Character of personnel expenses paid to pilots who are investors of the plaintiff

It is reasonable to view that the instant personnel expenses merely take the form of remuneration (the instant personnel expenses) in order to allocate the profits reserved to the Plaintiff to the instant pilot rather than as the normal price for the performance of the instant pilot’s duties.

Article 19 (Scope of Losses)

2018Guhap758 Revocation of Disposition of Imposition of Corporate Tax, etc.

TT

BB Director of the Tax Office

on October 29, 2019

October 10, 2019

1. The plaintiff's claim is dismissed.

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

The part (attached Form 3) exceeding each corporate tax (including additional tax) described in Section B among the imposition of each corporate tax (including additional tax) listed in Section B in Schedule B(1) against the Plaintiff on November 1, 2017 and the part (attached Form 4) exceeding the amount listed in Section B(1) of the notice of change in income amount listed in Schedule B(1) shall be revoked.

1. Details of the disposition;

A. The Plaintiff’s purpose is to engage in pilotage business and its ancillary business, and is a company established by 100% investment of pilots belonging to the 00 Pilotage Association, an incorporated association, which is established by pilot companies belonging to the 00 Pilotage Association (hereinafter “00 Pilotage Association”). The Plaintiff’s business is to operate pilotage ships for pilots belonging to the 00 Pilotage Association.

B. The Plaintiff paid a pilot, who is an investor from 2012 to 2016, allowances such as salaries, retirement allowances, food expenses, and duty expenses, and gift certificates, and paid the 4th insurance premium to the pilot, and then reported and paid corporate tax accordingly.

C. From July 12, 2017 to September 22, 2017, the Director of the Regional Tax Office: (a) conducted a tax investigation with the Plaintiff on the Plaintiff from July 12, 2017 to September 22, 2017, the Plaintiff did not provide labor between the business year 2016 (attached Form 2]; (b) 35 pilotages listed in the list of notice of change in the amount of income (i.e., "income-type dividends" to A1 to A35; hereinafter "the pilot of this case") were paid KRW 3.42 billion; (c) retirement benefits; (d) approximately KRW 2.4 billion; (d) approximately KRW 152 million; (e) KRW 50 million; (e) KRW 3.4 billion; (e) KRW 500 million; and (e) KRW 3.4 billion; and (e) KRW 3.4 billion; and (e) the Plaintiff did not dispute over the amount of the gift certificates to the Defendant.

D. Accordingly, the Defendant excluded the instant personnel expenses, gift certificates, and processing expenses from deductible expenses (attached Form 2), and excluded them from deductible expenses (attached Form 2), as dividends to each pilot, and disposed of the processing expenses as bonus to a pilot who served as the representative director in each business year during the pertinent business year, and notified the Plaintiff on November 1, 2017, as stated in the list of disposition imposing corporate tax (attached Form 1) from 2012 to 2016, as stated in the list of disposition imposing corporate tax, and notified the Plaintiff of the correction and notification (including additional tax) of the change in the amount of income to the pilot of this case (hereinafter collectively referred to as "disposition of this case") as stated in the list of notice of change in the amount of income (hereinafter referred to as "the disposition of this case").

E. On January 29, 2018, the Plaintiff filed an appeal seeking the revocation of the instant disposition with the Tax Tribunal, but the Tax Tribunal dismissed the Plaintiff’s appeal on August 29, 2018.

F. During the course of the instant lawsuit, the Plaintiff reduced the purport of the instant lawsuit by indicating that the Defendant did not include gift certificates and processing expenses in deductible expenses, and expressed his/her intent to recognize the notification of changes in the amount of income and the grounds therefor (attached Form 4), and the Defendant calculated a reasonable tax amount in accordance with the Plaintiff’s intent of reduction (attached Form 3), and calculated the Plaintiff’s legitimate tax amount pursuant to subparagraph 24-1 to 6 (attached Form 24-6) (the Plaintiff finally sought revocation of the instant disposition (attached Form 3) in the list of the disposition imposing corporate tax (attached Form 3), which exceeds the “reasonable tax amount of corporate tax (including additional tax) to be additionally imposed on the Plaintiff when the Plaintiff only excluded gift certificates and processing expenses that the Plaintiff did not dispute).” [Attachment 4] reduced the amount of tax subject to reduction exceeding the “amount of payment of gift certificates ② payment of gift certificates in the list of notice of change in the amount of income,” respectively (the grounds and grounds for the amendment of the claim).

