Suwon District Court-2016-Gu Partnership-6573 (Law No. 15, 2017)

Cho Jae-2015-China-4912 (Law No. 14, 2016)

The agreement on reduction of the purchase price constitutes grounds for ex post request for correction.

Although the agreement on reduction of the purchase price due to the failure of the first sale contract constitutes a ground for filing a subsequent claim for correction, it cannot be recognized as a ground for filing a subsequent claim for correction because the plaintiff, the seller after the transfer of ownership, delays the performance of obligations due to reasons attributable to him.

Article 45-2 of the National Tax Basic Act

2017Nu5927 Revocation of Disposition of Rejecting Corporate Tax Correction

AA Corporation

BB Director of the Tax Office

Suwon District Court Decision 2017Guhap11492 Decided July 24, 2018

March 9, 2018

April 13, 2018

1. Of the judgment of the court of first instance, the part that the Defendant ordered revocation in excess of KRW 235,096,378 among the disposition of rejecting a request for correction against the Plaintiff on June 22, 2015, which was rendered against the Plaintiff on June 22, 2015, is revoked, and the Plaintiff’s claim corresponding to the revoked part is dismissed.

2. The defendant's remaining appeal is dismissed.

3. 6/10 of the total litigation costs shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

1. Purport of claim

The defendant's rejection disposition against the plaintiff on June 22, 2015 against the plaintiff of 579,982,402 of corporate tax for the business year 2002 is revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Details of the disposition and the grounds for appeal;

The reasons for this part of the judgment are as follows: Article 8(2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act shall be cited for the reasons for the judgment of the first instance except for the addition as follows.

○ 5. The following shall be added to the 5th page below.

“(1) A shall complete the performance of the obligations under each of the above paragraphs of Article 4 within the prescribed time limit. B may give notice to A of the performance of the obligations under each of the above paragraphs with a maximum of one month time limit set for each of the above paragraphs if A fails to complete the performance within the prescribed time limit.

(2) Where a person who received a peremptory notice as mentioned in the preceding paragraph does not fulfill his/her obligations under each paragraph until the peremptory period expires, the person A shall be deemed to have accrued from the delay in performance under this contract.

(3) As to the subject matter of this case after the date of the conclusion of this sale and purchase contract, if a new limited real right has been established other than the already established limited real right prior to the date of the conclusion of this sale and purchase contract, or Eul has any form of charge or any other act of interference which interferes with the acquisition of ownership to the subject matter of this case or the acquisition of all other rights under this sale and purchase contract, or is likely to be interfered with

○ 8. The following shall be added to the 3 pages of the table:

"........ the procedure for the title transfer under the above paragraph (4) is completed, Eul shall pay the purchase price in a successive manner in accordance with the procedure and conditions prescribed in Articles 4 and 5 of the sales contract, but in a case where the conditions of Article 4 have been fulfilled at the expense of Eul after the completion of the procedure for title transfer under the above paragraph (4), the expenses related thereto shall be subtracted from the purchase price. In addition, Eul may refuse the payment of the purchase price to Gap unless the cause for the delay

○ 7. The following shall be added to the table:

* The amount of compensation for delay in the relocation of a grave is '(1)' and 'the amount of compensation for delay in the relocation of a grave, the amount of compensation for the death, the amount of partition of a private road, the amount of compensation for cancellation of the designation of an erosion control area, and the amount of compensation for re-design service for golf courses'.

3. Whether the disposition rejecting the correction of this case is legitimate

(a) Relevant statutes;

This part of the reasoning of the judgment is as follows: Article 8(2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act shall be cited for the reasons of the judgment of the first instance except for the addition as follows.

11. The following shall be added to the end of each page:

"▣ 법인세법

Article 43 (Application of Corporate Accounting Standards and Practices)

In calculating the amount of income of a domestic corporation for each business year, where the corporation applies corporate accounting standards which are generally deemed fair and reasonable with respect to the business year in which earnings and losses accrue and the acquisition and evaluation of assets and liabilities, or continuously applies the practices, such corporate accounting standards or practices shall be followed, except as otherwise provided for in this Act and the Restriction of Special Taxation Act.

B. Determination

1) Relevant legal principles

Article 40(1) of the Corporate Tax Act provides that “The business year to which gains and losses of a domestic corporation accrue shall be the business year which includes the date on which the initial taxable income and losses are determined.” Such a right shall be deemed realized when there is no actual income, and adopt the so-called principle of confirmation of right to taxable income. In such a case where there is an interval of time between the time when the right to the cause of income and the time when the income is realized, the right not at the time when the income is realized shall be deemed as at the time of the final occurrence of the income and the time when the income is not at the time when the income is realized, and thus, the said tax shall be imposed in advance on the income actually uncertain in the manner of calculating the income for the pertinent business year under the premise that it would be realized in the future. Therefore, even if a right to the cause of income has arisen and becomes effective once the tax liability becomes final due to the occurrence of a certain subsequent cause, it shall not be deemed that the initial tax liability to be reduced, as a matter of principle, can not be imposed on the amount of income generated after the establishment of corporate accounting claim.

