Examination-corporation-2015-0054 ( December 30, 2015)

The revenue and tax base are legitimate even if one of the other of the on-site investigations and decisions are based on estimation.

Since both the business revenue amount and the tax base are different in the basis and stages of the calculation, the revenue amount and the tax base for each business year cannot be deemed unlawful for the other party to the on-site investigation and determination of estimation.

Article 66 of the Corporate Tax Act: Decision and Correction

2016Guhap517444. Revocation of imposition of corporate tax, etc.

OO Resources Corporation

O Head of tax office

November 25, 2016

December 16, 2016

1. All of the plaintiff's claims are dismissed.

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

Cheong-gu Office

The Defendant’s imposition of KRW 124,798,710 of corporate tax of the business year 2012 (including additional tax), the amount exceeding KRW 4,735,735,490 of corporate tax of the business year 2012, the imposition of KRW 1,650,187,340 of corporate tax of the business year 2013 (including additional tax), the imposition of KRW 1,650,187,340 of corporate tax of the business year 2013, and ② the amount exceeding KRW 14,406,15,446 of the notice of change in the amount of income for the year 2012, and the notice of change in the amount of income for KRW 5,392,627,244 of income for the year 2013, shall be revoked, respectively.

1. Details of the disposition;

A. On November 20, 2009, the Plaintiff closed its business on April 30, 2015 when it purchased waste cables, etc. and was engaged in the export business to China.

B. The Defendant finds that “the purchase and sale data from 2012 to 2013” stored in the Plaintiff’s office PC during the tax offense investigation process regarding the business year from February 9, 2015 to May 31, 2015 (i) the tax invoice 2012 to 2013, (ii) the tax invoice 2012 to 2013, and (iii) the income sheet 2012 to 2012 to 2012, and (iv) the tax base and the tax amount before 2013 to 2016, as prescribed by the Presidential Decree (amended by Presidential Decree No. 21358, Feb. 26, 2012; hereinafter referred to as “the instant EX file”. The Defendant calculated the amount of income for the Plaintiff’s business year from 2012 to 2013 to 2014 to 2016 of the former Enforcement Decree of the Corporate Tax Act as follows.

C. On July 1, 2015, the Defendant made the above amount of income as the tax base, and notified the Plaintiff of the correction and notification of the corporate tax of KRW 4,735,735,735,490 for the business year 2012, corporate tax of KRW 1,650,187,340 for the business year 2013 (hereinafter “instant disposition imposing corporate tax”), and ② underreported income [the amount of under-reported income [the amount not deducted as corporate tax amount] the difference between the tax base determined by the method of investigation and determination and the net income on the corporate balance sheet for the business year 2012, 5,392,627,244 for the business year 2013 as bonus for the Plaintiff’s representative, and the notice of changes in the amount of income (hereinafter “disposition disposition of this case”) was each disposition of this case along with the disposition of this case.

D. On October 12, 2015, the Plaintiff dissatisfied with each of the instant dispositions, filed an appeal with the Tax Tribunal on October 12, 2015, but was dismissed on December 30, 2015.

[Reasons for Recognition] Unsatisfy, Gap evidence 1 to 4, Eul evidence 1 (including numbers, if any; hereinafter the same shall apply), the purport of the whole pleadings

2. The parties' assertion

A. The plaintiff's assertion

In the process of correcting corporate tax base and tax amount, the Defendant: (a) considered credibility of the records related to sales in the entry of the EX files of this case, and included them in gross income as is; (b) did not recognize credibility of the records related to purchase in the entry of the EX files of this case as deductible expenses; and (c) calculated each amount of income in the business year 2012 and the business year 2013 through estimation method; and (d) based on such premise

① However, in recognition of credibility of the description of the purchase amount on the EX file of this case, the Plaintiff selected a method of estimation even though it could calculate the corporate tax base by the method of field investigation (in short of the requirements for estimation taxation), and ② the income rate for wholesale and retail business of the closed cable operated by the Plaintiff is merely 1 to 2%, but the estimated income rate calculated by estimation reaches 30% (28% in 2012, 31.7% in 2013), and each of the dispositions of this case is unlawful (in short of reasonableness and validity of estimated taxation).

