Appropriateness of a disposition imposing a bonus on a person with a special relationship at the time of closure of a corporation;

The provisional payment and the recognized interest that are not recovered by deeming the special relationship with the Plaintiff as extinguished at the time of closure of the provisional payment stated in the balance sheet as the representative of the Plaintiff, shall be disposed of as a bonus to the Plaintiff, and the disposition imposing global income tax after giving notice of change in the amount of income is legitimate.

Article 52 of the Corporate Tax Act: Denial of Wrongful Calculation

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 global income tax of KRW 103,661,739 against the plaintiff on June 1, 2004 by the defendant shall be revoked.

1. Details of taxation; and

A. ○○○ Co., Ltd. was a corporation established on April 22, 1998 with the manufacturing business of steel structures as its business objective, which was established on May 1, 1998, and operated the above business at KRW 370,000,000 after its business registration was completed on May 1, 1998, and closed its business on March 31, 2002.

B. At the time of closure of business, the Plaintiff was holding as the representative director of ○○○○ as well as holding 7,000 total number of 28,000 shares of 75.68% of total number of ○○○○○○○, and, on the other hand, ○○ reported corporate tax for the year 2001, included KRW 263,94,00 as the provisional payment for the Plaintiff on the balance sheet.

C. However, the defendant decided that the special relation between the plaintiff and the ○○○○ at the time of the closure of ○○○○ was extinguished, and on the ground that the above provisional payment was reverted to the plaintiff as the ○○○○○○ did not recover the above provisional payment from the plaintiff, the above provisional payment was disposed of as bonus to the plaintiff, and on the ground that the above provisional payment was reverted to the plaintiff, the sum of KRW 263,94,000 and KRW 5,857,387, and KRW 269,801,387 (hereinafter "the above provisional payment, etc.") were disposed of as income to the plaintiff, and on February 17, 2004, notified the change in the amount of income for which the above amount was reverted to the plaintiff in the year of 202. On June 1, 2004, the defendant corrected the tax disposition to increase the amount of income for the plaintiff to KRW 103,61,730.

D. Accordingly, on June 22, 2004, the Plaintiff filed an objection against the Defendant seeking revocation of the instant taxation disposition, but was dismissed, and on August 6, 2004, the Plaintiff filed an appeal with the National Tax Tribunal, which was again dismissed.

[Reasons for Recognition] Facts without dispute, Gap evidence No. 1, Eul evidence No. 1-6, Eul evidence No. 3, 5, 6, 7, 8, Eul evidence No. 12-1, Eul evidence No. 12-2, Eul No. 13, 14, 15, and 17, and the purport of the whole pleadings.

2. Whether the taxation disposition is legitimate

A. The plaintiff's assertion

First, although the ○○○○ closed on March 31, 2002, the instant taxation disposition that held that the instant provisional payment, etc. reverted to the Plaintiff was unlawful on the ground that the instant provisional payment, etc., was extinguished solely on the ground that the instant provisional payment, etc., was not deemed to have been reverted to the Plaintiff, even though the instant provisional payment, etc., was not deemed to have existed in the corporate personality of ○○ until the date when the general meeting of shareholders completed the resolution of dissolution on February 19, 2004 and completed the registration of completion of liquidation on June 22, 2004.

Second, if it is deemed that the above company was actually liquidated at the time of closure of ○○○○○○○○○○○○, and the special relationship between the Plaintiff and ○○○○○○○○○○○ was also extinguished, the Plaintiff would have obtained the right to claim distribution of residual assets against ○○○○○○○. As such, if a set-off of the claim for return, such as the distribution claim and the provisional payment claim against ○○○○○○○○○○○○○○○○, the Plaintiff would not have any provisional payment to be returned to ○○○

(b) Related statutes;

○ Corporate Tax Act

Article 52 Denial of Wrongful Calculation

(1) Where the head of the district tax office having jurisdiction over the place of tax payment or the Commissioner of the competent Regional Tax Office deems that the tax burden on the income of a domestic corporation has been unjustly reduced through transactions with persons with a special relationship prescribed by Presidential Decree (hereinafter referred to as "specially related persons"), he/she may calculate the income amount for each business year of the relevant corporation regardless of the activities or calculation of the income amount of the relevant corporation

(2) In the application of the provisions of paragraph (1), the standard for determination shall be the prices (including rates, interest rates, rents, exchange rates and other equivalent rates; hereafter referred to as "market price" in this Article) applied or to be applied in sound and generally accepted practices and normal transactions between unrelated parties.

