Appellate Court 2017west710 ( October 26, 2018)

Article 81-9 (1) of the Framework Act on National Taxes applies only to the extension of the scope of tax investigation under other tax items.

In case of expanding the scope of "tax investigation" in accordance with Article 81-9(1) of the national technique, the reason and scope thereof shall be notified in writing. In case of "tax disposition" concerning other items of taxation on the basis of the taxation data collected by the tax authorities, the above provision shall not apply.

Articles 81-4 and 81-9 of the Framework Act on National Taxes, Article 63-2 of the Enforcement Decree of the Framework Act.

2019Guhap6883, revocation of disposition of imposing corporate tax, etc.

AA Telecommunications Industry Ltd.

BB Director of the Tax Office

March 15, 2019

April 26, 2019

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s imposition of additional tax of KRW 15,00,000 for the second period of October 4, 2016 against the Plaintiff and the imposition of KRW 335,942,090 (including additional tax) for the business year of February 15, 2017 shall all be revoked.

1. Details of the disposition;

A. On July 201, the Plaintiff entered into a subcontract with the CCC (hereinafter referred to as “CCC”), which the Plaintiff received from DD sports department, on the DD stadium remodeling construction (hereinafter referred to as “instant construction”). On December 29, 201, the Plaintiff received a tax invoice of an amount equivalent to KRW 3.3 billion from CCC (hereinafter referred to as “CCC tax invoice”), and on the same day, CCC received a tax invoice of an amount equivalent to KRW 1.5 billion from the AAP industry corporation (hereinafter referred to as “AP industry”).

B. The following investigations have been conducted with respect to the Plaintiff, CCC, and AAMC industry.

Number of Survey Vehicles

First Instance

Type 2

Type 3

Type 4

Survey Institutions

S Director of the Regional Tax Office

Z commissioner of the Regional Tax Office

Persons Subject to Investigation

CCC,

AAAju Industries2)

Subject of Investigation Tax Items

Consolidated Investigations into Corporations

Consolidated Investigations into Corporations

(Non-entry)

Value-added Tax

The investigation period

Above January 1, 2008

December 31, 2012

Above January 1, 2012

December 31, 2012

Above July 1, 2011

December 31, 2011

Above July 1, 2011

December 31, 2011

The Investigation Period

Above October 15, 2013

November 28, 2013

Above June 9, 2015

October 14, 2015

Above February 15, 2016

February 19, 2016

Above April 21, 2016

May 10, 2016

Grounds for Investigation

Regular Selection Inspection

False Tax Invoice

Foreign Affairs and Trade Commission

Revenue amount

Verification of Omission

Taxation Data

Verification of Appropriateness

C. After the first investigation, the Defendant imposed and notified the Plaintiff of KRW 165,581,03 of corporate tax (including additional tax; hereinafter the same shall apply) on January 2, 2014 (hereinafter referred to as “the first imposition disposition of corporate tax”). After the fourth investigation, the portion of KRW 1.50 million (hereinafter referred to as “instant key amount”) out of the CCC tax invoice should be issued on the grounds that the service was not actually supplied, but instead, issued the revised tax invoice, and determined that the Plaintiff was unjustly supported by the specially related party by issuing the AAM industry tax invoice instead of issuing the AAM industry tax invoice, and that the Plaintiff issued the AAM industry tax invoice on October 4, 2011 (hereinafter referred to as “the second correction disposition of corporate tax”), and imposed additional tax on KRW 150,000,000 (hereinafter referred to as “the second correction disposition”).

D. On February 9, 2017, the Defendant revoked ex officio a disposition to rectify corporate tax, and on February 15, 2017, the Defendant issued a notice of increase and correction of KRW 538,591,136 of corporate tax for the business year 2011 by reflecting the additional tax that was partially omitted to the Plaintiff (hereinafter “third corrective disposition of corporate tax”).

E. On January 6, 2017, with respect to the imposition of additional tax, the Plaintiff filed a tax appeal on the third disposition of rectification of the corporate tax on April 26, 2017, and filed a consolidated deliberation on the tax appeal on the third disposition on April 26, 2017. As a result, on March 26, 2018, the Plaintiff rendered a decision to accept part of the following: (a) among the issues in the instant case, the amount calculated by applying the unfair act and calculation rules among the third disposition of rectification of the corporate tax on March 26, 2018, the amount equivalent to the cost of the joint and several surety insurance contract provided to the Plaintiff by the AAS Guarantee Co., Ltd. related to the instant construction project and the guarantee insurance contract provided to the Plaintiff is excluded from the scope of wrongful act and calculation; and (b) at the same time, deeming the amount as a loan to a related party, the amount of the provisional payment was deemed as a wrongful act and calculation of the amount of the tax base and tax amount included in deductible expenses.

