[Defendant-Appellee] Plaintiff 1 and 2 others (Attorney Hwang Jong-sung et al., Counsel for defendant-appellee)

Head of Cheongju Tax Office (Attorney Han Han-chul, Counsel for defendant-appellant)

April 12, 2007

Cheongju District Court Decision 2005Guhap1805 Decided July 13, 2006

1. The part against the defendant in the judgment of the court of first instance shall be revoked, and the plaintiff's claim corresponding to that part shall be dismissed.

2. The plaintiff's appeal is dismissed.

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

1. Purport of claim

A. On August 5, 2003, the part which exceeds 72,614,590 won of the disposition of imposition of corporate tax of 80,896,940 won against the plaintiff for the business year of 1998, the part which exceeds 18,056,700 won of the disposition of imposition of corporate tax of 28,538,740 won for the business year of 1999, and the part which exceeds 571,541,80 won of the disposition of imposition of corporate tax of 582,286,270 won for the business year of 2000 shall be revoked.

B. On August 11, 2003, the part of the bonus income amount exceeding 14,450,310 of the bonus income amount in the business year 1995, wherein the Defendant made an income earner to the Plaintiff on August 11, 2003 as Nonparty 3 (resident registration number: omitted, address number omitted: 39,70,763 won; 14,450,310 of the bonus income in the business year 1995, which was 2,661,467,745 won; 5,120,724,216 won of the bonus income in the business year 197; 17,145,340 won of the bonus income in the business year 198, 81,603,400 won of the bonus income in the business year 199, 39,859, 300 won of the bonus income amount in the business year 193,285,269,314

2. Purport of appeal

A. The plaintiff

(1) The part of the judgment of the court of first instance against the plaintiff shall be revoked.

(2) On August 5, 2003, the part exceeding KRW 72,614,590 of the disposition of imposition of corporate tax of KRW 80,896,940 against the Plaintiff for the business year of 1998, the part exceeding KRW 18,056,70 of the disposition of imposition of KRW 28,538,740 of the business year of 1999, and the part exceeding KRW 571,541,80 of the disposition of imposition of corporate tax of KRW 582,286,270 of the business year of 200, shall be revoked.

(3) On August 11, 2003, with respect to the plaintiff on August 11, 2003, the defendant revoked the notice of the change in the amount of the bonus income of 81,603,400 won in the business year 1998, the bonus income of 39,859,300 won in the business year 1999, the bonus income of 193,528,269 won in the business year 200, the bonus income of 193,528,269 won in the business year 200, the bonus income of 56,823,314 won in the business year 201.

B. Defendant

The part against the defendant in the judgment of the first instance shall be revoked, and the plaintiff's claim corresponding to that part shall be dismissed.

1. Details of the disposition;

A. On June 23, 1987, the Plaintiff Company established Nonparty 3 and Nonparty 1, etc., who are his wife, in order to engage in the business of manufacturing, exporting, importing, etc. semiconductor sudio internal construction business, and semiconductor manufacturing equipment, and Nonparty 1 and Nonparty 2, the birth of Nonparty 3, the representative director, from January 1, 1997 to September 1, 2005 on the corporate register, were in office.

B. From the business year 1995 to the business year 2001, the Plaintiff Company acquired purchase tax invoices equivalent to the total of KRW 10,331,942,292 from Nonparty 4 and 26 companies, and filed a corporate tax return in the pertinent taxable period, and included the purchase amount in the deductible expenses upon filing a corporate tax return. In addition, the Plaintiff Company filed a corporate tax return with Nonparty 5 for the pertinent taxable period to pay to Nonparty 5 the total of KRW 14,450,310 in the business year of 1996, and KRW 17,145,340 in the business year of 197, and KRW 15,768,400 in the business year of 198, KRW 18,69,300 in the business year of 1999, KRW 20, KRW 134,050 in the business year of 200, KRW 19,372,80 in the pertinent taxable period.

C. Between March 11, 2003 and July 18, 2002, the Director of the Daejeon Regional Tax Office conducted a tax investigation on the Plaintiff Company’s business year 2002 from 1995 to 2002. Determination of the above purchase tax invoice as the processing tax invoice issued without real transaction, and the payment to Nonparty 5 was made to Nonparty 5 as the processing cost, and notification of the result to the Defendant, the competent tax office.

