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Title
Whether the distribution amount of common expenses of the head office, etc. can be made for each group
Summary
Since expenses deemed related to the △△ Group among the expenses of the head office may be recognized as being excluded from the common expenses subject to the allocation of this case, it is reasonable to calculate the ratio based on the revenue amount of the head office and branch offices related to the ○○ Group in determining the ratio.
Related statutes
Article 19 (Scope of Losses)
Article 130 of the Enforcement Decree of the Corporate Tax Act
Text
1. The part of the disposition imposing corporate tax on the Plaintiff on July 1, 2004; the part exceeding KRW 63,90,492 of the disposition imposing corporate tax for the business year 199; and the part exceeding KRW 84,630,651 of the disposition imposing corporate tax for the business year 200 shall be revoked.
2. The plaintiff's remaining claims are dismissed.
3. The costs of lawsuit are divided into two parts, and one shall be borne by the plaintiff, and the remainder by the defendant, respectively.
Purport of claim
The Defendant’s disposition of imposition of corporate tax of KRW 195,928,770 for the Plaintiff on July 1, 2004, the disposition of imposition of KRW 197,960 for the business year 200, KRW 197,960,820 for the business year, and KRW 65,786,780 for the business year 201 shall be revoked.
Reasons
1. Details of the disposition;
The following facts are not disputed between the parties, or may be acknowledged by comprehensively taking into account the following facts: Gap evidence 1, 2, 3-1 through 18, 4-1 through 26, Gap evidence 5-1 through 28, Gap evidence 6, 7, 8, Gap evidence 9-1 through 9, Gap evidence 10, Gap evidence 11, Eul evidence 1-1 through 10, Eul evidence 2-1 through 2-9, Eul evidence 3-1 through 11, Eul evidence 4-1 through 9, and Eul evidence 4-9.
A. On September 28, 1992, the Plaintiff established its head office in Singapore, and established a branch office in various countries in the world including Hong Kong, the Republic of America, Russia, the Republic of South Africa, the Republic of Turkey, and other countries, and established an asset management company established under the laws of Singapore that operates investment management services, trading orders, and other related business. On September 30, 1998, the Plaintiff entered into an asset management agreement with ○○ Restructuring Fund, one of the four major restructuring funds in the Republic of Korea, and set up a domestic business office (hereinafter referred to as “Seoul business office”) in ○○○-dong, ○○-dong, 1998 in order to operate the asset management business of the said ○○ Restructuring Fund.
B. Meanwhile, the Plaintiff: (a) divided the organization into ○○ Group (○○○ Group) and △△ Group (△△△ Group), which is a sales department, into a major asset management business department; (b) operated the organization independently from each other; (c) performed core duties such as selection and decision-making of investment targets, investment management, recovery, liquidation, and reinvestment in the head office of Singapore and the Hong Kong branch; and (d) performed ancillary duties such as market research and analysis with minimum human resources.
C. As a foreign corporation with a domestic business place under Article 91 of the Corporate Tax Act, the Plaintiff reported and paid corporate tax on the Seoul business place to the Defendant. With respect to the business year from November 1, 1998 to September 30, 1999 (from November 1, 1998 to September 30, 199), with respect to the business year from December 30, 2000 (from October 1, 1999 to September 30, 200), the Plaintiff reported and paid it for the business year from December 31, 2001 (from October 1, 200 to September 30, 200) as follows:
(unit; source)
Business year
(2)Revenue amount
Operating expenses
net income
(2)
Tax Base
(3)
Tax amount payable
(4)
Fees and fees
Sales and administrative expenses;
Operating expenses
General System 1
Payment
Pay;
Accounting Law Firm
Head Office
Fees
Fees
Allocation of Expenses
9
2,912,873,529
1,073,163,929
38,248,388
748,499,354
2,121,611,643
791,261,886
791,26186
211,553,328
00
3,488,109,238
1,101,801,194
152,703,247
197,821,986
32,285,709
751,562,736
2,288,244,609
1,198,327,280
1,192,045,915
321,772,856
01
251,837,801
62,664,850
142,731,818
48,077,824
392,543,375
-143,117,313
-150,017,236
-160,886,420
① The total amount of operating expenses is the sum of commission fees, sales expenses and management expenses, and in the items of sales expenses and management expenses, there are more welfare expenses, rents, entertainment expenses, depreciation expenses, communications expenses, and other expenses, but did not be indicated separately because they are not related to the issues of this case.
(2) The net profit per business year shall be the remainder after the total operating expenses are deducted from the sales in cases of the business year 199 and 2000, but in cases of the business year 2001, it shall be the amount calculated by adding the total operating expenses to 140,705,574 won which remains after subtracting the total operating expenses from the sales to 703,734 won, and subtracting the total operating expenses from the total operating expenses.
