Cheongbu 201J 3514 (2012.05.03)

penalty or compensation paid due to the breach or cancellation of a contract for the supply of scrap metal;

Since it is reasonable to view that the damages paid due to the cancellation of a contract for the supply of scrap metal is damages exceeding the damages to the payment itself which forms the original contents of the contract, and thus it is a penalty or damages paid due to the breach or termination of the contract, a disposition imposing withholding tax by deeming it other income

2012Guhap2601 Disposition of revocation of imposition of corporate tax, etc.

XX Stock Company

Head of the Tong Tax Office

November 22, 2012

January 3, 2013

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of 00 won for other income tax of 2007, 000 won for other income tax of 2008, 000 for other income tax of 2009, 000 for other income tax of 2009, and 000 for other income tax of 2007, 000 for corporate tax of 2007, 000 for corporate tax of 2008, and 000 for corporate tax of 2009 shall be revoked.

1. Details of the disposition;

A. The Plaintiff is a corporation with the purpose of shipbuilding vessels.

B. On December 26, 2002, the Plaintiff entered into a contract with this A to the effect that “the Plaintiff shall sell all scrap metal produced from the Plaintiff’s place of business from April 1, 2003 to December 31, 2015 at the Plaintiff’s place of business (hereinafter referred to as “instant contract”).” Under the instant contract, the Plaintiff supplied scrap metal to this A and suspended the supply of scrap metal from February 3, 2006.

C. Accordingly, this AA filed a claim for damages against the Plaintiff as Seoul Central District Court 20067] joint 49043 (hereinafter referred to as “claim for damages”).

D. On December 3, 2007, when the lawsuit for damages was pending, the Plaintiff and thisA agreed to pay the amount in exchange for the agreed amount to thisA. The Plaintiff paid 00 won, around May 29, 2009, around 2007, around 000 won, around 2008, and around 000 won (hereinafter “the instant money”).

E. On July 4, 2011, the Defendant: (a) conducted an investigation into the source tax on the Plaintiff; and (b) rendered the instant disposition imposing KRW 000,00,000, other income tax for the year 2008, and other income tax for the year 2009; and (c) imposed KRW 00,000,00, the corporate tax for the year 2007, the corporate tax for the year 2007, the corporate tax for the year 2008, and the corporate tax for the year 2000, the corporate tax for the year 2008, and the corporate tax for the year 2009, the corporate tax for the year 2009, respectively.

E. On September 30, 201, the Plaintiff filed an appeal seeking the revocation of the instant disposition with the Tax Tribunal, but the Tax Tribunal dismissed the Plaintiff’s claim on May 3, 2012.

[Ground of recognition] Facts without dispute, entry of Gap 1 and 2 evidence (including provisional number), purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant disposition is unlawful for the following reasons.

(1) Under the instant contract, thisA acquired the right to receive scrap metal from the Plaintiff from the Plaintiff until December 2015, i.e., the right to be supplied with a certain price. Accordingly, as the Plaintiff acquired the said goodwill from thisA, it would have paid the instant money to thisA in return for the Plaintiff’s acquisition of the said goodwill. Therefore, it is reasonable to deem that the instant money is not a compensation for losses corresponding to other income under Article 21(1)10 of the Income Tax Act, but a compensation for transfer of business rights under the Income Tax Act. Accordingly, the withheld amount should be calculated by deducting 80% of necessary expenses pursuant to Article 87 subparag. 1

(2) Even if the instant money is deemed as damages, it shall not be subject to taxation because it does not constitute “the value of the money, etc. to compensate for the damages exceeding the damages incurred to the payment itself, which is the content of the original contract under Article 41(7) of the Enforcement Decree of the Income Tax Act, since it was paid for compensating the actual damages incurred by thisA due to the termination of the instant contract, and it does not increase the net assets of thisA.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

(1) Upon entering into the instant contract on December 26, 2002, the Plaintiff and thisA agreed to the effect that “The unit price per km of the scrap metal shall be the amount determined in the original place of order (on the port side, Samsung, and Samsung) with respect to the amount and payment method of the scrap metal, and the method of payment for the collected scrap metal shall be deposited in the original place of order.” In preparation for the failure of the contract, the Plaintiff promised to compensate by calculating the total amount of profit that the Plaintiff may incur to thisA at the time of the failure to perform the contract.”

