In cases where the balance of deductible expenses directly appropriated for the gross income was included in the under-reported amount but thereafter the under-reported amount is thereafter deducted from the under-reported amount, whether the deductible expenses directly corresponding thereto should be added to the under-reported amount (affirmative)

Article 118(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17033, Dec. 29, 2000) provides that only the amount calculated by deducting the “amount of loss directly corresponding to the gross income and that of the amount included in the gross income shall be underreporting only the amount calculated by deducting the deductible expenses from the gross income in the case of the omission of the gross income and the deductible expenses directly corresponding thereto at the same time. As such, where the balance of the deductible expenses directly corresponding to the gross income from any type of gross income is included in the underreporting amount, but where the deductible expenses directly corresponding to the deductible expenses are deducted from the underreporting amount in calculating the legitimate additional tax after the underreporting amount, if other assets that should not be appropriated in the assets that should be appropriated in the account book instead of the assets that should be counted in the underreporting amount, the amount of deductible expenses directly corresponding thereto shall be added to the underreporting amount. In addition, since the tax adjustment included in the omitted assets and the tax adjustment related to the assets that are erroneously appropriated, it shall be deemed as deductible expenses.

Article 76 (1) 2 (a) and (b) (current deleted) of the former Corporate Tax Act (amended by Act No. 6293 of Dec. 29, 2000), Article 76 (1) 2 (a) and (b) (current deleted), Article 118 (3) (current Deletion) and (4) (current deleted) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17033 of Dec. 29, 2000)

Supreme Court Decision 2013Du12645 Decided November 28, 2013 (Gong2014Sang, 115)

SB Investment Co., Ltd. (Law Firm Rated, et al., Counsel for the plaintiff-appellant-appellant)

Samsung Head of Samsung Tax Office

Supreme Court Decision 2006Du3711 Decided September 25, 2008

Supreme Court Decision 2010Du5127 Decided October 27, 2011

Seoul High Court Decision 2011Nu37499 decided February 3, 2012

The part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined.

1. The main sentence of Article 76(1)2(a) of the former Corporate Tax Act (amended by Act No. 6293, Dec. 29, 2000) provides that when a domestic corporation files a report on corporate tax on income for each business year that falls short of the tax base to be reported, “where the reported amount is at least 1/3 of the tax base to be reported and the wrongfully underreported amount as prescribed by the Presidential Decree exceeds five billion won, an amount equivalent to 30/100 of the calculated tax amount to the reported amount shall be collected as an additional tax; and (b) the main sentence of Article 76(1)2(a) provides that “an amount equivalent to 10/100 (20/100 for the wrongfully underreported amount) of the calculated tax amount to the reported amount shall be collected as an additional tax.”

In addition, Article 118(4) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17033, Dec. 29, 2000; hereinafter the same) provides that “the amount included in the gross income under Article 52 of the Act (Article 52 subparag. 1)” and “the amount included in the gross income by intentionally omitting other gross income or by falsely appropriating the deductible expenses” (Article 6) shall be the unjustly underreported amount as prescribed by the Presidential Decree, and Article 76(1) subparag. 2 of the Act provides that “Where there is any deductible expenses directly corresponding to the gross income in calculating the income amount for each business year, the underreported amount under Article 76(1)2 of the Act shall be the amount after deducting the deductible expenses.”

2. A. The lower court acknowledged the following facts.

① The Plaintiff reported KRW 55,830,843,895 as the corporate tax base for the business year 2000. However, the Plaintiff appropriated KRW 11,256,198,145 of the Asianet Co., Ltd. (hereinafter “ Asianet”)’s shares in the investment securities account as of the end of the business year 2000.

② The Defendant included assets to be appropriated in the investment securities account as of the end of the business year 2000 in the gross income on the ground that the assets are KRW 11,170,612,700, such as the stocks, etc. of the Jeju Net Co., Ltd. (hereinafter referred to as “Sanet”) rather than the Asian Net stocks, and made a tax adjustment, such as including the excessive appropriation amount of stocks in the deductible expenses, and accordingly, made a disposition of increase and correction.

③ On the other hand, on June 30, 2003, the Commissioner of the National Tax Service decided that KRW 11,170,612,70 of the omission amount of assets related to the shares sent to the Plaintiff should be excluded from the underreported amount at the time of the determination of the determination of the above increase in the shares issued to the Plaintiff. The Defendant subsequently determined that the amount of KRW 11,170,612,70 of the omission amount of assets related to the shares sent to the Plaintiff and KRW 11,256,198,145 of the excessive appropriation amount of shares issued to the Asianet (excluding those of KRW 29,03,425,299, July 13, 2009, the amount of KRW 29,384,464,593 of the corporate tax base for the 2000 business year, calculated tax amount (this tax)19,650,6086, 380,380,389).

B. (1) The lower court determined that the portion exceeding the amount of the final penalty tax imposed under the instant final disposition is unlawful on the following grounds: (a) 1/3 (23,794,821,531,531) of the tax base to be reported is short of 71,384,464,593 (23,794,82,862,812,599 (=29,033,425,299) - 11,170,612,700) if the underreported amount of the assets related to the shares for delivery was excluded from the underreported amount under the foregoing review and determination; (b) the additional tax rate of 30% is not applicable; and (c) the amount of the tax should be calculated by dividing the underreported amount (10% of the additional tax rate) and the unjustly underreported amount (20% of the additional tax rate) of the Plaintiff’s corporate tax accrued for the business year 2000.

