Early High Court Decision 2015Du4962 ( June 30, 2016)

Whether a decision on tax base or non-deductible is subject to appeal

The tax base decision or non-deductible disposition is not subject to appeal litigation, and it is equally applied to the tax base of correction of this case, which is the tax base decision made pursuant to Article 13(1) of the Corporate Tax Act after the amendment of December 31, 2009.

Article 13 of the Corporate Tax Act

Incheon District Court 2016Guhap3450 Action Demanding revocation of Corporate Tax Correction

HanOOO Co.

OO Head of the tax office

2017.04.07

2017.04.28

1. The instant lawsuit shall be dismissed.

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

Cheong-gu Office

The Defendant’s corporate tax base on July 1, 2015 for the Plaintiff: ① from KRW 1,628,381,381,107 to KRW 1,412,107,174; ② from KRW 527,658,529 to KRW 217,650,09; ③ the corporate tax base on corporate tax for the business year belonging to the business year 2012 to KRW 1,035,353,036 to KRW 735,97,372; ④ the corporate tax base on corporate tax belonging to the business year 2013 to KRW 1,345,746,497 to KRW 1,126,523,215; ⑤ the corporate tax base on corporate tax belonging to the business year 2014 to KRW 514,202,305 to KRW 315,817,73 each disposition is revoked.

1. Basic facts

A. The Plaintiff is a specialized production company for electric cables established by physical division from OO around December 2008.

B. The Plaintiff was incorporated into an affiliate of the O group around July 2009, and the sales amount of the Plaintiff’s affiliates of the same O group, such as OE Co., Ltd. (hereinafter “OE”) and △△ Electric Co., Ltd., occupy at least 80%.

C. On May 28, 2015, pursuant to Article 52 of the former Corporate Tax Act (amended by Act No. 13555, Dec. 15, 2015) and Article 88 of the Enforcement Decree of the Corporate Tax Act, the Defendant: (a) deemed that the Plaintiff delayed collection of the sales claim against a person with a special interest without justifiable cause compared to the average collection date of the sales claim against a non-specially related party; (b) denied the amount equivalent to the interest accrued from the delayed collection of the sales claim as wrongful calculation; (c) included the amount so denied as the Plaintiff’s gross income; and (d) determined the corporate tax base attributed to the business year from 2010 to 2014; and (d) notified the Plaintiff of the revised tax base (hereinafter referred to as the “Amended tax base”).

D. On September 23, 2015, the Plaintiff filed a tax appeal with the Tax Tribunal by asserting that the tax base of the instant correction was unlawful. However, on June 30, 2016, the Tax Tribunal rendered a decision to dismiss the Plaintiff’s appeal by deeming that the Plaintiff did not err in the tax base on the instant correction because the Plaintiff delayed to collect the sales claim against the specially related person for a period equivalent to the sales claim against the non-specially related person, even though the sales claim against the non-specially related person was not different from the sales item.

[Reasons for Recognition] The facts without dispute, Gap evidence Nos. 1 through 4 (including branch numbers, hereinafter the same shall apply), Eul evidence Nos. 1 and 2, and the purport of the whole pleadings

2. The parties' assertion

A. The plaintiff's assertion

The Plaintiff collected sales claims in accordance with the standards for the payment of Oelectric wires, etc. in order to maintain the transaction relationship between Oelectric wires, etc., relatively large enterprises, and did not delay or recover sales claims in order to unjustly avoid or reduce the tax burden on the ground that Oelectric wires, etc. are specially related persons. Therefore, the correction tax base of this case should be revoked unfairly.

B. Defendant’s assertion

Considering the special relationship between the Plaintiff and the O-electric wires, the Plaintiff’s delayed collection of sales claims against O-electric wires is to avoid or reduce the tax burden as it lacks economic rationality. In addition, the tax base of this case’s correction does not fall under the disposition (pre-determination defense).

3. Disposition of the tax base for the correction of the instant case (Judgment of the Defendant on the defense before the merits of the instant case)

A. Legal principles on the disposition of the tax base determination

An administrative disposition, which is the object of an appeal litigation, refers to an act of an administrative agency’s public law, which is an act directly related to the specific rights and obligations of citizens, such as ordering the establishment of rights or the burden of obligations under Acts and subordinate statutes, or directly causing other legal effects, and an act, etc. which does not cause a direct legal change in the legal status of the other party or other related persons, may not be a disposition subject to appeal litigation (see, e.g., Supreme Court Decisions 97Nu10857, Jul. 23, 199; 2008Du2583, May 15, 2008).

