The merged JPK Co., Ltd. (Law Firm Rate, Attorneys Lee Do-min et al., Counsel for the plaintiff-appellant)

Ulsan Tax Office (Law Firm, Kim & Lee, Attorneys Kim Jong-ho et al., Counsel for the plaintiff-appellant)

July 10, 2013

Ulsan District Court Decision 2008Guhap1003 Decided July 14, 2010

Busan High Court Decision 2010Nu4414 Decided January 14, 2011

Supreme Court Decision 2011Du4855 Decided March 29, 2012

1. Of the judgment of the first instance, the part concerning the request for revocation of the imposition of corporate tax for the business year 2004 shall be amended as follows:

The Defendant’s disposition of imposition of corporate tax of KRW 22,138,020,09 against the Plaintiff on December 5, 2006 in excess of KRW 4,371,326,110 of the disposition of imposition of corporate tax of KRW 22,138,020,09 shall be revoked.

2. Of the total litigation costs, 60% is borne by the Plaintiff, and the remainder 40% is borne by the Defendant, respectively.

1. Purport of claim

The Defendant’s disposition of imposition of KRW 2,649,49,491 of corporate tax for the business year 2002 against the Plaintiff on December 5, 2006 and the disposition of imposition of KRW 22,138,020,09 of corporate tax for the business year 2004 and the disposition of KRW 4,371,326,110 of the disposition of imposition of KRW 22,138,020,09 of corporate tax for the business year 204

2. Purport of appeal

The judgment of the first instance shall be revoked. The defendant revoked the disposition of imposition of KRW 2,649,49,491 of the corporate tax for the business year 2002 against the plaintiff on December 5, 2006 and the disposition of imposition of KRW 22,138,020,09 of the corporate tax for the business year 204, respectively.

3. Scope of adjudication of this court.

On December 5, 2006, the Defendant sought revocation of the disposition of imposition of corporate tax of KRW 2,649,49,491 for the business year 2002 against the Plaintiff and the disposition of imposition of KRW 22,138,020,09 for the business year 2004. The judgment of the court of first instance rejected the lawsuit of this case. The judgment of the court of first instance prior to the remand of the Plaintiff’s appeal dismissed the appeal, and the appeal regarding the disposition of imposition of corporate tax for the business year 2002 is dismissed, and the portion of the disposition of imposition of corporate tax for the business year 2004 is reversed and remanded to the court of first instance. Accordingly, the part seeking revocation of the disposition of imposition of corporate tax for the business year 2002 is finalized, and the scope of the judgment of the court of first instance after the remand is limited to the claim for revocation

1. Details of the disposition;

A. The KPFK Co., Ltd. (hereinafter referred to as “KFK”) was incorporated on December 28, 2001 as a company incorporated on December 28, 2001 by dividing the liquefied business sector of Gohap (hereinafter referred to as “instant division”) and engaged in manufacturing, processing and selling of petroleum, chemical and chemical industrial products, and was merged with the Plaintiff on December 27, 201.

B. KPK reported the corporate tax base of the business year 2002 to KRW 13,792,272,317, the tax amount to KRW 2,649,49,491, the corporate tax base of the business year 2003 to KRW 17,625,322,875, the tax amount to KRW 3,981,470,934, and the corporate tax base of the business year 2004 to KRW 131,501,467,049, the tax amount to KRW 34,402,958,929, and each of the above tax amounts was paid.

C. After conducting a regular investigation of the corporate tax for the business year of 2002 to 2005 with respect to the KPK, the Commissioner of Busan Regional Tax Office confirmed the recognition of the provisional payment related to the interest calculation, non-deductible expenses exceeding the amount paid, non-deductible expenses exceeding the limit of entertainment expenses, non-deductible expenses in excess of the amount of temporary investment tax deduction, and notified the defendant as taxation data. Accordingly, on December 5, 2006, the defendant increased 357,34,570 won of corporate tax for the business year of 2003, and 83,562,320 won of corporate tax for the business year of 204, and revised and notified the correction (hereinafter “each disposition of this case” for the business year of 204 to 204.

