Cho-2015-China-2122 (Law No. 13, 2015)

Whether the disposition under the revised Enforcement Decree violates the principle of ability to pay and the principle of prohibition of retroactive taxation in case of cancellation of a sales contract.

When the contract for sale in lots is cancelled, it will return to the same state as the contract was not traded from the beginning, and the former Framework Act on National Taxes also stipulates the grounds for a later request for correction, and the new enforcement decree violates the principle of ability to pay and the principle of prohibition of retroactive taxation.

Article 40 of the Corporate Tax Act

2015Guhap9566. Revocation of revocation of a request for rectification of corporate tax

AAA, Inc.

AA Head of the Tax Office

April 26, 2016

May 31, 2016

1. The Defendant’s rejection disposition against the Plaintiff on February 10, 2015 is revoked as to the Plaintiff’s claim for rectification of KRW 5,518,441,720 for the business year 2010.

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. From January 2008, the Plaintiff newly constructed and sold an apartment and a commercial building (hereinafter “instant apartment, etc.”) in the ancient city development project zone of 2008, WW-dong 334, W-dong 334, among the ancient city development project zone. The Plaintiff calculated the amount of income based on the work progress rate and the sale rate, and reported and paid corporate tax for the business year 2010.

B. However, some of the buyers of the instant apartment buildings, etc. did not pay the remainder; AAA Co., Ltd, a contractor of a commercial building newly constructed in E4 block, was insolvent; 635 households (17.47%) in 201; 231 households (6.06%) in 2012; and 426 households (1.80%) in 2013, respectively, rescinded the relevant sales contract.

C. On March 29, 2014, the Plaintiff filed a request for correction to the effect that the cancellation of the above sales contract constitutes grounds for filing a request for correction under Article 25-2 subparag. 2 of the Enforcement Decree of the Framework Act on National Taxes, and that the Defendant seeks a refund of the corporate tax for the business year 2010.

D. On February 10, 2015, the Defendant: (a) deemed that there was no sale from the beginning to December 31, 2011 for the household whose sales contract had been cancelled prior to the cancellation; and (b) refunded corporate tax OOOO members by re-fixing the sale rate; (c) on January 1, 2012, for the household whose sales contract was cancelled after the date of the sales contract, the Defendant rejected an application for correction against the remaining corporate tax OO members on the ground that the sales rate cannot be adjusted by re-fixing the sale rate for the business year to which the date of the sales contract belongs (hereinafter “instant disposition”).

E. On April 21, 2015, the Plaintiff appealed to the Tax Tribunal. On July 13, 2015, the Tax Tribunal rendered a decision to dismiss the Plaintiff’s claim on the grounds that, in the event that the sales contract is cancelled from the business year beginning after January 1, 2012 of the sales contract for the instant apartment, etc., the sales contract should be reflected in the profit and loss of the business year to which the date of termination belongs.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Upon the cancellation of a sales contract, the sales contract must return to the same state as that it did not conduct transactions, etc. from the beginning, and such circumstances are specified in Article 45-2 of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014; hereinafter the same shall apply) and Article 25-2 of the Enforcement Decree of the same Act. The Defendant issued the instant disposition based on Article 69(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 24357, Feb. 15, 2013; hereinafter the "amended Enforcement Decree") newly established on February 2, 2012 after the sales contract was concluded, but the above amended Enforcement Decree cannot be applied to this case as to the refund of corporate tax for 2010 business years. Nevertheless, the instant disposition based on Article 69(3) of the former Enforcement Decree of the Corporate Tax Act is unlawful as it violates the principle of ability to comply with taxation and the principle of prohibition on retroactive taxation.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Relevant legal principles

