Character of personnel expenses paid to pilots who are investors of the plaintiff

It is reasonable to view that the instant personnel expenses merely take the form of remuneration (the instant personnel expenses) in order to allocate the profits reserved to the Plaintiff to the instant pilot rather than as the normal price for the performance of the instant pilot’s duties.

Article 19 (Scope of Losses)

2018Guhap7765 Revocation of Disposition of Imposition of Corporate Tax, etc.

U

BB Director of the Tax Office

on October 29, 2019

October 10, 2019

1. The plaintiff's claim is dismissed.

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

On November 1, 2017, the imposition disposition of each corporate tax (including additional tax) listed in the list of separate corporate tax assessment (including additional tax) by the Defendant against the Plaintiff as of November 1, 2017 is revoked in excess of each corporate tax listed in the same list B.

1. Details of the disposition;

A. The Plaintiff is a corporation established by 100% of pilotages affiliated with the Association of 00 Pilots, which is an organization under the Association of 100 Pilots, and is engaged in the collection of pilotage fees on behalf of the pilot belonging to the Association of 00 Pilotages. TT stock companies (hereinafter “T”) are operating pilotage business in which pilots belonging to the Association of 00 Pilotages who request pilotage by their own pilot ships transport and receive pilotage fees from the ship owners.

B. From 2013 to 2016, the Plaintiff paid a pilot, who is an investor, allowances such as salaries, food expenses and expenses on duty, and merchandise coupons, and paid the 4th insurance premium to the pilot, and then reported and paid corporate tax by including it in deductible expenses.

C. As a result of conducting a tax investigation with the Plaintiff from July 12, 2017 to September 22, 2017, the Commissioner of the Busan Regional Tax Office: (a) deemed that the Plaintiff had not provided labor between 2013 and 2016 until the business year of 2016, the Plaintiff’s payment of wages of KRW 2.49 billion, allowances of KRW 320 million, and four premium of KRW 168 million, paid by the Plaintiff (hereinafter collectively referred to as “the instant personnel expenses”) and gift certificates of KRW 241,890,00,000, as follows, shall be deemed as having been changed to have been paid for expenses, and notified the Defendant as taxation data, on the ground that the processed expenses without evidentiary evidence have been appropriated for expenses for the business year from 2012 to 2016:

D. Accordingly, the Defendant: the instant personnel expenses, merchandise coupons, and processing expenses; KRW 3,583,206,050,050

On November 1, 2017, the Plaintiff rendered the disposition of imposition of each corporate tax (including additional tax) as stated in the list of the disposition of imposition of corporate tax (hereinafter referred to as the "disposition of this case") in attached Form 1.

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on January 29, 2018, but the Tax Tribunal dismissed the Plaintiff’s appeal on September 28, 2018.

F. During the process of the instant lawsuit, the Plaintiff reduced the purport of the instant lawsuit by indicating the tax disposition regarding the non-deductible of the portion of the gift certificates and processing expenses and the intent of recognizing the grounds therefor (the application for modification of the purport of the claim and the grounds for the claim as of May 22, 2019). Pursuant to the Plaintiff’s aforementioned reduction intent, the Plaintiff finally sought the scope of the Plaintiff’s claim for cancellation of the instant disposition in accordance with subparagraph 23-1 to 6 of the Plaintiff’s legitimate amount of tax (the application for modification of the purport of the claim and the grounds for the claim as of May 22, 2019) was reduced to “(i) notified tax amount” in the list of the disposition imposing corporate tax in the attached Form “(s)” and “(ii) due tax amount to be additionally imposed on the Plaintiff when the Plaintiff did not include only gift certificates and processing expenses that the Plaintiff did not dispute.” (

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, Eul evidence Nos. 1, 2 and 23 (including branch numbers), the purport of the whole pleadings

2. The plaintiff's assertion and judgment

A. The plaintiff's assertion

1) The primary argument

Since the Plaintiff was established to vicariously perform pilotage dues and the joint business of 00 Pilotages, pilotages performed the Plaintiff’s duties as its officers, and pilotages participated in the Plaintiff’s decision-making process, as well as the Plaintiff’s status as a pilot and the Plaintiff’s officer, and performed various duties related to the Plaintiff’s business, such as amending and supplementing pilotage statutes through various Association activities, etc. Accordingly, the instant personnel expenses paid by the Plaintiff to pilotages from 2013 to 2016 should be included in deductible expenses in calculating corporate tax against the Plaintiff.

