Bosch Rexning Co., Ltd. (Law Firm Daoon, Attorneys Seo-ho et al., Counsel for the defendant-appellant)

head of Sung Dong Tax Office

July 1, 2011

1. The plaintiff's claim is dismissed.

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

The defendant's application for the correction of corporate tax (192,940,330 won in 2006, 382,235,960 won in 207, and 484,107,210 won in corporate tax in 2006, and 754,849,510 won in corporate tax in 2007, and 754,849,510 won in corporate tax in 2007 shall be revoked.

1. Details of the disposition;

A. The Plaintiff newly constructed and sold a real estate development and new construction sales business during the business year of 2006, and during the business year of 2007, the business year of 134 Gi-si ( Address 1 omitted), Gi-dong, Mau-si apartment (hereinafter “instant apartment”) located in Young-si ( Address 134; hereinafter “instant apartment”) and Makkker Quaker's Commercial Building (hereinafter “instant commercial building”) located in Masan-si ( Address 2 omitted), and reported and paid the relevant corporate tax by calculating the progress rate and the sales rate.

B. From July 1, 2008 to March 31, 2009 after the Plaintiff reported corporate tax as above, the sales contract amounting to 29 households of the instant apartment (24,701,924,000 won of the sales agreement) and 15 units of the instant commercial building (7,204,90,000 won of the sales agreement) was cancelled due to the buyer’s non-performance of the sales contract conditions. Since the sales rate of the instant apartment and the instant commercial building decreased as follows, the Plaintiff determined the sales rate for the portion for which the sales contract was cancelled for the business year of 2006 and 2007.

○ The apartment of this case: 100% as of December 2006 ? 92.83% as of December 2007 ? 84.93% as of September 2008 ? 84.02% as of November 2008 ? 78.09% as of March 2009

○ : 30.50% as of December 2007 ? 16.50% as of November 2008 ? 13.65% as of March 2009

C. At the time of October 30, 2008, the Plaintiff filed a request for correction with the head of Samsung Tax Office (hereinafter “the first request for correction”) seeking corporate tax refund in accordance with the termination of the contract on the portion of the first cancellation of the contract, and on December 26, 2008, the Plaintiff filed a request for correction with the head of Samsung Tax Office for the same reason (hereinafter “the second request for correction”). Upon examining the Plaintiff’s request for correction, the head of Samsung Tax Office reviewed the Plaintiff’s request for correction, and refunded corporate tax of KRW 1,238,956,720 (= corporate tax of KRW 484,107,210 + KRW 754,849,510 for the business year of 206).

D. On May 8, 2009, the Plaintiff filed a claim for correction of corporate tax pursuant to the termination of the contract with the Defendant on March 31, 2009 (hereinafter “third claim”). On July 28, 2009, the Defendant issued a notice of rejection of the claim for correction (hereinafter “instant refusal disposition”) to the Plaintiff on the ground that “the sales income and cost due to the termination of the contract shall be included in the gross income and deductible expenses for the business year in which the date of the cancellation of the contract falls” (hereinafter “instant refusal disposition”). On September 1, 2009, the Plaintiff revoked the refund decision of the Samsung Tax Office with respect to the first and second requests for correction on the same ground as the above refusal disposition, and then revoked the refund decision of the Samsung Tax Office with respect to the Plaintiff for the business year 2006 KRW 484,107,210 and KRW 754,849,510 in total, KRW 1238,96,720 (hereinafter “instant disposition”).