D. Accordingly, on August 5, 2003, the Defendant imposed corporate tax of 1,619,686,930 for the business year 1,288,094,000, corporate tax of 1,926,709,900 for the business year 1996, corporate tax of 1,288,094,094,709,900, corporate tax of 1,926,709,90 for the business year of 1997, corporate tax of 80,896,940, corporate tax of 28,538,740 for the business year of 1999, corporate tax of 28,538,740 for the business year of 1999, and corporate tax of 582,286,270 for the business year of 200 (hereinafter

In addition, the defendant's inclusion in deductible expenses is recognized as belonging to the non-party 3 in the year 195,629,970,763, 196, 2,61,467,745, 197, 5,120,724,216, 81,603,400, 19999, 39,859,300, 1900, 19300, 193,528,269, 56,823,314, 201, 10,783,97,07,07,07, 1995, on the ground that the above inclusion in deductible expenses is unclear, and the defendant's notification of the amount of income in the case was made to the non-party 1 on August 11, 2003 (hereinafter "the above notification of income in the case").

E. On November 3, 2003, the Plaintiff Company filed an appeal with the National Tax Tribunal on November 1, 2003. On May 10, 2005, the National Tax Tribunal decided to exclude KRW 125,75,190 from deductible expenses, the sum of KRW 125,75,190 in the business year 17,12,260 in the business year 1997, KRW 64,317,40 in the business year 1997, KRW 112,260 in the business year 198, and KRW 33,23,50 in the business year 199, KRW 125,75,190 in the total of KRW 14,450, KRW 310 in the business year 196, KRW 17,145,340 in the business year 197, KRW 315,505 in the business year 505,5050 in the business year.

【Ground for recognition】 The facts without dispute, Gap evidence 1-1 through 3, Gap evidence 2, Gap evidence 6, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff company's assertion

The non-party 5 has subsidized the overseas business of the plaintiff company for a considerable period of time and received the payment of the benefits from the plaintiff company for that reason. The above benefits paid by the plaintiff company to the non-party 5 are legitimate losses directly related to the profits from the cost incurred in relation to the business under Article 19 of the Corporate Tax Act, and the disposition of this case is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

Considering the overall purport of the arguments in Gap evidence 6, Eul evidence 10, Eul evidence 7-1 through 5, and Eul evidence 8, the non-party 5 (the non-party 5 et al. of January 13, 1973) completed the plaintiff's graduate school course with the non-party 3's son who was the founder of the plaintiff company, and was working for ○○○○ as of September 1, 2001, the non-party 5's domestic period of stay from 1997 to 2002 was 653 days, the period of stay in the United States was 1,304 days, the internal organization and employee emergency contact network of the plaintiff company was not listed as the non-party 5 as of June 30, 201, and the non-party 5 was also employed as the non-party 5's employee, and the non-party 5's product was not held in the U.S. related industry interpretation.

According to the above facts, it can be sufficiently recognized that Nonparty 5 did not work as an employee of the Plaintiff company. Accordingly, the Plaintiff company asserting the inclusion of the amount paid to Nonparty 5 in deductible expenses is liable to prove that Nonparty 5 provided services to the Plaintiff company for a considerable period of time and paid the amount in return for the provision of services to the Plaintiff company. Accordingly, it is difficult to believe that Nonparty 11 was recorded in the above facts, and even if Nonparty 5 did not assist in part of the Plaintiff company’s business, such as Non-Party 5 residing in the U.S. and engaging in interpretation for the Plaintiff company, such circumstance alone is sufficient to deem that Non-Party 5 continued to provide services over a considerable period of time and the Plaintiff company paid the amount to Non-Party 5 in return for it, and there is no other evidence to support this, the instant disposition of imposition of non-party 5 excluded the amount from deductible expenses is legitimate.

3. Whether notice of the change in the income amount in this case is lawful

A. The plaintiff company's assertion

(1) Since Nonparty 1 and Nonparty 2, the representative director of the Plaintiff Company from 1995 to 196, who is the representative director of the Plaintiff Company, were actually managing the Plaintiff Company as the major shareholder of the Plaintiff Company from 1997 to 2001, it shall be deemed that the purchase amount on the purchase tax invoice and the income recognized as outflow of the Plaintiff Company due to non-party 5’s non-inclusion in the calculation of earnings for non-party 5 belongs to them, and be disposed of as a bonus for them. However, the notice of the change in the income amount of the instant case, which deemed Nonparty 3 as the representative of the Plaintiff Company and deemed as belonging to the non-party 3

