Daegu District Court 2009Guhap2995 (24 March 2010)

certificate shall be equivalent to other data in lieu of books or documentary evidence that may be the basis of the substantive investigation.

Based on the results of the investigation into the deposit account, the confirmation of this case prepared by clearly stating the details of each deposit account and individual account amount and each cash sales omission amount for each taxable period and each business place, may be used as the basis for the disposition of this case, and may belong to the lawful method

2010Nu659 Revocation of disposition of imposing corporate tax, etc.

XXHE Co., Ltd.

Head of Dong Daegu Tax Office

Daegu District Court Decision 2009Guhap2995 Decided March 24, 2010

January 14, 2011

February 18, 2011

1. The plaintiff's appeal is dismissed.

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

The decision of the first instance court shall be revoked. The defendant's decision on November 6, 2008 is revoked in excess of the amount stated in the No.4 of each corporate tax and value added tax in the separate sheet No. 1 of the corporate tax, corporate tax and value added tax list No. 1 of each business year and taxable period

1. Details of the disposition;

A. From January 1, 2002, the Plaintiff is a company that is manufacturing household in Daegu Suwon-gu, Daegu-dong, and has its inner branch, new branch, and two branch offices, and the Plaintiff’s representative director KimA operates three business places in Seoul and Incheon, and one business place in the name of an individual and one business place in the name of his/her father and wife.

B. From February 21, 200B to September 1B, 200B, the director of the Daegu Regional Tax Office conducted a tax investigation with respect to the Plaintiff and KimA, and as a result, confirmed KRW 575,450,279 of the Plaintiff’s shortage of sales among cash collection, such as the cost of funeral treatment and the cost of repair until January 2003 through the account in the name of the Plaintiff (hereinafter “corporate account”) and the account in the name of KimA individual (hereinafter “individual account”), and notified the Plaintiff of the result of the investigation and the Defendant as taxation data.

C. On November 6, 200B following the notice of the tax investigation results and taxation data, the Defendant corrected and notified each corporate tax and value-added tax amount to the Plaintiff, such as the entry in the separate sheet B of the corporate tax and value-added tax.

D. On February 4, 2009, the Plaintiff filed a request for review with the National Tax Service on February 4, 2009. The Commissioner of the National Tax Service, on July 9, 2009, rendered a decision that the Plaintiff’s customer management card presented by the Plaintiff shall be re-issued with 127 copies of the customer management card presented by the Plaintiff and shall be corrected by subtracting the omitted amount of sales at the place of business operated by KimA, and the remainder of the claim shall be dismissed.

E. Accordingly, the commissioner of Daegu Regional Tax Office re-examines 127 copies of the customer management guide submitted by the Plaintiff at the time of the Plaintiff’s request for examination, and recognized 37 cases of KRW 38,063,00 as the income amount of the individual workplace, and decided to reduce the corporate tax and value-added tax as stated in the separate sheet No. 3 of the corporate tax and value-added tax list (hereinafter “instant disposition”).

[Ground of Recognition] Facts without dispute, Gap evidence 1, 2, 4, 7 evidence, Eul evidence 1, Eul evidence 2-1 to 10, Eul evidence 3-1 to 5, Eul evidence 4 and 6-1 to 5, Eul evidence 5-1 to 5-4, Eul evidence 7-1 to 7-3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) The defendant extended the scope of investigation without the resolution of the Taxpayer Protection Committee, and did not notify the plaintiff company. The defendant prepared a certificate used as the basis of the disposition in this case by the defendant's cryp, which may be accused pursuant to the provisions of the Punishment of Tax Evaders Act, and the contents of the certificate are proved to be false, such as the plaintiff's omission of sales in the business place, and some of the amount calculated as the plaintiff's omission of sales can be proved to be an omission of sales in the business place. The amount of personal account deposit cannot be used as the evidence of taxation because there is no books or other evidence that can be viewed as the plaintiff's sales. Thus,

(2) The instant disposition is unlawful inasmuch as the Plaintiff imposed corporate tax and value-added tax on the amount of passbook deposit without deducting the expenses from the amount of passbook deposit even though the Defendant bears the burden of proving the legality of the taxation disposition, and the burden of corporate tax and value-added tax is more than the actual sales.

(3) With respect to cash sales from January 2003 to February 2004, the instant disposition that applied the corporate tax rate and value-added tax rate for KRW 210,123,000 in total on the quarterly cash return in 2003 and 2004 is unlawful, since the amount calculated by converting the amount of cash sales already reported by the Plaintiff from the amount of personal account into the value of supply was considered as the amount of cash sales omitted.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) Whether the principle of underlying taxation is violated

(A) Preparation and submission of a written confirmation (No. 3)

Comprehensively taking account of the overall purport of the arguments in evidence Nos. 2 and 3, the Superintendent of the Daegu Regional Tax Office conducted the consolidated investigation of the corporation and individual workplace of the Plaintiff and KimA individual from January 1, 2005 to December 31, 2007. After confirming the omission of the corporation’s sales through the deposit account in the name of the KimA individual’s account, the investigation was conducted by expanding the scope of the investigation into the taxable period of 2003-2004 to the taxable period of 1 January 2008. The representative director of the Plaintiff’s representative director KimA prepared and submitted a confirmation document (Evidence No. 3) that all omissions in the sales of the Plaintiff and the individual workplace of KimA’s individual account calculated through the said investigation process.

