Cho Jae-2016- Daejeon-0401 ( October 13, 2016)

It is reasonable to deem that the instant profit-making business actually belongs to the Plaintiff.

It is reasonable to deem that the transaction related to the instant project belongs to the Plaintiff by the Plaintiff operating the instant project through AA as a profit-making business.

Article 14 (Real Taxation)

2016Guhap1426 Disposition of revocation of Value-Added Tax Imposition

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○ Head of tax office

May 18, 2017

September 14, 2017

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s imposition of value-added tax ○○○ on July 10, 2015 against the Plaintiff shall be revoked.

1. Details of the disposition;

A. The Plaintiff is a non-profit corporation established pursuant to the ○○ Act for the purpose of promoting friendship through mutual aid and improving the rights and interests of its members, and runs a profit-making business such as manufacturing and leasing business in order to operate a proper purpose business as prescribed by the ○ Act and the articles of incorporation.

B. As a result, the Commissioner of the National Tax Service conducted a tax investigation on the Plaintiff’s ○○○ Branch located from August 29, 2014 to June 12, 2015, on the ground that it was confirmed that the Plaintiff received a processed purchase tax invoice from the business year 2009 to the business year 2013 without an actual supply of goods or services and received an unfair deduction of the input tax amount of value-added tax, and then notified the Defendant of the taxation data.

C. On July 10, 2015, the Defendant issued a correction and notification of value-added tax ○○○○○ (hereinafter “instant disposition”).

[Reasons for Recognition] Unsatisfy, Gap evidence 1, 9, 10, Eul evidence 1, Eul evidence 1 (including branch numbers; hereinafter the same shall apply), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The plaintiff, around August 2007, proposed a automatic fire extinguishing device business with AA as a result of proposing the automatic fire extinguishing device business with a reduction point, entered into a contract with AA on March 11, 2008 to operate AA and ○○ branch as an independent fire-fighting system and receive ○○ in the amount of sales revenue. Thereafter, according to the above contract, part of the sales revenue of the above products supplied to the seller in the name of the plaintiff under the above contract was received as ○○. The plaintiff was merely a loan to AA in relation to the above business, and the above business was operated entirely under the name of AA, and the plaintiff was merely a receipt of ○○ amount in return for the use of the name from AAA. Accordingly, since a person who actually controls and manages ○ branch's taxable subject to taxation is deemed AA, the disposition made by the defendant against the plaintiff is unlawful in violation of the substance over form principle against the plaintiff.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) On June 1, 2007, AA entered into a lease agreement that leases part of the factory of Ga, a corporation of ○○○, with a deposit of KRW 30 million. On August 2007, AA sought from the Plaintiff’s S&S business headquarters (integrated with the manufacturing business headquarters around September 2012, which became a general business headquarters) and proposed a manufacturing and sales business of the instant product (hereinafter “instant business”). After conducting an actual inspection on the said factory, the Plaintiff registered the said factory as the Plaintiff’s mechanical manufacturing business entity (○○) on March 11, 2008.

2) In relation to the instant project on March 2008, the Plaintiff and AA shall perform the business of establishing ○○ Branch and appointing the head of a branch office, administrative support, support for business activities, etc. AA shall take all civil and criminal responsibilities when any problem arises, including operating funds, factory and human resources operation, marketing activities, accounting affairs, etc. AA shall take charge of all civil and criminal responsibilities. The head of the ○○ Branch shall conduct the instant project through mutual consultation (Article 4), the planning, technology development, business activities, operation management, etc. for the success of the project (Article 4), and the head of the ○○ Branch shall submit a service notice, etc. according to the form requested by the Plaintiff. The head of the ○○ Branch shall submit all authority and responsibility for the operation of the ○○ Branch to the head of the ○○ Branch, but the employee who has been paid to the head of the ○○ Branch (approval) shall comply with the Plaintiff’s request for coordination of the Plaintiff’s business affairs and control, etc., on deposit basis of the 0000 ○ Branch.

3) AAA appointed as the head of the agency of the ○○ Branch from the Plaintiff, upon entering into the instant contract, complies with the duties assigned to the Plaintiff as the head of the business headquarters of the Plaintiff, regulations and official orders, and prepares and submits a business plan for the following year every fiscal year, and each factory of the following year.

