Cho High Court Decision 2010Du2271 ( December 30, 2010)

Activities of substantial managers, etc. by appropriating the corporation's funds shall constitute the outflow of the company due to its expenditure.

Unless there are special circumstances, the act of the representative director, etc., who is the actual manager of a corporation uses the corporation's funds on the basis of the initial collection, and thus the disbursement itself for the amount is already subject to the outflow of the corporation and the disposition of taxation is legitimate.

2011Guhap10645 Revocation of Disposition of Corporate Tax Imposition

XX Co., Ltd

O Head of tax office

September 2, 2011

September 23, 2011

1. All of the plaintiff's claims are dismissed.

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

The Defendant’s notification of change in income amount of KRW 96,318,181, income amount of KRW 930,00,000 for the year 2005, and KRW 86,40,000 for the income amount of KRW 86,40,000 for the year 206, shall be revoked.

1. Circumstances of dispositions;

The following facts are either disputed between the parties, or acknowledged in full view of the purport of the whole pleadings in the descriptions of Gap evidence 1 through 5, Gap evidence 7, Gap evidence 8-1, 2, Gap evidence 9-9-1, 19, 20-1, 2, Eul evidence 1-1, 2, and Eul evidence 2 through 8.

A. Ground for the change of the largest shareholder

(1) The Plaintiff is a corporation established on June 13, 1997 for the purpose of research and development of game software.

(2) Since June 21, 2004, LA acquired 520,000 shares (9.28% of the total number of outstanding shares) of the Plaintiff from the company that was a representative director, and thereby, LA was the largest shareholder of the Plaintiff. LA held office as the representative director of the Plaintiff from September 21, 2004 to March 28, 2005.

(3) On January 5, 2005, the OCC, a representative director, purchased 2,838,564 shares of the Plaintiff (22.26% of the total number of issued shares) from BBcom and became the largest shareholder of the Plaintiff. KimCC held office as the representative director of the Plaintiff from March 28, 2005 to June 18, 2007.

(4) On March 21, 2008, △△ Entertainment Co., Ltd. and its specially related parties, which participated in capital increase with the third party allotment issued by the Plaintiff, became the largest shareholder by acquiring 2,446,878 shares of the Plaintiff (39.47% of the total number of shares issued).

B. The details of the notice of change in the income amount No. 1 of this case

(1) On August 12, 2004, the Plaintiff received a tax invoice of KRW 90,909,091, value-added tax amounting to KRW 90,090,90,909 from the supply price to the △ Information and Communications Co., Ltd. (hereinafter referred to as “△ Information and Communications”), and received each tax invoice of KRW 90,90,90 from that time to December 10, 2004, as shown in the separate sheet No. 1 (hereinafter referred to as “each tax invoice of KRW 1 through No. 7” in sequence 1 through No. 7).

(2) On February 2, 2005, the Plaintiff appropriated the supply price under each tax invoice of this case 1 through 6 and the transaction amount under each tax invoice of this case 7 as the short-term loan to the literatureA. On March 3, 2005, the Plaintiff filed a charge of embezzlement and breach of trust with the Seoul Dong District Prosecutors' Office.

(3) From December 21, 2009 to January 29, 2010, the Defendant conducted an integrated investigation into corporate taxes for each business year from 2004 to 2006. As a result, from July 1, 2004 to December 31, 2004, literatureA received each tax invoice of this case from July 1, 2004 to December 31, 2004 without real transaction, it is deemed that it embezzled the Plaintiff’s money by depositing the transaction amount according to the above tax invoice into BBcom account; on March 22, 2010, the Plaintiff received some of the value-added tax pursuant to each tax invoice of this case from 108,772,725 won, which is the total amount of value-added tax pursuant to the above tax invoice of this case, and disposed of the amount of income for 2004 to the Plaintiff as the total amount of income amount of KRW 108,572,725 won, and the Plaintiff notified the remainder of the amount of value-added tax amount of this case No.25141.

C. The details of the notice of change in the income amount Nos. 2 and 3 of this case

(1) On February 10, 2005, the Plaintiff drafted a service contract for the development of each game set of KRW 466,400,000 (including value-added tax) with AA engineering (hereinafter “A”), and each game set of KRW 466,400,000 (including value-added tax) on July 1, 2005.

