A. Purport of the provision of Article 51(1) of the Framework Act on National Taxes and whether a tax authority’s refusal of an application for refund of erroneous or erroneous payments can be subject to appeal litigation (negative)

B. Whether an act of failure by the tax office to investigate, make a decision or notify within the statutory period with respect to a return of reduction or a return of correction pursuant to Article 45(1) and (2) of the above Act can be subject to appeal litigation (affirmative)

(c) Calculation method of expenses recognized as losses with respect to calculation of the income amount generated from domestic sources of German banks with branches in Korea;

(d) The effects of a public notice (No. 81-37 on November 18, 1981) made by the Commissioner of the National Tax Service with respect to a foreign corporation on which the method of sharing related points is

A. Article 51(1) of the Framework Act on National Taxes expresses the doctrine of unjust enrichment that, from the perspective of justice and equity, the amount erroneously paid by the State among the amount of tax payable by a taxpayer and the amount of tax refundable should be immediately returned to a taxpayer. The existence or scope of refund under the above provision is determined inasmuch as there is no legal ground for erroneous payment. The existence or scope of overpaid or erroneously paid amount is determined in terms of erroneous payment, and the amount of overpaid or erroneously paid amount is determined in accordance with the disposition that forms the basis of collection, etc., and with respect to refundable amount, it shall be determined in accordance with the requirements for refund under the individual tax law. Therefore, the existence or scope of overpaid or erroneously paid amount and refundable amount shall not be determined or changed due to a decision of a tax authority under the above provision. Therefore, even if a tax

B. According to Article 45(1) and (2) of the Framework Act on National Taxes, Article 25(2) of the Enforcement Decree of the same Act, and Article 10-2 subparag. 1 of the same Decree, where a taxpayer filed a return of tax base for the tax return period within the court declaration period and found any omission or error in the reported matters, giving an opportunity to correct such error or error, and where there exist any matters to reduce the tax base or the amount of tax paid originally reported or to increase the amount of tax refundable, the taxation authority shall investigate such fact and notify the person who filed the report of the result within 60 days before the statutory due date. Thus, if the taxation authority fails to investigate, determine, or notify the person who filed the report within the above statutory period, the taxpayer may be deemed to have the tax office’s refusal to file an appeal against

(c) In light of the purport of Article VII(3) of the Agreement between the Republic of Korea and the Federal Republic of Germany for the Avoidance of Heavy Taxation on Income and on Capital, direct expenses of the head office expenses of a foreign corporation having a branch in Korea shall be recognized as losses of the branch in question, and indirect expenses such as management expenses and general management expenses incurred at the head office, etc. shall be calculated as expenses for the calculation of taxable income of the branch in the calculation of the amount of expenses that shall be attributed to the permanent establishment in the Contracting State, and the method of calculating them shall be recognized as losses for the calculation of taxable income of the branch in the calculation of the amount of taxable income. Thus, unless

D. According to the purport of Article 121(1)1 of the Enforcement Decree of the Corporate Tax Act, where the expenses related to domestic source income are common to the domestic source income and other source income, only the amount reasonably allocated to the domestic source income should be deductible expenses. However, since the type of business, type of business, and organization are diverse in foreign corporations, it is extremely difficult to uniformly determine the method of allocation of reasonable related source income in light of the fact that there is no relative standard even when it is reasonable, the accounting method of allocation of expenses in proportion to the amount of income as provided by the National Tax Service Notice (No. 81-37 of November 18, 1981) is reasonable, and it cannot be readily concluded that it violates the purport of Article 7(3) of the Tax Agreement and Article 121(1) of the Enforcement Decree of the Corporate Tax Act.

(a) Article 51(1) of the Framework Act on National Taxes, Article 2(b) of the Administrative Litigation Act. Article 45(1) and (2) of the Framework Act on National Taxes, Article 25(2) and subparagraph 1 of Article 10-2 of the Enforcement Decree of the same Act, Article 2(c) of the Administrative Litigation Act;

A. Supreme Court Decision 85Nu565 delivered on September 8, 1987

Attorney Kim Jae- Jae et al., Counsel for the plaintiff-appellee-appellant

The director of the tax office

Seoul High Court Decision 83Gu958 delivered on October 28, 1985

The appeal is dismissed.

