Chuncheon District Court-2014-Gu Partnership-128 (Law No. 26, 2015)

early 2012 Middle 1779 ( October 22, 2013)

The payment fee paid to the actual chairperson of the plaintiff constitutes a bonus paid and disposed of the company's profit as a bonus.

Since it is deemed that the actual chairperson of the plaintiff's actual chairperson does not pay business entrustment expenses, but actually pays and disposes of the company's profit as bonus, it should be excluded from deductible expenses in calculating corporate tax.

Article 20 (Non-Inclusion of Losses from Capital Transactions in Corporate Tax Act

2015Nu689 Revocation of Disposition of Imposing Corporate Tax;

OMWC Co., Ltd.

○ Head of tax office

Chuncheon District Court 2014Guhap128 ( October 26, 2015)

o October 10, 2016

November 21, 2016

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the court of first instance is revoked. The defendant revoked each disposition of imposition of value-added tax of KRW 00,000,000 for the first term of January 3, 2008, KRW 000,000 for the second term of February 2008, and corporate tax of KRW 000,000 for the second term of February 2008, and KRW 000,000 for the portion of the year of 2007, and KRW 000,000 for the portion of the year of 2008, and KRW 00,000 for the portion of the year of 209.

1. Quotation of judgment of the first instance;

The reasoning for the court’s explanation on the instant case is the same as that for the judgment of the first instance, except for the following modifications, and thus, this is cited in accordance with Article 8(2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act

2. Parts to be corrected;

▣ 제1심 판결의 이유 중 4. 나. 2)항 '판단' 부분(판결문 11쪽 1째줄 이하부터 12쪽 4째줄까지)을 다음과 같이 수정한다.

[2] Determination

The Plaintiff asserts to the effect that “The Plaintiff’s payment of KRW 000,000 to the NewA from 2007 to 2009,000,000,000 to the NewA is a money with the nature of compensation for actual expenses for the business activity expenses of the NewA to encourage its business activities (or fees for business activities), and thus, constitutes ordinary expenses. Therefore, it must be included in the total loss.”

However, in light of the following circumstances revealed in light of the above facts, the part of the above 0 billion won which exceeds the amount of remuneration for the representative director of the plaintiff at least constitutes "in substance, bonus paid to a specific officer by a disposition of profit or excessive remuneration paid to an officer in a special relationship with the controlling shareholder", and thus, it should be excluded from deductible expenses.

A) First of all, as the Plaintiff himself is not the Plaintiff’s simple employee, NewA is the president, who actually operates the Plaintiff as the father or spouse of the Plaintiff’s shareholders, i.e., an officer in a special relationship with the controlling shareholder.

B) Only the business activities, etc. performed on behalf of the Plaintiff are deemed to have been performed by the Plaintiff as the Plaintiff’s president in the course of operating the Plaintiff. In fact, after establishing the Plaintiff, the Plaintiff has been performing the duties for the Plaintiff from 2003 to 2006 without any particular agreement with the Plaintiff. On February 10, 2007, the Plaintiff and the Plaintiff entered into an agreement on the payment of contingent remuneration for the business activities, and there is no circumstance that the status of the Plaintiff has been changed as of the time when the said agreement was prepared, or that the status of the Plaintiff has been changed.

C) Furthermore, the content of the aforementioned contract for contingent remuneration of business activities is not based on the calculation of contingent remuneration, but on the basis of the sales amount in 2004, which is the first place of business, which has a significant difference in the size of sales already, based on the sales amount in 2004, which is the first place of business, as of the date of the above agreement, and without any specific maximum limit on performance-based rates, if the sales amount exceeds 10 billion won in the above 2004 sales amount, then the former has to continuously pay contingent remuneration at a certain rate (5 billion won per billion won, 0.5% of sales amount) depending on the difference. According to this, newA seems to be able to receive a part of the Plaintiff’s profits continuously, stable, and mechanically, regardless of the actual results of its activities or trends in sales.

D) If so, considering the status of the newA, such a payment system does not differ from paying bonuses to an officer with a special relationship with the controlling shareholder according to the disposition of profits.

E) In this regard, the Plaintiff asserts to the effect that “The Plaintiff calculated the contingent remuneration from the compensation vehicle based on the sales amount in 2004, considering that the sales amount of the Plaintiff increased considerably from 2003 to 2006, the Plaintiff’s contingent remuneration is considered as remuneration for business activities since 2003.” However, the aforementioned contingent remuneration arrangement basically is not based on the sales amount of theCC cable, but on the basis of the entire sales amount of the Plaintiff (as the Plaintiff is a person, the ratio of the sales amount of theCC cable to the total sales amount is approximately 36-49% since 2007). As such, it is difficult to view the aforementioned contingent remuneration as remuneration for business activities conducted from 2003 to 206. Furthermore, even if considering the aspect of compensation for business activities conducted in 206, it cannot be evaluated as a mere remuneration to receive continuous and mechanical profits without any restriction in the future (i.e., remuneration).

F) In addition, the Plaintiff asserts that “The purpose of reimbursement for actual expenses is to compensate for expenses incurred by the New AA from 2003.” However, there is no evidence as to the extent that the new AA has spent expenses for business activities on a certain scale, and there is no reason to ensure the continuous, stable, and mechanical distribution on the basis of the adequate settlement of actual expenses, and there is no reason to ensure the continuous, stable, and mechanical distribution on the basis of such settlement. Therefore, this does not affect the substance of the payment.

G) Furthermore, even if the success fee is deemed to be the price for the business activities of the new company as alleged by the Plaintiff, as seen earlier, since the new company is an officer in a special relationship with the controlling shareholder (the president), if the remuneration paid to the new company exceeds the amount paid to the officers or employees other than the controlling shareholder, etc. in the same position, such excess portion shall not be included in the calculation of losses unless there is any justifiable reason (Article 43(3) of the former Enforcement Decree of the Corporate Tax Act). However, even though the difference between the sum of the Plaintiff’s salary and bonus paid to other officers and employees, the amount paid to the new company, and the amount paid to the new company, and ② even if the new company contributed significantly to the sales of theCC cable, it appears to be within the scope of the business activities, and ③ therefore, if the new company did not have a special relationship with the controlling shareholder, it is questionable whether the Plaintiff paid the same amount to the new company, the circumstances and evidence presented by the Plaintiff alone, cannot be deemed to have a justifiable reason. Ultimately, in light of all the above.

▣ 제1심 판결의 이유 중 4. 다.항 '소결론' 부분의 "또한 원고가..." 이하 부분(판결문

12 From the 8th day to the 10th day), the amendments shall be made as follows:

“In addition, from 2007 to 2009, the portion exceeding the amount of remuneration for the representative director of the Plaintiff out of the amount of KRW 000,000,000 paid by the Plaintiff to the newA from 2007 to 2009, i.e., 00,000 shall not be included in deductible expenses, so the instant disposition is lawful.”

3. Conclusion

Therefore, the judgment of the first instance is just, and the plaintiff's appeal is dismissed as it is without merit, and it is so decided as per Disposition.