Korea Hebap Co., Ltd. (Attorneys Kim Su-soo et al., Counsel for the defendant-appellant)

Head of Gangnam District Tax Office and one other

July 19, 2011

1. The disposition of imposition of corporate tax of KRW 2,239,344,460 on March 28, 2007 against the plaintiff by the head of Gangnam-gu Tax Office and the disposition of imposition of KRW 268,073,720 on May 30, 2007 shall be revoked, respectively.

2. On August 10, 2007, the director of the Seoul Regional Tax Office revoked the notice of change in the income amount stated in attached Table 1: attached Table 2:

3. The plaintiff's remaining claims against the head of Seoul Regional Tax Office are dismissed.

4. Of the costs of lawsuit, 1/2 is assessed against the Plaintiff, and the remainder is assessed against the Defendants.

Disposition Nos. 1 and 2 of the order and the disposition of the head of the Seoul Regional Tax Office on March 29, 2007 and May 7, 2007 against the plaintiff is revoked. The disposition of notification of change in the amount of income stated in the attached Table 1

1. Details of the disposition;

A. The Plaintiff is a domestic corporation established by Hbalif International and Inc. (hereinafter “HII”), which is a U.S. corporation, by investing 100% of the technology information provided by HII, and purchased physical management and nutrition products from a third party through a domestic and foreign third party manufacturer, and sells them to multi-level marketing salespersons registered as members in the Republic of Korea.

B. The Plaintiff entered into a management consulting service contract with HII on November 18, 1996, and after entering into a franchise and license agreement with HII on January 1, 1999, received technical information, etc. from HII in return for the payment of HII usage fees and franchise usage fees. In addition, the Plaintiff entered into a management consulting service contract with HIAI on November 18, 1996, and paid management consulting fees to HIAI in return for the provision of services, such as marketing, computer system, management of multilevel marketing salespersons, accounting and financial support.

C. From March 2, 2005 to May 24, 2005, the director of the Seoul Regional Tax Office conducted a corporate tax investigation on the Plaintiff’s corporate tax for the business year 2001 to 2004. ① The Plaintiff paid management consulting fees for the business year 2001 to 2004, the sum of 14 items, 6,748,624,000 won (hereinafter “instant management consulting fees”) out of the total management consulting fees paid to HIAI during the business year 201 to 2004, deemed that the service substance is not confirmed or the service provided is unrelated to the Plaintiff’s business and excluded from deductible expenses; ② the Plaintiff’s tax investigation conducted a tax investigation for the business year 2001 and 2004; ② the Plaintiff’s total amount of 30,746,79,796, and 204,64,7,7, and 48,7,206, of the former Enforcement Decree of the Adjustment of the International Tax Act.

D. Based on the results of the above tax investigation, on March 28, 2007 and May 30, 2007, the head of Gangnam District Tax Office corrected and notified corporate tax for each business year of 2001, 2002, and 2004 as indicated below with respect to the Plaintiff. The head of Seoul District Tax Office: (a) deemed that the management consulting fee of the instant case excluded from deductible expenses was reverted to HIAI; (b) deemed that the management consulting fee of the instant case was reverted to HI AI; (c) disposed of the Plaintiff as other income of HI AI; and (d) on March 29, 2002 as to the portion reverted to the Plaintiff on May 7, 2007, the Plaintiff notified the changes in the amount of income as stated in attached Table 1: (d) 1; and (d) 2003 to 205, 2003 to 305, 2007, 2002 to the Plaintiff as the attached Table 1:

E. On June 26, 2007, the Plaintiff appealed to the Tax Tribunal. On July 20, 2010, the Tax Tribunal calculated the Plaintiff’s operating profit rate for the period from July 20, 201 to 2004, and revised the tax base and tax amount by recalculation the transfer price based on the operating profit rate for the business year from 2001 to 2004 (hereinafter “instant transfer price taxation”), and dismissed the remainder of the appeal.

