Daeyang Industrial Development Co., Ltd. (Law Firm Dui, Attorney Park Tae-soo, Counsel for the plaintiff-appellant)

High Court Decision 201Na1446 decided May 1, 201

October 5, 2016

Suwon District Court Decision 2015Guhap7833 Decided January 19, 2016

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

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

1. Purport of claim

The defendant's rejection disposition of correction of KRW 109,387,336 of corporate tax for the business year 2009 against the plaintiff on May 8, 2013 is revoked.

2. Purport of appeal

The same shall apply to the order.

1. Partial citement of judgment of the first instance;

The reasoning of the judgment of the court of first instance is as follows: (a) the plaintiff's assertion, (b) the relevant Act and subordinate statutes (from 2, 5, to 3, 2) shall be dismissed as follows; (c) Article 2-3 (6) (from 3, 6, 7) shall be used as follows; and (c) Article 8 (2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act shall be cited as the grounds for the judgment of the court of first instance except for addition of the judgment referred to in paragraph (3). As such, the judgment shall be cited in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of

From 2, 00 up to 12 parallels are as follows:

A. From January 208 to December 31, 2008, the Plaintiff newly constructed and sold apartment and commercial buildings (hereinafter “instant apartment buildings, etc.”) among the ancient city development project zones with the aim of selling and selling housing and commercial buildings, selling and leasing real estate, consulting businesses, etc. from the perspective of Goyang-si 344 daily meal 34, Goyang-gu, Yongsan-gu, Seoul Metropolitan City. From January 1, 2008, the Plaintiff newly constructed and sold apartment and commercial buildings (hereinafter “instant apartment buildings, etc.”) and set the business year from January 1 to December 31 each year.

B. The Plaintiff concluded a sales contract for the apartment of this case by the business year of 2008, 68.2%, 94.4% from the business year of 2009, and 96.4% from the business year of 2010, and reported and paid corporate tax for the business year of 2008 to 2010 on the basis of the working progress rate and sales rate of the apartment of this case (However, in the business year of 2008, the income amount was all deducted as losses carried forward and did not pay corporate tax).

C. The Plaintiff cancelled the sales contract on the grounds of the unpaid balance of the buyers of the instant apartment, and the sales contract was cancelled due to the Plaintiff’s impossibility of performance due to the reasons such as application for corporate rehabilitation of the brick Construction Co., Ltd., a contractor. Accordingly, the number of households for which the sales contract of the instant apartment, etc. was cancelled is 635 households (17.47%) among the total 3,634 households in the business year 2011, 231 households (6.02%) among the 3,634 households in the business year 2012, 231 households (6.02%) among the 3,833 households in the business year 2013, and 426 households (1.1%) among the 3,8333 households in the business year 2013 (hereinafter

2. Determination

A. Relevant legal principles

Article 25-2 Subparag. 2 of the Enforcement Decree of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014; hereinafter the same) stipulates that “When a contract related to the validity of transaction, act, etc., which served as the basis for calculating the tax base and the amount of tax in the initial return, determination or correction, is rescinded by the exercise of the right of rescission or is cancelled due to unavoidable reasons that occur after the formation of the relevant contract” as one of the grounds for later filing a request for correction pursuant to Article 45-2(2)5 of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014; hereinafter the same). Such later filing of a request for correction refers to “when a contract related to the effect of transaction, act, etc., which serves as the basis for calculating the tax base and the amount of tax in the initial return, determination or correction is cancelled

Article 40(1) of the Corporate Tax Act provides that “The business year to which the income and deductible expenses of a domestic corporation accrue shall be the business year which includes the date on which the income and deductible expenses are determined” provides that when a right which has no actual income accrue even though there is no income, it shall be deemed realizing the income and adopts the so-called principle of confirmation of the right to taxable income. In such a case, the principle of confirmation of the right refers to the time when the right which has the cause of income and the time of realizing the income accrue at intervals between the time when the right which is the cause of income and the time when the income are determined, the right which is not the time when the income is realized shall be deemed the time when the income is determined, and thus, the tax may be imposed in advance on the income actually uncertain in the manner of calculating the income of the pertinent business year under the premise that it would be realized in the future. Therefore, even if the tax liability becomes final by fulfilling the requirements of income as a cause of final and conclusive, if the initial tax liability becomes final and conclusive due to the occurrence of a certain cause, it cannot be imposed on the corporate tax upon cancellation of the contract.

