receipt of the instant revenues, the time when the earnings accrued to A is actually paid.

Article 26-2 of the Framework Act on National Taxes (Period for Excluding Assessment of National Taxes), Article 67 of the Corporate Tax Act

2015Guhap6271 Revocation of Disposition of Imposing global income tax, etc.

1. AA, 2. BB

1.CC director and 2.D director of the tax office;

November 25, 2016

December 23, 2016

1. All of the plaintiffs' claims are dismissed.

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

Cheong-gu Office

On March 31, 2014, the director of the tax office’s notification of change in the amount of income made against Plaintiff BB on March 31, 2014 and the disposition of imposition of KRW 00,000,000 on global income tax for the year 2008 against Plaintiff AA on May 13, 2014 is revoked.

1. Details of the disposition;

A. Plaintiff BB (BB was changed from BB corporation to BBC on May 18, 2005, and thereafter changed to its trade name as of October 27, 2009; hereinafter “BB”) is a corporation incorporated on August 26, 1996 for accommodation and tourism development business, and Plaintiff AB was working as the representative director of Plaintiff BB from November 3, 199 to November 25, 2005, and is the largest shareholder of Plaintiff BB.

B. From August 26, 2006 to October 20, 2006, the EE regional tax office conducted an integrated investigation of corporate tax against Plaintiff BB, and as a result, BB made an investment of KRW 0 billion in the FF (hereinafter “FF”) on June 14, 2003, and confirmed that it was omitted in filing a report even though it agreed to receive KRW 0 billion in the investment principal and KRW 0 billion from October 10, 2003, and accordingly, the tax office corrected the corporate tax for the business year 2003 by adding the above amount to the gross income (provisional disposition) to the Plaintiff BB.

C. On January 22, 2008, Plaintiff BB received KRW 0 billion of the invested principal and interest interest thereon from FF, and reported the corporate tax for the business year of 2008, and Plaintiff AB received KRW 00 million from FF on January 22, 2008, and did not report the income tax for KRW 00 million of the interest income from the non-business loan (hereinafter “the income of this case”). Defendant CB notified the director of the tax office that Plaintiff BB paid the Plaintiff AB of the instant income in 2008.

D. Accordingly, on March 31, 2014, the director of the DefendantCC issued to Plaintiff BB a notice of change in the amount of income (hereinafter “instant notice of change in the amount of income”) that “the Plaintiff BB disposed of the instant income to the Plaintiff during the business year 2008.” Since then, Defendant DB director of the tax office, on May 13, 2014, notified Plaintiff AA of the rectification and notification of KRW 00,000,000 of the global income tax for the instant income accrued in 208 (hereinafter “instant disposition”), and “the instant notice of change in amount of income and the instant disposition” collectively).

E. On June 9, 2014, Plaintiff BB filed an objection with the EE regional tax office on the instant notice of change in the income amount, but was dismissed on July 24, 2014. Plaintiff AA filed an objection with the GG regional tax office on June 10, 2014, but was dismissed on July 11, 2014. Thereafter, Plaintiff B filed an objection against the instant disposition with the GG regional tax office, which was dismissed on September 18, 2014. The Plaintiffs were dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on September 18, 2014, but was dismissed on March 19, 2015.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 3, Eul evidence Nos. 1 and 2, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

1) The instant revenue was received in return for the Plaintiff’s efforts by the Plaintiff AA, and since the due date for the payment of promissory notes issued to Plaintiff AA was October 10, 2003, the time when the instant revenue accrued to Plaintiff AA shall be deemed to be 2003 years, and thus, the instant disposition was unlawful with the lapse of the statutory period for imposition.

2) Even if the pertinent revenue does not belong to Plaintiff AB, but would belong to Plaintiff BB, the pertinent revenue should be deemed as belonging to Plaintiff BB and Plaintiff AB, so long as the agreement was made between Plaintiff BB and Plaintiff AA to receive the instant revenue on or around 2003, the time when the instant revenue accrued to Plaintiff BB and the time when the instant revenue accrued to Plaintiff AA in succession shall be deemed as 2003 years, notwithstanding the fact that the instant revenue accrued to Plaintiff AA in 2008 and the time when the instant revenue accrued to Plaintiff AA in succession, DefendantCC Head of the tax office deemed that the instant revenue was reverted to Plaintiff AA in 208, and thus, the instant disposition of notice of change

(b) Fact of recognition;

1) On June 2003, the Plaintiffs and FF drafted the following agreements (hereinafter referred to as the “instant agreement”).

* Description of the object

Location: HH City III-JP PP PPFF within the JP PP industrial complex "A" and the investor AA shall be defined as "B" and the investor AA shall be defined as "B" in good faith and trust as follows:

Article 1 (Investment Funds)

B shall be deposited on June 16, 2003 to A of 0 billion won of its investment.

Article 2 (Recovery of Principal of Investment and Profits)

A as the project executor of the above subject matter, shall be paid 0 billion won a total sum of the investment principal amount of KRW 0 billion and the profit amount of KRW 0 billion by October 10, 2003.

