Incheon District Court 201Guhap2181 (2012.02)

early 209 Heavy198 ( October 28, 2011)

The disposition to exclude special tax reduction or exemption is legitimate because it is deemed that it is engaged in entrusted production business by OEM system.

Even according to the Korean Standard Industrial Classification Table, it is difficult to classify the business operated by the plaintiff as "manufacturing business", and thus, a disposition to exclude special tax reduction or exemption is legitimate.

2012Nu5734 Revocation of Disposition of Corporate Tax Imposition

XX Co., Ltd

the director of the tax office of Western

Incheon District Court Decision 2011Guhap2181 Decided February 2, 2012

June 15, 2012

August 17, 2012

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. Each disposition of the Defendant rendered on March 1, 2009 to the Plaintiff on March 1, 2003, the corporate tax of KRW 000 for the year 2005, the corporate tax of KRW 00 for the year 2005, and the corporate tax of KRW 00 for the year 200

1. Quotation of judgment of the first instance;

The reasoning of this court's decision is as stated in the reasoning of the judgment of the court of first instance except for the phrase "......" in Paragraph 2 of the judgment of the court of first instance as follows. Thus, it is accepted in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

"C. Determination"

In light of the following circumstances, comprehensively taking into account all the evidence as mentioned above and evidence Nos. 5 and 11 evidence, it is reasonable to view that the business operated by the plaintiff constitutes "entrusted production by OEM method as prescribed by the Presidential Decree" under Article 7 (1) 1 (z) of the old Restriction of Special Taxation Act, as a business that produces and supplies finished products by being entrusted with the production by OEM method from the company of OEM method, a truster, and sub-entrustments to the non-party company. Therefore, the plaintiff's above assertion on the premise that the business operated by the plaintiff constitutes "manufacturing business" under Article 7 (1) 1 (a) of the old Restriction of Special Taxation Act is without merit.

1) Article 7(1) of the former Restriction of Special Taxation Act provides that a company that runs a manufacturing business among small and medium enterprises and a consignment manufacturing business by OEM system as determined by the Presidential Decree shall be exempted from the tax amount calculated by applying the reduction or exemption rate, and Article 6(2) of the Enforcement Decree of the former Restriction of Special Taxation Act (amended by Presidential Decree No. 21307 of Feb. 4, 2009) provides that "trustee manufacturing business by OEM system as determined by the Presidential Decree" means a business that manufactures and supplies products by sub-entrustment after being entrusted with manufacturing by OEM system by a truster.

In this case, the plaintiff received orders from companies of a foreign famous trademark (xx,O, and Y) and manufactured semi-finished products such as Aluminum presses and plastic withdrawn goods at the plaintiff's domestic factory, and then returned without compensation to the non-party company, and then exported goods from the ordering company to the United States, etc. at the place of the Philippines after attaching the trademark of the ordering company ( XX,O, and Y) through the final production stage, assembly process, etc., in the non-party company. According to the relevant provisions and facts, it is reasonable to view that the business operated by the plaintiff falls under the "entrusted production business under the main trademark attachment method as prescribed by the Presidential Decree" under Article 7 (1) of the old Restriction of Special Taxation Act.

2) Whether it constitutes "manufacturing business" under Article 7 (1) 1 of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5584 of Dec. 28, 1998; hereinafter referred to as the "Act") shall be determined by taking into account the purport of the above provision prescribing special cases of tax reduction and exemption, equity among taxpayers, etc. The purpose of Article 7 (1) of the Act is to maintain and develop the manufacturing foundation of domestic small and medium manufacturing businesses with weak competitiveness, thereby promoting a balanced growth and stability of the national economy through the maintenance and development of the production foundation of domestic small and medium manufacturing businesses, and through the creation of employment therefor, it does not conform with the purport of Article 7 (1) of the Act that intends to maintain and develop the production foundation of domestic manufacturing business in cases where the manufacturing business is conducted outside of Korea through the entrustment of foreign companies, and it does not conform with the above provision of Article 7 (1) of the Restriction of Special Taxation Act that provides benefit from tax reduction and exemption in such cases, even if it creates a favorable status with the same manufacturing foundation in Korea, it may not violate the above provision.

3) Although the part of semi-finished goods supplied by the Plaintiff to the non-party company is manufactured at the domestic factory, it is merely a simple temporary transfer for the pre-finished process, which does not involve foreign exchange transactions, and it does not make the semi-finished goods itself an object of independent trade or gain profits from the sale. Thus, it cannot be deemed that the Plaintiff is running the manufacturing business of semi-finished goods or obtained profits from such business.

4) If the Plaintiff takes half-finished into the Republic of Korea to the non-party company located in the Philippines, the non-party company is deemed to perform its main manufacturing process in a foreign country through consignment of the non-party company, such as indicating "Made in Whiteines" as finished as a finished product after completing a fals and assembly and completing it as a finished product.

5) The Korean Standard Industrial Classification provides a contracting company with raw materials purchased from its own account to manufacture them under its own name and directly sell them to the market under its own responsibility (see, e.g., evidence No. 7 of the Korea Standard Industrial Classification III of the Korea Standard Industrial Classification). However, in light of the fact that a non-party company located in the Philippines is not the plaintiff's trademark, but the trademark attached to the product is the main company's trademark, and the main company that directly sells the product to the market under its own responsibility, it is difficult to classify it as a "manufacturing business operated by the plaintiff" even under the Korean Standard Industrial Classification, in case of the manufacturing business operated by the plaintiff to manufacture and sell it to another manufacturer without direct manufacture (see, e.g., evidence No. 7 of the Korea Standard Industrial Classification III).

2. Conclusion

Therefore, the judgment of the first instance court is justifiable, and the plaintiff's appeal is dismissed.