(2) On November 12, 2005, the Plaintiff received tax invoices of KRW 120,00,000, value-added tax amount of KRW 12,000,000 from A, and each tax invoice listed in the separate sheet issued in the separate sheet No. 2 (hereinafter “each tax invoice Nos. 8 through No. 11”) from around the time to January 3, 2006, and then remitted each of the tax invoices listed in the separate sheet No. 2 (hereinafter “each tax invoice Nos. 8 through No. 11”) to the passbook No. 930,00,000 on December 30, 205, and KRW 86,40,000 on January 3, 2006, respectively.

(3) As a result of the Defendant’s consolidated investigation into corporate taxes against the Plaintiff, the Defendant deemed that the Plaintiff received each of the tax invoices set forth in Articles 8 through 11 of the instant case without real transactions, and as above, on March 22, 2010, the Defendant issued a notice of changes in the amount of income under each of the above dispositions to the Plaintiff on December 30, 2005 (hereinafter referred to as “the notice of changes in the amount of income No. 2 of the instant case”) with the representative’s 2005 income, and the 86,400,000 won transferred on January 3, 2006 (hereinafter referred to as “the third notice of changes in the amount of income”) with the representative’s income belonging to 206, respectively, and notified the Plaintiff of changes in the amount of income under each of the above dispositions (hereinafter referred to as “each of the above notice of changes in the amount of income each of the instant case’s 2 and 3 dispositions”).

2. Whether each of the changes, notifications, and dispositions in this case is legitimate

A. The plaintiff's assertion

(1) Disposition No. 1 of this case

(A) Each transaction according to the tax invoices set forth in subparagraphs 1 through 6 of this case is not a processing transaction, but a real transaction exists, but a disguised transaction for concealment of a transaction party. The transaction amount is attributed to △ Information and Communications, △△△△△ Stock Company (hereinafter referred to as the “▽△”) and △△ Investment Consulting Co., Ltd. (hereinafter referred to as the “△△△”) that actually provided goods or services of each of the above transactions, which are not door AA. Nevertheless, the Defendant identified each of the above transactions as a processing transaction, and deemed that the notice of change in the amount of the 1st income of this case was attributed to Pacific, and thus, it should be revoked.

(B) Since the value-added tax pursuant to the tax invoices of the case Nos. 1 through 6 is liable for the payment of the value-added tax, the Plaintiff cannot appropriate it as a short-term loan. Therefore, the Defendant’s disposition of notice of change on the ground that the amount equivalent to the value-added tax was not appropriated as a short-term loan is unlawful

(C) The Plaintiff holds shares that amounting to approximately 80% of the total amount of 10% as a KOSDAQ-listed corporation, and cannot be deemed as identical to the Plaintiff’s intent, and the Plaintiff does not consent to, or implied and aided and abetting the act of the Plaintiff, and as long as the Plaintiff has a right to claim damages against, literatureA, the notice of change in the 1st income amount cannot be deemed as being leaked out of the company. Thus, the Defendant’s disposition of change in the 1st income amount on a different premise is unlawful.

(2) Disposition Nos. 2 and 3 of this case

(A) Each of the tax invoices listed in Articles 8 through 11 of the instant case is not a tax invoice for processing transactions. Moreover, even if it is a tax invoice for household processing transactions, the transaction amount according to the tax invoice is attributed to AA which was remitted, but the Defendant’s disposition of notice of change in Articles 2 and 3 of the instant case, which is premised on the fact that the transaction amount belongs to KimP.

(B) In light of the following: (a) the Plaintiff appropriated the notice of change in the amount of income under Articles 2 and 3 in the audit report of 2010 as a short-term loan; (b) the intent of the Plaintiff’s representative director is identical to that of the Plaintiff; or (c) cannot be deemed to coincide with the Plaintiff’s economic interest with the Plaintiff; (d) there is no Plaintiff’s implied or ratified transaction pursuant to each of the above tax invoices; and (e) the Plaintiff has a right to claim damages against KimCC based on illegal act, the notice of change in the amount of income under Articles 2 and 3 cannot be deemed to have been divulged out of the company. Accordingly, the Defendant’s disposition of change in the amount of income

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

(1) Disposition No. 1 of this case

(A) Judgment on the Plaintiff’s first argument

1) Murder, the facts acknowledged earlier and evidence Nos. 20-1, 2, 21, and 22

In light of the following circumstances, it is reasonable to deem that each of the tax invoices of this case 1 through 6 was a processed tax invoice without real trade, and the Plaintiff’s assertion on a different premise is without merit.

