Suwon Electronic Co., Ltd. (Law Firm Spah, Attorneys Park Young-han, Counsel for defendant-appellant)

Mapo Tax Office (Law Firm Mapo Co., Ltd., Counsel for the plaintiff-appellant)

September 17, 2004

1. The defendant against the plaintiff:

A. Disposition of imposition of KRW 10,491,449,018 for the business year 1996 on March 5, 2002;

(b)the imposition of the corporate tax of 8,735,772,579 on September 5, 2002;

(c)the imposition of the corporate tax of KRW 4,095,963,865 on September 5, 2002;

D. Disposition of imposition of KRW 116,228,956 for the special rural development tax of 1997 on September 5, 2002

All cancellations.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the imposition;

A. The Plaintiff is a corporation that manufactures, processes, and sells electrical appliances for home use.

B. The plaintiff's corporate tax declaration

The plaintiff reported the corporate tax base and its tax amount on the income in the business year 196, 1997, and 198 as follows.

The total tax amount of KRW 10,491,49,49,889,352,614,368 won on March 31, 1998 on March 31, 1998 of the date of return, March 31, 1997, which was included in the main sentence of the attached business year 196, 81,440,889,352 won 71,265,614,368 won 11,257,685,688 won on March 31, 1998, shall be 10,491,49,018 won 8,942,372,023 won on March 31, 1998.

C. The defendant's corrective disposition and decision of the Board of Audit and Inspection

(1) The director of the tax office of Seodaemun notified the Plaintiff of the tax data related to the Plaintiff’s unfair internal transactions in the business year 1997 and 1998, and rendered a decision of correction as follows by denying wrongful calculation under the Corporate Tax Act.

The amount of corporate tax shall be reduced to KRW 206,59,440 after deducting the initially underreported amount of corporate tax after deducting the previously underreported amount of corporate tax from the calculation of the tax base on May 15, 2001 of the attached business year 1997, which was included in the main text of the attached business year 1997, and the amount of corporate tax shall be reduced to KRW 843,90,670, and the interest shall be reduced to KRW 398,738,130,130, and the tax base shall be reduced to KRW 206,59,440,440. 6,422,823,720 shall be included in the calculation of the tax base and the interest paid to KRW 4,346,674,522 shall be reduced to KRW 3,69,94,923,028 on June 15, 2001.

(2) Accordingly, on June 28, 2001, the plaintiff filed a request for examination with the Board of Audit and Inspection on the grounds that the plaintiff did not include the expenses confirmed as being insufficient in the plaintiff's account book in the calculation of losses. However, the Board of Audit and Inspection dismissed the above request for examination on July 16, 2002.

(d) Increase or decrease of corporate tax, etc. for the business year 196, 1997, or 198;

Meanwhile, the Defendant corrected corporate tax for the business year of 196, 1997, and 1998 by deeming the Plaintiff to bear factoring expenses in connection with bills received from Hart Co., Ltd. as the entertainment expense. As for the business year of 1996, the amount exceeding the entertainment expense limit was 100,213,52,638, and the total determined amount was 13,491,486,779 as the tax base was adjusted to 13,49, and 3,00,00,037,761 as the difference was 345,362,560, and 205, and the amount of the increased special rural development tax was additionally notified to 345,362,560, and the total amount of the increased tax was 205,000,000,0000 won as the total amount of 245,000,0000 won, 205,7145,5675,57.1.

(e) Decision of the National Tax Tribunal and disposition of reduction or correction by the defendant;

(1) The plaintiff filed an appeal with the National Tax Tribunal regarding each of the above dispositions. On February 21, 2003, the National Tax Tribunal rejected the plaintiff's assertion that the plaintiff's share of factoring expenses in relation to the bill received from Hart Co., Ltd. cannot be viewed as the entertainment cost, but it is illegal to regard the excess amount as the entertainment cost and non-deductible the excess amount as the entertainment cost. On the other hand, the plaintiff's decision of correction was made as to the plaintiff's assertion that the excess amount was illegal. However, the court rejected the plaintiff's assertion that there was an error of law that did not include the expenses confirmed as being excessively counted in the plaintiff's account book

(2) Accordingly, the defendant, as of March 8, 2003, issued a disposition of imposition on March 5, 2002, 81,440,889,352 won, reduced the corporate tax base for the business year 1996 to 10,491,449,018 won, and revoked the entire imposition of special rural development tax for the business year 1996. As of the disposition of imposition on September 10, 2003 as of March 10, 2002, the tax base was corrected to 72,508,313,168 won, the tax base was adjusted to 8,735,772,579 won, and the tax base was reduced to 8,735,772,579 won, and the total amount of the corporate tax for special rural development tax was reduced to 14,784,116,198,2985, and the tax base was revoked to 2985,2969.

