Seoul Administrative Court 2016Guhap64241 (2017.09)

Whether the project relevance exists shall be determined individually in light of the purpose and details of the expenditure, the details of the project, etc.

In light of the depth of legal disputes between a corporation and the overall circumstances at the time, the appointment fees for the attorney may be paid at the expense of a corporation only when there is a special need to conduct a lawsuit or respond to a complaint for the interest of the corporation

Article 17 of the Value-Added Tax Act and Article 19 of the Corporate Tax Act

2017Nu39251 Corporate Tax Imposition Disposition, etc.

○○ Co., Ltd.

○ Head of tax office

on January 23, 2017

on December 2017

1. The plaintiff's appeal and the plaintiff's claim that the court changed in exchange are all dismissed.

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

The judgment of the first instance shall be revoked.

1. The Defendant’s disposition of imposing corporate tax of KRW 00,000,000,000 against the Plaintiff on May 9, 2014, in excess of KRW 00,000,00,000, which was imposed by the Plaintiff for the business year 2012, shall be revoked.

2. The Defendant’s disposition of imposing corporate tax of KRW 00,000,000 on the Plaintiff on January 5, 2016, exceeding KRW 00,000,000,000, which was imposed by the Plaintiff for the business year 2012 (the Plaintiff’s disposition of imposing corporate tax of KRW 00,000,000 on the Plaintiff at the first instance court, which was imposed by the Defendant against the Plaintiff on January 5, 2016 (the Plaintiff’s disposition of imposing corporate tax of KRW 00,00,000

In order to seek revocation of the portion exceeding KRW 00,000,000, the court changed the claim in exchange for the above reasons.

3. On May 2, 2014, the Defendant’s imposition disposition of KRW 000,000,000 on the first term portion of value-added tax on the Plaintiff on May 2, 2012 exceeds KRW 00,000,000 and the imposition disposition of KRW 00,000,000 for additional tax is revoked.

4. On May 2, 2014, the Defendant’s imposition disposition of KRW 1,00,000,000 in excess of KRW 00,000 among the imposition disposition of KRW 1,00,000,000 against the Plaintiff on May 2, 2012 and the imposition disposition of KRW 00,00,000 in penalty tax shall be revoked.

1. Details of the disposition;

The court's reasoning for this part is as stated in Paragraph 1 (2) of Article 8 of the Administrative Litigation Act, the main sentence of Article 420 of the Civil Procedure Act (hereinafter referred to as "the summary used in the judgment of the court of first instance") since it is identical to Paragraph 2 of the same Article of the judgment of the court of first instance, except for adding "the remaining part of the disposition of imposition of corporate tax of January 5, 2016, which was reduced or corrected (hereinafter referred to as "the disposition of imposition of corporate tax of January 5, 2016") to "the remaining part of the disposition of imposition of corporate tax of January 5, 2016")" after the deletion of the third part of Paragraph 9 of the judgment of the court of first instance (hereinafter referred to as "the disposition of imposition of corporate tax of January 5, 2016").

2. Whether the part of the instant lawsuit seeking revocation of the disposition imposing corporate tax on May 9, 2014 is legitimate

The court's explanation on this part is the same as the corresponding part of the judgment of the court of first instance (from 15 to 3 pages 15). Thus, the court's explanation on this part is accepted in accordance with Article 8 (2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act.

3. Whether the imposition of corporate tax in this case and the imposition of each of the value-added tax in this case are legitimate

A. The plaintiff's assertion

The expenditure of the attorney’s fees in this case was not for the criminal defense of the Plaintiff’s officers and employees, but for the response to the legal sanctions that may arise to the Plaintiff itself, such as the violation of the Framework Act on the Construction Industry. Even if the expenditure of the attorney’s fees in this case was partially made for the criminal defense of the Plaintiff’s officers and employees, the possibility of legal sanctions that may arise to the Plaintiff is determined in accordance with the contents of the Plaintiff’s act performed by the executives and employees, and eventually, the process of pleadings against the Plaintiff’s officers and employees and the result thereof has a significant impact on the Plaintiff, and thus, the Plaintiff’s payment of the attorney’s fees in this case was incurred in relation to the Plaintiff’s business. Furthermore, since the Plaintiff

B. Relevant statutes

The court's explanation on this part is identical to the corresponding part of the judgment of the court of first instance (Article 8 (2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act, since the reason for the court's explanation is the same as that of the corresponding part of the judgment of the court of first instance.

