Hansung (Attorney Seo-gu et al., Counsel for the defendant-appellant)

The director of the Namincheon Tax Office

April 7, 2017

1. The instant lawsuit shall be dismissed.

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

The Defendant’s corporate tax base on July 1, 2015 for the Plaintiff: ① from KRW 1,628,381,381,107 to KRW 1,412,107,174; ② from KRW 527,658,529 to KRW 217,650,09; ③ the corporate tax base on corporate tax for the business year belonging to the business year 2012 to KRW 1,035,353,036 to KRW 735,97,372; ④ the corporate tax base on corporate tax belonging to the business year 2013 to KRW 1,345,746,497 to KRW 1,126,523,215; ⑤ the corporate tax base on corporate tax belonging to the business year 2014 to KRW 514,202,305 to KRW 315,817,73 each disposition is revoked.

1. Basic facts

A. The Plaintiff is a specialized production company for electric cables established by spin-off from Hansung Co., Ltd. around December 2008.

B. The Plaintiff was incorporated into an affiliate of the LS Group around July 2009, and among the Plaintiff’s sales revenue, the Plaintiff accounts for at least 80% of the sales revenue to the companies, such as LS Cable Co., Ltd. (hereinafter “SS Cable”) and LS Cable Co., Ltd. (hereinafter “SS Cable”).

C. On May 28, 2015, the Defendant: (a) deemed that the Plaintiff delayed the collection of sales claims against the Plaintiff pursuant to Article 52 of the former Corporate Tax Act (amended by Act No. 13555, Dec. 15, 2015); and (b) pursuant to Article 88 of the Enforcement Decree of the Corporate Tax Act, the Plaintiff, without justifiable cause, deemed that the sales claims against the specially related parties were delayed and recovered compared to the average collection date of sales claims against the general customer, a non-related party; (c) denied the amount equivalent to the interest accrued from the delayed collection of sales claims as wrongful calculation; (d) included the denied amount in the Plaintiff’s gross income; and (e) determined the corporate tax base that reverts to the business year from 2010 to 2014; and (e) notified the Plaintiff of the revised tax base (hereinafter “Amended tax base”).

Existing Tax Base (A) belonging to the year 2014, which reverts to the year 2012, which reverts to the year 2010 as the table (the unit) in the main sentence, -1,628,628,381, 107-527,658,529,529-1,035,353,036-1,346, 4975-14, 202,305, 216,273,933, 3108,529,35,6429,223,282,198,614,6132 of the table (the unit) belonging to the year 2012, which reverts to the year 2011 as the table (the unit) in the main sentence (the unit)

D. On September 23, 2015, the Plaintiff asserted that the tax base of the instant correction was unlawful and unfair, and filed a tax appeal with the Tax Tribunal on September 23, 2015. However, on June 30, 2016, the Tax Tribunal rendered a decision to dismiss the Plaintiff’s appeal by deeming that the Plaintiff did not err in the tax base on the instant correction because the Plaintiff delayed to collect the sales claim against the specially related person for a period equivalent to the sales claim against the non-specially related person, even though the sales item was not different from the specially related person.

[Reasons for Recognition] The facts without dispute, Gap evidence Nos. 1 through 4 (including branch numbers, hereinafter the same shall apply), Eul evidence Nos. 1 and 2, and the purport of the whole pleadings

2. The parties' assertion

A. The plaintiff's assertion

The Plaintiff collected sales claims in accordance with the standards for the payment of LS Wires, etc. in order to maintain the transaction relationship between LS Wires, etc. relatively large compared to the Plaintiff, but did not delay or recover sales claims in order to unfairly avoid or reduce tax burden on the ground that LS Wires, etc. are related parties. Therefore, the correction tax base of this case should be revoked in an unlawful and unfair

B. Defendant’s assertion

Considering the special relationship between the Plaintiff and LS Wire, the Plaintiff’s delayed collection of sales claims against LS Wires is aimed at unfairly avoiding or reducing the tax burden because it lacks economic rationality. In addition, the tax base of the correction of this case does not fall under the disposition (pre-determination defense).

