Plaintiff (Law Firm LLC, Attorneys Shin Young- Line et al., Counsel for the plaintiff-appellant)

Head of the District Tax Office

November 14, 2013

1. On December 26, 2012, the Defendant’s refusal disposition against the Plaintiff regarding a request for rectification of global income tax for the tax years from 2002 to 2010 as indicated in the “the amount of tax requested for rectification” listed in attached Table 1.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. A. On September 1985, the Plaintiff established Dae Food Co., Ltd. (which later changed its trade name to Manker Co., Ltd.; hereinafter “Maner”) and held office as a representative director until May 25, 201.

B. From January 31, 2012 to May 19, 2012, the director of the Central Regional Tax Office: (a) conducted a tax investigation on a non-party corporation; (b) confirmed that the non-party corporation excessively appropriated the construction cost and received a refund of the difference from the company; and (c) on May 30, 2012, the sales omission amount, etc. incurred in the process of raising the non-party funds were included in the non-party corporation’s gross income; and (d) on the ground that the sum of KRW 6.41,847,396 (hereinafter “instant income”) was reverted to the Plaintiff, it was disposed of as a bonus to the Plaintiff.

In the calculation of non-deductible expenses of the purchase amount of processed assets in the calculation of non-deductible expenses of 2002 212,00,000,000 as a bonus for the year of accrual of income in the calculation of non-deductible expenses of 2003 2,362,767,767,079,079 as a bonus for the calculation of the acquisition amount of processed assets in the calculation of the non-deductible expenses of 44,204,200,000 as a non-deductible expenses of the purchase amount of processed assets in the calculation of the non-deductible expenses of 2005 437,60,600 as a non-deductible expenses of the acquisition amount of the non-deductible assets in the calculation of the non-deductible expenses of 206,06,06,722,693, and 235,335,326,326,000 as a specially related person in the calculation of the non-deductible expenses, and the amount of the loans.

Accordingly, on July 1, 2012 and July 2, 2012, the Korea Tax Office notified the changes in the income amount to the non-party corporation.

C. On August 10, 2012, the non-party corporation paid the withholding tax amount of KRW 2,505,486,80 upon notification of the change in the amount of income (=income tax of KRW 2,277,715,280 + resident tax of KRW 227,771,520) to the head of Jongno-gu Tax Office. On October 2012, the non-party corporation received a revised notification of the year-end tax settlement to the Plaintiff and received a refund of KRW 109,639,00 out of the amount of earned income tax (=tax of KRW 99,671,810 + resident tax of KRW 9,967,190 + KRW 2,395,847,800 (= income tax of KRW 2,178,043,470 + resident tax of KRW 217,804,30). The non-party corporation received a notice of dismissal against the Director of the Regional Tax Office on December 28, 2120.

On February 6, 2013, a non-party corporation filed a claim for reimbursement amounting to KRW 2,395,847,800 withheld tax against the Plaintiff and damages for delay from August 11, 2012 (Seoul Central District Court 2013Gahap504890) and is still pending.

D. The Plaintiff submitted the global income tax for the year 2002 through 2010 by the statutory due date of return. The Plaintiff calculated the global income tax for the year 2002 through 2010 by adding up the instant income, which was notified of the change in the amount of income to the non-party corporation, and filed a return on the additional global income tax for the year 2002 through 2010 to the Defendant on September 28, 2012, and paid KRW 19,035,100 on the same day.

E. On October 31, 2012, the Plaintiff filed a claim for rectification of the amount of KRW 419,883,939,939, total amount of the global income tax return for the year 2002 through 2010, as indicated in attached Table 1, on the grounds that the Plaintiff was dissatisfied with the inclusion of the amount of income fluctuations in the gross income (hereinafter “instant disposition”). On December 26, 2012, the Defendant rendered a decision to dismiss the Plaintiff’s claim for rectification of the amount of reduction (hereinafter “instant disposition”).

F. The Plaintiff appealed and filed an appeal with the Tax Tribunal on March 7, 2013, but failed to obtain a decision by the closing date of the instant pleadings.

