Whether a bonus disposition is made with respect to the unpaid amount of the provisional payment at the time of closure

No special circumstance exists to deem that the special relationship was extinguished on the cessation date, and since the provisional payment and interest of the instant case were collected before the special relationship was terminated, it cannot be deemed that the instant provisional payment and interest were leaked out of the private company.

Article 67 of the Corporate Tax Act

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The Defendant’s disposition of imposing global income tax of KRW 50,833,790 for the Plaintiff on October 1, 2004 shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Details of taxation; and

A. On March 6, 1999, the Plaintiff established ○○○ Co., Ltd. (hereinafter referred to as “○○○○○○”) with a total of KRW 300 million by investing KRW 300 million in the Plaintiff’s wife by acquiring KRW 9,000 shares among the 30,000 shares issued with Kim○, etc.

B. From August 5, 2000, the Plaintiff was appointed as the representative director and resigned on June 16, 2001, and on June 17, 2001, the Plaintiff was registered as the representative director of ○○○○○.

C. At the time ○○○○ filed a corporate tax return for the year 2001, 164,153,143 won, including the provisional payment to the Plaintiff and the interest accrued therefrom, was attached to the corporate tax return, and 164,153,143 won, which is indicated in other items.

D. ○○○○○ had a bad business and accumulated losses on two occasions, and closed on June 30, 2002 and reported the closure to the head of ○○ Tax Office on July 10 of the same year. Accordingly, the corporate tax for the business year 2002 and 2003 was not reported.

E. However, the director of ○○ Regional Tax Office, from October 20, 203 to November 7, 2003, performed an audit and inspection of the duties with respect to the director of ○○ Tax Office from October 2003 to the head of ○○○ Tax Office, and on June 30, 2002, the director of ○○○ Regional Tax Office, even though the Plaintiff and the special relationship, which is a shareholder, were extinguished due to the closure of ○○○○○○○○○○○○○ on June 30, 2002, neglected to recover KRW 149,215,00 as at the time of 201 without collecting KRW 14,938,143 as at the time of 201, thereby releasing the amount out of the company, and notified the Plaintiff of the amount equivalent to the bonus disposal.

F. When the Plaintiff became aware of the occurrence of tax issues due to the failure of ○○○○ to conduct the liquidation procedure in the above audit process, the Plaintiff re-registered the business registration of ○○○ on October 30, 2003 according to the advice of ○○○○, and registered the dissolution on the 17th day of the same month after he was appointed as a liquidator on November 5, 2003.

G. After that, on November 26, 2003, the Plaintiff deposited KRW 225,662,155 (hereinafter “the provisional payment and interest of this case”) in the corporate account of ○○○○○○○○ on the same day, including the provisional payment and interest thereon, and ○○○○○○○ deposited the said money as its residual property, and distributed KRW 78,981,000 to the Plaintiff and Kim○○○○ on the 28th of the same month according to the share ownership ratio; KRW 67,698,00 in each case; KRW 67,698,00 in each case to Kim○○; KRW 67,698,00 in total; KRW 67,698,00 in cash to the Plaintiff and Kim○○○○ on the same day; and KRW ○○○ deposited the said money in cash on December 5, 200, and completed the liquidation on January 13, 2004.

H. Meanwhile, upon notification of the director of ○○ Regional Tax Office on February 16, 2004, the Defendant, upon bonus disposal of KRW 164,153,143, and around May 6, 2004, notified ○○○○○○○○ of change in the amount of income, but was unable to withhold the amount of income tax from ○○○○○○○ upon notification of change in the amount of income, issued a notice of change in the amount of income again to the Plaintiff. On October 1, 2004, the Defendant issued the instant tax disposition imposing KRW 50,83,790,00,000, including the Plaintiff’s global income tax amount of KRW 37.704,326 and additional tax of KRW 13,129,467.

A. On November 29, 2004, the Plaintiff filed an appeal with the National Tax Tribunal on November 29, 2004, but was dismissed on July 5, 2005, and the written decision was served on July 7 of the same month.

[Basis] Evidence Nos. 1, 2, 4, 5, 6, Gap evidence Nos. 7-1, 2, 3, Gap evidence Nos. 8-1, 2, 9, 10, 11, Gap evidence Nos. 12, 13-1, 12, 13-2, 3, Eul evidence Nos. 1 through 9, the testimony by Lee ○-○, and the purport of the whole pleadings by the witness of the first instance trial

2. Whether the taxation disposition is legitimate

A. The parties' assertion

(1) The Defendant asserts that the special relation with the Plaintiff’s ○○○ was extinguished on June 30, 2002, which was the cessation date of business after the closure of business by ○○○○○○○○○○○○○, and that the instant provisional payment and interest did not have been recovered until then, the instant disposition that was imposed on the Plaintiff, who is the actual representative director of ○○○○○○○○○○○○○, was lawful.

