Ulsan District Court 2013Guhap2543 (2014.06.19)

The instant retirement allowance provision cannot be deemed as a provision on retirement allowances for executive officers delegated by the articles of incorporation.

(1) According to the first instance judgment, the provision of the retirement allowance for executive officers of this case cannot be deemed as a specific and general standard applicable to the same position, the same duties, and the same service years of continuous service. It constitutes a provision established at will in order to reduce the tax burden upon paying the company fund to the representative only as retirement allowance.

Article 44 (Non-Inclusion of Retirement Benefits in Loss)

2014Nu21400 Revocation of Disposition of Imposing corporate tax, etc.

AA General Construction Corporation

Head of Donggsan Tax Office

Ulsan District Court Decision 2013Guhap2543 Decided June 19, 2014

March 18, 2015

April 22, 2015

1. The plaintiff's appeal is dismissed.

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

The judgment of the court of first instance is revoked. The imposition of the corporate tax on August 1, 2013 by the defendant on the plaintiff on August 1, 2013 and the imposition of the income earner of the corporation tax for the business year 2010 and the income earner of the income earner B shall be revoked in all of the parts exceeding the OOOO in the notice of change in the income amount of the

1. Details of the instant disposition

A. On December 24, 2010, the Plaintiff was established on November 20, 1989 and engaged in civil engineering and construction business, and this BB, which was a joint representative, retired on December 20, 2010, paid to this B, by applying the rules on retirement allowances for executive officers by the resolution of the general meeting of shareholders (hereinafter “instant retirement allowances rules”) to this BB on December 24, 2010, including the total amount of retirement allowances of the OOOO and the special bonus for special merit (hereinafter “the instant retirement allowances, etc.”), and paid corporate tax by adding it to the deductible expenses at the time of filing a corporate tax return for the business year of 2010.

B. The Defendant issued a notice of correction of corporate tax 219,655,220 won to the Plaintiff on August 8, 2013 on the following grounds: “The instant retirement allowance provision for specific executives cannot be deemed as a legitimate retirement allowance payment provision stipulated by the articles of incorporation pursuant to the delegation of Article 44 of the Enforcement Decree of the Corporate Tax Act; the special merit bonus was paid only by a resolution of the general meeting of shareholders without objective and specific calculation and does not constitute retirement allowance stipulated under the Corporate Tax Act. The instant payment of retirement allowance constitutes wrongful calculation stipulated under Article 52 of the Corporate Tax Act.” On the ground that “OOO or special merit bonus exceeding the amount of OOO under Article 44(4)2 of the Enforcement Decree of the Corporate Tax Act is included in deductible expenses, and the Defendant issued a notice of correction of corporate tax 219,65,220 won to the Plaintiff for the business year 2010, wherein the income earner paid the amount of OOO in 2010 to B (hereinafter referred to as “instant disposition”).

C. The Plaintiff appealed and filed an appeal with the Tax Tribunal on October 11, 2013, but the Tax Tribunal dismissed the Plaintiff’s appeal on December 10, 2013.

[Reasons for Recognition] Unsatisfy, Gap evidence 1, 2, 6 (if there are virtual numbers, including branch numbers; hereinafter the same shall apply), Eul evidence 3, the purport of the whole pleadings

2. Determination on the legitimacy of the instant disposition

A. The plaintiff's assertion

Inasmuch as the Plaintiff paid the instant retirement allowance under the provisions of this case’s retirement allowance determined by the resolution of the general meeting of shareholders pursuant to Article 34 of the Articles of incorporation, the instant retirement allowance, etc. is subject to inclusion in deductible expenses as prescribed in Article 44 of the Enforcement Decree of the Corporate Tax Act. In addition, the BB contributed significantly to the Plaintiff’s growth and profit-making while performing its duties for a long time representative director, and merely contributed significantly to the Plaintiff’s growth and profit-making, the amount of the retirement allowance exceeds the amount of the retirement allowance under

Therefore, the instant disposition should be revoked as it is unlawful.