[Ground of recognition] Documents Nos. 2 through 7, Eul Nos. 1 through 3 (including branch numbers), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

1) Plaintiff

① The Plaintiff can file a claim for rectification pursuant to Article 45-2(1)1 of the Framework Act on National Taxes. ② The Plaintiff’s liability for global income tax for the year 2002 through 2006 has already ceased to exist five years after the exclusion period. According to the relevant criminal judgment, a considerable portion of the income of this case cannot be deemed to have been disclosed from the non-party corporation and reverted to the Plaintiff. Thus, the instant disposition based on the premise that the bonus disposition against the Plaintiff

2) Defendant

① Only 19,035,100 won that the non-party corporation, who is a withholding agent, can file a claim for correction, even if it is possible to file a claim for correction. ② The exclusion period of imposition of global income tax on the plaintiff for the year 2002 through 2006 is ten years pursuant to the latter part of Article 26-2(1)1 of the Framework Act on National Taxes, which applies from the amount disposed of pursuant to Article 67 of the Corporate Tax Act for the first time after January 1, 201, which was newly established by Act No. 11124, Dec. 31, 201; and accordingly, pursuant to the latter part of Article 26-2(1)1 of the Framework Act on National Taxes (hereinafter “instant provision”), which applies from the amount disposed of pursuant to Article 67 of the Corporate Tax Act for the first time after January 1, 2012.

B. Relevant statutes

Attached Form 2. The entry in the relevant statutes is as follows.

(c)the existence of the right to request rectification;

1) In cases where the tax authority considers the amount of gross income out of the company as belonging to an officer or employee and disposes of it as a bonus, the person liable to withhold taxes is established on the date when the notice of change in the amount of income was served on the corporation (Articles 135(4) and 131(2)1 of the Income Tax Act), unlike the case where the person liable to withhold taxes is the person liable to withhold taxes on the date when the notice of change in the amount of income was served on the corporation (Articles 135(4) and 131(2)1 of the Income Tax Act), the person liable to withhold taxes is deemed to be the "amount disposed of as a bonus pursuant to the Corporate Tax Act" under Article 20(1)3 of the Income Tax Act and the relevant amount of income is the date when the person liable to withhold taxes on global income was provided with labor during the pertinent business year in which the disposition was taken (see Article 39(1) of the Income Tax Act, Article 49(1)3 of the Enforcement Decree of the Income Tax Act), and Article 2014(2(1) of the former Framework Act).

2) Article 45-2(1)1 of the former Framework Act on National Taxes provides that a person who has filed a tax base return by the statutory due date of return may file a claim with the head of the competent tax office within three years after the statutory due date of return for the initial return, or the determination or correction of the tax base and amount of the national tax declared by a revised return, “if the tax base and amount of tax recorded in the tax base return exceed those required to be reported under the tax-related Acts,” and Article 134(1) of the Enforcement Decree of the Income Tax Act provides that Article 134(1) of the Enforcement Decree of the Income Tax Act provides that a person who has no liability for the final return on global income, a person who is not required to file the final return on tax base, or a person who has filed the final return on tax base, additionally pays the income tax by the last day of the month following the month in which the notice of change in the amount of income falls.

In other words, Article 134(1) of the Enforcement Decree of the Income Tax Act provides that in a case where the income amount is changed because the disposal of income takes place after the lapse of the original final due date of tax base return, it is practically impossible to demand the original taxpayer who is the source of income to return and pay the tax base and tax amount for the change within the original due date of tax base return. Thus, it is prepared to postpone the final tax base return and the due date of tax payment by the end of the month following the month in which the notice of tax base change is served (see Supreme Court Decision 2009Du20274 decided Nov. 24, 201). Accordingly, an additional penalty imposed as a sanction for failure to pay the tax amount due to the change in income arising from the disposal of income after the due date of the final due date of tax base return of tax base is calculated from the day following the end of the month following the month in which the notice of tax change, which is the statutory due date of tax base return, is received (see Supreme Court Decision 2

Therefore, if the income amount is changed due to the disposal of income, the source taxpayer shall be deemed to have filed an additional return within the period stipulated in Article 134(1) of the Enforcement Decree of the Income Tax Act (not later than the end of the month following the month in which a notice of change in the income amount is served on the corporation).

