Whether it is against the principle of fair taxation to accept the total amount of the processing purchase as deductible expenses.

In the event that the processing purchase amount is deductible expenses, it cannot be required to prove that there is no other actual cost corresponding to the processing purchase amount without any omission, and the fact that the processing purchase amount is false as much as the processing purchase amount alone cannot be deemed as satisfying the requirements for the estimation investigation.

Article 66 of the Corporate Tax Act and its rectification

1. The plaintiff's claim is dismissed.

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

The defendant's disposition of imposing corporate tax of KRW 30,243,400 for the business year of 2001 against the plaintiff on December 19, 2005 and the disposition of notifying the change of income amount of KRW 110,375,100 for the business year of 201 shall be revoked.

1. Details of the disposition;

A. The Plaintiff, a corporation that runs a waste oil refining business, waste oil recycling business, etc., received a purchase tax invoice, which is a total of 100,341,000 supply value from ○ Petroleum Co., Ltd. without a real transaction during the business year 2001, and reported and paid corporate tax for the business year 2001 by including the above supply value in deductible expenses.

"B. When the defendant was notified by the head of ○○○ Tax Office of the fact that the above purchase tax invoice was false purchase tax invoice without real transactions, he did not include 100,341,000 won in deductible expenses, and imposed corporate tax of 30,243,400 won on the plaintiff on December 19, 2005, and imposed corporate tax of 110,375,100 won in total, including the processed purchase amount and the value-added tax thereon, as bonus for the representative director, and notified the plaintiff of the change in the amount of income (hereinafter collectively referred to as the "disposition in this case"). The fact that there is no ground for recognition, each entry in the evidence in subparagraphs B through 4, and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) Although the Plaintiff received a false purchase tax invoice without a real transaction and filed a corporate tax return by including the processed purchase amount in deductible expenses, it cannot be entirely excluded from deductible expenses, and the Defendant shall impose corporate tax based on the determination of the Plaintiff’s actual income through the on-site investigation. Nevertheless, the Defendant’s ratio of the Plaintiff’s total income to the amount of total revenue is 12.6% on the wind that does not include the processed purchase amount in deductible expenses without a field investigation on the Plaintiff’s income. Rather, the Defendant exceeds 8.1% of the standard income ratio for the year 2001, applicable to the case where the Plaintiff is engaged in a closed oil recycling business, such as the Plaintiff, but fails to meet books and evidential documents, thereby resulting in the Plaintiff’s faithful performance of the bookkeeping duty, which goes against the principle of fair taxation.

(2) The Plaintiff is engaged in waste oil recycling business and therefore, it is necessary to purchase fuel, which is a raw material. If necessary expenses are apparent in light of the empirical rule, it is against the empirical rule to deem that there is no necessary expense on the ground that there is no proof of the taxpayer or it is insufficient to prove or prove that there is no other actual cost corresponding to the processed purchase amount. Thus, even if the Plaintiff did not assert or prove that there is any other actual cost corresponding to the processed purchase amount, the Defendant should prove that the amount is within the scope that can be calculated by the method of on-site investigation or in the event that it is impossible to conduct a field investigation, and it is necessary to prove that the Plaintiff needs to prove it only when the Plaintiff claims necessary expenses. However, the Defendant did not confirm the Plaintiff’s actual income through on-site investigation

B. Relevant statutes

It is as stated in the "attached Table"-related statutes.

(1) As to the assertion that determining the amount of income higher than the estimated income without a field investigation goes against the principle of fair taxation.

(A) When the chief of the district tax office or the director of the regional tax office having jurisdiction over the place of tax payment determines or revises the tax base and tax amount of the pertinent year, he shall based on account books and other documentary evidence (the main sentence of Article 66(3) of the Corporate Tax Act), and comprehensively considering the purport of the arguments in the items of evidence Nos. 1, 2, and 4 through 7, the defendant shall based on the plaintiff's balance sheet, income statement, manufacturing cost statement, and other documentary evidence: Provided, That in the disposition of this case, the defendant may recognize the fact that the plaintiff received a false purchase tax invoice from ○○ Petroleum Co., Ltd., which is identified as material and excluded it from deductible expenses and added it to deductible expenses, thereby correcting the plaintiff's corporate tax base and tax amount. Thus, the disposition of this case is a tax assessment by the on-site investigation (in such case, the defendant cannot be demanded to prove that there is no other actual cost corresponding to the processed purchase amount without any omission. Thus, as seen later by the plaintiff, the plaintiff must assert and prove

(B) Meanwhile, the standard income rate is exceptionally permitted only when there is no taxpayer’s account books and documentary evidence, etc. which are the basis for the determination of the tax base and the amount of tax, or when there is no other method by which the tax authorities can disclose the actual amount of income, and thus, even if there is any portion of the books and documentary evidence kept and recorded by the taxpayer, it shall not be deemed that the tax base can be calculated based on the basis of the method of an on-site investigation if it is clearly consistent with all facts, even though the portion of the books and documentary evidence kept and recorded by the taxpayer is included in the proviso of Article 66(3) of the Corporate Tax Act, each subparagraph of Article 104(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17457, Dec. 31, 2001); and the taxation disposition by the on-site investigation is more unfavorable than that by the method of an on-site investigation or it is conducted by the method of an on-site investigation by the taxpayer itself.

