Doki Industry Co., Ltd. (Attorneys O Young-young et al., Counsel for the defendant-appellant)

Head of Dong District Office

March 16, 2011

Cheongju District Court Decision 2009Guhap1353 Decided June 3, 2010

1. Revocation of a judgment of the first instance;

2. The Defendant’s disposition of imposition of KRW 4,18,540 for the second term of 205 against the Plaintiff on May 1, 2008, and KRW 27,85,650 for the first term of 2006, value-added tax for 171,279,750 for the second term of 2006, value-added tax for 171,279,750 for the second term of 2006, value-added tax for 10,830,630 for the first term of 207, and KRW 173,345,390 for the business year of 206 shall be revoked.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On March 1, 2004, the Plaintiff, a corporation that produces and sells refining oil, entered into an independent accounting contract with Nonparty 1 for refining oil, and had Nonparty 1 sell refining oil under the name of the Plaintiff’s Daejeon Business Office (hereinafter “instant Daejeon Business Office”).

B. From October 1, 2007 to November 12, 2007, the Director of the Daejeon Regional Tax Office conducted an investigation of tracking the oil distribution process with the Plaintiff (hereinafter “the primary investigation of the instant case”). At that time, the head of the Daejeon Regional Tax Office imposed value-added tax and corporate tax on the transaction conducted through the new bank account (Account Number 1 omitted) directly managed by Nonparty 2 (hereinafter “1 account”). However, with respect to the transaction conducted through the new bank account (Account Number 2 omitted) account (hereinafter “2 account”) at the Daejeon Daejeon District Tax Office, the Plaintiff and Nonparty 1 were to make a statement consistent with each other, and Nonparty 1 were to avoid the additional investigation of this part of the transaction and to make a later re-investigation because the Plaintiff was aware that the further investigation was made.

C. However, when the investigation of tracking the oil distribution process (hereinafter “the second investigation of this case”) was resumed from January 14, 2008 to February 28, 2008 regarding the transaction of the Daejeon Daejeon Daejeon Daejeon Daejeon Business Office, Nonparty 1 started not only selling refined oil as a business director as the plaintiff’s business director but merely receiving sales allowances in return, with the reversal of the existing position.

D. After completing the second investigation, the director of the Daejeon Regional Tax Office: (a) deemed the business of the Daejeon District Tax Office as not Nonparty 1’s personal business but the Plaintiff’s business; and (b) determined the omission of sales, which was verified in the transaction without any tax invoice among the transaction via the two accounts; and (c) notified the Defendant of the omission of sales, and KRW 501,162,00 as the Plaintiff’s transaction portion. Accordingly, on May 1, 2008, the Defendant issued a disposition of imposition of value-added tax for the second period of KRW 4,118,540, value-added tax for the second period of May 1, 2005, KRW 27,85,650, KRW 171,279,750, KRW 10, value-added tax for the second period of value-added tax for the second year of 206, KRW 10,830, KRW 630, corporate tax for the year of 2007.

E. On August 1, 2008, the Plaintiff filed an objection with the Director of the Daejeon Regional Tax Office regarding the instant disposition, but was dismissed on October 28, 2008. Then, the Plaintiff filed an appeal with the Tax Tribunal on October 7, 2008. The Tax Tribunal rendered a decision to rectify the tax base and tax amount based on the results of re-audit as to who is the person to whom the actual transaction occurred on April 16, 2009. However, the Director of the Daejeon Regional Tax Office notified the Plaintiff of the same conclusion before re-audit on July 14, 2009.

[Ground of recognition] Facts without dispute, Gap's statements (including various numbers), Gap's statements (including each number), Gap's statements (including the whole number), Eul's statements (including the whole number), the whole purport of the pleading

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

① Although there is no special reason prescribed in the Framework Act on National Taxes, the head of Daejeon Regional Tax Office may not conduct a reinvestigation on the same tax item and the same taxable period. The head of Daejeon Regional Tax Office confirmed the tax base of the Plaintiff from the first investigation of the instant case and served a tax notice to the Plaintiff, and again conducted the second investigation of the instant case without any justifiable reason, which violates Article 81-4 of the Framework Act on National Taxes. ② Although the Plaintiff allowed Nonparty 1 to conduct a business in the name of the Plaintiff at the Daejeon Daejeon Daejeon District Tax Office, Nonparty 1 actually sold refined oil in an independent position with the Plaintiff. Therefore, the instant disposition that reverted Nonparty 1 to the Plaintiff is unlawful as it violates the principle of substantial taxation and the principle of taxation based on the evidence taxation. ③ Even if the Plaintiff is the business owner of the instant Daejeon District Tax Office, calculating the sales and omitted amount based on the amount transferred to the two accounts merely without accurate verification procedures is unlawful as it violates the principle of taxation based on presumption. ④ The commissioner of Daejeon Regional Tax Office confirmed the tax base of the Plaintiff from the first investigation of this case and expressed public opinion.