From 202 to 2010, the Plaintiff filed a return on the global income tax base and tax amount for the global income tax for the year 2010. As seen earlier, the Plaintiff filed a return on the global income tax on September 28, 2012, which was within the deadline for filing the return, after receiving the notice on the change in the amount of income on July 1, 2012 and July 2, 2012. Therefore, the Plaintiff may file a return on the tax base as the source taxpayer who filed the return on the tax base by the statutory deadline for filing the return on the revised return based on Article 45-2(1)

3) Article 45-2 of the Framework Act on National Taxes (amended by Act No. 7008, Dec. 30, 2003) was newly established pursuant to Article 45-2(4) of the Framework Act on National Taxes (amended by Act No. 7008, Dec. 30, 2003), and the income tax on the pertinent income was settled and paid through withholding and year-end settlement procedures, and thus, the source taxpayer or withholding agent who did not make a final report on the tax base

Considering the developments leading up to the establishment of Article 45-2(4) of the Framework Act on National Taxes, the details under paragraph (1), and the fact that there are disadvantages such as filing a return and incomplete payment penalty to a source taxpayer due to neglect of filing a return and payment, etc., where a source taxpayer files a final return of global income tax base, pursuant to Article 45-2(1) of the Framework Act on National Taxes, where the source taxpayer has filed a final return of global income tax base, he/she may file a request for correction pursuant to Article 45-2(4)1 of the Framework Act on National Taxes in cases where he/she pays income tax through year-end settlement and submits a payment report within the payment deadline

4) Where a withholding agent has a refund from the amount of tax withheld and paid, the amount of refund shall be refunded after appropriating it to the amount of tax to be withheld and paid by the withholding agent (Article 51(5) of the Framework Act on National Taxes). In other words, where a withholding agent has a difference in the scope of the existence of a source tax liability in the amount of tax withheld and paid, and there is a difference in the scope of the amount to be refunded, this is merely a refund by the withholding agent

Even if the non-party corporation that is a withholding agent contests the notice of change in income amount, and the plaintiff who is a source taxpayer contests the disposition rejecting a request for correction on the existence of tax liability, the plaintiff who is a withholding agent cannot refund the tax amount paid by the withholding agent. Ultimately, even if the source taxpayer won it by exercising the right to request correction, the amount of tax paid by the State may not be directly refunded. Thus, it is only limited to the extent that the scope of exercising the right to

In this context, a source taxpayer may be subject to a disposition of global income tax from the tax authority when the withholding agent omitted (see Supreme Court en banc Decision 79Nu347 delivered on September 22, 1981). A source taxpayer who is liable for tax payment at a disadvantage of additional tax due to failure to report and pay as a source taxpayer, and a withholding agent is able to dispute the notice of change in amount of income only after the case ( en banc Decision 2002Du1878 delivered on April 20, 2006) which is recognized as the disposition subject to an appeal litigation, so it is possible for the withholding agent to dispute the notice of change in amount of income, and it is not limited to the remedy measures that existed before due to the above precedents, and rather, it is more broad means for the withholding agent to dispute the change in amount of income.

(d) Whether the exclusion period has lapsed (income reverting to the year 2002 through 2006); and

1) The key provisions stipulate the exclusion period of imposition of income tax, etc. on the amount disposed of pursuant to Article 67 of the Corporate Tax Act in relation to the corporate tax where the national tax evaded, refunded or deducted by unlawful act is corporate tax.

According to the purport of Articles 38 and 59 of the Constitution that provides for no taxation without the law, a provision imposing new tax liability or previous tax liability may be applied only when the requirements for imposition are met after its enforcement (see, e.g., Supreme Court en banc Decision 2008Du17363, Sept. 2, 201). The application of the provisions of the tax law that provides for new tax liability or previous aggravated tax liability may be established as a law only when it is inevitable to realize the more serious principle of fair taxation or when it is necessary for public welfare (see, e.g., Supreme Court Decision 81Nu423, Apr. 26, 1983). In addition, the retroactive legislation is prohibited by the law, including cases where the trust of the taxpayer is lacking at the time of the realization of taxation requirements and there is no need to protect the taxpayer, but it is not necessary to protect the taxpayer by the law (see, e.g., Supreme Court en banc Decision 2008Du17363, Apr. 26, 198).