A: FF

B: Plaintiff AA (person) BBA (person)

2) On June 14, 2003, FF issued receipts for KRW 0 billion to Plaintiff BB, and on June 16, 2003, FF issued receipts for KRW 700 million to Plaintiff AA respectively, and written notarial deeds by issuing promissory notes with the following contents to the Plaintiffs:

Promissory Notes

Notarial Deed

AA

Dates: June 14, 2003

Date of payment: October 10, 2003

Amount: 00 million won

No. 115, 2003

F. F. F.

B. Beneficiary: Plaintiff AA

Notarial Date: June 14, 2003

BB

Dates: June 14, 2003

Date of payment: October 10, 2003

Amount: 0 billion won

No. 114, 2003

F. F. F.

In addition, Plaintiff BB Representative Director AA

Notarial Date: June 14, 2003

3) On October 10, 2003, FF failed to pay the Plaintiffs the investment principal of KRW 0 billion and the instant revenue. On the same day, FF written the Plaintiffs with the following descriptions:

AA

FF prevents Plaintiff A from complying with the FF’s commitment with respect to KRW 00 billion paid in 200,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000

BB

FF prevents Plaintiff BB from complying with the FF’s undertaking on October 10, 2003 with payment rate of KRW 0 billion due to FF, and FF would pay to Plaintiff BB interest rate of KRW 00 per annum from October 11, 2003 to repayment rate.

4) At the time of the tax investigation in 2006, the bookbook, the representative director of Plaintiff BB, submitted a written confirmation of the following contents to Plaintiff BB of the EE Tax Office:

Plaintiff BB invested KRW 0 billion in FF on June 14, 2003 (the date of actual loan, June 16, 2003), and agreed to receive KRW 0 billion in principal and KRW 0 billion in income by October 10, 2003, but it was confirmed that the Plaintiff BB failed to appropriate the principal and income as profit due to the failure to receive it until the date of investigation due to FF’s financial reasons.

5) On June 16, 2003, Plaintiff BB stated “F short-term loans (FFF short-term repayment on October 10) annual 00% 0,000,000,000,000 won” and also written “FFF0,000,000,000 won” in the balance status by customer (from January 1, 2003 to December 31, 2003).

6) On the other hand, the FF made a withholding tax return only to Plaintiff BB with respect to the interest on repayment while repaying KRW 0 billion and interest to the Plaintiffs, and the FF did not file a withholding tax return with respect to Plaintiff AA; KK, the representative director of FF, did not receive assistance related to the implementation project from Plaintiff AAA in the instant lawsuit; and it testified that “K, which was the representative director of the FF, did not receive assistance related to the implementation project from Plaintiff AA; and written promissory notes and notes with the payee as the Plaintiffs upon their request.”

[Reasons for Recognition] Evidence Nos. 4 through 9, Evidence No. 3, Evidence No. 4-1, and 2, Evidence No. 4-2, and the purport of the whole pleadings by the witness KK

C. Determination

1) Whether this case’s income can be seen as Plaintiff AA’s income

In full view of the aforementioned facts, i.e., ① KRW 0 billion invested in FF in the Plaintiff BB, the parties to the instant agreement shall be deemed Plaintiff BB and FF, and Plaintiff BB shall be deemed to have signed the instant agreement in the capacity of representative director of Plaintiff BB; ② If Plaintiff BBB invested in KRW 0 billion, the instant revenue shall be deemed to be attributed to Plaintiff BB in general. It is difficult to understand that only the instant revenue arising from the investment would be attributed to Plaintiff BB. ③ Plaintiff BB did not raise any objection to the instant promissory note, even if the tax investigation was conducted in 2006 that the instant revenue would be attributed to Plaintiff BB, and it is difficult to understand that the Plaintiff’s revenue would have been attributed to the Plaintiff’s respective parties to the instant agreement, as well as that it would be difficult to understand that the Plaintiff’s revenue would have been attributed to the Plaintiff BB without any help of the Plaintiff.

2) Whether the time when Plaintiff BB pays the instant revenue to Plaintiff AA ought to be deemed to be 2003 years.

In addition, as seen earlier, insofar as Plaintiff AA should be deemed as Plaintiff BB, it should be deemed that the retained earnings of Plaintiff BB have been paid to Plaintiff AB even if Plaintiff BB received the instant revenue directly from FF. As alleged by the Plaintiffs, even if Plaintiff AA and Plaintiff B agreed to receive the instant revenue around 2003, the rights of Plaintiff AA’s revenue of this case under the premise that Plaintiff BB would receive the instant revenue, so long as the right to receive the instant revenue is premised on Plaintiff AB’s receipt of the instant revenue, it is difficult to view that Plaintiff AA’s right to receive the instant revenue of this case was specifically determined around 2003. Accordingly, this part of the Plaintiffs’ assertion is without merit.

3. Conclusion

Therefore, the plaintiffs' claim of this case is dismissed in entirety as it is without merit, and it is so decided as per Disposition.