F. Accordingly, on August 17, 2010, the Defendant corrected corporate tax as indicated in the “reduction and Correction Tax Amount” column as shown below, and notified the Plaintiff of the reduction of income amount as indicated in the “Reduction Income Amount” column in attached Table 1 2. The corporate tax amount remaining after such reduction as indicated in the “Reduction Income Amount” column in attached Table 1 2. The corporate tax amount remaining after such reduction is the same as indicated in the “Tax Amount Imposition (including underreporting and non-payment penalty tax)” column in the following table (hereinafter “instant disposition”), and the income amount remaining after the reduction as described above in the notice of change in income amount as stated in attached Table 1 2.

본문내 포함된 표 ＼ 2001 2002 2004 당초고지세액 4,971,313,680원 882,820,915원 680,294,240원 고지 후 감액경정 199,157,230원 감액경정세액 2,532,811,990원 882,820,915원 412,220,520원 이 사건 부과세액 2,239,344,460원 0원 268,073,720원

[Ground of recognition] Facts without dispute, Gap 1, 2, 3, Gap 3, 5, Gap 4-1 to 4, Eul 1, 2, and 3-1, 2, Eul 6-1, 2, and 3-1, 6-3, and the purport of the whole pleadings

2. Relevant statutes;

Attached Form 2 is as shown in the relevant statutes.

3. As to the part concerning the non-performance of management consulting fee of this case

A. The plaintiff's assertion

1) The Plaintiff did not have any physical and human resources related to marketing, multi-level marketing management, financial and accounting, etc. to engage in multi-level marketing business, and concluded management consulting service contract with HIAI, namely, marketing service (market analysis, planning, data, etc.), multi-level marketing salesperson service (market development and maintenance, multi-level marketing salesperson recruitment and maintenance, and allowance statement management, etc.), financial and accounting service (budget, financial price calculation system development and maintenance, and financial officer education, etc.) which are commonly applied to affiliated companies located in the world from the whole world from HI AI. The Plaintiff was provided with management consulting (budget 14 items) that the Defendant was actually provided with the services from HI AI, and the service was indispensable for the operation of the Plaintiff, and the service was directly related to the Plaintiff’s profit, and the above management consulting fee is allocated directly to the company directly receiving the service in question, and is reasonable distribution criteria based on gross sales profit of the company receiving the service, etc. Accordingly, the Plaintiff’s disposal of the service in question is not unlawful or reasonable.

2) The director of the Seoul Regional Tax Office excluded the management consulting fees paid by the Plaintiff to HIAI from deductible expenses and disposed of them as other income, and notified the Plaintiff of the change in income amount as HII of May 7, 2007 with respect to the portion reverted to the year 2003 through 2005. The Defendant indicated the income earner in the above notice of change in income amount as HII is a clerical error of HIAI, but HII and HI AI are both existing companies, and it cannot be recognized as identical bilaterally. Thus, the above notice of change in income amount reverted to the year 2003 to 2005 is unlawful because there is a serious defect or defect in the necessary entry.

(b) Fact of recognition;

1) Details, etc. of management consulting services provided by HIAI

A) HIAI established by HII’s investment of 100% in the United States is comprised of 70 departments, such as financial management teams, personnel management teams, marketing management teams, multi-stage salesman service teams, etc., so that HII affiliated companies, including the Plaintiff, including the Plaintiff, can provide marketing support services, financial and accounting support services necessary for multi-level marketing business. As of July 1, 201, the total number of executives and employees as of July 1, 201 are 1,374, and management consulting services are concluded with affiliated companies, including the Plaintiff, and services are provided.

B) On November 18, 1996, the Plaintiff entered into a management consulting service contract with HIAI and received the following services from HIAI, and the service cost is paid by HIAI plus 10% of the costs and expenses incurred in the course of providing the services.

(1) Marketing;

HIAI provides the plaintiff with the service of establishing and advising marketing strategies most suitable for the plaintiff, and the service of evaluating employees working in the marketing department.

(2) Multi-stage salesmen

HIAI is proceeding with the holding of world-rating and education through various programs to enhance the educational effects of multi-level marketing salespersons belonging to the plaintiff. In addition to developing and supplying software of the information system used by the plaintiff, and establishing and operating a system for managing multi-level marketing salespersons, it provides services related to multi-level marketing salespersons' qualification management, dividend payment, profit rate management, etc.