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1 through 4, Eul evidence Nos. 1, 2 and 24 (including each number; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

1) The primary argument

The instant pilot, as its officers, contributed directly to the Plaintiff’s profit-making.

In high, at least 16 days of work at the Plaintiff’s workplace, the Plaintiff’s performance of duties, such as making a major decision-making on the Plaintiff’s business activities, or directing and supervising specific duties concerning the operation of pilotage boats and the maintenance and management of pilotage boats, was carried out. Therefore, the instant personnel expenses paid to the instant pilot from 2012 to 2016, which were paid to the instant pilot, shall be included in deductible expenses in calculating corporate tax against the Plaintiff, as they were paid in compensation for the performance of duties of the said pilot.

2) Preliminary assertion

Even if the pilot of this case is not a full-time officer, under Article 43(4) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 28640, Feb. 13, 2018; hereinafter the same) the remuneration that the pilot pays to an officer of a non-permanent corporation shall be included in deductible expenses unless the rejection provision of wrongful calculation under Article 52 of the former Corporate Tax Act (amended by Act No. 16008, Dec. 24, 2018; hereinafter the same shall apply) applies. In order to apply the foregoing unfair calculation provision, it should be recognized that the transaction with a related party unfairly reduced the tax burden on the corporation's income. The defendant did not assert or prove at all regarding the market price of remuneration paid to the plaintiff's officers. Thus, even if the requirements for the rejection of wrongful calculation under Article 52 of the former Corporate Tax Act were not satisfied, the defendant's exclusion of deductible expenses of the personnel expenses of this case is unlawful.

B. Relevant statutes

[Attachment 5] The entry in the relevant statutes is as follows.

C. Judgment on the plaintiff's primary argument

1) Relevant legal principles

Article 26 (1) of the former Corporate Tax Act provides that the amount deemed excessive or unjust as prescribed by Presidential Decree among personnel expenses shall not be included in deductible expenses for the purpose of calculating the income amount of a domestic corporation for each business year, and according to delegation, Article 43 (1) of the former Enforcement Decree of Corporate Tax Act provides that "the bonus paid by a corporation to its officers or employees by the disposal of profits shall not be included in deductible expenses."

In principle, remuneration paid by a corporation to an executive officer for the performance of his/her duties shall be included in deductible expenses. However, in light of the language and text of Article 19(1), Article 20 subparag. 1, and Article 26 subparag. 1 of the former Corporate Tax Act, Article 43(1) of the former Enforcement Decree of the Corporate Tax Act, and the legislative purport of Article 43 of the former Enforcement Decree of the Corporate Tax Act to prevent unfair reduction of corporate income, etc., even if the corporation paid remuneration to an executive officer who is a controlling shareholder (including its specially related executive officer), the remuneration amount is the proportion and amount of the corporation’s operating income, the possibility of the payment periodically and continuously, the possibility of the increase or decrease of remuneration, the relationship between the increase or decrease in corporate remuneration, the payment of dividends to other shareholders, and the subjective intent of the corporation to unfairly reduce corporate income, etc., it shall be deemed that it is not necessary to include the aforementioned portion in deductible expenses in the calculation of deductible expenses to the extent that it is readily included in deductible expenses in the calculation of deductible expenses.