(3) The tax base is the same as the remaining amount (net profit per fiscal year) obtained by subtracting the total operating expenses from the sales amount in cases of business year 1999, but in cases of business year 2000, the amount obtained by deducting the total operating expenses from the total operating expenses (net profit per fiscal year) and subtracting the total operating expenses from the sales amount (net profit per fiscal year), which includes 6,281,365 won in deductible expenses. In cases of business year 2001, allowances for severance benefits and retirement benefits are 8,95,271 won in net profit per fiscal year, 15,601,838 won in foreign currency, depreciation costs, 3,438,51,200 won in gross income, and the amount calculated by adding the total operating expenses from the sales amount to deductible expenses in cases of business year 2000.
④ The amount of tax payable is the amount calculated pursuant to Article 55(1) and (2) of the former Corporate Tax Act (amended by Act No. 6558 of Dec. 31, 2001). In the case of business year 2001, the amount of tax payable shall be the amount of tax payable, but the amount of tax paid by the Plaintiff shall be 160,886,420 won, which is the amount of tax payable.
On the other hand, when filing a corporate tax return for the business year 199 and 2000 as above, the Plaintiff calculated the expenses related to the Seoul place of business among the expenses incurred at the head office and Hong Kong branch as follows pursuant to Article 130(1) of the Enforcement Decree of the Corporate Tax Act, and included the expenses in the business expenses of the Plaintiff’s Seoul place of business. The allocation standard was based on the ratio of the assets of the Seoul place of business to the total assets of the Plaintiff (hereinafter “asset ratio standard”).
1. Calculation of distribution amount of expenses of the head office;
Occurrence
Place
199 business year
200 Business year
Object of distribution
Seoul Business Office
Plaintiff
Distribution
Expenses
Object of distribution
Seoul Business Office
Plaintiff
Distribution
Expenses
Expenses
Assets:
Management assets:
Rate
Distributed amount
Expenses
Assets:
Management assets:
Rate
Distributed amount
Singapore
15,855,470GD
17,7100,00 USD
4,104,720,000 USD
2.87%
454,697, SGD
14,806,659SGD
129,07 million USD
4,570,100 USD
2.82%
418,186SGD
Hong Kong
94,405,802HKD
177,7100,00 USD
4,104,720,000 USD
2.87%
2,707,33HKD
16,046,112HKD
129,07 million USD
4,570,170 million USD
2.82%
3,277,506HKD
① The SGD is to refer to USD 1 of Singapore, HKR to USD 1 of Hong Kong, and US$ 1 of the United States, and to abbreviated as such.
2. Conversion into won currency;
Place of occurrence
199 business year
200 Private year of 200
Expenses subject to distribution
Exchange Rate
Calculation
Expenses subject to distribution
Exchange Rate
Calculation
Singapore
454,697 SGD
716.61516
325,842,820 won
418,186 SGD
659.6871
275,872,238 won
Hong Kong
2,707,33 HKR
156.11544
422,656,534 won
3,277,506 HKR
145.13794
475,690,498 won
Total
748,499,354 won
751,562,736 won
D. However, from April 26, 2004 to May 24, 2001 of the same year, the Defendant conducted a tax investigation for the business year 1999 to 2001 of the Plaintiff’s Seoul Seoul place of business, excluding some of the common expenses, such as legal advice fees, from among the common expenses subject to distribution, such as the head office in 199 and 2000 business years, from the common expenses subject to distribution, and also calculated the standard for distribution of expenses in accordance with the ratio of the Plaintiff’s income from the entire revenue amount in each corresponding year to the revenue amount in the Seoul place of business (hereinafter “import ratio standard”), and imposed corporate tax for the business year 199 and 2000 as follows on July 1, 204 on the ground that the Plaintiff did not deny corporate tax after the termination of the asset operation contract with the ○○ Restructuring Fund and imposed corporate tax for the same business year on the Plaintiff on October 31, 2000, on the ground that the Plaintiff did not have any domestic source income after the foregoing business year.
1. Details and recognized allocation amounts among common expenses subject to distribution, such as the head office, etc. of the business year 1999 and 2000;
199 business year
200 Business year
Singapore (SGD)
Hong Kong (HD)
Singapore (SGD)
Hong Kong (HD)
Object of distribution
Expenses of the head office
Distribution
Target
Exclusion
Details
Report amount and the amount by department;
Difference
1,275,965
Hadern Advisory Fees
618,505
ICT Costs (IS&T); Exclusions
5,042,290
4,339,507
2,877,976
12,247,567
IS&T; ICT service charges
714,603
540,147
Accounting Fees
11,080
278,560
11,800
52,000
Consultation fees (market, ISO; excluding marketing, and telecommunication);
2,927
186,779
321,750
Legal consultation fees
686,893
1,006,369
480,361
20,342
Other fees
57,430
103,766
51,317
401,216
Audit Fees
48,816
7,615
71,549
15,181
Total Amount of exclusion
7,806,004
5,992,596
4,651,655
13,358,056
Total subject to distribution
7,995,466
8,413,206
10,155,004
102,688,056
Distribution Criteria
Total revenue (SGD)
244,098,860
33,334,199
Seoul place of business (SGD)
4,159,712
5,340,339
Allocation Ratio
approximately 0.17%
approximately 0.16%
Exchange Rate
713.1773846
155.469892
64.1802843
145.509841
Conversion of won currency subject to distribution
97,171,845
234,240,103
108,057,483
239,387,642
2. Details of correction and imposition of the corporate tax for the business year 199 through 2001 (unit; source);
Projects
Year
Original Tax Base
Allocation of Expenses of Head Office
Gross income
Inclusion in Loss
Tax Base III
No.D.
