CK Co., Ltd. (Law Firm LLC, Attorneys Kim Ha-in, Counsel for the plaintiff-appellant)

1. The head of the Dongdaemun Tax Office or the Seoul Regional Tax Office;

November 15, 2016

1. The plaintiff's respective claims against the defendants are all dismissed.

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

피고 동대문세무서장이 2015. 4. 7. 원고에 대하여 한, 2007년 2기분 부가가치세(가산세 포함) 14,977,510원, 2008년 1기분 부가가치세(가산세 포함) 61,921,420원, 2008년 2기분 부가가치세(가산세 포함) 17,239,270원, 2009년 1기분 부가가치세(가산세 포함) 302,592,630원, 2009년 2기분 부가가치세(가산세 포함) 420,775,290원의 각 부과처분, 2010년 1기분 부가가치세 부당과소신고가산세 43,362,068원 중 10,840,517원을 초과하는 부분, 2010년 2기분 부가가치세 부당과소신고가산세 89,019,011원 중 22,254,753원을 초과하는 부분, 2011년 1기분 부가가치세 부당과소신고가산세 43,853,353원 중 10,963,338원을 초과하는 부분, 2011년 2기분 부가가치세 부당과소신고가산세 62,860,870원 중 15,715,218원을 초과하는 부분, 2012년 1기분 부가가치세 부당과소신고가산세 99,704,432원 중 24,926,108원을 초과하는 부분, 2012년 2기분 부가가치세 부당과소신고가산세 61,135,056원 중 15,283,763원을 초과하는 부분, 2013년 1기분 부가가치세 부당과소신고가산세 50,344,559원 중 12,586,140원을 초과하는 부분, 2013년 2기분 부가가치세 부당과소신고가산세 1,695,471원 중 423,868원을 초과하는 부분에 해당하는 각 부과처분, 2010 사업연도분 법인세(가산세포함) 51,310,512원 중 12,827,628원을 초과하는 부분, 2011 사업연도분 법인세(가산세포함) 30,613,599원 중 7,653,400원을 초과하는 부분, 2012 사업연도분 법인세(가산세포함) 38,397,733원 중 9,599,433원을 초과하는 부분, 2013 사업연도분 법인세(가산세포함) 10,159,467원 중 2,539,866원을 초과하는 부분에 해당하는 각 부과처분을 각 취소하고, 피고 서울지방국세청장이 2015. 4. 10. 원고에 대하여 한 소득자를 소외인, 소득금액을 2007년 귀속 21,940,705원, 2008년 귀속 148,520,250원, 2009년 귀속 887,678,789원으로 하는 각 소득금액변동통지를 각 취소한다.

1. Details of the disposition;

A. The Plaintiff (formerly changed company: the east General Company) is a corporation that runs the import, manufacture, and wholesale business of medicinal herbs in Dongdaemun-gu Seoul ( Address omitted) from September 15, 1992 to September 15, 1992.

B. The director of the Seoul Regional Tax Office, for a period from June 18, 2014 to March 22, 2015, conducted an integrated investigation into corporate tax with the Plaintiff, omitted the sales amount of KRW 508,447,586 (in total, KRW 378,560) from June 18, 2014 to March 22, 2015; ② from 2009 to 2013 to 2013, by using the Plaintiff’s employees and their personal accounts (hereinafter “the instant borrowed account”) from 2007 to 2008; ② from 2007 to 2008 to 2008 to 2014; and ② from 2009 to 2013 to 2014, 2514, 2064, 2586, 2061 to 206, 2064, 2586, 2016.

C. Based on the foregoing taxation data, the Defendant: (a) deemed that the Plaintiff’s above act constituted “Fraud or other unlawful act”; (b) applied the exclusion period of imposition of ten years under Article 26(1)1 of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014; hereinafter the same) and the rate of imposition of 40% for unjust under-reported additional taxes under Article 47-3(2) to the Plaintiff; and (c) imposed imposition of KRW 1,416,430,275 and the total value-added tax amount of KRW 3,017,635,784 on April 7, 2015; and (d) disposed of KRW 3,020,127,265 as the representative on April 10, 207; and (d) notified each of the pertinent dispositions (hereinafter “the pertinent disposition”).

D. The Plaintiff filed an appeal with the Director of the Tax Tribunal against each of the instant dispositions, but the said appeal was dismissed on December 23, 2015.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 4, Eul evidence 1 to 2 (including each number), and the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. Summary of the plaintiff's assertion

1) Although it is true that the Plaintiff omitted the sales amount as alleged by the Defendants, the Plaintiff’s use of the instant borrowed account did not have any volume managed by the Plaintiff, and the Plaintiff’s business employees managed and used the Plaintiff’s personal needs and convenience, it does not constitute “Fraud or other unlawful act.” In addition, in the case of the use of double programs and the deletion of data, the Plaintiff’s deletion of past data to prevent any error in the program after the completion of the tax declaration while using the business program other than the existing tax return usage for the sake of the efficiency of the inventory management of herb drugs, is merely a mere omission in the return, and does not constitute an unlawful act. Accordingly, each disposition of this case, with the exclusion period of 10 years and the imposition of an unfair under-reported additional tax, is unlawful.