(3) A domestic corporation shall submit a detailed statement describing transactions with a specially related person for each business year as prescribed by the Presidential Decree.

(4) In applying the provisions of paragraphs (1) through (3), matters necessary for the types of wrongful calculation and the assessment of market price shall be prescribed by the Presidential Decree.

Article 67 Disposal of Income

In filing a report on the tax base of corporate tax on income for each business year under the provisions of Article 60 or in determining or revising the tax base of corporate tax under the provisions of Article 66 or 69, the amount included in the calculation of earnings shall be disposed of as bonus, dividend, other outflow from the company, internal reservation, etc. according to the person to whom it

○ former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17826, Dec. 30, 2002)

Article 87 Scope of Persons with Special Relationship

(1) "Person with a special relationship prescribed by Presidential Decree" in Article 52 (1) of the Act means a person with a relationship falling under any of the following subparagraphs with a corporation (hereinafter referred to as a "person with a special relationship"):

2. Stockholders, etc. (excluding minority shareholders; hereafter the same shall apply in this Sub-section) and their relatives;

3. Officers, employees or persons other than employees of a corporation (referring to the officers in case of a profit-making corporation, and the director and founder in case of a non-profit corporations) or employees, whose livelihood depends on the cash and other assets of the corporation or stockholders, and their relatives who depend upon them for their livelihood;

§ 106. Disposal of income

(1) The amount included in the calculation of earnings under the provisions of Article 67 of the Act shall be disposed of under the provisions of the following subparagraphs. The same shall apply to non-profit domestic corporations

1. Where the amount included in the calculation of earnings has clearly leaked out of the company, the dividends, bonuses from the disposition of profits, other income, and other outflow from the company under each of the following items according to the person to whom they accrue: Provided, That where the accrual is unclear, it shall be deemed as accrual to the representative (where the total number of stocks held by an officer who is not a minority shareholder under the provisions of subparagraph 2 of Article 87 and persons with a special relationship under the provisions of paragraph (4) of the same Article is 30% or more of the total number of stocks issued or total investment amount of the concerned corporation and the officer actually controls the operation of the corporation, he shall be deemed the representative, and where a corporation which has been exempted from withholding taxes under the provisions of Article 46 (12) of the Restriction of Special Taxation Act reports that there is a separate representative among the officers who are stockholders, the reported person shall be the representative,

(a) Where the person of accrual is a stockholder (not including stockholders who are officers or employees), the dividends of the person of accrual;

(b) If the person to whom it belongs is an officer or employee, the bonus to the person to whom it reverts;

○ Common Rules of Corporate Tax Act

4-06 [Standards for processing provisional payments, etc.]

(1) Where the provisional payment, etc. and the amount equivalent to the interest accrued from a financial transaction with a person with a special relationship fall under any of the following subparagraphs, it shall be deemed that they have been disposed of under the provisions of Article 106 of the Decree: Provided, That this shall not apply where there is a justifiable reason not recovered, or where it is objectively proved that they have been recovered:

1. Unclaimed provisional payments, etc. and interest to be accrued until the special relationship is extinguished (amended on February 1, 1993);

2. Interest which, in case where the special relation continues, has not been recovered from the last day of the business year to which the date of occurrence of interest belongs until one year. (No later than February 1, 1993).

(2) Provisional payments, etc. pursuant to paragraph (1) shall be deemed to have been disposed of in the business year to which the date listed in the following subparagraphs belongs:

1. Provisional payment: The date on which the special relationship is extinguished; and

2. Interest to be received: The day one year lapses from the end of the business year in which the occurrence date occurred: Provided, That where the special relation is extinguished within one year, the day on which the special relation is extinguished (amended by Feb. 1, 1993).

(3) Where an attempted interest deemed disposed of pursuant to paragraph (1) is received thereafter, such interest shall be deemed the carried forward income and shall not be included in gross income for the business year in which such interest is received.

(4) The unpaid interest of the other party corresponding to the accrued interest who is deemed disposed of pursuant to the provisions of paragraph (1) shall not be deemed a debt until the other party actually pays it. Therefore, the unpaid interest shall be included in the gross income in calculating the income amount for the business year including the date one year has elapsed from the end of the business year in which the accrued, and such unpaid interest shall be included in the deductible expenses in calculating

(5) For the purpose of the proviso to paragraph (1), the term “justifiable cause for failure to recover or objectively prove that recovery has been made” means cases falling under any of the following subparagraphs:

1. Where it is impossible to recover due to disputes over claims or obligations;

2. Where the bonds are secured by furnishing an asset equivalent to the claims to be recovered or by compulsory execution against the owned property;

