The legality of the disposition of bonus for the provisional payment

In the event that a company establishes a company through the best payment of shares and then withdrawss the paid amount and repaid the borrowed amount, the amount equivalent to the paid amount shall be deemed to have been out of the company, and since the company is actually liquidated and the special relationship with the plaintiff is extinguished on the date of report on the business closure, the provisional payment against the plaintiff

Article 67 (Disposition of Income)

2018Guhap161 Global Income and Revocation of Disposition

0 KK

W. Head of the District Tax Office

May 30, 2019

July 11, 2019

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposing global income tax of KRW 14,303,860 on the Plaintiff on August 3, 2017 is revoked.

1. Details of the disposition;

A. The Plaintiff is a shareholder who owns 14,000 shares of an Otech Co., Ltd. (hereinafter “instant company”) established on August 31, 2012 and closed on March 25, 2014, and held office as the representative director of the said company from the date of incorporation to February 27, 2014.

B. On August 30, 2012, the time of the establishment of the instant company, the Plaintiff borrowed KRW 200 million, which is equivalent to the capital from BB loan, and paid the paid-in capital. On September 3, 2012, the date of its establishment, the Plaintiff withdrawn the total amount of the above capital and repaid the said borrowed amount. Accordingly, the instant company appropriated KRW 191,00,000 in the accounting book as the provisional payment, and reported KRW 3,357,900 as the corporate tax base on July 15, 2013.

C. Upon conducting a tax investigation on the instant company, the head of a tax office included the total of KRW 1,69,488, and KRW 191,00,00,000 and the total of KRW 13,179,488, which was estimated corporate tax without filing a return for tax investigation on the instant company, and disposed of the said amount as bonus to the Plaintiff who was the representative director of the said company, and notified the Defendant of the change in the amount of income as a bonus. In accordance with the foregoing notification, the Defendant determined and notified the Plaintiff of KRW 73,446,510,00 for global income tax for the year 2013.

D. On January 19, 2017, the Plaintiff filed an objection against the Commissioner of the XX Regional Tax Office, and the Director of the XX Regional Tax Office decided that the estimated income amount was fully disposed of as bonus to the Plaintiff, the representative director of the instant company, and that the said provisional payment and the interest rate were disposed of to each shareholder according to the share ratio, and that the said provisional payment and the said interest rate shall be disposed of to each shareholder, and that the tax base and the tax amount shall be corrected by applying 10% of the under-reported additional tax, not

E. On March 25, 2014, when the special relationship between the company of this case and the plaintiff was terminated on March 25, 2014, the head of the AA tax office disposed of the above amount as bonus to the plaintiff, and again notified the defendant of change in the amount of income again on August 3, 2017, on the ground that the above provisional payment amount was KRW 191,00,000 and interest KRW 3,032,975 (hereinafter referred to as "the provisional payment of this case" was divided according to the shares equity ratio, and KRW 67,911,541 [=((191,00,000 + KRW 3,032,975 + 35%) was reverted to the plaintiff in proportion to the shares equity ratio. In accordance with the above notification, the defendant issued a notice of change in the amount of income accrued to the plaintiff on August 3, 2017.

F. On October 26, 2017, the Plaintiff appealed and requested an inquiry to the Tax Tribunal, but was dismissed on July 23, 2018.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1 through 14 (if there are additional numbers, including each number; hereinafter the same shall apply), Eul evidence Nos. 1, 2, and 3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The provisional payment of this case occurred during the process of the fictitious payment of shares at the time of incorporation of the company of this case, and the above company did not engage in any substantial economic activity, so the above company should be deemed to have been liquidated immediately. Therefore, even if the company of this case can offset the company's investment repayment obligation to the plaintiff and the company of this case with the Plaintiff's provisional payment repayment obligation against the above company, the defendant's disposal of this case was against the principle of substantial taxation by deeming that the amount divided in proportion to the share ratio among the provisional payment belongs to the plaintiff.

2) If it is deemed that the instant company has not been liquidated immediately after its establishment, the special relationship between the said company and the Plaintiff should be deemed not to have been extinguished before the liquidation procedure is completed. Nevertheless, the Defendant deemed that the said company was liquidated on the date of reporting the business closure of the instant company and deemed that the special relationship between the said company and the Plaintiff was extinguished. This is in violation of the principle of interpretation and application of tax laws prohibiting analogical interpretation or expanded interpretation. In addition, insofar as the said special relationship is not extinguished, the instant company bears the obligation to return money to the Plaintiff, and this constitutes “where it holds the obligation to offset the relevant claim” as stipulated in subparagraph 3 of Article 6-2 of the former Enforcement Rule of the Corporate Tax Act (wholly amended by Ordinance of the Ministry of Strategy and Finance No. 730 of March 20, 2019; hereinafter the same) and thus, the instant disposition by the Defendant, which was included in the calculation of the provisional payment, is unlawful.

3) The Defendant issued the instant disposition based on the amount calculated according to the false financial statements submitted voluntarily by Park DoD, who stolen the name of the instant company without using evidentiary materials, and thus, it was unlawful in violation of the underlying taxation principle.

