Whether there is a later triggerive reason affecting the original tax liability;

If it is confirmed that income is not realized due to the occurrence of a certain post-explosion reason, the tax liability initially established shall lose the premise and, in principle, may not be levied corporate tax accordingly.

2016Guhap6573 Disposition of revocation of refusal to correct corporate tax

AAA Corporation

BB Head of Tax Office

on October 18, 2017

on 15, 2017

1. On June 22, 2015, the Defendant’s rejection disposition against the Plaintiff for rectification of KRW 579,982,402 as corporate tax for the business year 2002 is revoked.

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) Conclusion, etc. of a sales contract for sites, etc. of golf courses;

1) The Plaintiff is a company established on February 14, 1989 for the purpose of running a tourism and resort business and a golf course business.

(2) In around 1997, the Plaintiff commenced a project to create a golf course on a total of 106 m2 square meters of land, including 365,142 m2 and 106 m2. However, around October 25, 2001, the Plaintiff suspended a golf course development project, and sold to AAAA Co., Ltd. (BB Co., Ltd. (hereinafter “the instant purchaser”) the subject matter including the said 106 m24,850,000,000 (hereinafter “the instant first sales contract”). The main contents of the instant first sales contract are as follows (hereinafter “A”) : “Plaintiff and B” refers to the purchaser of the instant land; “C golf course and business right.”

Sales contract;

(Article 2) Total purchase price

2. A list of the total sales proceeds of the subject matter of sale of this case is listed in attached Table 1- ].

"Land" on the "other objects of sale" on the same list as the portion on a parcel of 106 1,927,433 square meters in total.

amount, including a part in respect of such person.

(Article 4) Transfer of rights

(4) A shall set the subject matter of this case within eight months from the date of this contract.

All limited real rights, such as mortgages, superficies, easements, leases, etc., shall be removed from the scope of or interference with the exercise of ownership, and (b) shall secure the substitute site for the relocation of graves, and (c) complete the relocation of all graves within the common cemetery No. 7-1 and No. 7-2 and all unclaimed and unclaimed graves within the project site, and omitted.

(Article 7) A’s liability for delay in performance

(4) If a delay in the performance under paragraphs (2) and (3) above is attributable to A, B may demand A to transfer all rights determined by this contract, such as transfer of ownership to the whole subject matter of sale and purchase, and omit them.

§ 10). Termination of a contract

(1) Eul may rescind this contract where it is deemed difficult for A to expect that he/she fails to perform the obligations under Article 4 of this contract, or to perform such obligations.

[Supplementary Rule]

(Article 1) Understanding on the Time of Transfer of Titles

In the event that this contract has been established and the obligations under Article 4 of the present contract have been fulfilled or the reason for transfer of ownership has occurred under Article 7, Section 4 of the present contract, the time of transfer of ownership shall be after January 1, 2002.

[Attachment 1-Subject Matters of Sales Contract]

【Land”

Omission

In the case of other objects of sale: golf course business rights, use and lease of the State and public land, design drawings in the civil engineering sector, all of the tangible and intangible rights for golf course business, forest trees and other natural objects on the objects of sale.

3) Around September 19, 2002, the Plaintiff reported and paid corporate tax of KRW 3,088,752,995 for the business year 2002 around March 31, 2003 to the buyer of this case after completing the registration of ownership transfer based on the instant first sales contract with respect to the land 106 pieces.

(b) Particulars of reduction of the sales price;

1) On February 13, 2003, the Plaintiff and the purchaser of the instant case entered into a contract with the amount of KRW 24,650,000 from KRW 24,850,000 to KRW 24,650,000 (hereinafter “the instant first modified contract”).

2) On May 12, 2006, the Plaintiff and the buyer of the instant case entered into a contract with KRW 24,650,00,000 to KRW 24,603,70,000, and with KRW 1,927,43 square meters of land on 106 parcel of land on 104 parcel of land on 104 square meters (hereinafter “the instant secondary modified contract”).

3) On April 30, 2010, the Plaintiff and the purchaser of the instant case agreed as follows with respect to the purchase price, etc. of the instant first sale contract (hereinafter “the instant third sale contract”).

Agreements

Article 4 (Transfer of Rights), Article 4 (4) and Article 5 (4) and Article 7 (Liability for Delay of Payment of Purchase Price), and Article 7 (Liability for Delay of Performance of A) of the Agreement entered into on October 25, 2001 with the Director DDD and BB Director EE, which is the party to the agreement, shall mutually agree on the implementation of the terms and conditions of the agreement as follows.

(Article 1) Purpose

The purpose of this Agreement is to eliminate the possibility of future disputes by clarifying the methods of settling the balance of the sales contract related to the delay of the contract and the matters necessary for the completion of the execution of the contract between Gap and Eul, as the joint graveyard located in 7-1 and 7-2, among the obligations of Gap as agreed in Article 4 of the sales contract.