2) Determination

As to the instant case, comprehensively taking account of the following circumstances, the personnel expenses of this case paid by the Plaintiff to the pilot of this case, based on the aforementioned evidence, Gap evidence, Eul evidence Nos. 4 through 7, Eul evidence Nos. 3 through 23, and the purport of the entire arguments and arguments, are deemed to have taken the form of remuneration (the instant personnel expenses) to allocate profits reserved to the plaintiff mainly to the pilot of the instant case rather than a normal consideration for the performance of duties of the pilot of this case. Therefore, the entire personnel expenses of this case paid by the Plaintiff to the pilot of this case are deemed to be subject to non-deductible expenses. Accordingly, the evidence submitted by the plaintiffs alone is insufficient to recognize that the part of the personnel expenses of this case is included in the expenses of this case, and there is no other evidence to support this. Ultimately, the disposition of this case on the premise that the Defendant excluded the entire personnel expenses of this case from deductible expenses, and therefore, the Plaintiff’

A) Purpose of existence of the Plaintiff

(1) Article 21(2) of the former Pilotage Act (amended by Act No. 16278, Jan. 15, 2019; hereinafter the same) provides that "a pilot may claim pilotage fees from a shipmaster or a shipowner where he/she has performed pilotage." In addition, Article 27(1) of the same Act provides that "a pilot shall be equipped with a pilot boat and other equipment necessary to perform pilotage duties," and Article 27(4) of the same Act provides that "a pilot may claim pilotage fees reported to the Minister of Oceans and Fisheries, in addition to pilotage fees, from the shipmaster or a shipowner of the ship who has performed pilotage services where he/she has performed pilotage." According to the foregoing legal provision, a pilot shall provide pilotage services along with a pilot boat, and where he/she has performed pilotage services, he/she shall have the right to receive "Pilotage fees" and "Pilotage fees" from the shipmaster or shipowner of the ship

(2) The pilotage society of 00 is a non-corporate group which has a status as a '00 sub-committee under the Korean Pilot Association', and is an organization to promote the mutual harmony between pilotages (00), such as promoting the rights and interests of pilotages, improving the pilotage environment, and promoting the harmony between pilotages (Article 1-2 and 1-3 of the Regulations on the Operation of Pilots of the Pilot Association of 00). 00). The president of the pilotages Association takes charge of the affairs such as "ferrys and pilotages", "management, supervision, etc. concerning the calculation of pilotage dues, pilotage pilot fees and pilotage fees," "management, supervision, etc. of pilotage dues," the vice-president in charge of pilotages takes charge of the affairs such as the new shipbuilding of pilot lines, the maintenance and repair of pilot lines, the maintenance and inspection of the office and pilot lines, the education, management, supervision, and personnel of pilot lines (Article 4 of the Regulations)

(3) The provisions of the Civil Act on pilotages apply mutatis mutandis to matters not stipulated in the operational regulations of pilotages with respect to the operation of 00 pilotages (Article 2 of the above provision). 00 Pilotages, who belong to pilotages, are obligated to be equipped with equipment such as pilotage lines to perform pilotages, etc. under Article 27(1) of the former Pilotage Act, but they seem to have established the Plaintiff by joint investment to jointly enjoy "the right to receive pilotage dues" that may be borne by performing their respective duties and to jointly enjoy pilotages. In light of this, the Plaintiff is a legal form, but its substance is close to the nature as a partnership consisting of pilotages belonging to the pilotages of the 00 Pilotages.

B) Plaintiff’s composition and operation method

(1) On December 31, 2016, the Plaintiff’s shareholder as of December 31, 2016 is a stock company established by the pilot belonging to the pilotage community of 00 (00) by investing 10%, and the Plaintiff’s shareholder as of December 31, 2016 consisting of 31 incumbent pilot members, excluding A04, A05, A06, and A07, among 35 pilotages of the instant case. The share ratio by each shareholder is 1.67% to 3.31% (Article 24 of the Plaintiff’s Articles of Incorporation of the Plaintiff) (Article 24 of the Plaintiff’s Articles of incorporation provides that “the remuneration” shall be delegated to the board of directors with all the powers pertaining to the company, and the remuneration or retirement allowances of directors and auditors shall be determined at the general meeting of shareholders.”