B. Relevant regulations and interpretation

Article 69(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 24357, Feb. 15, 2013; hereinafter the same) provides that “In the application of Article 40(1) and (2) of the Act, earnings and losses arising from construction, manufacturing, or other services (including contract and subscription sales; hereafter referred to as “construction” in this Article) shall be included in the calculation of earnings and losses for the pertinent business year from the business year which includes the date of commencement of construction of the object to the business year which includes the date of delivery of the object, as prescribed by Ordinance of the Ministry of Strategy and Finance (hereafter referred to as “rate of work progress” in this Article).” Article 69(1) of the former Enforcement Decree of the Corporate Tax Act provides that “The sales of such period shall be included in the calculation of earnings and losses for the first time after the cancellation of the contract, which falls under the type of sale of products, goods, etc. and the date of sale in lots for a long time after the date of the future determination shall be included in the relevant business year.

① Article 69(3) of the aforementioned Act provides for the requirements for inclusion of gross income and deductible expenses where the contract is rescinded for a contract for construction work or reserved sale, etc., the delivery of which is performed over several business years, and stipulates that “the business year to which the termination date belongs” shall be included in gross income or deductible expenses. Article 2 of the Addenda provides that “the business year to which the termination date belongs first commences after January 1, 2012.” The phrase “the business year to which the termination date belongs” in the above provision is clearly defined as “the business year to which the termination date belongs” when the contract is cancelled or rescinded, and the foregoing Addenda cannot be deemed as referring only to the business year after January 1, 2012, and cannot be deemed as referring to the business year to which the effect belongs in consideration of the legal effect of the cancellation or cancellation of the relevant contract.

② Article 69(3) of the Corporate Tax Act provides, “Calculation of the amount of income from cancellation of a construction contract” under the title “Calculation of the amount of income from a domestic corporation operating a construction business” (Article 40-694) of the same Act provides, “In calculating the amount of income from a domestic corporation operating a construction business, where the difference between the amount determined by the initial work progress rate and the amount determined as the amount of income from cancellation of a construction contract occurs due to cancellation of the construction contract, such difference shall be included in the gross income or deductible expenses for the business year which includes the cancellation date of the contract.” However, even if the effect of cancellation under the Civil Act is recognized as retroactively to deductible expenses for the business year to which the contract date belongs according to the effect of cancellation under the Civil Act, the same provision was newly established in the Enforcement Decree of the Corporate Tax Act to clarify this. In light of the purport of the amendment,

③ In the event that “the business year to which the date of termination belongs” under the above provision is deemed to be the business year which includes the initial business year or the date of the contract reported by a taxpayer, it is reasonable to allow a subsequent request for correction. However, the Supreme Court affirmed a subsequent request for correction even in cases where the rate of work progress is changed due to the cancellation of a pre-sale contract prior to the establishment of Article 69(3) (see, e.g., Supreme Court Decision 2012Du10611, Mar. 13, 2014). If the relevant provision is interpreted to allow a subsequent request for correction even after the establishment of the foregoing provision, the newly established provision does not have any significance, and thus, the above provision should be deemed to be a creative provision that provides for exceptions on the premise that a subsequent request for correction

④ The Plaintiff asserts that the foregoing provision shall apply only to cases where gross income and deductible expenses are included in accordance with the rate of work progress from the business year that begins after January 1, 2012.

i) In light of the legislative intent of Article 69(3) of the former Enforcement Decree of the Corporate Tax Act, where the sales contract is cancelled after the completion of the pre-sale contract, there is no reason to exclude it from the application of the above provision. Article 69(1) of the former Enforcement Decree of the Corporate Tax Act provides that where the business year to which the date of the contract belongs belongs for profit and loss of pre-sale sales such as the apartment sales contract in this case, it shall be divided each business year as of the rate of work progress, but where it is appropriated as profit and loss for the business year to which the date of delivery belongs in accordance with the corporate accounting standards in the proviso, it shall be exceptionally provided that the main sentence shall be the business year to which the date of delivery belongs. Article 69(1) of the former Enforcement Decree shall be applied before the establishment of Article 69(3) of the former Corporate Tax Act, and Article 69(1) of the former Enforcement Decree shall be interpreted as "where the provisions of the basic rules of the Corporate Tax Act are transferred to the above Enforcement Decree, it shall not be applied "in accordance with Article 9(1) of the former Enforcement Decree".

ii) Retroactive taxation refers to an increase in tax liabilities imposed by new legislation or already established after the completion of taxation requirements (see, e.g., Constitutional Court Order 2015HunBa127, Feb. 25, 2016). Article 69(3) is not a new corporate tax or an increase in tax liability for the business year 2009 under the circumstance that the business progress was included in gross income and deductible expenses according to the rate of work progress in the previous business year before January 1, 2012. The above provision does not constitute retroactive taxation because it affects the corporate tax liability for the business year to which the date of cancellation of the sales contract belongs. Furthermore, the legal effect of Article 69(3) above not only meets the "Inclusion of gross income and deductible expenses according to the rate of work progress", but also meets the above "the difference between the amount determined by the cancellation of the contract after January 1, 2012, it cannot be deemed that the above provision constitutes a separate legal act or legal relation before the termination of the contract.

