Ulsan District Court-2017-Guhap6895 ( April 26, 2018)

A disposition to dispose of the amount appropriated for processing costs as a representative bonus and to impose an unfair underreporting penalty tax is reasonable;

Since it is difficult to view that the processing cost is appropriated as the representative's provisional income and the liability for provisional income is a nominal processing obligation such as the disposal of a part of it, a bonus disposition is legitimate, and since there is a purpose to evade tax by preparing a false account book, it is reasonable to impose an unfair underreporting additional tax.

Article 67 of the Corporate Tax Act

2018Nu21651 Revocation of Corporate Tax Imposition Disposition, etc.

○○○ Incorporated Company

000 director of the tax office

August 31, 2018

October 5, 2018

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The imposition of corporate tax of KRW 9,055,160 (including additional taxes) for the business year of July 1, 2016 that the Defendant rendered to the Plaintiff, and the disposition of notifying the change in the amount of income of KRW 813,06,153 on July 6, 2016, shall be revoked, respectively.

1. Details of the disposition;

A. The Plaintiff is a stock company established around July 15, 1994 for the operation of automobile parts manufacturing business, etc.

B. In the business year 2011, the Plaintiff appropriated 950,000,000 won in total, including raw material cost, for 154 times in total as indicated below (hereinafter “the instant processing cost”), and appropriated 950,000,000 won in total, which is the representative of each corresponding counter account, for the corresponding short-term loans (hereinafter “the instant representative”).

C. As of December 31, 2011, KRW 136,933,847 out of the provisional deposit received by the representative of the instant case was disposed of, and the balance of the provisional deposit became KRW 813,066,153 (hereinafter “the balance of the provisional deposit”).

D. Meanwhile, on August 23, 2013, the Plaintiff received “written notice of submission of materials for pre-taxation of corporate tax and of revised report” from the Defendant, and on September 2, 2013, upon filing a interim prepayment report of corporate tax for the business year of 2013, the Plaintiff kept accounts of the balance of the instant provisional deposit as indicated in the following table. In other words, the balance of the instant provisional deposit is included in the Plaintiff’s debt in the balance sheet for the business year of 2011, but it appears that the balance was replaced with the carried-over earned surplus for the business year of 2013.

E. After all, the Plaintiff reported and paid corporate tax of KRW 230,071,810,000, which is the processing cost of the instant case on November 4, 2013, as a bonus, and then disposed of KRW 136,93,847, which is the half-processing cost, as a bonus, and KRW 813,066,153, which is the balance of the instant provisional revenues, as an internal reserve.

F. The Commissioner of the National Tax Service, from December 8, 2015 to December 24, 2015, conducted a regular business audit against the Plaintiff, and ordered the Defendant to take corrective measures on the ground that the balance of the instant provisional income disposed of as retained earnings as well as the balance thereof is reasonable to be disposed of as bonus. Accordingly, the Defendant issued a notice of correction and a notice of correction imposing additional corporate tax amounting to KRW 9,05,160 (including additional tax) for the business year from July 1, 2016, and issued a notice of change in the amount of income for the business year from July 6, 2016 (hereinafter referred to as “each of the instant dispositions”).

G. On September 28, 2016, the Plaintiff filed a tax appeal against the Defendant seeking revocation of each of the instant dispositions, but the Tax Tribunal rendered a decision to dismiss the Plaintiff’s claim on July 25, 2017.

Facts without any dispute, Gap evidence 3, Eul evidence 4-1 through 7, Gap evidence 5-1 through 3, Gap evidence 6-1, 2, Gap evidence 7 through 13, Gap evidence 14-1, 2, Gap evidence 15-1 through 3, Gap evidence 16-1 through 3, Eul evidence 16-1 and 2, the purport of the whole pleadings, and the purport of the whole pleadings.

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

A. The plaintiff's assertion

1) In order to cope with the unreasonable demand of the Customer for the reduction of the supply price of the instant processing costs, the Plaintiff prepared financial statements that the net income amount has been reduced by appropriating the processing costs of the instant processing costs as the actual expenses, and the representative’s provisional receipts of the instant processing costs, which are the counterpart account of the instant processing costs, are merely limited to the nominal obligations not scheduled to be halfed, and were deleted after the correction, and thus, the balance of the instant provisional receipts was not leaked out of the company. Therefore, each disposition of the instant case on the premise that the balance of the instant provisional receipts was released

2) The Plaintiff’s filing of corporate tax return due to the appropriation of the instant processing costs is not underreporting by the “unfair method” stipulated in the former Framework Act on National Taxes (amended by Act No. 11124, Dec. 31, 201; hereinafter the same) but simply underreporting, such as the preparation of double books, false certification, etc., and thus, it is unreasonable for the Defendant to exclude the Plaintiff from the special reduction of and exemption from small and medium enterprises and impose an unfair underreporting penalty tax, which is not a general penalty