Additional Tax
Deduction
= notified tax amount
Amount reported on the appeal
Expenses subject to recognition allocation
Exclusion Amount of Expenses
(1)
Other
(2)
199
791,261,886
748,499,354
31,411,947
417,087,407
6,956,390
1,215,305,683
329,285,591
78,196,513
195,928,776
200
1,192,045,915
751,562,736
347,445,125
410,398,977
688,297
4,258,310
1,598,874,879
435,684,966
95,231,860
209,143,970
201
-150,017,236
328,495,069
683,734
184,694,022
39,714,326
26,072,454
65,786,780
(1) The exclusion amount of expenses shall be the remainder after deducting the expenses subject to recognized distribution as above from the expenses of the head office, etc. originally reported, and shall be included in the calculation of earnings: Provided, That in the case of the business year 200, the exclusion amount of expenses to be included in the calculation of earnings shall be calculated as KRW 404,117,611 according to the details and recognized allocation table of common expenses excluded from the defendant among the common expenses subject to distribution in the business
② In the case of the business year 199, the amount included in the calculation of earnings and other amounts is the amount included in the calculation of earnings for the undisputed portion of the operating fee of the ○○ Restructuring Fund, and in the case of the business year 2000, the losses from the evaluation of foreign currency assets and liabilities in unclear foreign currency assets are included in the calculation of earnings, and in the case of the business year 2001, the entire amount included in the calculation of expenses in the Seoul Seoul Business Office generated after November 200 is unrelated to the business of the
③ The tax base for a business year 1999, 200 shall be the remainder after adding the earnings corrected in the initial tax base and deducting the amount to be additionally included in the deductible expenses, and for a business year 2001, the Plaintiff shall add the net income -143,117,313 won to the net income -143,886,89 on the statement of accounts and deduct the deductible expenses -150,017,236 won calculated by deducting the deductible expenses 50,786,816 won. However, the Defendant denied all of the above adjustment amount of earnings calculated by the Plaintiff’s initial gross income -143,117,313 won on the initial statement of accounts -28,495,069 won on the basis of the foreign currency converted into the gross income and calculated by adding the deductible expenses to the deductible expenses.
(4) The calculated tax amount shall be the amount calculated according to Article 55(1) and (2) of the former Corporate Tax Act (amended by Act No. 6558 of Dec. 31, 2001); by means of [1,6 million won + [12/11 of - 100 million won] + X 28%) X 11/12; in cases of business year 2000, 2001, “16 million won + 16 million won + 100 million won]; X 28%) respectively.
(5) The tax amount to be deducted and notified shall be the amount calculated by deducting the already paid tax amount from the sum of the additional tax amount from the calculated tax amount for the business year 199, 2000, and in the case of the business year 201, it shall be the sum of the additional tax amount
E. On September 30, 2004, the Plaintiff denied common expenses such as the headquarters of the National Tax Tribunal, which were reasonably incurred in relation to domestic source income. (2) It is reasonable to allocate the common expenses subject to allocation as asset management ratio. (3) It is unreasonable for the Defendant to calculate the penalty tax by making an unfair under-reported amount even though the amount excessively distributed was only the difference arising from the allocation standard difference, and the Plaintiff was not falsely appropriated. (4) Since the Plaintiff incurred expenses for other asset management business even after the termination of the asset management contract with the ○○○ Asset Management Fund, and thus, it is unreasonable for the National Tax Tribunal to impose corporate tax on the Plaintiff on August 31, 2005 without recognizing the claim for imposition under-reported (1), (2), (4) and (3) the amount of corporate tax to be imposed under-reported and under-reported (3) the amount of corporate tax to be imposed under-reported and under-reported) the remaining amount of corporate tax to the Plaintiff for the business year 2004.
F. According to the above decision, on September 15, 2005, the Defendant calculated the penalty tax for the business year 2000 when it was imposed on the Plaintiff as a general underreporting amount, and subsequently corrected the corporate tax for the business year 2000 to KRW 11,183,155 by reducing the amount of KRW 11,183,155 from the amount initially imposed.
