National Tax Service Review Income 2010-0019 (2010.07)

On-site confirmation or bookkeeping confirmations do not constitute a tax investigation to which the provisions prohibiting re-investigation (Dual Investigation) apply.

It is legitimate to estimate the amount of income due to the absence of account books, etc. by the Plaintiff rather than jointly operating a new construction business. The local verification or bookkeeping verification does not fall under the tax investigation to which the prohibition of reinvestigation (duplicate investigation) applies, and it is legitimate because it is a case where the investigation period can be extended exceptionally.

2010Guhap32532 global income, and requests for revocation and re-revision

Dok-si

O Head of tax office

April 28, 2011

May 26, 2011

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of global income tax of KRW 3,513,785, global income tax of KRW 27,658,701, global income tax of KRW 207,658,701, and global income tax of KRW 87,907,415 for the year 2008 shall be revoked.

1. Details of the disposition;

A. The Plaintiff, while running the business of removing and selling the “DDDDD” in Seoul BB-Gu CB-dong 713-29 and constructing and selling the above buildings (hereinafter “DDDD DD reconstruction business”) and the business of newly building and selling the house “GGGGGGG sales” on the ground of Seoul EE-Gu FFdong 335-14, 335-228 (hereinafter “GG sales business”), paid the income tax by means of a simplified book as follows:

B. From March 23, 2009 to April 27, 2009, the Defendant confirmed the appropriateness of the Plaintiff’s global income tax return for the year 2007, and determined and notified the Plaintiff of global income tax 24,576,000 won for the global income tax for the year 2007.

C. From August 31, 2009 to September 22, 2009, the Defendant conducted a general investigation on global income tax against the Plaintiff. 1) The Plaintiff reported that the Plaintiff was jointly engaged in DDD reconstruction business with five rebuilding members. However, in fact, the Plaintiff determined that the Plaintiff was independently engaged in the DDD reconstruction business, and deducted KRW 456,00 from the amount of income in 2005 reported by the Plaintiff, the amount of income calculated by deeming that the Plaintiff constituted a case where the amount of income cannot be calculated by books or documentary evidence. Meanwhile, the Defendant denied this case as there was no documentary evidence as to the first necessary expenses, such as material cost, personnel expenses, and expenses, and KRW 734,976,00,00 which the Plaintiff initially reported as 80% of the Plaintiff’s share in the GGG sales business, but H was reported as 20% of the Plaintiff’s share in the amount of income in the business loan, and determined that the amount of income in the business loan could not be deemed as a joint proprietor.

D. Accordingly, on November 6, 2009, the Defendant corrected the amount of income and the amount of income to the Plaintiff as follows, and corrected and notified the amount of global income tax for 2005, KRW 3,513,785, global income tax for 2007, KRW 27,658,701, global income tax for 2007, and KRW 87,907,415, global income tax for 2008 (hereinafter “instant disposition”).

E. On February 12, 2010, the Plaintiff filed a request for review with the Commissioner of the National Tax Service on the instant disposition, but was dismissed on May 10, 2010.

Facts without dispute over the basis of recognition, Gap evidence 1, 4, Eul evidence 1 (including each number; hereinafter the same shall apply), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(I) Conclusion of a partnership agreement

Although the Plaintiff and HH entered into a concurrent business contract on October 2006 and jointly engaged in the GGG sales business, it is unlawful for the Defendant to regard the GGG sales business as the Plaintiff’s sole business and to correct the amount of income.

(2) Amount of income accrued in 2005

Although the Defendant, from March 23, 2009 to April 27, 2009, confirmed the appropriateness of the Plaintiff’s global income tax book return for the year 2007, received accounting books and documentary evidence related to KRW 58,976,00 for losses belonging to 205 for DDD reconstruction workers and recognized that it was justifiable, it was unlawful to deny the Defendant’s losses belonging to 2005 for lack of documentary evidence, etc.

(3) Violation of the prohibition of reinvestigations (Dual Investigations)

From March 23, 2009 to April 27, 2009, the defendant made an estimation of the income amount after undergoing a tax investigation under the name of "entry Confirmation" against the plaintiff, and determined and notified the amount of global income tax of KRW 24,576,00. Thus, this constitutes a tax investigation clearly. Since the defendant again conducted a tax investigation on global income tax against the plaintiff from August 31, 2009 to September 22, 2009, the last tax investigation conducted later constitutes a reinvestigation (re-investigation) prohibited under Article 81-4 (2) of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter referred to as the "former Framework Act on National Taxes").

(4) Violation of restrictions on the extension of the scope of the tax investigation

Although the Defendant, around August 28, 2009, notified the Plaintiff of the tax investigation period or scope in 2005 and 2007, conducted a tax investigation on global income tax for 2008, it was unlawful in violation of Article 81-9 of the Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 201; hereinafter referred to as the “Framework Act on National Taxes”).