3. Disposition of the tax base for the correction of the instant case (Judgment of the Defendant on the defense before the merits of the instant case)

A. Legal principles on the disposition of the tax base determination

An administrative disposition, which is the object of an appeal litigation, refers to an act of an administrative agency’s public law, which is an act directly related to the specific rights and obligations of citizens, such as ordering the establishment of rights or the burden of obligations under Acts and subordinate statutes, or directly causing other legal effects, and an act, etc. which does not cause a direct legal change in the legal status of the other party or other related persons, cannot be a disposition that is the object of an appeal litigation (see, e.g., Supreme Court Decisions 97Nu10857, Jul. 23, 199; 2008Du2583, May 15, 2008).

Inasmuch as a tax official calculates the amount of income and calculates the amount of income for each business year of a corporation and determines the amount of income accordingly is not an administrative disposition subject to appeal litigation, it is possible to assert it in the procedure of disputing the validity of the subsequent taxation disposition. The total amount of losses which belong or will belong to a certain business year constitutes losses under the Corporate Tax Act. The amount exceeding the total amount of losses which is assessed as losses at the time of final return of tax base, etc. of a corporation or determination of tax base, etc. according to the investigation and determination of the government is not an amount of losses. Thus, even if the disposition imposing corporate tax for a business year which is based on the premise that the tax base is not deducted and the disposition imposing corporate tax becomes final and conclusive after the determination of the tax base and the amount of losses becomes final and conclusive, a corporation liable to pay taxes cannot dispute the tax base and amount of income for the subsequent business year, which is separate from the final and conclusive taxation (see Supreme Court Decision 2001Du2652, Nov. 26, 2002).

B. The plaintiff's assertion

Article 13 subparag. 1 of the Corporate Tax Act, which is a provision on the tax base of this case, (hereinafter “subject provision”), is a precedent that was rendered before the amendment by Act No. 9898 (hereinafter “amended on Dec. 31, 2009”), and the subject provision provides that “if the tax base of this case was commenced within 10 years from the beginning date of each business year, the amount which is not deducted in the calculation of the tax base of each business year after the subsequent tax base can be contested because it is difficult for the Plaintiff to dispute the effect of the tax base of this case.” Since the amendment of Article 13 subparag. 1 of the Corporate Tax Act (hereinafter “subject provision”) to the effect that the tax base of this case was not carried out within 10 years after the beginning date of each business year, the tax base of this case can be contested by a corporation which is not carried out under the jurisdiction of the head of the competent tax office after the amendment of Article 14(2) of the Framework Act on National Taxes (the total amount of losses which belongs to the tax base of this case).

C. Determination

(1) Determination as to whether the legal principles of the instant case are applied to the tax base of the instant correction, which is the tax base decision, made pursuant to the applicable provisions after the amendment of December 31, 2009

In light of the following circumstances, the legal principles of the instant precedents are without any reason to exclude the tax base of the instant correction, which is a tax base decision made pursuant to the subject provisions after the amendment of December 31, 2009, and they are applied as they are.

(1) The provisions governing the determination of the tax base stipulate that "any losses incurred during the business year that began within 10 years prior to the amendment of December 31, 2009, which were not deducted in the calculation of the tax base", shall be deducted from the calculation of the tax base. However, after the amendment of December 31, 2009, the scope of losses that may be deducted in the calculation of the tax base may be deemed to have been reduced compared to the previous provisions, by providing that "after the amendment of December 31, 2009, the losses incurred during the business year that began within 10 years prior to the beginning date of each business year, which were not deducted in the calculation of the tax base, are included in the tax base ex officio determined and corrected by the tax authority in accordance with the return or revised report or the failure to make a false report."

However, even before the revision of December 31, 2009, the target provision did not provide that the deduction of losses that were not deducted from the tax base without restriction, but only the losses that occurred during the business year that began within 10 years from the beginning date of the pertinent business year. In other words, there is no difference in that the scope of deduction of losses that were omitted before and after the revision of December 31, 2009 of the target provision has changed, but all the losses that were omitted are not deducted.

② The instant precedents were rendered on the grounds that the portion of losses incurred during the business year from 198 to 1991, which was omitted, should be deducted. It was before the wholly amended by Act No. 5581 of Dec. 28, 1998, which was applied in 199, the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) and the former Corporate Tax Act (amended by Act No. 4020 of Dec. 26, 1988) which was applied in 198 to 198 to 1991, and the former Corporate Tax Act (amended by Act No. 4020 of Dec. 29, 1995) which was applied in 298 to the exclusion of losses incurred during the business year from the scope of losses incurred in the business year before the revised by Act No. 5039 of Dec. 29, 199.

