In a case where Gap corporation and Eul bank, who is a drug wholesaler, concluded a special agreement with Eul bank to pay the purchase price of drugs by using the exclusive drug purchase card, and the tax authority, which received part of the mileage from Byung in cash, imposed global income tax, etc. on Byung on the ground that it constitutes "sales incentive" paid by drug wholesalers to Byung, the case holding that the above disposition is lawful on the ground that the mileage, etc. constitutes Byung's business income.

In a case where Gap Co., Ltd. and Eul bank, a drug wholesaler, concluded a special agreement on the issuance of an exclusive drug purchase card with which "if Eul who is a pharmacy operator, pays the purchase price of drugs by using the exclusive drug purchase card, Eul shall bear the commission from Eul bank, and Eul bank shall provide Byung with the mileage or capital percentage point (hereinafter referred to as "the instant mileage"), and the tax authority, which received part of the instant mileage in cash, imposed global income tax, etc. on Byung on the ground that Byung's global income tax reported by the drug wholesalers, including Gap, constitutes "sales incentive" with the payment limit for the credit card company, was omitted, the case holding that if Eul et al. did not pay the commission for the purchase of drugs only, or if Eul et al. did not bear the payment of a 20% percentage point, the former bank did not provide Byung with the amount equivalent to 30% of the total income tax on the ground that it constitutes "the sales incentive" under the above special agreement, and it did not constitute "the former 20% of the sales incentive" to Byung, etc.

Articles 19(1)7 and 24 of the former Income Tax Act (Amended by Act No. 9897, Dec. 31, 2009); Article 51(3)2 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 22034, Feb. 18, 2010); Articles 15 and 18(3) of the former Framework Act on National Taxes (Amended by Act No. 9911, Jan. 1, 201);

Plaintiff (Law Firm after Law Firm, Attorney Ba-ho et al.)

The head of Yangcheon Tax Office

September 21, 2012

1. We dismiss the part of the instant lawsuit seeking revocation of the disposition of imposition of KRW 4,878,300 for local income tax belonging to year 209.

2. The plaintiff's remaining claims are dismissed.

3. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s imposition of global income tax of KRW 48,783,00 for the year 209 against the Plaintiff on April 1, 201 and the imposition of KRW 4,878,30 for the local income tax of KRW 2009 is revoked.

1. Details of the disposition;

A. The Plaintiff is a person who operates a pharmacy under the trade name called “○ pharmacy” in Jongno-gu Seoul Metropolitan Government (number omitted), and the Seoul regional tax office conducted a tax investigation on the Plaintiff from November 10, 201 to January 18, 201.

B. As a result of the above investigation, the Seoul Regional Tax Office confirmed that the Plaintiff purchased drugs from a drug wholesaler from July 2009 to December 2009, and paid the price by using Daegu Bank Scam Card (hereinafter “Scam Card”) and Pampco-Scam Card (hereinafter “Scam Card”) as indicated in the following table, and notified the Defendant of the instant decision on April 1, 201 by deeming that the amount was omitted among the revenue amount of global income tax for the year 2009 reported by the Plaintiff, and that the Plaintiff received KRW 116,859,305 (hereinafter “instant mileage”) equivalent to KRW 170,979,255 (hereinafter “the instant issue amount”).

The voting period included in the main sentence shall be 2,626,27,09 won 78,786,813 won 3,073,081,544 won 92,42 won 170,979,255 won 116,859,305 won 116,859,305 won, such as mileages, etc.

C. Accordingly, on April 1, 201, the Defendant imposed and notified the Plaintiff of KRW 48,783,00 of the global income tax for the year 2009 (hereinafter “instant global income tax disposition”), and on the same day, imposed and notified the Plaintiff of KRW 4,878,300 of the local income tax for the year 209 (hereinafter “instant disposition imposing local income tax”).

D. On June 23, 201, the Plaintiff dissatisfied with each of the above dispositions, filed an appeal against the Defendant with the Tax Tribunal. However, the Tax Tribunal dismissed the Plaintiff’s appeal on September 22, 2011.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1, Gap evidence Nos. 2 and 3, each of the statements Nos. 1 and 2, and the purport of the whole pleadings

2. Whether a request for revocation of imposition of local income tax of this case is lawful

Ex officio, we examine whether the part of the instant lawsuit seeking revocation of the imposition of local income tax of this case is legitimate.