2. Whether the instant disposition is lawful
A. The plaintiff's assertion
(1) Since the head office and branch office of the Plaintiff Singapore play a key role in the selection of investors in the ○○ Restructuring Fund, investment management, investment advisory, etc., legal fees, advisory fees, etc. out of the amount excluded from common expenses subject to allocation of the instant case are costs related to the operation and rational of the Plaintiff’s Seoul Seoul Business Office’s ○○ Restructuring Fund. In addition, since the Plaintiff’s purchase, installation, operation, management, and services for the operation of the ○○ Restructuring Fund in Seoul Business Office are costs reasonably related to the operation and management of the Seoul Business Office’s ○○ Restructuring Fund, it is unreasonable that the Defendant excludes the ICA
(2) In light of the fact that the Plaintiff’s regular operating fees are paid based on the percentage of the customer’s assets, raising the value of the customer’s assets, raising profits as a result of the increase in operating assets, and increasing the expenditure of operating expenses, regulation-related expenses, personnel expenses, and other general management expenses in order to efficiently manage assets, etc., it is reasonable to allocate common expenses according to the asset ratio criteria, and even according to the domestic income ratio criteria, the Plaintiff used only the expenses related to the Seoul business office, i.e., the expenses related to the Seoul business office, among the expenses incurred at the Hong Kong Branch and the head office of Singapore in 200, in accordance with the domestic income ratio criteria. Therefore, in calculating the income ratio criteria, the revenue amount of the Seoul business office does not account for the ratio of the Plaintiff’s total income amount, but should be based on the revenue amount related to the ○○○ Group.
(3) The Plaintiff terminated the asset management contract with the ○○ Restructuring Fund on October 31, 200, but there is a need to continue to maintain the Seoul Business Office in order to settle accounts, conduct reporting duties, and develop and operate new asset management business in Korea following the termination of the above business. Therefore, the disposition to deny the entire amount of losses for the expenses incurred after the termination of the contract, which is costs not reasonably related to the income generated from domestic sources, is unreasonable.
(b) Related statutes;
[Corporate Tax]
Article 19 (Scope of Deductible Expenses)
(1) Deductible expenses shall be the amount of losses incurred by transactions which reduce the net assets of a corporation, excluding refund of capital or withdrawals, disposal of surplus funds, and transactions provided for in this Act.
(2) The losses under the provisions of paragraph (1) shall be losses or expenses generated or spent in connection with the business of a corporation which are generally accepted as normal or directly related to profit, except as otherwise prescribed by this Act and other Acts and subordinate statutes.
(3) Matters necessary for the scope and types of losses under the provisions of paragraphs (1) and (2) shall be prescribed by Presidential Decree.
Article 91 (Tax Base)
(1) The tax base for corporate tax on income for each business year of foreign corporations with the domestic place of business, foreign corporations with real estate income under the provisions of subparagraph 3 of Article 93 or foreign corporations with woodlands income under the provisions of subparagraph 8 of the same Article shall be the total amount of income generated from sources in Korea (excluding the amount of income generated from sources in Korea withheld under the provisions of Article 98 (1)) minus the amount or income
Article 92 (Calculation of Income Amount from Sources in Korea)
(1) The total amount of income generated in Korea by a foreign corporation for each business year falling under the provisions of Article 91 (1) shall be the amount calculated by applying mutatis mutandisArticle 14 through 54 of this Act and Articles 104 and 138 of the Restriction of Special Taxation Act as prescribed by the Presidential Decree.
Domestic source income of a foreign corporation under Article 93 (Domestic Source Income) shall be classified as follows:
5. Income generated by a business operated by a foreign corporation (including income taxable as domestic source business income under tax treaties) as prescribed by the Presidential Decree: Provided, That this shall not include income under subparagraph 6;
Article 94 (Domestic Business Place of Foreign Corporation)
(1) Where a foreign corporation has a fixed place in which all or part of its business is conducted in the Republic of Korea, it shall be deemed having
[Enforcement Decree of the Corporate Tax Act]
Article 129 (Calculation of Income Amount from Sources in Korea)
(1) In the calculation of the total amount of income generated in Korea by a foreign corporation for each business year under the provisions of Article 92 of the Act, the calculation of earnings and losses shall be subject to the provisions of the following subparagraphs, except as otherwise provided in the
1. Deductible expenses under Article 14 of the Act shall be limited to the revenue amount and asset value related to the domestic source income under Article 93 of the Act, and those reasonably distributed to the domestic source income;
Article 130 (Division of Headquarters Expenses)
(1) In determining the amount of income of a domestic business place of a foreign corporation for each business year, the common expenses among the expenses of the head office and relevant branches having jurisdiction over the domestic business place, whose domestic source income is reasonably related to such domestic business place shall be allocated to
(2) The scope and method of distributing expenses that are allocated to a domestic place of business under paragraph (1), method of allocating expenses by type of business, won conversion method of foreign currency when expenses are allocated, submission of accompanying documents, such as statement of expenses distribution, and other necessary matters shall be
[Enforcement Rule of the Corporate Tax Act]
Article 64 (Division of Headquarters Expenses)
(1) In applying Article 130 of the Decree, expenses of the head office, etc. falling under any of the following subparagraphs shall not be allocated to domestic business places:
1. Expenses incurred in carrying out the unique duties of only the head office, such as auditing, preparation of various financial statements or issuance of stocks, from among those carried out by the head office;
2. Expenses disbursed for only specific departments or specific branches of the head office, etc.;
3. Expenses incurred in relation to the investment in other corporations;
4. Other expenses not reasonably related to the occurrence of domestic source income.
(2) When a foreign corporation distributes common expenses of relevant branches, etc. having jurisdiction over the head office of the domestic business place in Korea under Article 130 (1) of the Decree, the allocation method by item and the distribution method of expenses to be allocated according to the standards for items of expenses or the ratio of the revenue amount of the domestic business place to the total revenue amount of the head office and the relevant branch office having jurisdiction over the domestic business place, may be allocated in a lump sum.
