Seoul Administrative Court 2013Guhap9625 (23 August 2013)

The contents of a written confirmation based on a disposition of imposition shall not be taxed on the basis of it unless it is recognized that the contents of such written confirmation are reasonable and correct as taxation data.

The defendant's written confirmation of this case, which is the basis of each disposition of this case, shall not be taxed on the basis of this, unless it is recognized that the content thereof is reasonable and correct as taxation data.

Article 11 of the Value-Added Tax Act

2013Nu47094 Disposition of revocation of Disposition of Imposition of Value-Added Tax

Bank AAA, BB

○ Head of tax office

Seoul Administrative Court Decision 2013Guhap9625 decided August 23, 2013

April 10, 2014

May 15, 2014

1. Revocation of a judgment of the first instance;

2. The plaintiff BB's action shall be dismissed.

3. The Defendant’s imposition of value-added tax of KRW 4,175,720 for the first term portion of 2008 against Plaintiff AA Co., Ltd. on July 1, 2012, value-added tax of KRW 25,492,810 for the second term portion of 2008, value-added tax of KRW 7,624,940 for the first term portion of 209, and the imposition of KRW 33,768,350 for the business year of 2008 on July 2, 2012 shall be revoked.

4. The part arising between the Plaintiff BB and the Defendant out of the total litigation cost is Plaintiff BB and the Plaintiff’s Stock Association.

The part arising between the AA and the defendant shall be borne by the defendant.

The same shall apply to the order.

1. Purport of claim

A. Plaintiff AA: As set out in paragraph (3) of this Article.

B. Plaintiff BB: The Defendant’s notice of change in the income amount of KRW 279 million against Plaintiff BB on July 1, 2012 shall be revoked.

2. Purport of appeal

The judgment of the first instance shall be revoked. The same shall apply to the entries in the purport of the claim.

1. Circumstances of the disposition;

A. On September 5, 2006, the Plaintiff AAA (hereinafter referred to as the “Plaintiff”) was established on October 30, 2002 for the main purpose of real estate development consultation, etc., and CCC (hereinafter referred to as “CCC”) was established on October 30, 2002. At the time of the business year 2008, the Plaintiff Company’s shares were 40% of CCC, Plaintiff BBB’s 40%, and CCC representative director DD 20% respectively.

B. The Commissioner of the ○○○○○○ National Tax Service conducted a tax investigation with respect to the CCC from June 2012 to June 2010, 2012. In that process, “CCC received services from the Plaintiff, and then paid the service cost of KRW 220 million in 2008,000,000 in total, including KRW 59 million in 2009, and KRW 279,000,000 in total, including KRW 279,000,000 in total, and notified the Defendant of the confirmation document of DD (hereinafter “instant confirmation document”).

C. On July 1, 2012, the Defendant imposed corporate tax on the Plaintiff Company KRW 33,768,350 on July 2, 2012 (hereinafter “each of the instant dispositions”), and on July 1, 2012, the amount of dispute was assessed on Plaintiff Company KRW 4,175,720, value-added tax for the first term of 208, value-added tax for the second term of 2008, KRW 25,492,810, value-added tax for the first term of 2009, KRW 724,940, and KRW 33,768,350 for the business year of 208 (hereinafter “each of the instant dispositions”), and on July 1, 2012, the Defendant notified the change in the amount of income by disposing of the dispute amount as bonus to Plaintiff BB, the representative director of the Plaintiff Company, as a bonus.

(hereinafter referred to as "Notice of Changes in Income Amount of this case").

D. The Plaintiff Company filed an objection on August 21, 2012 regarding each of the instant dispositions, but was dismissed on September 27, 2012, and filed an appeal on November 8, 2012, but was dismissed on January 8, 2013.

Facts without any dispute over recognition, Gap evidence 1-1-4, Gap evidence 2-1, 2-2, Gap evidence 3-5, 10, Eul evidence 1-2, and the purport of the whole pleadings.

2. Whether the action by the plaintiffB is a legitimate law

A. As to whether the notice of change in the amount of income in this case is a disposition subject to appeal litigation

A notice of change in the amount of income to a corporation by a tax authority is an act of a customs authority directly affecting the tax liability of a corporation that is a withholding agent, which is subject to appeal litigation (see Supreme Court en banc Decision 2002Du1878, Apr. 20, 2006). However, the notice of change in the amount of income in this case cannot be deemed as a tax administrative disposition that is subject to appeal litigation for the following reasons.

