Seoul Administrative Court-2013-Gu Partnership-7117

2012west 3538

The new contract costs of insurance business shall be included in deductible expenses in the business year during which they are paid.

The new contract cost in insurance business is clear that the rights and obligations are determined at the time when the new contract cost is paid, and the Enforcement Decree of the Corporate Tax Act does not provide for exceptions to the business year of accrual of deductible expenses in the Corporate Tax Act concerning the new contract cost, so the total amount should be included in deductible expenses in the business year when the new contract cost

Article 40 (Business Year of Profit and Loss)

Article 43 (Application of Corporate Accounting Standards and Practices)

2014Nu4249 Revocation of Disposition of Imposing gift tax

Plaintiff:

Appellants and Appellants

1. Guide ○○

2. Guide ○○

3. Hebane ○○.

Defendant:

Appellant Saryary appellant

1. ○ director of the tax office;

2. ○ director of the tax office.

Seoul Administrative Court Decision 2013Guhap7117 decided January 10, 2014

October 31, 2014

November 21, 2014

1.The judgment of the first instance shall be modified as follows:

On January 2, 2012, the head of ○○ Tax Office revoked each disposition imposing gift tax of KRW 0,000,000,000, which was imposed on Plaintiff ○○○○ on Plaintiff ○○○, KRW 0,000,000, which was imposed on Plaintiff ○○○○, and KRW 0,000,00,000, which was imposed on Plaintiff ○○○○○ on January 2, 2012 by Defendant ○○ Tax Office.

2. All appeals by the Defendants are dismissed.

3. The total costs of the lawsuit shall be borne by the Defendants.

1. Purport of claim

Paragraph (1) shall apply.

2. Purport of appeal

A. The purport of the plaintiffs' appeal

The part against the plaintiffs in the judgment of the first instance shall be revoked. The part against the plaintiffs in the judgment against the defendant ○○○○ on January 2, 2012 shall be revoked. The imposition disposition of KRW 0,000,000,000 (including additional tax of KRW 0,000,000) among the imposition disposition of KRW 0,000,000,000 (including additional tax of KRW 0,000,000) against the plaintiff ○○○○ on January 2, 2012, and the imposition disposition of KRW 0,00,000 among the imposition disposition of KRW 0,00,000,000 (including additional tax of KRW 0,00,000,000) against the plaintiff ○○○○ on January 2, 2012, including the imposition disposition of KRW 0,000,000 among the imposition disposition of KRW 0,000,000.

B. Purport of the defendants' appeal

The part against the Defendants in the judgment of the first instance is revoked, and the plaintiffs' claims corresponding to the revoked part are dismissed.

1. Details of the disposition;

A. ○○ Life Insurance Co., Ltd. (hereinafter referred to as “○ Life Insurance Co., Ltd.”) established on February 22, 198 and changed its trade name into “○○ Life Insurance Co., Ltd.” on January 4, 1993, and transferred its trade name to “○○ Life Insurance Co., Ltd.” on May 27, 2000, and changed its trade name to “○○○○ Life Insurance Co., Ltd.” on April 1, 2006.

B. On March 31, 2005, “○○○, Gu○○, Gu○○, Gu○○, Gu○○○, Gu○○○, and Gu○○○○○ (hereinafter “transferor”) transferred the shares of the instant company (hereinafter “instant shares”) to the Plaintiffs in KRW 00 per share.

transferor

A transferee

Shares (States)

Price (cost)

○ ○

Gu○

00,000

0,000,000

Gu○

00,000

0,000,000

Gu○

00,000

0,000,000

Gu○

00,000

0,000,000

Gu○

00,000

0,000,000

Gu○

00,000

0,000,000

Gu○

00,000

0,000,000

Gu○

00,000

0,000,000

Hu○ ○

0,000,000

00,000,000

C. According to Article 63 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7580, Jul. 13, 2005; hereinafter referred to as the “Act”), the Defendants assessed the value of the shares of this case as KRW 0,000 per share ( KRW 0,000 per share, adding 30/100 to the Plaintiff’s old ○○ and Gu ○○), and determined that the Plaintiffs acquired the shares of this case from the transferor at a price considerably lower than the market price without justifiable grounds in light of transactional practices. The Defendants imposed the gift tax amount of KRW 0,000,000 on the Plaintiff ○○ on January 2, 2012 as indicated in the separate sheet No. 1, and the gift tax amount of KRW 0,000,000 per share on the Plaintiff ○○○ and the head of Sungbuk District Tax Office imposed the gift tax amount of KRW 00,000 per share on the Plaintiff ○○ as indicated in the separate sheet No. 1.