2) Preliminary assertion

Even if some pilots cannot be recognized as a full-time officer, under Article 43(4) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 28640, Feb. 13, 2018; hereinafter the same) the remuneration that a non-permanent pilot pays to an executive officer of a non-permanent corporation shall be included in deductible expenses, except where the rejection provision of wrongful calculation under Article 52 of the former Corporate Tax Act (amended by Act No. 16008, Dec. 24, 2018; hereinafter the same shall apply) is applicable. In order to deny the foregoing wrongful calculation provision, it shall be recognized that the transaction with a specially related party reduced the tax burden on the corporation's income. However, the market price should be determined based on the market price, but the defendant did not assert or prove at all on the market price of remuneration paid to the plaintiff's executive officer. Thus, the instant personnel expense should be included in deductible expenses as it does not apply to the rejection provision of wrongful

B. Relevant statutes

It is as shown in the attached Form.

C. Whether the instant disposition is lawful

1) Relevant legal principles

Article 19 (1) of the former Corporate Tax Act provides that "deductible expenses shall be the amount of losses incurred by transactions which reduce the net assets of the relevant corporation, excluding the refund of capital or financing, disposal of surplus funds, and what is otherwise provided for in this Act," Paragraph (2) provides that "Except as otherwise provided for in this Act and other Acts, losses referred to in paragraph (1) shall be generally accepted as losses or expenses incurred in connection with the business of the relevant corporation or directly related to profit-making." Paragraph (4) provides that "matters necessary for the scope, classification, etc. of losses referred to in paragraphs (1) through (3) shall be prescribed by Presidential Decree." Article 19 of the former Enforcement Decree of the Corporate Tax Act provides that "the losses referred to in Article 19 (1) of the Act shall be losses referred to in the following subparagraphs except as otherwise provided for in the Act and this Decree:"

In light of the above provisions, in order to include the amount paid by a corporation as remuneration or other bonus in its deductible expenses, the pertinent amount should be included in the above labor cost. Of note, labor cost should not be limited on the basis of appearance, such as salary, salary, allowances, and bonus. However, as Article 19(1) of the former Corporate Tax Act requires “general or directly related to losses or expenses generated or spent in connection with the corporation’s business” as of the basis of inclusion in deductible expenses, it should be interpreted that the amount of remuneration paid by the corporation should be “the amount paid for the provision of labor.” Meanwhile, it should be interpreted that labor contract relations between the corporation and the person who received such remuneration should be established as remuneration for the provision of labor. In addition, it should be interpreted that the aforementioned amount of remuneration paid by the corporation for the performance of its duties should be deemed as expenses for the performance of the corporation’s business, in principle, that the amount of remuneration paid by the corporation to its executives should not be included in deductible expenses, in light of the concept of increase or decrease in the amount of remuneration paid by the corporation.

2) Judgment on the plaintiff's primary assertion

In light of the above provisions and legal principles, in full view of the following circumstances that can be seen by adding the facts and evidence as seen earlier to the respective entries and the entire purport of the pleadings as stated in the evidence Nos. 3 through 22, and 24 (including the number of branches), the instant personnel expenses paid by the Plaintiff to the pilot does not constitute "labor expenses subject to inclusion in deductible expenses", and the Plaintiff paid the reserved profits to the pilot, who is the shareholder, and thus excluded from inclusion in deductible expenses under the former Corporate Tax Act. Therefore, the instant disposition that was made by the Plaintiff in the calculation of deductible expenses for the instant personnel expenses paid to the pilot is deemed legitimate.