1) In accordance with the proviso of Article 192(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010; hereinafter the same applies), even if the tax authority notifies the person to whom the income belongs of the change in the income amount, if the tax authority originally disposes of the income without any reason, it constitutes "the amount disposed of as bonus under Article 20(1)1 (c) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009)" and the income amount is subject to taxation of wage and salary income tax. Since the date of providing labor during the pertinent business year in which the tax was imposed (Article 49(1)3 of the former Enforcement Decree of the Income Tax Act; hereinafter the same shall apply), the global income tax liability of the person to whom the income accrued belongs (tax income) can be established by notifying the person to whom the income belongs of the global income tax return under Article 19(1)1)1 of the former Framework Act (amended by Act).

2) According to Article 134(1) of the former Enforcement Decree of the Income Tax Act, an additional tax imposed as a sanction for failure to pay the tax on income resulting from a change in the disposal of income after the lapse of the statutory due date of global income tax base may be calculated from the day following the end of the month following the month in which the notice of change in the amount of income, which is the statutory due date of tax payment, is received. However, the above provision is not related to the establishment of the global income tax liability of the person to whom the income accrued, but it is based on the policy consideration that it is harsh to impose an additional tax on the period already passed even if the person to whom the income accrued could not anticipate the result of the return of change in the amount of income after the due date of the final return of global income tax base, and thus, it cannot be said that the said provision affects the nature of

3) Considering the above points, the notification of change in the amount of income on the person to whom the amount of income accrued out of the company belongs cannot be deemed to affect the existence or scope of the person to whom the amount of global income tax belongs by itself. Furthermore, in cases where a taxpayer voluntarily files and pays an additional return within the statutory additional payment deadline, he/she may separately claim revocation of a correction request or a disposition rejecting the correction of the global income tax against the competent tax authority. In light of the fact that a taxpayer may directly claim revocation of the disposition imposing global income tax on the tax authority because the taxpayer fails to report and pay the additional tax within the statutory additional payment deadline, even in cases where the tax authority imposes a disposition imposing global income tax on the person to whom the amount of income accrues, it cannot be deemed that the notification of change in

B. As to whether a previous trial procedure had been completed

On the other hand, there is no evidence that the plaintiff BB had gone through a prior trial procedure on the notice of change in the income amount in this case.

C. Sub-decision

Therefore, the Plaintiff BB’s lawsuit claiming the revocation of the notice of the change in the income amount of this case is unlawful as it is filed without going through the necessary pre-trial procedure on the premise that the notice of the change in income amount of this case is

3. Whether the imposition disposition against the plaintiff company is a law;

A. The plaintiff company's assertion

The Plaintiff Company concluded a service agreement with the EE Exchange (hereinafter referred to as the “local subsidiary”) of the CCC, but did not receive the service payment from the CCC, and settled the loan amount with the CCC once it borrowed the operation fund from the CCC and paid the service payment from the local subsidiary. The Plaintiff Company did not provide services to the CCC, and the instant confirmation document drawn up by the CCC representative director DD was written in an inaccurate manner, and thus, the Defendant’s each disposition of this case based on this is unlawful as it misleads the premise.

B. Facts of recognition

1) Around 2006, CCC established a local subsidiary in order to implement the ○○ Building Construction Project (other, CCC around that time established two (2) and (2) EE personal, AlcCC, etc. Around September 2006, the Plaintiff Company and its subsidiary entered into a business management service agreement with the Plaintiff Company to provide its subsidiaries with services such as organization and dispatch of personnel, etc. for the implementation of the project, and payment of service fees to the Plaintiff Company by the 20th day of each month.

2) The Plaintiff Company received each transfer of KRW 4,86,80 on May 9, 2007, KRW 21,552,297 on June 5, 2008, and KRW 48,610,106 on August 5, 2009 from the Plaintiff Company (However, remittance as of June 5, 2008 was made in the name of AlCC, and remittance as of August 5, 2009 was made in the name of EE personal name, respectively. The reason is that the Plaintiff Company received KRW 5,86,80 on May 34, 207, from the Plaintiff Company’s local corporation due to business depression, and was paid KRW 21,52,297 on June 5, 2008 to the Plaintiff Company by temporarily lending the service payment to the Plaintiff Company. Meanwhile, the Plaintiff Company received the money from ○○○,000,000,000 from 23,235,000.