F. Court's decision

Of each disposition of March 5, 2002 and September 5, 2002, each of the dispositions of this case remains without being revoked due to the defendant's decision of revocation. The part subject to the disposition of this case was imposed on 10,491,449,018, corporate tax of 1996, March 5, 2002, corporate tax of 8,735,772,579, corporate tax of 1997, September 5, 2002, corporate tax of 8,735,772,579, special rural development tax of 116,228,956, corporate tax of 198, September 5, 2002, and corporate tax of 1998 (hereinafter "each disposition of this case").

[Reasons for Recognition] Unsatisfy, Gap evidence 1, 2-1 to 3, Gap evidence 3, and 4-1 to 10, Gap evidence 5, and 6-1 to 12, Gap evidence 8-1 to 11, Gap evidence 10, Gap evidence 11-1 to 11, Gap evidence 12-1, 2, and Gap evidence 13 through 15, and the whole purport of oral argument

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

A. The plaintiff's assertion

From the year 196 to the year 1998, the Plaintiff has made a window dressing settlement by means of overappropriating assets or underappropriating liabilities as at the time of filing the initial corporate tax return. The Plaintiff asserted that each of the dispositions of this case contains an error of law that did not include the expenses so excessively appropriated as above in the calculation of the corporate tax base for the pertinent business year, although the amount verified as the expenses insufficiently appropriated as a result of supervision of financial statements by the Securities and Futures Commission with respect to the Plaintiff was 391,80,000,000 in the business year 196,375,304,000 in the business year 1997, and 285,00,000,000 in the business year 198, and the above window dressing amount should also be reflected in the calculation of the corporate tax base for the pertinent business year.

(b) Related statutes;

Basic Act

Article 14 (Real Taxation)

(1) If the ownership of income, profit, property, act or transaction subject to taxation is merely nominal and a person to whom such ownership belongs exists, the tax-related Acts shall apply to such person to whom such person actually belongs as a taxpayer.

(2) The provisions pertaining to the calculation of tax base in tax-related Acts shall apply according to the substance, notwithstanding the name or form of the income, profit, property, act or transaction.

Article 15 (Good Faith and Fidelity) Any taxpayer shall perform his/her duties in good faith and sincerity. The same shall apply where a tax official performs his/her duties.

(c) Fact of recognition;

(1) On August 26, 199, the Plaintiff was designated as a company for corporate improvement by the 12 creditor financial institutions council of the Treatment Department 12 creditor financial institutions, and was pointed out for the first time as a result of the accounting audit conducted during the process of corporate improvement.

(2) The Securities and Futures Commission supervised the Plaintiff’s financial statements through on-site investigations, etc. from around December 1999 to June 200, and prepared a performance report stating that expenses of KRW 375,304,060,266 for the business year of September 18, 1997, expenses of KRW 285,030,964,987 for the business year of 1998, and expenses of KRW 1,336,324,045,46 for the business year of 196, and submitted it to the Financial Supervisory Service as of December 31, 1998.

Then, the non-party et al., who was the representative director of the plaintiff based on the contents of the above performance report, were indicted for violating the Act on External Audit of Stock Companies and the Act on the Punishment, etc. of Specific Economic Price, and was sentenced to a conviction by the Seoul District Court (2001Gohap130) on July 24, 2001 [this appeal (the second appeal: Seoul High Court 2001No2062, the third instance court 2002Do538) but the judgment of conviction became final and conclusive except for a change in some sentence in the second instance).

(3) The Plaintiff has received the settlement of accounts by excessively appropriating its assets or understating its liabilities. The details of the settlement of accounts by business year are as listed below.

(unit: Won)

본문내 포함된 표 사업연도 1996 1997 1998 비고 재고자산 589,287,268,697 603,700,000,000 670,900,000,000 과대계상(누적분) 매출채권 74,901,338,213 46,500,000,000 938,400,000,000 과대계상, 다만 1997.은 과소계상 어음차입금 ？ 847,100,000,000 ？ 과소계상 대손충당금 ？ 86,000,000,000 106,100,000,000 과소계상 유형자산 165,192,997,138 192,000,000,000 188,700,000,000 과대계상 퇴직급여충당금 28,599,648,085 29,300,000,000 30,500,000,000 과소계상 장ㆍ단기 대여금 ？ ？ 25,100,000,000 과대계상 과소계상 비용 391,800,000,000 375,304,000,000 285,030,000,000 ？

[Ground of recognition] The facts that the parties did not dispute or clearly dispute, and thus, the evidence No. 2-2, the evidence No. 12-2, and the evidence No. 9, the evidence No. 9, the testimony of the witness compromise, and the whole purport of the pleading

D. Determination on the lawfulness of each of the dispositions of this case

(1) In calculating the taxable income subject to corporate tax in light of the principle of substantial taxation, the determination of the taxable income subject to specific tax law shall be based on the substance of the transaction, regardless of the entry, account title, and transaction name of the pertinent corporation (see Supreme Court Decision 90Nu10384, Jul. 27, 1993, etc.). According to the above facts, each of the instant dispositions is based on the assets excessively included in the Plaintiff’s corporate account book and the expenses excessively included in the calculation of taxable income, and thus, it is unlawful as it is based on the income calculated without properly reflecting the part that should be included in the calculation of the taxable income subject to corporate tax