B. Defendant’s assertion

The record on the sales of the EX files of this case contains not only the date of export, export counterpart, sales unit price, etc. but also relevant documentary evidence, such as the export declaration certificate, the Plaintiff's financial account, etc. Although the record is reliable, the records on the purchase of the EX files of this case include only the purchase price, the purchase price, the purchase price, the purchase price, the purchase price, etc. are not stated, and no relevant documentary evidence exists, and thus, the purchase price was not included in deductible expenses, and each disposition of this case was made after calculating the tax base through an estimate investigation under the corporate tax law. Thus, each disposition of this case was legitimate.

3. Determination on the legitimacy of each of the dispositions of this case

A. The imposition disposition part of the corporate tax of this case

1) First, we examine whether the requirements for estimated taxation are recognized or not.

A) In principle, the tax authority shall determine the tax base of corporate tax and the amount of tax by the actual amount revealed by the method of a field investigation. However, if there is no taxpayer’s account book or documentary evidence or any other material part is insufficient or false and there is no other method of taxation by which the tax authority can disclose the actual amount, the tax base, etc. may be determined by the estimation method, and the tax authority shall prove such estimation requirement (see, e.g., Supreme Court Decision 98Du915, Oct. 8, 1999). Meanwhile, the issue of whether to investigate and determine both the business revenue amount and the tax base should be determined by one of the legal grounds for calculating the amount of tax, because both are different in terms of the calculation method and the calculation method, and the issue of how to investigate and determine by any method should be determined by one of the two methods, and the amount of income and the tax base of each business year should not be determined by the same method, and thus the other party cannot be deemed unlawful (see, e.g., Supreme Court Decision 2005Nu9797, May 97, etc.).

B) In full view of the purport of the entire pleadings, the following facts are recognized in the descriptions of Gap evidence Nos. 3, 5, Eul evidence Nos. 2, 4, and 5.

(1) The Plaintiff received 55 copies of the purchase tax invoice of KRW 41,00,00 (hereinafter referred to as “the tax invoice of this case”) in the first and second terms of KRW 526,00,000 for the first and second terms of KRW 201,00 for the second terms of KRW 692,00,000 for the second term of KRW 201,00 for the second term of KRW 2012 from OEM for the second term of KRW 2012 for the second term of KRW 2012 for the second term of KRW 411,000 for the second term of KRW 200 from OE (hereinafter referred to as “OOE”), and filed a return on the value-added tax and corporate tax by deducting the purchase amount as the input tax amount with the Defendant as the input tax amount.

(2) After investigating OOE, etc., the director of the regional tax office, the director of the regional tax office, and the director of the regional tax office notified the Defendant that the instant tax invoice was issued differently from the fact.

(3) On March 7, 2014, the Defendant conducted an investigation on the Plaintiff, and on March 7, 2014, issued a revised and notified the Plaintiff of KRW 26,795,340 for the first period of value-added tax, KRW 253,710,140 for the second period of value-added tax in 2012, and KRW 35,854,780 for the business year 2012, respectively (hereinafter “disposition for imposition of value-added tax, etc.”).

(4) On March 28, 2014, the Plaintiff filed an objection with the director of the regional tax office of OO on the imposition of value-added tax, etc., but was dismissed on May 16, 2014. On August 8, 2014, the Plaintiff filed an appeal with the Tax Tribunal for the adjudication on the imposition of value-added tax, etc., but was dismissed on December 30, 2014.

(5) The Plaintiff filed a lawsuit seeking revocation of the disposition imposing value-added tax, etc. (Seoul High Court Decision 2015Guhap51044). On May 12, 2016, the Plaintiff had considerable proof as to the fact that the company that actually supplied the waste cable to the Plaintiff was not an OOE, etc. on the other hand, and the Plaintiff’s proof as to the actual transaction was not sufficient. Therefore, it is reasonable to deem that the instant tax invoice constitutes a tax invoice different from the fact. Accordingly, the Plaintiff filed an appeal (Seoul High Court Decision 2016Nu4525) but the judgment dismissing the appeal on November 24, 2016 (hereinafter the above judgment of the first instance court and the appellate court judgment) was pronounced.