According to Article 177-4(1), (2), and (5) of the former Local Tax Act (amended by Act No. 9924, Jan. 1, 2010; hereinafter “Local Tax Act”), resident tax to be imposed (applicable to pro rata local income tax under the current Local Tax Act) is a local tax to be paid to the head of a Si/Gun having jurisdiction over the place for payment of income tax (the head of a Si/Gun in the case of the Special Metropolitan City/Metropolitan City/Metropolitan City; hereinafter the same shall apply). If the head of a tax office collects income tax by the method of imposition and notification in accordance with the Framework Act on National Taxes or the Income Tax Act, it shall be deemed that the head of a Si/Gun has imposed and notified the resident tax to be imposed and notified as well. Thus, the defendant of an appeal suit seeking the revocation of the disposition for imposition of local income tax of this case shall be the head of a Si/Gun having jurisdiction over the place for payment of the plaintiff’s income tax (see Supreme Court Decision 2004Du1

According to the purport of evidence No. 2-2 and all pleadings, the local income tax of this case is a resident tax subject to income tax under Article 172 of the Local Tax Act. As long as the imposition and notice of the local income tax of this case against the Plaintiff on April 1, 2011 is deemed to be a imposition and notice by the head of a Si/Gun having jurisdiction over the place of payment of income tax under Article 177-4(5) of the Local Tax Act, the other party to the appeal seeking revocation of the disposition imposing local income tax of this case shall be the head of Yangcheon-gu having jurisdiction over the place of payment of the Plaintiff’s income tax.

Therefore, among the instant lawsuits, the part seeking revocation of the imposition of local income tax of this case is unlawful as it is against a person who is not qualified as the defendant.

3. Whether the disposition imposing global income tax of this case is lawful

A. The plaintiff's assertion

1) Claim that the mileage in this case does not constitute taxable income under the Income Tax Act

Since the so-called listing method of the Income Tax Act was selected, income other than the type prescribed in the Income Tax Act is excluded from taxable income. This case's mileage not only does not fall under the income subject to taxation listed in the Income Tax Act, but also is provided to the plaintiff by a reasonable business judgment of a credit card company. However, the defendant's disposition imposing the global income tax of this case is unlawful on the premise that the drug wholesaler of this case constitutes the sales incentive paid to the plaintiff by using the credit card company as the payment incentive for the credit card company.

(ii) argument that it is an unlawful disposition contrary to the equity of taxation.

Despite the fact that the mileages or points that a business operator other than a pharmacist pays materials costs by credit card and receives from a credit card company are not subject to taxation, the Defendant’s disposition imposing global income tax of this case, including taxable income, is against the principle of equity.

3) The assertion that it is an unlawful disposition contrary to non-taxable practice and good faith principle

Before the instant global income tax imposition disposition against the Plaintiff, the tax authority did not impose income tax or corporate tax on points or mileages received by credit card users, and the taxpayer also trusted that the mileage, etc. is not subject to taxation. Ultimately, without revising the relevant statutes, the instant global income tax imposition disposition, including the instant mileage, is unlawful in violation of such non-taxation practice and good faith.

B. Determination

1) As to the allegation that the mileage in this case does not constitute taxable income under the Income Tax Act

A) Facts of recognition

(1) On January 19, 2009, the Daegu Bank Co., Ltd. (hereinafter “Tgu Bank”) concluded a special agreement on the issuance of the exclusive drug purchase card (hereinafter “instant special agreement”), which is a drug wholesaler that trades with the Plaintiff, and the main content thereof is as indicated in the list of the special agreement on the issuance of the exclusive drug purchase card.

(2) On August 2009, pursuant to the instant special agreement, tiny medicine recommended the Plaintiff to the Daegu Bank as a member of the said purchase-only card. On the recommendation of tiny medicine, the Plaintiff entered into an agreement with the Daegu Bank on August 2009 to enter into a credit card member agreement with the said card member agreement, and entered into an additional agreement with the said card member agreement to enter into a purchase-only card with the said tiny drug to purchase goods from the said tiny drug and pay the price therefor, and tiny medicine jointly and severally guaranteed the obligations owed by the Plaintiff to the Daegu Bank in accordance with the said credit card member agreement.

(3) Meanwhile, the Plaintiff subscribed to the said Hyundai Card upon the recommendation of the employees of the Shin Youngdong Pharmaceutical Co., Ltd. (hereinafter “FFC”) and the original medicine Co., Ltd. (hereinafter “original medicine”). At the time, when the Plaintiff pays the purchase price of the said Hyundai Card, 3% of the purchase price may be accumulated from Hyundai Card Co., Ltd. (hereinafter “NF”) as a points. However, this was a structure that, in turn, the Plaintiff was able to receive 3.5% of the purchase price from Hyundai Card Co., Ltd. (hereinafter “NF”) and the Hyundai Card Co., Ltd. was able to pay the purchase price of the said Hyundai Card.

(4) The above SCC and Hyundai Card can only purchase drugs with an exclusive payment card for the purchase price of drugs, and it is impossible for general franchise stores to use them.

