Puuria Korea Co., Ltd.

Punoa Korea Ltd. (Attorney Kim-hwan et al., Counsel for the plaintiff-appellant)

port of origin

The head of Leecheon Tax Office (Law Firm Namsan, Attorney Lee Chang-soo, Counsel for defendant-appellant)

August 16, 2016

Suwon District Court Decision 2014Guhap57394 Decided January 6, 2016

1.The judgment of the first instance shall be modified as follows:

A. On April 8, 2011, the notice of tax amount as indicated in the separate sheet No. 1 attached hereto, which was issued by the head of the employees of the Korea Tax Office against the Plaintiff Puuria Korea Co., Ltd. on April 8, 201, is revoked the imposition of each additional tax in the imposition of corporate tax and value-added tax; the additional tax in the separate sheet No. 1 through 3, and 5 in the separate sheet No. 3 in the imposition of value-added tax as stated in the separate sheet No. 1 attached hereto, as stated in the separate sheet No. 2 attached hereto, issued by the head of the Eancheon Tax Office against the Plaintiff Puuria Korea Co., Ltd. on April 8, 2011.

B. The plaintiffs' remaining claims against the defendants are all dismissed.

2. The total cost of a lawsuit shall be borne individually by each party.

1. Purport of claim

On April 8, 2011, the notice of tax amount as indicated in the separate sheet No. 1 attached hereto, which the director of the competent tax office rendered against the Plaintiff Punocar Korea on April 8, 201, is imposed at KRW 8,983,504,470 in aggregate of corporate tax and value added tax; and the imposition disposition of KRW 4,804,010,060 in aggregate of corporate tax stated in the separate sheet No. 2 as of April 8, 2011, which the director of the competent tax office sought revocation exceeds KRW 170,160,378 in aggregate of the corporate tax stated in the separate sheet No. 4,63,849,682 in aggregate, and the imposition disposition of KRW 1,97,978,370 in the separate sheet No. 3 as of April 14, 201, which exceeds the aggregate of the amount of value-added tax stated in the separate sheet No. 3 in the separate sheet No. 19797,387.

2. Purport of appeal

A. Plaintiff Punoo Korea Ltd.

The portion of the judgment in the first instance court against Plaintiff Punocar Korea Co., Ltd. shall be revoked. On April 8, 2011, the imposition of KRW 1,529,54,104 among the imposition of KRW 317,45,104 among the imposition of KRW 1,55,540 (including the additional tax), 317,454,104 among the imposition of KRW 1,685,86,86,60 (including the additional tax) of the value-added tax for the business year 2006, which was imposed on Plaintiff Punonoby Korea Co., Ltd. on Plaintiff Punoby Korea Co., Ltd., Ltd., and the imposition of KRW 2,613,90 (including the additional tax) of the value-added tax for the business year 206, including KRW 1586,54,886,207, 2087, 2081, 20817.

B. The Defendants

The part of the judgment of the court of first instance against the Defendants shall be revoked in its entirety, and all of the plaintiffs' claims corresponding thereto shall be dismissed.

1. Grounds for disposition and plaintiffs' assertion

The court's explanation on this part is the same as the corresponding part of the judgment of the court of first instance, except for the dismissal of the judgment of the court of first instance as follows. Thus, this part of the judgment is cited in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

○ From 3rd to 18th of the first instance judgment

1) On December 14, 1999, Plaintiff PPR has been engaged in the business of Plaintiff PPR on or around September 2008, and on or around May 9, 2006, career sirens Trade Co., Ltd. (hereinafter “JBIC”), a company established on December 14, 199, and engaged in the business of Plaintiff PRR Korea (hereinafter “Plaintiff PRI”), a company established on December 31, 199, which covers the business of Plaintiff PRR Korea (hereinafter “JBIC”), all of which are controlled by Plaintiff PRD Korea (hereinafter “Plaintiffs”).

