The disposition of the amount released from the company is legitimate as a bonus, and the disposition imposed on the representative director as a profit from the exemption of liability is legitimate.

The bonus disposition is legitimate because it cannot be deemed to have been changed due to the scheduled collection, and the bonus disposition is legitimate, and the removal of the representative director's provisional payment is the exemption of the corporation's obligations and the corresponding profits are made. Therefore, the disposition imposing corporate tax is legitimate.

Article 18 of the Corporate Tax Act

2017Guhap68524, revocation of disposition, etc. of imposing corporate tax

AA Construction Corporation

1. BB director of the tax office;

2. BB Director of the Regional Tax Office;

August 9, 2018

September 6, 2018

1. The plaintiff's claims against the defendants are all dismissed.

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

Cheong-gu Office

The imposition of corporate tax of 0,00,000,000 (including additional tax) imposed on the Plaintiff on December 2, 2016 by the head of the competent tax office on the Plaintiff on December 2, 2016, and the imposition of corporate tax of 0,00,000,000 on December 1, 2016 by the head of the competent regional tax office and the head of the competent regional tax office on December 1, 2016 by the head of the competent regional tax office having the Plaintiff as the bonus and the year to which the income belongs, 2013, the amount of income

1. Details of the disposition;

A. On August 9, 2011, the Plaintiff was a corporation established at BBB-ro 89, BB-ro for the purpose of real estate development and supply business, and from around 2012, DDD main multi-purpose officetels (hereinafter “real estate of this case”) was newly built. The Plaintiff transferred the money of this case to approximately 130 accounts, including E, totaling KRW 0,000,000,000 (hereinafter “the money of this case”) under the title of sales agency fee and sales promotion fee, but transferred it to the representative director of the Plaintiff’s personal account. The Plaintiff transferred the money of this case to the Plaintiff’s account under the premise that KimCC borrowed the money of this case from the loan of this case from KimCC to the account of this case.

B. From April 7, 2014 to May 15, 2014, Defendant BB director of the tax office conducted the first tax investigation on corporate tax attributed to the Plaintiff for the business year 2013 (hereinafter “the first tax investigation”). At the time, Defendant BB director of the tax office: (a) deemed the instant money that the Plaintiff transferred to the account of E, etc. prior to the receipt of the service as advance payment expenses paid to the Plaintiff; (b) disposed of the instant money as retained reserve instead of including it in deductible expenses; and (c) imposed corporate tax of KRW 0,000,000 on the Plaintiff for the year 2013.

C. While the director of the regional tax office of Defendant BB conducted a tax investigation on the Plaintiff’s 2014 business year and corporate tax attributed for the business year 2015 from August 25, 2016 to November 11, 2016, the director of the regional tax office verified the fact that the Plaintiff secured the fact-finding certificate and the borrowed account list prepared by the FF, the managing director of the Plaintiff, and the Plaintiff transferred the sales promotion fund and the payment fee (the instant money) for the business year 2013 to the borrowed account list without actually paying the sales promotion fund and the payment fee (the instant money). Accordingly, the director of the regional tax office of Defendant BB conducted a tax investigation on the 2013 corporate tax (hereinafter “second tax investigation”) only on the sales promotion fund and the payment fee account on November 2, 2016.

D. According to the result of the second tax investigation, the director of the regional tax office of Defendant BB notified the Plaintiff of the change in the income amount to be disposed of as bonus for the business year of 2013 as KimCC on December 1, 2016 (hereinafter “instant notice of change in income amount”). The Plaintiff, while reducing the total amount of KRW 0,000,000,000 from KimCC, having accounted as the interest of debt exemption to include KRW 0,000,000,000 as the interest of electric error correction in income in gross income. Accordingly, the head of the regional tax office of Defendant BB notified the Defendant BB head of the tax office of taxation to include the amount of KRW 0,00,00 in gross income. Accordingly, on December 1, 2016, Defendant BB head of the tax office added the amount of KRW 0,00,000,000 to gross income for the business year of 200,000,000 corporate tax (hereinafter “instant disposition”).