D. On March 2, 2007, KSC stated that “Gohap recorded the difference between the book value and the recoverable value of the tangible asset as a tangible asset reduction loss,” and KSC succeeded to the amount of 151,246,262,765 won out of the above tangible asset reduction loss at the time of the division of this case as a tax reservation, but did not separately adjust the amount of the reduced loss after the business year 2002, the amount of the reduced loss in this case should be considered as the disapproved depreciation amount and the depreciation scope should be calculated again, and the amount should be confirmed as losses within the scope of the approved depreciation amount for each business year from 2002 to 204 and the amount of the tax base and the tax amount should be corrected for the business year from 204.”

On January 21, 2008, the National Tax Tribunal rendered a decision that "the amount of reduction loss of this case managed by the KPK as a tax reservation on the statement of capital and reserve funds when it returns corporate tax for the business year 2002 to 2004 shall be deemed to be a disapproved depreciation amount, and the depreciation scope amount by each business year shall be recalculated within the scope of the approved depreciation amount by each business year, and confirmed it as losses within the scope of the approved depreciation amount by each business year, and the amount of the corporate tax notified on December 5, 2006 shall be corrected within the scope of the corrected amount of the corrected amount of corporate tax.

Around February 2008, the Defendant issued a correction and notification by reducing corporate tax of 4,019,324,090 for the business year 2002, corporate tax of 357,344,570 for the business year 2003, corporate tax of 83,562,320 for the business year 204, respectively (hereinafter “the first correction disposition”).

E. On the other hand, on April 20, 2006, the date of the correction of each of the respective increases in the instant case: (a) the Defendant asserted that “the amount of the reduced loss in the instant case shall be deemed to be the disapproved depreciation amount, and the depreciation scope shall be calculated again, and it shall be ratified within the scope of the approved depreciation amount for each business year 2003 and 2004,” and filed a request for correction against the corporate tax for the business year 203 and 2004.

As a result, the Defendant filed a claim for correction and notification of the amount of the corporate tax for the business year of 2003 and 2004 by reducing the amount indicated in the table “additional Tax Refund” column in the following table (hereinafter “the second correction and notification”). The Defendant filed a claim with the Defendant for correction to the effect that the amount of KRW 12,587,068,186 out of the corporate tax for the business year of 2004, which was originally reported to the Defendant, was overreported, but the Defendant confirmed that the reported depreciation approved (10,832,617,244 won) was overreported, and returned KRW 12,264,938,830 as a result of adding the amount to deductible expenses by re-calculated the amount of KRW 10,60,295,714.

15,115,173, 114, 115, 115, 115, 173, 173, 314, 314, 32,93, 269 △△△△△2,219, 60203, 470 1,512, 795, 601, 512,795, 601, 795, 87, 87, 385 88, 681, 56821,89, 8902, 138, 202, 12, 264, 938, 2627, 968, 268, 278, 968, 1968, 2015, 196, 208, 2005, 297, 2016

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, 15, Eul evidence Nos. 3 through 8, the purport of the whole pleadings

2. Determination as to the defendant's defense prior to the merits

A. Defendant’s assertion

Around March 2008, the Defendant rendered a decision to dismiss part of the corporate tax for the business year 2004, the Plaintiff did not file a request for examination or a request for trial within the objection period. As such, among corporate tax for the business year 2004, the portion of the remaining tax amount which was revoked by the second reduction or correction disposition of corporate tax for the business year 2004, which was originally paid by the Plaintiff was not in dispute. In domestic affairs, even if the Plaintiff’s request for correction of corporate tax for the business year 2004, which was initially filed by absorbing the corporate tax return for the business year 2004, is the case where the Plaintiff’s request for correction of corporate tax for the business year 2004, and thus, the scope that can be revoked in the appeal litigation is limited to the corrected tax

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) Article 22-2(1) of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter the same) provides that “The rectification that increases the amount of tax initially finalized under tax-related Acts shall not affect the rights and obligations under this Act or other tax-related Acts with respect to the amount of tax initially finalized.”