(2) As to this, the Defendant imposed corporate tax on the Plaintiff with trust in the initial contents of the Plaintiff’s report, and the Defendant, the tax authority, also constitutes a third party acting in good faith. The Plaintiff asserts that the Plaintiff’s claim for revocation of the corporate tax is not permissible since it goes against the good faith and good faith duty of taxpayers to abide by the rules of law, such as the Act on External Audit of Stock Companies, for the purpose of deceiving investors or creditors, and that when the settlement of accounts was discovered after the acquisition of illegal profits through the division and settlement of accounts, the original contents of the corporate tax was fabricated. This is not only obvious that there is an objective contradictory behavior, but also the possibility of subjective loss in light of the legislative intent of the Act on External Audit of Stock Companies, which is a mandatory law.

In addition, the application of the principle of trust and good faith in tax litigation can be divided into the application of the law related to the procedure law and the substantive law, and the application of the law related to the procedure law in tax litigation cannot be specifically distinguished from that in civil litigation. However, the application of the law related to the substantive law which strongly acts by the principle of legality is restricted rather than the private autonomy principle under the principle of no taxation without law, and the application of the law related to the substantive law is limited only when it is recognized as necessary for the protection of specific trust by sacrificeing the legality. Furthermore, if a taxpayer commits an act against his past speech and behavior against the tax authority, he will be subject to the disadvantageous disposition, such as deprivation of benefits such as tax reduction and exemption under tax law, penalty provisions under tax law, such as penalty provisions, etc., and the tax authority exercises its superior authority in the taxation law, and the burden of proof for the legality of the taxation disposition should be considered as a matter of principle, the application of the principle of trust and good faith to the taxpayer should be expanded and interpreted by the Supreme Court en banc Decision 3982Da3997.

In this case, according to the above facts and relevant laws and regulations, the plaintiff concealed items to be included in deductible expenses as a means to cover the net income per books in excess of the amount of sales, etc., and the defendant, who is the tax authority having authority to request correction of the tax base and tax amount in excess of the amount of corporate tax for the pertinent taxable year, by claiming that the amount of corporate tax for the pertinent taxable year, which was calculated with the input book, was recorded and paid to the tax authority, should be included in deductible expenses, and then the tax base and tax amount should be calculated again. This is clearly contrary to his past speech and behavior. However, the provision punishing the act of operating accounting books such as window dressing accounting, etc. separate from the Act on External Audit of Stock Companies, etc. However, if corporate tax is reported and paid based on the accounting books, it is difficult to view that the defendant's request for correction of the tax base and tax amount was in violation of the above tax law, such as sanction of tax base and tax amount for the pertinent taxable year, and the defendant, the taxpayer with authority to request for correction and correction, based on the above revised tax base and tax amount of tax amount of taxation.

(e) Justifiable tax amount;

As seen earlier, when calculating the legitimate tax base and amount of tax for the pertinent taxable year to be borne by the Plaintiff by adding up the portions excessively counted in the Plaintiff’s account book according to the division settlement, the tax base as stated in the following table is the negative number. As such, the corporate tax amount for the business year 1996, 1997, and 198 and the amount of special rural development tax for the business year 1997 shall be 0 won in total.

본문내 포함된 표 귀속연도 세목 ①과세표준 ②분식금액 ③피고가인정하는¹ 분식금액 ④차감액{(①-②) 또는(①-③)³} 1996. 2002.3. 5.자 법인세 81,440,889,352원 391,800,000,000원 368,300,000,000원 음수(음수) 1997. 2002. 9. 5.자 법인세 72,508,313,168원 375,304,000,000원 306,400,000,000원 음수(음수) 1997. 2002. 9. 5.자 농어촌특별세 581,144,784원 ？ ？ 음수(음수)² 1998. 2002. 9. 5.자 법인세 22,825,899,922원 285,030,000,000원 226,700,000,000원 음수(음수)

1. 1, 3: (3) After conducting a confirmation and investigation of the fact of window dressing at the National Tax Service on or around December 2003, the amount of the window dressing under paragraph (2) was adjusted only to include the part of the amount excluded from non-deductible expenses, such as bad debt depreciation expenses, disposal loss, and allowance for severance benefits, from among the window dressing amounts under paragraph (2) through the tax adjustment, etc., and even if it is calculated based on the above amount,

2: Corporate tax is 0 won and there is no tax base and tax amount of special rural development tax because there is no reduced or exempted tax amount.

Therefore, the defendant's disposition of this case, which did not include expenses underestimated as a result of the settlement of accounts on different premise, shall be revoked in its entirety, since each disposition of this case is unlawful.

3. Conclusion

Therefore, the plaintiff's claim seeking revocation of each of the dispositions of this case is reasonable, and it is so decided as per Disposition by the assent of all.

Judges Kang Young-ho (Presiding Judge)