Retirement allowances paid to retired officers by a corporation without a retirement allowance payment provision for officers in the articles of incorporation and classification of employment income;

According to the provisions of Article 16 subparag. 13 of the Corporate Tax Act, Articles 34(2) and 94-2(1)1(b) of the Enforcement Decree of the Corporate Tax Act, where a corporation which has no provision on the payment of retirement allowances to an officer has paid retirement allowances to a retired officer, an amount within the scope of Article 34(2)2 of the Enforcement Decree of the Corporate Tax Act shall be included in deductible expenses as retirement allowances, and the remainder shall be deemed as a bonus to an officer, and thus, the remainder that is not included in deductible expenses as retirement allowances pursuant to Article 21(1)1(c) of the Income Tax Act shall

Article 16 subparag. 13 of the Corporate Tax Act, Article 34(2) of the Enforcement Decree of the Corporate Tax Act, Article 94-2(1)1(b) of the Enforcement Decree of the Corporate Tax Act, and Article 21(1)1(c) of the Income Tax Act

Attorney Lee Jae-soo et al., Counsel for the defendant-appellant-appellee

Head of Pyeongtaek Tax Office

Seoul High Court Decision 87Gu381 delivered on November 12, 1987

The part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the Seoul High Court.

As to the grounds of appeal by Defendant Litigation Performers:

With respect to retirement allowances and retirement merit pay paid to the non-party who retired as vice president of the Plaintiff company, the Plaintiff company withheld the retirement income tax and Class A employment income tax by applying the respective retirement income tax rate and the employment income tax rate, and the Defendant reported to the Defendant, among retirement pay paid by the Plaintiff company, the Defendant additionally imposed the retirement pay calculated by adding part of the retirement pay calculated by the Plaintiff company to the tax base of retirement pay for wage and salary income, i.e., the total amount of Class A employment tax and the same defense tax. The lower court determined the amount of retirement pay under Article 16 subparag. 13 of the Corporate Tax Act and Article 34(2) of the Enforcement Decree of the Corporate Tax Act by recognizing that the portion of the retirement allowance paid by the Plaintiff company is included in deductible expenses only within a specified limit among retirement pay paid by the corporation to its officers, and that it cannot be included in deductible expenses under the Corporate Tax Act with regard to the portion of the retirement allowance paid by the non-party at the time of its retirement allowance payment under the previous provisions, but not within the scope of the non-party’s retirement allowance payment contract.

However, the court below acknowledged that there was no provision on the payment of retirement allowances to the plaintiff company until the time of the non-party's retirement, but held that the payment of retirement allowances under the former provisions on the payment of retirement allowances to the officers of the plaintiff company under a contract between the plaintiff and the non-party should not be determined on the ground of its reason. Article 16 subparagraph 13 of the Corporate Tax Act provides that the amount in excess of the amount prescribed by the Presidential Decree out of the retirement allowances paid to the officers of the corporation shall not be included in deductible expenses in calculating the income amount of the corporation, and Article 34 (2) of the Enforcement Decree of the Corporate Tax Act provides that the amount in excess of the amount prescribed by the Presidential Decree shall be included in deductible expenses (Article 16 subparagraph 1) of the Act provides that the amount in excess of the amount prescribed by the articles of incorporation concerning the amount out of the retirement allowances under subparagraph 13 of Article 16 of the Act shall be included in deductible expenses (Article 94-2 (1) 1 (b) of the Enforcement Decree of the Corporate Tax Act).

In this case, unless there is a retirement allowance payment provision in the company of the plaintiff company, the amount under Article 16 subparagraph 13 of the Corporate Tax Act and Article 34 (2) subparagraph 2 of the Enforcement Decree of the same Act shall be deemed as retirement income and the amount in excess of it shall be deemed as employment income under Article 94-2 (1) 1 (b) of the Enforcement Decree of the same Act and Article 21 (1) 1 (c) of the Income Tax Act. However, the court below erred by misapprehending the above legal principles to divide the retirement benefit of this case into retirement income and employment income under the retirement allowance payment provision of the company where the non-party had previously worked.

Therefore, the part of the judgment below against the defendant is reversed, and that part of the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Jae-sung (Presiding Justice)