(3) The conversion of foreign currency into Korean currency where common expenses are allocated under paragraph (2) shall apply to the average of the basic exchange rate or arbitrated exchange rate under the Foreign Exchange Transactions Act in the business year concerned.
(4) In applying paragraphs (1) through (3), specific calculation methods, submission of accompanying documents and other necessary matters shall be determined by the Commissioner of the National Tax Service.
【Public Notice on Method of Distribution and Presentation of Documents concerning the Head Office and Expenses, etc. to be included in the Calculation of Taxable Income of Foreign Enterprises】
[Public Notice by the National Tax Service No. 99-28 ( September 1, 199)]
1. Scope of expenses subject to distribution;
(1) The expenses reasonably related to the occurrence of the domestic source income of the domestic business place shall be allocated among the expenses falling under the management expenses and general management expenses incurred by the head office and branch offices of the domestic business place of the foreign company.
(2) Of the expenses incurred at a domestic place of business, common expenses shall not be directly included in deductible expenses of the domestic place of business, but include expenses subject to allocation.
2. Expenses not included in expenses subject to distribution;
(a) Expenses enumerated in Article 64 (1) of the Enforcement Rule of the Corporate Tax Act and Article 86-4 (1) of the Enforcement Rule of the Income Tax Act;
(1) Expenses incurred in performing its unique duties, such as auditing, preparation of various financial statements, or issuance of stocks, among those conducted by the head office and regional offices, only the head office and regional offices.
(2) Expenses disbursed only for a specific department or specific branch of the head office and local offices.
(3) Expenses incurred in connection with investments in other corporations at the head office and branch offices.
(4) Other expenses not reasonably related to the occurrence of domestic source income.
3. The amount of common expenses distribution which a foreign company’s domestic place of business may include in deductible expenses for the calculation of its income amount for each business year shall be calculated by selecting and using one of the methods listed in the following subparagraphs, and the method of distribution shall be continuously applied even after the following business year except in extenuating circumstances:
(a) Method of distribution by item;
(b) A distribution method en bloc;
(1) The method of collective distribution refers to the method of calculating the total amount of common expenses attributed to a domestic place of business in accordance with the income standard when it is inappropriate to apply the method of allocation by item or the amount of common expenses subject to allocation is low.
(2) The amount of common expenses to be allocated to a domestic business place in a lump sum shall be calculated by multiplying the total amount of common expenses to be allocated by the ratio of the amount of income of the domestic business place to the total amount of income of the local branch offices and their domestic business places.
The amount of common expenses of the head office and local offices = Expenses subject to allocation of the head office X (the aggregate of the revenue amount of domestic place of business / the revenue amount of the head office and the revenue amount of each branch office under the head office) + Expenses subject to allocation of local offices X (the aggregate of the revenue amount of domestic place of business / local offices and the revenue amount of each branch office under the local offices)
5. Submission of attached documents and verification;
(a) Where a foreign company has common expenses included in deductible expenses in calculating the amount of domestic source income for each business year, the following documents shall be attached to the report at the time of filing corporate tax return or revised return of corporate tax:
(1) The organization of the head office and regional offices and the division of work
(2) Data explaining that items of expenses subject to distribution are contained in common expenses to be allocated to domestic business places;
(c) Statement of common expenses subject to distribution;
(4) Statement of distribution of common expenses
(5) A statement of the revenue amount of the headquarters and local offices;
(6) Income statement and specification of items of expense to be destroyed in the course of the head office and branch offices themselves; and
(7) The consolidated income statement as of the end of the business year of the headquarters and branch offices.
Provided, That the following matters shall be signed by an external accounting specialist of the country in which the head office and the regional center are located:
(1) Detailed statement of expenses for related points subject to distribution.
(2) A list of world-related revenues.
(3) A description of organization of the head office and related points and of the division division of affairs.
(b) Where the head of a regional tax office or the head of a tax office requests that the domestic business place submit evidential documents necessary for calculating the amount of common expenses included in deductible expenses when calculating the amount of income of the domestic business place of a foreign company, or prove the reasonableness of the criteria for allocation of expenses and the calculation of expenses
(c)where the domestic place of business fails to submit or prove the accompanying documents referred to in the provisions of the above "A" and "B" without good cause, the amount of common expenses allocation which is not so submitted or proved shall not be included in deductible expenses in determining or correcting the amount of income of the domestic place of business of that foreign corporation until such documents are submitted or proved;
Addenda
(Enforcement Date) This notice shall be effective on the date of public notice.
