Cho Jae-2015-Mining-1860 (Law No. 18, 2017)

The industrial activities of purchasing steam from outside and supplying it to users through piping facilities constitute steam and hot water supply business, not wholesale and goods brokerage business.

The industrial activities that purchase steam from outside to supply to users through piping facilities constitute steam and hot water supply business, not wholesale and goods brokerage business, so it is necessary to apply 20 years to the standard service life by type of business when calculating depreciation costs.

Article 23 of the Corporate Tax Act

2017Guhap1121 Revocation of Disposition of Corporate Tax Imposition

DK, Inc.

YS Head of the tax office

January 25, 2018

February 8, 2018

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

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

Cheong-gu Office

The Defendant’s disposition of imposition of each of the instant tax (including additional tax of KRW 158,494,054) for the business year 2009, corporate tax of KRW 414,854,090 (including additional tax of KRW 158,494,054), corporate tax of KRW 117,391,810 (including additional tax of KRW 39,561,513), corporate tax of KRW 501,769,970 (including additional tax of KRW 143,737,469), corporate tax of KRW 420,627,310 (including additional tax of KRW 95,045,478), corporate tax of KRW 298,477,710 (including additional tax of KRW 432,304) for the business year 2011, shall be revoked in entirety.

1. Details of the instant disposition;

A. SP Co., Ltd. (hereinafter referred to as “SP”) was established on January 22, 2007 for the purpose of a new renewable energy-related business, added a steam supply business and pure supply business to the purpose business on December 17, 2008, was merged into and dissolved to the Plaintiff on March 4, 2015, and the Plaintiff succeeded to the status of SP as a corporation surviving the merger.

B. On June 28, 2007, SP entered into a heat supply contract with Lmchemical Co., Ltd. (hereinafter referred to as “the steam consumer”), and on May 31, 2008, acquired pipes facilities for steam supply (hereinafter referred to as “instant pipes facilities”) from 8,630,303,680 won (in addition, around 2011, as capital expenditure items for the piping facilities of this case), and supplied steam users through the instant steam pipes facilities. From June 2008, SP supplied the steam purchased from LASY, K Services, and KB (hereinafter referred to as “the steam supplier, etc.”).

C. SP calculated the depreciation costs calculated by applying five years, which is the standard service life of wholesale and product brokerage business, to the costs of wholesale and product brokerage, and filed a corporate tax return from the business year of 2008 to the business year of 2013.

D. Around October 2014, the Commissioner of the National Tax Service notified the Defendant of the result of a comprehensive audit on the Defendant that the standard service life of the pipeline facilities of this case should have been applied 20 years, which is the standard service life of electricity, gas, and distilling companies, by applying the depreciation service life of the pipeline facilities of this case to 20 years, and the Defendant again calculated the ceiling of the annual depreciation costs of the pipeline facilities of this case to the Plaintiff.

E. The Plaintiff appealed and filed a request for a trial with the Tax Tribunal on April 3, 2015, but taxes were imposed on the Plaintiff.

On January 18, 2017, the Tribunal dismissed the above claim.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 8, Eul evidence Nos. 1 through 8 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) As long as SP resells the vapor purchased from an external steam supplier, etc. without physical transformation without producing steam itself to the steam user without physical transformation, the instant disposition imposing the instant tax on the premise that the said business constitutes wholesale and product brokerage under the Korea Standard Industrial Classification and thus constitutes electricity, gas, and distilling company is unlawful.

2) The settlement of accounts of SP is based on the legal sites or misunderstandings, and as long as there is a conflict of opinion in the interpretation of tax law surrounding the nature of the instant business, there is a justifiable reason that the Defendant cannot impose penalty on the Plaintiff.

B. Relevant statutes

It is as shown in the attached Table related statutes.

C. Determination

1) Determination on the argument related to SP's type of business

A) The former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter the same)

Article 23(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010; hereinafter the same shall apply) provides that depreciation costs of fixed assets shall, in principle, be included in deductible expenses within the scope of the amount calculated as prescribed by Presidential Decree only when a domestic corporation appropriates them as deductible expenses for each business year, and the amount in excess of the scope of the scope of the depreciation amount shall not be included in deductible expenses. Article 28(1)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010; hereinafter the same shall apply) provides that, in relation to the lifespan and depreciation rate of depreciable assets, the corporation shall choose within the scope of the lifespan prescribed by Ordinance of the Ministry of Strategy and Finance, and apply 25/100 of the standard lifespan and the corresponding depreciation rate to the head of the district tax office having jurisdiction over the place of tax payment, 20 years of the standard lifespan and the Korea Standard Industrial Classification.

It is defined that "the business of supplying steam, cold and hot water and air conditioners" among electricity, gas steam and water supply businesses refers to the business of producing heat, steam, cold and hot water or other purposes, and the business of supplying hot spring water to users through piping facilities, and the business of supplying it to users through piping facilities." (III. D. 35. Classification code 35.00).

B) Comprehensively taking account of the facts acknowledged above and the overall purport of each of the evidence and arguments mentioned above, ① steam supplier, etc. converted heat generated in the process of incineration to steam through heat source facilities, such as boiler, heat pumps, heat exchange engines, etc., and SP performed the business of supplying steam users through steam facilities (hereinafter “instant business”) as its main industrial activity. ② The Korea Standard Industrial Classification explicitly provides that the industry of supplying steam, etc. by pipeline facilities is also the steam supply business, and this is consistent with the type of the instant business, and ③ the Plaintiff’s business activities are determined according to the type of main industrial activity conducted by the Korea Standard Industrial Classification as well as the production unit, and thus, it is not reasonable to distinguish the type of the instant business from the category of the instant product distribution business, and if it is deemed that the instant business is not a legitimate business, the Plaintiff’s business activities should be deemed to be one of the most accurate business activities to be conducted by the Korea Standard Industrial Classification.

2) Determination on the assertion of penalty tax

A) Additional tax under tax law is a kind of administrative sanction imposed when a taxpayer neglects his/her duty to return a faithful tax base and pay the amount of tax in order to ensure the propriety of taxation. Such sanction is a kind of administrative sanction that is imposed when a taxpayer neglects his/her duty to fulfill his/her duty to return and pay the amount of tax. It can be said that it is unreasonable for the taxpayer to be unaware of his/her duty due to a conflict of opinion due to intent in the interpretation of tax law beyond a simple scope of land or misunderstanding, etc. If there is a circumstance where the taxpayer can be deemed legitimate, or if there is a circumstance where it is unreasonable to expect the party to fulfill his/her duty to pay the duty, or it is unreasonable to expect the party to fulfill his/her duty to pay the duty, etc. (see, e.g., Supreme Court Decisions 2002Du666, Aug. 23, 2002; 2008Du2330, Feb. 10, 2011).

B) The following circumstances that can be acknowledged by comprehensively taking account of the evidence and the purport of the entire arguments as seen earlier, namely, (i) SP added steam supply business and pure supply business to its intended business on December 17, 2008; (ii) some corporate tax base and tax return were written with the type of business as electricity, gas, steam and water supply business; and (iii) otherwise, SP could not be found to have sufficiently known or could have sufficiently known that the instant business constitutes electricity, gas and steam supply business under the Korea Standard Industrial Classification; (iii) if SP had gone through prior examination of the Korea Standard Industrial Classification with the tax authorities or the Korea National Statistical Office, it could have been known that the instant business constituted an increased business, even though it did not go through such procedures or processes; and (iv) the nature of the instant business and the interpretation of the relevant Acts and subordinate statutes as seen earlier, it does not constitute a wholesale business under the Korean Standard Industrial Classification.

3. Conclusion

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