National High Court Decision 2004Do4539 ( October 17, 2006)

Whether the tax investigation requested by the prosecutor constitutes duplicate investigation

The second tax investigation is the same as the first tax investigation and the tax item and the person subject to investigation in the taxable period, but the confirmation document prepared by the first tax investigation may reverse the statement at any time, active street expenses and bribes may be given to reduce the amount of additional tax or verify the omission of revenue through the second tax investigation, and it does not constitute double investigation.

The contents of the decision shall be the same as attached.

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of value-added tax of KRW 93,092,703 for the first period of July 1, 2004 against the Plaintiff; imposition of value-added tax of KRW 98,373,720 for the second period of October 1, 2004; imposition of value-added tax of KRW 132,15,250 for the first period of year 200; imposition of KRW 108,909,90 for the second period of year 200; KRW 104,237,470 for the first period of year 201; and imposition of value-added tax of KRW 90,982,50 for the second period of year 201; KRW 720,212,830 for the global income tax of KRW 199; and imposition of value-added tax of KRW 80 for the second period of year 200 for the first period of year 200; and disposition of imposition is revoked.

1. Details of disposition;

A. The Plaintiff engaged in food accommodation business in the trade name of ○○-dong, Seoul ○○-dong, ○○-8, ○○○ hotel.

B. From March 29, 2002 to June 30, 2002, the director of the Seoul Regional Tax Office conducted a special tax investigation (hereinafter “the first tax investigation”) on the taxable period from March 29, 2002 to June 30, 2001 of the hotel ○○○○○○ (hereinafter “○○○”) and notified the Defendant of the global income tax, value-added tax, and special consumption tax omission amount based on the business performance for the above three years. Accordingly, the Defendant estimated the amount of tax underpaid by the Plaintiff by issuing a disposition of increased or decreased tax

C. On June 23, 2003, the director of the Seoul Regional Tax Office notified the prosecutor's office of the Seoul District Public Prosecutor's office of suspected omission of sales of ○○○ hotel's hotel, and conducted a tax investigation again between September 16, 2003 and June 10, 2004 (hereinafter referred to as "second tax investigation") for the same taxable period as the first tax investigation, and notified the Defendant of the omitted amount of the amount of income.

D. Accordingly, in reflecting the omitted amount of income, the Defendant issued a disposition imposing each tax on the aggregate of KRW 246,946,100, and KRW 47,767,520, as stated in the purport of the claim (hereinafter “instant disposition”) by re-revision global income tax, value-added tax, special call tax, and education tax from 199 to 201, and imposing each tax on the aggregate of KRW 246,946,100 and education tax for three years.

E. In the case of appeal filed by the Plaintiff against the instant disposition and the disposition of imposition of the special consumption tax and the education tax, the National Tax Tribunal revoked the disposition of imposition of the special consumption tax and the education tax, but it decided to dismiss the instant disposition, and the Plaintiff was dissatisfied with the instant disposition and filed the instant lawsuit.

[Reasons for Recognition] 1, 2, 3, 4, 4-1, 2-9, and 3 of evidence Nos. 1, 2-1, 2-9, and 3 of evidence Nos. 1, 2-2, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) Despite the fact that the Plaintiff had already conducted the primary tax investigation to determine the omitted amount of revenue and to additionally determine and notified the value-added tax, it would be contrary to the principle of prohibition of duplicate investigation under Article 81-3 of the Framework Act on National Taxes to again recover the omitted amount after conducting a secondary tax investigation on the same case thereafter.

(2) The instant disposition is contrary to the principle of taxation based on the ground that only the confirmation document prepared by the Plaintiff was conducted without investigating other data.

(3) In recognition of the omitted amount of import, which served as the basis of the instant disposition, the following errors are found.