(2) This public notice shall apply from the business year in which the first report is filed after its enforcement date.
C. Determination
(1) Review of applicable legislation
(A) In the calculation of the total amount of domestic source income of a foreign corporation pursuant to Article 54 of the Corporate Tax Act prior to the amendment by Presidential Decree No. 15970 on December 31, 1998, Article 121(1)1 of the former Enforcement Decree of the Corporate Tax Act provides that the deductible expenses under Article 9 of the Corporate Tax Act shall be limited to the amount of income and assets related to domestic source income under Article 55 of the Corporate Tax Act and the amount of income reasonably distributed to domestic source income under Article 55 of the Corporate Tax Act. However, the National Tax Service Notice No. 89-60 of the National Tax Service set forth the target amount and method of distribution, such as the head office of a foreign corporation.
(B) However, the Corporate Tax Act was amended by Act No. 5581 on December 28, 1998, and thereafter, the Enforcement Decree of the same Act was amended by Presidential Decree No. 15970 on December 31, 1998, and Article 130(1) of the same Act provides that, in determining the amount of income for each business year of a domestic business place of a foreign corporation, common expenses among the expenses, such as the head office and the relevant branch having jurisdiction over the domestic business place, were allocated to the domestic business place to include expenses reasonably related to the occurrence of domestic source income of the domestic business place in deductible expenses.
(C) Meanwhile, Article 130(2) of the Enforcement Decree of the Corporate Tax Act provides that the scope of expenses, method of allocation, accompanying documents, and other necessary matters shall be determined by the Ordinance of the Ministry of Finance and Economy. In applying the provisions of Article 130 of the Enforcement Decree of the Corporate Tax Act to Article 64, the Enforcement Rule of the Corporate Tax Act was amended by Ordinance of the Ministry of Finance and Economy No. 54 on May 24, 199, and Article 130 of the Enforcement Decree of the Corporate Tax Act provides for the scope and method of allocation, the following detailed method of calculation, submission of accompanying documents, and other necessary matters. The delegated Commissioner of the National Tax Service on September 1, 199, the National Tax Service enacted and publicly announced the "public notice on the method of distribution and documents to be submitted, such as
(D) However, the amended Corporate Tax Act and the Enforcement Decree of the same Act enter into force in its Addenda.
Although the general application is made on January 1, 1999, the general application is to be applied from the first business year beginning after the enforcement, and the amended Enforcement Rule of the Corporate Tax Act also provides that the general application is to be applied from the business year beginning after January 1, 1999.
Therefore, the amended Enforcement Decree and Enforcement Rule of the Corporate Tax Act cannot be directly applied to the corporate tax for the 1999 business year that begins on November 1, 1998.
Meanwhile, the National Tax Service notice No. 199-28 provides that this notice shall enter into force from the date of public notice (the date of September 1, 1999) and shall apply from the business year that was first reported after the enforcement date. In calculating the total amount of domestic source income for each business year of a foreign corporation, Article 121(1)1 of the Enforcement Decree of the Corporate Tax Act provides that deductible expenses prescribed in Article 9 of the Corporate Tax Act shall be limited to the amount of income and assets related to domestic source income prescribed in Article 55 of the Corporate Tax Act and the amount reasonably distributed to domestic source income. Thus, the amended Enforcement Decree and Enforcement Rule of the Corporate Tax Act provide for the principle of inclusion in deductible expenses, even if specific provisions on the amount subject to allocation of principal office expenses to be included in deductible expenses of the domestic place of business of the foreign corporation only in the above amended Enforcement Decree and Enforcement Rule of the Corporate Tax Act, such amendment provisions may be applied as one interpretation principle in determining the method of distribution of corporate tax expenses, etc. for the business year of the Plaintiff
Furthermore, with respect to the corporate tax for the business year 2000, the amended Enforcement Decree and Enforcement Rule of the Corporate Tax Act and the above notice of the National Tax Service are directly applied.
(2) As to the amount excluded from common expenses subject to distribution
(3) Article 129(1)1 of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970, Dec. 31, 1998; hereinafter the same shall apply) provides that the deductible expenses shall be deductible expenses incurred by transactions which reduce the net assets of a corporation and which are generally accepted as losses or expenses incurred in connection with the business of the corporation or directly related to profit-making. Article 129(1)1 of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970, Dec. 31, 1998; hereinafter the same shall apply) provides that the deductible expenses shall be reasonably distributed to a domestic business place related to the revenue and asset value of the head office related to domestic source income under Article 93 of the Corporate Tax Act or a domestic business place; Article 64 of the Enforcement Rule of the same Act provides that the amount of deductible expenses shall not be reasonably distributed to a corporation that does not carry out the business of the head office or revenue-making of the relevant domestic business place; and
(B) Therefore, when comprehensively considering the above relevant laws and regulations, the amount of common expenses such as the head office, etc. to be included in deductible expenses in calculating the income amount of a domestic business place of a foreign corporation for each business year may be allocated to the domestic business place only when there are reasonable relations with the domestic business place's domestic source income, and the taxpayer bears the burden of proving that the common expenses allocated are reasonably related to the domestic source income.
