Supreme Court-2015-Du-6084 ( September 21, 2017)

Cho-2011-S-0239 ( October 18, 2013)

If a corporation has taken the form of remuneration in order to divide the profits of the corporation, the same bonus subject to non-deductible losses as the disposition of profits shall be the same as the substance.

When considering all the circumstances, such as subjective intent to unreasonably reduce corporate income, if the relevant remuneration has taken the form of remuneration to distribute profits reserved by the corporation, it is identical to the bonus subject to non-deductible loss as a disposition of profits, and its substance are the same, so it shall not be included in the loss pursuant to Article 43 of the Enforcement Decree of the Corporate Tax Act.

Article 43 of the Enforcement Decree of Corporate Tax Act

2017Nu73923 Revocation of Disposition of Corporate Tax Imposition

Law Firm ○

○ Head of tax office

Seoul Administrative Court Decision 2013Guhap5147 decided May 22, 2015

Seoul High Court Decision 2015Nu46552 Decided December 10, 2015

Supreme Court Decision 2015Du60884 Decided September 21, 2017

April 4, 2018

May 16, 2018

1. Revocation of a judgment of the first instance;

2. All of the plaintiff's claims are dismissed.

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

1. Purport of claim

On October 0, 2010, the defendant revoked the disposition of imposition of corporate tax of 000 won (including additional tax), corporate tax of 2007 business year of 2007 (including additional tax), corporate tax of 0000 won (including additional tax), corporate tax of 2008 business year of 2008, and corporate tax of 000 (including additional tax) for the business year of 2009 (including additional tax) (in addition to the above claims, the plaintiff filed a claim for revocation of the disposition of imposition of corporate tax of 000 won (including additional tax) for the business year of 2005 business year of 2005, and the decision of this court prior to remand was made by the Supreme Court,

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff was established on October 0, 200 for the purpose of credit business (including consumer financing and corporate financing) and registered for credit business on October 0, 2002. The Plaintiff paid KRW 00 billion each year to AA, who is a single shareholder and director (it is a representative director from October 0, 2006 to October 0, 2006) from 206 business year (from October 0, 2005 to October 0, 2006) to 2009 business year (including from October 0, 2008 to October 0, 2009).

B. On October 0, 2010, the Defendant notified the Plaintiff of the correction and notification of the corporate tax (including additional tax), 000 won for the business year 2007, corporate tax (including additional tax), and 000 won for the business year 2008, corporate tax (including additional tax) for the business year 2008, and 000 won for corporate tax (including additional tax) for the business year 2009 (hereinafter “each of the instant dispositions”).

C. On October 0, 2010, the Plaintiff filed an appeal with the Tax Tribunal, and the Tax Tribunal dismissed the Plaintiff’s appeal on October 0, 2013.

2. Whether each of the dispositions of this case is legitimate

(a) Quotation of judgment of the first instance;

The reasons for this part of this Court are as follows: (a) the corresponding part of the reasons for the judgment of the court of first instance (from the last 0 to the 0th eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth e.g.).

B. Parts to be dried or added

○ The Defendant’s first instance court shall add “the first instance court” to “the first instance court” in the fourth and seventh sentence.

○ The 15th parallel 13 to 17th parallels shall be followed as follows:

4) Whether bonuses are subject to non-deductible losses

A) According to Articles 19(1) and 20 subparag. 1 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter the same), the amount appropriated as losses from the disposal of profits shall not be included in the calculation of losses in principle. Article 26 subparag. 1 of the Enforcement Decree of the Corporate Tax Act provides that personnel expenses shall not be included in the calculation of losses for the purpose of calculating the amount of income of a domestic corporation for each business year, and Article 43(1) of the Enforcement Decree of the Corporate Tax Act provides that "the bonus paid by a corporation to its officers or employees by the disposal of profits shall not be included in the calculation of losses."

In light of the language and text of the above provisions and the legislative intent of Article 26 of the former Corporate Tax Act and Article 43 of the Enforcement Decree of the Corporate Tax Act to prevent unfair reduction of corporate income, etc., remuneration paid by a corporation to an officer who is a controlling shareholder (including its specially related officer) shall be deemed as remuneration in the calculation of losses, in full view of all the circumstances, including the proportion and scale of the corporation’s operating income in order to prevent unfair reduction of corporate income, there is a significant gap between the remuneration of other executives in the relevant corporation or in the same industry, possibility of continuous and continuous payment, possibility of increase or decrease of remuneration, relationship between the increase or decrease of remuneration, payment of dividends to other shareholders, and subjective intent to unfairly reduce corporate income, etc.