(2) As to this, the Plaintiff’s actual representative director of ○○○○ is the Plaintiff’s shareholder, and even if the Plaintiff is the actual representative director of ○○○○○○○○○, there was a special relationship between the Plaintiff and ○○○○○○○○ prior to the completion of the liquidation procedure following the dissolution of ○○○○○○○○○○○○○○○○, and collected the instant provisional payment and interest prior to the instant tax disposition, and accordingly, the special relationship was extinguished on the ○○○○○○○○○○’s closing date, and the instant disposition based on the premise that the instant provisional payment and interest not recovered until that time was unlawful.

B. Relevant statutes

○ Denial of wrongful calculation under Article 52 of the Corporate Tax Act

(1) Where the head of the district tax office having jurisdiction over the place of tax payment or the Commissioner of the competent Regional Tax Office deems that the tax burden of a domestic corporation has been unjustly reduced through transactions with persons with a special relationship prescribed by Presidential Decree (hereinafter referred to as "specially related persons"), he/she may calculate the amount of income for each business year of the relevant corporation regardless of the activities or calculation of the amount of income of the relevant corporation (hereinafter

(2) In the application of the provisions of paragraph (1), the standard for determination shall be the prices applied or to be applied in sound and generally accepted practices and normal transactions between persons without a special relationship (including rates, interest rates, rents, exchange rates and other equivalent rates; hereafter referred to as "market price" in this Article).

(3) A domestic corporation shall submit a detailed statement describing transactions with a specially related person for each business year as prescribed by the Presidential Decree.

(4) In applying paragraphs (1) through (3), matters necessary for the types of wrongful calculation, assessment of market price, etc. shall be prescribed by Presidential Decree.

Article 67 of the Corporate Tax Act

In filing a report on the corporate tax base on the income for each business year under the provisions of Article 60 or in determining or revising the corporate tax base under the provisions of Article 66 or 69, the amount included in the calculation of earnings shall be disposed of as bonus, dividend, other outflow from the company, internal reserve, etc. according to the person to whom it reverts

Article 87 of the Enforcement Decree of the Corporate Tax Act

(1) "Person with a special relationship prescribed by Presidential Decree" in Article 52 (1) of the Act means a person with a relationship falling under any of the following subparagraphs with a corporation (hereinafter referred to as a "person with a special relationship"):

2. Stockholders, etc. (excluding minority shareholders, etc.; hereafter the same shall apply in this Sub-section) and their relatives;

3. Officers and employees of a corporation, or employees of a stockholder, etc. (referring to the officers in case of a profit-making corporation, and the director and founder in case of a non-profit corporations) or other persons whose livelihood depends on the money and other assets of the corporation or stockholder, etc., and their relatives who depend upon them

Article 88 of the Enforcement Decree of the Corporate Tax Act: The type of wrongful calculation

(1) "Where it is deemed that the tax burden has been unjustly reduced" in Article 52 (1) of the Act means cases falling under any of the following subparagraphs:

6. Where cash and other assets or services are provided with no compensation or at an interest rate, tariff, or rental rate lower than the market price: Provided, That this shall not apply where company housing is provided to officers who are not stockholders or investors (including officers who are minority shareholders under Article 87 (2)) and employees;

9. Other cases in which it is deemed that activities, calculations, or other distributions of the profits of the juristic person corresponding to subparagraphs 1 through 8 have occurred.

Article 106 of the Enforcement Decree of the Corporate Tax Act

(1) The amount included in the calculation of earnings under the provisions of Article 67 of the Act shall be disposed of pursuant to the provisions of the following subparagraphs. The same shall also apply to non-profit domestic corporations

1. Where the amount included in the calculation of earnings has clearly leaked out of the company, the dividends, bonuses from the disposition of profits, other income, and other outflow from the company under each of the following items according to the person to whom they accrue: Provided, That where the accrual is unclear, it shall be deemed to have been reverted to the representative (where the total number of stocks held by an officer who is not a minority shareholder under the provisions of Article 87 (2) and persons with a special relationship under the provisions of paragraph (4) of the same Article is 30% or more of the total number of stocks issued or total investment amount of the relevant corporation and the officer actually controls the operation of the corporation, he shall be deemed the representative, and where a corporation which has been exempted from withholding taxes under the provisions of Article 46 (12) of the Restriction of Special Taxation Act reports that there is a separate representative among the officers who are stockholders, the reported person shall be the representative,

(a) Where the person to whom benefits accrue is a stockholder, etc. (excluding a stockholder who is an executive officer or employee), the dividends of such person to the person to whom benefits accrue;

