Seoul High Court-2017-Nu-192 (29. 2017.09)

Corporation-2012-0020 ( July 20, 2012)

Exceptional reasons for re-audit

The court below should have deliberated and judged whether there were specific data supporting that the case where there was an error or omission in the calculation of the tax base and the amount of tax in two or more business years for one reason.

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

2017Du534

The Bank of Korea shall have the Corporation

O Head of tax office

July 12, 2018

The corporate tax portion of the judgment below against the plaintiff for each business year of 2006 and 2007 shall be reversed, and this part of the case shall be remanded to the Seoul High Court.

The grounds of appeal are examined.

1. Article 81-4(1) of the former Framework Act on National Taxes (amended by Act No. 11604, Jan. 1, 2013; hereinafter the same) provides that "tax officials shall conduct a tax investigation to the minimum extent necessary to realize proper and fair taxation, and shall not abuse their right of investigation for any other purpose, etc." (Article 81-4(2) provides that "tax officials shall not conduct a re-investigation into the same tax item and the same taxable period unless they fall under any of the following subparagraphs," and subparagraph 3 of Article 81-4(1) provides that "a case where a re-investigation is exceptionally permitted in relation to two or more business years."

Article 81-4 (1) of the former Framework Act on National Taxes provides that a tax investigation shall be conducted within the minimum scope necessary for appropriate and fair taxation. Paragraph (2) of the same Article provides that a repeated tax investigation for the same item and taxable period may seriously infringe not only the taxpayer's freedom of business or legal stability, but also lead to abuse of the right to conduct a tax investigation. In principle, a re-investigation shall be prohibited, while a tax investigation may be conducted in exceptional cases where it is clearly contrary to the principle of fair taxation.

In light of the purport of Article 81-4 of the former Framework Act on National Taxes to prohibit illegal tax investigations and prevent abuse of tax investigation authority, exceptional grounds for re-audit should be met at the time of commencement of re-audit. Thus, only where the tax authority initiates re-audit based on specific data to support the occurrence of errors or omissions in calculating the tax base and amount of taxes through two or more business years due to one cause, it shall be deemed a legitimate re-audit under Article 81-4(2)3 of the former Framework Act on National Taxes (see Supreme Court Decision 2014Du6562, Apr. 27, 2017).

2. A. The lower court, citing the first instance judgment, acknowledged the following facts.

1) From 20O to 200O, the Plaintiff paid KRW 00 million, O0, O00, O00, O00, O00, and O00 (hereinafter collectively referred to as “the performance bonus in this case”) to a new line, each of which the Plaintiff’s registration director and the president of the board of directors hold O.O.O.% of the Plaintiff’s shares, as performance bonus.

2) The Director of the Regional Tax Office of AAA from 20O.O.O. to 20O.O.O.O., respectively, conducted an integrated investigation into corporate business entities for 20O.m. (hereinafter referred to as the “first tax investigation”). According to the “documents requesting tax investigation” prepared by the Plaintiff, the term “documents requesting tax investigation group” indicates that the minutes of the board of directors from 20O to 20O have been submitted with regard to the remuneration for executive officers from 20O to 20O.

3) Since then, the director of AAA Regional Tax Office notified the Plaintiff of the result of the first tax investigation with respect to which the corporate tax item for 20O or 20O business year was recovered, but did not take any measures with respect to the portion paid to 20O or 20O of the instant performance bonus for each business year.

4) After initiating the consolidated investigation of 20O.O.O. or 20O.O. with the Plaintiff for the business year of 20O.O. or 20O.O., the Director of the Regional Tax Office notified the Plaintiff of the extension of the investigation scope including part of the 20O business year within the scope of the investigation, and commenced the investigation of the part of the corporate tax for the 20O business year of 20O (hereinafter referred to as the “second tax investigation”) among the performance bonuses of this case among the tax investigation conducted as above, 20O and the part paid to the OO for each business year of 20O.

5) The director of the regional tax office of AAO.O., notified the Plaintiff of the result of the investigation that the performance bonus of this case was disposed of of surplus funds paid without the payment criteria, and thus, cannot be included in deductible expenses. The Defendant, based on the result of the investigation, excluded the performance bonus of this case from deductible expenses, etc., corrected the Plaintiff’s corporate tax for 20O or 20O business year, respectively.

B. In light of the circumstances stated in its reasoning, the lower court determined that the second tax investigation constitutes a reinvestigation prohibited in principle under Article 81-4(2) of the former Framework Act on National Taxes, but it is reasonable to deem that the second tax investigation constitutes an exceptionally permitted reinvestigation under Article 81-4(2)3 of the former Framework Act on National Taxes. Furthermore, the lower court rejected the Plaintiff’s assertion that the second tax investigation was illegal because it does

3. However, it is difficult to accept the above judgment of the court below for the following reasons.

In light of the records, the Plaintiff at the date of pleading of the lower court, even though there was no specific data supporting the exceptional reasons for re-audit, the Director of the Regional Tax Office of the Regional Tax Office established the secondary tax investigation corresponding to re-audit, which constitutes an illegal tax investigation. Thus, the lower court should have deliberated and determined whether there were specific data supporting that the secondary tax investigation corresponding to re-audit was conducted for 20 O business years, and whether there was any error or omission in calculating the tax base and the amount of taxes for 20O business years, respectively, at the time of the extension of the scope of the investigation, for 20O business years, for 20O business years, for 20O business years, for 20O business years.

4. Therefore, the part of the judgment of the court below against the plaintiff for each business year of 20O and 20O is reversed, and that part of the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.