Cho-2018-China-0263, 0264 ( October 12, 2018),

Whether it shall be estimated by simple expense rate in cases falling under "when business is closed to a small enterprise at the time of imposition pursuant to Article 104 (2) 3 of the Enforcement Decree of the Corporate Tax Act."

Article 104 (2) 3 of the Enforcement Decree of the Corporate Tax Act applies to cases where a tax authority makes an estimate for a small enterprise, and it is reasonable to view that such provision also applies to cases where a small enterprise has been closed at the time of the tax authority’s disposition of imposition. Therefore, the disposition by estimation method

Article 104 (Estimated Decision and Revision)

2018Guhap14184 Revocation of Disposition of Corporate Tax Imposition

1. LA;

2.B

Head of the Office of Government

oly 14, 2019

.06.25

1. On May 18, 2017, the Defendant: (a) designated the Plaintiffs as secondary taxpayers of ○○○ Company on May 18, 2017; (b) revoked the imposition of corporate tax of KRW 29,308,211 (including additional taxes); and (c) imposed corporate tax of KRW 24,423,509 (including additional taxes) imposed on Plaintiff DB for the business year 2015 against Plaintiff LB.

2. The costs of lawsuit shall be borne by each person;

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. The ○○○○○ Co., Ltd. (hereinafter referred to as “Nonindicted Company”) is a small company established on March 15, 2013 for the purpose of manufacturing bedclothess, etc. under Article 7(1)2(a) of the Restriction of Special Taxation Act (hereinafter referred to as “small enterprise”). On May 25, 2016, it was voluntarily closed by the Defendant. Plaintiff LA is a shareholder holding 48% of the shares of the Nonparty Company and the representative director, and Plaintiff KangB is a shareholder holding 40% of the shares of the Nonparty Company with children of Plaintiff LA.

B. The Defendant did not report the tax base and amount of corporate tax for the business year 2015 and did not submit books or other evidentiary documents necessary for calculating the amount of income. On March 7, 2017, the Defendant determined and notified the non-party company of the determination of estimation based on standard expense rate pursuant to Article 6(1) and (3) of the Corporate Tax Act and Article 104(1)1 and 104(2)1 of the Enforcement Decree of the same Act.

C. As the non-party company did not pay corporate tax for the business year 2015 that was determined and notified as above, on May 18, 2017, the defendant designated the plaintiffs as the second taxpayer by the non-party company as the secondary taxpayer and notified the plaintiff Eul to pay KRW 32,492,760 equivalent to the share ratio of the non-party company's share of 48%, among the non-party company's delinquent tax amount of KRW 67,693,280 (including additional taxes and additional dues) at the time, and to pay KRW 27,07,30 equivalent to the share ratio of the plaintiff GangwonB.

D. The Plaintiffs appealed and filed an objection against the Defendant on August 16, 2017. On October 12, 2017, the Defendant recognized that Non-Party Company paid rent of KRW 15,00,000,000 to Non-Party Company’s KRW 61,058,70 (including additional taxes) corporate tax for the business year of 2015. Accordingly, the disposition imposing corporate tax on the Plaintiffs was reduced to KRW 29,308,211, and Plaintiff LAB reduced to KRW 24,423,509 (hereinafter referred to as “each disposition of this case”), and the Plaintiffs’ other purchase costs were dismissed on November 3, 2017.

[Reasons for Recognition] Unsatisfy, Gap evidence 1 through 4, 7, 8, Eul evidence 1 through 5, 7, and the purport of the whole pleadings

2. Determination on the legitimacy of each of the dispositions of this case

A. Summary of the plaintiffs' assertion

1) Since the non-party company constitutes a small enterprise closed at the time of each of the instant dispositions, each of the instant dispositions that applied the standard expense rate pursuant to subparagraph 1 of Article 104(2)3 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 29529, Feb. 12, 2019; hereinafter the same) should be determined by applying the simple expense rate pursuant to Article 104(2)3 of the former Enforcement Decree of the Corporate Tax Act (hereinafter “instant provision”). However, each of the instant dispositions that applied the standard expense rate pursuant to subparagraph 1 of the same Article is unlawful on the grounds that the non-party company was not a business operator closed at the

2) Even if standard expense rate is applied, each of the dispositions of this case, which did not recognize purchase cost of KRW 189,763,380 for the non-party company, a closed small enterprise, due to lack of evidentiary data, is unlawful in violation of the principle of substantial taxation.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether the instant provision is applied

A) In light of the above provisions of the relevant statutes, it is reasonable to view that the provision of this case also applies to the closure of business by the non-party company at the time of imposition of corporate tax based on the estimation decision on the non-party company.