Inasmuch as a tax official calculates the amount of income and calculates the amount of income for each business year of a corporation and determines the amount of income accordingly is not an administrative disposition subject to appeal litigation, it is possible to assert it in the procedure of disputing the validity of the subsequent taxation disposition, and the total amount of losses which are or will be attributed to a certain business year is all in excess of the total amount of gains under the Corporate Tax Act, and the amount which is investigated as losses at the time of final return of the tax base, etc. of the corporation or the determination of the tax base, etc. according to the government's investigation. Since the amount of losses is not the amount of losses, it cannot be the only amount of losses under the Corporate Tax Act. Thus, even if the disposition imposing corporate tax for any business year, which is based on the premise that the tax base is not deducted, becomes final and conclusive after the determination of the tax base and the amount of corporate tax becomes final and conclusive after the determination of the tax base is independent of the final taxation disposition, a corporation liable for tax payment can again assert that there has been losses that can be deducted from the income under the relevant provisions of the Corporate Tax Act (see Supreme Court Decision 2001Du262, hereinafter.

B. The plaintiff's assertion

The precedent of this case is a precedent that rendered before the amendment by Act No. 9898 (hereinafter referred to as "the amendment of December 31, 2009"), which is a provision on the tax base of this case, to the effect that it is difficult for the plaintiff to dispute the effect of the tax base of this case before and after the amendment of the former tax base of this case. This case is a precedent that is subject to the second revised tax base of this case where the tax base of this case was not revised within 10 years from the beginning date of each business year, and that the tax base of this case was not revised under Article 14 (2) (the total amount of losses which were not deducted within 10 years from the date of revised tax base of this case) but which was not revised within 10 years from the beginning date of the second revised tax base of this case. The tax base of this case is a case where the person who filed the tax base of this case is not subject to the second revised tax base of this case, but can dispute the tax base of this case within 60 years from the revised tax base of this case.

2) Attached Form 2 is referred to as “related laws and regulations.”

C. Determination

(1) In light of the circumstances examined below as to whether the legal principles of the instant precedents were applied to the instant tax base, which was a tax base decision made pursuant to the subject provisions after the amendment on December 31, 2009, the amendment on December 31, 2009, there is no reason to exclude the legal principles of the instant case from the tax base for the instant correction, which was a tax base decision made pursuant to the subject provisions after the amendment on December 31, 2009, and they should be deemed as they

① The provisions governing the determination of tax base are different from the previous tax base of December 31, 209. The Supreme Court Decision 2008Da19298 Decided December 19, 2000 ruled that the amount of losses incurred during the business year which began within 10 years before the beginning of the tax base of each business year shall be deducted from the tax base of 197. The Supreme Court Decision 209Da9792 Decided December 9, 209 ruled that the amount of losses incurred during the business year before and after the beginning of each business year shall not be deducted from the previous tax base of 97Da1979 Decided on December 31, 209. The Supreme Court Decision 9Da1989 Decided that the provisions governing the deduction of losses incurred during the previous business year shall not be deemed to have been reduced to the previous provisions governing the deduction of losses incurred during 19 years before the beginning of each business year.

Thus, the instant case can be deemed to have denied the disposition of the tax base decision by itself due to the legal nature of the tax base decision, regardless of whether the deduction is included in the scope of the loss, or the loss which is deductible under the applicable provision.

"Third, in the calculation of the tax base, the issue of how the provision provides for the scope of losses to be deducted in the calculation of the tax base, and the issue of whether the corporation should dispute through the lawsuit in order to allow deduction of the relevant losses, or whether the tax base should be imposed by the determination of the tax base, cannot be viewed as a direct relation, logical or legal relationship, or a relation which naturally affects the tax base. Ultimately, whether the determination of the tax base constitutes an individual item such as income or losses that are deducted or added from the determination of the tax base, or an action that directly changes the specific legal status of the public as an object of appeal, which is, it is difficult to view that the legal status of the pertinent corporation or other related persons is directly changed in the legal status of the said person before and after the determination of the tax base." Furthermore, it is difficult to see that the Plaintiff’s revised tax base as the Plaintiff’s revised tax base, regardless of the legal status of the Plaintiff’s revised tax base as the object of taxation, as stated in the foregoing 1-2, 2015.

(2) Determination as to the disposition of the corrected tax base of this case

In light of the legal principles of the instant case, the instant revised tax base was determined inside the Defendant on May 28, 2015 with respect to the disposition of the instant corrected tax base, and on July 1, 2015, it is recognized that the Plaintiff was notified of the disposition of penalty tax along with the disposition of imposing penalty tax, but the said penalty tax was calculated on the basis of the amount recognized as the amount of violation on the ground of the Plaintiff’s failure to receive the qualification evidence related to the payment of daily work personnel expenses, and thus, imposed regardless of the instant corrected tax base.

As can be seen, the tax base for correction of this case, which is only notified after the defendant's decision, cannot be viewed as either ordering the Plaintiff to create a right or to bear an obligation, or directly causing other legal effects, under the laws and regulations, and does not constitute an administrative disposition that is subject to appeal litigation. The defendant's prior defense on the merits pointing this out is with merit (if the plaintiff erred in the tax base for correction of this case, it can be asserted that it was erroneous in the procedure that contests the validity of the subsequent tax disposition against the plaintiff

4. Conclusion

Therefore, since the lawsuit of this case is unlawful, it is decided to dismiss it. It is so decided as per Disposition.