early 2010:1272 (Law No. 18, 2011)

Bonuses are merely those that have taken the form of bonus in order to distribute reserved profits, and in substance the disposal of earned surplus.

In light of the fact that there is no evidence to deem that bonus has made a special contribution compared to other officers to the extent that it can be justified, and that there was a resolution of payment of bonus has been after the resignation of the representative director, it is merely that bonus has made the form of bonus in order to distribute reserved profits, and the method of disposal of earned surplus actually has been determined.

2011Guhap1455 Revocation of Disposition of Corporate Tax Imposition

XX Co., Ltd

Head of Chungcheong Tax Office

June 14, 2012

July 12, 2012

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposing corporate tax of KRW 000 on the Plaintiff on January 4, 2010 shall be revoked.

1. Details of the disposition;

A. The Plaintiff is a company established on November 1, 1989 and running a golf club business, etc., and the Gangwon is a person who served as the representative director of the Plaintiff company from December 13, 2001.

B. On December 12, 2008, the Plaintiff held a temporary general meeting of shareholders and decided to pay a bonus of 000 won to the Gangwon at the end of each year, and paid the said bonus on December 30, 2008 (hereinafter “instant bonus”). On December 1, 2008, the Plaintiff paid 00 won as retirement allowance to the Gangwon on the ground that he resigned from the representative director on December 1, 2008 (hereinafter “instant retirement allowance”).

C. The Plaintiff reported corporate tax in 2008 by including the bonus and retirement pay in deductible expenses.

D. After conducting a tax investigation with respect to the Plaintiff, the Defendant considered the nature of the bonus in the year 2008 that the Plaintiff paid to Gangwon as a disposition of profits. On the other hand, on January 4, 2010, the Defendant imposed KRW 000 corporate tax for the business year 2008, including the penalty tax on the return and the non-payment of the Plaintiff, by deeming that the Plaintiff was paid retirement benefits without having actually retired from the Plaintiff.

[Ground of Recognition] Facts without dispute, Gap evidence 1, Gap evidence 4, Gap evidence 5, Gap evidence 8 through Gap evidence 12, Eul evidence 4, Eul evidence 5, Eul evidence 5, the purport of the whole pleadings, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The plaintiff asserts that the disposition of this case is unlawful for the following reasons.

1) The instant bonus is only a compensation for the management performance of the Gangwon-do, not a profit disposition, and is paid by a resolution of a temporary general meeting of shareholders on December 12, 2008, and should be included in deductible expenses pursuant to Article 43(2) of the Enforcement Decree of the Corporate Tax Act.

2) The instant retirement allowance was paid in accordance with the articles of incorporation and the rules on the payment of retirement allowances delegated by the Plaintiff Company’s articles of incorporation, and thus, is subject to inclusion in deductible expenses pursuant to Article 44(4)1 of the Enforcement Decree of the Corporate Tax Act. The Plaintiff actually retired on or before December 2008, and signed the documents with the Do and the approval of the new representative director by the beginning of December 2009 in the process of transferring business affairs. The instant disposition was unlawful as it

B. Relevant statutes

It is as shown in the attached Form.

C. Facts of recognition

1) On December 13, 2001, Gangwon A was appointed and held as the representative director of the Plaintiff on December 13, 2001, and on December 1, 2008, the board of directors resigned from the office of the board of directors on December 1, 2008, and Kim E-E was appointed as the former representative director, and completed the resignation and the registration of his/her office on December 2, 2008.

2) According to Article 34 of the Plaintiff’s articles of incorporation, remuneration and retirement allowance for directors and auditors are determined at a general meeting of shareholders. According to Articles 3, 6, and 7 of the Rules on the Payment of Retirement Benefits, the retirement allowance is calculated by adding the average wage for three months prior to the date on which the grounds for payment of retirement allowances arise to the average bonus allowance for the preceding one year, etc., and then multiplying the amount calculated by multiplying the amount by the number of years of continuous service (the chairperson, vice-chairperson, within seven times the average retirement allowance, the president, within five times the normal retirement allowance, and the auditor, within one time the normal retirement allowance, and the other employees shall be within one time the normal retirement allowance) by the payment rate for the amount calculated by multiplying the amount calculated by the number of years of continuous service. Meanwhile, Article 45 of the Rules of Employment of the Plaintiff Company provides that “The payment period and payment rate of bonuses shall be determined

3) At a regular general meeting of shareholders on March 26, 2008, the Plaintiff approved the limit of the officer’s remuneration to KRW 000 for the president, KRW 000 for the president, KRW 000 for the vice president, KRW 000 for the managing director for the managing director, and KRW 000 for the directors and the auditor. On December 12, 2008, the Plaintiff decided to pay KRW 71% of the shares issued by the Plaintiff, KRW 10 for the managing director, and KRW 00 for the bonus at the temporary general meeting of shareholders. At the time of the above resolution, Gangwon-A was decided to pay KRW 71% of the shares issued by the Plaintiff, KRW 10% for the Gangwon-B, and KRW 19% for the textile, and the company is a company whose controlling shareholder

4) Since the appointment of the representative director, Gangwon did not receive any remuneration for the period of 2005. Meanwhile, from 2006 to 2008, the details of the payment of bonuses to Gangwon were as follows. In addition to Gangwon at the time of the payment of the bonus in 2006, the bonus of KRW 00 and KRW 000 was paid to the director demotion and the director-D. At the time of the payment of the bonus in 2006, the bonus was not paid to the rest of the officers except Gangwon.

