In a case where: (a) the tax authority did not withhold income tax on the invention compensation under the Invention Promotion Act, which is non-taxable income under Article 12 subparag. 5 (d) (i) of the Income Tax Act, while paying a part of the royalties received by the research institute Gap who was a government-funded research institute as compensation for work performance to employees who contributed to the invention; and (b) the tax authority imposed a disposition to collect income tax on the research institute, the case

In a case where: (a) the tax authority that did not withhold income tax on the invention compensation under the Invention Promotion Act, which is non-taxable income under Article 12 subparag. 5 (d) (i) of the Income Tax Act, paid part of the royalties received by the research institute Gap, as compensation for work-for-service invention; and (b) did not withhold income tax; (c) the tax authority rendered a disposition to collect income tax on the research institute; (d) the court affirmed the judgment below that: (a) the research institute’s employees succeeded to the rights, etc. of the research institute in accordance with the intellectual property management guidelines, which are the internal rules of the research institute Gap; and (d) the compensation was paid by the research institute Gap for such reasons; (b) the payment was reasonably calculated in accordance with the intellectual property management guidelines and personnel regulations, which are internal rules, and it is difficult to view that the compensation exceeds the legitimate scope as compensation

Article 12 subparagraph 5 (d) of the Income Tax Act, Article 15 (1) of the Invention Promotion Act

Korea Telecommunications Research Institute (Law Firm, Kim & Lee LLC, Attorneys Gyeong-tae et al., Counsel for the defendant-appellant)

Daejeon District Tax Office (Before its Superintendent: Daejeon District Court Decision 2000Na100000 delivered on July 2, 2000)

Daejeon High Court Decision 2014Nu29 decided November 20, 2014

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Article 12 subparag. 5 (d)(1) of the Income Tax Act provides that “An employee shall have the right to obtain reasonable compensation in cases where the employee, etc. succeeds to the right to obtain a patent, patent right, etc., to the employer, etc., or establishes an exclusive license in accordance with a contract or employment regulations,” among other income, as one of non-taxable income. Article 15(1) of the Invention Promotion Act provides that “The employee, etc. shall have the right to obtain reasonable compensation.”

2. After compiling the adopted evidence, the court below acknowledged the facts as stated in its decision. The compensation of this case was executed by the plaintiff's employees after succeeding to the plaintiff's right to employee's invention in accordance with the plaintiff's intellectual property management guidelines, which are the plaintiff's internal rules, and was reasonably calculated in accordance with the plaintiff's intellectual property management guidelines and personnel regulations. The compensation of this case cannot be deemed to exceed the legitimate scope of compensation for employee's invention; the payment method of the compensation of this case cannot be deemed to fall under the wage and salary income merely because the employee's invention, which was the cause of payment, was conducted in the course of performing the plaintiff's business; and unlike the compensation of this case, the compensation of this case cannot be deemed to fall under the wage and salary income of this case; in addition to the compensation of this case, the plaintiff shared some methods of calculating the compensation of this case and the income tax of this case, but it does not fall under the non-taxable income under Article 12 subparagraph 5 (d) (1) of the Income Tax Act.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court’s fact-finding and determination are justifiable, and contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal principles as to the burden of proof of illegal or non-taxation, such as omitting judgment on income classification

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Yong-deok (Presiding Justice)