In light of the language and text of the above provision and the legislative purport of the above provision are to restrict any objection against the amount of the initial return or decision which cannot be raised any longer due to the lapse of the objection period or the period for filing a request for correction, etc., if a request for increase or correction is made, the initial return or decision shall lose the independent existence value by absorbing the increase or correction disposition, and in principle, the increase or decision shall be subject to an appeal litigation, and a taxpayer may also assert any illegal cause as to the initial return or decision in the appeal litigation. However, even if a request for increase or correction cannot be filed any longer than the limit of the objection period or the period for filing a request for correction, the revocation may be claimed only within the scope of the increased tax amount.

2) Even if the increased amount of duty among the disposition of increase in the business year 2004 of this case was revoked by the first disposition of increase in the business year 2004, the initially reported amount of tax constitutes a part of the disposition of increase in the business year 2004 of this case by absorbing it into the disposition of increase in the business year 2004 of this case. As seen earlier, even if the disposition of increase in the business year 2004 of this case is rendered, it cannot be claimed for revocation of the initially reported amount of tax or the final amount of tax which cannot be

Article 45-2(1) of the former Framework Act on National Taxes (amended by Act No. 7582, Jul. 13, 2005; hereinafter “former Framework Act on National Taxes”) provides the period for filing a request for correction within two years after the statutory due date of return expires, but Article 45-2(1) of the amended Framework Act on National Taxes (hereinafter “amended Act”) provides that the period for filing a request for correction shall be within three years after the statutory due date of return expires, and Article 45-2(2) of the Addenda provides that the amended provision shall apply to a request for decision or correction for which the period for filing a request for correction has not expired under the former provisions of Article 45-2(1) of the former Framework Act on National Taxes (amended by Act No. 7582, Jul. 13, 20

In the case of corporate tax for the business year 2004 of this case, from March 31, 2005, the statutory due date of filing the claim for correction from March 31, 2005 to December 5, 2006, which was before the expiration of the period of filing the claim for correction, the plaintiff can seek the revocation of the tax amount already reported as well as the increased tax amount by the above corrective disposition.

Therefore, the defendant's above assertion is without merit.

3. Judgment on the merits

A. The parties' assertion

1) Plaintiff

The KPK succeeded to the amount of the instant reduced loss at the time of the instant division as a tax reservation. That is, tangible asset reduction loss should be treated as depreciation costs under the Corporate Tax Act. The amount of the instant reduced loss and the amount of the reduced depreciation for the business year 2001, 2002, based on the amount of the reduced loss and the amount of the reduced loss related to PAREX work, should be further calculated pursuant to Article 32(1) of the Enforcement Decree of the Corporate Tax Act, the disapproved depreciation amount to be ratified as deductible expenses for the business year 2001, 141, 271, 779, 75, 202, 705, 2005, 205, 2005, 205, 205, 2005, 205, 2005, 204, 2005, 207, 2005, 2005, 207, 2005, 20167, 201.

The amount of reduction and exemption of corporate tax for the business year 2001, 2002 and the amount of reduction and exemption of corporate tax for the business year 2004 is 4,371, 326,110 won when calculating the legitimate amount of corporate tax for the business year 2004.

Therefore, the portion exceeding KRW 4,371,326,110 out of the corporate tax amount in the business year 204 22,138,020,09, remaining after correction due to the first and second reduction disposition among the corporate tax amount reported for the business year 2004 of this case should be revoked illegally.

2) Defendant

In the business year 2001, 2002, the KPK did not submit a request for correction of corporate tax within two years, which is the period for filing the request for correction of corporate tax. Therefore, the above corporate tax can no longer be contested due to the indiculities and indulities arising. The Plaintiff, in the business year 2001 and 2002, requested for correction of corporate tax for the business year 2004 on the premise that some of the amount of the reduced loss in this case was ratified as deductible expenses, based on the assumption that

In addition, the amount of the reduced loss in this case was related to the assets of the business division succeeded to by the Knbk among the reserved amount of the reduced loss of tangible assets as of December 31, 2000 as of December 31, 2000, which was directly related to the business or profit of the business division succeeded by the Knbk. This was related to the high agreed assets until December 27, 2001, the day immediately before the division of this case. Therefore, the amount equivalent to 361/365 of the reduced loss in this case, which was automatically owned by the high agreement, shall be confirmed as deductible expenses for the business year of 201, pursuant to Article 32(1) of the Enforcement Decree of the Corporate Tax Act, and the Knbk may succeed to the remainder of the reduced amount.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) First, we examine whether the Plaintiff may dispute the corporate tax for the business year 2004 on the grounds of the occurrence of losses carried forward for the business year 2001, 2002, and the amount of tax reduced or exempted for the business year 2002.