In addition, in light of difficulties in proof or the concept of fairness, if the above circumstances are proved to a considerable extent, the entire amount of remuneration should be regarded as subject to non-deductible expenses, and the fact that the above remuneration includes part of the cost of performing duties and the part is subject to inclusion in deductible expenses need to be easily proved by a taxpayer who is liable to submit detailed data on the calculation process of remuneration or its composition.

B) The following facts may be acknowledged either as seen earlier, or as being in dispute between the parties, or as being in full view of the purport of the entire pleadings in each entry in Eul evidence No. 0 and Eul evidence No. 0.

(1) The Plaintiff was established on October 0, 2002 and operated a credit business. AA is a single shareholder and a representative director (the director before October 0, 2006) of the Plaintiff.

(2) The Plaintiff paid AA remuneration of not more than KRW 0 million per month, and paid KRW 0 billion per year from January 2005 to October 0, 2005, including an increase of KRW 0 billion per month during the business year 2005 (from October 0, 2004 to October 0, 2005). From 2006 to 2009, the Plaintiff paid KRW 0 billion per year.

(3) The Defendant imposed corporate tax for the business year from October 2005 to 2009 on the grounds that the Plaintiff’s payment of the instant benefits to AA from 2005 to 2009 was excessive, on the grounds that the Plaintiff did not include the benefits paid in excess of the average amount of the representative director’s benefits paid to the same company among the 00 representative directors of the same company with higher representative directors, and imposed corporate tax for the business year from 2005 to 2009. In addition, the disposition of imposing corporate tax for the business year from 2006 to 2009 was revoked ex officio on October 201, 201 after remand.

C) Examining the following circumstances in light of the aforementioned legal principles, the benefits of this case paid to AA from 2006 to 2009 are the form of remuneration in order to allocate profits reserved to a corporation rather than a normal price for the representative director’s performance of duties, and thus, constitute the disposition of actual profits, and thus, constitute the disposition of non-deductible losses.

(1) As one shareholder from the time of establishment of the Plaintiff, AA is in a position of freely setting his/her remuneration in the Plaintiff Company as a representative director (a director before October 0, 2006), and unlike other executives, there is no fact that the annual salary contract with which the elements of remuneration, such as basic pay and allowances, are set out.

(2) The ratio of the remuneration of AA out of the Plaintiff’s operating income before deducting the remuneration for the business year 2005 through 2009 shall reach a approximately 00% to 00%, and the average depositee of the same kind of business shall be higher than 0% to 0%.

(3) The instant benefits amounting to approximately KRW 00,000,000 for the same period of time, which is the Plaintiff’s another representative director, BB, and directors’ remuneration (one million won per annum). Of the same kind of enterprises whose business size and the Plaintiff are similar, there are substantial differences between the average annual salary (a.e., KRW 00 million from around KRW 100,000) of the directors of the higher-class 0 enterprises.

(4) The AA’s remuneration was KRW 0 million per month until the business year 2004 where the business was proper, but the monthly remuneration was increased by 10 billion per month from October 2005 where the first operating income was generated and increased by 10 billion per month. Meanwhile, on the other hand, on October 0, 2005, which was the end of the business year 2005, the KRW 0 billion was set aside as separate remuneration without any particular reason, and a considerable portion of the monthly remuneration was actually paid after 10 years from the time when it was appropriated as personnel expenses.

(5) The Plaintiff did not pay dividends to shareholders once, despite a continuous increase in operating income since its establishment.

(6) According to the internal documents, etc. written by the Plaintiff’s employee, the Plaintiff stated to the effect that “the Plaintiff’s salary for the president who can not be paid is high” and compared and examined corporate tax according to the net income derived from the current net income per se and corporate tax according to the amount deducted by the representative director’s salary level. In light of the above, it seems clear that the Plaintiff’s subjective intent is to recognize the full remuneration of AA as deductible expenses and to impose corporate tax burden.