(C) However, with regard to the fact that the Defendant excluded some of the common expenses subject to allocation such as its head office from the cost of domestic source income of the Seoul place of business, the Plaintiff did not submit any supporting evidence that the above amount is reasonably related to the Seoul place of business. Furthermore, according to each description of evidence No. 4-24, evidence No. 5-1, No. 5-2, the head office of Singapore and Hong Kong branch office should bear accounting fees and legal fees in order to carry out the unique activities of the head office and branch office in question, such as auditing and preparation of various financial statements. However, the Plaintiff's head office and Hong Kong branch office do not include other legal fees and accounting audit fees in addition to the amount included in the common expenses subject to allocation of this case. The Plaintiff's head office and Hong Kong branch office paid a considerable amount of accounting, legal fee, etc. separate from its head office and Hong Kong branch office and included them in the business expenses under the name of sales and management expenses. In full view of these facts, it appears that the Plaintiff's legal expenses incurred at the above branch office and Hong Kong branch office were reasonably related to the domestic source income.
Therefore, it is reasonable that the defendant excludes the above amount from common expenses subject to distribution of the headquarters.
(2) As to the method of distribution
(A) In calculating domestic source income amount of a foreign corporation, in principle, it is in accordance with the domestic law and accounting standards, unless otherwise provided for in the treaty or domestic law (see Supreme Court Decision 97Nu3903, Feb. 22, 2000). Under Article 130(1) of the Enforcement Decree of the Corporate Tax Act, Article 64(2) of the Corporate Tax Act provides that, in allocating common expenses such as the head office and a branch office having jurisdiction over the domestic place of business of the foreign corporation, the expenses to be allocated by item or distribution method may be allocated according to the ratio of the revenue amount of the domestic place of business to the total revenue amount of the head office and the branch office having jurisdiction over the domestic place of business to the total revenue amount of the head office and the branch office having jurisdiction over the domestic place of business. Under Article 130(4) of the Enforcement Decree of the Corporate Tax Act, the total amount of revenue amount of the domestic place of business to be allocated to the local place of business and the total amount of revenue amount of the local place of business to be allocated.
Therefore, in light of the above relevant laws and regulations, as long as the distribution method of common expenses such as the head office is not based on the item distribution method according to the item distribution method according to the item distribution method, the standard of allocation is deemed the most appropriate method to allocate the expenses subject to distribution according to the ratio of the revenue amount of the domestic business place to the total revenue amount of the head office and the relevant branch having jurisdiction over the domestic business place. Therefore, the defendant's allocation of common expenses subject to distribution of the head office is lawful in accordance with the relevant laws and regulations. The plaintiff's assertion on this part is without merit (Supreme Court Decision 89Nu7320 Decided March 23, 1990 cited by the plaintiff). If a foreign corporation reports and pays the amount of expenses that can be included as deductible expenses of the domestic business place among the head office expenses by item distribution method, if any reasonable ground exists, the tax authority denies the distribution method and differently denies the distribution method and implements the difference between the first item distribution method and the first item distribution method and the first item distribution method by applying the distribution method to the National Tax Service's notice method.
(B) However, in the instant case, the Defendant calculated common expenses subject to the allocation of common expenses such as the head office and Hong Kong branch offices according to the ratio of the revenue amount of the Plaintiff’s domestic place of business to the total revenue amount of the Plaintiff’s entire place of business, which is not a reasonable method (in accordance with the National Tax Service Notice No. 1999-28, it is obvious that it is an erroneous method of calculation), and then, on the appropriate ratio of allocation.
First, with respect to the method of allocating common expenses of the head office of Singapore, the Plaintiff is divided into ○○ Group in charge of operating the organization and △△ Group in charge of selling ○○○ Group. In relation to the operation of the ○○ Restructuring Fund, the Seoul and the branch offices of Hong Kong are located in ○○○○ Group. Meanwhile, considering the whole purport of the pleadings in each entry in the evidence No. 5-1 through No. 28, the Plaintiff can recognize the fact that the expenses of the sales department, etc. deemed related to the △△ Group among the expenses of the head office of Singapore in the 1999 and 200 business year, the Plaintiff is excluded from the common expenses subject to the instant allocation. Therefore, it is reasonable to calculate the distribution ratio based on the revenue amount of the head office and the branch offices of the head office related to the ○○ Group.
Next, according to the above evidence, the distribution rate of common expenses of the Hong Kong branch, which is a regional point of view, is reasonable in determining the distribution rate, as long as expenses incurred by the Hong Kong branch do not exclude the expenses related to the sales department, such as the head office of Singapore, that is, the expenses related to the △△ Group, and there is no evidence to know that the items of the above expenses are related to the △△ Group, it is reasonable to calculate the Seoul branch's revenue not based on the revenue amount related to the ○○ group, but based on the ratio of the revenue amount of the Hong Kong branch's whole revenue amount and its affiliated branch's revenue amount.