(b) Fact of recognition;

(1) On October 20, 2006, the Plaintiff, HH and Park J drafted an agreement (No. 2, hereinafter referred to as the “Agreement of October 20, 2006”) with the following contents.

(2) On October 23, 2006, the Plaintiff and HaH drafted a joint project agreement (Evidence A 3, hereinafter referred to as the “joint project agreement”) as follows, with the main content of jointly running the GGG construction project. On October 23, 2006, the Plaintiff completed the registration of business regarding the GGGG sales project, attaching the joint project agreement on October 23, 2006.

(3) From March 23, 2009 to April 27, 2009, in order to examine the appropriateness of the Plaintiff’s report on the account book of global income tax for 2007, the Defendant received books or documentary evidence from the Plaintiff to verify the amount of income, expenses, etc. In relation to the Plaintiff’s business, on June 8, 2009, the Defendant calculated the amount of income by estimation method on the grounds of the Plaintiff’s failure to submit objective documentary evidence on the details of each payment to the transaction partner and the labor party of construction business, the difference between the purchase cost by account, and the excessive report on the purchase cost.

(4) However, the Defendant collected information on tax evasion against the Plaintiff, selected the Plaintiff as a person subject to investigation, and conducted a general consolidated investigation with respect to the Plaintiff from August 31, 2009 to September 22, 2009. At the time, the Plaintiff failed to submit books or documentary evidence that can calculate the amount of income and necessary expenses.

(5) In addition, at the time of the above tax investigation, HH was registered as a joint proprietor of the GG sales business at the request of the Plaintiff on September 2009 by a tax official, but in fact, HH was actually engaged in the overall business, such as the Plaintiff’s construction and sale. He merely invested a certain amount of KRW 300,000,000 (including investment funds), such as the agreement of October 20, 2006, and received a separate profit distribution contract and there was no separate profit distribution contract. A joint business contract (Evidence (Evidence (Evidence (Evidence (No. 3) is a contract that he is well aware of, and I think that H was prepared at the request of the Plaintiff and necessary at the time of filing an application for the business registration at the request of the Plaintiff.

Facts that there is no dispute over the basis of recognition Gap, Gap evidence 2, 3, Eul evidence 2, 3, and 4, the testimony of the witness KimL and the purport of the whole pleadings

C. Determination

(1) As to the conclusion of a partnership agreement

앞서 인정한 사실관계와 을 제5호증의 기재에 변론 전체의 취지에 의하여 인정되는 다음과 같은 사정, 즉 ① 2006. 10. 23.자 공동사업계약서에는 원고와 임HH이 동업을 하는 것으로 기재되어 있으나 그보다 3일 앞서 작성된 2006. 10. 20.자 약정서에는 원고와 임HH 이외에도 박JJ이 계약당사자에 포함되어 있는데 근접한 시간 내에 작성 한 두 문서에서 동업자 내지 계약당사자가 다르게 기재되어 있어 실제 동업관계가 존 재하였는지에 관하여 강한 의구심이 드는 점, ② 2006. 10. 20자 약정서에 의하면, 원고는 GGGGG신축사업의 손익 발생 여부와 관계없이 일정금액을 임HH 및 박JJ에게 지급하기로 되어 있고, 나아가 동업계약에서 가장 핵심적인 손익분배비율이 명시되어 있지 아니하고 또한 미분양시 임HH 및 박JJ이 손실을 부담한다는 내용도 포함되어 있지 아니한 점, ③ 임HH이 2009. 9. 세무공무원에게 GGGGG신축사업이 원고의 단독 사업이고 별도의 수익분배 계약이 없었다는 취지로 분명하게 진술한 점, ④ GGGGG 분양계약서에도 원고만이 매도인으로 기재되어 있는 점 등을 종합해 보면, 원고와 임HH이 공동으로 GGGGG신축사업을 운영한 것이 아니라 원고가 임HH으로부터 자금을 빌려 단독으로 위 사업을 운영하였다고 할 것이고, 갑 제1, 6, 7, 8, 9호증의 각 기재만으로는 위 인정을 뒤집기에 부족하다.

Therefore, this part of the plaintiff's assertion is without merit.

(2) As to the amount of income accrued in 2005

From August 31, 2009 to September 22, 2009, when the Defendant conducts a general investigation into global income tax on the Plaintiff, the Plaintiff was unable to submit books or documentary evidence to the Defendant, which could compute the amount of income and necessary expenses, as seen earlier. This constitutes “where there is no necessary books or documentary evidence in calculating the tax base, or where there is insufficient or important parts are false or false.” Thus, it is legitimate for the Defendant to determine the amount of income for the taxable year 2005 by estimation method of the Plaintiff’s income amount pursuant to the above provision.