E. On February 24, 2017, the Plaintiff dissatisfied with each of the instant dispositions, filed an appeal with the Tax Tribunal on February 24, 2017, but the claim was dismissed on June 16, 2017.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 12 (if there are provisional numbers, including each number; hereinafter the same shall apply), Eul evidence Nos. 1 through 7, the purport of the whole pleadings

2. Related statutes;

It is as shown in the attached Form.

3. The plaintiff's assertion and judgment

A. Whether notice of change in the income amount of this case is unlawful

1) Whether the funds in this case were out of the country and reverted to KimCC

A) The plaintiff's assertion

(1) Whether corporate funds belong to executives, employees, etc. as prescribed by Article 67 of the former Corporate Tax Act (amended by Act No. 12850, Dec. 23, 2014; hereinafter the same shall apply) and Article 106 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26068, Feb. 3, 2015; hereinafter the same shall apply) due to the outflow of corporate funds shall be determined on the basis of whether such executives, employees, etc. are able to control and manage the profits in reality from an economic perspective.

② The Plaintiff, the implementer of the instant real estate, was at risk of not paying KRW 10 billion due to serious financing difficulties around July 2013. Moreover, if the Plaintiff could not settle the unpaid construction cost by the fixed date, GG construction could take over the instant real estate sales amounting to approximately KRW 14.3 billion, instead of the unpaid construction cost, at a lower price than 70% of the sales price, according to the agreement with the Plaintiff. In other words, if the Plaintiff could not pay the unpaid construction cost to GG construction by the fixed date, only the amount exceeding KRW 4.0 billion was inevitable in relation to the construction of the instant real estate, and thus, it was necessary for the Plaintiff to postpone the settlement date of the unpaid construction cost through consultation with GG Construction.

③ In order to make the Plaintiff appear as if the commercial building was well sold, the Plaintiff paid a corporate fund of approximately KRW 350 million from July 2013 to October 2013, with the corporate fund of approximately KRW 350,000,00 in the name of the sales agent, and collected the money through the account in the name of KimCC, and repeated the method of paying the recovered money under the name of the sales agent, thereby making approximately KRW 130,00,000 in total under the name of the sales agent for the sales agent for approximately KRW 130,00 in the name of the sales agent for the purpose of accounting management on the pretext of the money paid or recovered by the Plaintiff, and included the amount equivalent to the instant money collected through the account in the name of KimCC as the short-term loan from KimCC.

④ After that, as the Plaintiff’s preferential right to benefit, etc. from the instant real estate trusted on or around February 4, 2014 agreed to receive a loan of approximately KRW 14 billion from a financial right as collateral, it was apprehended that GG construction would take over at a discount in the unsold price, etc., due to the failure to settle the unpaid construction cost, and accordingly, it was no longer necessary to maintain the external sentence like the payment of the sale agency fee to a large number of sales agents. Accordingly, on March 4, 2014, the Plaintiff corrected the accounting of the instant amount, which was appropriated as the initial expense on March 4, 2014, as the revised interest from electric error, and deducted approximately KRW 5.2 billion from the funds appropriated as the short-term loan from KimCC ( removal).

⑤ As such, the instant money was paid on the premise that it would be immediately recovered from the beginning. In fact, the Plaintiff collected all the funds through the account in the name of KimCC, and the corporate funds actually operated in the process were also limited to approximately KRW 350 million. While the Plaintiff paid and recovered the instant money, he temporarily deposited the said funds into the account in the name of KimCC. However, KimCC did not have to have been able to gain profits while controlling and managing the instant money in an economic aspect, such as managing and operating the said money. Furthermore, as the Plaintiff came to know that it was necessary to maintain a sentence such as the payment of the instant money as a sales agency fee, there was no ground to view that the instant money was reverted to KimCC under the pretext of voluntarily correcting the previous accounting.

(6) Ultimately, there is no ground to view that KimCC actually controlled and managed the instant money, and that there was no benefit therefrom. Thus, it is clear that the amount equivalent to the instant money was out of the company and was not attributed to KimCC. Therefore, the notice of change of the income amount in this case, which is premised on the fact that the amount equivalent to the instant money was out of the company and belonged to KimCC, should be revoked.