A) The Plaintiff asserts that the Plaintiff’s joint performance of pilotage duties is a juristic person established for the purpose of the joint performance of pilotage duties and pilotage duties belonging to a group of 00 pilotings. Thus, it should be deemed that the Plaintiff’s performance of pilotage duties is the Plaintiff’s performance of duties. However, according to each of the Plaintiff’s registration items (Evidence A3), the Plaintiff’s articles of association (Evidence A4), and the Plaintiff’s full certificate of registration of the Association of 00 Pilots (Evidence B-2-1), the Plaintiff is a juristic person established for the performance of pilotage duties. 00, which is an incorporated organization under the Association of 00 Pilots, is a juristic person established for the performance of pilotage duties, for the purpose of promoting the rights and interests of pilotages, improving the pilotage environment, coordinating pilotage duties, and providing advice and advice on government policies, improving the welfare of members, improving pilotage equipment and pilotage duties, strengthening pilotage equipment and heating duties, etc., and thus, it cannot be deemed that the Plaintiff’s performance of pilotage duties is either a juristic person or a juristic person established for the performance of pilotage duties.

B) From the year 2013 to the business year 2016, the Plaintiff paid wages to 12 to 19 pilots, and the Plaintiff’s workplace can enable pilots of the above number of pilots to work.

It seems that there is no space or facility.

다) 00항 도선사회 소속 도선사들은 보통 15일 도선작업기간, 10일 휴무기간, 2일 대기기간을 갖고 도선 용역을 제공하고 있으며, 도선작업 기간 중에는 보통 새벽 5시 경부터 17시 내지 19시 30분경까지 도선 용역을 제공하고, 도선작업 기간 중에는 도선 용역을 제공하기 위해 사업장 인근에서 거주하다가 휴무 기간에 자택으로 돌아가는 형태로 용역을 제공한다. 위와 같은 00항 도선사회 소속 도선사들의 도선 용역 제공 형태에 비추어 도선사들 전부가 시간을 쪼개 틈틈이 원고의 업무를 보는 것은 현실적으로 매우 곤란하였을 것으로 보인다.

D) According to the document of “Adjustment of Pilot’s Allowance” in the 00 Pilotage Society’s “Adjustment of Pilot’s Pilot’s Allowances, among other allowances paid as a pilot’s allowance in the 00 Pilotage society, the expenses for meals and travel travel are included in the allowance to be paid to pilots belonging to the 00 Pilotage society. Therefore, it is reasonable to view that the expenses for meals and travel travel falls under the allowance to be paid to pilots belonging to the 00 Pilotage Society. Considering that pilots belonging to the 00 Pilotage Society do not directly perform their duties related to pilotage dues, it is difficult to view that the allowances for meals and travel travel are paid to pilots in

E) Two working-level employees, other than pilots, of the Plaintiff, are responsible for the duties of pilotage dues and pilotage dues, and they seem to have not performed pilotage dues and pilotage dues (A4 written statement, No. 14 document, No. 14 document).

F) In order to meet the tax exemption standard for the pro rata employee portion of TT’s resident tax, it seems that the pilot belonging to the Plaintiff merely changed to the Plaintiff’s position and did not move to the Plaintiff’s position to conduct the Plaintiff’s pilotage fee collection business (A3 written statement, B No. 12). Moreover, as the number of pilots belonging to the Plaintiff increased, the Plaintiff received 3.3% of the amount of revenue from the pilot belonging to paragraph 00 of 2013, the Plaintiff increased the annual average fee rate of 10.4% as of 2016 to pay the relevant pilot’s wages (A5 written confirmation, B No. 3).

G) During a tax investigation, A1, a pilot belonging to the pilotage group of paragraph 00, stated that the pilot did not perform pilotage dues, and that the pilot did not present evidence to acknowledge that the pilot was directly involved in pilotage dues. [The plaintiff alleged that at least A2 and A3 performed pilotage dues in light of the statement of a written request for adjustment of pilotage dues and pilotage dues (Evidence A13) and a notice of change in the grace period for pilotage dues (Evidence A14). However, considering that each of the above documents is written in the name of the Chairperson of the Pilotage Association or the TT President, it is difficult to view that A2 and A3 performed pilotage dues business by only the statement of each of the above documents are written in the name of the Chairperson of the Pilotage Association or the TT President, and that there are only four documents written, it is reasonable to view that A2 and A3 cooperate with the Chairperson of the Pilotage Association (the Chairperson of the Pilotage Association) of the plaintiff's Association in the performance of pilotage dues business.