○ The first instance court’s decision No. 4, and the first instance court’s decision No. 6 to No. 2

3) According to the above contract, the Plaintiffs shared indirect expenses such as common personnel expenses, office operation and maintenance expenses, etc. among the common expenses as of the end of each fiscal year are based on the total sales amount of the two companies. The common expenses for the forest pet products are shared with the common expenses based on the sales amount of the forest pet products. The difference between the common expenses actually paid and the divided common expenses is received, and the sales tax invoice has been settled by the method of issuing the sales tax invoice for the amount to be shared by the other party

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

(a) Related Acts and subordinate statutes;

Attached Form 4 is as shown in the relevant statutes.

B. Determination

1) Whether Article 26 subparag. 5 of the former Corporate Tax Act applies

Article 26 subparagraph 5 of the former Corporate Tax Act provides that when calculating each amount of income of a domestic corporation, the amount recognized as excessive or unjust as prescribed by Presidential Decree shall not be included in the calculation of losses, among losses that a corporation jointly operates or operates the same organization, business, etc. as that of a person other than the relevant corporation.

In light of the following circumstances, it is reasonable to view that: (a) Plaintiff TPP is a corporation that owns alcoholic beverage production facilities in Echeon-si and engages in the business of manufacturing and selling ice products; (b) Plaintiff TPP is a corporation that mainly engages in the business of importing and selling alcoholic beverages; (c) Plaintiff TPP is a corporation that mainly engages in the business of importing and selling ice products; and (d) Plaintiff TPP is a corporation that is engaged in the business of importing and selling ice products; and (e) Plaintiff TPP is a separate corporation due to the former provision on liquor tax affairs, which did not issue both licenses and alcoholic beverage import licenses at the same time; (e) Plaintiff TPP and the importing corporation were established as a separate corporation due to the former provision on liquor tax affairs, which did not issue both licenses and alcoholic beverage import licenses; (c) the management and business affairs performed by both corporations are similar to or were related to the sale of ice products; (iii) the Plaintiffs concluded a joint organization agreement on the management and business expenses, such as personnel expenses, rent, etc., and sales expenses for ice products; and (iii) the Plaintiffs jointly engaged in the collective expenses for advertising expenses.

Therefore, since the common expenses to be shared by the plaintiffs are subject to Article 26 subparagraph 5 of the former Corporate Tax Act, the plaintiffs' assertion is without merit.

2) As to the assertion of unconstitutionality or illegality under the provision of the Enforcement Decree of the instant case

Article 26 subparag. 5 of the former Corporate Tax Act provides that, when calculating each amount of income of a domestic corporation, the amount deemed excessive or unjust among losses incurred or spent by the corporation in jointly operating or operating the same organization, business, etc. as those other than the relevant corporation, as prescribed by Presidential Decree, shall not be included in the calculation of losses. In addition, the provision of this case pursuant to delegation provides that, among losses incurred or spent by the corporation in jointly operating or operating the same organization, business, etc. as those other than the relevant corporation, the amount in excess of the share amount pursuant to the ratio of the sales amount of the relevant corporation to its sales amount in the immediately preceding business

(4) Article 26 subparag. 5 of the former Enforcement Decree of the Corporate Tax Act provides that “In the event that the provisions of the former Enforcement Decree of the Corporate Tax Act are excluded from the scope of delegation.” Article 26 subparag. 2 of the former Enforcement Decree of the Corporate Tax Act provides that the amount deemed excessive or unreasonable among the corporate common expenses shall not be included in deductible expenses for the purpose of tax evasion. However, the specific standards for determining whether an amount is excessive or unfair common expenses are prescribed by Presidential Decree clearly stipulate the scope of delegation to the Presidential Decree. ② Article 19(2) of the former Corporate Tax Act provides that the scope of inclusion in deductible expenses is generally accepted or directly related to ordinary profits and losses generated or spent in connection with the business of the corporation.” As such, the provision of the Enforcement Decree of the instant case provides that “in the event that an additional tax rate is excluded from the scope of delegation by Article 26 subparag. 5 of the former Enforcement Decree of the Corporate Tax Act.” It can be seen that there is no need for the immediately preceding revision of the Enforcement Decree of the Corporate Tax Act’s Act to stipulate the scope of revenue for the immediately preceding business year.