D. The Plaintiffs were dissatisfied with the request for a trial to the Tax Tribunal on February 28, 2012, but the said request was dismissed on December 12, 2012.

[Reasons for Recognition] Facts without dispute, Gap evidence 0, 00, 00 through 00 (including each number; hereinafter the same shall apply), Eul evidence 0 to 00, the purport of the whole pleadings

2. Whether the instant disposition is lawful

(a) Relevant statutes;

Attached Form 2 shall be as listed in attached Table 2.

B. Determination as to the plaintiffs' assertion of the allocation of losses for new contract costs

(1) Grounds for the Defendants’ disposition

The former Corporate Tax Act (amended by Act No. 7838, Dec. 31, 2005; hereinafter referred to as the "former Corporate Tax Act") does not have any provision concerning the period of inclusion of new contract expenses in deductible expenses. In such a case, Article 43 of the same Act provides that corporate accounting standards or practices deemed fair and reasonable shall be followed. As such, new contract expenses falling under other assets shall be included in the insurance contract period in proportion to the insurance contract period in accordance with the insurance contract accounting rules. Accordingly, according to the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18989, Aug. 5, 2005; hereinafter referred to as the "Enforcement Decree") Article 54 (1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Act No. 7838, Dec. 31, 2005). Thus, the Defendants’ disposition

(2) The plaintiffs' assertion

The new contract cost is cost incurred in acquiring a new contract and does not constitute intangible fixed assets specifically stipulated in the exception of the principle of confirmation of profit and loss under the Corporate Tax Act. Therefore, when the new contract cost is included in the deductible expenses in the pertinent business year pursuant to Article 40(1) of the Corporate Tax Act, the net value of the instant shares is KRW 0, and the net asset value is KRW 0, even if the Defendant’s assertion is followed, the value of the instant shares calculated pursuant to the Act is KRW 0,00. Accordingly, the Defendant’s disposition of this case premised on the premise that the transfer of the instant shares is low price, should be entirely revoked.

(3) Facts of recognition

(A) The Defendants calculated the value of the instant shares in accordance with the following calculation.

(unit: Won)

Items

Amount

(1) Net asset value.

0

(2) The net asset value per share.

0

(3) The value per share based on the weighted average amount of net profits and losses for the latest three years.

0,000

(4) The appraised value per share.

Calculation Form: (2X2) + (3X3)/5

0,000

(5) The appraised value per stock owned by the largest shareholder.

Calculation Forms: 4. X130/100

0,000

(B) The net profit and loss amount before including the new contract expenses from 2002 to 2004 as deductible expenses of the current year, and the changes in the net profit and loss amount when including the new contract expenses as deductible expenses of the current year, and the net profit and loss amount after including the new contract expenses as deductible expenses in the current period, shall be as follows:

(unit: Won)

Business year

204

2003

202

Amount of net profit and loss before deducting new contract expenses.

00,000,000,000

0,000,000,000

(-)0,000,000,000

Changes in net profit and loss due to new contract costs

(-)0,000,000,000

(-)0,000,000,000

Amount of net profit and loss after deduction of new contract expenses.

(-)0,000,000,000

(-)0,000,000,000

(-)0,000,000,000

[Ground of recognition] Facts without dispute, entry of Gap evidence 00 to 00, and each entry of Gap evidence 00

(4) Determination

(A) Article 20 of the former Framework Act on National Taxes (amended by Act No. 7582, Jul. 13, 2005; hereinafter the "former Framework Act on National Taxes") provides that "in investigating and determining the tax base of national taxes, it shall respect corporate accounting standards or practices which the relevant taxpayer continues to apply continuously and are generally fair and reasonable: Provided, That this shall not apply to cases where special provisions exist in tax-related Acts." In addition, Article 43 of the former Corporate Tax Act provides that "where the relevant corporation applies corporate accounting standards which are generally fair and reasonable in calculating the income amount of each business year of a domestic corporation, the period of accrual of earnings and losses and the acquisition and evaluation of assets and liabilities shall be governed by the relevant corporate accounting standards or practices, except as otherwise provided in this Act and the Restriction of Special Taxation Act, Article 40 (1) of the former Framework Act provides that "the period of accrual of earnings and losses of a domestic corporation for each business year shall belong to the date on which such profits and losses are finalized," and Article 40 (2) of the former Corporate Tax Act provides that "any or intangible fixed period of accrual of profits and losses shall be delegated."