3. Where a person holds obligations which may offset the claims concerned.

4. Where it falls under other causes similar to subparagraphs 1 through 3.

C. Determination

(1) As to the plaintiff's first argument

(A) The fact that a stock company appropriates the provisional payment to a person with a special relationship on the account book as a "provisional payment" is premised on the recovery of the provisional payment from the person with a special relationship. Therefore, if a stock company practically waives the collection or is placed in a situation in which it is impossible to recover the provisional payment from the person with a special relationship, it is reasonable to deem that the provisional payment would eventually be reverted to a person with a special relationship, and thus, in such a case, the above provisional payment would eventually be subject to disposal of income pursuant to Article 67 of the Corporate Tax Act. (The general rules of the Corporate Tax Act, which provide detailed criteria for disposal of the provisional payment, etc. leaked out of the company, is merely a specification of the provisions of Article 106 of the former Enforcement Decree of the Corporate Tax Act, and it is not always possible to dispose of income only if the basic requirements of the above general rules are met).

(B) In this case, we examine whether ○○○ renounced the collection of the provisional payment of this case against the Plaintiff or placed it in a situation in which it is impossible to recover.

First of all, as the representative director holding 75.68% of the total number of stocks at the time of the closure of ○○○○○○○, the Plaintiff had a special relationship with ○○○○○ as prescribed in the Corporate Tax Act, and the fact that ○○○ was closed due to business depression and did not recover the provisional payment, etc. from the Plaintiff by the date of the closure of business was examined as above. Furthermore, ○○○ was revoked on October 2001 on the ground that 5 technical persons required to be held under the provision are merely 2 persons, and the construction business license was operated around 201, and no longer was operated after the closure of business, and no corporate tax or value-added tax was paid. After the notice of change in the amount of income to the Plaintiff, the resolution was made at the general meeting of shareholders on February 19, 2004, and the completion of the registration of liquidation on June 22, 2004, which was after the instant taxation was made, and the purport of the entire pleadings can be acknowledged in full view of the arguments.

As stated in the above facts, if ○○○ discontinues its business due to a business depression and does not operate any business, before and after the date of receiving the instant taxation on the premise that the special relationship between the Plaintiff and ○○○○ upon closure of business from the route had already been extinguished, it can be deemed that the provisional payment had been finally reverted to the Plaintiff even if ○○○○ did not follow the dissolution and liquidation procedures under the Commercial Act at the time of closure of business, and that the special relationship between ○○○ and the Plaintiff was extinguished as well as the actual liquidation and extinguishment at the time of the closure of business, and even if ○○○○ did not recover the provisional payment from the Plaintiff by the time of the instant taxation as well as by the time of the subsequent taxation, if ○○○ did not recover the provisional payment from the Plaintiff, it is reasonable to deem that ○○○ actually renounced or impossible to recover the provisional payment. Accordingly, it is reasonable to deem that the provisional payment in this case was finally reverted to the Plaintiff.

(C) Therefore, this part of the Plaintiff’s assertion is not acceptable, based on the premise that ○○ and the Plaintiff still exist as a legal personality even after the closure of business, and only the special relationship between ○○ and the Plaintiff is not extinguished.

(2) As to the plaintiff's second argument

(A) The liquidator of a stock company shall investigate the status of the company for the realization of the property, the repayment of the obligation, and the distribution of the remaining assets, and shall prepare the so-called liquidation property list and the liquidation balance sheet, and if there is any remainder in the liquidation property for which all the obligations are repaid and reimbursed, the shareholder of the stock company may receive the distribution of the property according to the number of shares (Articles 533, 539, 542(1), and 260 of the Commercial Act).

(B) However, in the instant case, as seen earlier, the fact that ○○○ had been actually liquidated at the time of the closure of the business, and according to the evidence No. 6, on December 31, 2001, on the settlement balance sheet of ○○○○○ as of December 31, 2001, the fact that 462,032,238 won, debt amount, 91,623,173 won, capital amount, 370,000 won, earned surplus amount, and 409,065 won, can be acknowledged, but it is not enough to recognize that the said balance sheet alone alone, caused a claim for distribution of residual property to the Plaintiff, and there is no other evidence to prove otherwise.

(C) Therefore, we cannot accept the Plaintiff’s assertion on the premise that the Plaintiff has the right to claim the distribution of residual property against ○○○○.

3. Conclusion

Therefore, the plaintiff's claim seeking revocation on the premise that the taxation disposition of this case is unlawful shall be dismissed without merit, and the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.