3) The legality of the imposition of corporate tax related to group 1 period

A) As to the assertion that the sales of JBIC should not be included in the sales of the Plaintiff PRK for the immediately preceding business year

The following circumstances, which can be acknowledged by comprehensively taking into account the overall purport of the arguments, i.e., (i) Plaintiff PRK and JBIC were corporations mainly engaged in import and sale of alcoholic beverages; (ii) Plaintiff PRK acquired all of the business related to import and sale of the PRP products from JBIC; and (iii) JBIC immediately discontinued the relevant business after transferring the relevant business; and (iv) Plaintiff PRIC and JBIC concluded a joint security service contract from February 2000; (iii) Plaintiff PRK succeeded to the above contractual status of the JBIC while transferring the business to Plaintiff PRK; (iv) Plaintiff PRK acquired the rights and obligations under the above contract of the JBIC; and (iii) Plaintiff PRK, even under the relevant established rules (B-91), it is reasonable to divide the amount of advertisement and publicity expenses in the immediately preceding business year to the immediately preceding business year, including Plaintiff RB’s sales in the immediately preceding business year to the immediately preceding business year.

B) As to the assertion that the business year of the group 1 period was unfairly extended

Article 55 (2) of the former Corporate Tax Act provides that the corporate tax on the income for each business year of a domestic corporation with less than one year less than one year shall be the amount calculated by dividing the amount calculated by application of the provisions of Article 13 for the business year by the number of months in the business year and multiplying by 12, the tax base for the business year shall be the tax amount calculated by multiplying the tax amount calculated under the provisions of paragraph (1) by the number of months in the business year divided by 12.

The purpose of determining the sharing ratio of common expenses between joint businessmen is to calculate the corporate tax on the income for each business year. In determining the sharing ratio of common expenses based on the turnover for the immediately preceding business year, if the turnover for one of the parties in the previous business year falls short of one year and the number of months in the immediately preceding business year is less than one year, the sharing ratio shall be determined based on the turnover converted into one year pursuant to Article 55(2) of the former Corporate Tax Act. Since the head of Leecheon Tax Office set the sharing ratio by calculating the turnover for the immediately preceding business

4) The legality of the imposition of corporate tax related to group 2 years

A) As to the assertion that where the “amount of sales in the immediately preceding business year” is unreasonable, the standard of sales in the pertinent business year may be selected

(1) According to Article 26 subparag. 5 of the former Corporate Tax Act and Article 26 subparag. 5 of the Enforcement Decree of the instant case upon delegation, when calculating the amount of income of a domestic corporation, the amount exceeding the share amount under the ratio of the sales amount of the relevant corporation to the total sales amount of the relevant corporation in the immediately preceding business year out of the losses incurred or spent as a result of the joint operation or operation of the same organization, business, etc. as those other than the pertinent corporation

Tax-related Acts and subordinate statutes shall be strictly interpreted in light of the legal principle that the requirements for taxation as well as the requirements for non-taxation, reduction, and exemption. This is a legitimate provision that does not deviate from the delegation limit under Article 26 subparag. 5 of the former Corporate Tax Act as the mother corporation. The phrase is interpreted as the meaning that the amount exceeding the share amount by the ratio of the sales amount of the relevant corporation to the total sales amount of the relevant corporation in the immediately preceding business year should not be included in deductible expenses in calculating the income amount of the relevant corporation, and it does not mean that other reasonable standards should be followed or that other reasonable standards may be followed in cases where the amount would result in an unreasonable result by calculating the common expenses not to be included in deductible expenses based on the sales amount of the immediately preceding business year.