In this case, since only the amount corresponding to the processed purchase amount based on false purchase tax invoices kept by the plaintiff was excessively appropriated, the above processed purchase amount can be calculated by means of a field investigation by excluding only the above processed purchase amount as deductible expenses. Thus, the mere fact that the processed purchase amount in this case was falsely recorded cannot be deemed as satisfying the requirements for the estimation investigation. In addition, even if the corporate tax was corrected by a field investigation, even if the tax burden increased more than that due to the estimation, it shall be deemed that the plaintiff received false purchase tax invoice from the material and included it in the deductible expenses, but it shall be deemed that the plaintiff himself, who is in a position of easy for the defendant to present the supporting material as to the actual cost corresponding to the processed purchase amount, did not prove the actual cost. Therefore, this part of the plaintiff's assertion is without merit.

(2) As to the assertion that a taxpayer is liable to prove only when claiming a smaller amount of income than estimated income

In determining or correcting the tax base and amount of tax by the taxpayer’s account books and other documentary evidence, inasmuch as the tax authority asserts that the taxpayer’s use of the expenses claimed by the taxpayer and the other party to the payment of the expenses were false, and that there was a fact that there was a cost of other authorization than the same amount while the taxpayer did not incur any expense according to the details of the report, it is necessary to prove that it is easy for the taxpayer to present the account books and documentary evidence regarding the existence and amount of the reported expenses and all other materials, such as the fact that the taxpayer reported, to present the account books and documentary evidence about the specific cost disbursement (see Supreme Court Decision 94Nu3407, Jul. 14, 1995).

As seen earlier, the fact that the Plaintiff received a false purchase tax invoice from ○○ Petroleum Co., Ltd., which was identified as data and included the amount of the processed purchase in deductible expenses, but denied the amount of the processed purchase price as deductible expenses by the Defendant is identical to the above facts. As to the fact that there is an actual expense equivalent to the above processed purchase amount, the Plaintiff has to assert and prove it. However, there is no assertion or proof by the Plaintiff, and further, the Defendant did not exclude the Plaintiff’s expenses for the pertinent business year from deductible expenses only for the portion corresponding to the processed purchase amount, not for the whole amount of the expenses of the Plaintiff’s business year.

3. Conclusion

Therefore, the plaintiff's claim of this case is without merit and it is so decided as per Disposition.

Related Acts and subordinate statutes

1. Corporate Tax Act;

Article 66 (Settlement and Correction)

(2) Where a domestic corporation files a report under Article 60 in any of the following cases, the head of the district tax office having jurisdiction over the place of tax payment or the Commissioner of the competent Regional Tax Office shall correct the tax base and

1. Where there are errors or omissions in the contents of the report;

(3) Where the head of the district tax office having jurisdiction over the place of tax payment or the Commissioner of the competent Regional Tax Office determines or revises the tax base and amount of corporate tax pursuant to paragraphs (1) and (2), he shall make it based on the account books and other documentary evidence: Provided, That where it is impossible to calculate the amount of income using account books

2. The former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17457 of Dec. 31, 2001)

Article 103 (Settlement and Correction)

(2) The determination or correction under the provisions of Article 66 of the Act shall be based on the spot inspections of the report under the provisions of Article 60 of the Act and the attached documents or account books kept on record and other documentary evidence.

Article 104 (Estimated Decision and Revision)

(1) The term "the period of interest specified by Presidential Decree" in the proviso to Article 66 (3) of the Act means the following cases:

1. Where necessary account books or documentary evidence in the calculation of the income amount do not exist or important parts are incomplete or false;

2. Where the contents of the entry are obviously false in light of the scale of the facility, the number of employees, and the market price of raw materials, commodities, products, or various charges;

3. Where the contents of the bookkeeping are obviously false considering the quantity of raw materials used, electric power used and other operational conditions.

(2) The estimation, determination or correction under the proviso to Article 66 (3) of the Act shall be made by the method falling under any of the following subparagraphs:

1. The method of determining or revising the tax amount using the amount of the business revenue amount multiplied by the standard income rate under the provisions of Article 145 of the Enforcement Decree of the Income Tax Act (hereinafter referred to as the “standard income rate”). In this case, where the amount of the salary paid to the representative exceeds the amount of the business revenue amount of the corporation multiplied by the standard income rate, the amount in excess shall be deemed not to exist; and

2. Where the standard income rate has not been determined or the account books and other documentary evidence are destroyed or lost due to a natural disaster or other force majeure, the method of determining or revising the relevant tax base in consideration of the income amount of other corporations of the same business type in which the account books are deemed to be the most correct: Provided, That where there exists no other corporation of the same business type, and where the account books and other documentary evidence are destroyed or lost after the tax base return, the return and the attached documents provided for in Article 60 of the Act shall be made, and