Whether the expenses paid to obtain illegal income from criminal acts are deemed necessary expenses under the Income Tax Act (affirmative in principle)

In principle, income tax should be imposed according to the tax-bearing force regardless of whether it is prohibited by other Acts, and net income should be subject to taxation. Therefore, even if expenses are incurred in order to obtain illegal income from criminal act, if special circumstances exist, such as the principle of determining the necessary expenses, or the expenditure of expenses is extremely contrary to social order, it shall not be deemed necessary expenses.

Article 3(1) and (6) of the Punishment of Tax Evaders Act, Article 8 of the Act on the Aggravated Punishment, etc. of Specific Crimes, Article 27 of the Income Tax Act, Article 103 of the Civil Act

Defendant 1 and one other

Defendants

Attorneys Ansan-jin et al.

Seoul High Court Decision 2014No1428, 1695 decided November 7, 2014

All appeals are dismissed.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the grounds of appeal disputing the evaded tax amount of the Defendants

A. In the event that a taxpayer evades a tax by falsely preparing or concealing account books and other documentary evidence relating to revenue and expenditure in the crime of tax evasion, etc. or by increasing the cost of expenditure, it cannot be said that it requires clear evidence to acknowledge only one of the facts corresponding to each item of revenue or expenditure, which is the basis of calculating the amount of tax evaded. In such a case, it is objective and reasonable that the method can be generally accepted, and that the result is highly probable and correct (see, e.g., Supreme Court Decision 2004Do7141, May 12, 2005).

Based on the circumstances indicated in its reasoning, the lower court determined that: (a) Nonindicted 1’s “monthly accounting data” written by X-cell file; and (b) Nonindicted 2’s “daily alcoholic beverage status in 2012” prepared by Nonindicted 2 in the case of monthly sales in March 5, 5, 6, 8, 11, and 12 without such file data constitutes a method that can be permitted to calculate the tax base of the instant entertainment drinking club by estimating the calculation method.

Examining the reasoning of the lower judgment in light of the aforementioned legal principles and the evidence duly admitted by the lower court, such determination is justifiable. Contrary to the allegations in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine regarding the calculation of the evaded duty amount, or by exceeding the bounds

B. In the instant case, the lower court, on the grounds that: (a) calculated the total sales amount of the entertainment tavern of this case including the relevant credit sales, on account of the fact that there is little risk that the credit sales would have been engaged in double calculation of business income; (b) comprehensively taking account of the actual status of the entertainment tavern of this case; (c) the nature of the business affairs of the entertainment tavern of this case; and (d) the nature of the work performed by the entertainment receptionist; and (e) the method of determining and paying the cost of the relevant service; (b) the money paid to the entertainment receptionist or entertainment receptionist (e.g., remuneration in the form of performance); and (c) the money paid to the entertainment receptionist or entertainment receptionist (e., remuneration

Examining the reasoning of the lower judgment in light of the relevant legal principles and the evidence duly admitted, the lower court’s determination is just and acceptable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by violating the principle of balanced criminal punishment and the principle of no taxation without the law and the principle of no taxation without the law, or by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by failing to exhaust all necessary deliberations, etc.

C. In principle, income tax should be imposed according to the tax-bearing force regardless of whether it is prohibited by other Acts, and net income should be subject to taxation. Thus, even if expenses were incurred in order to obtain illegal income from criminal act, it shall be determined as necessary expenses in principle. However, if special circumstances exist, such as expenses are extremely contrary to social order, it shall not be deemed as necessary expenses.

According to the reasoning of the judgment of the court below, the Defendants paid entertainment reception workers and business affairs of the instant entertainment drinking club allowances or entertainment attraction allowances to customers with sexual traffic. These allowances are paid on the premise of sexual traffic and the act of inducing it, and the disbursement of these expenses is extremely contrary to good morals and other social order, and thus, cannot be deemed necessary expenses.

Although there is no inappropriate part in the reasoning of the court below, the court below's decision that did not deduct the amount paid to entertainment receptioners, etc. from the revenue acquired by the defendants when calculating the amount of evaded tax, is justified in its conclusion, and contrary to what is alleged in the grounds of appeal, there is no error of law by violating the principle of no taxation without the law or the principle of strict interpretation of tax laws, or by misapprehending the legal principles concerning the intention to evade necessary expenses or tax evasion under the Income Tax Act, or by exceeding the bounds

2. As to Defendant 1’s remaining grounds of appeal

Based on the circumstances indicated in its reasoning, the lower court maintained the first instance judgment, which recognized that Defendant 1, along with Defendant 2, participated in the crime of arranging sexual traffic by contributing to the part of the process of opening and operating the instant entertainment tavern in the form of so-called “humbing” with Defendant 2, etc., and contributed to the part of the process of running the instant entertainment tavern. ② A joint proprietor who is a joint proprietor with 20% share of the instant entertainment tavern in the process of operating the instant entertainment tavern, evaded taxes by omitting cash sales or by any other unlawful means, such as omitting cash sales, and ③ was aware of the fact that it was a bribe delivered to police officers for the purpose of regulating illegal entertainment drinking club business.

Examining the reasoning of the lower judgment in light of the evidence duly admitted by the lower court and the first instance court, such measures are justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine regarding the judgment on the criminal intent, joint principal offender, and credibility of the statement, or by exceeding the bounds of the principle of

In addition, according to Article 383 subparagraph 4 of the Criminal Procedure Act, only in cases where death penalty, life imprisonment, or imprisonment or imprisonment without prison labor for more than ten years has been imposed, an appeal on the grounds of unfair sentencing is permitted. Thus, in this case where Defendant 1 was sentenced to a minor sentence, the argument that the amount of punishment is unreasonable is not legitimate grounds for

3. Conclusion

Therefore, all appeals are dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Chang-suk (Presiding Justice)