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether to escape from the company

A) Relevant legal principles

Article 67 of the Corporate Tax Act provides that when determining or correcting the corporate tax base, the amount included in the calculation of earnings shall be disposed of, as prescribed by Presidential Decree, such as bonus, dividend, outflow in the country, internal reservation, etc., to the person to whom the income belongs, and Article 106 (1) 1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012; hereinafter the same shall apply) provides that where it is clear that the amount included in the calculation of earnings has leaked out of the company, it shall be disposed of as dividends, leisure, etc. according to the person to whom the income belongs, but where it is unclear that the amount is disposed of as a bonus for the representative, and Article 67 (4) provides that the disposal of income shall be reserved in cases where a domestic corporation illegally collects the amount distributed out of the company, such as omitting sales and processing expenses, and reports it to the amount of tax adjustment: Provided, That this shall not apply to cases falling under any of the following subparagraphs where it is known in advance to the amount of taxation data.

The purpose of Article 106(1)1 of the former Enforcement Decree of the Corporate Tax Act is to allow the representative director to be considered as a bonus to a non-conditional representative director regardless of its substance with respect to certain facts that can be recognized as such in order to prevent unfair conduct under the tax law by a corporation, not based on the fact that such income has accrued to the representative director (see, e.g., Supreme Court Decision 2010Du1108, Oct. 28, 2010).

On the other hand, where a corporation has failed to enter the sales in the account book even if there was a fact of sales or calculated the cost of processing in the account book, the corporation's profit equivalent to the omitted sales or the cost of processing shall be deemed to have been leaked out, barring special circumstances, and in this case, the special circumstance that the total amount omitted sales, etc. is not leaked out, shall be proved by the corporation's side that asserts it (see, e.g., Supreme Court Decision 2003Du1797, Jan. 12, 2006).

Furthermore, even though the cash, the counterpart account, was included in the provisional account, where the amount received by a corporation through sales is not confirmed, and the account was opened as the entry of the cash into the corporation once, if the contents of the provisional account were to be entered in the short-term loan transaction from the representative director and it is found that it was an obligation to counter-influence the representative director in the future, the provisional deposit transaction would not result in the change or increase of the net assets of the corporation, and is irrelevant to the profits or expenses of the corporation, and thus, barring special circumstances, such as the processed obligation under the pretext of the name of which the obligation to counter-influence was not planned, the omitted sales should have been entered in the corporate account as the profits of the corporation, and thus, it shall be deemed that the amount was already leaked out, and thus, it is reverted to the representative director, the counterpart to the above provisional deposit transaction (see, e.g., Supreme Court Decision 200Du3726, Jan. 11, 20

B) Determination

In light of the following circumstances, which are acknowledged based on the relevant legal principles, comprehensively considering the facts as seen earlier and the purport of the entire argument at the time, the evidence alone presented by the Plaintiff cannot be deemed as a nominal processing obligation for the representative of the instant processing cost, which is the counterpart account of the instant processing cost, which is not planned to counter-informize. Rather, it is reasonable to deem that the balance of the instant processing cost was out of the company and reverted to the representative director of the Plaintiff. Therefore, on a different premise, the Plaintiff’s assertion that the representative director cannot be deemed to have been out of the company because he did not actually control and manage the balance of the instant provisional collection, and did not enjoy economic benefits.

① A total of 154 times in the year of 2011, the Plaintiff appropriated the provisional receipts for the representative of the instant case to the counterpart account, and the Plaintiff actually dealt with KRW 136,933,847 out of the provisional receipts for the instant representative 25 times in total during the pertinent business year.

② If, as alleged by the Plaintiff, it is reasonable to select another processing debt account, other than the representative director’s deposit account, which is commonly used for the creation of a corporation’s non-funds, as the representative director could easily withdraw money, as the purpose was to reduce profits only on the account book without the outflow of funds.

③ On September 2, 2013, when the Plaintiff reported interim prepayment of corporate tax for the business year 2013, the circumstances that substitute the balance of the instant provisional deposit to the account for earned surplus funds carried forward are merely the circumstances after the instant provisional deposit was already leaked.

