The purport of the National Tax Service’s notice No. 81-37 of the National Tax Service’s notice that the document attached thereto

The purpose of Article 81-37 of the National Tax Service Notice (No. 18, 1981) prescribed the method of distributing expenses by a foreign corporation related to the calculation of taxable income and the attached document is to determine whether the attached document is reasonably related to the occurrence of income based on the prescribed attached document and to request the attachment thereof from the necessary material to determine whether the attached document is reasonably related to the occurrence of income, and it does not mean that the distribution of related expenses should be calculated without examining the contents thereof.

National Tax Service Notice No. 81-37

Attorney Lee Jae-soo et al., Counsel for the defendant-appellee-appellant

The director of the tax office

Seoul High Court Decision 83Gu927 delivered on November 28, 1984

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. In determining the industrial or commercial profits of a permanent establishment under Article 8(3) of the Convention between the Republic of Korea and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and the Encouragement of International Trade and Investment, the expenses relating to the reasonable profits including the management expenses and general management expenses shall be allowed, regardless of whether or not they accrue within the Contracting State in which the permanent establishment is located or in any other place, and the National Tax Service shall determine the income amount of a foreign corporation pursuant to the tax convention with the country (No. 81-37 of November 18, 1981), which includes the expenses and general management expenses of the point in question in determining the industrial or commercial profits of the domestic place of business of the foreign corporation in accordance with the tax convention with each country, the calculation of the income amount of the domestic place of business, which includes the expenses and reasonable general management expenses related to such profits, shall be based on the following:

2. In light of the reasoning of the judgment below, the above Convention or the National Tax Service’s notice provides that both related points are reasonably related to the profits of the main office as a requirement for cost deduction, even though it does not specify the extent of reasonable relation, but the above-mentioned No. 3 of the National Tax Service’s notice specified the above-mentioned four items as a document attached to the statement of profit distribution of the main office. In particular, in light of the purport that the statement of expenses related to the distribution target and the statement of income points related to the world are identified as a certified public accountant of the country where the main office is located, the above Convention or the National Tax Service’s notice clearly states that it is the basis for calculating expenses related to the whole world of a foreign corporation whose main office is located in a foreign country as a basis for calculating expenses, and thus, it is difficult to determine whether the above documents are reasonably related to the above documents, taking into account the contents of the above Convention and the lack of data, and thus, it should be viewed that there is a clear explanation of the reasonable relation between the above documents and the list of income points that the Plaintiff already submitted to the tax base amount of tax payment.

3. The purport of the National Tax Service’s notice of distribution method of expenses related to the calculation of taxable income of a foreign corporation is to determine the distribution method of expenses and to stipulate the attached documents of the statement of distribution of expenses is to request submission of the attached documents, considering that the attached documents are necessary materials to determine whether a foreign corporation has reasonable relations with income generation, and it does not mean that the attached documents do not mean that the distribution of related expenses should be calculated without examining the contents of the attached documents.

According to the records, the statement No. 10-7 of the plaintiff's 10-7 was prepared by a certified public accountant who confirmed the relevant statement of expenses to be distributed as a document attached to the statement of related expenses and the list of income points related to the world submitted by the plaintiff as a document attached to the statement of related expenses distribution. The scope of audit of the plaintiff's consolidated financial statements included sufficient procedures for the plaintiff's indirect management expenses for the plaintiff's overseas branch office in the United States in accordance with the generally accepted method of distribution to each branch office of the plaintiff. Therefore, it is not difficult to find that the above statement and income statement of the certified public accountant are reasonably related to the deduction or profit distribution of the plaintiff's expense, without any reasonable grounds for the submission of the documents related to the plaintiff's consolidated financial statements, since it is difficult to find that the expenses are reasonable for the plaintiff's aforementioned statement of expenses to be distributed at the expense under the tax laws and regulations of the country where the plaintiff's overseas branch office in the United States were distributed to the plaintiff's branch office in the United States. Nevertheless, there is no reasonable ground for the related public notice of evidence.

Therefore, the judgment of the court below is reversed and remanded and it is so decided as per Disposition with the assent of all participating judges.

Justices Lee Chang-chul (Presiding Justice)