7) Even if the instant money was out of the company, the Plaintiff collected the amount equivalent to the said money prior to the tax investigation, etc. and reported it to be included in the gross income, so the instant money must be treated as an internal reservation.

B) Determination

(1) Relevant regulations and legal principles

Article 67 of the former Corporate Tax Act stipulates that the amount included in the calculation of earnings shall be disposed of to the person to whom such amount belongs, as prescribed by Presidential Decree, such as bonus, dividend, other outflow out of company, and internal reservation when the corporate tax base is determined or corrected. Article 106 (1) 1 of the former Enforcement Decree of the Corporate Tax Act provides that where it is clear that the amount included in the calculation of earnings (including the amount not included in the calculation of losses under Article 27-2 (2) of the former Corporate Tax Act) has been leaked out of the company, the person to whom such amount belongs shall be disposed of as a bonus to the person to whom such amount reverts, and Article 67 (4) of the former Corporate Tax Act provides that where a domestic corporation collects the sales omission and processing expenses within the return deadline for correction under Article 45 of the Framework Act on National Taxes and reports the amount illegally flow out of the company as a result of tax adjustment, the same shall not apply to cases where it becomes known in advance that the tax investigation has commenced" under subparagraph 2 of the same Article.

The purpose of Article 106(1)1 of the former Enforcement Decree of the Corporate Tax Act is to allow the representative director to be considered as a bonus to a non-conditional representative director regardless of its substance with respect to certain facts that can be recognized as such in order to prevent an unfair act under tax law by a corporation, not based on the fact that such income has accrued to the representative director (see Supreme Court Decision 2010Du1108, Oct. 28, 2010).

Where a corporation fails to record its sales in the account book or appropriates the cost of processing in the account book even if there is a fact of sales, the profit of the corporation equivalent to the omitted sales or the cost of processing shall be deemed to have been leaked out of the company, barring any special circumstance. In such cases, the special circumstance that the total amount omitted sales, etc. is not leaked out of the company shall be attested by the corporation asserting it (see Supreme Court Decision 2003Du1797, Jan. 12, 2006).

Even if a corporation accounts for cash, which is the counterpart account, for which the amount received by the corporation through sales has not been determined, by appropriating it to the provisional account, which is a temporary account, and thus, it was recorded as an entry of the other party account into a corporation, if the contents of the provisional account were to enter short-term loan transactions from the representative director, and it is found that such transactions are obligations to counter-inform the representative director in the future, such transactions would not result in the change or increase of the net assets of the corporation, and are irrelevant to the profits or expenses of the corporation, and thus, barring special circumstances, such as the processed obligations under the pretext of the name of which the obligation under the provisional account was not planned to counter-inform the beginning, the omitted sales amount to be entered as the profits of the corporation shall be deemed to have already been leaked out, and thus, be deemed to have been reverted to the representative director, who is the other party to the said provisional account (see Supreme Court Decision 200Du3726, Jan. 11,

(2) In the instant case:

On the premise of such a legal doctrine, since the Plaintiff was expected to recover the instant money from the beginning, it cannot be deemed that KimCC actually controlled, managed, and benefiting from the instant money, and therefore, we examine whether the amount equivalent to the instant money was not disclosed from the outside, and therefore, it is deemed that it was not attributed to KimCC.

First, the evidence presented by the Plaintiff alone is insufficient to acknowledge the Plaintiff’s assertion that the Plaintiff was expected to recover the instant money from the beginning, and there is no other evidence to acknowledge the said assertion.

Rather, in full view of the following circumstances revealed by the facts acknowledged earlier and the evidence cited earlier, the amount equivalent to the instant money was out of the country and reverted to KimCC. Accordingly, the Plaintiff’s assertion that the notice of change in the income amount of this case is lawful, and that the KimCC cannot be deemed to have actually controlled and managed the instant money and received the benefit therefrom on a different premise is rejected.

① Although the Plaintiff did not actually receive services related to the sales agency, the Plaintiff transferred the instant money to approximately 130 accounts, including E, in lieu of the payment commission, and accounted for the accounting of the amount in lieu of the payment commission. The Plaintiff did not perform any accounting as to the transfer of the instant money to the personal account of KimCC. Accordingly, the instant money is deemed to have been out of the company.