(2) According to Article 31 of the Plaintiff’s articles of incorporation, the Plaintiff’s net profit in each fiscal term provides that the amount carried over by the previous year shall be disposed of respectively as earned surplus reserve, capital reserve, separate reserve, tax payment reserve, officer bonus, officer’s bonus, employee retirement allowance fund, stockholders’ dividends, and follow-up monthly interest. Article 32(1) of the Plaintiff’s articles of incorporation provides that “The stockholders’ dividends shall be paid to stockholders or pledgees listed in the register

(3) The Plaintiff, a member or former member of the pilotage community, is a company that is a pilot of the Plaintiff, and the pilot of the instant case, who is a member or employee of the Plaintiff, has received pilotage fees from the captain or the shipowner of a ship who jointly engaged in pilotage business at the port of 00, while jointly engaging in pilotage business where demand arises. The Plaintiff, after deducting necessary expenses, etc. from the Plaintiff, was internally determined at the ratio below (C) as the personnel expenses of the instant case.

C) Nature of the instant personnel expenses

(1) In light of the purpose of the Plaintiff’s existence and the composition and operation method of the Plaintiff, the amount that the instant pilot receives from the Plaintiff as the personnel expenses of this case is not paid as the price for the performance of duties performed by the instant pilot on behalf of the Plaintiff, but it is reasonable to view that the instant pilot was a money designed to have the substance of “the dividends that the instant pilot would have been paid as the actual amount of dividends that the instant pilot would have been paid as the price for the performance of duties performed by the Plaintiff.”

(2) The Plaintiff’s shareholder, and pilotages, who are members of the 00 Pilotage Society, are all pilots belonging to the Pilotage Society, and are the Plaintiff’s shareholders and substantial business owners, thereby promoting all of their duties. Pilots are engaged in collaboration. Although the amount of duties differs, most of their roles are similar, and major positions are in charge of circulation. Each pilot’s income should be distributed to the same level. Each pilot’s income is determined to pay his/her wage and salary to all pilots other than registered officers in the Pilotage Society, and it seems that he/she has understood and understood as described in paragraph (1) above.

(3) Of the instant pilot, the Defendant assessed that the portion of the personnel expenses paid to the representative, finance officer, pilot boat, or auditor of the Plaintiff was paid as compensation for the performance of duties on behalf of the Plaintiff, but excluded the portion of the instant personnel expenses paid to a pilot who did not perform such duties. In other words, the instant personnel expenses were excluded from deductible expenses only for the portion of the personnel expenses paid to the pilot who did not perform such duties on behalf of the Plaintiff. In other words, the portion of the instant pilot’s personnel expenses, except for the personnel expenses paid to some pilot who received as compensation for the performance of duties on behalf of the Plaintiff, such as the management and operation of pilot lines, the Plaintiff’s management

(4) The instant pilot established not only the Plaintiff but also UU Co., Ltd. (hereinafter referred to as 'U’) so that UU can collect and distribute 'ferry dues'. In other words, the instant pilot has realized the pilotage business in the form of receiving 'ferry dues' from the Plaintiff while carrying out pilotage duties jointly, and 'ferry dues' from the Plaintiff through UU, while carrying out pilotage duties, and 'ferry dues' from the Plaintiff, excluding common expenses, as the personnel expenses.