5) Even after the completion of the registration of the resignation of the representative director, Gangnam A, signed the name in the column for approval of the chairperson of the OOO's office on December 22, 2008, and approved it to the OO's office even around March 31, 2009, and signed it as the plaintiff's internal signature on the "case of the total color of wooden building in the 2009 officer's annual salary as prepared on January 19, 2009", "OO's office's annual salary settlement as prepared on February 3, 2009", "4 U.S. four parts of measurement volume in the face of the law of February 3, 2009," "the final premium settlement of industrial accident insurance in the year 2008 and payment of the estimated premium in the year 209", and "the final approval of the plaintiff's internal signature as the plaintiff's internal signature.

6) On the other hand, on January 19, 2009, with respect to Kim E, a representative director at the time of the adjustment of the Plaintiff’s annual salary for officers in 2009, the annual salary increased from 000 won to 000 won in the previous 000 won, on the condition that the retirement pay is separately paid, was set at the class of “the president”. Meanwhile, by June 2009, the Plaintiff is a person who received the said payment from the Plaintiff while participating in the Plaintiff’s business.

7) The Plaintiff’s net income for the settlement of accounts in 2008 is KRW 000.

[Ground of recognition] Facts without dispute, Gap evidence 1, Gap evidence 3 through Gap evidence 11, Gap evidence 14, Eul evidence 2 to Eul evidence 11, the purport of the whole pleadings and arguments

D. Determination

1) Determination as to the bonus of this case

A) According to Articles 19(1) and 20 subparag. 1 of the former Corporate Tax Act (amended by Act No. 9267, Dec. 26, 2008); Article 26 subparag. 1 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010); Articles 20(1)4 and 43(1) and (2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 21302, Feb. 4, 2009; hereinafter the same), the disposal of surplus cannot be included in deductible expenses in principle as it does not fall under its concept. However, where a domestic corporation agreed in advance on the outcome calculation index and purpose of performance calculation of employees other than the representative director, etc.; the corporation’s performance bonus paid to the officer; or the corporation’s performance bonus paid to the officer; and where it is deemed that it falls under the nature of the payment of wages or the general meeting of shareholders.

B) In light of the aforementioned relevant laws and regulations, the following circumstances can be seen as 1: (a) the Plaintiff’s rules of employment provide that a company may pay bonuses according to its management performance; (b) the Plaintiff passed a resolution on March 26, 2008 on the retirement allowance limit (00 won for the president). However, there was no specific payment criteria or methods of performance evaluation for the payment of bonuses; (c) the said rules of employment or method of payment for the instant bonus cannot be deemed to have been set “the salary limit for the officers of the instant case” as provided by Article 43(2) of the former Enforcement Decree because it was 00 won for the officers of the instant case’s bonus to the extent that it was difficult for the Plaintiff to pay the bonus to the officers of the instant case’s 200-year bonus to the extent that it was difficult for the Plaintiff to view the amount of the bonus to be paid to the officers of the instant case’s 20-year bonus as the total amount of the bonus paid to the officers of the instant case’s 200-year bonus.

C) Therefore, the Defendant’s disposition that did not include the instant bonus in deductible expenses pursuant to Article 43(1) of the Enforcement Decree of the Corporate Tax Act is lawful.

2) Determination on retirement pay of this case

A) According to Article 44(1) of the former Enforcement Decree of the Corporate Tax Act, retirement benefits paid by a corporation to an officer or employee shall be included in the calculation of losses only when the employee actually retires.

B) On December 1, 2008, the annual salary in 2009 was set in the following circumstances, which can be known by the above facts in the instant case, i.e., (i) even after the resignation of the representative director at the board of directors, on December 1, 2008, under the condition that the Plaintiff’s position as the final approval of the Plaintiff’s OO official report and internal documents as well as the Plaintiff’s position as the Plaintiff’s remaining officers as well as the Plaintiff’s retirement allowance separate from the Plaintiff’s retirement allowance. (ii) The Plaintiff asserted that the Plaintiff was only approved by the Plaintiff’s internal documents in the course of the business transfer for the latter representative by the time of June 2009. However, examining the types and contents of the documents approved by the Gangwon was not simply made within the scope of the business transfer, it is difficult to readily believe that the business transfer continued for about seven (7) months after the retirement of the representative director, and in particular, it seems that the annual salary in 2000 won was more easily and more than the annual salary in 20000.

C) Therefore, the Defendant’s disposition that did not include the instant retirement allowance in deductible expenses on the ground that the Gangwon does not fall under the case where the Plaintiff actually retired in 2008 is lawful.

3. Conclusion

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