(2) The Plaintiffs also asserted that the provision of the Enforcement Decree of this case was amended to allow the selection of allocation standards among the sales revenue of the immediately preceding business year or the pertinent business year’s sales revenue, and that it is possible to retroactively apply the amended provision of this case’s Enforcement Decree, since sharing of common expenses based on the pertinent business year’s sales revenue is excessive or unreasonable expenses are not included in deductible expenses. However, the Plaintiffs’ amendment provision of the Enforcement Decree of this case’s prior to the enactment of corporate tax return, and there is no express provision governing retroactive application of the amended provision, and so long as the amended provision of this case’s Enforcement Decree was not amended from the reflective perspective that it is unreasonable to share common expenses based on sales revenue of the immediately preceding business year, it cannot be retroactively applied (see Supreme Court Decision 2014Du4719, Aug. 26, 2014; Supreme Court Decision 2014Du5719, supra, did not apply to the Plaintiffs’ selection of the total amount of expenses after the amendment of the Enforcement Decree of this case’s Act, and it does not appear that it did not apply to the immediately preceding business year’s selection.

(3) Since the sales revenue of a corporation may rapidly increase or decrease due to various factors, such as a rapid increase in raw materials prices, a rapid increase in business goods and services prices, and a change in the system while running a business, it is difficult to view the increase or decrease in the sales revenue of the corporation as unreasonable circumstances (whether to regard the increase or decrease in the sales revenue to a certain degree as an unreasonable increase or decrease in the sales revenue). The amount of investment is a common expense sharing standard. Of the joint investment business operators, a corporation which is a joint investment business operator (Article 48(1)1 of the former Enforcement Decree of the Corporate Tax Act. Article 48(1)1 of the former Enforcement Decree of the Corporate Tax Act) or a non-special investment business operator, which has no special relationship, is determined in advance by the agreement or is based on the sales revenue for the immediately preceding business year. In light of the above circumstances, it is difficult to determine a common expense sharing standard different from the sales revenue for the pertinent business year between the joint investment business operators, and thus, it cannot be deemed unreasonable only when the sales revenue for the immediately preceding business year is operated by the joint investment business operator.

The plaintiffs sold Pool products manufactured domestically at a direct sales outlet located in Korea. On December 27, 2007, when the permission for the establishment of a Pool store, the only direct sales outlet located in the Seoul metropolitan area, was revoked by the Director of the Korea Tax Office on December 27, 2007, the sales of Pool products were rapidly reduced for the two-term period of Pool as the sales of Pool products decreased in the Seoul metropolitan area, and the revenue Pool products were replaced with the domestic manufacturing Pool products, resulting in a rapid increase in the sales of Pool products for the two-term period of Pool, resulting in an unreasonable result, resulting in losses in the Plaintiffs’ increase in the sales of Pool products in the two-term period of Pool products. However, the plaintiffs' assertion that the plaintiffs' share of corporate tax is reduced or exempted due to the lack of corporate tax to obtain corporate tax deduction for the pertinent losses caused by the plaintiffs' failure to meet the revised standard of tax exemption for the pertinent business year (the plaintiffs' assertion that the plaintiffs would not be entitled to pay losses for the losses for the plaintiff's previous business year.

B) As to the assertion that “Sales” which is the standard for sharing common advertising expenses is “Sales in the pertinent business year”

(1) Under the principle of no taxation without law, the interpretation of tax laws shall be interpreted in accordance with the text of the law unless there are special circumstances, and shall not be extensively interpreted or analogically interpreted without reasonable grounds. However, in cases where it is necessary to clarify the meaning through the interpretation between the laws and regulations, it is inevitable to make a combined interpretation with the objective taking into account the legislative intent and purpose within the scope that does not undermine the legal stability and predictability pursued by the principle of no taxation without law (see Supreme Court Decision 2007Du4438, Feb. 15, 2008).