D) Evaluation of the duties performed by the pilot of this case

(1) The Plaintiff asserts that the instant pilot worked at least 16 days in one month to make a major decision on the Plaintiff’s management activities or the operation of pilotage boats through the board of directors and a meeting, and that the pilot performed the duty of direction and supervision on the operation of pilotage boats and the maintenance, repair, and management of pilotage boats. However, most of the details of the board of directors’ meetings are related to the operation of the pilotage Association at least 00, and it is difficult to view that the pilot of the instant case contributed to the Plaintiff’s business for the operation of pilotage boat and its ancillary business. The decision-making on the operation of pilotage boats, such as the Acsia, is merely an act that serves as an essential premise for the pilot of the instant case to carry out pilotage services, and thus, it is difficult to deem that the decision-making on

(2) The instant pilot’s performance of pilotage duty, etc. is “the main business that the instant pilot should naturally perform in light of the 00 Pilotage Society and the Plaintiff’s business structure as seen earlier.” Labor cost that may be included in the Plaintiff’s loss can include only the portion paid as the price for the performance of duty performed by the Plaintiff. The performance of pilotage duty by the instant pilot is for the allocation of the price for the performance of pilotage duty in the future, and it is difficult to say that the performance of pilotage duty by the pilot of the instant case is a nature of performance of duty performed by the Plaintiff.

(3) 원고의 업무구조와 환경에 비추어 보더라도 이 사건 도선사들이 자신들의 본업인 도선업무 외에 도선선의 유지 및 관리, 도선선의 운항, 도선선료의 수금 등과 같은 원고의 영업을 위한 직무를 분담하여 수행할 만한 환경이 되지 않았던 것으로 보인다. 즉 ① 원고의 사업장에는 실제로 다수의 도선사들이 출근하여 근무할 수 있는 공간이나 시설이 갖춰져 있지 않은 점(이 사건 도선사들은 정해진 순번에 따라 도선업무를 수행하였을 뿐으로 보인다), ② 이 사건 도선사들은 보통 15일 도선작업기간, 10일 휴무기간, 2일 대기기간을 갖고 도선업무를 수행하고, 도선작업 기간 중에는 도선 용역을 제공하기 위해 사업장 인근에서 거주하다가 보통 새벽 5시경부터 17시 내지 19시 30분 경까지 도선 용역을 제공하고 휴무 기간에 자택으로 돌아가는 형태로 일을 하므로 이 사건 도선사들 전부가 시간을 쪼개 틈틈이 원고의 업무를 보는 것은 현실적으로 곤란할 것으로 보이는 점, ③ 도선선의 운항과 도선선의 유지・관리는 원고의 직원인 도선선의 선장과 선원들에게 맡겨진 업무이고, 원고 소속 실무직원이 도선선료 수금에 관한 업무를 담당하였으므로 업무 분장에 의하더라도 이 사건 도선사들이 도선선의 유지・관리 등에 대한 지휘 감독을 하거나 도선선료의 수금 업무를 수행할 상황이 아니었던 점 등을 종합하면, 이 사건 도선사들이 원고의 영업을 위한 직무를 분담하여 수행하였다고 보기는 어렵다.

D. Judgment on the plaintiff's conjunctive assertion

Although the Defendant did not specify the basis for non-taxation of the instant personnel expenses in the instant disposition, in light of the Defendant’s statement and the purport of the entire argument, the Defendant appears to have excluded the instant personnel expenses from the deductible expenses under Article 26 of the former Corporate Tax Act and Article 43 of the former Enforcement Decree of the Corporate Tax Act. The instant disposition premised on this premise is legitimate as seen in the preceding Paragraph (c). Therefore, the Plaintiff’s assertion on the premise that the Defendant excluded the instant personnel expenses from the deductible expenses by applying Article 52 of the former Corporate Tax Act was without any further need to examine the remainder of the issue (it appears that the Defendant deemed that the instant personnel expenses were non-deductible from the deductible expenses pursuant to the above statutes from the beginning, but even if not, the subject matter of the instant disposition lawsuit is objective, so the tax authority is able to exchange and change the grounds within the scope of submission of new materials that can support the legitimacy of the tax base or tax amount recognized in the relevant disposition until the closing of the argument at the court of fact-finding (see, e.g., Supreme Court Decision 2004Du8480).

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

(c)