As above, the purpose of the latter claim is to expand the protection of taxpayers’ rights by allowing taxpayers to file a request for reduction after proving the relevant fact in cases where there is a change in the basis for calculating the tax base and the amount of tax due to the occurrence of a certain subsequent cause after the establishment of the tax liability. In addition, allowing taxpayers to reflect only the profits and losses for the business year in which the subsequent cause occurred, even in cases where losses are accumulated in the business year in which the subsequent cause occurred or where there is no profits to be deducted due to the de facto suspension or closure of business, it would result in a violation of the protection of taxpayers’ rights and equity (see Supreme Court Decision 2017Du38119, Sept. 12, 2017).

2) The key amount (1)

A) In light of the following circumstances acknowledged based on the facts acknowledged earlier, it is reasonable to view that the amount of dispute (1) is the amount of final agreement that the Plaintiff, a seller, failed to perform the Plaintiff’s obligation to remove graves and to fully transfer ownership, etc. within the time limit agreed upon by the Plaintiff, and the purchaser of the instant case finally agreed to reduce the cost incurred by the Plaintiff from the purchase price as the purchaser performed instead of the seller. Accordingly, this constitutes a subsequent cause as stipulated in Article 45-2(2) of the Framework Act on National Taxes

① At the time of the initial sales contract, the subject matter of the instant sales contract includes 106 lots of land and golf course business rights, state-owned land and public land use and lease rights, design drawings in the civil engineering sector, the right to the type of real estate for golf course business, and the forest trees and other natural things on the subject matter of the instant sales contract (hereinafter “subject matter of the instant sales”).

② At the time of the initial sales contract, the Plaintiff resolved all the reasons why the Plaintiff restricted or obstructed the exercise of ownership, completed the transfer of all graves within the business site, agreed to transfer ownership, and fulfilled the above conditions at the expense of the purchaser of this case after completing the procedures for transfer of ownership, the relevant expenses were deducted from the purchase price and the purchaser of this case may refuse to pay the purchase price.

③ The cost of the grave relocation and death agreement, the cost of partition of private road lots, the indemnity for cancellation of designation of land treated for erosion control, and the cost of the golf course re-design service, which are included in the key amount (1) appears to be the cost of resolving the causes restricting or obstructing the exercise of ownership of the subject matter of the instant sale, and relocation

B) On this point, the Defendant asserts that there exists a special circumstance in which the taxpayer filed corporate tax return by deducting the income of the business year in which the subsequent cause has occurred in accordance with corporate accounting standards or practices in a manner that deducts the income of the business year in which the subsequent cause has occurred, by reflecting the corporate accounting standards to the extent permitted, and directly reporting the expenses for accounting or removing the expenses for accounting performance as losses under the Corporate Tax Act, or by removing the expenses for accounting performance by way of accounting error correction.

In full view of the purport of each statement in Gap evidence Nos. 10, 11, 12, 14, 15, 16 and Eul evidence Nos. 3, the plaintiff, from the end of the business year 2008 as listed below, estimated the expenses already used or can be used to resolve various restrictions existing in the subject of the sale in this case, and entered them in the account book as "expenses for the performance of the contract" in the account. However, in filing a report on corporate tax, the pertinent expenses were reported as non-deductible expenses. However, the plaintiff's reservation amount for the contract performance expenses as of the end of the business year 2011 was totaled of KRW 2,640,922,065, but the plaintiff voluntarily processed them in the process of filing a report on corporate tax for the business year 2012 by correcting accounting errors to increase basic losses by adding the reservation amount for the contract performance expenses to KRW 584,92,065. Meanwhile, the plaintiff did not have any continuous income after the business year 2008.

In light of the above facts of recognition, solely on the basis of the evidence and assertion submitted by the defendant, it cannot be deemed that the issue amount (1) constitutes a follow-up reason, such as sales discount or sales exchange arising in ordinary and semi-annually, and special circumstances where the taxpayer reported corporate tax by the method of deducting the amount of income for the business year in which a follow-up reason occurred according to corporate accounting standards or practices are not recognized. Accordingly, the defendant's assertion cannot be accepted.

3) The key amount (2)

In full view of the facts acknowledged earlier, in particular, Articles 4 and 7 of the first sales contract of this case, Article 4 of the instant agreement, and Article 2(6) of the final reduction agreement of this case, etc., the key amount (2) is reasonable to deem that the Plaintiff, a seller after the registration of transfer of ownership, continues to perform the duty of complete transfer of ownership, such as the duty of removal of graves under the first sales contract of this case, on or around April 2015, as the Plaintiff, which is the seller, continues to perform the duty of complete transfer of ownership, due to its own fault, as agreed upon at the time of the final reduction agreement of this case. Therefore, this is not “justifiable cause for business,” and thus, it cannot be acknowledged as the ground for applying for

(c) Reorganization;

As seen earlier, when calculating the legitimate amount of tax by accepting the Plaintiff’s claim for correction as to the key amount (i) of the claim for correction at issue, the amount exceeding KRW 235,096,378 (=870,727,326 x 27% x 27% x less than won) shall be revoked. Therefore, on June 22, 2015, the part of the Defendant’s rejection disposition against the Plaintiff regarding the Plaintiff’s claim for correction at KRW 235,096,378 shall be revoked.

4. Conclusion

If so, the plaintiff's claim shall be accepted within the above recognition scope, and the remaining parts shall be dismissed as it is without merit. Since the judgment of the first instance is unfair with a different conclusion, the defendant's appeal partially accepted and the judgment of the first instance court is revoked, and the plaintiff's claim corresponding to the revoked part is dismissed. The defendant's remaining appeal is dismissed