2) As seen in the background of the above disposition that the non-party corporation created funds through an excessive appropriation of construction cost, etc. However, it cannot be recognized that the Plaintiff, the representative director of the non-party corporation, was expected to evade corporate tax against the non-party corporation, and thus, would have been subjected to disposition of bonus as the income of the non-party corporation, which was saved in the future, should be reverted to the Plaintiff. In addition, the time when the embezzlement was recognized by the Plaintiff using the concealed funds does not coincide with the time when the non-party corporation raised funds.

Therefore, the Plaintiff’s global income tax liability related to the income accrued in 2002 through 2006 among the instant income was already subject to the exclusion period from June 1, 2008 to June 1, 2012, 2012, prior to the date of notification of change in the amount of income on the non-party corporation (the date of July 1, 2012 or July 2, 2012) (see, e.g., Supreme Court Decisions 2007Du20959, Jan. 28, 2010; 2007Du11382, Apr. 29, 2010).

3) If it is interpreted that the exclusion period of imposition of global income tax liability for the Plaintiff for the year 2002 through 2006 can be recognized as 10 years on the basis of the key provisions as alleged by the Defendant, it is an interpretation that the key provisions in this context correspond to a genuine retroactive legislation that actually completed fact or regulates legal relations, and thus, is not constitutionally permissible. Furthermore, the evidence presented by the Defendant alone does not have special circumstances such as the need for important public interest to allow the filing of a true legislation through the key provisions in this case, and thus, the exclusion period of imposition of global income tax for the Plaintiff for the year 202 through 2006 cannot be deemed as 10 years on the basis of the key provisions.

4) The Plaintiff’s duty to pay income tax on the income accrued in 2002 through 2006 among the instant income has already ceased to exist even after the exclusion period was expired. Thus, without any need to determine whether the income accrued in 202 through 2006 was included in the gross income of the Nonparty corporation and reverted to the Plaintiff, the income accrued in 202 through 2006 among the instant income shall not be added to the Plaintiff’s global income.

Therefore, the instant disposition rejecting a request for correction of global income tax for the tax on global income for the year 2002 through 2006 is unlawful on different premises.

(e) Income reverting to the year 207 through 2010; and

1) Facts of recognition

A) As the representative director of the non-party corporation, the Plaintiff has overall control over the business and fund management affairs, and the non-party 5 has the vice-chairperson of the non-party corporation take charge of the business and fund management affairs of the non-party corporation. The Plaintiff and the non-party 5 conspired with the non-party 5 to make an excessive appropriation of the construction price to the corporation for the purpose of raising the non-party corporation’s funds, to receive an excessive refund of the accrued difference after paying the company funds, and to let the non-party 1 manage the non-party 1,9,89,86,820 won.

B) The content pertaining to the income accrued from the year 2007 to 2010, which was disposed of as bonus to the Plaintiff among the result of the tax investigation against the non-party corporation by the director of the Central Tax Office

After the excessive appropriation of the amount of the tax year in the text of the Table Nos. 2009 2,012,00,000,000 of the corporate capital out of 2 specially related persons, the amount of the tax year including the head of the tax office 2009 2,009 2,012,00,000,000 32003 2008 57,000,000 4209 57,000,000 5205 20,000 2,354,000,000

The above recognition interest is calculated by deeming that the person who recognized the difference between the amount calculated at an appropriate interest rate and the actual income interest rate pursuant to the provisions of Article 52(1) of the Corporate Tax Act and Article 88(1)6 of the Enforcement Decree of the same Act, based on the premise that the Plaintiff used the company's funds for personal interest purposes, was attributed to the Plaintiff.

The amount of loans extended by Nonparty 3750,000,000,150,685 Nonparty 4, 2000, 2000, 2002, 2002,50,000,000,000,000 loan (unit) in 2,50,000,000,000 loan (unit) in 2,002,00,000,000 in 2,002,783,890,00,000,000,000,000,000,00,00,00,000, 7832,00,000,00,00, Nonparty 2,2,200,32,000,000,008, 3010, 301,00,15, 15,686,286,2086,206

C) The Plaintiff embezzled funds managed by Nonparty 1 and Nonparty 2; (2) used 2,50,00,000 company’s investment funds for personal interest with respect to the calculation of interest; and (3) was prosecuted with Nonparty 2 with KRW 432,00,00 for provisional payment; and (4) Nonindicted 20,000 for 70,000 for 70,000 for 70,000 for 70,000 for 10,000 for 70,000 for 70,000 for 10,000 for 70,000 for 70,000 for 10,000 for 70,000 for 70,000 for 70,000,000 for 70,000,000 for 70,000,000 for 20,0000 for 7,010,000.