In addition, the reason why Article 40(1) of the former Corporate Tax Act adopts the principle of confirmation of profits and losses with respect to the business year of accrual of profits and losses lies in ensuring the fairness of taxation by uniformly identifying the taxable income of taxpayers and at the same time excluding the taxpayer (see, e.g., Supreme Court Decision 2003Du10329, Feb. 13, 2004).

In light of the above legal principles, the provisions of the former Enforcement Decree of the Corporate Tax Act, which received delegation under Article 40(1) and (2) of the former Corporate Tax Act, shall be deemed to constitute cases where the Corporate Tax Act specifically provides for the period of attribution of gross income and deductible expenses by declaring the principle of confirmation of profit and loss and by specifying the specific standards and exceptional regulations. Therefore, in cases where the aforementioned provisions are applied, the corporate accounting standards or practices, barring special circumstances, such as where the period of attribution of gross income and deductible expenses is unclear and it is necessary to supplement the provisions of the Corporate Tax Act, shall not be applied (see Supreme Court Decision 92Nu2936, 2943, Oct. 23, 1992). In addition, corporate accounting standards or practices applied by supplement of the Corporate Tax Act, which are generally deemed fair and reasonable, shall constitute corporate accounting standards or practices that continue to apply.

(B) The term "new contract cost" in the insurance business refers to the cost required to conclude each new contract, which is the amount disbursed by an insurance solicitor as expenses, personnel expenses at the place of business, goods expenses, diagnostic expenses, contract procurement expenses, etc. It is clear that the new contract cost is not only determined at the time when the amount is paid but also realized at the time when the rights and obligations are paid. Moreover, the former Enforcement Decree of the Corporate Tax Act does not have a separate exception to the fiscal year of accrual of losses in respect

However, under the General Rules of the Corporate Tax Act (amended by May 10, 2003), the new contract costs incurred by a long-term insurance contract shall be included in deductible expenses in proportion to the insurance premium payment period under the relevant insurance contract (where the said period exceeds seven years, seven years). However, the General Rules of the Corporate Tax Act is merely an administrative rule that instructs the criteria for interpretation and enforcement of the tax law in the inside of the tax authority, and it is not effective for the court or the public to bind the court or the people, so the General Rules itself cannot be a legitimate basis for taxation (see, e.g., Supreme Court Decision 2005Du5611, Feb. 8, 2007). In addition, as seen below, it is difficult to view that the corporate accounting guidelines to the same purport should be applied preferentially or supplementally.

Ultimately, since new contract costs do not constitute special circumstances that apply to supplement corporate tax, such as where the period of attribution of gross income and deductible expenses is unclear, the total amount should be included in deductible expenses for the business year in which new contract costs are paid according to the principle of confirmation of profit and loss under Article 40(1) of the former Corporate Tax

In regard to this, the Defendant asserts that Article 40(1) of the former Corporate Tax Act is merely a declaration provision, and that the new contract cost should be applied to the case where there is no provision in the Corporate Tax Act. However, since Article 40(1) of the former Corporate Tax Act is apparent that the new contract cost is applied to the new contract cost, there is no ground to deem that Article 43 of the former Corporate Tax Act does not apply to the new contract cost. Furthermore, as seen earlier, the said corporate accounting rule is in accordance with the corporate accounting standard or practice, except as otherwise provided in the Corporate Tax Act, there is no ground to deem that Article 40(1) of the former Corporate Tax Act preferentially applies to the principle of confirmation of profit and loss.

(C) In addition, considering the following circumstances: (a) it is difficult to see that the case of a new contract cost is an exception to the principle of confirmation of profit and loss; and (b) it is also difficult to see that the accounting rules of insurance business, which provide for the transfer of new contract cost as other assets, are generally recognized as fair and reasonable, or practices that are applied continuously.

