Cho Jae-2016-China-2476 (Law No. 22, 2016.09)

The legitimacy, etc. of the assertion that it is improper to treat the amount deducted or reduced from the payment of employee's benefits as the bonus as the representative's bonus, etc.

In light of the fact that the non-party corporation did not report the amount deducted or reduced from the payment of employee's wages, such as the amount below the standard amount of income, as the amount of income for each business year, while there is no objective evidence proving that the amount was not out of the company, it is legitimate to impose the comprehensive income tax by deeming the amount as the bonus of

Article 81-4 of the Basic Act

Incheon District Court-2017-Gu 5007 (23 August 2018)

EO

O Head of tax office

2018.26

208.23.20

1. The plaintiff's claim is dismissed.

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

1. Details of the disposition;

(a) Tax investigation, etc. on limited partnership companies of ○ enterprise;

The limited partnership company of ○ enterprise (hereinafter referred to as the "○ enterprise") is a business operator who is established on October 16, 1973 and runs a taxi transport business under the Passenger Transport Service Act.

From September 3, 2012 to September 21, 2012, the Defendant: (a) conducted a tax investigation on ○○ Company (from January 1, 2009 to December 31, 2011, subject to investigation; (b) the corporate tax and value-added tax on the subject of investigation; hereinafter referred to as “first investigation”); (c) paid benefits to taxi drivers (hereinafter referred to as “cab drivers”); (d) deemed that the ○ Company accounts the total amount of benefits determined even after deducting the standard amount of income ( taxi commission), the amount of excess fuel cost, and the amount of penalty related to the business from the amount of benefits; and (d) deemed that the employee accounts for the amount of bonus calculated as the total amount of benefits determined even if it actually paid the amount of income in the form of piece rate payment; and (e) deemed that the employee paid only the amount of wages determined in the form of bonus, which was paid in the form of piece rate calculation, the amount paid in the form of bonus income and the amount equivalent to the income amount reported as deductible expenses for the Plaintiff Company.

1. Amount of income: Details of the calculation of the tax base and amount of tax (unit cost);

Items of Taxation

Business year

Revenue amount

Tax Base

Notice Tax Amount

Corporate Tax

209

4,587,797,559

-16,723,590

302,534

2010

4,656,526,979

-36,695,345

1,809,953

2011

4,863,220,442

-247,867,933

2,988,682

2. Details of the change in the amount of income;

Type of income;

Reversioner

Year

Amount of income;

Bonuses

209

15,126,713

After the first investigation, the Defendant reviewed the data for taxation, such as the wage ledger, supporting materials, etc., additionally submitted by the ○○ enterprise (hereinafter referred to as “the second investigation”). On April 1, 2013, the Defendant issued a notice of change in the amount of income (hereinafter referred to as “the notice of change in the amount of income”) to the Plaintiff, who is the representative of the ○ enterprise, for the business year from 2009 to 2011, and issued a notice of change in the amount of income (hereinafter referred to as “the notice of change in the amount of income”). On the same day, the Defendant notified the Plaintiff of such change in the amount of income.

1. Amount of income: Details of the calculation of the tax base and amount of tax (unit cost);

Items of Taxation

Business year

Revenue amount

Tax Base

Notice Tax Amount

Corporate Tax

209

4,587,797,559

1,812,630

2010

4,656,526,979

1,529,225

2011

4,863,220,442

-26,626,004

1,022,680

2. Details of the change in the amount of income;

Type of income;

Reversioner

Year

Amount of income;

Bonuses

209

201,610,660

2010

94,510,261

2011

177,158,236

B. Imposition, etc. of global income tax on the Plaintiff

On November 5, 2015, the Defendant issued a correction and notification of global income tax (including additional tax; hereinafter the same shall apply) 45,478,670 won for the year 2010 on November 6, 2015, and 75,560,680 won for the global income tax on November 6, 2015, respectively, upon the ○○ Company’s failure to perform its withholding duty following the notice of change in the amount of income. After that ○○ Company’s payment of withheld tax, it deducted the amount as the already paid tax amount of the Plaintiff’s global income tax for the year 2010, and reduced the amount as KRW 42,380,170 for the global income tax for the year 201, KRW 70,08,530 for the global income tax for the year 201, KRW 30,098, KRW 5015 for the remaining amount of tax due to the reduction, and KRW 515.5.

[Reasons for Recognition] Evidence Nos. 1 through 11, Evidence Nos. 2 through 5, 7, 8, and the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiff's assertion

1) The Defendant’s secondary investigation of ○○ Company constitutes an unlawful tax investigation, and thus, each of the dispositions of this case based on such unlawful secondary investigation is unlawful.