(3) Finance and accounting services.

HIAI provides overall advice and guidance on the business of the logistics center owned by the plaintiff, and provides services such as resolving bank and foreign currency-related problems, and setting a budget plan.

C) Criteria for allocating service costs of HIAI

HIAI has distributed direct service-related costs to the related company that received management consulting services, aggregated the remaining indirect costs, and claimed the remainder, excluding the portion that contributed only to the business in the United States, according to the gross sales profit of each affiliated company.

2) The details of the investigation conducted by the director of the Seoul Regional Tax Office and non-deductible expenses

A) The director of the Seoul Regional Tax Office, even though the Plaintiff reduced a large amount of sales and operating income from around 2003, continuously paying management consulting fees with 10% added to the cost generated to HIAI, and determined that there was a reasonable link between management consulting services provided by HIAI and the Plaintiff’s profit creation (unit: KRW 00,000, per annum).

The ratio of the amount at the ratio of 2002 2003 2004 of the table 2003 2004 included in the main sentence shall be 106,714 100,752 100 54,924 100 43,546 100 gross sales profit 87,800 82.32,962 82.345,968 83.7,210 83.37,210 85.5 Management Fee Deduction 31,536 29.6 28,34328. 11,145 20. 6,545 20,544. 17,610,613,610,610,611, 647, 197, 157, 184, 1967, 157

2) Accordingly, the director of the Seoul Regional Tax Office conducted a corporate tax investigation on the Plaintiff’s corporate tax for the business year from March 2, 2005 to May 24, 2005, and conducted a tax investigation on the Plaintiff’s corporate tax for the business year from March 2, 2005 to May 24, 2004, and examined the contents of the service, relevance to the Plaintiff’s business, and adequacy of cost allocation with respect to management consulting fees of KRW 43,109,000 for the total of 70 items paid to HIAI during the business year from 2001 to 2004, and determined that the Plaintiff’s business activities are related to the service provided by HI AI, and that there was no substantial relation with the Plaintiff’s income generated. However, the part of the service provided as above, which is irrelevant to the Plaintiff’s non-deductible expenses (the total amount of KRW 6,748,624,00 (this case’s management consulting fees and the total amount of 15%).

General insurance expenses 1,675,367,00 won 2 U.S. Sales Communication 163,64,380 won 374,380,000 won 122,859,000 won 5 International New City Development Fund 373,969,000 won 5,000 won 370,90

[Ground of recognition] Facts without dispute, Gap evidence 3, Eul evidence 4-1 to 17, the purport of the whole pleadings

C. Determination

1) Article 19(1) of the former Corporate Tax Act (amended by Act No. 7289, Dec. 31, 2004; hereinafter the same) provides that deductible expenses shall be the amount of losses incurred from transactions which reduce the net assets of the corporation, except as otherwise provided in this Act and other Acts. Paragraph (2) of the same Article provides that deductible expenses under Article 19(1) of the same Act shall be losses or expenses incurred in connection with the business of the corporation which are generally accepted or directly related to profits, except as otherwise provided in this Act and other Acts. Article 19(1) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 18706, Feb. 19, 2005; hereinafter the same shall apply) provides that deductible expenses under Article 19(1) of the same Act shall be the following except as otherwise provided in the Act and this Decree, and subparagraph 17 through 16 shall not be included in deductible expenses, but shall not be included in deductible expenses to a domestic corporation or any other foreign corporation.

However, where a domestic corporation receives a service from a foreign corporation belonging to the same foreign corporation group, it is anticipated that the service will be paid for the same foreign corporation's business activities rather than the service provided as a shareholder of an investment company. If the service is reasonably related to the occurrence of domestic corporation's income, the cost paid to a foreign corporation in return for the provision of such service shall be deemed as deductible expenses which cause the decrease of corporation's net assets as prescribed by the Corporate Tax Act. Such cost for the provision of the service shall include indirect expenses incurred in maintaining and managing the business independently operated by the foreign corporation for the provision of the service. However, the above indirect expenses shall be allocated according to reasonable standards among many affiliated companies that receive the same service to exceptionally include such indirect expenses.