(c) Whether the cause for subsequent correction falls under the ground for subsequent correction;

(1) the existence of a separate provision restricting ex post request for correction

Examining the facts and relevant provisions in light of the aforementioned legal principles, the fact that the difference between the amount finalized due to the cancellation of the sales contract under Article 69(3) of the former Enforcement Decree of the Corporate Tax Act was included in the gross income or deductible expenses for the business year to which the date of cancellation belongs can be deemed as the grounds for deducting the amount of income not realized due to the cancellation of the sales contract from the income amount for the business year to which the date of cancellation belongs. Since the aforementioned provisions apply from the business year beginning after January 1, 2012, the cancellation of the sales contract for the apartment of this case, etc. after January 1, 2012 does not constitute grounds for filing a subsequent request for correction under Article 45-2 of the former Framework Act on National Taxes and Article 25-2 of the Enforcement Decree

(2) Whether special circumstances exist in the method of deducting the income amount for the business year to which the date of cancellation belongs

As seen earlier, the Plaintiff is a corporate entrepreneur with the purpose of the new construction and sale business of housing and commercial buildings, real estate sale, lease, consulting business, etc., and newly built 3,833 households, including the apartment of this case, and such transaction constitutes ordinary and semi-conduit transactions.

Meanwhile, according to the purport of the evidence No. 1-2, No. 1-2, No. 3, and No. 1-5, and No. 1-5, respectively, and the purport of the entire pleadings, the Plaintiff may recognize the sales and net value of the sales and sales cost for the part for which the sales contract of the instant apartment, etc. was cancelled at the time of filing a corporate tax return as profits and losses for non-business in the business year to which the date of cancellation belongs as losses for cancellation of sale in lots in the business year to which the date of cancellation belongs. 10,585,929,404 won in the business year 2012, and 36,284,304,659 won in the business year to which the date of cancellation belongs. Accordingly, the Plaintiff has reported corporate tax in a manner that deducts the amount of income for the business year to which the date of cancellation belongs by recognizing the proceeds from sales

Ultimately, since there are special circumstances in which the Plaintiff reported corporate tax in the manner of deducting the amount of income for the business year to which the date of cancellation belongs according to the Plaintiff’s practice with respect to the cancellation of the sales contract that occurred ordinary and repeated, the cancellation of the sales contract in this case cannot affect the original tax liability, and thus, cannot be a ground for requesting ex

D. Sub-determination

The Defendant’s refusal of the ex post request for correction regarding the cancellation of the instant sales contract is lawful on the basis of Article 69(3) of the former Enforcement Decree of the Corporate Tax Act, or on the cancellation of the sales contract that occurs on the ordinary and repeated basis, based on special circumstances that the Plaintiff reported corporate tax by deducting the amount of income for the business year to which the date of cancellation belongs according

3. Additional determination

A. Whether it violates the principle of tax equality

(1) Summary of the Plaintiff’s assertion

Article 69(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 2010, Dec. 23, 2011; Presidential Decree No. 20148, Jan. 21, 2011; Presidential Decree No. 2010, Jan. 21, 2011; Presidential Decree No. 2010, Jan. 21, 2011; Presidential Decree No. 2010, Feb. 21, 2011).

(2) Determination

In full view of the following circumstances, it shall not be deemed that Article 69(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 2010, Jan. 1, 201) treats black and female corporations and deficit corporations differently without reasonable grounds, thereby violating the principle of tax equality

(1) Article 69 (3) of the above Act provides that when profits and losses are appropriated by the method of work progress pursuant to the main sentence of paragraph (1), if the relevant contract is rescinded, profits and losses may be reverted to the business year to which the date of cancellation belongs, and does not provide for the distinction between black and deficit corporations, etc.

② Even if it is unclear whether the Plaintiff, as a deficit corporation, is likely to have a future income to deduct loss of termination of contract as the degree of deduction, there is no possibility that the Plaintiff may be deducted from the tax base as a loss carried forward in the following business years (the Plaintiff was a deficit in the business year 2012 and the business year 2013 reflecting the profit and loss arising from the cancellation of the instant sales contract, but was converted to black in the business year 2014 and 2015). Furthermore, even if the loss incurred as a result of final deduction of the loss, such as a closed corporation and a corporation affiliated with entertainment,

③ The Plaintiff’s disposal of the instant apartment, etc., the sales contract of which was cancelled in the future, is likely to realize its profits by re-sale, etc., and the amount of tax imposed varies depending on the difference in its profits is the result of the Plaintiff’s project

④ Article 69(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 2010, Dec. 31, 2011; Presidential Decree No. 20135, Feb. 21, 2011; Presidential Decree No. 2010, Feb. 21, 2011; Presidential Decree No. 2010, Feb. 21, 201; Presidential Decree No. 2010, Feb. 201; Presidential Decree No. 2010, Feb. 23, 2011; Presidential Decree No. 2010, Feb. 22, 2011).