A) Part of the tax invoice under the name of the information and communications company

① As alleged by the Plaintiff, if each of the tax invoices 1 through 4 of this case was purchased from BBcom and received a tax invoice in the name of △△ Information and Communications in order to disguise the transactional relationship, the said PEP and server equipment are included in the Plaintiff’s assets on the account book, and thus, it is not necessary to appropriate the transaction amount as the short-term loan for PE, and the Plaintiff, around February 2005, included the supply amount under each of the tax invoices 1 through 4 of this case as the short-term loan for PE.

② The Plaintiff seems not to have received delivery of the above PDP and server equipment through BBcom or △ Information and Communications.

③ The Plaintiff submitted an asset acquisition agreement prepared between the Plaintiff and BBcom as evidence supporting that the said transaction was a real transaction. However, in light of the fact that the pertinent asset acquisition agreement, which was not submitted in the tax investigation or pre-trial procedure, was submitted on July 8, 201 after the filing of the instant lawsuit, was about four months after the filing of the lawsuit, there is a possibility that it was prepared ex post facto, and even if not, the credibility of the contents in light of the relationship between the Plaintiff and BBcom is lost.

④ On February 16, 2006, in the case of embezzlement, etc., the Seoul High Court 2005No2404, which became the largest shareholder of the Plaintiff, sentenced two years to imprisonment on the ground that he embezzled the Plaintiff’s money by arbitrarily using the Plaintiff’s money from the deposit account in the name of BBcom. In light of the Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s Embezzlement’s misappropriation’

B) The portion of the tax invoice in the name of the △△△ and △△△.

① Even based on the Plaintiff’s assertion, the Plaintiff was not provided with consulting services on the acquisition of shares from the △△△△△△△△.

② The Plaintiff submitted a consulting contract, which was prepared between the Plaintiff and the ▽▽△△△ in around 2004, based on evidentiary materials supporting that the transaction under the instant tax invoice was a real transaction. However, the content of the said consulting contract is inconsistent with the Plaintiff’s assertion that the Plaintiff was not provided with consulting services for acquiring shares from the ▽▽△△△△. In addition, in light of the fact that the said consulting contract, which was not submitted in the tax investigation or pre-trial proceedings, was submitted only on July 8, 201 when about four months elapsed after the instant lawsuit was filed, there is a high possibility that it was prepared later

③ The Plaintiff’s representative director at the time embezzled the amount equivalent to the transaction price under each tax invoice of Articles 5 and 6 of the instant case, and then, he appears to have received the tax invoice from the △△△△△, which was related to BBcom that he had been the representative director, and processed it as the service cost.

(B) Judgment on the second argument of the Plaintiff

As seen earlier, inasmuch as doorA embezzled the amount equivalent to the transaction amount pursuant to each of the tax invoices set forth in subparagraphs 1 through 6 of this case, the Plaintiff may exercise the claim for damages or the claim for loans, etc. equivalent to the above amount against doorA. Therefore, the Plaintiff’s assertion on this part, premised on the fact that the amount equivalent to the value-added tax pursuant to each of the above tax invoices cannot be appropriated as short

(C) Judgment on the third assertion by the Plaintiff

1) The act of a representative director, etc., who is the actual manager of a corporation, uses the corporation's funds on the premise of early recovery, and thus, it is not an act of using the corporation's funds, barring any special circumstance, and thus, constitutes an outflow from the company as an expenditure itself. As to special circumstances, which cannot be deemed as not premised on recovery from the utilization point of view, it shall be determined individually and specifically by taking into account all the circumstances, such as the actual status within the corporation of the representative director, etc., the subject of the embezzlement, the degree of control over the corporation, the circumstances leading to the embezzlement, and the measures taken by the corporation after the embezzlement, etc., such as where the intent of the representative director, etc. is identical to the intent of the corporation, or where it is difficult to deem that the representative director, etc. and the corporation's economic interest are in fact identical. Such special circumstances must be proved by the alleged corporation (see Supreme Court Decision

2) It is insufficient to conclude that the expenditure of the notice of change in the income amount No. 1 of this case was made on the premise of the initial recovery only with the evidence submitted by the Plaintiff as to the instant case. Rather, in light of the following circumstances, which comprehensively revealed the aforementioned acknowledged facts and the purport of the entire pleadings, it is reasonable to deem that the above amount was out of the company as it was not premised on the recovery from the original time, and thus, it is not reasonable to deem that the expenditure was in itself out of the company. Therefore