(1) Article 24 (1) 2 of the former Enforcement Decree of the Corporate Tax Act provides for business rights, design rights, utility model rights, trademark rights, patent rights, fishing rights, gathering rights under the Submarine Mineral Resources Development Act, toll road management rights, irrigation rights, electricity and gas supply facility usage rights, industrial waterworks usage rights, waterworks usage rights, mining rights, telegraph, telephone and telephone exclusive facilities usage rights, exclusive connected facilities usage rights, heating supply facility usage rights, heating supply facility usage rights, electricity and facility usage rights, mining right, telegraph, telephone and telephone terminal facilities usage rights, exclusive connected facilities usage rights, waterworks facility management rights, waterworks facility management rights (c), development cost(d), usage rights, lease rights (f), lease rights, lease rights (g), usage rights, usage rights, and airport facilities rights as intangible fixed assets that fall under depreciable assets. Such rights are disbursed at the time of acquisition of intangible fixed assets, but they are included in deductible expenses only within the scope of scope of scope of depreciation for each business year pursuant to Article

However, the intangible asset stipulated in the former Enforcement Decree of the Corporate Tax Act refers to the legal right or economic status that has not had a tangible substance among fixed assets as a kind of asset classification. Moreover, other assets listed in 13 of the Rules on Accounting of Insurance Business (amended by December 10, 1998) appears to fall under these categories. However, since new contract costs are all expenses for concluding a new insurance contract, it is difficult to view them as legal right or economic status. Therefore, it is difficult to recognize the nature of new contract costs as its asset, and it is difficult to view them as having a feature corresponding to the intangible asset stipulated in each item of Article 24(1)2 of the former Enforcement Decree of the Corporate Tax Act.

(2) However, in the case of "development costs" under Article 24 (1) 2 (f) of the former Enforcement Decree of the Corporate Tax Act, which is defined as intangible assets, it is similar to the new contract costs in that it is not a legal right, and there is a question as to whether the above meaning of assets is of such meaning, and it shall be

According to the corporate accounting standards, “new products and new technologies that can be individually identified and expected to be clearly expected to have future economic effects.” This refers to expenses that are disbursed on a non-refinite basis. On the other hand, even if the cost of the development is the cost of the development, it is recognized that the current cost of the current manufacture is the cost of the current manufacture, the production method, and the cost of the ordinary use due to the Rule and repeated occurrence for the purpose of improving the manufacturing technology, and recognized the total amount of the cost as the current cost of the current construction. The reason why only the cost of the non-ordinary development is considered as intangible assets is to be regarded as the cost of the current construction. The reason why the cost of the current use is regarded as intangible assets is to be compensated for a large amount of time due to the distribution of profits obtained from the new product or new technology, thereby recognizing it in the next fiscal year.

However, since the new contract cost is cost required to enter into a new insurance contract, it can be viewed as ordinary cost in that it would be spent on an ordinary basis at the time of entering into a multiple insurance contract. In this respect, there is a fundamental difference between the development cost and the cost that is regarded as intangible assets only for ordinary expenses. Therefore, even in this regard, it is difficult to see that the new contract cost constitutes an intangible asset similar to the development cost.

③ On the other hand, while the new contract cost occurs at the time of entering into a contract, its profits take place over the premium payment period, the application of the profit cost response principle under the corporate accounting standards is not always applicable in accordance with the corporate accounting standards. However, it is not always subject to the profit cost response principle on the ground that it has such character. The business cost incurred in the process of continuously entering into a contract that sells a certain commodity over a several-year period, research expenses, education and training expenses, marketing expenses, which are disbursed for creative and planned research activities conducted to obtain new scientific or technical knowledge, occur in the early stage of the contract, and the benefits therefrom occur in the future, but the corporate accounting standards recognize the total amount of the expenses. Therefore, it cannot be readily concluded that the new contract cost is subject to the profit response principle under the corporate accounting standards.

④ Even if the principle of responding to domestic income cost is applied, it is merely an issue in the field of corporate accounting. In other words, in corporate accounting, expenses are recognized in accordance with the principle of responding to profit and loss, but in the tax accounting, the business year of accrual of profit and loss shall be determined in accordance with the principle of determining profit and loss (Article 40(1) of the former Corporate Tax Act). Therefore, even if certain expenses are recognized in corporate accounting in accordance with the principle of responding to profit and loss under the corporate accounting, they are merely the subject of the tax adjustment under the Corporate Tax Act. Therefore, the principle of responding to profit and loss under the Corporate Tax Act cannot be viewed as having an impact on the time of attribution of profit and loss under the tax law as a matter of course. However, in exceptional, in the case of intangible fixed assets under each item of Article 24(1)2 of the former Corporate Tax Act, where assets are sold or transferred under the long-term installment under Article 68(2) of the Enforcement Decree of the same Decree, even if they are not determined in accordance with the principle of determining profit and loss.