(2) Under the instant supply contract, thisA sold scrap metal supplied by the Plaintiff to XX, and raised a profit of KRW 100,000 per ton, but the Plaintiff discontinued the supply of scrap metal to thisA from February 3, 2006.

(3) Accordingly, thisA filed a lawsuit claiming for damages against the Plaintiff, claiming that “A” was supplied with scrap metal from February 1, 2006 to December 31, 2015 under the instant supply contract, and that “A” would have accrued if the Plaintiff was supplied with scrap metal from the Plaintiff (the total amount of money calculated by multiplying 100,000 won per ton earnings by the amount of monthly scrap metal generation) and that “the payment of damages incurred therefrom.”

(4) On December 3, 2007, when a lawsuit seeking compensation for damages is pending, the Plaintiff agreed with thisA to the effect that “the Plaintiff shall pay 000 won to thisA, and all relevant taxes shall be borne by the Plaintiff.”

(5) In order to clarify the contents of the above agreement on May 29, 2009, the Plaintiff and thisA drafted a letter of undertaking with the following contents:

The actual agreed amount between the Plaintiff and thisA was KRW 000, but since other income tax (including resident tax and life imprisonment) is obligated to withhold tax, the Plaintiff’s custody and received KRW 000 until December 21, 2009 by thisA, and thisA has been notarized on December 3, 2007. The amount of tax reported by thisAA to the National Tax Service on June 1, 2009 is reported as 00 won, not other income tax. Thus, if an objection is raised by classifying it as other income from the National Tax Service and a dispute arises, the Plaintiff shall bear all the expenses required therefor (including attorney’s expenses and other expenses) and, if it is determined as other income from the court in the future, the Plaintiff shall bear all the additional tax and taxes imposed on this case.

[Grounds for recognition] The items of evidence Nos. 3, 5, and 6 and the purport of the whole pleadings

D. Determination

(1) As to the assertion of the above A(1)

A business right refers to an intangible asset value, such as the company's tradition, social credibility, location conditions, existence of a special manufacturing technology or special transaction relationship, etc., and so forth as to enable other companies engaged in the same kind of business to earn more profit than the profit from the sale and sale (see, e.g., Supreme Court Decision 84Nu281, Apr. 23, 1985). According to the above facts acknowledged, thisA can only be recognized as having received scrap metal from the Plaintiff and sold it and sold it, and there is no other evidence to acknowledge it differently.

Therefore, it is difficult to see that thisA has a business right, and the plaintiff's above assertion on a different premise is without merit.

(2) As to the assertion of the above A(2)

(A) Article 41 (3) of the Enforcement Decree of the Income Tax Act provides that with respect to penalty and compensation received due to a breach or termination of a contract under Article 21 (1) 10 of the same Act, the compensation for damages arising from a breach or termination of a contract on property rights refers to the value of money or other goods to compensate for the damages exceeding the damages to the payment itself which forms the contents of the original contract, regardless of the title thereof. Here, the compensation for damages to the payment itself, which forms the contents of the original contract, refers to the compensation for the down payment, gold and money invested by the parties under the original contract, which is the compensation for damages for the down payment, the amount of money, and the amount of money invested by the parties concerned,

(B) The following facts revealed in light of the above facts, i.e., (i) thisA was receiving scrap metal from the Plaintiff and selling it to the other. However, this lawsuit was brought to seek damages in an amount calculated by multiplying the expected amount of scrap metal generation by 100,000 won per ton, as it did not receive scrap metal from the Plaintiff; (ii) the amount of damages that thisA received from the Plaintiff is equivalent to the profits derived from deducting the amount of scrap metal to be paid to the Plaintiff from the sales proceeds received from the other sales proceeds of the scrap metal supplied by the Plaintiff; and (iii) the damages to the payment itself, which is the original content of the contract, are not included in the above profits. In full view of the above facts, it is reasonable to view that the amount of this case constitutes damages exceeding the damages to the payment itself, which is the original content of the contract, due to the cancellation of the contract of this case, due to a breach of contract under Article 21(1)10 of the Act or a penalty for breach of contract under consideration.

(C) Therefore, the plaintiff's above assertion is without merit.

3. Conclusion

Thus, the plaintiff's claim is dismissed as it is without merit.