(c) Fact of recognition;

The court's explanation on this part is identical to the corresponding part of the grounds for the judgment of the first instance except for the addition of "Evidence B through B" to the 10-11 of the 7th judgment of the first instance [based on recognition] under the 10-11 of the 7th judgment of the court of first instance. Thus, this part of the reasoning for the judgment of the first instance is identical to the corresponding part of the 11 to 7th judgment (as shown below in the 5th to 11 of the 5th judgment]. Thus, it

D. Determination

1) Article 19(1) of the Corporate Tax Act provides that "deductible expenses shall be the amount of losses incurred by transactions which reduce the net assets of the corporation, except as otherwise provided for in this Act or other Acts and subordinate statutes, excluding refund of capital or financing, disposition of surplus funds, and losses under paragraph (1) shall be the amount of losses or expenses incurred in connection with the business of the corporation which are generally accepted as normal or directly related to profit."

Therefore, in order to recognize the expenses paid or the loss incurred as losses, it should have business relevance and commerce or profit-relatedness.

On the other hand, the current method of taxation of value-added tax provides that the total amount of self-production added and purchased added value shall be the value of supply in calculating the tax amount to be paid only for self-production added, and the basic structure is to deduct the input tax amount paid for purchase added value from the output tax amount to be collected. Under such structure, Article 17 of the former Value-Added Tax Act (amended by Act No. 11608, Jan. 1, 2013; hereinafter the same) provides that the input tax amount deducted from the output tax amount shall be deducted from the total tax amount as long as it falls under the tax amount on the supply or import of goods or services used or to be used for one's own business, and the standard is related to the business, and the "the input tax amount for expenditure not directly related to the business," which is one of the input tax amounts not deducted from the total tax amount under Article 17 (2) 3 of the former Value-Added Tax Act.

Therefore, the input tax amount for non-business-related expenditures may not be deducted from the output tax amount under Article 17(1) and (2)3 of the former Value-Added Tax Act. Here, whether a business-related relationship exists should be determined by examining whether the expenditure was necessary for the implementation of the business in light of the purpose and circumstances of the expenditure and the details of the business (see Supreme Court Decision 2010Du12552, Jul. 26, 2012).

2) As a matter of principle, attorney fees that can be paid at the expense of an organization are limited to cases where the organization itself becomes a party to a lawsuit, the attorney fees for civil and criminal cases in which the representative of the organization is not allowed to be paid at the expense of an organization, and exceptionally, there are cases where disputes arising in connection with actions, etc. which are performed by an individual who is in the status of the representative for legal reasons, or due to the fact that the individual becomes a party to a lawsuit or other legal proceedings, or that the act is in the status of the representative or acts lawfully conducted for the sake of the organization, the attorney fees for the relevant legal disputes may be paid at the expense of an organization only when there is a special need to conduct a lawsuit or respond to a complaint for the interest of the organization in light of the overall circumstances at the time when the relevant legal dispute is closely related to the organization and at the same time (see,

3) In light of the above legal principles, in full view of the records as to whether the attorney fees in this case are related to the plaintiff's business, Gap evidence 12 through 25, and evidence 34 (including each number), and the purport of the whole pleadings as to the attorney fees in this case, it can be acknowledged that the plaintiff and its officers respondeded to the scope of delegated affairs related to the plaintiff's fee in this case's attorney fees in relation to the scope of delegated affairs related to the plaintiff's fee in this case's attorney fees in relation to the plaintiff's business, such as "in response to suspicion of violation of the Framework Act on the Construction Industry" or "in case us is subject to a disposition of non-prosecution or non-suspect."

4) However, comprehensively taking account of the facts acknowledged earlier, Gap evidence Nos. 5 through 11, Gap evidence No. 29 through 31, Eul evidence No. 33, and Eul evidence No. 2 (including each number), each of the following circumstances revealed by comprehensively taking into account the overall purport of the pleadings, it is difficult to view that the expenditure of attorney’s fees in this case is a cost to cope with the plaintiff’s own legal sanctions. Since the Plaintiff’s expense for the officers and employees is difficult to deem that there is a special need for the plaintiff to carry out a lawsuit as deep as the expenses for the plaintiff’s business relations with the plaintiff, it is reasonable to view that the expenditure of attorney’s fees in this case did not meet the business relations as a requirement for inclusion in deductible expenses under the Corporate Tax Act. Accordingly, the imposition of corporate tax in this case and the imposition of each of the value-added tax in this case on the premise

① The time of appointment and the date of initial arrest (Detention) of the Plaintiff’s officers and employees related to the attorney’s fees of this case is very close to the time, and most of the attorney’s names related to the attorney’s fees of this case are written in the indictment and the written judgment.