④ As to the process costs of the instant case and the process costs of the instant representative, the Plaintiff asserted to the effect that “the Plaintiff is a company that manufactures, processes, and supplies assembly equipment, such as engines and transmission machines, to HH automobiles, and received direct and indirect demand from the side of HH automobiles each year. In 2011, the Plaintiff was anticipated to have increased KRW 3 times in comparison with the Plaintiff’s operating profit rate in the immediately preceding business year, and thus, was anticipated to have an excessive demand for the reduction of the unit price of supply from the side of HH automobiles.” However, it is insufficient to view that the instant representative’s obligation to pay the unit price constitutes a nominal processing obligation.

⑤ Article 106(4) of the former Enforcement Decree of the Corporate Tax Act provides that the relevant corporation shall be given an opportunity to voluntarily make a correction. In order to dispose of the balance of the instant provisional receipts out of the company as internal reserve under the same Article, the Plaintiff’s recovery and inclusion of such balance in the account book should have been enough to include the recovered amount in the gross income for the pertinent business year by the tax adjustment within the reported period. However, on August 22, 2013, there was no fact that the Plaintiff collected the balance of the instant provisional receipts or included such balance in the gross income before receiving the notice of submission of corporate tax explanatory data and the revised report in the gross income for the business year 201. Rather, the Plaintiff should substitute the balance of the instant provisional receipts and disbursements only after receiving the notice of submission of corporate tax explanatory data and the revised report from the Defendant from the head of the competent tax office for the purpose of returning it to gross income. Thus, it cannot be deemed that the Plaintiff’s account settlement can be seen as voluntary outflow from the company.

2) Whether an illegal additional tax for underreporting is illegal

A) Legal principles

In full view of the regulatory structure of Article 47-3 of the former Framework Act on National Taxes, the language and text of Article 27(2) of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 23592, Feb. 2, 2012; hereinafter the same) and the legal nature of under-reported additional taxes, etc., where Article 47-3(2) of the former Framework Act on National Taxes conceals or disguises all or part of the facts constituting the basis for calculating the tax base or amount of national taxes, where the imposition and collection of additional taxes is impossible or considerably difficult, and thus, it is understood that the imposition and collection of taxes are more higher than those of the general under-reported taxpayers to lead them to faithfully report the tax base. In addition, Article 27(2) of the former Enforcement Decree of the Framework Act on National Taxes, which explicitly provides that the purpose of imposing additional taxes for under-reported purposes such as “an unreasonable method” under Article 27(2)6 of the former Enforcement Decree of the Framework Act on National Taxes, is to the effect that it is necessary to apply the tax base for under-reported under Article 27(3).

B) Determination

In light of the above legal principles, the Plaintiff actively drawn up false appearance such as entering false expenses in the account books, such as the head of the account center, etc. 154 times from January 1, 2011 to December 30 of the same year, even though there was no fact that the Plaintiff actually paid the processing costs of the instant case, and then underreporting the corporate tax base and tax amount for the business year 2011. Accordingly, the Defendant: (a) around September 2, 2013, when the Plaintiff filed a revised return of corporate tax after including the balance of the instant processing costs in the gross income; (b) the Plaintiff’s account book was prepared in a false way; and (c) the processing costs of the instant case were included in the deductible expenses. As a result, it is reasonable to view that the Plaintiff evaded corporate tax corresponding to the instant processing costs by making the false report, not simply making a false report but actively preparing a false account book, thereby making the false report under Article 27(2)1 of the former Enforcement Decree of the Framework Act on National Taxes.

Furthermore, even if the principal purpose of the Plaintiff, which received the above accounting, was to prepare financial statements containing less profit than the actual profit to be shown to the Customer in order to respond to the demand of the Customer for the reduction of the supply unit price, it can be deemed that the purpose of tax evasion was also the purpose of tax evasion, inasmuch as the Plaintiff was aware of the fact that the Plaintiff was liable for corporate tax less than the appropriate corporate tax by underreporting the above accounting basis

Meanwhile, while recognizing that the Plaintiff made a false entry in the account book, the Plaintiff is dissatisfied with the illegality of each disposition of the instant case on the grounds that the tax authority could easily know such false entry. However, as seen earlier, the Plaintiff’s appropriation of processing costs of the instant case was made over 154 times for a long-term period of time, and considering the various items, it is reasonable to deem that it is difficult for the Plaintiff to easily understand such false entry from the standpoint of the tax authority in cases where it is difficult for the Plaintiff to discover the taxation requirements on the national tax. This does not change because the Plaintiff did not enter any content in the “Transaction” column while appropriating the processing costs of the instant case, or that the Defendant promulgated the fact that the processing costs of the instant case was appropriated through simple and electronic analysis without using the integrated investigation method, which is conducted by the Plaintiff’s direct visit to the Plaintiff’s workplace.

Therefore, we cannot accept this part of the plaintiff's assertion.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed in its entirety as it is without merit, and the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed. It is so decided as per Disposition.