2) Even if there were unlawful acts as alleged by the Defendants, at least in the instant case, the Plaintiff’s representative director, in the case of the portion of 207 and 2008 of the notice of change in the income amount, was added to “the income tax or corporate tax on the income disposal amount arising therefrom shall be subject to the exclusion period of 10 years retroactively since January 1, 2012, because it is difficult to view that there was a fraudulent or other unlawful act to have been committed in order to evade the income tax to be imposed, since all concealed income was anticipated to have been attributed to him as the representative of the relevant corporation, and as such, it is difficult to view that there was a fraudulent or other unlawful act to have been committed. In addition, the amendment of the Framework Act on National Taxes on December 31, 2011, and the latter part of Article 26-2(1)1 of the Framework Act on National Taxes (amended by Act No. 11308, Dec. 1, 2012; Article 2(1) of the Addenda of the same Act provides for the exclusion period of 2007 years retroactively applied.

B. Relevant statutes

It is as shown in the attached Form.

(c) Markets:

1) Whether the act constitutes fraud or other unlawful act

A) Relevant legal principles

Article 26-2(1)1 of the former Framework Act on National Taxes provides that the exclusion period of the right to impose national taxes shall be ten years from the date on which the national tax can be imposed if the national tax is evaded by fraud or other improper means. Article 47-3(2) of the former Framework Act on National Taxes provides that the amount calculated by the ratio of 40% of the relevant tax amount shall be the penalty tax in the case of underreporting the tax base in whole or in part due to such unlawful means as above. The term "Fraud or other unlawful means" in this context refers to an act that is recognized as unfair by social norms as an act that enables the evasion of tax, i.e., a deceptive scheme that makes it impossible or considerably difficult to impose and collect taxes impossible. It does not constitute a mere failure to file a tax return or making a false tax return without accompanying any other act, but it does not constitute a failure to file a tax return or making a false tax return, but in addition, where active concealment of the tax base, such as a false entry in books, check, etc., and multiple accounts repeatedly, it can be recognized as 314.

B) The portion on the use of the instant borrowed name account

(1) Facts of recognition

(A) From 2007 to 2013, the Plaintiff received money from the customer as well as the Plaintiff’s corporate account through the Plaintiff’s employees Nonparty 2 and 17 personal accounts of Nonparty 13. Of the said 17 accounts, five of the said 17 accounts is an employee’s name, and the remainder is an employee’s ties, spouse, and lineal ascendant’s name.

(B) The Plaintiff issued the total sales tax invoice for the sales amount deposited into the corporate account and filed a tax return. However, the Plaintiff did not issue evidentiary documents, such as tax invoice, but did not report to the tax authority on the sales amount received through the instant borrowed account.

(C) The amount of sales omitted during the period from 2007 to 2013, as seen below, reaches approximately KRW 3 billion in total (Provided, That the difference between the above amount and the circumstances of dispositions, it appears that the amount omitted in the report after 2009, overlaps with the amount of sales omitted in relation to the use of the program and the deletion of the data and was excluded from calculation.)

The omission of sales in connection with the instant borrowed account and double program (units: KRW 3,040,00) contained in the main text of the Schedule in the year 2007, 201, the total amount omitted from sales using the instant borrowed account in 21,531 - 4,461 - 4,614,6223,9375,5912,920,920 using the instant borrowed account in 2013, 2010, 2012, 2013, 2013, 206620 6206,620 - 4,531 - 4,4614,6223,9375,5912,920

(D) Of the instant borrowed name account, Nonparty 3’s national bank account (Account Number No. 1 omitted) and Nonparty 4’s agricultural bank account (Account Number: Account Number No. 2 omitted), the mother of the Plaintiff’s employee, was disbursed in the form of account transfer from the Plaintiff’s transportation expenses, non-data purchase expenses, educational expenses, daily allowances, welfare expenses, etc. (the Defendant included this part as necessary expenses in the calculation of non-party expenses).