(A) Additional to the amount of gross income;

The Defendant added all of its gross income on the ground that the Plaintiff’s ○○ hotel’s 231,757,030 won in 1999 and 263,725,188 won in 2000, and 260,686,043 won in 201, and 756,168,261 won in total, were omitted from the amount of income. However, the service charges recovered by the Defendant should be added double to the amount already included in the amount of income, and it should be the premise that the Defendant paid the amount of service charges as the employee’s pay in order to include the amount of gross income. The Defendant included the fact and details of the service charges paid to the employee in the form of the wage, without any supporting material.

(b) Non-Inclusion of purchase amount of alcoholic beverages in necessary expenses

The plaintiff was issued a tax invoice with respect to KRW 535,154,00 among the purchase price, KRW 39,773,000 among the purchase price, and KRW 934,927,00 among the total purchase price, and KRW 934,927,00, and KRW 934,927,00, as the plaintiff actually paid the total purchase price, the above purchase price of alcoholic beverages shall be included in the necessary expenses corresponding to the revenue amount of the ○○○ hotel, but the defendant was not included in the calculation.

(C) Exclusion of advertisement expenses from necessary expenses

The plaintiff paid the advertisement expenses of the ○○○ hotel and ABC operated by the ABC and received the total tax invoice in the name of ABC. Therefore, 109,725,000 won, which is 50% of the total advertising expenses, shall be recognized as the advertisement expenses of the ○○ hotel and shall be included in the necessary expenses, but the defendant did not include them.

B. Relevant statutes

Article 81-3 (Prohibition of Abuse of Right of Tax Investigation)

Article 63-2 (Prohibition of Overlapping Investigation)

C. Judgment on the plaintiff's first argument

(1) Facts of recognition

(A) The director of the Seoul Regional Tax Office conducted the first tax investigation on the so-called ABC Group comprised of two enterprises, including ○○○ hotel, operated by the Plaintiff under the name of an individual, and three enterprises operated under the name of a legal entity, including ABC, and discovered suspicions of omitting sales, etc., which caused the instant disposition.

(B) The Seoul Regional Tax Office’s 3 and 8 countries were in charge of the first tax investigation. Kim ○, a vice-chairperson of the ABC Group, had been in charge of the said investigation and actively engaged in street services at any time in the office of the above investigation 4 countries, 3 and the head of Hong ○, a director, etc., and had been friendly with the political parties or senior officials in the process.

(C) On June 10, 2002, the New Accounting Officer Nos. 3 and 8 of the above 4 countries and the 8th 8th 2002 investigation conducted a review of which degree of tax will be imposed on all the suspicions of tax evasion (as a result, evidence No. 4-4 of the above 17.175 billion won should be the amount to be collected), and accordingly, the 1,2, and 3 bills on the same day, stating that the amount of tax to be collected is 1.245 billion won, 8.89 billion won, 7.32 billion won, 7.6 million won, respectively.

(D) On June 24, 2002, a tax inspector of the Seoul Regional Tax Office confirmed the suspicion of tax evasion by company against ○○○ Office’s office, and had gate-type sign and seal on several copies of a letter of confirmation. Although ○○○ Office signed and sealed on some of the letter of confirmation, some of the letter of confirmation, such as a written confirmation on ○○○○ hotel’s service charges and ABC’s service charges, were refused to sign and seal, and thus, it was necessary to conduct an additional investigation against the transaction partner regarding the alcoholic beverage processing charges and ABC’s purchase charges.

(E) However, Red○, however, ordered ○○○○○○○○ to take the total amount of tax additionally collected to ABC group as approximately KRW 2.3 billion, and rejected any further recommendation for the extension of the investigation period. Accordingly, upon the acquisition of ○○○ Hotel’s hotel, a corporate tax, etc. was imposed on ABC group for some of the suspicions of tax evasion, including imposing KRW 609,343,190 on ABC for the portion of the amount of tax evasion that was being investigated at the time of the investigation, for the portion of the amount of 1.41 billion adjusted profits pursuant to the agreement on the adjustment of the value of ○○ Hotel’s hotel.