(b) If the person to whom it belongs is an officer or employee, the bonus to the person to whom it reverts;

○ The legal fiction of the timing of payment of dividends, contributions, and other income by the disposal of income under Article 192 of the Enforcement Decree of the Income Tax Act

(1) When the head of a tax office or the director of a regional tax office determines or revises the corporate income amount under the Corporate Tax Act, he/she shall notify the corporation concerned by a notice of change in the income amount as prescribed by the Ordinance of the Ministry of Finance and Economy within 15 days from the date of the determination or correction of the corporate income amount: Provided, That where the location of the corporation concerned is not clear or it is impossible to serve the notice, or where the corporation concerned falls under the provisions of Article 86 (1) 1, 2 and 4 of the National Tax Collection Act, he/she shall notify the relevant stockholder and the resident who has received the disposition

(2) In the case of paragraph (1), the dividend, bonus and other income shall be deemed to have been paid or recovered on the date when the notice is received.

C. Determination

If the plaintiff is the actual representative director of the ○○○○○○, as alleged by the defendant, the bonus disposition should be made in the case of the plaintiff, and even if it should be made in the case of a simple shareholder, this disposition is made on the premise that the provisional payment in this case and the interest in this case were leaked to the plaintiff, and thus, the provisional payment in this case and whether the interest in this case were leaked to the plaintiff.

(1) The fact that a stock company appropriates the provisional payment to a person with a special relationship on the account book as a "provisional payment" is premised on the recovery of the provisional payment from the person with a special relationship. Thus, if the corporation did not intend to recover the provisional payment from the time of the provisional payment to the person with a special relationship, or the corporation renounced the provisional payment by the waiver of claims, exemption, bad debt disposal, etc., or if it is placed in an impossible situation, it is reasonable to deem that the provisional payment ultimately belongs to the person with a special relationship, and thus, it can be disposed of in accordance with Article 67 of the Corporate Tax Act and Article 106 (1) of the Enforcement Decree thereof.

(2) On the other hand, the General Rules of the Corporate Tax Act (4-0, 6) provides that in the case of provisional payment, etc. and attempted interest arising from fund transactions with a specially related person: (i) provisional payment, etc. and accrued interest not recovered until the extinction of the special relationship; and (ii) if the special relationship continues, an attempted interest not recovered shall be deemed to have been distributed or disposed of according to the person to whom it belongs under Article 106(1) of the Enforcement Decree of the Corporate Tax Act, and in such a case, the provisional payment, etc. shall be deemed to have been leaked. In such a case, the General Rules of the Corporate Tax Act specify the provisions of Article 106 of the Enforcement Decree of the Corporate Tax Act as it is not only an internal business rule of the administrative agency, but also has the legal nature to bind citizens or courts, so it shall not be determined as to whether the provisional payment was leaked.

(3) In the case of a corporation, even if a report on discontinuance of business under the Added Value-Added Tax Act is filed, the special relation is maintained until the corporation is dissolved and the liquidation work is completed. However, even if the liquidation procedure is not commenced on the ground that an exceptional ground for dissolution does not occur, if a long-term tax cannot be imposed on the person with special interest on the ground that the person with special interest was dissolved or liquidated even though the person with special interest was dissolved or liquidated without collecting the provisional payment, it would result in unfair treatment compared to the corporation with which the liquidation procedure is completed, and if there are special circumstances such as the case that goes against the principles of tax equity, the special relation was extinguished on the date of discontinuance.

(4) However, according to the above facts, since ○○○○○○○○○’s statement on the balance sheet prepared at the time of the settlement of accounts for the business year indicated KRW 164,153,143, the sum of interest and provisional payment on other assets column, ○○○○○○○○ appears to have known the claims to be returned with the intent to recover the provisional payment from the Plaintiff’s assets. While the ○○○○○○ discontinued the business on June 30, 2002, it was registered as the business on October 30, 203, and the remaining assets were distributed on the 17th of the same month after the resolution of the temporary general shareholders’ meeting and completed the liquidation registration on January 13, 204, and the liquidation procedure was completed on November 26, 2003, the Plaintiff did not have any special relation to the ○○○○○○○○○○○○○○○○○○’s 14th anniversary of the completion of the liquidation procedure.

(5) Therefore, as long as the instant provisional payment and interest were collected prior to the completion of the liquidation of ○○○○○○○○, the instant provisional payment and interest accrued therefrom on the ground that the special relationship with the Plaintiff on the ○○○○○○○○○○’s cessation of business was extinguished until then, and thus, the instant provisional payment and interest accrued to the Plaintiff on the 00○○○○○○’s cessation of business was unlawful.

3. Conclusion

If so, the plaintiff's claim of this case is justified, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed as it is without merit, and it is so decided as per Disposition.