As can be seen, the precedents of this case or their quoted cases determined that the corporate tax shall be deducted from the tax base only for the portion arising in the business year within a certain period, not all the losses which were deducted in the pertinent case, but only for the portion arising in the business year within a certain period, not all the losses which were deducted. However, without separately mentioning or determining whether the relevant provisions were losses incurred in the business year, which was prescribed as deductible by the applicable provisions, the tax base decision may be asserted in the procedure of disputing the effects of the taxation disposition that was made in the event that the decision was not the subject of an administrative disposition which was made by an appeal litigation, and even if the assessment disposition of corporate tax for any business year which was made on the premise that the tax base was determined without deducting the losses carried forward and the assessment disposition of corporate tax for any business year which was made on the premise that the tax base was determined

Thus, the instant case can be deemed to have denied the disposition of the tax base decision by itself due to the legal nature of the tax base decision, regardless of whether the deduction is included in the scope of the loss, or the loss which is deductible under the applicable provision.

③ In a case where the tax base is determined without a deduction of losses that a corporation claims to deduct in the calculation of the tax base, the issue is whether the subject provision provides the scope of losses to be deducted in the calculation of the tax base, and where the tax base is determined without a deduction of losses that the corporation claims to deduct the relevant losses, the subject matter to dispute through the litigation should be determined in order to ensure the deduction of the relevant losses, or whether the tax base should be subject to taxation by the determination of the tax base, or whether there is a direct relation, logical, or legal influence. Ultimately, the existence of the disposition of the tax base should not be determined based on whether it falls under the individual items such as income or losses that are deducted or added from the determination of the tax base, or on whether it falls under the scope thereof, but rather on whether it directly changes the specific legal status of the corporation or other related persons, that is, it is difficult to view that the determination of the tax base itself directly changes the legal status of the relevant corporation or other related persons.

④ Furthermore, as seen in Paragraph 1-C (C) above, the Defendant denied the amount equivalent to the Plaintiff’s interest on the Plaintiff’s sales claim as a wrongful calculation on May 28, 2015, and the tax base for the correction of this case, which was determined by including the denied amount in the Plaintiff’s gross income, constitutes “tax base corrected and determined pursuant to Article 66 of the Corporate Tax Act” under the subject provision after the amendment of December 31, 2009, and even according to the Plaintiff’s assertion, regardless of whether before and after the amendment, the Plaintiff, regardless of whether before and after the amendment, may assert the error in calculating the losses included in the tax base for the correction of this case in the procedure of disputing the validity of the subsequent taxation, and it is difficult to find any special circumstances to deem that the subsequent taxation cannot be asserted unless the Plaintiff asserts the tax base for the correction of this case itself, due to the content of the subject provision after the amendment of the case.

(2) Determination as to the disposition of the corrected tax base of this case

In light of the legal principles of the instant case, the instant revised tax base was determined inside the Defendant on May 28, 2015, and was notified to the Plaintiff on July 1, 2015, but the said additional tax was calculated on the basis of the amount recognized as the amount of violation on the ground of the Plaintiff’s “the lack of qualified evidence regarding the payment of daily work personnel expenses,” and thus, it seems that the instant revised tax base was imposed regardless of the instant revised tax base.

As can be seen, the tax base for correction of this case, which is only notified after the defendant's decision, cannot be viewed as either ordering the Plaintiff to create a right or to bear an obligation, or directly causing other legal effects, under the laws and regulations, and does not constitute an administrative disposition that is subject to appeal litigation. The defendant's prior defense on the merits pointing this out is with merit (if the plaintiff erred in the tax base for correction of this case, it can be asserted that it was erroneous in the procedure that contests the validity of the subsequent tax disposition against the plaintiff

4. Conclusion

Therefore, since the lawsuit of this case is unlawful, it is decided to dismiss it. It is so decided as per Disposition.

[Attachment]

Judges Kim Tae-hun (Presiding Judge)

Note 1) Attached Form 1 see Relevant Acts and subordinate statutes.

Note 2) [Attachment 2] Reference to “relevant Acts and subordinate statutes”