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

1) On March 1, 2004, the Plaintiff prepared a sales agreement with Nonparty 1 (hereinafter “instant sales agreement”) and permitted Nonparty 1 to operate the instant Daejeon business. The main contents of the instant sales agreement are as follows.

The plaintiff and the non-party 1 enter into an independent accounting contract for the sale of oil.

Article 1

This contract shall, in consultation with Nonparty 1, produce and supply refined fuel oil requested by Nonparty 1, and wholly delegate the sale thereof to Nonparty 1. The production raw materials supply and production cost for this contract shall be borne by Nonparty 1. The sales profit shall be paid to Nonparty 1, except for the tax contribution and the Madjin agreed upon by the Plaintiff, and the remaining profits shall be paid to Nonparty 1, and the contract shall be concluded as follows:

Article 2

In principle, the plaintiff and the non-party 1 shall make an individual agreement on the sale of goods to be sold by the non-party 1 in accordance with Article 1 as an independent accounting system. The profit from the sale after settlement shall be paid to the non-party 1 as a sales subsidy.

Article 3

The term of validity of this contract shall be 12 months from March 30, 2004 to March 20, 2005, and shall be automatically extended if there is no change between the plaintiff and the non-party 1 before the expiration of the term, and shall remain effective as it is.

Article 4

① The Plaintiff may terminate the agreement with Nonparty 1 immediately in any of the following cases:

Where Nonparty 1 sells goods in consultation with the Plaintiff and is unable to pay the terms and conditions of performance promised with the Plaintiff pursuant to this Agreement, and is subject to administrative damage.

② Nonparty 1, in specially consignment sale of the Plaintiff’s goods, shall use the rubber and employee of the company given to Nonparty 1 as follows.

· When the actual transaction tax invoice and the administrative affairs of the financial institution, the supply and sale contract is made with the company

· Application for goods tendering

③ Nonparty 1 shall store and commission the goods of each paragraph entrusted to the Plaintiff.

· refined milk products

④ Nonparty 1 is an entrusted seller designated by the Plaintiff and faithfully implement the following paragraphs.

· Enforcement Decree of the Petroleum Business Act

· Sale of mixed oil

· Sale of refined Products Consultation with the Head Office

· compliance with company instructions, administration, and legal matters

Article 5

The non-party 1 shall faithfully implement the contents of Article 1 and shall be legally responsible for all matters that arise when the non-party 1 does not fulfill the provisions of Article 4 (2), (3) and (4).

2) On April 6, 2004, the Plaintiff delivered the Plaintiff’s employee identification and rubber to Nonparty 1 pursuant to the instant sales agreement, and opened two accounts and delivered the passbook (the Nonparty 1 was in bad credit standing, and it was impossible to open and trade the account in the bank’s name).

3) From April 2004, Nonparty 1 started operating the Daejeon Daejeon District Office by leasing the second floor of the building located in the Jung-gu, Daejeon District. However, on October 28, 2004, Nonparty 1 established a corporation under the trade name, “the continental Energy of the Company,” and registered Nonparty 3 as the representative director at the same place on October 28, 2004, and operated refined oil and petroleum sales business. In addition, Nonparty 1 established a corporation under the trade name, “the Sclimex of the Company,” and registered Nonparty 4 as the representative. Nonparty 3 and Nonparty 4 were employed by Nonparty 1 upon Nonparty 1’s request, but registered as the representative of each of the above corporations, and the rent of the above building was paid by Nonparty 1.

4) From around 2004, Nonparty 1 leased, managed, and used the oil storage tank Nos. 3 and 4 out of six oil storage tanks in the Plaintiff’s representative director Nonparty 2’s ( Address 2 omitted). However, on August 23, 2004, Nonparty 5 died due to the explosion of the oil storage tank in accordance with the agreement with Nonparty 1. The deceased Nonparty 5’s bereaved family members filed a lawsuit seeking compensation against the Plaintiff and Nonparty 1. The Plaintiff asserted that there was no liability for the said accident, and Nonparty 1 had the bereaved family withdraw the lawsuit by mutual agreement between the bereaved family members and Nonparty 5,00,000.