구 국세기본법 제45조의2 제2항 제5호의 위임을 받은 국세기본법 시행령 제25조의2 제2호는 후발적 경정청구사유의 하나로 최초의 신고・결정 또는 경정에 있어서 과세표준 및 세액의 계산근거가 된 거래 또는 행위 등의 효력에 관계되는 계약이 해제권의 행사에 의하여 해제되거나 당해 계약의 성립 후 발생한 부득이한 사유로 인하여 해제되거나 취소된 때를 들고 있다. 이러한 후발적 경정청구제도는 납세의무 성립 후 일정한 사유의 발생으로 말미암아 과세표준 및 세액의 산정기초에 변동이 생긴 경우 납세자로 하여금 그 사실을 증명하여 감액을 청구할 수 있도록 함으로써 납세자의 권리구제를 확대하려는 데 그 취지가 있는 것으로, 개별 세법에 다른 규정이 없는 한 그 적용범위를 제한할 수 없다. 한편 구 법인세법(2010. 12. 30. 법률 제10423호로 개정되기 전의 것, 이하 같다) 제40조 제1항은��내국법인의 각 사업연도의 익금과 손금의 귀속사업연도는 그 익금과 손금이 확정된 날이 속하는 사업연도로 한다��라고 규정함으로써 현실적으로 소득이 없더라도 그 원인이 되는 권리가 확정적으로 발생한 때에는 그 소득이 실현된 것으로 보고 과세소득을 계산하는 이른바 권리확정주의를 채택하고 있다. 이러한 권리확정주의란 소득의 원인이 되는 권리의 확정시기와 소득의 실현시기와의 사이에 시간적 간격이 있는 경우에는 과세상 소득이 실현된 때가 아니라 권리가 확정적으로 발생한 때에 소득이 있는 것으로 보고 당해 사업연도의 소득을 산정하는 방식으로, 실질적으로는 그 수취가 불확실한 소득에 대하여 장래 그것이 실현될 것을 전제로 하여 미리 과세하는 것을 허용하는 것이다. 따라서 소득의 원인이 되는 권리가 확정적으로 발생하여 과세요건이 충족됨으로써 일단 납세의무가 성립하였다 하더라도 일정한 후발적 사유의 발생으로 말미암아 소득이 실현되지 않는 것으로 확정되었다면, 당초 성립하였던 납세의무는 그 전제를 상실하여 원칙적으로 그에 따른 법인세를 부과할 수 없다고 보아야 한다(대법원 2013. 12. 26. 선고 2011두1245 판결 등).

Therefore, in principle, corporate tax is also a cause for filing a subsequent claim for correction, such as exercising the right to cancel or cancelling the contract due to unavoidable reasons under Article 25-2 (2) of the former Enforcement Decree of the Framework Act on

2) In the instant case:

First, Article 69(3) of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012) provides that where the difference between the amount determined due to the cancellation of a construction contract and the amount determined due to the cancellation of a construction contract occurs, the difference shall be included in the gross income or deductible expenses for the business year in which the cancellation date belongs. However, according to Articles 1 and 2 of the Addenda of the Enforcement Decree of the above Act, Article 69(3) of the above Act provides that Article 69(3) shall apply from the first beginning business year after January 1, 2012. In the case of the plaintiff, the calculation of gross income and deductible expenses as of the progress rate of the sales contract at the time of the business year 2010 and the ex post facto cancellation of the sales contract, the corporate tax refund for the 2010 business year in which the profits and expenses of the sales contract are included. Thus, Article 69(3) of the Enforcement Decree of the Corporate Tax Act cannot be applied.

If Article 2-1 of the Addenda of the Enforcement Decree of the amended Act applies only to the business year in which a taxpayer filed a tax return for the first time after January 1, 2012, but only to the business year in which the date of cancellation of a construction contract was the date of cancellation, as alleged by the Defendant, the principle of prohibition of retroactive taxation in fact violates the principle of prohibition of retroactive taxation in that it may cause unfair results in the refund of corporate tax by prescribing a different scope of grounds for ex post facto request for correction depending on when the date of cancellation of a construction contract is due to the occurrence of a certain later cause after the establishment of the tax liability, thereby allowing the taxpayer to file a request for reduction by proving the fact, and allowing the taxpayer to file a request for reduction.

Therefore, it is reasonable to view that the cancellation of the sales contract of the instant apartment, etc. constitutes grounds for ex post request for correction under Article 45-2 of the former Framework Act on National Taxes and Article 25-2 of the Enforcement Decree of the Framework Act on National Taxes, and that the Plaintiff may

The defendant asserts that corporate accounting standards or practices should be respected pursuant to Article 20 of the Framework Act on National Taxes, but it is corporate accounting standards or practices to reflect profits and losses from ex post termination in the business year at the time of termination of the contract, and the plaintiff has reported corporate tax in the manner of deducting the amount of income in the business year to which the date of termination of the contract belongs. Therefore, the plaintiff asserts that there are special circumstances where the ex post facto request for correction is restricted. As seen above, Article 20 of the Framework Act on National Taxes applies to the supplementary provisions where there is clear provisions on the business year of accrual of gross income and deductible expenses under