(E) On December 18, 2015, the Plaintiff was issued a summary order of KRW 100 million (2015 high-tech 1572) by the Seoul Northern District Court on the grounds that “the Plaintiff supplied herb drugs without issuing a tax invoice to a customer and received the price to the instant borrowed account under the name of the Plaintiff’s employees or their branch, and subsequently evaded the tax by fraud or other unlawful means, such as omitting the sales, by omitting the sales by filing a return, such as value-added tax, with the head of the same tax office.” On January 23, 2016, the said summary order became final and conclusive as it is.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 4, Eul evidence Nos. 3 through 11 (including each number in the case of additional statements) and the purport of the whole pleadings

(2) Determination:

The following circumstances, which can be inferred or known by the above facts, i.e., (i) the Plaintiff used the instant borrowed account for about seven years, i.e., (ii) the name of the said borrowed account consisting of the Plaintiff’s employees and its branch members, and (iii) it seems difficult to clarify the fact of tax evasion due to the ordinary tax investigation in the case of deposit of cash sales difficult to capture. (ii) The Plaintiff appears to conceal the details of transactions by failing to issue documentary evidence, such as a tax invoice by which the tax authority can confirm the facts of sales, and (iii) it is difficult to view that the omitted sales amount exceeds KRW 3 billion. (iv) In light of the fact that the Plaintiff’s non-data purchase cost, etc. was paid from some of the instant borrowed account, it appears that the Plaintiff directly managed the instant borrowed account according to its own needs, and (v) the Plaintiff’s act of imposing and collecting the Plaintiff’s tax invoice or the Plaintiff’s tax payer’s tax evasion due to the fact that the Plaintiff was subject to criminal punishment for violating the Punishment of Tax Evaders Act, etc.

C) Part on the use of double programs and deletion of data

(1) Facts of recognition

(A) During the period from 2009 to 2013, the Plaintiff entered the transaction date, transaction partner, item, quantity, ex-factory price, and inventory in the business program, separate from the existing program for filing a tax return, and managed herb materials, and reported the sales amount to the Defendant.

(B) At the time of investigation into the Plaintiff by the director of the Seoul Regional Tax Office, the materials prior to November 2013, among the materials on sales and purchase of the business program, were deleted by the Plaintiff.

(C) The Plaintiff’s business management employee created the calculation details of the operating allowance including herb entry and release as an X-cell file, and stored and kept them separately in the USB, which is not the Plaintiff’s computer.

(D) As seen earlier, the Plaintiff was subject to criminal punishment for violating the Punishment of Tax Evaders Act.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 4, Eul evidence Nos. 5 through 10, and the purport of the whole pleadings

(2) Determination:

According to the above facts, it can be found that the part of the tax invoice issued out of the actual sales details on the business program, which is the management purpose, was omitted when the Plaintiff reported the value-added tax and corporate tax to the Defendant through the existing tax return program. As such, the Plaintiff’s act of preparing and keeping the business program, which is the computerized book stating the actual sales details, and reporting the amount less than the actual sales amount to the Defendant based on the aforementioned program is based on double book preparation and false book entry, and it is reasonable to view that the Plaintiff’s act of not making a false entry under Article 26-2(1)1 of the former Framework Act on National Taxes falls under the category of “Fraud or other unlawful acts” under Article 3(6) of the former Enforcement Decree of the Punishment of Tax Evaders Act, which is one of the types of “the Plaintiff’s act of not making a false entry entry or making a false entry (Article 3(1)1 of the former Enforcement Decree of the Framework Act on National Taxes). However, it is reasonable to view that the Plaintiff’s act does not necessarily constitute a double entry entry report or omission of the above content.

2) Whether the exclusion period for imposition of notice of change in each income amount of the instant case has expired

Article 26-2(1)1 of the former Framework Act on National Taxes (amended by Act No. 11124, Dec. 31, 2011) provides that “where a taxpayer evades a national tax, obtains a refund or deduction by fraudulent or other unlawful means, it shall be ten years from the date on which the national tax is assessable.” However, as amended by Act No. 11124, Dec. 31, 2011, if a national tax evaded, refunded or deducted by unlawful means is a corporate tax, it shall be ten years from the date on which the income tax or corporate tax may be imposed on the amount disposed of pursuant to Article 67 of the Corporate Tax Act.” Article 2 of the Addenda provides that “The amended provisions of the latter part of Article 26-2(1)1 of the Corporate Tax Act shall apply to the disposal of the national tax from the date on which the income tax or corporate tax may be imposed on the first time after January 1, 2012.”

On January 1, 2012, the enforcement date of the amended provisions prior to the expiration of the exclusion period under the provisions prior to the amendment of January 1, 2012, the Plaintiff’s representative director’s respective income tax liability for the years of 2007 and 2008 of the Nonparty’s representative director following the notice of change in income amount, and thus, the application of the exclusion period for ten years by the Seoul Regional Tax Office for the notification of change in income amount to the Seoul Regional Tax Office pursuant to the amended provisions constitutes the application of the so-called “non-appealed Payment Act” (see Supreme Court Decision 2001Du10790, Mar. 26, 2004). In principle, there is no evidence to deem that the notification of change in income amount constitutes a special case where the application of the amended provisions is against the principle of trust protection. The Plaintiff’s assertion to this issue is without merit.

D. Sub-committee

Each disposition of this case to the same purport is lawful.

3. Conclusion

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

(attached Form omitted)

Justices Kang Jong-hee (Presiding Justice) (Presiding Justice)