5) On September 2004, the Plaintiff made a debit card under the Plaintiff’s name and provided it to Nonparty 1 upon Nonparty 1’s request that the use of the credit card is necessary for the settlement of price, etc., and the payment of the debit card was made out of two accounts.

6) From 2005 to 2006, Nonparty 1 sold refined oil purchased from the Plaintiff in the name of the Plaintiff, and issued a tax invoice under the name of the Plaintiff, and the issued tax invoice sent to the Plaintiff. The Plaintiff organized the books by dividing the purchase, sale, and purchase and sale at the Daejeon Daejeon Business Office, but all of the taxes return and payment, including value-added tax, were filed.

7) On March 22, 2006, the head of the Geum River basin basin basin office imposed a sum of KRW 22,000,000 on the ground of the violation of the Wastes Control Act on the Plaintiff on March 22, 2006 in relation to Nonparty 1’s selling of refining oil. Accordingly, Nonparty 1 transferred KRW 22,00,000 from April 2, 2006 to one account, and had the Plaintiff pay the penalty surcharge and the fine for negligence.

8) Nonparty 1 independently managed and used the two accounts, and, in the event that there is a transaction with the Plaintiff, transferred funds through two accounts and one account. From January 25, 2005 to April 27, 2006, KRW 109,304,000 was transferred from two accounts to one account. From January 4, 2005 to September 23, 2005, KRW 139,560,000 was transferred from one account to two accounts. Meanwhile, as the transaction with the Plaintiff was suspended with Nonparty 1, the Plaintiff requested the deferment of returning the account for the receipt of the attempted amount, but Nonparty 1 requested the return of the account to be closed by reporting the loss of the account on July 28, 2007.

9) As of February 15, 2008, Nonparty 1 sent a written notification to the Plaintiff as of February 15, 2008, and requested the Plaintiff to settle the price of oil stored in the Plaintiff’s oil storage tank on December 2, 2006, and March 2, 2007, which was kept in the Plaintiff’s oil storage tank. The Plaintiff settled the amount by remitting KRW 12,500,000 to Nonparty 1 on February 27, 2008.

[Ground of recognition] Facts without dispute, Gap's statements in Gap's evidence 6, 8, 12, 14 through 24, 41, 43, Eul's evidence 12, 16 through 22, 28, 31 through 38 (including each number), the purport of the whole pleadings

D. Determination

1) Whether the instant disposition violates Article 81-4 of the Framework Act on National Taxes

According to Article 81-4(2)2 of the Framework Act on National Taxes, a tax official may conduct a reinvestigation on the same tax item and the same taxable period if it is necessary to conduct an investigation on the opposite contractual party. According to the facts acknowledged earlier, the commissioner of the Daejeon Regional Tax Office stated that both Nonparty 1 and Nonparty 1 were engaged in a personal business with respect to transactions conducted through two accounts at the Daejeon District Tax Office when conducting the first investigation of this case, but the director of the Daejeon Regional Tax Office stated that both Nonparty 1 and the Plaintiff were engaged in an individual business with respect to the transaction conducted through two accounts at the Daejeon District Tax Office, but the non-party 1 was avoided further investigation. Thus, he decided to conduct a reinvestigation later and suspended further investigation, and conducted a reinvestigation again from the second investigation of this case, which constitutes a case where the investigation on

2) Whether the instant disposition violates the principle of substantial taxation

A) In light of the substance over form principle under Article 14 of the Framework Act on National Taxes, if the ownership of income, profit, property, act, or transaction subject to taxation is merely nominal, and there is another person to whom such ownership belongs, the tax-related Acts shall be applied to the person to whom such ownership belongs, and the tax-related Acts shall not be imposed on the person other than the de facto business operator. However, the name lending is an act promoting tax evasion under an agreement with the de facto business operator, and it is difficult to understand the substance in the outside, and thus, the tax authority imposed tax on the person under the name of the business as the de facto business operator, barring any special circumstances. The assertion that the name lending is a matter of substance over form on the ground that it is different from the substance relationship, and the burden of proof is against the person who disputes the taxation on the nominal owner (see Supreme Court Decision 84Nu68, Jun. 26,

B) In full view of the following circumstances confirmed by the above facts of recognition, it is reasonable to view that the transaction of the Daejeon Daejeon Business Office actually belongs to Nonparty 1.