The Plaintiff Company entered the income arising from service transactions with its subsidiaries into the "consultable revenue and loss statement", reported it as sales at the time of filing a corporate tax return, and reported it as value-added tax base in 2008, and reported the amount of KRW 423,719,12 in total for the first and second years in 208, and KRW 87,519,960 in 209 (However, the tax rate shall be zero-rate).

3) The details of the amount deposited by the Plaintiff Company from September 28, 2006 to March 25, 2009 and the amount paid to theCC are as follows.

4) CCC made a lot of payments to the Plaintiff Company around the 25th day of each month. The Plaintiff Company paid the Plaintiff Company’s pay to the Plaintiff Company’s representative director BB and staff 00, and the wages of daily employed workers.

After receiving 34,866,800 won from the local subsidiary on May 9, 2007, the Plaintiff transferred 35,000,000 won to CCC on the same day. On June 5, 2008, the Plaintiff transferred 621,552,297 won from the local subsidiary to CCC on the same day, and then transferred 621,550,000 won to CCC on the same day. On August 5, 2009, the Plaintiff used 48,610,106 won transferred from the local subsidiary as operating funds of the Plaintiff Company.

The replacement table of the CCC states that the amount paid by CCC to the Plaintiff Company is a short-term loan, and the replacement table of the Plaintiff Company states that the Plaintiff Company paid money to CCC was repaid for the short-term loan.

5) In the course of the CCC’s tax investigation with respect to the CCC, the CCC’s representative director DD on November 3, 201, as indicated in the table in paragraph (3) above, prepared and submitted a written confirmation that the CCC borrowed funds to the Plaintiff Company and received reimbursement by June 5, 2008 (hereinafter referred to as “loan No. 6; hereinafter referred to as “B”), and each of the deposits and the CCC on May 26, 2008 attached thereto stated the amount paid to the Plaintiff Company as a loan.In addition, DD was provided by the Plaintiff Company with the service (i.e., review of business nature, establishment of plans, and document preparation) and submitted a written confirmation that the service payment was not made at the time of the report, and the Defendant did not submit the written confirmation that the service payment was made at the time of the report.

6) After that, on October 24, 2012, DDR loaned 270 million won to the Plaintiff Company from June 26, 2008 to March 25, 2009, to the effect that all services provided by the Plaintiff Company to the Plaintiff Company are not provided to CCC, and that it is not sufficient for CCC to pay service costs to the Plaintiff Company, and that CCC loans 200 million won to the Plaintiff Company from June 26, 2008 to March 25, 2009, and that it prepares and submits a written confirmation (Evidence No. 13) to the Plaintiff Company.

On June 21, 2013, the court of first instance appeared as a witness and testified to the effect that "the party who provided the service to the plaintiff company is notCCC, but the party who provided the service to the plaintiff company is a local subsidiary. Since CCC and the subsidiary are related companies, the plaintiff company made a mistake in making the confirmation of this case by mistake on the ground that the work performed by the plaintiff company is widely considered as CCC, and since the financial condition of the subsidiary is not good, CCC lent operating funds to the plaintiff company, and the subsidiary paid the service fees to the plaintiff company to the plaintiff company, the plaintiff company

7) The director of the CCC’s accounting division stated that the CCC entered the daily revenue and expenditure of the funds in the service cost of the Plaintiff Company as the service cost (However, the above daily balance sheet was lost and not submitted as evidence). In this regard, ○○○ stated that the money paid by the CCC to the Plaintiff Company was an accurate loan to the Plaintiff Company. However, even though the money paid by the CCC to the Plaintiff Company was an accurate loan, it would be settled upon the return of the Plaintiff Company, so it was merely a statement that it was a service cost.

8) Since CCC did not entirely implement its own projects, such as construction projects, in 2008 and 2009, it did not receive services from the Plaintiff Company. There was no objective data that the Plaintiff Company entered into a service agreement between the Plaintiff Company and CCC or that the Plaintiff Company actually provided services to CCC. Moreover, there was no money loan agreement between the Plaintiff Company and CCC.

9) When the Plaintiff Company and CCC accounts for the amount of dispute as a loan (loan) compared to the case where it accounts for the amount of dispute as a service fee, the entire tax burden is not reduced.

