Even if there is no double entry bookkeeping, it shall be determined according to the on-site investigation at the time of confirming documentary evidence.

Even if no taxpayer has kept and recorded books prescribed by the Income Tax Act, if it is possible to calculate the tax base based on other evidential documents, such as a contract, the tax base and tax amount should be determined by the on-site investigation method.

Article 80 of the Income Tax Act: Decision and Correction

Article 143 of the Enforcement Decree of the Income Tax Act

1. The plaintiff's claim is dismissed.

2. Litigation costs shall be borne by the plaintiff.

On October 11, 2006, the Defendant revoked the imposition of global income tax of KRW 102,260,310 against Plaintiff ○○○, KRW 102,251,720 against Plaintiff ○○○○○, KRW 205,327,70 against Plaintiff ○○○, KRW 102,225,570 against Plaintiff ○○○, and KRW 67,890,920 against Plaintiff ○○○, respectively.

1. Details of the disposition;

A. The Plaintiffs purchased ○○○○○-gun, ○○○-gun, ○○○○○-gun, ○○○○○, 25, 000,000 won in 1.7 billion won in 1.7 billion won in hereinafter referred to as “the instant forest”) and subdivided it again into 25,000,000,000 won in 25,000,025-2, mountain25-3, mountain 25-4, and mountain 25-4 in 1, 205. On June 1, 2005, the Plaintiffs sold the forest to ○○○-○, Inc., 3.3 billion won in 3.3 billion won in 1,000, 25-1, and 25-41,000 won in 65,000 won in 1,000,000 won in 3.

(2) On May 31, 2006, on the basis of the income amount calculated by deducting the amount calculated by the simple expense rate of real estate sales (90.8%) from the income amount derived from the instant forest sale on the premise that the instant forest sale falls under the real estate sale business, the global income tax base and tax amount for the year 2005, as indicated in the following table (hereinafter “the final return of this case”).

Name

Amount of income (,00 won)

Necessary expenses ( thousand won)

Amount of income (,00 won)

Reported tax amount(,00 won)

○ ○

1,381,747

1,117,833

263,913

80,109

○ ○

690,887

58,927

131,959

3,400

○ ○

690,887

58,927

131,959

3,400

○ ○

690,887

58,927

131,959

3,925

○ ○

460,592

372,618

87,972

18,530

Total

3,915,000

3,167,232

747,762

199,364

B. After conducting a tax investigation on the plaintiffs, the defendant issued a disposition to increase the amount stated in the purport of the claim in the tax amount payable by the plaintiffs (hereinafter "the tax disposition in this case") on October 11, 2006 on the ground that only the acquisition value and the amount of acquisition tax of the forest in this case for which the plaintiffs actually paid during the forest sale process of this case, and the registered tax amount should be deducted as necessary expenses.

(In fact that there is no dispute, Gap, Eul's evidence Nos. 1 through 6, Eul's evidence Nos. 2 and 4, and the purport of the whole pleadings.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

(1) The Plaintiffs did not have a duty to prepare and keep account books according to the double-entry bookkeeping system under the Income Tax Act and the Enforcement Decree of the same Act with those who start a new business in 2005, and did not keep the account books in the course of the forest trade in this case, as well as the evidential documents on the expenses paid, so the Plaintiffs’ income amount is inevitable to be determined by the estimation investigation method. In the case of a new business operator, the amount of income is to be determined by the estimation method by applying simple expense rate. Thus, the instant final return is a lawful return under the Income Tax Act and the Enforcement

(2) The tax authority is unable to rectify the reported amount of income unless there are reasons such as "when there are omissions or errors in the details of the return" listed in Article 80 (2) of the Income Tax Act, and as seen earlier, the final return of this case cannot be deemed to be omissions or errors in its contents. However, the instant tax disposition that increased or corrected the reported amount of tax by the Plaintiffs is unlawful.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(1) Since the determination of income amount by the method of applying simple expense rates is a kind of estimated survey method, the necessity of the estimated survey should be first recognized to deem that there is no omission or error in the final return under the above method.

(2) In principle, the tax base and tax amount of global income tax shall be determined by the actual amount revealed by the method of a field investigation. The method of a field investigation is exceptionally allowed only when there is no taxpayer’s account book or documentary evidence, or there is no other method to disclose the actual amount of income by the tax authority without reliability because the taxpayer’s account book or documentary evidence is insufficient or false. Therefore, in a case where a tax invoice, account book, and other documentary evidence submitted by the taxpayer is deemed to be unfaithful upon filing a tax base and tax amount, the tax authority shall point out the illegality and submit new documents on the spot investigation. Even if it is based on such materials, if a taxpayer cannot determine the tax base based on other documentary evidence, such as a contract, even if the taxpayer keeps and enters account books under the Income Tax Act, the tax base and tax amount shall be determined by the method of a field investigation and shall not be used (see, e.g., Supreme Court Decision 97Nu20304, Jan. 15, 199; 2004Du8293, Jul. 8, 2005).