(F) After that, from Kim ○’s Kim Jong-dong, Hong-hoon was found to have received a bribe of KRW 50 million, and Shin Ho-hun was found to have received a bribe of KRW 10 million, and the existence of KRW 1,2, and 3 of the confirmation and drilling tax amount prepared by the Plaintiff in the course of the prosecutor’s investigation related thereto was confirmed to have been in charge of KRW 2 and 3 of the Seoul Regional Tax Office investigation April, 2003 and from September 16, 2003 to June 10, 2004, as seen in Section 2-D of the following 2-D, the Defendant confirmed the omission of the instant disposition by reporting the revenue of KRW 3,27,67,68, and705 in relation to the total hotel of ○○○○○○, a party, who purchased alcoholic beverages from ABC processing, and the second tax investigation conducted by ABC, including the analysis of the accounts head.

[Reasons for Recognition] Evidence Nos. 3, Evidence Nos. 4-15, 8, 9, Evidence Nos. 1-4, Evidence Nos. 6-1-3, and the purport of the whole pleadings

(2) Determination

The legislative intent of Article 81-3 of the former Framework Act on National Taxes which prohibits duplicate tax investigations is to check the abuse of the right to tax investigation arising from a partial tax investigation, to induce the advancement of the tax investigation technique, to prevent the mental and economic decline of taxpayers and to substantially protect the rights of taxpayers by securing stability. However, if any tax investigation is conducted once, it may result in a violation of the public interest of taxation if it is not allowed to do duplicate tax investigations in certain cases.

According to the above facts, the first tax investigation and the second tax investigation are identical to those of the person subject to investigation, and most of the suspicions of tax evasion caught in the first tax investigation were specifically confirmed through the second tax investigation. Meanwhile, during the first tax investigation, the confirmation document prepared by the plaintiff can reverse the statement at any time, i.e., the amount of tax 1,2, and 3 bills prepared by new ○○ decoration can only be estimated as taxable amount at the time of the preparation, and it does not mean that evidence is not secured to the extent that it can be imposed immediately. The reason why 2.3 billion won was reduced from the first tax investigation to the second tax investigation is due to the 300 million won for the whole group of the ABC group's active tax investigation conducted by Kim ○○○ and Hong 2, etc. The fact that the plaintiff, as the result of the second tax investigation conducted by the head of the Seoul Regional Tax Office, notified the head of the Seoul Regional Tax Office of the results of the second tax investigation to the public prosecutor's office and confirmed the existence of the Seoul District Public Prosecutor's Office.

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

D. Judgment on the second argument by the plaintiff

According to the evidence Nos. 1, 2, and 4-15 of the evidence Nos. 1, 2, and 1, 2-1, 2-1, 1-9, 3, 5, 6, and 7-1, 6-7 of the evidence Nos. 1-3, 8, and 9 of the evidence Nos. 1, 2-1, 2-2 of the evidence Nos. 1, and 1-3, 8, and 9 of the evidence Nos. 1-3, 7 of the evidence Nos. 1-3, 8, and 9 of the evidence Nos. 1, 2-2 of the Seoul District Public Prosecutor’s Office, he obtained taxation data secured in the investigation process from the head of the Seoul District Public Prosecutor’s Office, and confirmed the facts that the plaintiff reported by omitting the amount of revenue of the above 000 hotel, based on the results of the investigation conducted by the head of the National Tax Service’s TIS (integrated).

According to such facts of recognition, the instant disposition is supported by the notification data of the prosecution and objective data secured by the second tax investigation conducted by the Seoul Regional Tax Office, and thus cannot be deemed to violate the principle of basis taxation.

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

E. Judgment on the plaintiff's third argument

(1) Whether the addition of the gross income amount to salary is illegal

(1) In light of the purport of each entry and pleading in the evidence No. 4-1, No. 5, No. 6, and No. 7, and No. 103, the defendant collected the omitted amount from the total amount of income, such as cash sales, credit card sales, and service charges, not from the omitted amount generated while operating the ○○○○ hotel, but from the tax amount calculated by deducting the previously paid tax amount from the total amount of income obtained by deducting the omitted amount from the previous tax amount. According to the evidence No. 11, the defendant confirmed that the plaintiff's tax investigation conducted the ○○○○○ hotel's total income amount after deducting the total amount of income paid by the plaintiff from the total amount of income, the defendant did not include the total amount of 10% from the total amount of income of the ○○○○ hotel's service charges after deducting the total amount of 1,000,000 from the total amount of income of the ○○ hotel's service charges.