A monthly report on the management and accounting sector and the statement of accounts for each fiscal year were prepared and submitted to the head of the business headquarters in the prescribed form.

4) At the time of investigation into violation of the Punishment of Tax Evaders Act on June 1, 2015, AA stated to the effect that "at the time of investigation into the violation of the Punishment of Tax Evaders Act, the Plaintiff was a nonprofit corporation, and thus, the Plaintiff would not incur processing costs even if the actual profit was incurred at the ○○○○ point, and thus making almost zero profits therefrom." The independent accounting system is an internal and plenary session, and the Plaintiff is responsible for supplying the goods externally. If this is a problem, the Plaintiff is also responsible for the duties of accounting guidance or supervision, as the Plaintiff is carrying out the duties of accounting guidance or supervision, and visits to the ○○○ point without any actual record, and that ○○○○○ point was written.

[Ground of recognition] Facts without dispute, Gap's 3, 4, 9, 10 evidence, Eul's 1 to 4, the purport of the whole pleadings

D. Determination

1) Relevant legal principles

Article 14(1) of the Framework Act on National Taxes declares the principle of substantial taxation by stipulating that if the ownership of income, profit, property, act, or transaction subject to taxation is merely nominal, and there is another person to whom such income, profit, property, act, or transaction belongs, the person to whom such income, profit, or transaction belongs shall be liable to pay taxes. Therefore, if there is a separate person who substantially controls and manages such income, unlike the nominal ownership, such as income, profit, property, act, or transaction, the nominal owner shall not be the person to whom such income, profit, or appearance belongs, but the person who actually controls and manages the relevant taxable object shall be the person to be liable to pay taxes in accordance with the principle of substantial taxation. Furthermore, whether such a case falls under such a case should be determined by comprehensively taking into account various circumstances such as the circumstance leading to the use of the nominal ownership, the degree and scope of the nominal owner's involvement, internal responsibility and calculation relationship, and the location of independent management and disposal authority over the taxable object. In principle, the tax authority bears the responsibility to prove the existence and tax basis of taxation.

2) Determination

A) According to the evidence of evidence Nos. 3 through 5, evidence Nos. 2, 3, and 4, and witness AA’s written testimony, the following facts are as follows: ① the Plaintiff and AAA operate ○○ Branch as an independent debt settlement system under the contract of this case; ② the operation of ○○ Branch and funds necessary for the project of this case in principle are borne by AA; ② the responsibility for the issue arising in connection with the project of this case is also limited to the issuance of tax invoices, bank transactions, and 4 insurance reports; ③ the sales of the business of this case deposited into the account of ○○ Bank under the Plaintiff’s name was independently used; ④ the Plaintiff paid the deposit and rent of the factory for operation of ○○ Branch as well as the compensation for industrial accidents within the ○○ Branch; ⑤ the Plaintiff was directly involved in the business of this case.

B) However, comprehensively taking account of the following circumstances acknowledged by Gap's evidence Nos. 3 through 6, Eul's evidence Nos. 9 through 10, Eul's evidence Nos. 2 through 8, and Eul's written testimony and pleading as a whole, it cannot be deemed that the plaintiff merely lent the name to AA or received ○○ sexuality in return for it, and as a result, it is reasonable to view that the transaction related to the business of this case was actually reverted to the plaintiff by the plaintiff operating the business of this case through AA through a profit-making business. Thus, the defendant's disposition of this case based on this premise is legitimate, and the plaintiff's assertion is without merit.

① Article 2(4) of the ○○ Act provides that “A” shall not be established in Ghana unless it complies with this Act, and shall not be used in Ghana or any other similar name. Therefore, as alleged by the Plaintiff, the Plaintiff’s mere lending of name to AA or carrying on the instant business independently by using the Plaintiff’s name may not be deemed to be permitted in violation of the above provision.

② Although AA does not necessarily use the Plaintiff’s name, it is favorable for AAA to enter into a contract, such as allowing the use of the Plaintiff’s name to enter into a negotiated contract. The Plaintiff and AA have a common interest in relation to the implementation of the project, such as allowing AA to engage in the instant project and receiving part of the sales amount.

③ Accordingly, the Plaintiff reviewed the contents of the instant project proposal of the AA, concluded the instant contract with the AA through an inspection of the manufacturing facilities, etc., and submitted a service memorandum to the head of the project headquarters, stating that the Plaintiff appointed the AA as the head of the ○○ Branch Work Bureau and carried out the instant project, and during that process, comply with the duties assigned by the AA as the head of the group, regulations, and official orders, and submit the project plan, etc. to the head of the project headquarters.