(6) Of the instant accelerator files, the account books, in which the details of the Plaintiff’s purchase, transaction, or other expenses (e.g., food service charges, transportation charges, etc.) were written, including transaction partners, transaction details, purchase amount, value-added taxes, etc.; ② Two sets are income statements that contain monthly the details of the Plaintiff’s profit and loss settlement (the sales amount, purchase amount, and purchase amount) and three sets are income statements that contain the details of the Plaintiff’s profit and loss settlement (the sales amount, purchase amount, and purchase amount).

(7) The monthly sales amount of 2 sets, the monthly sales amount of 3 sets, and the monthly sales amount of 3 sets, are mutually consistent. However, the monthly sales amount of 1 sets and the monthly purchase amount of 2 sets are inconsistent with each other (i.e., the monthly purchase amount of 3 sets). For example, in January 2012, the monthly purchase amount of 1 sets is 159,191,831 won (in the case of 2012, 15,404,150 won (in the case of sum of 15,404,150 won) or the monthly purchase amount of 359,202,020 won (i.e., the monthly purchase amount of 3 sets).

(8) In addition, in the case of one set, the details of transactions with the transaction partner as above and the amount of purchase are indicated, but the purchase transaction is also indicated with the OOE, which is judged differently from the facts in the related judgment.

(9) The records of the three sets of transactions include the date of sale, the place of sale, the name of the goods sold, the quantity of the sales, the unit sales price perkg, the sales amount, the sales cost, and the expenses incidental to the sales (customs duties and export agency fees). On the other hand, the statement of purchase is only the total purchase amount and the unit purchase price corresponding to the pertinent sales on a daily basis, and it does not contain any indication as to the purchaser. Two sets of transactions include only the sales amount and the purchase amount corresponding to the pertinent sales on a daily basis.

(10) On the other hand, there is no data arranging the items to be purchased and the amount to be purchased by each date of purchase.

(11) On April 21, 2015, at the time of the tax investigation conducted by the Defendant with respect to the amount of sales on the Plaintiff’s account books, SongO, in charge of accounting affairs as the Plaintiff’s employee, prepared the instant X-cell file in accordance with the actual transaction details, according to the direction of the Plaintiff’s representative’s ProfessorO. ProfessorO directly participated in the business from the beginning of 2012, and then received the tax invoice to transfer the passbook in accordance with the direction of HanO at the time.

C) Comprehensively taking account of the above facts acknowledged, the following circumstances are revealed.

(1) As to the sales amount of the EX files of this case, in light of the fact that there is a certificate of export declaration supporting credibility, related financial data, etc., and the plaintiff himself/herself is not raising any objection as to whether the sales amount of the EX files of this case is true, the credibility of the statement can be acknowledged, and thus, the actual business revenue amount revealed by the on-site investigation as to the sales amount of the EX files of this case should be based on the calculation of corporate tax.

(2) On the other hand, with respect to the purchase amount of the EX files of this case, only the total purchase amount corresponding to the sales of the EX files of this case is indicated by the EXP, and there is no indication about the purchase price, the purchase price, and the purchase date separately, and there is no account book on the purchase amount prepared by each purchase item (the two sets are deemed as monthly income statement based on the monthly sales price of 3 sets and the purchase amount corresponding to the corresponding sales amount. As such, the two sets cannot be deemed as the account book on the purchase amount separate from 3 sets). The two sets cannot be deemed as the account book on the purchase amount different from the three sets. In the judgment related to the

(3) If such circumstances are the same, the instant case constitutes a case where the necessary account books or documentary evidence in calculating the amount of income do not exist, or where the account books or other documentary evidence is incomplete or false, and thus, the Defendant’s imposition of corporate tax against the Plaintiff constitutes a case where the amount of income cannot be calculated by means of account books or other documentary evidence. Thus, in imposing corporate tax against the Plaintiff, the Defendant’s additional taxation requirement under Article 66(3) proviso of the Corporate Tax Act and Article 10

2) Furthermore, we examine whether the method of estimating the Defendant’s choice is unlawful.