(2) Article 25(2)3 (b) of the former Enforcement Rule of the Corporate Tax Act stipulates one of the losses that may meet the standards prescribed by Ordinance of the Ministry of Strategy and Finance pursuant to the proviso to Article 25(2)3 (b) of the Enforcement Rule of the same Act as “joint advertising and publicity expenses”. Among them, the standard for sharing the joint advertising and publicity expenses in accordance with corporate accounting standards

Article 25(1) of the former Enforcement Rule of the Corporate Tax Act provides that sales under the provisions of this case (hereinafter “sales in the immediately preceding business year”) shall be “sales in accordance with corporate accounting standards,” and Article 25(4) of the same Enforcement Rule provides that the sales amount may be determined as not sharing joint advertising and publicity expenses based on “sales in the immediately preceding business year.” In light of the relationship between the above laws and regulations and Article 25 of the former Enforcement Rule of the Corporate Tax Act is a provision embodying the provisions of the instant Enforcement Rule, it is reasonable to deem “domestic sales in accordance with corporate accounting standards,” which is the standard for sharing common expenses of “domestic joint advertising and publicity expenses”, to mean “sales in the

Article 25(1) of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 254, Mar. 30, 2002) provides for the meaning of the amount of sales of the “amount of sales of the relevant corporation in the immediately preceding business year” and Article 25(2) provides that the amount of domestic joint advertising and publicity expenses in accordance with corporate accounting standards shall be “amount of sales in the immediately preceding business year.” Since the amendment was made by Presidential Decree No. 19891, Feb. 28, 2007; Article 48(1)3 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20619, Feb. 22, 2008); Article 25(1) provides for the meaning of the amount of sales of the relevant corporation in the immediately preceding business year; Article 25(2) provides that “The amount of sales of the relevant corporation in the total amount of sales in the immediately preceding business year shall be deemed “the amount of sales in the revenue of the relevant corporation;”

Article 25(2)4 of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Strategy and Finance as of February 28, 2012) newly establishes losses and the basis for such losses prescribed by Ordinance of the Ministry of Strategy and Finance as “the total amount of capital according to the corporate accounting standards for the immediately preceding business year” and specifies that “the immediately preceding business year” is “the amount of sales for the pertinent business year.” However, it appears to be only to clarify that “the relevant business year sales” is based on the revised provision of the Enforcement Rule of the instant case’s Article 25(2)3 (b) of the former Enforcement Rule as the basis for sharing common expenses. In addition, in light of the foregoing new provision on the criteria for sharing common use fees of intangible assets, the establishment of the provision on the above criteria for sharing common use fees of intangible assets in the instant case’s Article 25(2)4 of the former Enforcement Rule, Article 25(2) of the former Corporate Tax Act’s Article 25(2)3(b) of the former Enforcement Rule cannot be construed to mean the relevant business year sales.

C) As to the assertion that the sharing ratio should be determined based on the “amount equivalent to twice the sales” with respect to the joint advertising and publicity expenses

(1) Article 25(2)3 (b) of the former Enforcement Rule of the Corporate Tax Act provides that “In the case of an advertisement and publicity for a specific product, it shall refer to the sales of the relevant product, and in the case of a corporation that mainly supplies goods or services for the final consumer, it may be at least an amount equivalent to twice its sales.” The above provision is amended by the Enforcement Rule of the Corporate Tax Act as of May 24, 199, Article 25(1)2, stating that “domestic joint advertising and publicity expenses shall be sales in the Republic of Korea: Provided, That in the case of a corporation that mainly supplies goods or services for the final consumer, they may be at least twice its sales in the same manner as those of the final consumer goods or services for the same purpose as those of the final consumer goods or services, even if the above provision is amended by the Ordinance of the Ministry of Finance and Economy as of March 30, 2002, deeming that the sales of the final consumer goods or services are no more than those of the final consumer goods or services supplied for the same purpose than those of the final consumer goods or services supplied.”

5) The legality of imposition of value-added tax

A) Article 1(1) and (3) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter the same) provide that value-added tax is imposed on the supply of goods or services, or on the import of goods. In this case, the term “services” refers to all services and other activities that have property value other than goods.

The plaintiffs operated a common organization for the sale of alcoholic beverages or while performing the same duties, and disbursed indirect expenses, such as personnel expenses, office rent, and maintenance expenses, and advertisement expenses. This is deemed that the plaintiffs provided services (such as the provision of human services, such as business activities, and the provision of office-use services) with property value necessary for the other party's projects, and it is reasonable to view that the plaintiffs provided the other party with services equivalent to the amount that the other party should share among the common expenses paid by themselves.