(1) In addition, it is clear that the sales agreement of this case is traded by the "independent Accounting System", and the overall purport of the agreement is that when the plaintiff supplies refined milk with a mast that the plaintiff consulted with the non-party 1, the non-party 1 would sell it and make profits therefrom, and the non-party 1 shall be legally responsible for the act in violation of the sales agreement. In addition, since the increase in the sales price of the non-party 1 increases in the plaintiff's profits, it cannot be concluded that the plaintiff is in the status of the plaintiff's agent or authorized person, and there is no evidence to prove that the plaintiff paid the sales subsidy after settling the sale with the non-party 1.

(2) The Plaintiff opened an employee identification card, rubber, and a debit card under the Plaintiff’s name and delivered it to Nonparty 1. However, this is an inevitable measure taken by Nonparty 1 under the Wastes Control Act to sell refined oil under his own name because Nonparty 1 was a bad credit holder, and the use of employee identification card and rubber was limited to a tax invoice, administrative work, supply and sale contract with an enterprise, etc., and the two accounts are engaged in transfer transactions with the Plaintiff when necessary when Nonparty 1 manages it. The debit card issued by the Plaintiff to Nonparty 1 was settled from Nonparty 2’s account, and was issued a debit card, not a credit card, to prevent settlement if there is no balance in the account. However, Nonparty 1 requested the return of the account according to the suspension of transactions with Nonparty 1, and the Plaintiff cannot be viewed as an employee of Nonparty 1 and Nonparty 2 under the Plaintiff’s name solely on the ground that the Plaintiff’s account was closed due to Nonparty 1’s request for postponement and the Plaintiff’s account was lost.

(3) Nonparty 1: (a) leased the second floor of the building located in the Jung-gu Daejeon District Office for the operation of the Daejeon District Office; (b) Nonparty 1, who was not the Plaintiff, borne by Nonparty 2; and (c) Nonparty 5, who was clean up due to the explosion of the oil storage tank located in the Chungcheongbuk-gun, which was leased and used by Nonparty 2, was dead; (c) Nonparty 1, who was not the Plaintiff, had Nonparty 1 withdraw the lawsuit filed by agreement with his bereaved family members; and (d) Nonparty 1, who was imposed a penalty surcharge of KRW 22,00,000 on Nonparty 1, who was not the Plaintiff, requested the Plaintiff to settle the amount of oil prices, such as oil oil oil oil stored in the Plaintiff’s oil storage tank; and (d) Nonparty 1 was transferred from the Plaintiff to Nonparty 1, who did not comply with the Plaintiff’s assertion.

(4) The non-party 1's business partner knew that he was involved in the transaction with the plaintiff, or that the non-party 1 was in contact with the plaintiff's representative director. Since the non-party 1 transacted in the plaintiff's name, it does not go against the rule of experience that he was aware of the transaction partner as the plaintiff. As long as the non-party 1 purchased the oil from the plaintiff and sold it, the increase in the sales of the non-party 1 is not only beneficial to the plaintiff, but also the transaction partner is the plaintiff. Thus, even if the non-party 2 was in contact with the non-party 1's business partner, it is insufficient to be a critical evidence that the non-party 1 was

(5) Although Nonparty 1 was able to impose taxes on himself, Nonparty 1 asserted that the business of the Daejeon Daejeon World Trade Organization was its own independent business borrowed from the Plaintiff’s name, and reversed his position that he received sales allowances as an employee of the Plaintiff at the time of the second investigation of this case. In light of the fact that Nonparty 1 reversed his position that he could avoid large amount of taxes and charge the Plaintiff with heavy amount of taxes, it is difficult for Nonparty 1’s statement reversed.

C) Therefore, without having to further examine the remainder of the Plaintiff’s assertion, the instant disposition, based on the premise that the instant Daejeon Business Office’s transaction substantially reverts to the Plaintiff, is unlawful as it violates the principle of substantial taxation.

3. Conclusion

If so, the plaintiff's claim is reasonable, and the judgment of the court of first instance is unfair with different conclusions, so the judgment of the court of first instance is revoked and the plaintiff's claim is accepted, and it is so decided as per Disposition.

[Attachment Form 5]

Judges Cho Jong-jin (Presiding Judge)