The scope to be deemed to be outflow out of the amount of omission in sales of a corporation not entered in the books, and the burden of proof as to such outflow.

Where a corporation fails to enter its sales in the account book despite the fact of sales, the full amount of the omitted sales, including the cost of raw material purchase, shall be deemed to have been leaked out of the company, except in extenuating circumstances. In such cases, the special circumstance that the omission in sales is not leaked out of the company shall be proved by the corporation's side that asserts the omission in sales.

Article 32 of the Corporate Tax Act, Article 194-2 of the Enforcement Decree of the Corporate Tax Act

Supreme Court Decision 82Nu471 Decided June 14, 1983 83Nu381 Decided February 28, 1984

Attorney Jeon Jong-gu, Counsel for the defendant-appellant

Head of the District Tax Office

Gwangju High Court Decision 84Gu23 delivered on June 11, 1986

The appeal is dismissed.

The costs of appeal are assessed against the plaintiff.

The grounds of appeal by the Plaintiff’s attorney are examined.

1. As to ground of appeal No. 1

The income of each business year which is subject to corporate tax shall refer to the total amount after deducting total losses from the total gross income which belongs or comes to belong to each business year, and where the purchase price of raw materials for products falls under losses even though a corporation did not enter the sales in the account book despite the existence of sales in the account book, the total amount of the omission in sales, including the cost of raw material purchase, shall be deemed to have been leaked out, except in special circumstances (see, e.g., Supreme Court Decision 82Nu471, Jun. 14, 1983; Supreme Court Decision 83Nu381, Feb. 28, 1984; Supreme Court Decision 83Nu381, Feb. 28, 1984). The court below's decision that the defendant's disposition that recognized the total omission in sales as a bonus to the non-party 1 who is the representative director of the plaintiff corporation is legitimate, and there is no error of law by misunderstanding the legal principles of the Corporate Tax Act, or by misunderstanding the legal principles of the imposition of Class A tax.

The theory of lawsuit is that even if the omitted amount of sales flown out of the company is recognized as a bonus of the representative director, it shall not be treated as the total omitted sales amount as a bonus, but only the remaining amount after deducting the cost and other countermeasure expenses should be recognized as a bonus. This is merely an independent opinion of the plaintiff's attorney. The argument is groundless.

2. As to the grounds of appeal Nos. 2 and 3:

In a case where a juristic person fails to keep records in books despite the fact of sale, unless there are other special circumstances, the tax authority shall not regard the omitted amount of sales to have leaked out of the company. In this case, the special circumstance that the omission amount of sales should not be proved by the juristic person claiming it. According to the judgment below, the court below shall dismiss all of the testimony of Non-Party 2 and Non-Party 3, and the statement of No. 6-1 through No. 15, which are consistent with the plaintiff's statement of the lawsuit to the effect that the purchase price of raw materials for the omission amount of sales was appropriated for non-foreign liabilities, not non-foreign assets. Thus, the special circumstance of the lawsuit shall be deemed to have been rejected. In addition, in light of the records, since the judgment of the court below is justified in the determination of evidence as above, there is no error of law by misunderstanding the legal principles on the omission of judgment and burden of proof, or by misunderstanding the legal principles on the mistake of facts or the substantial taxation due to the misconception of facts, all of the arguments are groundless.

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Jae-hee (Presiding Justice)