(2) In addition to the disposition of income which the tax authority deemed as having paid the prescribed amount of income under the Corporate Tax Act, if it intends to collect the withholding tax on the representative director, etc. from the corporation pursuant to the provisions of the Income Tax Act, it shall claim and prove the actual attribution of the income to the representative director, etc. and the type of the income. In case where the person to whom the income accrued out of the corporation was leaked is not clearly identified, it cannot be presumed that it actually reverts to the representative director. As long as the defendant did not prove the attribution of the income amount recognized and disposed of to the non-party 3, the plaintiff company's failure to pay the withholding tax on the income, the notice of change

(3) The Plaintiff Company’s obligation to withhold income tax following the notice of change in the income amount of this case is premised on Nonparty 3’s obligation to pay income tax, which is the source tax, and the said obligation to withhold income tax is extinguished by the Do of the exclusion period of imposition, the Plaintiff Company does not naturally exist if the said obligation to withhold income tax expires by the Do of the exclusion period of imposition. However, the Defendant deemed the non-party 3 as the non-party 3’s income belonging to the non-party 1, 1995, 196, and 1997 as the non-party 3’s income belonging to the non-party 3, and accordingly, issued a notice of change in the income amount of this case. The initial date of the exclusion period of imposition of global income tax due to the bonus of the non-party 3 is five years, and the exclusion period of imposition of the above global income tax becomes invalid after the exclusion period of imposition of global income tax is also unlawful.

(4) 105,870,200 won paid by the Plaintiff Company to Nonparty 5 is apparent to have been reverted to Nonparty 5, and it is apparent that the National Tax Tribunal recognized it as an extra expense and did not belong to Nonparty 3, 125,775,190 won included in deductible expenses. As such, the above benefits and expenses out of the amount of income on the notice of change in the amount of income in this case should be deducted.

B. Determination on the Defendant’s main defense

Since the defendant asserts that the notice of change in the amount of income is not an independent administrative disposition subject to appeal litigation, the tax authority's disposition of income and the notice of change in the amount of income resulting therefrom are deemed to have been paid to the person to whom the income as stated in the notice is attributed on the day when the notice of change in the amount of income is received, and at the same time the liability to pay withholding income tax is established, and the withholding agent bears the obligation to pay withholding tax to the head of the competent tax office by the 10th day of the following month. In light of the fact that the notice of change in the amount of income is subject to penalty as well as criminal punishment if the person fails to pay it, it is reasonable to deem that the notice of change in the amount of income is an act of the tax authority directly affecting the tax liability of the corporation, which is the withholding agent, and thus, it is subject to appeal litigation (see Supreme Court Decision 2002Du1878, Apr. 20, 206). The defendant'

C. Relevant statutes

It is as shown in the attached Form.

D. Determination

(1) As to the person subject to a recognized contribution disposition

(A) The purpose of the corporate tax law is to allow the representative to regard a certain fact that can be recognized as an act in order to prevent an unfair act under the tax law by a corporation, not based on the fact that such income has accrued to the representative. The representative of a corporation externally represents the corporation and is a person in charge of the corporation's business operations, so if the amount included in the calculation of the income has leaked out of the company, the representative is obligated to disclose the subject of the attribution. However, if the representative has not disclosed it, it is highly probable that it would be attributed to the representative, and even if the representative does not disclose it, the representative shall be deemed to have been attributed to the representative in order to realize fair taxation and punish unfair act so long as it does not disclose the subject of attribution.

In light of the purport of the recognition and contribution system, the representative of a juristic person subject to recognition and contribution shall be deemed to mean a person who actually operates the juristic person regardless of the registration of the representative on the corporate register. In relation to such representative, where an officer who is not a minority shareholder and a person with a special relationship holds 30/100 or more of the total number of shares issued or total amount invested in the juristic person and actually controls the management of the juristic person, the officer shall be deemed to be the representative, and where a juristic person is exempted from withholding tax pursuant to Article 46(12) of the Restriction of Special Taxation Act and where there is a separate representative among the officers who are stockholders, etc., the reported person shall be the representative, and where there are two or more representatives, the de facto representative shall be the representative.” (The former Enforcement Decree of the Corporate Tax Act prior to the amendment by Presidential Decree No. 15970 on December 31, 198 also has the provisions of Article 94-2(1)1 of the former Enforcement Decree of the Corporate Tax Act).

(B) We examine whether Nonparty 3 was the representative of the Plaintiff Company from 1995 to 2001 in light of the aforementioned legal principles.