Facts without any dispute over recognition, Gap's evidence 3, 7, Gap's evidence 8-1 through 3, Gap's evidence 9-1 through 6, Gap's evidence 10 through 13, Gap's evidence 14, 15-1 through 4, Gap's evidence 16-1, 2, Gap's evidence 17 through 19, Eul's evidence 1 through 8, the testimony of the witness DDD and judge of the first instance court, the inquiry results of this court's fact-finding on the 000 tax accountant of this court, the response of the director of the tax office's office's office's order to submit tax information, the whole purport of pleadings, and the whole purport of pleadings.

C. Determination

1) Generally, in cases where the contents of a taxpayer’s tax base and amount of tax are corrected by mistake or omission, such as the taxpayer’s tax base and amount of tax, it shall be based on other data, but where it is recognized that there are errors or omissions in the contents of the return and where it is possible to conduct a field investigation, other data may also be corrected by such other data. Meanwhile, the data produced in the course of investigation or tax investigation shall be deemed as one of the other data because there are grounds that can serve as the basis for taxation. However, in cases where the content and contents of the preparation are not prepared against the free will of the parties or related persons, and where it is recognized as reasonable and correct as taxation data, such other data may be deemed as one of the basis for the field investigation (see Supreme Court Decision 2006Du16137, Oct. 26, 2007).

2) In light of the following circumstances, based on the evidence and facts revealed as seen earlier in the instant case, it is difficult to deem that the instant confirmation document that the Defendant used as the basis for each of the instant dispositions is a duty data and thus, it cannot be recognized that the content thereof is reasonable and correct, and thus, it is difficult to deem that the amount of dispute was paid as service payment. Rather, it is reasonable to deem that the amount of dispute was the amount borrowed from

A) The Plaintiff Company entered into a service agreement with the Plaintiff Company and received part of the service fees, and filed a value-added tax base, etc. on this, while there was no objective data that the Plaintiff Company entered into a service agreement with the Plaintiff Company, or that the Plaintiff Company actually provided the services to the CCC.

B) From September 28, 2006 to March 25, 2009, the CCC paid money to the Plaintiff Company. The Plaintiff Company used the said money for operating funds and then transferred the service payment from the subsidiaries to the CCC immediately. In this regard, the Plaintiff Company and CCC accounted for all the overpaid money as a loan (loan). In the course of the tax investigation, DCC prepared and submitted a letter of loan confirmation that CCC paid money to the Plaintiff Company before June 5, 2008, and the Defendant also recognized it. However, there are no objective data or circumstances to deem that the said money was paid after June 26, 2008, and rather, it is reasonable to view that the said money was paid as a whole in light of the purpose of accounting and accounting, etc.

C) Although the Plaintiff Company and CCC did not either prepare a monetary loan agreement nor receive interest on the loan, in light of the fact that the Plaintiff Company is a subsidiary company of CCC and the evidence remains as a result of monetary transfer, it is difficult to deem that the dispute is not a loan solely based on the above circumstances.

D) In a situation where the accounting of the dispute amount as a loan, not a service price, cannot be deemed favorable for the Plaintiff Company andCC in terms of tax burden, it is difficult to view that the Plaintiff Company and CCC accounted for the amount of false dispute as a loan.

E) In light of such objective circumstances, the Plaintiff’s assertion to the effect that “the Plaintiff Company borrowed temporary operating funds from CCC and paid the service fees from CCC, which would have been paid to the Plaintiff Company, appears to have credibility, and that the content of the instant confirmation that “the amount of dispute was received as the service fees between the Plaintiff Company and CCC,” and the content of the daily table that “the amount of dispute was prepared and kept by leap beneficiary,” is merely an inaccurate statement without exactly distinguishing the transaction relations between the parties in light of the relationship between the Plaintiff Company and CCC and the subsidiaries, and it is not consistent with objective facts.

3) Sub-determination

Therefore, each of the dispositions of this case on the premise that the dispute amount is the service payment amount is illegal, and thus all of the dispositions of this case should be revoked.

4. Conclusion

Thus, the plaintiff BB's lawsuit is dismissed as illegal and all of the claims of the plaintiff company should be accepted as reasonable. The judgment of the court of first instance is unfair as it is so unfair, and it is dismissed as the lawsuit of the plaintiff BB is dismissed, and each disposition of this case is revoked, and it is so decided as per Disposition.

3. Conclusion

Thus, the plaintiff's claim is justified, and the judgment of the court of first instance which has different conclusions is unfair, so it is revoked, and it is so decided as per Disposition by cancelling the disposition of this case.