Seoul Administrative Court 201Guhap17646 ( November 25, 2011)

Board of Audit and Inspection 2009Nori049 ( October 03, 2011)

The amount of income under the service contract shall be calculated in accordance with the principle of the establishment of rights and obligations.

It constitutes a case where it is difficult to determine the time of attribution of profits as prescribed by the provisions related to the Corporate Tax Act, and the calculation of profits under the service contract of this case by the plaintiff is made pursuant to the corporate accounting standards in accordance with the profit-making type 4 and the profit-making type 25, and this is also consistent with the principle of confirmation of rights and duties

2012Nu74. Revocation of a request for revision of corporate tax

XX Co., Ltd

Head of Seocho Tax Office

Seoul Administrative Court Decision 201Guhap17646 decided November 25, 2011

June 29, 2012

August 31, 2012

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The defendant's rejection disposition against the plaintiff on June 11, 2009 against the plaintiff, the disposition of reduction of corporate tax for the business year 2006 and the disposition of imposition of 000 won of corporate tax for the business year 2006 and 000 won of corporate tax for the business year 2007 shall be revoked.

1. Quotation of judgment of the first instance;

The reason for this decision is as stated in Article 2-4 (d) of the Reasons for the Judgment of the court of first instance, except for the dismissal as follows: Article 8(2) of the Administrative Litigation Act shall be cited in accordance with the main sentence of Article 420 of the Civil Procedure Act.

2. Parts in height:

"D. Determination"

1) As to the Plaintiff’s assertion

A) Article 69(2) of the Enforcement Decree of the Corporate Tax Act provides that where the contract period for the business year to which profits and losses accrue by the provision of services, etc. belong is not less than one year, the period to which the profits and losses accrue shall be determined based on the rate of work progress as prescribed by the Ordinance of the Ministry of Finance and Economy: Provided, That where it is deemed that the rate of work progress cannot be calculated as prescribed by the Ordinance of the Ministry of Finance and Economy

B) In the case of the instant service agreement, as seen earlier, comprehensively considering the overall content of the instant service agreement agreed upon by the end date of the instant development project and the fact that it appears that the completion of the instant development project would take more than one year, in light of the overall content of the instant development project and the content of the instant development project, the instant service agreement appears to fall under the case where the contract term as stipulated in the said provision is more than one year.

Therefore, in principle, the period of attribution of the Plaintiff’s revenue related to the instant service agreement should be determined on the basis of the rate of work progress. In this regard, the Plaintiff asserted to the effect that the rate of work progress is 0% since construction expenses incurred in the instant development project site, which is the basis for the period of attribution of revenue related to the instant service agreement by the Plaintiff, but the rate of work progress, which is the basis for the period of attribution of revenue related to the instant service agreement by the Plaintiff, shall not be calculated on the basis of the expenses incurred to the local corporation (the Plaintiff’s assertion that the aforementioned rate of work progress should be calculated as above) rather than on the basis of the expenses incurred to the local corporation (the Plaintiff’s assertion that the instant development project is actually implemented by the Plaintiff as it is substantially implemented by the Plaintiff, and at the same time, the instant service agreement was concluded formally in order for the Plaintiff to recover all proceeds by receiving the money in the form of service cost, as well as on the purport that

C) Next, the Plaintiff asserts that if the working progress rate cannot be calculated by the above method, the scheduled date of the completion of the instant development project, which is the end of the service provision pursuant to the proviso of Article 69(2) of the Enforcement Decree of the Corporate Tax Act, should be deemed the time when the proceeds accrue.

In order to regard the end date of the service as the time when profits accrue as the plaintiff's assertion, the requirement of "where there is no book kept and kept by or recorded by a corporation under Article 34 (3) of the Enforcement Rule of the Corporate Tax Act, or where it is impossible to confirm the cumulative total construction cost amount actually spent by the end of the business year concerned, as the contents of the book kept and recorded are not sufficient according to delegation of Article 69

However, as seen earlier, in light of the Plaintiff’s financial statements for the business year 2006 and 2007, it is difficult to deem that the above requirements are met. Moreover, on December 31, 201, the Plaintiff’s assertion as the scheduled date of the completion of the instant development project was based on the secondary modified contract, as seen earlier, and the Plaintiff’s calculation of the corporate tax base for the business year 2006 and the details of the secondary modified contract should not be applied retroactively. Accordingly, the Plaintiff’s assertion as to the above 2) cannot be accepted.