B. Whether the principle of no taxation without law is violated

The plaintiff asserts that it is against the principle of no taxation without the law because it is disadvantageous to the taxpayer because it is against the principle of no taxation without the law because it is against the principle of no taxation without the law because it limits the scope of the principle of no taxation without the right and duty established under Article 40(1) of the Corporate Tax Act.

Article 40(1) of the Corporate Tax Act provides that “The business year to which the date of cancellation belongs shall be the business year which includes the date on which the concerned gross income and deductible expenses are determined.” Article 40(2) of the same Act provides that “The necessary matters concerning the scope of the business year to which the earnings and deductible expenses accrue under paragraph (1) shall be determined by the Presidential Decree.” As seen earlier, the former Enforcement Decree of the Corporate Tax Act sets the “business year to which the profits and losses accrue through the provision of services, etc.” under Article 69 of the same Act separates the principle from the business year to which the profits and losses accrue due to the provision of construction, etc. and its standard, etc. under paragraph (1) of the same Article provides that the business year to which the date of cancellation belongs shall be the business year to which the losses and losses accrue, only where the losses and losses are calculated in accordance with the principle under paragraph (3) of the same Article, shall be included in the calculation of earnings and losses under the agreement with the taxpayer within the scope of the business year to which the profits and losses accrue from the cancellation can also be determined within the business year.

C. Whether the principle of trust protection is violated

(1) Summary of the Plaintiff’s assertion

In the event that the Plaintiff concludes and cancels the sales contract of the instant apartment, etc., the subsequent claim for correction was recognized pursuant to the Framework Act on National Taxes, and the Plaintiff trusted this, and thus rejected the subsequent claim for correction based on Article 69(3) of the former Enforcement Decree of the Corporate Tax Act even though it was cancelled for sale of the instant apartment, etc., it violates the principle of trust protection.

(2) Determination

In general, in administrative legal relations, in order to apply the principle of the protection of trust to the acts of an administrative agency, first, the administrative agency should name the public opinion that is the object of trust to the individual, second, that the public opinion statement of the administrative agency is justifiable and trusted, there is no cause attributable to the individual, third, that individual should have trusted the opinion statement of the administrative agency, and third, that administrative agency should have conducted any act corresponding thereto. Fourth, the administrative agency should have made a disposition contrary to the above opinion statement, which is contrary to the above opinion statement, thereby infringing on the interests of the individual who trusted the opinion statement. Lastly, when taking an administrative disposition in accordance with the above opinion statement, it should not be likely to seriously undermine the public interest or legitimate interests of a third party (see Supreme Court Decision 200Du8684, Sept. 28, 2001, etc.).

Examining the following circumstances comprehensively based on the overall purport of the pleadings, in light of the aforementioned legal principles, the tax authority did not order the public opinion that the subsequent request for correction is allowed for the cancellation of the sales contract to the taxpayer. Therefore, it cannot be deemed that the Plaintiff formed a trust that the subsequent request for correction is applicable to the cancellation of the sales contract at the time of the cancellation of the sales contract in this case, or that the Plaintiff concluded the sales contract in this case with the trust of

① In Supreme Court Decision 201Du1245 Decided December 16, 2013, there was a conflict of opinion as to whether the ex post facto request for correction under the Framework Act on National Taxes applies to corporate tax, which is based on the period and tax in principle, before declaring that the ex post request for correction is also applicable to the Corporate Tax Act. However, the taxation practice provided that ex post request for correction is not allowed under the general rules of the Corporate Tax Act, etc., the corporate tax is operated on the premise that the ex post request for correction is not applied, and the established rules have accumulated (No. 4-1 through 3).

(2) Any corporation that runs a construction business has been aware of the proceeds from sale and the amount equivalent to the proceeds from sale in lots in the business year when the sales contract was cancelled as profits and losses.

③ Upon filing a corporate tax return, the Plaintiff also included KRW 24,534,286,95, and KRW 10,585,929,404 in the business year 2012, and KRW 36,284,304,659 in the business year 201, by recognizing the net value of the sales price and the sales price at which the sales contract was cancelled as profits and losses for non-business purposes (Evidence A’s evidence 1, 2, 3, and 1 through 5).

4. Conclusion

Since the disposition of this case is legitimate, the plaintiff's claim shall be dismissed, and the judgment of the court of first instance is unfair in conclusion, so the judgment of the court of first instance is revoked, and the plaintiff's claim is dismissed

Judges Kim Yong-open (Presiding Justice)