B. Relevant statutes

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

(attached Form omitted)

C. Determination

In full view of the aforementioned evidence, and the following circumstances revealed by the purport of the entire statements and arguments as stated in Gap evidence Nos. 16 through 19, Eul evidence Nos. 4, 5, and 6, the provisional payment in this case was leaked to a company other than the company immediately after the establishment of the company’s capital. The provisional payment in this case, around March 25, 2014, which was the date of the report on the closure of the business, shall be deemed to have been finally reverted to the plaintiff according to the ratio of shares among the provisional payment in this case’s shares. Thus, the disposition in this case based on this premise is lawful, and the plaintiff’

1) According to Article 67 of the former Corporate Tax Act (wholly amended by Act No. 16008, Dec. 24, 2018; hereinafter the same) and Article 106(1)1 of the former Enforcement Decree of the Corporate Tax Act (wholly amended by Presidential Decree No. 29529, Feb. 12, 2019; hereinafter the same), where it is obvious that the amount included in the calculation of earnings has been leaked out of the company, where it is obvious that the person to whom the amount included in the calculation of earnings has been distributed out of the company has been distributed out of the company, it shall be treated as dividends, bonuses, other income, and other outflow from the company to whom it belongs

2) From the beginning when a company is incorporated or a capital increase is made, a temporary loan without intent to secure corporate funds from the beginning with a genuine payment of the stock price. In the case of the fictitious payment of the stock price for which the funds are paid immediately after the incorporation or capital increase is made and the borrowed money is repaid. Even if it is actually used as a means of the fictitious payment of the stock price, it is merely a subjective intention of the promoters or directors who make the payment. Thus, the effect of the payment of the stock price, which constitutes a collective procedure such as the incorporation or capital increase of the company, shall not depend upon such in-depth circumstance (see, e.g., Supreme Court Decision 9Du8039, Mar. 27, 2001). Accordingly, in the event that a loan is paid after a fictitious payment of the stock price was made and the borrowed money was withdrawn after withdrawal, barring any special circumstance, the amount equivalent to such payments shall be deemed to have been leaked out out of the company (see, e.g., Supreme Court Decision 2016Du405733, Sept. 23, 23, 2016).

According to the above legal principle, as long as the amount borrowed by the Plaintiff from the lending company was paid as the share capital, such payment constitutes the capital invested in the instant company, and accordingly, the instant company is deemed to have been incorporated. In addition, the loan obligation to the lending company constitutes the obligation to be borne by the Plaintiff, and the instant provisional payment was withdrawn immediately after the establishment of the instant company, and was used to repay the said obligation to the Plaintiff’s individual, so long as the said provisional payment was deemed to have been leaked out of the company, it cannot be deemed that the instant disposition goes against the principle of substantial taxation.

3) The fact that a stock company appropriates the provisional payment as the "provisional payment" on the account books to a specially related person is premised on the recovery of the provisional payment from the specially related person. Therefore, if the stock company waives the actual collection or sets the provisional payment in a situation where it is impossible to recover due to the failure to recover the provisional payment from the specially related person, it is reasonable to view that the above provisional payment has been finally reverted to the receiver or the specially related person, and in such a case, it shall be deemed that the disposal of income can be carried out in accordance with Article 67

Since its establishment on August 31, 2012, the instant company did not have any substantial economic activity for carrying on its business, and there was no human and physical facilities necessary for its business, and filed a report on business closure on March 25, 2014, and no other circumstance exists to deem that the instant company had the substance of the company and continued its business. Moreover, the instant company did not take measures to recover the instant provisional payment from shareholders including the Plaintiff, as well as the Plaintiff at the time of its closure, and completed the resolution of dissolution at the general meeting of shareholders on October 10, 2018 and the registration on the completion of liquidation on February 7, 2019.

Thus, if the company of this case was not engaged in any business from the defendant at the time of reporting the closure of business and registered the dissolution or the completion of liquidation under the instant disposition based on the premise that the special relationship between the above company and the plaintiff was extinguished at the time of the closure of business, even if the company of this case did not follow the dissolution and liquidation procedures under the Commercial Act at the time of the closure of business, the special relationship between the above company and the plaintiff can be deemed to have been extinguished as well as the actual liquidation at the time of the closure of business. Therefore, it is reasonable to deem that the company of this case had already renounced the collection of the provisional payment of this case against the plaintiff or that it was practically impossible to recover the provisional payment of this case at around March 25, 2014, and the amount distributed proportionally according to the Plaintiff’s share ratio among the provisional

4) The Plaintiff’s assertion that a claim exists with respect to the instant company appears to mean the shareholder’s right to claim distribution of residual assets only in cases where the above company’s residual assets exist after liquidation. However, as long as there is no circumstance to deem the existence of residual assets in the instant company at the time of reporting the closure of business, there is no room for offset against the said company’s provisional payment claim. Therefore, the Plaintiff’s obligation to return provisional payment to the instant company is still in existence, and it cannot be deemed that it constitutes “the case where the said company retains a debt that can offset the said claim” as the grounds for exclusion from inclusion in the calculation of earnings under Article 6-2 subparag. 3 of the former Enforcement Rule of the Corporate Tax Act.

5) The head of the AA tax office considers that the instant company’s income cannot be calculated without filing a report on corporate tax, as it falls under “cases where the amount of income cannot be calculated by means of account books or other documentary evidence,” and thus, it appears that the instant disposition is calculated by estimation pursuant to the proviso of Article 66(3) of the former Corporate Tax Act. Therefore, it is difficult to deem that the instant disposition violated the

3. Conclusion

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