② There is no evidence that the Plaintiff was prosecuted due to the charge of violating the Framework Act on the Construction and Business, and all of the instant attorneys’ fees were for legal defense against the Plaintiff’s suspicion is reasonable. Although the Plaintiff was indicted for violating the Act on External Audit of Stock Companies and the Punishment of Tax Evaders Act and the facts charged were similar to the facts charged against the Plaintiff’s officers and employees, the Plaintiff was prosecuted on March 19, 2014, and two years have passed since the payment of the instant attorney’s fees to the Plaintiff, and the attorney as stated in the written indictment was deemed to have been appointed as a separate counsel, unlike the attorney’s fees related to the instant attorney’s fees. In addition, the Plaintiff was subject to a penalty surcharge of KRW 0 billion around June 2012, which is irrelevant to the criminal case for the creation of extra-party funds, since it was due to collusion in the overall process of the 00 River project.

③ During the period from 2011 to 2013, the Plaintiff prepared and submitted a written confirmation to the effect that the details of the payment of fees for criminal cases including the attorney fees for the instant case are the litigation costs related to the prosecution investigation and court judgment of the officers and employees.

④ Most of the defense counsels prepared by the draft to the effect that they were aimed at responding to the Plaintiff’s suspicions against the Plaintiff are written in the indictment and the written judgment against the Plaintiff’s officers and employees as the defense counsel. The draft also contains the progress of criminal proceedings against a specific officer and employees, or specifies them as the condition for the payment of contingent fees, such as whether the Plaintiff’s officers and employees are detained, and whether the sentence is imposed. Moreover, in addition to the contents written in the draft, the scope of delegation as the “business-related legal advice and review,” among the contents written in the draft, has been comprehensively written, the draft in detail as to the Plaintiff’s officers and employees, and all of the said attorneys seem to have been involved in the criminal case of the Plaintiff’s officers and employees.

⑤ The summary of the facts charged against the Plaintiff’s officers and employees is a subordinate company with the cost of construction.

From the point of view, it is based on the fact that the act of creating the foreign capital itself falls under the scope of the Plaintiff’s business. As such, insofar as the act of creating the foreign capital itself does not seem to fall under the scope of the Plaintiff’s business, the payment of attorney’s fees in criminal cases against the officers and employees of the act of breach of trust or offering of bribe, etc. resulting therefrom cannot be deemed as the process of performing the Plaintiff’s business. Of the Plaintiff’s officers and employees, the appellate court rendered a judgment of innocence on the grounds that their unlawful acquisition intent was not realized, and that their raising of the foreign capital was not the process of performing the Plaintiff’s business, and thus, it cannot be viewed differently based on the above judgment of innocence.

6) Even if part of the counsel’s replys regarding the scope of delegated affairs, it appears that the scope of the counsel’s oral and legal defense does not clearly distinguish between the Plaintiff and its officers and employees. In light of the circumstances supra and the fact that at the time of appointment of the counsel in relation to the attorney’s fee of this case, the Plaintiff was not prosecuted for any suspicion, unlike its officers and employees, the scope of the attorney’s defense and legal defense for the criminal case is limited to indirect impact of the Plaintiff’s officer and employee’s criminal case outcome, and the attorney’s main duties are deemed to have been asserted and legal defense for the criminal case of the Plaintiff’s officers and employees.

7) Where a judgment of innocence is rendered on a criminal case against the Plaintiff’s officers and employees, benefits such as return to their work, prevention of Plaintiff’s stock price drop, and boosting the morale of the employees are merely anti-private interests irrelevant to the Plaintiff’s business objectives.

4. Conclusion

Therefore, the part of the claim for revocation of the disposition imposing corporate tax as of May 9, 2014 among the lawsuit in this case is unlawful, and the remaining claims of the plaintiff shall be dismissed as of May 9, 2014. The part of the lawsuit in this case which dismissed the claim for revocation of the disposition imposing corporate tax as of May 9, 2014, and the judgment of the court of first instance which dismissed the plaintiff's claim for revocation of the disposition imposing the value-added tax as of May 9, 2014 is justifiable. Therefore, the plaintiff's appeal is dismissed,