② At the time of receiving the instant money from the account of KimCC, the Plaintiff did not collect the amount from the Plaintiff’s account by accounting as a loan from KimCC, and did not account as a separate bond or debt. Accordingly, the KimCC held a loan equivalent to the instant money which can be recovered to the Plaintiff at any time, and deemed that it was the person to whom the instant money reverts.

③ Article 106(4) of the former Enforcement Decree of the Corporate Tax Act provides that the relevant corporation shall be given an opportunity to voluntarily correct its outflow. In order to dispose of the instant amount of money out of the company as retained earnings pursuant to the said provision, the Plaintiff should have collected it and included it in the account book alone, and have filed a revised return of corporate tax for the pertinent business year by including the recovered amount in the gross income within the period for filing a revised return. Rather, the Plaintiff did not have filed a revised return regarding corporate tax for the pertinent business year. Rather, if the representative director (GCC) on March 4, 2014, as the Plaintiff’s assertion, was deducted 5.2 billion won, and the Plaintiff cannot be seen as having filed a revised tax audit report for the first time from April 7, 2014 to May 15, 2014, without considering the fact that the Plaintiff had filed a revised tax audit report for the pertinent business year from March 4, 2014 to 2013, the Plaintiff could not be seen as having filed a revised tax audit report for 2013 business years.

2) Whether the notice of change in the income amount of this case was made based on a double tax investigation and is unlawful

A) The plaintiff's assertion

① From April 7, 2014 to May 15, 2014, Defendant BB director of the tax office conducted an investigation of value-added tax (part) and corporate tax (integrated) for 2013 business years with respect to the Plaintiff, and as a result, imposed corporate tax of KRW 1,090,281,710 on the Plaintiff during the business year 2013. At the time of the first tax investigation, a thorough investigation was conducted on the developments or details of payment of the instant money. Defendant BB director of the tax office did not include the instant money in deductible expenses, but deemed that it was not out of deductible expenses, and disposed of as internal reserve by deeming that it was not out of deductible expenses.

② After the first tax investigation, from August 25, 2016 to November 11, 2016, Defendant BB Director of the Regional Tax Office conducted the Plaintiff’s corporate tax partial investigation for the business year 2013, and the consolidated investigation for corporate tax for the business year 2014, 2015, which was the date of the tax investigation. The instant amount was included in the instant tax investigation. In addition, Defendant BB Director of the Regional Tax Office, based on the result of the second tax investigation, deemed the instant amount was separated from the processing expenses to have been attributed to the representative director and notified of the change in the amount of income

③ As such, the first tax investigation and the second tax investigation are identical in that they were subject to corporate tax assessment for the business year 2013, and the corporate tax investigation are also included in the disposition of income that takes place due to changes in the corporation’s income amount. In the first tax investigation on the Plaintiff’s accounting and tax adjustment on the instant money, while in the second tax investigation, the Plaintiff’s income was disposed as an internal reserve in the first tax investigation, while in the second tax investigation, the second tax investigation and the second tax investigation related to the notification of changes in the amount of income constituted a duplicate tax investigation in which the items of tax and the taxable period are identical, and thus, the notice of changes in the amount of income of this case based on the second tax investigation are unlawful.

B. Determination

(1) Relevant regulations and legal principles

Article 81-4 (2) of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014; hereinafter the same) provides that "tax officials shall not re-examine the same item of tax and the same taxable period unless any of the following applies." Article 81-4 (1) of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 26946, Feb. 5, 2016; hereinafter the same) provides that "where there is clear evidence to acknowledge a suspicion of tax evasion" in subparagraph 1, subparagraph 3, or where there is an error in connection with two or more taxable periods," and Article 81-9 (1) of the same Act provides that "the scope of tax investigation under process may not be extended except in cases prescribed by Presidential Decree, such as where it is confirmed that specific suspicion of tax evasion exists for several taxable periods or other taxable periods, and Article 63-11 (1) of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 26946, Feb. 5, 2019) provides that "where other taxable periods are specifically defined:

Article 81-3(2) of the former Framework Act on National Taxes provides for a case where a reinvestigation is exceptionally permitted, "where there is clear evidence to acknowledge a suspicion of tax evasion" shall be limited to cases where the probability of tax evasion is recognized based on objective and reasonable data (see Supreme Court Decision 2010Du6083, Jan. 27, 201).