D) As to this, the Plaintiff may make efforts to secure the long-term and low-income funds in D countries by taking full charge of the Plaintiff’s financing business based on credit and personal relations created by AAA through its work experience and to provide joint and several sureties in personal capacity. Moreover, AA may develop a stable operation framework based on the loan company’s expertise and experience in the overall system and operation techniques, and thus, the entire amount of the instant benefits shall be included in deductible expenses as the price for the legitimate performance of duties of AA. Even if it is difficult to regard the entire amount of the instant benefits as the price for the performance of duties. Even if it is difficult to regard it as the price for the performance of duties, the Plaintiff asserts that the interest cost, bad debt depreciation cost, and advertisement cost incurred from the special contribution of AA, beyond the ordinary representative director’s function and role, should be included in deductible expenses, and that at least KRW 00 billion should be included in deductible expenses, and that the amount of the instant benefits should be reduced by the reduction of interest costs.

In full view of the overall purport of arguments in Gap evidence No. 0, Gap evidence No. 00, Gap evidence No. 00, Eul evidence No. 00, Eul evidence No. 00, Eul evidence No. 0, Eul evidence No. 00, Eul evidence No. 00, and Eul evidence No. 0, AA worked for a loan business entity located in the Gu of D State from Oct. 1984 to Oct. 2002. The plaintiff's organization was divided into the management support division, the business division, and the management division, but the division in charge of financing was not in existence separately. When the plaintiff borrowed funds for business purposes, the plaintiff's company, the creditor company, etc. was able to negotiate with the plaintiff to obtain loans to the plaintiff and to obtain loans from the loan business entity located in D State E.E. from Oct. 1, 1984 to Oct. 202, 202. The plaintiff's organization was also divided into the management support division, the management division, and it was extremely able for the plaintiff to establish A.

However, even according to the Plaintiff’s assertion, the maximum contribution of AB to be paid the instant benefits was superior to the other companies by stably securing long-term and low interest funds from DB. Comprehensively taking account of the Plaintiff’s respective evidence Nos. 0, 0-0, 0-0, and 0-2 of the Plaintiff’s establishment, the CCC and the representative director of BB were parents of AB, at the time of the tax investigation on Oct. 2, 2010, the BB representative director of BB was the director of the DB and the board of directors, and at the time of borrowing from DB, the Plaintiff did not have any other role in introducing and mediating BB from DB to its long-term experience and connection with the loan business in the DB. In light of the fact that CCC directors were unreasonable in engaging in credit business for a long period of time, and that CB had no more evidence to obtain advice from the 0-year representative director and advice from the 0-year representative of the DB.

In addition, even if the Plaintiff’s interest cost, bad debt depreciation cost, and advertising expenses are considerably lower than the average expenses of the industry as alleged by the Plaintiff, it is insufficient to confirm that the difference was caused by the entire AAA’s special contribution exceeding the ordinary director or representative director of the industry in the course of performing his/her duties, and there is no other evidence to recognize the difference.

Ultimately, even if the Plaintiff, a new-employed company, contributed a considerable amount to the Plaintiff through financing and the transfer of old-age based on the experience in the former lending company’s work, as alleged by the Plaintiff, it is difficult to view that the entire amount of the instant benefits is the price for the performance of duties of the AA, or, among them, the interest cost, bad debt depreciation cost, advertisement cost amount, or the amount equivalent to the interest cost, which was reduced compared with the industry’s average cost, as alleged by the Plaintiff, is the price for the performance of duties of the AA.

E) Therefore, each of the instant dispositions, which did not include the bonus subject to non-deductible expenses in deductible expenses pursuant to Article 43 of the Enforcement Decree of the Corporate Tax Act on the ground that the salary paid in excess of the average amount of the representative director’s salary for the same kind of loans among the 00 benefits of the instant case is the same as the bonus subject to non-deductible expenses, and its substance is the same.

3. Conclusion

Thus, all of the plaintiff's claims of this case seeking the revocation of each disposition of this case are dismissed as it is without merit, and the judgment of the court of first instance differs from this conclusion, so the defendant's appeal is accepted, and the judgment of the court of first instance is revoked and all of the plaintiff's claims are dismissed.