In addition, in special circumstances where a taxpayer has reported corporate tax by the method of deducting the amount of income for the business year to which the date of cancellation belongs according to corporate accounting standards or practices with respect to the cancellation of a sales contract, etc. which occurs ordinary and semi-annually, it cannot be a ground for filing a subsequent request for correction (see, e.g., Supreme Court Decision 2013Du12829, Mar. 13, 2014). However, it is insufficient to deem that there exists corporate accounting standards or practices that reflect the profits and losses arising from the ex post facto termination of contract in the business year to which the date of cancellation belongs in the business year to which the date of termination belongs in 201 or 2013, solely because the Plaintiff reported corporate tax by reflecting the taxable income in the business year to which the date of termination belongs in the business year to which the date of termination belongs. Rather, in light of the fact that the Plaintiff reflected profits and losses arising from the ex post termination of contract in the business year to which the sales contract was initially cancelled and applied for correction to the Defendant on this premise, there were no special circumstances to limit

Therefore, the disposition of this case rejecting the Plaintiff’s request for correction based on Article 69(3) of the Enforcement Decree of the amended Act is unlawful, and the Plaintiff’s assertion pointing this out is with merit.

3. Conclusion

Thus, the plaintiff's claim of this case is justified and accepted.

Indication of related Acts and subordinate statutes

(1) The former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014)

Article 45-2 (Request for Correction, etc.)

(1) In any of the following cases, a person who has filed a return on a tax base by the statutory due date of return may request the head of the competent tax office within three years after the statutory due date of return elapses to determine or correct the tax base and amount of the national tax for which the initial return and revised return have been filed: Provided, That with respect to the increased tax base and amount of tax due to the determination or correction, a request for correction may be made within 90 days (limited to within three years after the statutory due date of return expires) from the date he/

1. Where the tax base and amount of tax on a return of tax base (referring to the tax base and amount of tax after determination or correction is made, if such determination or correction is made pursuant to the tax-related Acts), exceed those to be reported under the tax-related Acts

2. Where the deficit amount or refundable tax amount entered in the tax base return (referred to the deficit amount or refundable tax amount after such decision or correction is made, if such decision or correction is made pursuant to the tax-related Acts), is insufficient to be reported under the tax-related Acts.

(2) Where any of the following grounds arises, a person who has filed a tax base return by the statutory deadline for return, or who has the tax base and amount of national taxes determined may request the determination or correction within two months from the date he/she becomes aware that such ground has occurred, regardless of the period referred to in paragraph (1):

1. Where the transaction, act, etc. which forms the basis of calculation of the tax base and the amount of tax in the initial return, determination or correction is confirmed as a different one by a final judgment (including any reconciliation or other act having the same effect as the judgment) in the lawsuit against it;

2. Where a determination or correction exists, converting the ownership of the income or other taxable object to a third person;

3. Where mutual agreement under a tax treaty is implemented differently from the details of the initial return, determination or correction;

4. Where the tax base and amount of the national tax initially returned for the taxable period other than the taxable period subject to the decision or rectification, due to such decision or rectification, exceed the tax base and amount to be returned under the tax-related Acts;

5. Where the ground similar to those prescribed in subparagraphs 1 through 4 and prescribed by Presidential Decree occurs after the statutory deadline for reporting of the relevant national tax expires.

(3) The head of a tax office shall, upon receiving a request for decision or correction under paragraphs (1) and (2), decide or rectify the tax base and amount, or notify the person making such request of the fact that there is no ground to make any decision or correction, within two months after he/she

(5) Matters necessary for the request for decision or correction and the notification procedure shall be prescribed by Presidential Decree.

Article 25-2 (Ex Post Factor Causes)

"Grounds prescribed by Presidential Decree" in Article 45-2 (2) 5 of the Act means any of the following cases:

1. Where permission or other disposition by the authorities related to the validity of transactions or acts, etc. which served as the basis for the calculation of the tax base and the amount of tax is revoked when the initial return, determination or correction is made;

2. Where a contract related to the validity of a transaction or act, etc. which forms the basis for calculating the tax base and the amount of tax, is cancelled by the exercise of the right to cancel or is cancelled or cancelled due to unavoidable reasons that occur after the relevant contract is concluded when the first return, determination

3. Where the tax base and the amount of tax could not be calculated due to the seizure of books and records and documentary evidence when the initial return, decision or correction was made, or due to other unavoidable reasons, but the relevant reasons cease to exist thereafter;

4. Where other grounds corresponding to subparagraphs 1 through 3 exist.

/ former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010)

Article 40 (Business Year of Profit and Loss)

(1) The fiscal year of accrual of earnings and losses of a domestic corporation shall be the fiscal year in which the date on which the concerned earnings and losses are settled.

