Daeyang Industrial Development Co., Ltd. (Law Firm Dui, Attorney Park Tae-soo, Counsel for the plaintiff-appellant)

Head of the High Tax Office

December 15, 2015

1. On May 8, 2013, the Defendant’s rejection disposition against the Plaintiff at KRW 109,387,336 of corporate tax for the business year 2009 is revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. From January 2008, the Plaintiff is the implementer of a project that newly constructs and sells apartment and commercial buildings (hereinafter “instant apartment, etc.”) in the ancient city development project zone of KRW 354,00,00,00,00,00,000,000,000,000,000,000,000,000.

B. As to the new construction and sale of the instant apartment, the Plaintiff calculated the amount of income based on the work progress rate and the sale rate, and reported and paid corporate tax for the business year 2009.

C. Some of the buyers of the instant apartment buildings, etc. did not pay the remainder, 635 households (17.47%) around 201 due to the default on the construction of brickworks, and 231 households (6.06%) around 2012, and 426 households (1.80%) around 2013 at around 201.

D. On March 29, 2013, the Plaintiff filed a request for correction to the effect that the cancellation of such sales contract constitutes grounds for filing a request for correction under Article 25-2 subparag. 2 of the Enforcement Decree of the Framework Act on National Taxes, and that the Plaintiff seeks refund of corporate tax 4,179,105,019 won in the business year 2009.

E. On May 8, 2013, the Defendant issued a disposition rejecting an application for correction (hereinafter “instant disposition”) against the Plaintiff on the ground that, after reporting and paying the amount of sales proceeds from pre-sale pursuant to the rate of work progress, the sales proceeds and cost cannot be corrected by re-fixing the sales rate for the business year to which the date of the date of the sales contract belongs.

F. Accordingly, the Plaintiff filed an appeal with the Tax Tribunal on January 12, 2015. On January 12, 2015, the Tax Tribunal rendered a decision that “The sales contract cancelled from January 1, 2012 to January 1, 2012 among the sales contract for the instant apartment, etc., shall be deemed not to have been concluded, and the tax base and tax amount for the business year 2009 shall be corrected, and the remainder of the appeal

[Ground of recognition] Unsatisfy, entry of Gap evidence 1 to 3 (including branch numbers for those with a satisfy number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Upon the cancellation of a sales contract, the sales contract must return to the same state as that it did not conduct transactions, etc. from the beginning, and such circumstances are also specified in Article 45-2 of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014; hereinafter the same shall apply) and Article 25-2 of the Enforcement Decree of the same Act. The Defendant issued the instant disposition based on Article 69(3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 24357, Feb. 15, 2013; hereinafter the “amended Enforcement Decree”) newly established on February 2, 2012 after the sales contract was concluded, but the Plaintiff sought the correction of corporate tax for the business year 2009, and there is no room to apply the said provision.

Nevertheless, the instant disposition issued on the basis of Article 69(3) of the Enforcement Decree of the amended Act is unlawful as it violates the principle of retroactive taxation prohibition and the principle of no taxation without law.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) Relevant legal principles

Article 25-2 (2) 2 of the Enforcement Decree of the Framework Act on National Taxes delegated by Article 45-2 (2) 5 of the former Framework Act on National Taxes refers to one of the grounds for the first return, determination, or correction, “when the contract for the transaction, act, etc., which served as the basis for calculating the tax base and the amount of tax is terminated by the exercise of the right to rescission or is cancelled due to unavoidable reasons that occur after the formation of the relevant contract.” The ex post facto claim system for correction refers to the purpose of expanding the protection of taxpayers’ rights by allowing the taxpayer to claim a reduction by proving the relevant fact where there occurs a change in the basis for calculating the tax base and the amount of tax due to the occurrence of certain reasons after the establishment of the tax liability. Unless otherwise provided for in individual tax-related Acts

Meanwhile, Article 40(1) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter the same) provides that “The fiscal year of accrual of earnings and losses of a domestic corporation for each fiscal year shall be the fiscal year which includes the date on which the concerned gross income and losses are determined” and adopts the so-called principle of confirmation of right to taxable income by deeming that the concerned income has been realized if the right which was the cause of the income has not been actually realized if there is no actual income, and that there is a time interval between the time when the right which was the cause of the income and the time when the income has been realized. Such principle of confirmation of right is the method of calculating the income of the pertinent fiscal year, not the time when the right was realized, but the income has been actually realized at the time when the right was actually realized. Therefore, even if the tax liability was established upon the occurrence of the right which was the cause of income and thus becomes final and conclusive, if the initial income has not been realized due to the occurrence of a certain cause, the loss of corporate tax in principle.

Therefore, in principle, corporate tax also constitutes a ground for filing a subsequent claim for rectification under Article 25-2 subparagraph 2 of the former Enforcement Decree of the Framework Act on National Taxes.

2) In the instant case:

Article 69(3) of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012) provides that “where the difference between the amount determined due to the cancellation of a contract for construction has occurred due to the cancellation of the contract, the difference shall be included in the gross income or deductible expenses for the business year which includes the cancellation date.” However, Articles 1 and 2 of the Addenda of the above Act provides that the provision of Article 69(3) of the above Act applies from the first business year beginning after January 1, 2012. (2) However, the Plaintiff’s request for correction of corporate tax for the return of corporate tax for the business year 2009 cannot be applied to the Plaintiff’s request for correction of corporate tax for the first time after the cancellation of the contract for construction work, which can be seen as unlawful after the cancellation of the contract for construction work, based on the provision of Article 45-2 of the former Framework Act on National Taxes and Article 25-2 of the Enforcement Decree of the Framework Act.”

3. Conclusion

Therefore, the plaintiff's claim of this case is justified and it is so decided as per Disposition.

[Attachment]

Judges Park Nam-cheon (Presiding Justice)