F. Accordingly, on April 11, 2018, the Defendant made a correction of the amount of KRW 187,584,428 (hereinafter referred to as “the fourth corporate tax correction disposition”) out of the amount of the amount of the third corporate tax correction disposition of KRW 187,584,428 (hereinafter referred to as “the fourth corporate tax correction disposition”) and notified the Plaintiff thereof (hereinafter referred to as “each of the instant dispositions”).

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 18 (including branch numbers for those with additional numbers), each entry of evidence Nos. 1 through 7, the purport of the whole pleadings

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

A. The parties' assertion

1) The plaintiff's assertion

For the following reasons, each of the instant dispositions based on the fourth investigation is unlawful.

A) The first or fourth investigation constitutes a tax investigation, and the fourth investigation is a duplicate tax investigation prohibited pursuant to Article 81-4(2) of the former Framework Act on National Taxes (amended by Act No. 14382, Dec. 20, 2016; hereinafter the same) in relation to the first or third investigation. The materials obtained by the Defendant through the second investigation do not constitute an obvious material to acknowledge a tax evasion or a tax offense, and there is no reason for exception to the second investigation.

B) Even though the fourth investigation was related to value-added tax, the Defendant arbitrarily expanded its scope of corporate tax and did not notify the Plaintiff thereof.

2) The defendant's assertion

A) While the fourth investigation constitutes a tax investigation overlapping with the first investigation, it is exceptionally allowed to conduct a duplicate tax investigation on the ground that there is a clear evidence to acknowledge a suspicion of tax evasion under Article 81-4(2)1 of the former Framework Act on National Taxes or a “clear material to recognize a tax offense under Article 2 subparag. 1 of the Procedure for the Punishment of Tax Evaders Act” under Article 63-2 subparag. 3 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 28644, Feb. 13, 2018).

B) The third investigation does not constitute a "tax investigation that is subject to the prohibition of duplicate investigation."

C) At the time of the 4th investigation, only the existence of a specific transaction related to value-added tax was investigated, and the disposition of corporate tax was taken based on the investigated taxation data, and the scope of the investigation does not extend to the portion of corporate tax in the 4th investigation.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether the fourth investigation constitutes a duplicate tax investigation prohibited under Article 81-4(2) of the former Framework Act on National Taxes

A) Whether the third investigation constitutes a prior tax investigation

Although there is no difference between the parties that the 4th investigation constitutes a duplicate tax investigation, it can be recognized by the evidence mentioned above. However, in the case of the 3rd investigation, it is argued whether the 4th investigation constitutes a "tax investigation". Therefore, it is examined first.

(1) Relevant legal principles

A tax investigation is a kind of administrative investigation for the realization of the State's right to impose taxes, and refers to any act of making inquiries to determine or correct the tax base and amount of national tax and inspecting or investigating books, documents and other articles, or ordering the submission thereof. In the case of a tax investigation for which the tax authority's right to ask questions to a taxpayer or a person who is deemed to have a transaction with the taxpayer (hereinafter referred to as "taxpayer, etc.") bears the legal obligation to allow the taxpayer to answer questions and undergo an inspection for the collection of the taxation data by the tax official. Meanwhile, a repeated tax investigation for the same tax item and taxable period may seriously infringe not only the taxpayer's freedom of business or legal stability, but also lead to the abuse of the authority to conduct a tax investigation. Thus, it is necessary to be prohibited except in exceptional

In light of the nature and effect of such a tax investigation, the purport of prohibiting duplicate tax investigations, etc., if a tax official’s investigation practically affects taxpayers’ freedom of business by having taxpayers answer questions and undergo an inspection, it shall be deemed a “local confirmation” prohibited by re-audit, even if it follows the procedure of “local confirmation” as stipulated by the Regulations on the Management of Investigations, which is the instructions of the National Tax Service. However, in cases where it is deemed that all investigation conducted by the tax authority for the purpose of the collection of taxation data or the verification of accuracy of the details of the report constitutes a tax investigation prohibited by re-audit, the tax authority should always commence a regular tax investigation in sufficient cases only with the confirmation of facts, and the taxpayer, etc. must also respond to an indefinite tax investigation. Thus, it does not constitute a “tax investigation prohibited by re-audit” even if the taxpayer, etc. did not have any duty to answer or accept, and there is no possibility of infringing the taxpayer’s freedom of business

Whether an investigation conducted by a tax official constitutes a "tax investigation prohibited by re-audit" shall be determined individually in specific cases by comprehensively taking into account the purpose and progress of the investigation, object and method of the investigation, data acquired through the investigation, scale and period of the investigation, etc. However, it is difficult to regard it as a "tax investigation prohibited by re-audit" in cases where an investigation conducted by a tax official directly contacts taxpayers, etc. on a considerable period of time in the office, workplace, factory, or residence of taxpayers, etc., and investigates books, documents, goods, etc. for a certain period of time, barring any special circumstances (see Supreme Court Decision 201Du3684, Mar. 16, 2017).