A. Nonparty 12, 13, 19 through 24, 34 through 38, 8 through 21, 70 through 14, and 70 through 147 (including each number) were recorded in the Seoul High Court’s 9-2’s corporate tax office and 9-2’s corporate tax base on the Plaintiff Company’s own as “the president,” and Nonparty 1 and Nonparty 2 signed the above documents with the 9-2’s corporate tax office and the 9-2’s corporate tax base on the 9-2’s corporate tax base on the 9-2’s corporate tax and the 9-2’s corporate tax base on the 9-2’s corporate tax base on the 19-2’s corporate tax base, which was written on the 9-2’s corporate tax office and the 9-2’s corporate tax office. Nonparty 1 and Nonparty 2, the 97-2’s corporate tax office, the representative director of which was written on the 9-197-2’s corporate tax office.

According to the above facts, although the non-party 1 and the non-party 2 were registered as the representative director of the plaintiff company, it is reasonable to view that the non-party 3 was responsible for the management of the plaintiff company's funds while holding the right to final resolution as to the management of the plaintiff company's business, and actually engaged in activities on behalf of the plaintiff company externally. The non-party 1 signed and sealed the representative director's position in the minutes of the board of directors and the general meeting of shareholders of the plaintiff company, or entered the contract with the client as the representative director of the plaintiff company in the form of a relationship registered as the representative director on the corporate register. Thus, the non-party 3 should be viewed as the representative who actually operated the plaintiff company and is subject

(C) Therefore, the notice of change in the amount of income of this case, which deemed Nonparty 3 as a person subject to the recognition of the non-party 3’s disposition, is lawful, and this part of the Plaintiff

(2) As to the proof that the representative's income belongs to

Article 32 (5) of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994), which is the basis for the disposition of income, is a decision of unconstitutionality of Article 94-2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 14468 of Dec. 31, 1994), which is the basis for the disposition of income, as the Constitutional Court rendered a decision of unconstitutionality of Article 32 (5) of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994), which is a comprehensive delegation provision, has lost its effect. Thus, since the amount included in the corporation's gross income was leaked out of the company before the business year 1995, if it is unclear, the amount included in the corporation's gross income cannot be deemed as belonging to the representative, and the tax authority had no choice but to make the disposition

However, through the amendment of the Corporate Tax Act on December 22, 1994, the above elements of unconstitutionality were excluded. Accordingly, in the case of income leaked out of the amount included in gross income pursuant to the Corporate Tax Act and subordinate statutes, the tax authorities deemed it reverted to the representative and deemed it as accrued to the representative and made it possible to impose income tax on the corporation.

In this case, in full view of the purport of Gap evidence Nos. 6 and Eul evidence Nos. 148-1 through 155-1 of the evidence No. 148-1 and the whole arguments and arguments, the plaintiff company may recognize the fact that the above transaction amount was leaked out of the company's funds through the purchase tax invoice by taking account of the following facts: the transaction amount was transferred to the purchaser's account; the plaintiff company's officers and employees and the non-party 3's relative and relative relatives and relatives within the same day or day were transferred to the purchaser; the transaction amount was paid to the purchaser; and the amount deposited from the plaintiff company's account was transferred to the purchaser's account; and the plaintiff company's account was transferred to the purchaser's account; therefore, it is unclear that the person to whom the money was leaked out of the company's company's name. Thus, it cannot be said that the defendant's above amount of accrued income was reverted to the non-party 3, the representative of the plaintiff company.

Therefore, this part of the Plaintiff Company’s assertion is without merit.

(3) As to whether the exclusion period for imposition of income tax from the disposal of the income tax is set or exempted

(A) First, we examine the commencement date of the non-party 3's liability for income tax due to the recognition and contribution disposition of the instant case and the exclusion period for imposition.

In cases where the tax authority deemed that the total amount of gross income leaked out of the company is reverted to the representative and disposed of the income as bonus, the person who is the withholding agent shall be liable to withhold the income tax on the date on which the notice of change in the income amount was served on the corporation. Unlike the fact that the person to whom the income accrues is liable to withhold the income tax, if the income is disposed of regardless of whether the notice of change in the income amount was served on the corporation, the person to whom the income accrues falls shall be subject to taxation of the earned income tax because the person to whom the income accrues falls under the "amount disposed of as bonus under the Corporate Tax Act" under Article 20 (1) 1 (c) of the Income Tax Act. Article 39 (1) of the Income Tax Act and Article 49 (1) 3 of the Enforcement Decree of the Income Tax Act of the same Act provide the date of receipt of the labor during the pertinent business year in which the income is subject to taxation (see Supreme Court Decision 2004Du4604 delivered on July 13, 2006).

Therefore, the liability to pay global income tax on the non-party 3's year of 195, the year of 1996 and the year of 1997 for each of the years of 197 taxable periods is established when each of the taxable periods concerned expires. The starting date of the exclusion period of imposition shall be the date following the filing deadline of global income tax pursuant to Article 70 (1) of the Income Tax Act.