A) On February 2, 2005, the Plaintiff appropriated the amount equivalent to the value of supply under each tax invoice of this case 1 through 6 as a short-term loan to literatureA, but did not include the amount equivalent to the value-added tax pursuant to each of the above tax invoices as a short-term loan. As long as the amount equivalent to the value-added tax was deducted as an input tax amount, it appears to be based on the determination that the claim for loans or the claim for damages related thereto need not be exercised. The Plaintiff did not intend to recover the amount of the notice of change in the income amount

B) On November 22, 2006, the Plaintiff filed a lawsuit seeking reimbursement of KRW 2.6 billion against the Suwon District Court (Seoul District Court Decision 2006Gahap3327, Nov. 22, 2006). However, the amount of the claim for damages is not included in the loan claim or damage claim related to the amount of notice of change in the income amount No. 1 in this case, and there is no evidence suggesting that the Plaintiff claimed reimbursement against the Jongno.

C) The above loan claim or damage claim is due to commercial claim or tort, and the period of extinctive prescription expires at the expiration of five years from the date of the occurrence of the claim or three years from the date of becoming aware of the damage and the tortfeasor. It seems that the extinctive prescription period of the above

(D) Disposition Nos. 2 and 3 of this case

1) Determination on the first argument of the Plaintiff

In light of the following circumstances, each of the facts acknowledged earlier and each of the statements Nos. 7, 8, 10, 11, and evidence Nos. 8 through 11, a tax invoice of this case is a tax invoice for a processing transaction, and the subsequent transaction amount is not deemed to have been attributed to AA. Therefore, the Plaintiff’s assertion on this part is without merit.

A) Considering the fact that A had little sales performance in addition to the sales performance under each of the tax invoices listed in Articles 8 through 11, and that AA was ex officio closed by the competent tax office on December 8, 2006, the Plaintiff seems to have no ability to develop the game soft development service contract with AA around February 2005, at the time of the preparation of the game soft development service contract with AA.

B) Of KRW 30,00,000, which was remitted to the Agricultural Cooperative Account in the name of AA on December 30, 2005, KRW 35,000,000, the remaining KRW 895,000 was replaced by “0,000-00 on the same day.” immediately thereafter, the amount of KRW 895,00,000 was returned to the Plaintiff’s passbook as the depositee, and the amount of KRW 86,40,000 was returned to the said Agricultural Cooperative Account in the name of AA on January 3, 206, immediately after the deposit, and the full amount was deposited, and the amount of KRW 86,40,00,00 was returned from the Plaintiff’s money to the Plaintiff on December 28, 2005, and there was no other transaction with the said passbook. In view of all other circumstances, the said Agricultural Cooperative Account opened on December 28, 2005 only did not have accrued from the said passbook.

C) After the completion of the tax investigation on the Plaintiff, each of the tax invoices set forth in Articles 8 through 11 is deemed to have been issued without a real transaction.

2) Judgment on the second argument by the Plaintiff

In light of the following circumstances, each evidence submitted by the Plaintiff alone is insufficient to readily conclude that the expenditure of the notice amount of change in the amount of income under Articles 2 and 3 of this case was made on the premise of the initial recovery. Rather, in light of the aforementioned acknowledged facts and the overall purport of the pleadings as a whole, the above amount of payment is not premised on the recovery from the beginning, and it is deemed that the expenditure was carried out in itself, as it is not a premise of the recovery from the beginning. Accordingly, this part of the Plaintiff’s assertion is without merit.

A) On June 18, 2007, KimCC resigned from the Plaintiff’s representative director. On April 18, 2008, the Plaintiff filed a loan claim lawsuit against KimCC with the Seoul District Court Decision 2008Du35454, which sought approximately KRW 2.5 billion, and was sentenced to partial winning of the Plaintiff. However, in the above loan claim lawsuit, the Plaintiff did not seek the payment of the loan claim or the damages claim related to the amount of the notice of change in the income amount Nos. 2 and 3 of this case.

B) After the completion of the tax investigation, the Plaintiff had no intention to recover the amount equivalent to the transaction amount according to each tax invoice Nos. 8 through 11 of the instant case as short-term loans to KimCC, etc.

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.