A) In order for a taxation by estimation to be deemed legitimate, it is insufficient only to satisfy the requirements for estimation. The content and method of estimation must be reasonable and reasonable to reflect the actual value of the tax base close to the truth in specific cases. In the event of a dispute as to whether the method of estimation is lawful, the tax authority bears the burden of proving rationality and feasibility, but if it is estimated by the tax authority in accordance with the method and procedure prescribed by the relevant provisions, it shall be deemed that the reasonableness and feasibility have been proven once. In such case, the taxpayer bears the burden of proving that the specific content is not appropriate to reflect the actual value of the tax base or there is an estimation method close to the fact (see, e.g., Supreme Court Decision 2008Du7687, Oct. 14, 2010).

B) Article 104(2)1 of the Enforcement Decree of the Corporate Tax Act provides for the method of determining or correcting the tax amount based on the tax base, which is the amount obtained by deducting the amount calculated by multiplying the amount of the business revenue amount by the standard expense rate under Article 145 of the Enforcement Decree of the Income Tax Act, the purchase cost, labor cost, such as wages, etc.

C) (1) In full view of the purport of the argument in Gap evidence No. 6, the defendant estimated the corporate tax base by deducting the amount calculated by multiplying the purchase cost, rent, personnel expenses, and business revenue amount by the above standard expense rate from the plaintiff's business revenue amount. ② With respect to purchase cost, rent, and personnel expenses, it was recognized as is based on the income statement submitted by the plaintiff to the defendant at the time when the plaintiff filed the initial corporate tax return, and it is recognized that the standard expense rate applied 6.2% of the standard expense rate on the "collection and sale of recycled materials" as notified by the Commissioner of the National Tax Service under the delegation of Article 145 of the Enforcement Decree of the Income Tax Act. This is based on the estimation method under Article 104(2)1 of the Enforcement Decree of the Corporate Tax Act, and it is reasonable to view that the statement in evidence No. 4 and No. 5 of the above evidence is sufficient to acknowledge the fact that the income rate of the same type of business as the plaintiff was merely 1 to 2%, as alleged by the plaintiff, and there is no other evidence to prove that it is no more objective tax base.

(2) Meanwhile, the Plaintiff asserts to the effect that “the calculation of the tax base based on the purchase cost reported by the Plaintiff is unreasonable, since the Plaintiff reported the amount of business revenue at the time of filing the initial corporate tax with the Defendant at the time of returning the initial corporate tax.” However, even if the taxpayer underreporting a part of the revenues by omitting some of the revenues, it goes against the ordinary rule of experience (see Supreme Court Decision 91Nu10695, Jul. 28, 1992) that filing the entire return without omitting any of the expenses (see Supreme Court Decision 91Nu10695, Jul. 28, 1992). Therefore, it is insufficient to view that the entry of the evidence No. 2 as to the Plaintiff is insufficient to deem that there was a special circumstance that the Plaintiff underreporting

3) Therefore, the instant disposition of imposing corporate tax is lawful.

B. The notice of the change in the income amount of this case

As seen earlier, while imposing the corporate tax in this case, the Defendant deemed that the difference between the tax base and the net income on the balance sheet of the Plaintiff, determined by the method of estimated investigation and determination, was out of the company, and notified the Plaintiff of the bonus disposition after it. This is legitimate as it is in accordance with Article 67 of the Corporate Tax Act, Article 106(1)1 proviso and (2) of the Enforcement Decree of the Corporate Tax Act, Article 192(1) of the Enforcement Decree of the Income Tax

4. Conclusion

Therefore, all of the plaintiff's claims are dismissed as it is without merit. It is so decided as per Disposition.