Furthermore, in a lawsuit seeking revocation on the grounds of illegality of taxation disposition, the tax authority bears the burden of proving the legality of disposition and the existence of the taxation requirements. As such, the tax authority bears the burden of proving necessary expenses, in principle, as well as the burden of proving necessary expenses. However, since the deduction of necessary expenses is not only favorable to the taxpayer, but most of the facts constituting the basis of necessary expenses are located within the control area of the taxpayer, and it is difficult for the tax authority to prove such expenses. Thus, the tax authority needs to prove the burden of proving that it is easy for the taxpayer to present all the materials, such as the books and documentary evidence. In light of these legal principles, it is insufficient to acknowledge that the Plaintiff spent KRW 734,976,00 as necessary expenses for DD reconstruction business for the taxable year 205, and there is no other evidence to acknowledge that the Plaintiff did not properly submit necessary expenses, such as material expenses, personnel expenses, etc., as seen earlier, the Defendant’s disposition that the Plaintiff reported was legitimate.

Therefore, since the Plaintiff’s income amount was determined by the estimation method for the taxable year 2005 and the Plaintiff did not recognize the necessary expense deduction reported, it cannot be deemed unlawful to deem that the loss amount of 58,976,000 won initially reported by the Plaintiff was extinguished. Therefore, this part of the Plaintiff’s assertion is without merit.

(3) As to the violation of the prohibition of re-investigation (Dual Investigation)

According to Article 2 subparagraphs 1 and 2 of the former Regulations on the Management of Investigations (amended by National Tax Service Directive No. 1838, Mar. 30, 2010; hereinafter referred to as the "former Regulations on the Management of Investigations") and Article 13 (1) (proviso) of the former Regulations, "tax investigation" means an investigation conducted by a public official under the Punishment of Tax Evaders Act and the Procedure for the Punishment of Tax Evaders Act as an act of inspecting and investigating books, documents, articles, etc. against a taxpayer or a person who is deemed to have a transaction with a taxpayer in order to process source management, simple taxation data processing, evidence collection, etc., and "on-site verification" is excluded from this case. And according to Article 2 subparagraph 2 (e) of the former Regulations on the Management of Investigations, "on-site verification" is difficult to be considered as including "on-site verification" or "on-site verification of the status of a place of business or a person who is deemed to have a transaction with a taxpayer.

However, as seen earlier, from March 23, 2009 to April 27, 2009, the Defendant received an account book or documentary evidence from the Plaintiff in order to examine the appropriateness of the return of global income tax account books for 2007 based on the "the direction data for verifying the entry of the head of the Seoul regional tax office" from March 23, 2009 to April 27, 2009. On June 8, 2009, the Defendant determined and notified the Plaintiff of the global income tax amounting to 24,576,00 won for the year 207 after calculating the amount of income by the method of estimating the estimation. The Defendant's "verification of entry" by sending the account book and documentary evidence to the taxpayer and presenting the related account books from the taxpayer to analyze the total amount of income and necessary expenses of the workplace, etc. in order to immediately correct it, and it does not constitute "the right of prohibition of re-investigation (in other words, the right of inquiry, inspection or tax investigation."

Therefore, since the tax investigation conducted by the Defendant against the Plaintiff from August 31, 2009 to September 22, 2009 cannot be deemed to violate the prohibition of re-investigation (Dual Investigation) under Article 81-4(2) of the former Framework Act on National Taxes, this part of the Plaintiff’s assertion is without merit (as seen earlier, even if the above global income tax investigation constitutes a "re-investigation" under the above provision, the above tax investigation was conducted based on the information on tax evasion against the Plaintiff and was conducted for three business years in 2005, 207, 2008, and 3 business years. This constitutes an exceptional case where there is clear evidence to acknowledge the suspicion of tax evasion under Article 81-4(2)1 and 3 of the former Framework Act on National Taxes or where there is any error related to two or more business years, and thus, it constitutes an exceptional case where a re-investigation is permitted).

(4) On the violation of the extension of the scope of the tax investigation

Article 81-9(1) of the Framework Act on National Taxes that limits the extension of the scope of tax investigation is newly established on January 1, 2010 and enforced on April 1, 2010, and thus, this case is not applicable. Meanwhile, even if the tax investigation period, which was conducted against the Plaintiff from August 31, 2009 to September 22, 2009, was more than 2005 and more than 2007 years and more than 2008, it is extended to 2008, pursuant to Article 38(1)4 of the former Regulations on the Management of Investigations, if an investigation is necessary for another taxable period related to the apparent tax evasion of a specific item in the taxable period subject to investigation, the investigation period may be extended exceptionally. However, the decision of correction of global income tax reverted in 2008, which was conducted uniformly with the decision of correction of global income tax reverted in 207, constitutes an exceptional case where the investigation period is extended.

Therefore, the plaintiff's assertion on this part is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so decided as per Disposition.