B) Article 13(1) of the former Value-Added Tax Act provides that the tax base of value-added tax on the supply of goods or services shall be the market price of the goods or services supplied by a person who receives any consideration other than money in cash. Article 21(1) of the Value-Added Tax Act provides that when there is any error or omission in the details of a final return, the tax base of value-added tax for the relevant taxable period and the amount of tax to be paid for the relevant taxable period shall be determined or revised through an investigation (in this respect, the Plaintiffs’ assertion that the imposition of value-added tax is unlawful on the grounds that there is no provision that the amount of tax should be increased for the sales of a person who supplies goods or services under the Value-Added Tax Act, and Article 17(1)3 of the former Enforcement Decree of the Value-Added Tax Act provides that an entrepreneur’s input tax amount that can be deducted from the output tax amount shall not be deducted from the amount of tax paid for his/her own business, and Article 17(2)3 of the former Enforcement Decree provides that the Value-Added Tax Act shall be prescribed by Presidential Decree No.

In light of the contents of the aforementioned relevant provisions, an amount exceeding the share ratio under Article 48 of the Enforcement Decree of the Corporate Tax Act among the common expenses paid by one of the Plaintiffs shall be included in the output tax amount as a taxable subject of value-added tax, and in cases where a tax invoice is issued even if the amount exceeds the share ratio, and where the other party receives an input tax deduction, the input tax amount

Therefore, with respect to the fact that the Plaintiffs did not include the JBIC’s sales in the immediately preceding business year’s sales in the immediately preceding business year, or distributed the common expenses by the sales in the immediately preceding business year, and thereafter reported and paid the value-added tax, it is legitimate to impose value-added tax on the Plaintiffs by re-appropriating the output tax amount and the input tax amount. The Plaintiffs’ assertion is without merit.

6) The legality of imposition of additional tax

A) If the principal tax and the additional tax are to be imposed along with a single tax notice, the individual tax amount and the basis for calculation thereof should be separately stated in the tax notice. In addition, where multiple kinds of additional tax are to be imposed, it is natural that the taxpayer can per se identify the details of each tax disposition by classifying the amount and the basis for calculation thereof (see Supreme Court Decision 2010Du12347, Oct. 18, 2012). Meanwhile, if it is apparent that the taxpayer’s prior notice of taxation sent to the taxpayer prior to the tax notice, etc. was not completely hindered, the defect of the tax notice should be supplemented or cured. However, the document that can supplement the defect of the tax notice should be issued to the taxpayer prior to the tax notice pursuant to statutes, etc., and thus, the necessary matters to be stated in the tax notice should be clearly stated (see Supreme Court Decision 2010Du12347, Oct. 15, 2015; 2005Du36585, May 15, 2015, 2015).

B) In full view of the purport of each of the statements in Gap evidence Nos. 1, 2, and 8 (including each number), it can be acknowledged that the tax notice of each of the dispositions in this case against the plaintiffs only contains the amount of additional tax and the grounds for calculation thereof, and that a notice of tax investigation sent by the director of the Central District Tax Office to the plaintiffs around September 28, 2010 prior to the issuance of each of the dispositions in this case does not contain all the amount of additional tax or the grounds for calculation thereof. In light of the legal principles as seen earlier, the duty payment notice of each of the dispositions in this case does not prove any defect in omission of the matters required by the relevant Acts and subordinate statutes, and it is unlawful to impose additional tax in each of the dispositions in this case. The plaintiffs' assertion has merit.

3. Conclusion

Therefore, among the plaintiffs' claims against the defendants in this case, the claim for the cancellation of the additional tax (attached Form 3 1 to 3, and 5 additional tax) set forth in attached Table 1, 2, and 3 (attached Form 3) shall be accepted as reasonable, and the remainder of the claim shall be dismissed as it is without merit. Since the judgment of the court of first instance is unfair with some different conclusions, the appeal by the defendants shall be partially accepted, and the judgment of the court of first instance shall be modified

[Attachment]

Judge highest order (Presiding Judge)