B. Relevant statutes

Attached Form 3 is as listed in the "relevant Acts and subordinate statutes".

C. Determination

(1) Facts of recognition

(A) Status of shareholders and representative director of the Plaintiff

From 193 to 2010, the current shareholder status of the Plaintiff was as listed in Table 1, and the representative director on the corporate register was changed as listed in Table 2 below. On the other hand, the BB participated in the management of the company as a full-time officer from December 20, 201 to March 30, 201, and was appointed as an internal director on July 1, 201.

Table 1

No.

Name

(%) Equity (%)

Jinay

1

BB

40

2

CC

10

IB’s ASEAN

3

D Kim D Kim

40

4

E

10

Da KimD's Republic of Korea

The tenure of Office

Representative Director;

From April 28, 1998 to March 3, 2004

BB, KimD

From March 4, 2004 to November 5, 2009

BB

From November 5, 2009 to December 20, 2010

BB, ECC

From December 20, 2010 to now.

CC

Table 2

(B) Article 34 of the Plaintiff’s articles of incorporation provides that “The remuneration for, or retirement allowances of, officers shall be determined by a resolution of the general meeting of shareholders.” The Plaintiff, on September 9, 2010, held a temporary general meeting of shareholders and passed a resolution of the instant retirement allowance provision in relation to the retirement allowances of officers as stipulated in Article 34 in the articles of incorporation in the presence of all shareholders. The main contents are as follows.

1. Scope of application;

This Regulation shall apply when a person who has served for at least one year after the appointment of a director or auditor appointed as an officer of the plaintiff has actually retired from office.

2. Objectives;

The purpose of this Regulation is to provide for the basic contents of retirement allowances to be paid to directors and auditors in accordance with Article 34 of the Articles of Incorporation.

4. Calculation of retirement allowances;

Positions and Positions

Fixed rate

Less than 10 years of service;

Continuous service 10 years or longer;

Representative Director;

1.0

2.0

(1) The amount of retirement allowances for executives shall be the amount calculated by deducting the fixed rate prescribed in the following table from the amount of annual salary (including bonuses) at the time of retirement by the number of years of continuous service:

(2) The term of office shall be calculated from the date when he/she is appointed as a director or auditor to the last day of service, but if the number of years of service is less than one year

5. (4) This provision shall not apply in case where any officer has already received a retirement allowance under a company’s regulations or annual salary contract.

6. Special merit pay;

(1) A retired executive who has contributed specially to the company among his/her executives in office may be paid a special merit bonus other than the retirement allowance under paragraph (4).

(C) On December 20, 2010, the Plaintiff: (a) held a temporary general meeting of shareholders on December 20, 2010; and (b) decided to pay the instant retirement allowance, etc. to B pursuant to the instant retirement allowance regulations, such as the instant retirement allowance (=OOO(=22 years x 22 years x 0 years x 0) at the time of retirement) to B; and (c) paid the instant retirement allowance, etc. to B in accordance with the said resolution on December 24, 2010.

(D) On the other hand, the Plaintiff paid each of the OOO won and each of the OOOOOO won in 2010 as interim settlement retirement pay to ECC and the executive director KimF, who is the representative director.

[Reasons for Recognition] The facts without dispute, Gap's 3, 4, 5, Eul's 1 to 8, Eul's testimony and the purport of the whole pleadings

(2) Determination

(A) As to the part of the OOO for the special reward

However, Article 44(4) of the Enforcement Decree of the Corporate Tax Act applies only to cases where it is deemed that the act of trade lacks economic rationality in light of the payment of retirement allowances from the standpoint of the payment of retirement allowances to the general employees. Determination of whether economic rationality exists shall be based on whether the trade lacks economic rationality in light of sound social norms or commercial practices, taking into account the various circumstances of the trade (see, e.g., Supreme Court Decision 2005Du14257, Dec. 13, 2007).