(B) Next, according to Article 26-2 (1) 1 of the Framework Act on National Taxes, where a taxpayer evades a national tax, obtains a refund or deduction by fraudulent or other unlawful act, the national tax may be imposed for ten years from the date on which the relevant national tax can be imposed. Here, “Fraud or other unlawful act” refers to a deceptive scheme which makes it impossible or considerably difficult to impose and collect taxes, or other affirmative act which makes it considerably difficult, and it does not constitute a mere failure to file a tax return under the tax law or filing a false tax return without accompanying any other act (see Supreme Court Decision 2001Do3797, Feb. 14, 2003).

However, the Plaintiff Company evaded corporate tax by receiving processing tax invoices from the customer without real transactions and including the purchase amount at the time of the corporate tax return in deductible expenses. This constitutes affirmative act that makes it impossible or considerably difficult for the tax authorities to impose and collect taxes, and constitutes fraud or other unlawful act under Article 26-2(1)1 of the Framework Act on National Taxes.

Therefore, the exclusion period for imposition of the income tax on the part of the plaintiff company's evasion of corporate tax as above shall be ten years pursuant to Article 26-2 (1) 1 of the Corporate Tax Act, and since the provisional park was included in the loss by such fraudulent or other unlawful acts, making it impossible or considerably difficult to impose and collect the income tax corresponding to the difference of the income, the exclusion period for imposition of income tax on the part of the non-party 3 for the portion of 195 reverted to the year 1997 due to the recognition and recognition of the non-party 3 shall be ten years pursuant to Article 26-2 (1) 1 of the Framework Act on National Taxes, and such interpretation shall not be deemed to go against the principle of no taxation without law or the principle of substantial taxation in light of the purpose of the recognition and the timing when the income tax liability on the income accrued

Meanwhile, Article 9-2 Subparag. 2 of the Punishment of Tax Evaders Act provides that when a corporation files a report on the tax base of corporate tax or the Government makes a determination or correction, the amount disposed of as income of shareholders, employees, or other specially related persons of the corporation shall not be deemed income amount generated by fraud or other unlawful act. The purport of the above provision is that where the amount included in gross income pursuant to corporate tax laws and regulations is excluded from the case of Article 9-2 Subparag. 1 of the same Act (in the case of a difference between corporate accounting and tax accounting) in the case of disposal of income, the amount so disposed shall not be deemed as the amount of illegal income of the corporation concerned. Thus, it cannot be deemed that the provision directly applies

(C) Therefore, the notice of the change in the income amount of this case, which was made before the expiration of 10 years from the exclusion period of the income tax of the non-party 3's 1995, the pro rata income tax of the year 196, and the pro rata income tax of the year 197, is lawful. Thus, this part of the plaintiff company's assertion is

(4) Of the income amount in the notice of the change in the income amount in this case, whether the non-party 5’s benefits and the non-party 5’s deduction

First of all, there is no evidence that Nonparty 5 did not work as an employee of the Plaintiff Company, and that Nonparty 5 continuously provided services to the Plaintiff Company for a considerable period of time and the Defendant paid money to Nonparty 5 in return therefor. Thus, since the amount equivalent to the benefits paid to Nonparty 5 was leaked out of the company but the person to whom it belongs is unclear, it is legitimate for the Defendant to dispose of the above amount to Nonparty 3, the representative of the Plaintiff Company, and to notify the Plaintiff of the change in the amount of income. Accordingly, the Plaintiff Company’s assertion on this part is without merit.

In addition, even if the tax authority recognized the amount not reported as expenses at the time of filing a corporate tax base return as expenses of a corporation and deducted the amount from the calculation of the corporate income amount, the tax authority does not necessarily deduct the expenses paid at the corporation's expense from the income amount attributable to the representative, etc. as a matter of course (see Supreme Court Decision 97Nu19151 delivered on May 25, 199). Thus, the plaintiff's assertion that the national tax authority should deduct the amount of KRW 125,75,190 which the National Tax Tribunal recognized as incidental expenses from the income amount on the notice of changing the income

4. Conclusion

Therefore, the plaintiff's claim seeking the revocation of the disposition of this case and the notice of change in income amount should be dismissed as it is without merit. Since the judgment of the court of first instance is in error with the conclusion, the part against the defendant in the judgment of the court of first instance which accepted the defendant's appeal and dismissed the plaintiff's claim corresponding to that part and the plaintiff's appeal, respectively.

Judges Kwon Soon-il (Presiding Judge)