In cases where an entrepreneur supplies food and accommodation services or personal service, and enters the service charges of employees received along with the price separately from the price in a tax invoice, receipt, credit card sales slip, etc., and where it is confirmed that the service charges have been paid to the relevant employee, the service charges shall not be included in the tax base, but the service charges shall be included in the tax base (Article 48(9) of the Enforcement Decree of the Value-Added Tax Act) if the entrepreneur appropriates the service charges in his/her income from his/her income (Article 48(9) of the Enforcement Decree of the Value

However, there is no evidence to acknowledge that service charges calculated by the above method were paid to employees as they were, and thus, the Plaintiff’s assertion that it was unlawful to include the service charges from the total amount of income is illegal.

(2) Whether exclusion of the purchase amount of alcoholic beverages from necessary expenses is unlawful

In full view of the contents of evidence No. 4-15, evidence No. 3, and evidence No. 11-5, and the purport of the whole pleadings, the Plaintiff can be recognized as having received a part of a tax invoice issued to ABC by a person who is supplied with alcoholic beverages necessary for the ○○ Hotel hotel business for the purpose of reducing the profit of the business year 1999 and 2000.

In a case where there is a fact that a taxpayer has omitted the return of revenues included in gross income not only in the return of revenues, such as tax base, but also in the expenses included in deductible expenses, the existence of expenses and the amount of expenses should be calculated by proving the fact that such expenses were omitted by the person who asserts the inclusion of expenses in deductible expenses (see, e.g., Supreme Court Decision 98Du328, Apr. 10, 1998).

However, in the instant case, there is no evidence to acknowledge that the Plaintiff actually disbursed the amount as alleged in the Plaintiff’s purchase of alcoholic beverages and that there was sales corresponding to the purchase of alcoholic beverages. Therefore, this part of the Plaintiff’s assertion is without merit.

(3) Whether the exclusion of advertisement expenses from necessary expenses is unlawful

According to the statement in Gap evidence 4-15, Eul evidence 3, evidence 11-1, and 2, the plaintiff filed a report on the amount of expenses related to newspaper advertising in the amount of KRW 219,450,00 among the advertising expenses when reporting the value-added tax and corporate tax between 1999 and 2001, but the above amount of expenses was confirmed to be common advertising expenses to the ○○ hotel operated by ABC and the ○○○○○ hotel, and as such, the amount of expenses paid as above is deemed to be deductible expenses, but it is recognized that the amount of expenses equivalent to 1/2 out of the expenses was not included in deductible expenses. However, the reason that the above amount of expenses was not included in the expenses of the ABC, which had not been related to the expenses of the ○○○ hotel. Thus, as long as it is not proved that the expenses incurred as the amount was not equivalent to the advertising expenses at the actual ○○ hotel, the above amount of expenses cannot be included in the deductible expenses of the ○○○.

However, according to the evidence of No. 16, No. 17-9, No. 18-1, No. 19-7, No. 20-1, No. 20-2, and No. 21 submitted as a document evidencing the disbursement of advertising expenses of the ○○○○ hotel, the newspaper advertising fee between Jan. 1, 200 to Oct. 21, 200 is merely 290,000, and the advertisement fee between Oct. 100 to Oct. 200 is merely 6,7,8 (each substitute ticket) among them is written as the premise that the advertising fee of the ○○○○○○○○○○ hotel was presumed to be the ○○○○○ hotel hotel, and the depositor of No. 19-1, 20-1, and 2 (each tax invoice) with the evidence of No. 19-7 (each deposit) and the content of the advertisement fee of the ABC cannot be acknowledged otherwise.

Therefore, the plaintiff's assertion on this part is without merit.

3. Conclusion

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