D) The Corporate Tax Act and its Enforcement Decree separately stipulate the timing of attribution of profits and losses, along with general principles, as well as various types of transactions. However, this cannot be said to be a provision stipulating the attribution of profits and losses in itself completed by forecasting all types of transactions in the modern society. Therefore, when it is difficult to determine the attribution of profits and losses under the above provision, the standards for the occurrence of profits and losses under the corporate accounting standards which are generally accepted as fair and reasonable accounting practices may be adopted so as not to go against the principle of confirmation of profits and losses under the Corporate Tax Act, and such determination also conforms to the purport of Article 43 of the Corporate Tax Act (see Supreme Court Decision 92Nu2936, Oct. 23, 1992).

On the other hand, in the corporate accounting standards No. 4, revenue-making type 25, if there is a contract to provide multiple unspecified services within the contract term, such as corporate consulting, and there is no other method to show the degree of service performance more easily, the profit can be recognized on the basis of the equal installment method, working hours, or working days for practical convenience.

Based on the above legal principles and corporate accounting standards, this paper examines the timing of devolving revenue under the service contract of this case.

In light of the fact that the service period of this case was the end of the development project of this case and the service expenses were to be settled on the date when one year elapsed from the contract date as well as the service expenses were to be settled, it is difficult to determine the time to vest in the revenue according to the relevant provisions of the Corporate Tax Act. Therefore, there is no error in determining the time to vest in the revenue pursuant to the above corporate accounting standards. Thus, it cannot be said that there was any error in determining the time to vest in the revenue pursuant to the above corporate accounting standards. Thus, there is no error of law by the defendant to refuse the plaintiff's request for correction that the plaintiff's claim was erroneous in calculating

2) As to the Plaintiff’s assertion

A) First, we examine whether the instant service contract is merely a formality, such as the Plaintiff’s assertion.

Unless there exist special circumstances, such as the most active form of transaction chosen by the parties, the effect of the tax law should not be denied without permission; the Plaintiff entered into the instant service contract and provided services, such as the establishment of the business plan necessary to carry out the instant development project in accordance with the content thereof; and adding advice and vicarious execution concerning the procurement of project financing through the secondary modified contract to the local corporation; etc., the instant service contract cannot be deemed simply formally formal. Accordingly, the Plaintiff’s assertion to the purport that the Plaintiff’s revenue under the instant service contract is not the service cost, but the benefit arising from the instant development project, and that such benefit did not have yet been incurred.

B) On the ground that the Plaintiff’s assertion that the possibility of receiving benefits under the instant service agreement cannot be deemed to have been considerably mature and finalized, the Plaintiff also stated that the Plaintiff’s revenue under the instant service agreement can only be realized after the repayment of the principal and interest of the loan was completed, as stipulated in the loan agreement (Evidence A7) concluded with the financial institution. As such, Article 9 of the instant service agreement provides that the validity of the instant service agreement may be modified or suspended, and that Article 4 of the instant service agreement, which sets the amount of service costs and the due date, is suspended.

However, the purport of the above loan agreement asserted by the Plaintiff is merely appropriation for the repayment of the principal and interest of the instant service agreement to secure the repayment of the principal and interest of the loan, and such appropriation cannot be said to have no interest in that the Plaintiff pays the principal and interest of the loan to the borrower. Therefore, the Plaintiff’s assertion cannot be accepted.

3) As to the Plaintiff’s assertion

The plaintiff's assertion on this part is premised on the premise that the time when the proceeds accrued from the issue amount is not the business year of 2006, and as seen earlier, the issue amount shall be deemed to be reverted to the business year of 2006, and therefore, the plaintiff's above argument cannot be accepted without further review.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be dismissed as it is without merit, and the judgment of the court of first instance is just in conclusion, and the plaintiff's appeal is dismissed as it is without merit.