2) Since the amount below the standard amount of income that ○○ Company deducted in the course of paying wages to transport employees was not out of the company, it was retained in the company, each of the dispositions in the instant case, which was made by disposing of the Plaintiff, the representative of ○○ Company, as a bonus, on the premise that the amount below the standard amount of income was out of the company

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) Whether each disposition of the instant case is based on an unlawful tax investigation

Where a tax official’s investigation affects taxpayers’ freedom of business by having taxpayers answer questions and undergo an inspection, etc., a re-inspection shall not be deemed to fall under a “tax investigation prohibited by re-audit.” However, whether an investigation conducted by a tax official constitutes a “tax investigation prohibited by re-audit” even if the taxpayer, etc. is not obligated to answer or accept and the taxpayer’s freedom of business is not likely to be abused. Whether an investigation conducted by a tax official constitutes a “tax investigation prohibited by re-audit” shall be comprehensively taken into account the purpose and details of the investigation, the object and method of the inquiry, the materials acquired through the investigation, the scale and period of the investigation, etc., such as the fact-finding of the place of business, simple confirmation of bookkeeping, confirmation of specific sales facts, issuance of administrative civil petition documents, and the receipt of materials voluntarily submitted by the taxpayer, etc., and thus, it shall be deemed that the taxpayer, etc. can easily respond to the investigation or a simple investigation accompanied with such fact-finding or a simple investigation during the period of 10 years or more (in principle, 20 days or more).

The following circumstances revealed from the aforementioned evidence and the purport of the entire oral argument, i.e., the defendant requested ○ enterprise to submit the benefit ledger for the period of investigation in the course of the first investigation into the suspicion of tax evasion of ○ enterprise’s corporate tax, etc., but the ○ enterprise submitted inaccurate data concerning the benefit ledger for the business year from 2009 to 2010, and did not submit the benefit ledger for the business year from 2011. ② The ○ enterprise submitted the benefit ledger for the business year from 2009 to 2011, which was the second investigation, to the defendant on December 7, 2012, which was the time after the second investigation, and the defendant presented the benefit ledger for the business year from 209 to ○ enterprise. The defendant did not appear to have further asked ○ enterprise about ○ enterprise after the first investigation or inspected ○ enterprise’s books, documents, and articles, etc., and the defendant’s second investigation did not appear to have any particular opportunity for correction or error in the process of investigation.

Therefore, each of the instant dispositions cannot be deemed based on a reinvestigation prohibited under Article 81-4(2) of the former Framework Act on National Taxes (amended by Act No. 11604, Jan. 1, 2013).

2) Whether the failure to meet the standard amount of income ( taxi commission) is illegal

The following circumstances revealed from the evidence as mentioned above and the purport of the entire pleading, namely, ① the company’s calculation of the total amount of benefits, even if it did not pay the amount below the standard income amount in the process of paying wages to the transport employees, and included the total amount of the benefits in deductible expenses; ② the ○ company did not account as transport income amount or the representative’s provisional payment with respect to the amount below the standard income amount; ③ there is no account related to the amount below the standard income amount in its accounting book; ③ there is no data on the place where the amount below the standard income amount (tax commission) was used or the person to whom the income amount (tax commission) was attributed, it is reasonable to view that the amount below the standard income amount (tax commission) was out of the company, and so long as it is unclear as the place of use is not clear, it should be deemed that the amount below the standard income amount (tax commission) was reverted to the Plaintiff, the representative of the ○ company, pursuant to the proviso to Article 106(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 24357, Feb. 15, 2013).

3. Conclusion

The plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

Related Acts and subordinate statutes

former Framework Act on National Taxes (Amended by Act No. 11604, Jan. 1, 2013)

Article 81-4 (Prohibition of Abuse of Right of Tax Investigation)

(1) Any tax official shall conduct a tax investigation to the minimum extent necessary to realize proper and fair taxation and shall not abuse the right of tax investigation for any other purpose.

(2) Tax officials may not conduct reinvestigation for the same items of taxation and for the same taxable period, except in any of the following cases:

1. Where obvious evidence exists that prove a suspicion of tax evasion;

2. Where it is necessary to investigate a trading partner;

3. Where mistakes relating to two or more business years exist;

4. Where an investigation is conducted following the decision on necessary disposition pursuant to Article 65 (1) 3 (including cases applied mutatis mutandis in Articles 66 (6) and 81);

5. Other cases similar to subparagraphs 1 through 4, which are prescribed by Presidential Decree.

Article 81-8 (Period of Tax Investigation)

(1) A tax official shall ensure that the period of tax investigation is at least the period in consideration of the items of investigation, type, scale, difficulty, etc. of the investigation: Provided, That in any of the following cases, the period of tax investigation may be extended:

1. Where it is evident that a taxpayer has evaded an investigation, such as hiding books, documents, etc. or delaying or refusing the submission thereof;