(2) Determination

In light of the following circumstances, it is reasonable to view that the third investigation does not constitute a “tax investigation prohibited by duplicate investigation.” Thus, even if the fourth investigation was conducted with respect to the same item of tax during the same period, it cannot be deemed that it overlaps with the third investigation.

① During the second investigation process for CCC and a party related to the Plaintiff, the Director of the Z Regional Tax Office issued a AA iron industry tax invoice to CCC without supplying goods or services at the second period of 2011. In connection with CCC, it issued CCC tax invoice to the Plaintiff, and notified the Defendant of the taxation data by determining that the CCC issued a tax invoice equivalent to KRW 1.8 billion to the amount of the issue of this case.

② The third investigation was conducted on December 29, 201 for the purpose of confirming the suspicion that CCC supplied the Plaintiff with services equivalent to KRW 1.8 billion in relation to the instant construction project, but it was issued a CCC tax invoice and recorded additionally the amount equivalent to the instant issues. The Defendant did not visit the Plaintiff’s place of business. On February 15, 2016, the Defendant submitted the said data to the Defendant on February 16, 201 through the Plaintiff’s former LAL notice of on-site verification at the Defendant’s office, “1. D related contract and attached documents, “1.” The purchase tax invoice received from CCC, “2. The specific contents of the goods and services, various evidentiary documents proving the above contents, 3) payment details, 4) payment amount, and 4) payment request by account ledger, etc., and submitted the said data to the Defendant on February 16, 2016.

③ Although the Defendant demanded the Plaintiff to submit data, it is difficult to view that the amount of the third investigation to verify whether a specific fact of transaction exists, and the submission of data is limited to the level of simple investigation for ‘verification of a specific fact of purchase and sale’. In addition, there is no evidence to deem that the Defendant infringed the Plaintiff’s business right by asking questions to the officers and employees of the Plaintiff, etc.

B) Whether there is an exception to double tax audits in the fourth investigation

In the case of the first and the fourth investigation, there are overlapping parts of taxable periods and tax items, so it is a problem whether duplicate tax investigation is allowed due to the exception provided by each subparagraph of Article 81-4(2) of the former Framework Act on National Taxes.

(1) Relevant legal principles

Article 81-4 (2) of the former Framework Act on National Taxes provides that a case where there is clear evidence to acknowledge a suspicion of tax evasion” shall be limited to cases where the probability of tax evasion is recognized based on objective and reasonable data (see Supreme Court Decision 2008Du10461, Dec. 23, 2010). This is reasonable to interpret that such data does not include the materials already investigated in the previous tax investigation (see Supreme Court Decision 2010Du6083, Jan. 27, 201). The same applies to cases where there is clear evidence to acknowledge a suspicion of tax evasion under Article 63-2 (3) of the former Enforcement Decree of the Framework Act on National Taxes.

(2) Determination

Examining the aforementioned evidence in light of the following circumstances, it is reasonable to view that the fourth investigation was initiated based on a clear and new evidence that could prove tax evasion or tax offense, and that it constitutes an exceptional case where duplicate tax investigation is allowed.

① As seen earlier, the third and fourth investigations were conducted by the director of the Regional Tax Office with respect to the CCC and the AAB iron industry. On September 2015, the Plaintiff and the YY, the representative director of the AAB industry, prepared a confirmation letter to the effect that: (a) around September 2015, 2015, “YY” had received the amended tax invoice from the Plaintiff as an excessive receipt of the tax invoice; (b) but did not so, the AAB steel industry had the Plaintiff issued the tax invoice to the CCC. On November 27, 2015, the director of the ZB Regional Tax Office corrected the tax amount to deduct the value-added tax and corporate tax on the AAB iron industry by deeming the AAB steel industry issued by the CCC as a false tax invoice; and (c) the CCC and the AAB iron industry did not raise any objection against this.