The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. The facts established by the court below based on its produced evidence are as follows:

Until March 16, 1982, the Plaintiff bank, which runs banking business within the Federal Republic of Germany, filed a return on March 16, 1981 of the Seoul Branch’s tax base for the business year, the amount to be included in the deductible expenses of the Seoul Branch out of the expenses of the Plaintiff bank’s head office, shall be calculated as KRW 130,978,39, and the tax base shall be reported as corporate tax amount to KRW 410,197,67, 176, and the amount to be deducted as corporate tax for the following reasons: The Plaintiff bank, which is a foreign corporation, shall be entitled to the above disposition of the tax base for the refund of KRW 15,00,00 for the reasons that the above disposition of the Plaintiff bank’s head office cannot be corrected as deductible expenses; the Plaintiff’s application for refund of the amount to be deducted as deductible expenses of the Seoul Branch out of the expenses of the Plaintiff bank’s head office is not subject to the above disposition of the Plaintiff bank; and the Plaintiff’s application for refund of KRW 28197.

However, according to Article 45(1) and (2) of the Framework Act on National Taxes, Articles 25(2) and 10-2 subparag. 1 of the Enforcement Decree of the same Act, where a taxpayer filed a tax base return within the statutory due date of return, and subsequently found any omission or error in the reported matters, giving an opportunity to correct such omission or error, and where there is any matter to reduce the tax base or the amount of tax already reported or to increase the tax amount to be refunded (the revised return for reduction), the taxation authority has a duty to investigate it and notify the person who filed the report of the result within 60 days after the statutory due date of return. Thus, if the taxation authority fails to investigate, determine, or notify the person who filed the report within the statutory due date of return, the taxpayer may be deemed to have the duty to correct the reported matters at the same time and file an appeal against it (see Supreme Court Decision 83Nu571 delivered on Jan. 20,

However, according to the records, the plaintiff filed a tax base return within the statutory due date for return, and filed an application for refund of the corporate tax paid in excess of the due date for return after filing the revised return within the statutory due date for return, and the defendant did not investigate or make a decision within the statutory due date for return, and it is evident that the plaintiff is dissatisfied with this. Thus, the plaintiff's claim in this case shall be deemed lawful to have filed an appeal against the rejection disposition of the request for reduction

2. According to the court below's determination, Article VII (3) of the Agreement for the Avoidance of Double Taxation between the Republic of Korea and the Federal Republic of Germany provides that "the expenses incurred for the purpose of the permanent establishment, including management expenses and general administration expenses, shall be allowed regardless of whether the fixed place of business occurs within the Contracting State or any other place," and Article 121 (1) 1 of the Enforcement Decree of the Corporate Tax Act provides that "the deductible expenses provided for in Article 9 of the Act shall be limited to those that are reasonably distributed to domestic source income and domestic source income under Article 55 of the Act, which are reasonably distributed to the plaintiff's domestic business establishment in proportion to the total amount of the income generated by the domestic business establishment and the distribution method of the tax revenue of the plaintiff bank, because it is no more reasonable method to calculate the amount reasonably distributed to the plaintiff's domestic business establishment in proportion to the amount of the income generated by the plaintiff's separate distribution method and the distribution method of the tax revenue generated by the domestic business establishment in proportion to the amount of the revenue generated by the plaintiff's domestic business establishment."

The purport of Article 7(3) of the above Tax Agreement is that business income in a Contracting Party shall be taxed on the basis of net income, not on the revenue standard, and that in calculating taxable income of a permanent establishment, expenses shall be deducted if it was generated for the purpose of the permanent establishment regardless of whether such expenses were generated from the head office (or related points) or between the countries in which the permanent establishment was located. In light of the purport of the provision, direct expenses in the head office shall be acknowledged as deductible expenses for the calculation of income amount of the branch office, and such indirect expenses as operating expenses and general management expenses arising from the head office, etc. shall be recognized as deductible expenses for the calculation of income amount of the domestic source income, because they are not only the fixed business operator in a Contracting Party but also the expenses jointly incurred for the other permanent establishment or other departments within the Contracting Party, and therefore, it shall be reasonably determined as deductible expenses for the calculation of income amount of the domestic source income in accordance with the provisions of Article 15(1) of the Enforcement Decree of the Corporate Tax Act and the method of calculating the income amount of the domestic source income from the head office.

Therefore, we cannot accept the court below's decision that the method of distributing related points by the National Tax Service notice was a reasonable method of distribution in accordance with the purport of the above tax agreement or the provisions of the Enforcement Decree of the Corporate Tax Act.

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 on the bench.

Justices Kim Yong-sung (Presiding Justice)