(2) In the instant case:

Comprehensively taking account of the facts acknowledged earlier and the following circumstances revealed by the evidence admitted earlier, the second tax investigation is conducted based on Article 81-9(1) of the former Framework Act on National Taxes and Article 63-11(1)1 of the Enforcement Decree of the same Act, and cannot be deemed unlawful as a duplicate tax investigation stipulated in Article 81(2) of the former Framework Act on National Taxes. On the contrary, the second tax investigation is unlawful as a duplicate tax investigation, and thus, the Plaintiff’s assertion that the notice of change in income amount of this case is unlawful is without merit.

① In the first tax investigation, the director of the tax office, even though the amount of this case was actually disbursed at the time of the first tax investigation, it was paid even if the sale was not yet made, and thus, he disposed of it as internal reserve instead of including it as prepaid expenses.

② During the Plaintiff’s tax investigation into corporate tax from 2014 to 2015, the director of the regional tax office of Defendant BB found the Plaintiff’s managing director’s general fund director’s statement prepared around January 2014, stating the fact-finding document and the amount deposited to the person under the name of the bank passbook, such as E.E. The Plaintiff’s data reveals the fact that the Plaintiff deposited approximately KRW 5.2 billion of corporate funds into the bank account in the name of the representative director, including E.E., for about 130 times from July 2013 to October 2013, and then deposited the corporate funds into the personal account of the KimCC’s representative director’s 2013 book. Accordingly, it is verified that the Plaintiff appropriated the sales promotion fee and payment fee as processing expenses. As such, the director of the regional tax office of Defendant BB conducted the tax investigation only for the Plaintiff’s business year 2013 to increase the scope of the Plaintiff’s corporate tax and the amount paid.

B. Whether the imposition disposition of the corporate tax of this case is unlawful

1) Whether there was no benefit from debt exemption;

A) The plaintiff's assertion

① The Plaintiff merely appropriated the instant amount as a short-term loan from the KimCC in accordance with the need of the Accounting Office x90l, and did not bear any debt from the beginning to the KimCC. Therefore, even if the instant amount was deducted from the foregoing short-term loan due to the accounting account with the interest of electric error correction, it cannot be deemed that there was no change in the Plaintiff’s net assets, and thus, there is no income subject to corporate tax.

② Even if the Plaintiff obtained the benefit from debt exemption by removing the provisional amount appropriated as the short-term loan from KimCC, since the claim against KimCC held by the Plaintiff was extinguished in the process, there is no change in the Plaintiff’s net assets.

③ Therefore, the disposition of imposing the corporate tax of this case on the premise that the Plaintiff’s net assets increase is unlawful.

B) Determination

The amount equivalent to the instant money was out of the company, and was reverted to KimCC, the representative director of the Plaintiff, and the Plaintiff was aware of the amount of the instant money as a separate bond and debt, not to recover the amount of the outflow from the Plaintiff’s account at the time of receiving the instant money from the KimCC’s account. According to the foregoing, it cannot be deemed that the Plaintiff transferred the instant money to the account of KimCC on the premise that it was recovered. Rather, it cannot be deemed that the Plaintiff could not be deemed that the Plaintiff transferred the instant money to the account of KimCC on the premise that it was collected, and rather, the Plaintiff would have obtained profits from the Plaintiff’s exemption from the obligation corresponding to the instant money by deducting the instant money from the liability for the payment of the said money by the accounting for the former modification profit. Meanwhile, there is no ground to deem that the

Ultimately, the corporate tax imposition disposition of this case is legitimate by including the above gains from debt exemption in the gross income.

2) Whether the instant money cannot be included in the gross income for the business year 2014 as earnings carried forward.

A) The plaintiff's assertion

① Defendant BB director of the tax office excluded the instant money from deductible expenses at the time of the first tax investigation, and imposed corporate tax for the business year 2013 on the Plaintiff. As such, the instant amount, which was the income already taxed by the Plaintiff in the business year 2013, is deemed as the income accrued from the calculation of the instant amount as the income accrued during the business year 2014.