(3) Therefore, in full view of each of the statements in Eul evidence No. 5-1 through No. 3 as to the instant case, whether it is necessary to allow an additional investigation because it is impossible to determine the tax base and tax amount through the on-site investigation, and the purport of the entire pleadings, comprehensively taking account of the overall purport of the pleadings, it is confirmed through documentary evidence that the plaintiffs sold the instant forest to ○○○○○○ and ○○○○○○, Inc., the acquisition value and the acquisition tax amount of the Plaintiffs’ forest land, and the amount of the registration tax paid. Accordingly, the Plaintiffs’ revenue and most necessary expenses incurred in the instant forest sale process

Therefore, there is no reason to argue that the Plaintiffs’ income amount should be estimated by applying simple expense rate, and the assertion that the increased or decreased tax disposition was unlawful, even though there is no omission or error in the final return of this case on the premise of the above assertion, is without merit.

3. Conclusion

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

Relevant statutes

○ Decision and rectification under Article 80 of the former Income Tax Act (amended by Act No. 8144 of Dec. 31, 2006)

(1) If a person liable to make a final return on the tax base under Articles 70 through 72 or 74 fails to make such return, the chief of the district tax office or the director of the regional tax office having jurisdiction over the place of tax payment shall determine the tax base and

(2) If a person who has made a final return on tax base pursuant to Articles 70 through 72 or 74, falls under any of the following subparagraphs, the superintendent of the district tax office or the director of the regional tax office having jurisdiction over the place of

1. Where an omission or error exists in the contents of return;

(3) Where the tax base and tax amount of the concerned year are determined or revised under paragraphs (1) and (2), the chief of the district tax office or the director of the regional tax office having jurisdiction over the place of tax payment shall make it based on the books and other documentary evidence: Provided, That where the income amount cannot be calculated by books or other documentary evidence for the reasons as prescribed by

○ Keeping and keeping account books under Article 160 of the Income Tax Act

(1) Business operators shall keep evidential documents, etc. so as to calculate the amount of income, and keep and manage books by double entry so that all transactions concerning their business may be grasped objectively.

(2) In case where a businessman who is smaller than the scale prescribed by the Presidential Decree, keeps a simple book as prescribed by the Presidential Decree (hereinafter referred to as the "Simple book") and enters faithfully the details of transactions with respect to his business, he shall be considered as keeping and keeping the book as referred to in paragraph

Article 89 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19890, Feb. 28, 2007) (the acquisition value, etc. of assets)

(1) The acquisition value of assets under Article 39 (2) of the Act shall be as follows:

1. For assets purchased from a third person, the amount calculated by adding the acquisition tax, the registration tax and other incidental expenses to the purchase price;

○ Determination and Correction of Article 143 of the Enforcement Decree of the Income Tax Act

(1) The term “reasons prescribed by the Presidential Decree” in the proviso of Article 80 (3) of the Act means the cases falling under any of the following subparagraphs:

1. Where necessary account books and documentary evidence are missing or important parts are incomplete or false in the calculation of the tax base;

(3) In case where the estimation, determination or correction of the income amount is made under the proviso of Article 80 (3) of the Act, the method falling under each of the following subparagraphs shall be applied: Provided, That the provisions of subparagraph 1-2 shall be

1-2. The method of determining or revising as income amount the amount obtained by deducting the amount obtained by multiplying the income amount by the simple expense rate;

(4) The term “person subject to the application of simple expense rate” in the proviso of paragraph (3) means the businessman falling under any of the following subparagraphs:

1. A businessman who starts a business anew in the current taxable period; and

○ Keeping and keeping account books under Article 208 of the Enforcement Decree of the Income Tax Act

(1) The books under Article 160 (1) of the Act means the books in the form of double entry and calculation of the changes in the financial status of business and the contents of profit and loss.

(5) The term “business operator falling short of a certain scale determined by the Presidential Decree” in Article 160 (2) and (3) of the Act means a business operator falling under any of the following subparagraphs:

1. A businessman commencing a business anew in the current year; and

(8) “Simple book prescribed by the Presidential Decree” in Article 160 (2) of the Act means the books on which the matters falling under the following subparagraphs may be entered, and determined by the Commissioner of the National Tax

1. Matters regarding revenues such as the turnover;

2. Matters regarding the payment of expenditures;

3. Matters concerning the increase or decrease of fixed assets; and

4. Other reference matters.