In addition, Article 26 of the Corporate Tax Act provides that "the amount deemed excessive or unreasonable as prescribed by the Presidential Decree shall not be included in the calculation of losses for each business year of a domestic corporation." Article 43 of the Enforcement Decree of the Corporate Tax Act provides that "the amount in excess of the amount paid by the corporation to its officers according to the articles of incorporation, the general meeting of shareholders or the resolution of the board of directors concerning the inclusion of bonuses in the calculation of losses shall not be included in the calculation of losses." Paragraph (3) provides that "the amount in excess of the amount paid by the corporation to officers or employees who are the controlling shareholders (including persons in special relations; hereinafter the same shall apply) shall not be included in the calculation of losses if the amount in excess of the amount paid by the corporation to officers or employees who are not the controlling shareholders, etc., such excess amount shall not be included in the calculation of losses." Paragraph (4) provides that "the amount paid by the corporation to officers or employees who are not part-time employees shall not be included in the calculation of losses."

B) Meanwhile, Article 44(4) of the Enforcement Decree of the Corporate Tax Act provides that "the amount in excess of the amount falling under any of the following subparagraphs shall not be included in the calculation of losses among the retirement benefits paid to an employee by a corporation shall not be included in the calculation of losses." Article 44(4) of the Enforcement Decree provides that "where the amount to be paid as retirement benefits (including retirement benefits, etc.) is determined by the articles of incorporation," "the amount stipulated in the articles of incorporation" shall be the amount under Article 20(1)1 (a) and (b) of the Income Tax Act (excluding non-taxable income under Article 12 of the same Act), but the amount not included in the calculation of losses pursuant to Article 43 shall be the amount equivalent to 1/10 of the total amount of retirement benefits paid to the relevant employee for one year retroactively from the date of retirement of the employee, and Article 44(5)1 of the same Act provides that "where the relevant officer fails to pay retirement benefits when he/she becomes an employee, the period of service may be included in the amount delegated by the articles of incorporation."

In addition to the contents and purport of the above-mentioned provision, the reason for recognizing the provision on the payment of retirement allowances for officers stipulated in the articles of incorporation as the basis for the inclusion of the corporation’s retirement allowances in deductible expenses is that the articles of incorporation requires strict procedures for amendment of the articles of incorporation under Article 433 of the Commercial Act in order to increase the retirement allowances. Thus, it is reasonable to view that the corporation’s payment of retirement allowances for officers is a specific method of retirement allowance or a specific provision on retirement allowance under the articles of incorporation for each officer’s voluntary and repetitive application of the above-mentioned provision as the standard for retirement allowance under Article 44(4)1 or (5) of the Enforcement Decree of the Corporate Tax Act, since there is a lack of economic rationality in light of the sound social norms and commercial practice.

2) In light of the above legal principles, the following circumstances, i.e., the majority shareholder holding 40% of the Plaintiff’s shares since 193 (50% if the Plaintiff’s shares were combined) who held 40% of the Plaintiff’s shares, continued to serve as the Plaintiff’s representative director from 198 to 20 December 20, 2010, which are currently subject to BB’s resignation from the office of representative director, are the current status of 3B’s employment as a sole representative director. In light of the fact that this case’s provision provides that “B” as a full-time director after the resignation of 1st 2nd 30th 2nd 2nd 1st 201, as well as that it appears that this case’s provision was applicable to 1st 5th 2nd 2nd 2nd 2nd 2nd 3rd 200 2nd 2nd 2nd 3rd 2011.

(3) Sub-determination

Therefore, the instant retirement allowance provision cannot be deemed to fall under the case where the articles of incorporation set the amount to be paid as retirement benefits under Article 44(4)1 of the Enforcement Decree of the Corporate Tax Act or the case where there is a separate provision for payment of retirement benefits delegated by the articles of incorporation under Article 44(5) of the Enforcement Decree of the Corporate Tax Act. Thus, the instant disposition that the Defendant excluded the Plaintiff from the deductible expenses for the non-deductible or the special bonus for non-deductible of the retirement allowance under Article 44(4)2 of the Enforcement Decree of the Corporate Tax Act is legitimate.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit, and the judgment of the court of first instance is just in conclusion, and the plaintiff's appeal is dismissed as it is without merit.