On the other hand, the burden of proof of tax base, which is the basis of taxation in a lawsuit seeking revocation of corporate tax assessment, shall be imposed on the tax authority, and the tax base shall be deducted necessary expenses, so the burden of proof of revenue and necessary expenses shall be imposed on the tax authority. However, considering the fact that most of the facts that the taxpayer is favorable to the taxpayer and the necessary expenses are in the sphere under the control of the taxpayer, and it is easy to prove them, it would be consistent with the concept of fairness to recognize the necessity of proof to the taxpayer by allowing presumption of non-existence with respect to necessary expenses that the taxpayer does not perform the verification (see Supreme Court Decisions 86Nu121, May 24, 198; 2002Du1588, Sept. 23, 2004, etc.).

In accordance with these legal principles, we first examine the appropriateness of the payment of expenses relating to general insurance expenses, Pacific Regional Center's allocation, insurance expenses support, and insurance expenses, first examine the appropriateness of the payment of expenses related to the remaining 11 items, and then examine the appropriateness of the payment of expenses related to the remaining 11 items, from May 7, 2007 to 2005.

2) Matters related to the general insurance expenses (hereinafter referred to as the “instant management consulting fee list 1”)

The plaintiff asserts that HIA provided various services through insurance coverage in order to jointly secure the risks of all world MIA subsidiaries, and that as a part of this, the plaintiff was provided with insurance services related to product liability, executive compensation, marine cargo and disaster damage liability by HIAI.

According to the above evidence Nos. 17, 18, and 21, each of the above evidence Nos. 1, 2, 24, and 25, HIAI concluded product liability insurance contract with LIAI for the period from November 19, 2004 to November 19, 2005, with US$ 120,000, and it is difficult for HIAI to acknowledge product liability insurance contract with 20 U.S. dollars to acknowledge product liability insurance contract with 10 U.S. dollars from 200 to 30 U.S. insurance contracts with 10 U.S. dollars, and it is difficult for HIAI to acknowledge product liability insurance contract with 10 U.S. dollars to acknowledge product liability insurance contract with 20 U.S. dollars from 10 to 30 U.S. insurance contracts with 204.19 to 205, respectively.

Rather, comprehensively taking account of the evidence mentioned above and the purport of the entire pleadings, each of the above insurance contracts entered into by HIAI is HII (whether each of the above insurance contracts is HIAI or not appears to have entered into each of the above insurance contracts at Herbalife Group). However, even if HII was established by 100%, it is unclear whether the Plaintiff is entitled to specific insurance benefits from each of the above insurance contracts because the Plaintiff is a separate legal entity, so it is not clear whether the Plaintiff can receive specific insurance benefits from each of the above insurance contracts. In fact, the Plaintiff appears to have not received insurance benefits from each of the above insurance contracts. Considering that as of December 31, 2004, the Plaintiff merely concluded the above insurance contracts with Samsung Fire Insurance Co., Ltd. (USS 4,542,607), and most of the insurance contracts are related to the Plaintiff’s domestic business and management consulting agreements, such as insurance contracts with Cerbalty Insurance Co., Ltd., Ltd. (200 U.S. dollars, 2000).

Furthermore, with regard to whether the cost incurred from each of the above insurance contracts entered into by HIAI has been allocated on a reasonable basis, a claim for the cost for providing services must be based on a direct claim method, in principle, but in exceptional cases, where it is difficult to measure cost or it is difficult to specify the cost that the beneficiary has actually received, it may be based on a indirect claim method. However, in calculating the cost by a indirect claim method, the price is sufficiently related to the value of the service, and its allocation standard should be sufficiently reasonable, such as where there is a device to prevent arbitrary manipulation, or where there is a device to prevent arbitrary manipulation, and there is a burden of proof on the plaintiff who intends to include the amount of the service paid by the indirect claim method in deductible expenses.