[Ground of recognition] Unsatisfy facts, Eul evidence Nos. 1, 2, 10, and 11; the result of the inquiry inquiry of Daegu Bank Co., Ltd. and Hyundai Card Co., Ltd.; the purport of the entire pleadings

B) Determination

In light of the following circumstances revealed through the facts recognized earlier and the purport of the entire pleading, the instant mileage constitutes the Plaintiff’s business income with the “amount of bounty and other similar nature” as stipulated in Article 51(3)2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010; hereinafter “Enforcement Decree of the Income Tax Act”) that the Plaintiff paid to the Plaintiff, while selling the pertinent drugs. Therefore, this part of the Plaintiff’s assertion is without merit.

(1) If the Plaintiff pays the purchase price of a pharmaceutical product by non-franchising card, the tin medicine shall pay approximately 3.5% of the settlement amount to the Daegu Bank as the franchise fee, and the Daegu Bank provided 3% of the settlement amount to the Plaintiff as a mileage or groding point. The grosing point provided to the Plaintiff is provided according to the membership capital percentage accumulation rate as determined by the instant special agreement entered into with the Daegu Bank in accordance with the instant special agreement. As long as the grosing point’s burden pursuant to the said special agreement is not the Daegu Bank, the actual provider of the frosing point out of the instant mileage is not the Daegu Bank. In addition, in the case of the modern card, the actual provider of the frosing point is the tin medicine, not the Daegu Bank.

(2) Since the above non-scam cards and modern cards are those available only for the purchase of medicines, the amount of the mileage of this case offered to the Plaintiff shall be proportional to the amount paid by drug wholesalers, such as tinb drugs, to Daegu Bank and Hyundai Card Companies as a franchise store fee.

(3) In full view of the following facts: (a) if a drug wholesaler, such as tin aids, did not pay a franchise fee of approximately 3.5% of the payment for the settlement, or did not bear a capital white point, the Daegu Bank, Hyundai Card Company, appears to have failed to provide the Plaintiff with mileage or points equivalent to 3% of the payment for the settlement; (b) the accumulation rate of up to 3% is considerably higher than the accumulation rate of other general credit cards; and (c) the issuance of the Daegu Bank without recommendation of tin medicine is not possible; and (d) the amount equivalent to approximately 3.5% of the payment for the settlement paid to the Daegu Bank, Hyundai Card Company, and the amount equivalent to 3.5% of the payment for Hyundai Card Company, as a franchise fee, shall be deemed to be part of the franchise fee, and the remainder is deemed to be the amount equivalent to the actual amount of the grant that the drug wholesaler, such as tin aids medicine, pays to the Plaintiff.

2) As to the assertion that it is an unlawful disposition against the equity of taxation

The fact that the actual provider of mileage in this case is a drug wholesaler, such as tin medicine, is the same as seen earlier. Thus, as long as the provider of mileage in this case is not a credit card company, the imposition disposition of global income tax in this case, including the income subject to taxation, cannot be deemed as an unlawful disposition against the principle of equity. Accordingly, the plaintiff's assertion on this part is without merit.

3) As to the assertion that it is an unlawful disposition contrary to non-taxation practice and good faith principle

Article 15 of the former Framework Act on National Taxes (amended by Act No. 911, Jan. 1, 2010; hereinafter “Framework Act on National Taxes”) provides that “When a taxpayer performs his/her duties, he/she shall do so in good faith.” Article 18(3) of the same Act provides that “after the interpretation of tax-related Acts or practices in tax administration has been generally accepted by taxpayers, any act or computation according to such interpretation or practices shall be deemed justifiable, and no tax shall be imposed retroactively by new interpretation or practices.” In order to establish the good faith principle or non-taxation practice as stipulated in Articles 15 and 18(3) of the Framework Act on National Taxes with respect to the tax-related acts of a tax authority, it means not only an objective fact that a taxpayer has not been imposed taxes on any matter for a long time, but also an intent not to impose taxes on such matter with knowledge that the tax authority may impose taxes on such matter, and it is unreasonable to interpret that the tax authority’s specific practices or practices, such as general practices, are not accepted by the taxpayer.

The mere statement of No. 4 by the defendant alone indicates externally the intention that the mileage of this case is not subject to taxation, and it is insufficient to recognize that the defendant was accepted as just by an unspecified general taxpayer, who is not the plaintiff, without any objection, to the extent that it is not unreasonable for the taxpayer to trust such interpretation or practice. The plaintiff's assertion on this part is without merit, since there is no other evidence to acknowledge it.

4. Conclusion

Therefore, the part seeking revocation of the disposition imposing local income tax of this case among the lawsuit of this case is unlawful, and thus, it is dismissed. The remaining claims are dismissed as it is so decided as per Disposition.

[Attachment 1] Special Agreement on Issuance of an Exclusive Drug Purchase Card: omitted

[Attachment 2] Relevant Statutes: omitted

Judges Cho Jong-ho et al. (Presiding Judge)