(2) Furthermore, the lower court rejected the Defendant’s assertion that, in the event that the amount of assets omitted relating to the Jeju Net stocks included in gross income from the under-reported amount should be deducted from the item of gross income, the amount of excess assets appropriated in the Asianet stocks directly corresponding thereto should be deducted from the item of deductible expenses. The lower court rejected the Defendant’s assertion on the following grounds: (a) the omission of assets related to the Jeju Net stocks is related to the acquisition of forfeited stocks; and (b) the excessive appropriation amount of the Asianet stocks is related to the acquisition of separate investment assets; (c) it is difficult to conclude it as deductible expenses directly corresponding to the omission amount of assets related to the stocks issued in the Asianet stocks; and (d) the determination made by the Commissioner of the National Tax Service made

3. However, we cannot agree with the judgment of the court below for the following reasons.

A. Article 118(3) of the former Enforcement Decree of the Corporate Tax Act provides that only the amount calculated by deducting the "amount of losses directly corresponding to the gross income and the amount of under-reported shall be deemed the amount under-reported, because only the amount obtained by deducting the deductible expenses from the gross income and the amount of losses directly corresponding to the gross income is omitted at the same time (see Supreme Court Decision 2013Du12645, Nov. 28, 2013). As such, where the balance of the deductible expenses directly corresponding to the deductible expenses from any gross income is included in the under-reported amount once the reasonable penalty was calculated after the inclusion in the under-reported amount, but the amount of deductible expenses directly corresponding thereto is to be deducted from the under-reported amount. In addition, where a corporation appropriates another asset that should not be appropriated in the lieu of the asset that should be included in the account book, the amount under-reported amount shall be added to the under-reported amount. In addition, since assets and tax adjustment related to the omitted assets are included in the under-reported amount, it should be deemed as losses directly corresponding to the above.

B. Review of the reasoning of the lower judgment and the record reveals the following facts.

① On February 28, 2000, the Plaintiff transferred 2,00,000 Asiannet shares to the Epic Investment Asset (hereinafter “IIL”) which is a foreign investment fund with a special relationship on February 28, 200, through the Plaintiff’s Paccom, at KRW 11,256,198,145, respectively, on March 17, 200, the Plaintiff transferred 2,000 Asiannet shares to the Epic Investment Securities Account.

② On the other hand, on March 20, 200, IIL participated in the capital increase with capital increase of KRW 11,170,612,70 among the above payments, and used KRW 70,000 per forfeited stock at a higher price than 11,060,000 or deposited KRW 110,612,70 with foreign currency deposits.

③ However, as the Plaintiff’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea’s Republic of Korea.

④ Meanwhile, while the Commissioner of the National Tax Service, at the time of the review and decision, states that the omitted amount of assets related to the stocks sent in the form of invested assets should be excluded from the underreported amount, it is unreasonable to regard that the assets were excessively appropriated or omitted since only the type of assets changes as a result of anti-influence according to the deeming internal transactions, among KRW 11,256,198,145, which was entered in the form of invested assets, the amount of KRW 11,170,612,70 related to the stocks sent in the form of invested assets is deemed to have been excessively appropriated or omitted. It is not reasonable to regard that the excessive appropriation amount included in the deductible expenses as deductible expenses is 11,256,256,198,145, which was included in the gross income as deductible expenses, and that it is reasonable to deduct the amount of assets omitted in the form of gross income from the reported tax base.

C. Examining these facts in light of the legal principles as seen earlier, the inclusion of the omission amount of assets related to the shares sent in the gross income or the inclusion of the excess amount related to the shares issued in the Asianet in the deductible expenses is nothing more than that of the assets erroneously calculated through the tax adjustment, and thus, the deductible expenses constitute the deductible expenses directly corresponding to the above gross income and the deductible expenses. Moreover, the omission of the appropriation of the shares sent in the shares delivered in the company year 2000 or excessive appropriation of the Asiannet shares did not affect the Plaintiff’s net profit and loss. As such, the omitted amount of assets related to the shares transferred in the gross income should be deducted from the underreported amount, and the amount of excess amount corresponding to the deductible expenses directly corresponding thereto should be added to the underreported amount.

In addition, in light of the reasons for the review and decision, the Commissioner of the National Tax Service’s decision is merely to the effect that the Defendant calculated the underreported amount by including the omission amount of assets related to the stocks in gross income or by including the excess amount related to the stocks in deductible expenses in calculating the underreported amount, and it shall not be construed that only the omission amount of assets related to the stocks sent in gross income should be deducted from gross income and that the excess amount related to the stocks of the Asianet should not be deducted from deductible expenses. Thus, the Defendant’s assertion cannot be deemed to go against the binding

Therefore, in accordance with the above facts, 30% of the tax base to be reported as 1/3 (23,794,821,521,531) or more of 1/3 (23,79,79,40,03,425,299 won - 11,170,612,700 won + 11,256,198,145 won to be reported as 1/3 (23,794,821,531 won) of the tax base to be reported as 29,19,010,7444 won from the assets omission amount related to the liquor stocks and the excessive appropriation amount related to the net stocks of Asia, respectively, shall be applied. Nevertheless, the lower court erred by misapprehending the legal principles on the final imposition of penalty taxes of this case and by misapprehending the legal principles on the final imposition of penalty taxes of this case, thereby affecting the conclusion of the judgment.

4. Therefore, the part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young (Presiding Justice)