(Article 2) The balance of the sales contract

1. Any balance under the sales contract as of the date of the conclusion of this agreement is KRW 4,723,700,000.

(2) Pursuant to Article 7(6) of the Sales Contract, the remaining amount of the sales contract referred to in the preceding paragraph is the amount before reflecting the money for the transfer of a grave to Eul directly by proxy and the money for the transfer of a grave to Eul, or the money for the transfer of a grave to Eul due to a cause attributable to Gap (hereinafter referred to as "alternative execution money"), and the money for the vicarious execution of Eul as of the date of conclusion of this Agreement is KRW 1,09,77,30.

(Article 4) A’s delay of contract performance compensation

The amount of damage that occurs, directly or indirectly, to Eul as a result of delay in the performance of the obligation to transfer a common cemetery under the "sales contract" shall be calculated as follows:

(6) Additional vicarious execution money

(1) After the conclusion of this Agreement, Eul shall cooperate with respect to a request for the vicarious execution of the cost of creating a substitute cemetery in connection with the performance of the duty to relocate the common cemetery of Gap, and the amount of money for additional vicarious execution shall be calculated and settled by the methods prescribed in Articles 4 (1) through (3) and 5 as well as by the methods prescribed in paragraphs (5) of this Article.

(2) The money to be additionally vicarious execution by Eul at the request of Gap shall be limited to the money (construction cost, civil petition agreement amount, compensation cost, etc.) incurred directly or indirectly in connection with the relocation of a common cemetery, and omitted;

4) On February 2015, the Plaintiff completed the fulfillment of the obligations stipulated in the instant initial sales contract, and around April 2015, the Plaintiff drafted a final agreement on the sales price settlement with the instant purchaser (hereinafter “final reduction agreement”).

Relevant Grounds

1. The “CC golf course land and a business license sales contract concluded on October 25, 2001”;

2. "Revised a sales contract" which was concluded on February 13, 2003;

3. "Modification of a sales contract (two-dimensional)" concluded on May 12, 2006.

4. "Agreement concluded on April 30, 2010".

Article 2 (Determination of Balance)

The purchase price of this case shall be KRW 24,850,00,000 on the sales contract of one of the grounds related to the sales contract, which reduces the amount under each of the following subparagraphs to KRW 349,570,626:

1. 19,800,000 won paid four times in total from October 25, 2001 to March 11, 2002 in connection with this contract.

2. 246,300,000 won reduced by two or more relevant grounds.

3. 870,828,300 won, prior to July 21, 2004, the purchaser of the vicarious execution, prior to April 30, 2010, agreed on a temporary reduction of the amount between the seller and the purchaser pursuant to Article 7(6) and Article 4-2(2) of the grounds related thereto.

(4) 229,050,000 won, prior to April 30, 2010, which, pursuant to Article 7(6) of the relevant ground 1 and Article 2(2) of the relevant ground 4-2, the seller and the purchaser agreed temporarily to reduce the amount of vicarious execution on or before April 30, 201

(5) 1,96,96,400 won, performed by proxy pursuant to Article 6 (2) and (3) of the grounds related to this section.

(6) Expenses incurred pursuant to Articles 4, 5, and 6, 1,277,355,644 won, among the expenses involved, under Articles 4, 5, and 64 won.

(c) Demand for correction by reduction agreement;

1) On April 10, 2015, the Plaintiff filed a request for rectification of corporate tax with the purport that corporate tax for the business year 2002 would be reduced from KRW 3,088,752,95 to KRW 2,508,770,593 on the ground that the price stipulated in the instant first sales contract was reduced according to the instant reduction agreement and the gross income for the business year 2002 was also reduced. However, on June 22, 2015, the Plaintiff was denied the said request for rectification from the Defendant (hereinafter “instant request for rectification”).

2) On September 16, 2015, the Plaintiff filed an appeal with the Tax Tribunal on September 16, 2015, but was notified of the decision of dismissal by the Tax Tribunal on April 18, 2016.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1 through 8 (including branch numbers, hereinafter the same shall apply), Eul evidence No. 1, and the purport of the whole pleadings

2. The parties' assertion

1) Summary of the Plaintiff’s assertion

Article 45-2(2) of the Framework Act on National Taxes and Article 25-2(4) of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 27833, Feb. 7, 2017; hereinafter “former Enforcement Decree of the Framework Act on National Taxes”) on the following grounds: (a) the price stipulated in the initial sales contract was reduced pursuant to the instant final reduction agreement; and (b) the instant disposition rejecting correction was unlawful.

Temporary Reduction

Above 2003 up to 2008 Removal of the deceased and deceased argul 548,709,080

Expenses for the subdivision of private roads from April 2003 to August 2003 11,659,010

The cancellation of the designation of an erosion control area on March 31, 2004 KRW 70,359,240

on March 31, 2004 240,000 won for re-design services for golf courses.