④ The Plaintiff and AA agreed on the establishment authorization of ○○ Branch and the appointment of the head of a branch office, administrative support, support for business activities, etc. under the instant contract. AA clearly takes charge of the Plaintiff’s business activities, such as operating funds, factory and human resources operation, and conducting planning, technical development, business operation, operation management, etc. for the success of the instant project. The content of the said contract appears to be aimed at realizing common interests in the implementation of the instant project by the Plaintiff and AA. In fact, the Plaintiff obtained the establishment authorization of ○○ Branch through a resolution of the board of directors in accordance with the terms and conditions of the said contract, and prepared documents in the name of the Plaintiff necessary for tendering and contract at the request of AA, and such act of the Plaintiff merely constitutes an act resulting from granting the use of name to AA.

⑤ The Plaintiff, rather than a fixed amount under the instant contract, was paid 3 to 5% of the sales revenue of the instant business from AA to ○○○○. After that, the Plaintiff was actually paid part of the sales revenue of the instant business with the amount of ○○○○○. In addition, the Plaintiff managed the sales revenue of the instant business by means of directly receiving the sales revenue of the instant business from ○○ Bank account under the Plaintiff’s name, and then transferring the sales revenue of the instant business to ○ Bank account under the Plaintiff’s name managed by AA, and then transferring the sales revenue of the instant business to ○ Bank account under the instant contract.

6) Under the instant contract, the Plaintiff’s employee identification card paid to the ○○ Branch is prohibited from being used for sending external documents, drawing up a contract, etc., and thus, AA obtained individual approval from the Plaintiff for the purpose of concluding the instant contract related to the instant project, receiving advance payments, and sending corporate documents. The Plaintiff managed and controlled AA and ○○ Branch through this, and participated in the instant transaction, such as the progress situation of the instant project and sales, and settlement of payments. In addition, under the instant contract, the Plaintiff may conduct a regular audit and guidance visit as to the operation of the ○ Branch, and may conduct an occasional audit and inspection on each case. The Plaintiff appears to have actually managed and supervised the accounting of the ○○ Branch by telephone or direct visits. Therefore, it is difficult to view that such management and supervision of the Plaintiff was made in order to verify whether the ○○○ Branch was properly paid.

7) The Plaintiff asserts that the sales revenue of the instant business deposited into the account in the name of the Plaintiff was not controlled and managed by the Plaintiff since it was independently managed by AA and freely used for personal purposes. However, as seen above, the sales revenue deposited into the account in the above ○ bank account remains after the Plaintiff deducted ○○○ amount in advance. Moreover, the considerable part of the sales revenue deposited into the above ○ bank account was used for the instant business, such as raw material purchase cost, ○○ branch's rent for the factory, personnel expenses, etc. Furthermore, as seen above, the Plaintiff could have managed and controlled ○ branch and AAA by means of conducting audits and visits according to the instant contract, and the ○○ branch's management and control of the ○○ branch pursuant to the Plaintiff's accounting business rules, and reflected the Plaintiff's revenue and expenses in the Plaintiff's account, even if the Plaintiff did not use part of the sales revenue deposited into the account in the above ○ bank account for the purpose of the transaction and management of the instant business.

8) Under the main session, the Plaintiff’s business headquarters, such as ○○○○ Headquarters, ○○○ Branch, Asset Management Headquarters, and ○○○○ Enterprise Headquarters, will have several business teams, including ○○ Branch, and among them, would have been operating each of the above business teams in a way similar to ○○ Branch. Considering the structure of the Plaintiff’s organization and the size and method of operation of each of the above business groups of the Plaintiff, the Plaintiff could not simply lend the above business entity’s name as part of the profit-making business, and even “the current status of operation of ○○ Branch” prepared by the Plaintiff’s comprehensive business headquarters, the instant business at the instant ○○ Branch is considered as “the de facto entrusted business” (ab) (in order for the Plaintiff to claim that the principle of substantial taxation should be applied by regarding ○○ Branch as an individual business of AAA, there is a need to file a revised return or a correction claim related to the value-added tax on the entity that is operated in a similar form).

3. Conclusion

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