(1) According to Article 66(1) and (3) of the Corporate Tax Act, where a domestic corporation fails to report its tax base, etc., the tax base and tax amount of corporate tax shall, in principle, be determined on the basis of account books or other evidentiary documents, and where the amount of income cannot be calculated on the basis of account books or other evidentiary documents, it may be estimated as prescribed by Presidential Decree. Article 104(2) of the Enforcement Decree of the same Act, which is prescribed upon delegation, provides that, in principle, the amount of corporate tax shall be determined on the basis of "business income - major expenses (purchase + labor cost + labor cost) - standard expenses (income amount x standard expense x standard expense) - if no standard expense rate is determined or evidentiary documents are destroyed or lost, the amount of corporate tax shall be determined on the basis of the amount of income of another corporation of the same business type where no such corporation exists and evidentiary documents are destroyed or lost on the basis of the report and accompanying documents, the amount of tax base shall be determined on the basis of income rate of the immediately preceding business year (title 2).

(2) With the amendment of Article 143 of the Enforcement Decree of the Income Tax Act on December 29, 200, the standard income rate system was abolished and introduced. Unlike the previous method in which the amount calculated by multiplying the total income amount by the standard income rate was calculated in estimating the income amount of business income without the account book, the major expenses are recognized only when the disbursement is verified, so that the underlying taxation by bookkeeping culture and evidence can be conducted. The amendment of the Enforcement Decree of the Income Tax Act is also reflected in the Corporate Tax Act. The provision of this case, which was introduced as an exception, is anticipated to be excessively charged with excessive taxes if there are many cases where a small enterprise ordinarily closed its business without the income amount due to the accumulation of the deficit, and the account book is destroyed due to the internal management. Therefore, considering the purpose of legislation prior to the closure of the business, there is a need for the provision of taxation prior to the pertinent business year, as well as the provision of taxation prior to the closure of the business in question, to ensure that the tax base can be recognized by the simple expense rate and the provision of taxation prior to the small tax payer.

(3) Even if examining the language and text of the provision of this case, it is more natural to interpret that the provision of this case can be applied to the estimation decision in accordance with the estimation method using simple expense rate when a small enterprise closes its business. Thus, it cannot be readily concluded that the provision of this case applies only to the corporate tax of the business year in which the business was closed.

(4) The corporate tax is a tax item subject to the fixed-term taxation, but the tax liability is established at the end of the business year, and the method of estimation cannot be objectively and inevitably determined as of the end of the business year. Article 104(2)2 of the former Enforcement Decree of the Corporate Tax Act provides for the method of estimation at the time of loss of account books and other evidential documents. In light of this, the estimation method may vary depending on the situation that occurred after

(5) In the instant provision, where the existence of a suspicion of tax evasion exists, the application thereof shall be excluded, and it is anticipated that the instant provision may be abused to prevent substantial parts of the cases of avoiding tax liability.

(6) If the taxing authority prior to the cessation of business applied the estimation decision and applied the expense rate again after the cessation of business for the same taxable period, the application of the simple expense rate would be inconsistent. However, it is only a result of applying the estimation method consistent with the substance over form principle, considering the difficulty of small enterprises due to the change in the situation that the business was discontinued, and it cannot be accepted because such a result would undermine the taxation system, equity, and legal stability.

B) In the instant case, the non-party company constitutes a small enterprise and was ex officio closed on May 25, 2016, and the fact that the defendant decided and notified the corporate tax for the business year 2015 to the non-party company on March 7, 2017, which was the following as acknowledged earlier (the defendant alleged that the non-party company was not in a state of closure on March 7, 2017, but the non-party company was not in a state of closure. However, considering the overall purport of arguments on the evidence Nos. 10, 11, and 12, and 13, the non-party company’s purchase tax invoice issued by the non-party company after the date of ex officio closure is merely a small amount of less than 30,000 won, and the non-party company was not in a state of closure of its corporate tax, which is the location of the non-party company’s ○○-Eup ○○-○○○○-do, the location of the non-party company’s corporate tax No. 2516.

2) Sub-committee

Therefore, instead of applying the instant provision, each of the instant dispositions based on the estimation method based on standard expense rate under Article 104(2)1 of the former Enforcement Decree of the Corporate Tax Act is unlawful (as long as standard expense rate is determined as above, it is not necessary to examine the Plaintiffs’ assertion that the purchase cost of the non-party company should be recognized in the event of applying standard expense rate). However, the data submitted in the instant case cannot be calculated on the basis of the legitimate 2015 business year corporate tax amount for the non-party company and the reasonable amount of tax imposed on the Plaintiffs, who are the secondary taxpayers, by the data submitted

3. Conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is so decided as per Disposition.