(B) Whether the extension of the investigation taxable period is illegal

In full view of the purport of the Plaintiff’s evidence No. 9’s statement, the Defendant confirmed the Plaintiff’s omission of sales through an inquiry into the account transaction details in the name of the Plaintiff and the Plaintiff’s representative, and then acknowledged the fact that the investigation period was expanded in accordance with the Regulations on the Management of Investigation Affairs by requiring an investigation of the same amount for the omission of sales in 2003 and 2004, which was equally connected to the omission of sales. As such, the Plaintiff’

(C) Whether there is evidence of the certificate and evidence of on-site investigation taxation

1) If a tax authority received a written confirmation from a taxpayer that a certain portion of a transaction is the processing transaction in the course of a tax investigation, barring special circumstances, such as where the written confirmation was drafted compulsorily against the intent of the originator or it is difficult to take the written confirmation as evidence of the specific fact due to paralysis of the content thereof, etc., the evidence of the written confirmation cannot be readily denied (see, e.g., Supreme Court Decisions 2001Du2560, Dec. 6, 2002; 2005Du12589, Feb. 24, 2006).

2) In the instant case, there is no evidence to prove that the said written confirmation was made compulsorily against the will of KimA, the author, and all of the cash deposited in the KimA’s personal account included an omission of sales at a certain individual place of business, rather than the Plaintiff’s omission of sales, and even if the amount of tax was corrected for this reason, such reason alone is insufficient in the instant written confirmation that the details of each deposit in the corporate account and the individual account amount and each cash sales omission amount are clearly indicated in detail, or it is difficult to view that the said written confirmation was not based on facts, and therefore, the said written confirmation constitutes other data in lieu of the books or documentary evidence that can be the basis for the on-site investigation.

3) The estimated tax based on the standard rate of income is exceptionally acknowledged in a case where there is no taxpayer’s account books and documentary evidence, which serve as the basis for the determination of the tax base and the amount of tax, or where it is difficult to use them by the method of taxation based on the basis of the lack or falsity, so it is difficult to conduct an on-site investigation only if it is impossible to do so by the method of estimation. The reason why a disposition by the on-site investigation is more unfavorable than that by the method of taxation based on the estimation, or that the taxpayer wants to investigate and determine by the method of estimation cannot be deemed as satisfying the requirements for the on-site investigation (see Supreme Court Decision 9

4) Generally, when the taxpayer’s return is corrected due to an error or omission in the details of the account or documentary evidence, it is deemed that there is an error or omission in the details of other data, and where it is possible to conduct a field investigation, it may be corrected even with other data. In this case, the determination of the taxpayer’s total income by investigating the amount deposited in the account of the financial institution of the person liable to pay tax through an on-site investigation is a legitimate on-site investigation with objectivity. In a case where a tax assessment is conducted through an on-site investigation, the taxpayer’s assertion and proof as to the existence of necessary expenses corresponding to the omitted sales should be raised and proved, and where the amount of income can be determined by the on-site investigation method, it shall not be determined by the method of on-site investigation (see Supreme Court Decision 2002Du12786, Dec. 12, 2003).

5) Therefore, based on the results of the investigation into the bank account of the Plaintiff and the Plaintiff’s representative KimA, the instant confirmation document prepared by the Defendant, based on the detailed descriptions of each deposit amount of the legal account and each individual account and each of the cash sales omission amount for each taxable period and each of the business places, can be used as the grounds for the instant disposition and shall be deemed lawful on-site investigation. Since the taxation of the on-site investigation is more unfavorable to the taxpayer than the estimated tax, and thus, the judgment on the basis of the existence of the grounds for the on-site investigation should be strict in order to recognize taxation by the on-site investigation. Therefore, the Plaintiff’s assertion that the confirmation document in this case

(2) Double taxation

(A) In an administrative litigation to which the provisions of the Civil Procedure Act apply mutatis mutandis, the burden of proof is distributed among the parties in accordance with the general principles of civil procedure and there is a burden of proof as to the legitimacy of the pertinent disposition to the defendant who asserts the legitimacy of the pertinent disposition in accordance with the nature of the appeal litigation. However, in a case where the defendant proves that the legitimacy of the pertinent disposition can be reasonably acceptable, the disposition should be justified, and arguments and evidences contrary to the above reasonable evidence should be borne by the plaintiff who is the counter party (see Supreme Court Decision 84Nu124, Jul. 24, 1984).

(B) In the instant case, in light of the fact that the Plaintiff omitted sales from the corporate account and personal account to a considerable amount, and that the Daegu director of the Daegu Regional Tax Office confirmed the Plaintiff’s detailed omitted sales by taxation period, the Defendant is deemed to have proved to a considerable extent as to the Plaintiff’s omission of sales and omitted sales. As such, the Plaintiff needs to prove that there was double taxation due to the overlapping amount of cash sales already reported during the period from January to February 2003, 204. However, it is difficult to acknowledge that each of the items of evidence No. 10-4, No. 11 to 13, and No. 19 to 21, No. 14, No. 14, No. 19 to 21, and there is no evidence to prove otherwise.

(C) Therefore, the Plaintiff’s assertion that it was a double taxation during the above taxable period is without merit.

3. Conclusion

The judgment of the court of first instance which dismissed the plaintiff's claim is just, and the plaintiff's appeal is dismissed.