Compensation 1,277,355,644 won for delayed relocation of a grave on April 2015

Total 2,148,082,970 won

2) Summary of the defendant's assertion

A) The absence of a subsequent event

The Plaintiff’s income for the business year 2002 became final and conclusive on September 2002, when the procedure for the registration of ownership transfer with respect to the land subject to the instant sales contract was conducted on or after the said initial sales contract, the reduction of the price due to the instant reduction agreement made around April 2015 for at least ten years thereafter may be included in the deductible expenses for the business year 2015, and shall not be retroactively deducted from the gross income for the business year 2002. In particular, the Plaintiff’s obligation to pay delayed relocation compensation for a grave was an independent cause separate from the instant initial sales contract, and thus, the Plaintiff’s obligation to pay delayed payment of the relocation obligation for a grave after April 30, 2010, which is an independent cause independent of the instant initial sales contract, may not affect the tax base and the tax amount for the business year 2002, and may not be a trigger cause after it had an impact on

B) The existence of special circumstances similar to sales discount

Even if the reduction of the price stipulated in the initial sales contract of this case is a later-end reason prescribed in the Framework Act on National Taxes, such reduction does not affect the Plaintiff’s tax liability that was initially established, as it is similar to the deduction of the amount of income due to circumstances that occur in ordinary and repeated circumstances after the conclusion of the contract, such as sales discount

3. Determination on the legitimacy of the disposition rejecting the correction of this case

(a) Relevant statutes;

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

B. Determination

1) Even if a tax liability is established upon the occurrence of a final and conclusive right which causes income and satisfies the tax requirements, if the initial established tax liability becomes final and conclusive as a result of the occurrence of a certain subsequent cause, it shall be deemed that the initial established tax liability would lose the premise and thus, cannot be imposed corporate tax in principle. However, in special circumstances, such as bad debts, where the Corporate Tax Act or other relevant statutes separately stipulate the amount of income not realized due to the occurrence of a specific subsequent cause as the grounds for deducting the amount of income for the business year in which the subsequent cause occurred, or where the taxpayer has reported corporate tax in the manner of deducting the amount of income for the business year in which such cause occurred in accordance with corporate accounting standards or practices, such subsequent cause may not affect the tax liability that was initially established. Furthermore, in light of the language, purport, structure, etc. of the relevant provisions, it is reasonable to deem that the subsequent cause in this context includes cases where the amount of income not realized is reduced due to a legitimate cause for business (see, e.g., Supreme Court Decision 2013Du161614, Dec. 2614, 2016).

(ii) the existence of any ex post facto reason

In light of the following circumstances revealed from each of the above facts recognized and evidence Nos. 5 and 8, the Plaintiff’s final agreement on reduction between the purchaser of this case and the purchaser of this case shall be deemed to have a justifiable ground for business. Therefore, the above final agreement constitutes a ground for follow-up under Article 45-2(2) of the Framework Act on National Taxes and Article 25-2 subparag. 4 of the Enforcement Decree of the former Framework Act

① The Plaintiff, under an agreement with the buyer of the instant case, reduced the initial purchase price several times due to the Plaintiff’s failure to perform the duty to transfer a grave, etc. agreed upon at the time of the initial purchase and sale contract, and there is no objective evidence to deem that the Plaintiff unjustly avoided tax liability or reduced the price for other unlawful purposes. Rather, the Plaintiff was forced to reduce the price in order to avoid disadvantages due to the cancellation, etc. of the initial sale and sale contract (see Article 10(1) of the first sale and sale contract of the instant case), and the specific amount of reduction at that time, etc. were negotiated.

② In light of the first and third changes contract and the final reduction agreement of this case, all of which constitute the entire initial sales contract of this case (see Articles 2(2), 2(3), and 10 of the first changes contract, and Article 1 of the final agreement of this case). The Plaintiff and the purchaser of this case can be deemed to have settled the amount of damages arising from the delay in the performance of the obligations of this case arising from the Plaintiff’s initial sales contract of this case at the time of the final reduction agreement (see Articles 4, 6(1), and 6(2) of the third changes contract), the legal nature of the obligation to pay compensation for the delayed relocation of a grave can be deemed to have been expanded or modified by maintaining the identity of the obligations of the Plaintiff, the original obligation to pay compensation for delayed relocation of a grave under Article 4(4) of the first sales contract of this case, as an obligation to compensate for damages arising from delay in the performance of its obligations (see, e.g., Supreme Court Decision 201Da2684, May 27, 2017).

(iii) the existence of a special circumstance

According to the above facts, it is difficult to regard the instant final reduction agreement as a reason that arises from the "ordinary and repetitive corporate tax return by the method of deducting the amount of income for the business year in which such a reason occurred according to corporate accounting standards or practices, and as the Plaintiff has not reported corporate tax by the method of deducting the amount of income for the business year in which the said reason occurred, it cannot be deemed that there are special circumstances that do not affect the tax liability that was initially established.

C. Sub-committee

The rejection disposition of the correction of this case, which was made on the premise that the amount of KRW 2,148,082,970, which was reduced according to the final reduction agreement of this case, cannot be deducted from the gross income for the business year 2002, should be revoked as unlawful.

4. Conclusion

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