According to the purport of the judgment of remand and the entire pleadings, the fact that the Plaintiff cannot dispute the amount of corporate tax for the pertinent business year after the lapse of the two-year period for filing a claim for correction concerning corporate tax for the business year 2001, 202.

However, even if the total amount of deductible expenses which belong or comes to belong to a certain business year is in excess of the total amount of gross income which falls under the losses under the Corporate Tax Act, and the amount which is investigated as losses at the time of final return of tax base, etc. of a corporation or investigation and decision by the government, etc. are not deducted as losses, and the disposition of imposing corporate tax for a business year which is based on the premise that the tax base is not determined after the determination of the tax base and the disposition of imposing corporate tax for a business year which is based on the premise is no longer possible to dispute over the tax base or tax amount, the corporation liable to pay taxes may re-examine the assertion that there was a loss which is erroneous in the previous tax base decision or which may be deducted from the income under the relevant provisions of the Corporate Tax Act (see Supreme Court Decision 201Du2652, Nov. 26, 2002

Therefore, the Plaintiff’s assertion that there was an additional loss carried forward in the business year 2001, 2002, which can be deducted from the income of the business year 2004 while disputing the disposition of imposition of corporate tax for the business year 2004, and that the deduction amount should be deducted from the corporate tax amount of the business year 2004.

2) Next, we examine whether the instant reduced loss was succeeded to all of the instant reduced loss according to the instant division.

A) Where a domestic corporation divides upon meeting the requirements of Article 46(1) of the former Corporate Tax Act (amended by Presidential Decree No. 6558 of Dec. 31, 2001), Article 82(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17457 of Dec. 31, 2001), a corporation established by division may succeed to the amount that is neither included nor included in gross income or deductible expenses in calculating the income and tax base of a divided corporation for each business year (amended by Presidential Decree No. 17457 of Dec. 31, 2001, and Article 85(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18706 of Feb. 19, 2005), and Article 14 of the Addenda (Presidential Decree No. 17457) of the former Enforcement Decree of the Corporate Tax Act).

In full view of the evidence No. 3 and No. 6’s each statement, it is recognized that the sum of domestic corporations divided this case by meeting the requirements of the former Corporate Tax Act and the former Enforcement Decree of the Corporate Tax Act. Thus, the sum of KBK, which is a corporation established by division, can succeed to the amount that is not included in the gross income or deductible expenses in the calculation of the income amount and the tax base for each business year.

B) According to Article 32(1) of the Enforcement Decree of the Corporate Tax Act, if there is any disapproved depreciation amount, it is determined that it is confirmed as losses to the extent of the approved shortfall for the next business year.

Meanwhile, in full view of the purport of the entire argument in Gap evidence No. 3, it is recognized that there was authoritative interpretation by the National Tax Service to the effect that, at the time of the division of this case, there was no evidence provision under the Corporate Tax Act, and that, on March 10, 2003, the loss of asset reduction, appropriated for the first time in accordance with the corporate accounting standards, can be treated as depreciation costs under the Corporate Tax Act.