With respect to embezzlement of corporate funds, the judgment of innocence was rendered on the ground that the lending entity is a non-party corporation, on the ground that the lending entity is the non-party corporation, KRW 750,000,000 of loan funds 2,500,000,000 and loan 750,000,000 of loan funds to the non-party 3 was merely borrowed in the name of the non-party 4 in order to avoid the disclosure procedure by the plaintiff, and it is difficult to recognize the intention of illegal acquisition. In addition, with regard to the facts charged that the plaintiff violated the duty as the representative director of the non-party corporation, and thereby the non-party corporation actually acquired financial benefits and suffered damages equivalent to the amount of the company's loan to the non-party corporation, the non-party corporation owned KRW 19,00,000 and KRW 81% of loan funds to the non-party corporation, but the non-party corporation did not obtain a successful bid in the name of the non-party corporation or obtained a successful bid in the company.

[Ground of recognition] Evidence Nos. 1, 3, and 6 of Evidence Nos. 3, and the purport of the whole pleadings

2) Determination

A) Unlike the case of disposal of income which is deemed to have paid the amount of income under the Corporate Tax Act, in order to be lawful by the imposition disposition of income tax on the representative, etc. on the ground that the income out of the company was actually attributed to the representative, etc., the tax authority should assert and prove the fact that the income out of the company was actually reverted to the representative, etc. and the type of such income. In case where the person to whom the income out of the company was attributed is not clearly identified, it cannot be presumed that it was actually reverted to the representative director, etc. (see Supreme Court Decision 2003Du15300, May 12, 2005). In addition, the tax authority upon receipt of the request for the correction of the amount of income, has a duty to investigate and verify whether the tax base and tax amount on the tax base return exceeds objectively legitimate tax base and tax amount to be reported under the tax law, and accordingly, the revocation lawsuit on the request for the correction of the amount of income as well as the ordinary tax disposition revocation lawsuit is based on the substantive and procedural illegality grounds for the revocation disposition (see Supreme Court Decision 2001Du62.

In other words, the tax authorities should confirm the legitimate tax base and tax amount according to the request for correction of reduction, and the subject matter of a lawsuit seeking revocation of rejection of the request for correction of reduction is the objective existence of the tax base and tax amount, and the burden of proof as to whether the real taxable income belongs to the plaintiff if the outflow income is based on the premise that it belongs to the plaintiff as in this case.

B) Considering the following circumstances revealed in the above facts, the instant disposition rejecting the Plaintiff’s request for correction on the premise that the income accrued in the year 2007 or 2010 among the instant income reverts to the Plaintiff is unlawful.

① With respect to income reverting to year 2009, the amount recognized as having been actually reverted to the Plaintiff out of the funds created after an excessive appropriation of the construction cost in the related criminal case is equivalent to KRW 32,277,100, out of the funds for non-party 1’s management expenses, and KRW 491,387,170,170, totaling KRW 523,664,270, and KRW 2,012,00,000, which were disposed of as bonus amounting to KRW 523,664,270, compared to the funds for non-party 1’s management expenses.

② In relation to the recognized interest rate, the loan to the non-party 3 was deemed to have lent the loan to the non-party corporation, not the plaintiff, and the recognized interest shall not be deemed to belong to the plaintiff on the premise that the plaintiff embezzled and used the loan.

③ There is no evidence to prove that the Plaintiff actually used the provisional payment of KRW 2,002,00,000 against Nonparty 2 to the effect that the recognition was reverted to the Plaintiff, and the loan to ○○○○○ was invested by the non-party corporation for the purpose of business diversification, and the recognition is not deemed to belong to the Plaintiff.

④ Although loan to Nonparty 4 and loan 432,00,000 won to Nonparty 2 were deemed to have been reverted to the Plaintiff, it is recognized that some of the income accrued in the year 2007 through 2009 is reverted to the Plaintiff, and some of them are not recognized, the contents of the revised return should be corrected.

3. Conclusion

Therefore, since the plaintiff's claim is well-grounded, all of them shall be accepted, and it is decided as per Disposition.

[Attachment]

Judges Kim Jong-jin (Presiding Judge)