⑤ Under the international accounting standards, since new contract costs are not deemed deferred assets, the new contract costs are recognized as expenses for the pertinent fiscal year during which the payment is made. On the other hand, as seen in the above (1) and (2) the new contract costs do not have asset nature, 13 of the insurance business rules (established on December 10, 1998) which are the standards for corporate accounting related to domestic insurance business classify the new contract costs as other assets, and (23-6) classify the new contract costs as other assets, and (3) the new contract costs as expenses shall be treated as other assets in proportion to the payment period of premiums (the last seven years).

However, since new contract costs are costs incurred by insurance companies whenever they enter into each insurance contract, they are subject to rules and reflects each fiscal year. Accordingly, even if following the above insurance contract accounting rules, if seven years have passed since the deferred new contract costs (the new contract costs carried over for the last six years) and the new contract costs incurred during the current period are recognized as costs for one fiscal year, the effect of the deferred cost or asset transfer is offset thereafter. In other words, even if new contract costs are included in proportion to the new contract costs, they are limited to the temporary effect for the six years from the fiscal year in which the distribution of new contract costs was commenced.

Nevertheless, the reason why the insurance business accounting rules provide that new contract costs shall be transferred to other assets is that there is a policy need to reduce the difficulty of the insurance business community by lowering the difficulty of the insurance business community by delaying the time of recognition of expenses in the financial crisis of the IMF as of 1998, which was introduced the insurance business rules. Therefore, the insurance business accounting rules cannot be deemed as the corporate accounting standards or practices that are generally accepted as fair and reasonable due to the universal nature of the insurance business.

However, Article 79 subparag. 2 of the former Enforcement Decree of the Corporate Tax Act provides for "the accounting rules by type of business determined by the Securities and Futures Commission" as the corporate accounting standards or practices under Article 43 of the former Corporate Tax Act, and also falls under the insurance business accounting rules determined by the Securities and Futures Commission. However, the above Enforcement Decree is not a provision under the delegation of the former Corporate Tax Act, and therefore there is no legal nature, and thus, it cannot be said that there is any difference in interpretation and application of Article 43 of the former Corporate Tax Act. Even if it is viewed otherwise, the contents of the said rules should be examined individually and specifically by each item, and then the application of Article 43 of the former Corporate Tax Act should be determined. As seen earlier, it cannot be deemed that the accounting rules on new contract costs were exceptionally introduced, and

(D) Furthermore, if a new contract cost is recognized as a pro rata cost for 7 years in accordance with the accounting rules of insurance business, the first pro rata distribution would result in a kind of increase in net income during the external form, regardless of the existence of actual difference between the previous fiscal year and 6 years after the date of the first pro rata distribution. However, if it is assessed that the net profit and loss of the shares of this case is high due to the unexpected circumstances that the Plaintiffs traded the shares of this case for a limited period of time during which the said phenomenon occurred, the first pro rata phenomenon would go against the cases where shares were traded after the death and equity. From this perspective, it is reasonable to evaluate the net profit and loss value by including the total amount

(E) Therefore, this part of the plaintiffs' assertion is with merit.

(c) Calculation of justifiable tax amount;

In the event that the new contract cost is included in the total amount of loss for the pertinent business year in which the amount was incurred, as seen earlier, the net profit and loss amount for the pertinent business year from 2002 to 2004 is all incidental (-). The net profit and loss value calculated pursuant to Article 54(1) of the Enforcement Decree is zero won. Meanwhile, according to the Defendant’s assertion, the net asset value calculated pursuant to Article 54(2) of the same Decree is zero won. Ultimately, the net profit and loss value and the net asset value of the instant shares calculated through the assessment of the increase in net profit and loss and net asset value are zero won per share. Accordingly, the instant disposition by the Defendants on the premise that the transfer of the instant shares is low-price, without examining the remainder of the assertion, is unlawful. [In this case, there is no possibility that the loss amount is excessive because the previous business year includes the portion appropriated as loss, but it does not affect the conclusion by the Defendant by failing to present any reference materials and evidence.]

3. Conclusion

Therefore, the plaintiffs' claim of this case shall be accepted on the grounds of its reasoning, and since the part against the plaintiffs in the judgment of the court of first instance is unfair on the grounds of its conclusion, it shall be accepted in the entirety of the plaintiffs' appeal, and it shall be revoked, and the disposition of this case corresponding to the revoked part shall be revoked, and the appeal by the defendants shall be