2. Where it is necessary to investigate the customer, conduct on-site verification of the customer, or conduct on-site verification;

3. Where a suspicion of tax evasion is detected or the type of the investigation is converted into the case of a tax offense pursuant to Article 1 of the Procedure for the Punishment of Tax Evaders Act in the course of such investigation;

4. Where the investigation is suspended due to natural disasters or labor disputes;

5. Other cases similar to subparagraphs 1 through 4, which constitute grounds prescribed by Presidential Decree.

(2) Where a tax official determines the period of tax investigation pursuant to paragraph (1), the period of tax investigation for taxpayers whose annual revenue or transfer amount is less than 10 billion won in the taxable period with the largest annual revenue or transfer amount during the taxable period subject to investigation shall be within 20 days.

(3) Where a tax investigation with a period fixed pursuant to the proviso to paragraph (1) is extended for the first time, approval from the head of the competent tax office shall be obtained, and where such period is extended twice, it may be extended within 20 days, respectively, after obtaining approval from the head of the competent higher tax office: Provided, That it shall not be subject to restrictions on the period of tax investigation under paragraph (2) and any extension of the period of tax investigation under the main sentence of this paragraph in cases prescribed by Presidential Decree

(6) Where a tax official extends the period of tax investigation pursuant to the proviso to paragraph (1), he/she shall notify the taxpayer of the grounds therefor and the period thereof in writing, and where the tax investigation is suspended or resumed pursuant to paragraphs (4) and (5), he/she

Article 81-12 (Notice on Result of Tax Investigation)

When a tax official completes a tax investigation, he/she shall notify the taxpayer of the results thereof in writing: Provided, That this shall not apply to cases prescribed by Presidential Decree, such as closure.

Enforcement Decree of the former Framework Act on National Taxes (Amended by Presidential Decree No. 24366, Feb. 15, 2013)

Article 63-2 (Prohibition of Overlapping Investigation)

"Cases prescribed by Presidential Decree" in Article 81-4 (2) 5 of the Act means any of the following cases:

1. If a general investigation is undertaken against a person suspected of disturbing the economic order through speculative investment in real estate, hoarding and hoarding, undertaking transactions without authentic documentation, etc., leading to evasion of taxes;

2. Where a reinvestigation for the handling of all kinds of assessment data, or a confirmation investigation for determination of the national tax refund is conducted;

3. Where re-revision is made without conducting on-site investigation for tax disposition pursuant to Articles 81-5 and 81-12 of the Act.

former Corporate Tax Act (Amended by Act No. 11873, Jun. 7, 2013)

Article 6 (Settlement and Correction)

(2) Where a domestic corporation files a report under Article 60 in any of the following cases, the head of the tax office having jurisdiction over the place of tax payment or the Commissioner of the competent Regional Tax Office shall correct the corporate tax base and amount

1. Where any error or omission occurs in the details of a return;

(4) Where the head of a tax office or the Commissioner of the competent Regional Tax Office having jurisdiction over the place of tax payment finds any error or omission in the determination or correction of corporate tax, he/she shall immediately correct it again.

Article 67 (Disposition of Income)

When filing a report on the corporate tax base on the income for each business year pursuant to Article 60 or determining or revising the corporate tax base pursuant to Article 66 or 69, the amount included in the calculation of earnings shall be disposed of to the person to whom it belongs, as prescribed by Presidential Decree, such as bonus, dividends, other external outflow and internal reservation.

Enforcement Decree of the former Corporate Tax Act (Amended by Presidential Decree No. 24357, Feb. 15, 2013)

§ 106. Disposal of income

(1) The amount included in the calculation of earnings under Article 67 of the Act shall be disposed of in accordance with 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, it shall be disposed of as dividends, bonuses from the disposition of profits, other income, or other outflow from the company under the following items according to the person to whom it reverts: Provided, That it is unclear to whom it reverts: Provided, That it shall be deemed to have been reverted to the representative (where an executive who is not a minority shareholder, etc. and persons with a special relationship under Article 43 (8) holds not less than 30/100 of the total number of stocks issued or total investment amount of the relevant corporation and actually controls the operation of the corporation, he/she shall be deemed the representative, and where there are not less than two

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

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

(c) Where the person to whom it belongs is a corporation or an individual operating the business, other outflow from the company: Provided, That it shall be limited to where the distributed profit constitutes the income for each business year of a domestic corporation or a domestic business place of a foreign corporation under the provisions of Article 94 of the Act or the business income of a resident or a non-resident under

(d) Other income of the person to whom the income belongs, in cases where the person to whom the income accrues falls.

2. Where the amount included in gross income has not leaked out of the company, it shall be deemed internal reserves;