② The fact that the CCC issued an excessive tax invoice to the Plaintiff on December 29, 2011 is revealed through the second investigation. This is supported by the above confirmation document prepared by the Plaintiff and the AAwing Industries’ representative during the second investigation period. If the tax authority received a confirmation document from the taxpayer to the effect that the document was signed and sealed by the taxpayer against his/her will, or it is difficult to take the document as supporting the specific facts due to the lack of its content, etc. (see Supreme Court Decision 2006Du8068, Sept. 25, 2008). The circumstance that the second investigation was notified to the Defendant of the content of the second investigation, including the confirmation document, constitutes a case where the probability of the Plaintiff’s tax evasion or tax offense is deemed to be reasonable and reasonable based on objective and reasonable data.

③ Although a tax invoice for the AAP industry was false; the tax invoice issued by the CCC on December 27, 2012 (Evidence No. 7) issued by the Plaintiff on December 27, 2012 (Evidence No. 7) was not prosecuted on October 27, 2016; however, the contract owner of the performance guarantee insurance contract jointly and severally guaranteed by the AAP iron industry is the Plaintiff (the insured is the contract owner); the other party to whom the joint and several surety services were provided is not the CCC; and even if the CCC paid the price for joint and several surety services as the reason for non-prosecution, it cannot be higher than 48,57,460 won, which is the insurance premium paid by the Plaintiff to the SAP insurance; in fact, most of the above 1.5 billion won were the amount unjustly supported by the AAP industry through CCC; and it was concluded after the non-prosecution disposition was completed, it is difficult to deem that the Plaintiff did not have any tax evasion or tax evasion at the time of the investigation.

④ The imposition of corporate tax equivalent to KRW 165,581,03 (including additional tax) on January 2, 2014 after the first investigation was conducted through the adjustment of income amount, such as inclusion of the amount of interest recognized as equivalent to KRW 271,586,801, and inclusion of the amount of interest paid in an amount equivalent to KRW 238,685,172 in deductible expenses, and the determination by the Tax Tribunal on March 26, 2018 is merely an order to correct inclusion of gross income and deductible expenses in deductible expenses, and it is merely an order to correct inclusion of gross income and deductible expenses as seen earlier, on the ground that there was a decision by the Tax Tribunal due to erroneous determination of facts, it is difficult to deem that the instant disposition was already based on data in the first investigation.

2) Whether there was an extension of the scope of the tax investigation

A) Relevant legal principles

In a case where it is confirmed that specific suspicions of tax evasion are related to other items of taxation during the course of a tax investigation, a tax official may expand the tax investigation, but the reason and scope thereof must be notified in writing (Article 81-9(1) of the Framework Act on National Taxes). However, the act of a tax office whose scope is limited pursuant to the above provision is "tax investigation into other items of taxation" and not "tax assessment on other items of taxation". In other words, the above provision is limited to the expansion of tax investigation by item of taxation and does not limit the expansion of tax assessment by item of taxation. Therefore, even if a tax disposition on other items of taxation is made based on the taxation data collected through the tax investigation on the items of taxation notified

B) Determination

In light of the following circumstances, the Plaintiff’s assertion that the scope of the fourth tax investigation is erroneous in relation to the extension of the scope of the tax investigation is without merit, as it is difficult to view that the scope of the fourth tax investigation was expanded from the value-added tax investigation to the corporate tax investigation.

① The fourth investigation is related to whether a service was actually supplied in connection with the CCC tax invoice, and there was no separate investigation as to the taxation requirement of corporate tax. The Defendant’s ex officio revocation of the imposition of corporate tax after the imposition of additional tax after the fourth investigation and re-assessment of corporate tax is merely an attempt to correct the error of imposing corporate tax immediately without notifying the data for assessment of corporate tax.

② The Defendant’s rectification of the tax base amount of corporate tax, other than the value-added tax, after the completion of the fourth tax investigation, was due to the function of the tax invoice facilitating the dissemination of the tax source as well as the value-added tax by exposing transaction between the parties (see, e.g., Supreme Court Decision 2014Du9912, Sept. 23, 2016).

3. Conclusion

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

1) After the corporate tax for the business year 201 imposed KRW 525,581,03,033 on January 2, 2014, the amount equivalent to KRW 525,325,136 was increased as of October 4, 2016, and the amount was reduced to KRW 538,591,136 on February 15, 2017; thereafter, the amount was reduced to KRW 187,584,428 on April 11, 2018. According to the following, the Plaintiff appears to have claimed KRW 516,587,741 (165,038,538,538,51,536,537,581,636,585,637,57,581,67,57,57,57,57,57,57,57,200,57,37,516,57,57,7,4167