② Accordingly, the Plaintiff, as a carried forward profit, excluded the amount equivalent to the instant amount that was accounted as the interest accrued from the calculation of gross income. As such, the disposition imposing the corporate tax of this case, which was imposed by adding the Plaintiff’s interest equivalent to the instant amount, to gross income for the business year 2014, was unlawful as it erred by misapprehending the legal doctrine on the carried forward profit, which is the item subject to exclusion of gross income

B) Determination

Article 18 of the former Corporate Tax Act provides that "the following profits shall not be included in the gross income when calculating the income amount of a domestic corporation for each business year," and Article 16 of the Enforcement Decree of the same Act provides that "the carried forward earnings" shall be included in the gross income of the domestic corporation, and Article 18 (2) of the same Act provides that "the carried forward earnings" shall mean the income of each business year which has already been taxed (including non-taxable income or non-taxable income under the Act and other Acts) again includes the income in the gross income

In this case, as seen earlier, Defendant BB director of the tax office denied the payment of the instant money as sales agency fee at the time of imposition of corporate tax for the business year 2013 and imposed corporate tax as non-taxation. After that, Defendant BB director of the regional tax office imposed corporate tax on the Plaintiff on the ground that he obtained a benefit from the Plaintiff’s exemption from the debt equivalent to the instant money that the Plaintiff bears to KimCC, and accordingly, imposed corporate tax on the Plaintiff, it cannot be deemed that the amount equivalent to the instant money falls under the amount included in gross income for the business year 2014 again as the income already imposed on the Plaintiff’s income for the business year 2013.

C. Whether each disposition of this case is unlawful as it violates the principle of substantial taxation

1) The plaintiff's assertion

In this case, the Plaintiff’s act of repeatedly paying and recovering approximately KRW 3.5 billion corporate funds is merely an appearance of the same kind as the Plaintiff paid the same amount equivalent to KRW 5.2 billion. The Plaintiff’s funds actually paid and recovered in the process were to be released from the company, and on the premise that the Plaintiff obtained a profit from the discharge of liability equivalent to KRW 5.2 billion from the company, it is against the principle of substantial taxation that the Plaintiff should be taxed according to the substance of the transaction. In other words, the accounting of the instant funds is merely merely a nominal title that does not fit the substance of the transaction, and even based on the principle of no taxation without law, it cannot be deemed that the Plaintiff’s corporate funds were discharged from the company. Accordingly, each disposition of this case is unlawful.

2) Determination

Article 14 (2) of the Framework Act on National Taxes provides that "The provisions on the calculation of tax base under tax-related Acts shall apply according to the substance regardless of the name or form of the income, profit, property, act or transaction."

The substance over form principle under Article 14(1) and (2) of the Framework Act on National Taxes is a practical principle for realizing the principle of equality, which is the basic ideology under the Constitution, in a tax law relationship. The main purpose of this principle is to regulate unfair acts of tax avoidance and realize tax justice by enhancing equity in taxation (see, e.g., Supreme Court en banc Decision 2008Du8499, Jan. 19, 2012).

In the instant case, the evidence presented by the Plaintiff alone is insufficient to acknowledge the Plaintiff’s assertion that “the act of the Plaintiff repeatedly paying and recovering approximately KRW 3,50 million corporate funds of approximately KRW 5,200,000,000,000 is merely a creation of appearance identical to the payment of the instant funds.” Rather, there is no other evidence to acknowledge the said assertion. Rather, even if the Plaintiff did not actually pay the sales agency fees equivalent to the instant funds, the Plaintiff transferred the instant funds to the borrowed name account of approximately 130,00,00,000, including EE, but transferred them to the personal account of KimCC, which is the representative director, and transferred them to KimCC. Meanwhile, the Plaintiff was liable for the instant amount equivalent to the instant funds to KimCC by appropriating by appropriating them as the borrowings. Accordingly, the Plaintiff’s disposition in this case is not in violation of the principle of no taxation without law or without law.

4. Conclusion

Thus, the plaintiff's claim against the defendants is dismissed as it is without merit.