(C) Meanwhile, according to the above evidence, the Plaintiff’s revenue related to the ○○○ Group in the business year 1999 relating to the Plaintiff’s 115,777,50 SGD, and the revenue related to the Hong Kong Branch’s ○○ Group, 93,74,744,162 SGD, the revenue amount of the Seoul branch’s 4,159,712 SGD, and the revenue amount of the principal office of Singapore in the business year 2000, the revenue amount relating to the ○○ Group in the business year 110,90,1190,112,22 SGD, the revenue amount of the branch office in Hong Kong, the revenue amount of the branch office in the business year 1999, the total revenue amount of the branch office in the business year 109,375,89,93GD, the distribution rate of the revenue amount in the business year 2009,390,3909,39.
Classification
199 business year
200 Business year
Head Office of Singapore
Hong Kong Points
Head Office of Singapore
Hong Kong Points
Amount subject to distribution;
7,995,466 SGD
8,413,206 HKD
10,155,004 SGD
102,688,056 HKR
Basic revenue amount
(unit; SGD)
(115,77,500
(1) 109,375,893
(110,990,119
(1) 180,35,939
(2) 93,744,162
2.4,159,712
(2) 133,112,222
(2) 5,340,339
(3) 4,159,712
(3) 5,340,339
Allocation Ratio
0.019466890
0.03637952
0.021409082
0.02876157
[3±(1 +2 +3)]
[B±(1+B)]
[3±(1 +2 +3)]
[B±(1+B)]
Exchange Rate
713.1773846
155.469892
64.1802843
145.509841
Object of distribution
Conversion of won currency
111,003,818
503,610,639
144,398,979
429,759,136
Recognition
Total of allocated amounts;
614,614,457 won
574,158,115 won
Exclusion Amount of Expenses
(Total Amount of Gross Income)
133,884,897 won
177,404,621 won
(748,499,354 - Amount of the initial return - above
(751,562,736 of the initial return - above-mentioned
Amount recognized 614,614,457
Amount recognized 574,158,118
(3) As to the non-Inclusion of the business year 2001 in deductible expenses
Although the Plaintiff terminated the asset management contract with the ○○ Restructuring Fund on October 31, 2000, it is necessary to continue to maintain the Seoul business office in order to settle accounts, conduct reporting duties, and develop and operate new asset management business in Korea after the termination of the business. Therefore, it is unreasonable to deny the Plaintiff’s total denial of deductible expenses on the ground that the expenses incurred after the termination of the contract are costs not reasonably related to domestic source income.
In the calculation of the total amount of domestic source income of a foreign corporation for each business year, Article 129 of the Enforcement Decree of the Corporate Tax Act provides that deductible expenses under Article 14 of the Corporate Tax Act shall be limited to the amount of income and assets related to domestic source income under Article 93 of the Corporate Tax Act and the amount reasonably distributed to domestic source income. Thus, even if domestic source income was not entirely generated after a certain period during each business year, the whole expenses paid after the above period shall not be deemed to be entirely related to domestic source income. Thus, if it is deemed reasonable in light of the process of expenditure, details, and amount of expenses, it shall be deemed that the expenses related to
As seen earlier, the Plaintiff’s Seoul Business Office is established for business related to the ○○○-gu Coordination Fund and the Asset Management Contract. As such, even if the Seoul Business Office was established to develop and operate a new asset management business after the termination of the Asset Management Contract, such expenses are not reasonably related to the income generated during the above period. However, the Seoul Business Office needs to maintain and manage the Seoul Business Office for the settlement of accounts and reporting following the termination of the Asset Management Contract, and relevant expenses are reasonably related to the income generated during the above period.
However, in principle, the burden of proof of the requirement of taxation can be borne by the tax authority, but since the termination of the operation contract with the ○○ Restructuring Fund of this case, expenses incurred in the development and operation of new asset management business after the maintenance of the ○○ Restructuring Fund of this case cannot be included in the calculation of losses. Therefore, among the total expenses incurred by the maintenance of the ○○ Operation Fund of this case after the termination of the contract, it is reasonable for the plaintiff to assert and prove the specific amount of expenses incurred in the settlement of accounts and reporting (the expenses to be included in the calculation of losses) due to the termination of the contract after the termination of the contract, and the plaintiff's assertion in this part cannot be accepted.
(d)Calculation of the legitimate corporate tax amount by business year; and
Therefore, according to the above criteria, the legitimate tax amount of the corporate tax for the business year 199 through 2001 of the Plaintiff’s Seoul Business Office is as stated in the separate sheet of legitimate tax calculation. Accordingly, the portion of the imposition disposition of this case exceeding KRW 63,990,492 of the corporate tax for the business year 1999, KRW 84,630,651 of the corporate tax for the business year 2000 is unlawful.
3. Conclusion
Therefore, the plaintiff's claim of this case is justified within the scope of the above recognition, and the remaining claims are dismissed as it is without merit. It is so decided as per Disposition.