National High Court Decision 2007Du4778 (208.05.02)

The legitimacy of the assertion that there is an omission of necessary expenses to cope with omission in sales, and thus, a decision of estimation is required.

The plaintiff asserts that there is omission of purchase and omission of personnel expenses, but it is not possible to submit all relevant financial evidence, and only the necessary expenses for the omission of revenue, which is a part of the total revenue, cannot be determined separately by the method of estimated investigation.

The contents of the decision shall be the same as attached.

Article 27 (Calculation of Necessary Expenses)

Article 80 (Determination and Correction of Income Tax Act)

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of global income tax of KRW 86,342,632 against the Plaintiff on June 15, 2007 is revoked.

1. Details of the disposition;

A. From February 24, 2004, the Plaintiff is an entity exempt from value-added tax, who runs a wholesale and retail business with the trade name of ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ Cooperative Co., Ltd. in the name of ○○○○○○ Branch.

B. On May 30, 2006, the Plaintiff reported the total amount of income accrued in 2005 to KRW 1,408,884,288, and paid KRW 21,207,357,361 as global income tax on KRW 21,207,195, calculated by subtracting necessary expenses calculated by the account book from the necessary expenses.

C. In 2005, the Defendant discovered the fact that the Plaintiff sold KRW 20,400,000 to ○○○○○ Co.,, Ltd., and sold KRW 63,255,000 in total at KRW 142,527,182,00 on the place of the strike of ○○○ Club, but omitted the sales amount from the revenue (hereinafter in this case’s sales omission), and added the above KRW 231,182,00 in addition to the revenue amount of KRW 231,182,00 in addition to the revenue amount of KRW 87,414,130 in global income tax for the year 205.

D. The Plaintiff appealed to the instant disposition and filed an appeal on November 6, 2007. However, the National Tax Tribunal dismissed the appeal on May 2, 2008.

E. Meanwhile, while the lawsuit in this case is pending, the Defendant recognized that the Plaintiff spent KRW 2,534,00 of local tax of KRW 193,00 and KRW 2,534,00 of insurance premium of KRW 2,531,00 as necessary expenses with regard to the omission of sales in this case, and subsequently, deducted or corrected KRW 1,071,498 of global income tax for the year 2005 ex officio on December 8, 2008 (hereinafter the above disposition of this case) (the remaining part of the disposition of imposition issued on June 15, 2007, which was reduced as above).

[Ground of recognition] Facts without dispute, Eul evidence Nos. 1, 2, 3, evidence Nos. 4-1 to 5, 9, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff’s accounting staff lost sales tax invoices on the sales of ○○○○ Marart, 1, and ○○○○ Club’s main store. The Plaintiff’s actual income was cut off, such as omitting sales of this case.

However, in response to the omission in the sales of this case, the Plaintiff filed a return by omitting the total amount of KRW 193,267,40 [the total amount of KRW 139,187,400 [the total amount of KRW 139,187,400 [the 1200,000 per month x three (3) x 12 months x 12 months] + 10,880,000 (type 4,000 x 4 x 2 x 340 days] in total of the welfare expenses x 10,880,000 (type 4,00 x 4 x x 340 days)] and omitted, and thus, it should be included in the necessary expenses. For this reason, the Plaintiff should impose a comprehensive income tax only on the amount omitted in the sales of this case after deducting necessary expenses calculated by the method of estimated investigation.

(b) Related statutes;

Article 27 (Calculation of Necessary Expenses)

Article 80 (Determination and Correction of Income Tax Act)

Article 55 (Calculation of Necessary Expenses for Real Estate Rental Income, etc.)

C. Determination

(1) In a case where the tax authority determines the total necessary expenses corresponding to the gross income amount of a taxpayer in the pertinent year by on-site investigation, and finds the income omitted from the initial return, necessary expenses, such as the corresponding purchase cost, etc., are already included in the total necessary expenses corresponding to the gross income unless there exist special circumstances, such as where the account book or other documentary evidence revealed that it was separately paid. In such a case, only the necessary expenses corresponding to the omission of income, which is a part of the gross income, cannot be separately determined by the method of the estimation investigation. If a taxpayer wants to receive a tax credit on the grounds that there is an omission of the purchase cost corresponding to the omission of sales, he/she shall assert and prove the omission of the purchase cost (see, e.g., Supreme Court Decisions 90Nu42, Dec. 11, 1990; 2001Du4399, Mar. 11, 2003; 206Du9535, Jan. 31, 2008).

(2) Each entry of Gap evidence 3-1, 3, 4, and 6-1 through 206, which corresponds to the fact that the plaintiff paid the instant expenses, ① The plaintiff is not able to submit all the purchase account books or financial data remitted the price to Cho Dong-dong, and Cho Dong-dong's 2005 transaction labor union (the ○○○○○ Association) 261-04633, 1-4 of joint book book (PR) 261-1, 206, 2005, 3-1 to 2000, 2005, 3-1 to 2000, 2005, 3-1 to 200, 2005, 3-1 to 200, 208, 3-1 to 200, 205, 3-1 to 20, 208, 3-1 to 208, 2005.

(3) Inasmuch as there is no account book or other documentary evidence proving that the instant costs corresponding to the omission of sales had been separately disbursed, the instant costs are deemed to have already been included in the total sales cost corresponding to the total sales cost. Therefore, only the necessary expenses corresponding to the omission of sales, which are only a part of the total sales amount, shall not be separately determined by the method of estimated assessment.

(4) Therefore, the Plaintiff’s assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.