E. On October 23, 2009, the Plaintiff filed a request for a trial with the Tax Tribunal on the grounds that he/she was dissatisfied with each of the dispositions of this case, but the said request was all dismissed on December 10, 2010.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, Eul evidence Nos. 1, 2 and 3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

In case of calculating the sales revenue amount based on the sale rate and the rate of work progress, each of the dispositions of this case based on the premise that there was an income from the sale in lots during the business year to which the date of the cancellation of the sale in lots belongs is illegal, in light of the fact that the sales in lots becomes retroactively null and void on the date of the sale in lots, each of the requests for correction of Articles 1, 2, and 3 is consistent with the grounds for ex post facto request for correction stipulated in Article 45-2(2)5 of the Framework Act on National Taxes and Article 25-2 subparag. 2 of the Enforcement Decree of the same Act

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(i) Respect for corporate accounting;

Article 20 of the Framework Act on National Taxes provides that “When a tax official examines and determines the tax base of national taxes, corporate accounting standards or practices that the relevant taxpayer continues to apply and are generally recognized as fair and reasonable: Provided, That this shall not apply to cases where there are special provisions in tax-related Acts.” The purport of the above provision is to: (a) the taxation of corporate income is to include the conversion of economic outcomes into the numerical value through accounting manipulation; and (b) the proper determination of corporate accounting and tax accounts are the same; (c) the tax accounting that guarantees the fairness and objectivity of corporate accounting should be based on the same; (d) the minimum tax-related adjustment should be made according to the special purpose of the tax law. In particular, in calculating corporate income, the provisions on the scope of earnings and losses under the Corporate Tax Act concerning the construction or deductible expenses from the business year which excludes capital increase, and thus, the provisions on the scope of profits and losses under the Corporate Tax Act concerning the construction or sales of the same amount shall be included in deductible expenses in the calculation of corporate income or losses for the same business year as those prescribed in the Presidential Decree No. 1981).

2. Method of recognizing the amount of income from cancellation of sales contracts after completion of pre-sale sales

In light of the above legal principles, we examine how to recognize the amount of income from the cancellation of pre-sale contract after the completion of pre-sale contract. As seen earlier, in the case of long-term construction, revenue is recognized by the rate of work progress. In calculating the rate of work progress, the estimated cost of total construction is the cost of construction based on the estimated cost at the time of the contract by applying corporate accounting standards reflecting the change in the current term until the end of the relevant business year. Thus, even if the amount of income is changed due to the cancellation of the contract, it shall be deemed that the imposition of tax by reflecting the change in the current term in the corporate accounting standards is consistent with the purpose of accounting as above. It does not go against the principle of profit and loss settlement under the Corporate Tax Act. In addition, the company cannot be seen as contrary to the principle of profit and loss settlement under the Corporate Tax Act. On the other hand, Article 45-2 of the Framework Act on National Taxes and Article 25-2 of the Enforcement Decree of the same Act, as well as Article 45-2 of the Framework Act, which provides that the Plaintiff’s claim that the above amount of income should be resolved.

3) Sub-decisions

Therefore, each of the dispositions of this case on the premise that the difference between the income amount arising from the cancellation of the sales contract should be included in the profit and loss of the business year which includes the cancellation date shall not be deemed unlawful.

3. Conclusion

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

[Attachment Form 5]

Judges Lee Jae-hee (Presiding Judge)

1) The apartment seller's construction and sale of apartment units over a long-term period of time constitutes a pre-sale sale under corporate accounting, and there was no clear provision for the period of attribution under the Corporate Tax Act until the Enforcement Decree of the Corporate Tax Act was amended on December 31, 1998. However, in Supreme Court Decision 92Nu2936, 2943 (merged) Decided October 23, 1992, where it is difficult to determine the period of attribution of profit and loss due to the provisions listed in the Corporate Tax Act, unless it is against the principle of confirmation of profit and loss under the Corporate Tax Act, the standard of accrual of profit and loss under the corporate accounting standards generally accepted as fair and accounting practice may be adopted to determine the period of attribution of profit and loss. Thus, the pre-sale sales may not clearly stipulate the period of attribution under the Corporate Tax Act, which may be distributed and may be determined pursuant to the standards of the progress of construction work under the Corporate Tax Act, and it shall not be contrary to the principle of confirmation under the Corporate Tax Act.

2) The effect of the change of accounts shall be reflected in the financial statements reported prior to the change of accounts only in the period of accounts after the change of accounts is made, in such a way that the cumulative effects of the change of accounts are not calculated.