Therefore, since the sum of the reduced losses at the time of the division in this case did not have a clear ground to treat the same amount as depreciation costs, as alleged by the defendant, the amount equivalent to 361/365 of the reduced losses at the rate of the period during which the high agreement was owned pursuant to Article 32(1) of the Enforcement Decree of the Corporate Tax Act should be automatically ratified as deductible expenses for the business year of 2001, and it is difficult to view that only the remainder can be succeeded to the division in this case (the defendant's attorney at the fourth day of the trial of November 7, 2012, stated as follows: "No dispute exists as to the facts that the high rate of the reduced losses in this case was succeeded to as reservation items in the tax amount; the defendant's attorney at the fourth day of the trial of November 7, 2012, stated as follows: Gap 2,3 evidence, Eul, 5, and 6 evidence Nos. 1265 of the Enforcement Decree of the Corporate Tax Act as deductible expenses; according to the defendant's and the defendant's k's defense and the above 261261 and 261.

C) Therefore, it is reasonable to deem that the KPK succeeded to the entire amount of the reduced loss in this case.

3) The corporate tax for the business year 2004 shall be considered as legitimate.

A) According to Article 32(1) of the Enforcement Decree of the Corporate Tax Act, the amount in excess of the scope of the depreciation amount among the depreciation costs appropriated as losses for each business year by a corporation (hereinafter “unapproved depreciation amount”) shall be confirmed as losses only where the depreciation costs appropriated as losses by the corporation in the next business year fall short of the scope of the scope of the depreciation amount, limited to the amount falling short of the depreciation amount (hereinafter “approved shortfall”). In this case, even where a corporation does not appropriate the depreciation costs as losses, it shall be confirmed as losses within the scope of the scope of the scope of the depreciation amount as losses in accordance with the above Act and subordinate statutes. Thus, the disapproved depreciation amount to be confirmed as losses for the business year 201, 200

The facts that KPK succeeded to the entire amount of the reduced loss of this case from Gohap are as shown in the above Section 2, and there is no dispute between the parties that the amount of the reduced loss of this case is treated as depreciation costs under the Corporate Tax Act and included in the loss. In full view of the purport of the entire pleadings as to each of the statements in the evidence Nos. 7, 9, and 10, it is recognized that the total amount of the reduced loss of this case was treated as deductible expenses for 2000 business year by treating the tangible asset reduction loss including the amount of the reduced loss of this case as deductible expenses under Article 32(1) of the Enforcement Decree of the Corporate Tax Act.

In light of the above facts, Gap evidence No. 8 was added to the above facts, the ratification amount of deductible expenses for the business year 2001, 2001, 2002, 9,141,271,779, and 75,260,46,345 won for the business year 2002.

B) Comprehensively taking account of the ratification amount of the above deductible expenses and the evidence No. 2-1, the amount of losses carried forward for the 2001 business year of the KPK is KRW 11,922,67,971, and the amount of losses carried forward for the 2002 business year is KRW 49,945,025,536 (the calculation details are the same as the statement of losses carried forward), and the losses incurred during the 2003 business year are included in the calculation of the tax base for the 2004 business year. The amount of additional deductible tax for the 2004 business year is recognized as the amount of deductible tax for the 2004 business year.

If the corporate tax amount for the business year 2004 is re-calculated by integrating the grounds for recognition under paragraph (1) above in the above facts, it shall be KRW 4,371,326,110, such as the attached tax invoice.

C) Therefore, the portion exceeding KRW 22,138,020,09 of the corporate tax for the business year 2004 remaining after the correction due to the first, second, and second reduction disposition (i.e., the amount reported as corporate tax for the business year 2004) (i.e., the amount reported as the first corporate tax for the business year 34,402,958,929 won + the amount adjusted as the amount adjusted as the first, 83,562,320 won - the amount adjusted as the first,562,320 won - the amount adjusted as the second,562,320 won - the amount adjusted as the second,264,938,830 won of the second reduction disposition as the amount adjusted as the second,371,326,110

4. Conclusion

Therefore, the plaintiff's claim of this case shall be accepted on the grounds of its reasoning, and since the remaining part except the part which became final and conclusive by the judgment of remand (the part of revocation of revocation of disposition imposing corporate tax for the business year 2002) in the judgment of the court of first instance is unfair, it shall be accepted by the plaintiff's appeal and the judgment of the court of first instance shall be modified as above. It is so decided as per Disposition by applying Article 8 (2) of the Administrative Litigation Act,

[Attachment]

Judges Lee Jong-sung (Presiding Judge)