[1] Scope of earned income under Article 20 (1) of the former Income Tax Act

[2] Whether income subject to taxation may be deemed to have occurred in a case where the right to generate income does not reach a mature and fixed level to a high probability of realizing the right to generate income (negative)

[1] Wage and salary income under Article 20(1) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016) includes not only all economic benefits, regardless of the form or name of payment, which are related to the provision of labor by nature, but also benefits which form contents of working conditions closely related to the provision of labor on the premise of labor, in addition to the direct remuneration for labor.

[2] In order to ensure that income subject to taxation has been realized, even if it is not necessary until the income is realized, it shall be mature and confirmed to a considerably high level in the possibility of realizing the right to generate income, and therefore, it shall not be deemed that there is an income generated in the mere process that the right is established without reaching such a level. Whether the right to generate income is mature or finalized shall be determined by comprehensively taking into account the nature and content of each specific right and various matters of law and fact-finding. In particular, if there is a dispute between the payer of income and the beneficiary as to the existence and scope of the claim, and if it is clearly unreasonable in light of the circumstances and the nature of the case, it shall not be deemed that the right to generate income becomes final and conclusive.

[1] Article 20 (1) of the former Income Tax Act (Amended by Act No. 14389, Dec. 20, 2016) / [2] Articles 24 and 39 of the former Income Tax Act (Amended by Act No. 14389, Dec. 20, 2016)

[1] Supreme Court Decision 2007Du1941 Decided October 25, 2007 (Gong2007Ha, 1866), Supreme Court Decision 2016Du39726 Decided October 27, 2016 (Gong2016Ha, 1838), Supreme Court Decision 2014Du7992 Decided September 12, 2017, Supreme Court Decision 2014Du14525 Decided September 21, 2017 / [2] Supreme Court Decision 96Nu2200 Decided April 8, 197 (Gong197Du1477), Supreme Court Decision 201Du7176 Decided December 26, 2003, Supreme Court Decision 2001Du208484 Decided December 26, 2004, Supreme Court Decision 2005Du2084525 Decided December 26, 2003

Plaintiff (Law Firm Seoin, Attorneys Park Jae-hee et al., Counsel for the plaintiff-appellant)

Daejeon Head of the District Tax Office

Daejeon High Court Decision 2017Nu10089 decided July 13, 2017

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

The grounds of appeal are examined.

1. Wage and salary income under Article 20(1) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016) includes not only all economic benefits, regardless of its payment form or name, which are related to the provision of labor, but also benefits that constitute the contents of working conditions closely related to the provision of labor on the premise of labor, in addition to the direct remuneration for labor (see Supreme Court Decision 2007Du1941, Oct. 25, 2007, etc.).

Meanwhile, in order to ensure that income subject to taxation has been realized, even if it is not necessary until it is realized in reality, the right to generate income shall be mature and confirmed to a considerably high level in the possibility of realizing it, and therefore, it is merely established without reaching such a level. Whether the right to generate income is mature or finalized or not shall be determined by comprehensively taking into account the nature and contents of each specific right and various matters of law and fact-finding, and in particular, if the dispute between the payer of income and the beneficiary arises between the existence and the scope of the claim, and if it is obviously unreasonable in light of the circumstances and the nature of the case, the right to generate income cannot be deemed to have become final and conclusive, and the right shall be deemed to have become final and conclusive at the time the judgment becomes final and conclusive (see Supreme Court Decision 96Nu2200, Apr. 8, 1997, etc.).

2. Review of the reasoning of the lower judgment and the record reveals the following facts.

A. On June 1, 2005, the Plaintiff entered the ○○○○○○○, a company (hereinafter “△△△△”) on July 1, 2006, and was appointed as a director on April 13, 2007. The Plaintiff was in charge of authorization and permission related to the △△△△△ Tourism at the time of the work of △△△△△, and was in office as the head of the ○○ golf course construction headquarters after the approval of the relevant project. After the completion of the said golf course, the Plaintiff was in charge of general affairs to promote the tourism development project of △△△ Metropolitan City, such as holding office as the head of the 2-stage project promotion headquarters.

B. On October 8, 2007, the Plaintiff entered into this case’s agreement with △△△△△. The foregoing agreement was concluded that the Plaintiff left the job from another company to implement the tourism development project in △△△△△△, and △△△△△ shall pay the Plaintiff a successful compensation in accordance with the matters that the Plaintiff made verbally to the Plaintiff, and the remainder KRW 200 million shall be paid in principle according to the company’s financial standing every year or every half year from 2008. Meanwhile, at the time of the preparation of the instant agreement, △△△△△ was responsible for the loan obligations and the construction cost obligations for the construction project, such as the golf course in △△△△ City development, and the Plaintiff was also aware of the financial situation, and it was only the middle progress of the △△△△△△△△△ project.

C. On July 31, 2010, 2010, △△△△△ rendered a notice of dismissal to the Plaintiff on the ground that “the Plaintiff was suffering from enormous operational damage to the company in which △△△△ was in office upon filing a lawsuit and an application for provisional attachment.” On June 11, 2010, the Plaintiff filed a civil suit against △△△△△△△ on the ground that △△△ did not pay the amount of money under the instant agreement with respect to the civil suit seeking the payment of the agreed amount against △△△△△△△△△△△△△△, the Jeju District Court ordered the Plaintiff to pay the said agreed amount KRW

D. On April 20, 2012, △△△△△△△ was dissatisfied with the above judgment, and the appellate court paid a total of KRW 3.4 billion to Nonparty 1 and Nonparty 2, including the Plaintiff, and the instant conciliation was concluded as it held in proportion to the key amount of KRW 8.4 billion among the above amount. The Plaintiff received the key amount on May 4, 2012 from the △△△△△△△△△△ in accordance with the instant conciliation.

E. In the process of filing global income tax return for the year 2012 on May 31, 2013, the Plaintiff reported and paid the amount of the issues received as above based on the instant agreement, including wage and salary income accrued in the year 2012, but filed a request for correction by asserting that the time when income tax reverted to the key amount on August 4, 2014 was not 2012 years but 2007, and the Defendant rendered the instant disposition rejecting the Plaintiff’s request for correction on November 3, 2014.

3. Examining these factual relations in light of the legal principles as seen earlier, since the Plaintiff received issues related to the performance included in the scope of its duties as a director of △△△△△, it is reasonable to view the key amount as constituting a salary closely related to economic benefits or labor in relation to the Plaintiff’s work provided as a director of △△△△△△△. Furthermore, insofar as disputes arising in the overall obligation to pay the amount under the instant agreement between △△△△ and the Plaintiff arose and civil litigation was instituted, and such disputes cannot be deemed obviously unreasonable in light of the developments leading up to the instant agreement or the nature of the case, it is difficult to view that the instant agreement alone has a considerable maturity and confirmed to the extent that the possibility of realizing income equivalent to the key amount of wage and salary income has become final and conclusive. Accordingly, the income from the key amount corresponding to the wage and salary income becomes final and conclusive in 2012 according to the instant adjustment, and the instant disposition is legitimate on the ground

Although the reasoning of the lower court was inappropriate or inadequate, the conclusion that the instant disposition was lawful is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the timing of attribution of income

4. 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 Cho Jae-chul (Presiding Justice)