H) In light of the contents of the T’s counseling document prepared by the Plaintiff’s plane captain’s agent (a pilot may be deemed dividend income if he/she is closely classified as a representative director, etc., even though he/she received the benefits from T, if he/she is unable to exclude the enforcement department such as the representative director, etc., and a half of the pilot was established, and thus, he/she would be good for the pilot to be transferred to the Plaintiff and work for the Plaintiff) when conducting the tax investigation, the Plaintiff was aware that the amount paid to the pilot, who is the shareholder, for the purpose of paying

I) It seems that there is only a contract of employment that was prepared retrospectively between the Plaintiff and the pilot, and that there was no contract of employment.

(j) Of the Plaintiff’s proposal allowance and welfare provision, it seems that there was no provision that the pilot, who is a shareholder, should pay the expenses for meals and travel travel.

(k) In addition to the whole purport of pleadings in the official text sent in 2015, the official text sent in 2016, the official text sent in 2016 (No. 9-2), the official text sent in 00 (No. 19), the official text sent in 20 (No. 20) and the official text sent in 21 (No. 21) managed by the pilotage community, some of pilotages who received benefits and allowances from the Plaintiff sent official text to the relevant agency, such as 0 port construction, 00 local maritime affairs and fisheries office, and other relevant facts. However, given that the above official text is recognized as being sent under the name of the pilotage community, there is no official text directly related to pilotage service among the above official text, it appears that the pilot who sent the above official text is not an employee of the Plaintiff nor a officer of the pilotage community, but a pilot who sent the service related to pilotage who belongs to the pilotage community.

l) 00 Pilotage A0, the Chairperson of the Pilotage Association, is the Plaintiff and TT’s shareholders and substantial management subject in the course of the tax investigation.

The work of pilots is promoting collaboration in all kinds of duties. Although the amount of duties differs, most of their roles are similar, and the main position is also in charge of circulation. Each pilot's income should be distributed to the same level, it stated to the effect that all pilots except registered officers are determined to pay earned income."

(m) As seen earlier, all pilots who were paid wages or allowances from the Plaintiff are the Plaintiff’s shareholders, and there is no difference in the fact that the labor contract was made between the Plaintiff and the pilot who is the Plaintiff and the Plaintiff, and the pilot did not have any working conditions that enable them to work in the Plaintiff’s office, and even if the pilot was deemed to have not actually performed duties related to the Plaintiff’s pilotage business, the Plaintiff paid to the pilot the amount equivalent to 57.48% of the sales as remuneration and allowances to the pilot as remuneration for the pilot, etc., and according to the statement at the time of the tax investigation by the Chairperson A0, who is the Chairperson of the 00 Pilotage Society, the Plaintiff appears to have paid to the pilot the same level of income for the purpose of guaranteeing the same level of income for the pilot, it is reasonable to view that the Plaintiff’s wages, allowances, etc. paid to the pilot is not remuneration for labor or remuneration, but profit dividends for allocating profits reserved to the reserved shareholder.

3) Judgment on the plaintiff's conjunctive assertion

Although the Defendant did not specify the grounds for non-deductible of the instant personnel expenses in the instant disposition, it did not make the instant disposition by applying the provision of wrongful calculation under Article 52 of the former Corporate Tax Act, but rather did not take the instant disposition by applying the provision of denial of wrongful calculation under Article 52 of the former Corporate Tax Act, the Plaintiff’s payment of the amount paid as salary to a pilot who is a shareholder constitutes a bonus from the disposition of profits to an officer who is a shareholder subject to non-deductible of losses under Article 43 of the former Enforcement Decree of Corporate Tax Act, and cannot be deemed as a personnel expense subject to non-deductible of losses under Article 19 of the former Corporate Tax Act and Article 19 subparag. 3 of the former Enforcement Decree of Corporate Tax Act, it appears that the instant disposition by

3. Conclusion

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