However, in the instant case, under the circumstance that the Plaintiff or HIAI did not prepare a claim or cost statement regarding the provision of services, the HIAI calculated this part of the advisory fee according to the indirect claim method in accordance with the ratio of the Plaintiff’s sales revenue among the total sales revenue of each affiliate. However, since the elements of reasonable allocation standard can be seen as constituting the elements of the reasonable allocation standard, it cannot be said that the allocation of expenses for insurance benefits only based on the sales revenue does not fit the characteristics of individual insurance (e.g., marine insurance is at risk according to transportation distance or means, disaster-related insurance is at risk, and disaster-related insurance is at risk different depending on the regional situation where each affiliate is located, etc., and it conforms to the same criteria as the number of executives and employees of each affiliate, and there is no evidence to verify how the numerical value, which is the basis of calculation of advisory fees, has been calculated in detail, and there is no evidence to support that there is no reasonable allocation standard in this part of the advisory fee.

Therefore, this part of the advisory fee cannot be seen as having a reasonable relationship with the Plaintiff’s occurrence of income, and it cannot be seen as having been allocated based on reasonable standards.

3) Items related to the allocation of management consulting fees by the Pacific Regional Center (No. 12 of the aforementioned table of management consulting fees of this case)

The plaintiff asserts that the Pac Rimer provided marketing support services, such as evaluation and advice, to employees of the domestic marketing department, within the Pac Posia (hereinafter referred to as the "HIAI"), which entered into a marketing service contract with HIAI, and that the price for such services was paid to HIAI.

In light of the records of evidence No. 26, HIAI concluded a contract with HII affiliated companies located in the Asia-Pacific region to provide marketing services and claim the cost. On the other hand, as seen earlier, marketing support costs are already included in the management consulting fees paid by the Plaintiff to HIAI. As such, even if the Plaintiff provided marketing services to HIAI while the Plaintiff paid marketing support costs, it is hard to view that the service costs are included in the marketing costs paid to HIAI, and there is no objective evidence as to whether the Plaintiff should separately pay the costs, and there is no evidence to acknowledge that there is no other reasonable marketing support costs, as otherwise alleged by the Plaintiff.

4) Items related to insurance expense support (Assurancesist) (the foregoing table Nos. 14 of the management consulting fees of this case)

The plaintiff asserts that the plaintiff's advisory fee of KRW 304,514,00 among these 313,416,000, 304,514,000 among these 313,416,00 had been paid as part of marketing support for multi-stage salesmen in Austria, and the cost incurred by the plaintiff's multi-stage salesmen belonging to the plaintiff was borne by the plaintiff. However, each statement of evidence Nos. 30, 31, 32 is difficult to find that the above cost was incurred by the event or that there was a reasonable relation with the plaintiff's profit, and there is no other evidence to recognize it. Rather, in full view of the purport of each statement of evidence Nos. 14,17, the plaintiff appears to have been paid as advisory fee by including the cost for the above event in other items, and there is no other ground to include the above cost as losses.

5) relating to the remaining 11 items

(5) Comprehensively taking account of the purport of Gap's statement on the plaintiff's testimony, ① It seems that there is no reasonable allocation of profit-making expenses for the plaintiff's above-mentioned services, ② it seems that there are no reasonable allocation of profit-making expenses for the plaintiff's service related to the plaintiff's business activities, ② It appears that there are no reasonable allocation of profit-making expenses for the plaintiff's service related to the plaintiff's business activities, ② It appears that there are no reasonable allocation of profit-making expenses for the plaintiff's service related to the plaintiff's business activities, ② It appears that there are no reasonable allocation of profit-making expenses for the plaintiff's service related to the plaintiff's business activities, ② It appears that there are no reasonable allocation of profit-making expenses for the plaintiff's service related to the plaintiff's business activities, and that there is no relations with the plaintiff's business activities related to the plaintiff's business activities, and that there is no relations with the plaintiff's business activities related to the plaintiff's business activities, and ② It appears that there are no new information-related business activities related to the plaintiff's.