(2) Necessary matters concerning the scope of the business year of accrual of earnings and losses under paragraph (1) shall be prescribed by Presidential Decree.

(1) The former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010)

Article 69 (Business Year in which Profits and Losses Derived from Provision of Services)

(1) In the application of the provisions of Article 40 (1) and (2) of the Act, the business year to which earnings and losses accrue from the provision of construction, manufacturing, and other services (including contract and subscription sales; hereafter in this Article, the same shall apply) shall be the business year which includes the date of delivery of the relevant assets (in the case of the provision of services, the date of the completion of the service; hereafter in this Article, the same shall apply)

(2) In the application of the provisions of paragraph (1), where the period of the construction contract (referring to the period from the commencement of construction until the date of delivery; hereafter in this Article the same shall apply) is not less than one year, the earnings and expenses, which is calculated based on the construction completion rate as prescribed by Ordinance of the Ministry of Strategy and Finance (hereafter in this Article referred to as the "rate of work progress") shall be included in the calculation of earnings and losses for each business year from the business year which includes the date of the commencement of construction to the business year which includes the date of its delivery, notwithstanding the provisions of the same paragraph: Provided, That where it is deemed that the rate of work progress cannot be calculated as prescribed by Ordinance of the Ministry of Strategy and Finance, they shall be included

(3) In the settlement of the accounts of the business year which includes the date of the commencement of construction, where the construction contract period is less than one year, the provisions of paragraph (2) shall apply mutatis mutandis to the business year of accrual of earnings and losses where the earnings and expenses are appropriated in accordance with the rate of work progress.

(1) The former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589 on February 2, 2012, and amended by Presidential Decree No. 24357 on February 15, 2013)

Article 69 (Business Year in which Profits and Losses Derived from Provision of Services)

(1) In the application of Article 40 (1) and (2) of the Act, earnings and expenses, which are calculated based on the construction completion rate (hereafter in this Article, referred to as the "rate of work progress") as prescribed by Ordinance of the Ministry of Strategy and Finance, from the business year which includes the date of the commencement of construction of an object to the business year which includes the date of its delivery, shall be included in the calculation of earnings and losses for the relevant business year: Provided, That in any of the following cases, earnings and expenses may be included in the calculation of earnings and losses for the business year which includes the date of delivery of the object:

1. Where a corporation that is a small or medium enterprise constructs a construction contract period of less than one year;

2. Where it is appropriated for earnings and expenses for the business year which includes the date of delivery of the assets;

(2) In the application of paragraph (1), any of the following cases shall be included in the calculation of earnings and losses for the business year which includes the date of delivery of an object (in cases of the provision of services, the date the provision is completed):

1. Where it is deemed impossible to calculate the rate of work progress, as prescribed by Ordinance of the Ministry of Strategy and Finance;

2. In cases of subscription sales conducted by a corporation falling under any subparagraph of Article 51-2 (1) of the Act, which applies the international accounting standards;

(3) In applying paragraph (1), where the difference between the amount determined as a result of cancellation of a construction contract and the amount of gross income or deductible expenses under the rate of work progress occurs, the difference shall be included in the gross income or deductible expenses for the business year

Presidential Decree No. 23589, February 2, 2012

Article 1 (Enforcement Date)

This Decree shall enter into force on the date of its promulgation: Provided, That the amended provisions of Articles 57 (1) 1 and 3, and 61 (2) 6 shall enter into force on March 2, 2012, and the amended provisions of Articles 20 (2), 80 (1) 2 (a) (limited to the part related to the parent company of the merged corporation) and 80-2 (limited to the part related to the parent company of the merged corporation) shall enter into force on April 15, 2012, and the amended provisions of Articles 138-5 (2) 7, 138-7, and 138-8 shall enter into force on July 1, 2012.

Article 2 (General Application Examples)

This Decree shall apply to the business year that commences after January 1, 2012.

Article 14 (Application Cases concerning Timing for Reversion of Profit and Loss)

(1) The amended provisions of Articles 69 (1), 71 (4) and (5) shall apply to the first time after this Decree enters into force.