6) Whether notice of change in the amount of income accrued from May 7, 2007 to May 2005 was unlawful

A) Article 67 of the former Corporate Tax Act and Article 106 of the Enforcement Decree of the same Act provide that when determining or correcting the tax base of corporate tax, the tax authority shall dispose of the amount included in the calculation of earnings as bonus, dividends, other income, etc. according to the person to whom the income belongs. Articles 17(1), 20(1)1, 21(1)20, and 127(1)20 of the former Income Tax Act (amended by Act No. 8144, Dec. 30, 2006; hereinafter the same shall apply) provide that when it receives a notice of change in the income tax for the pertinent business year, it shall be deemed that the corporation that pays the amount of income as dividends, leisure, and other income under the Corporate Tax Act should withhold it. Article 128 of the former Income Tax Act, Article 192(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20618, Feb. 22, 2008; Article 2012 of the said other income amount shall be notified in the form of dividend.

In addition, the withholding income tax is a tax that is determined by the automatic settlement method without special procedures when the tax liability becomes effective (Article 21(2) and Article 22(2) of the Framework Act on National Taxes). When the taxation requirements arise, the income earner and the withholding agent are determined. Where the tax authority disposes of the amount out of the company, as the payer of the relevant income, the withholding agent is established on the date when the notice of change in the income amount is served on the corporation in question. Unlike the fact that the withholding agent is liable for the disposition of the income regardless of whether the notice of change in the income amount was served on the corporation in question, if the disposition of the income is made on the person to whom the income belongs regardless of whether the notice of change in the income amount was served on the corporation, the income tax shall be subject to the income tax pursuant to the provisions of the Income Tax Act and the tax liability of the person to whom the income belongs is established when the taxable period to which

In addition, Article 2 subparag. 10 of the Framework Act on National Taxes provides that "tax payers and those liable to collect and pay national taxes under tax-related Acts" refers to taxpayers and those liable to collect and pay national taxes, and Article 9(1) of the former National Tax Collection Act (amended by Act No. 10527, Apr. 4, 2011) provides that when the head of a tax office or the head of a Si/Gun intends to collect national taxes, he/she shall issue to taxpayers a written notice specifying the taxable year, items of taxation, amount of taxes

In light of the contents and legal principles of the above provisions, if the notice of change of income amount on the corporation, which is a withholding agent, is written to the extent that the person to whom the income accrued from the company and the type of income and the amount of withholding tax can sufficiently be fully known, such notice of change of income amount cannot be deemed unlawful. In addition, even if some of the contents of the notice of change of income are not properly stated, if the notice of change of income amount was sent before the notice of change of income amount was sent by the tax authority, and if it is clear that the notice of change of income amount was written in writing or erroneously, and it does not interfere with the decision of objection against the disposition and the appeal of objection, the notice of change of income amount cannot

As to the instant case, comprehensively taking account of the overall purport of arguments in the statement No. 8 and No. 9 No. 2, Defendant 2: (a) deemed that the Plaintiff paid management consulting fees to HIAI in the year of 202 to 2004, and the amount of non-deductible income was reverted to HIAI; and (b) disposed of the Plaintiff as other income for HIAI on March 29, 2007; and (c) notified the Plaintiff of the change of income amount for the portion of 203 to 2005, as indicated in the Plaintiff’s notice of change of income amount on March 29, 2007, the Plaintiff entered the name and address No. 201 and No. 202, the name and address No. 365, 39, 205, 365, 205, 305, 205, 200.

According to the above facts, the above notice of change of income amount dated March 29, 2007 and May 7, 2007 is a notification of change of income amount due to the plaintiff's disposal of the management consulting fees paid to HIAI in the business year from 2002 to 2004 as other income. However, with respect to the amount of tax withheld for the year 2002, it can be known that the notice of change of income amount was given to the plaintiff on May 7, 2007 by each of the notice of change of income amount, and the plaintiff's notification of change of income amount for the year 2003 to 2005 cannot be seen as being unlawful because it is not a notification of change of income amount for the reason that the above notice of change of income amount was made after March 29, 2006 and the plaintiff's notification of change of income amount was not a notification of change of income amount to HIAI's 207.

D. Sub-determination

Therefore, it is difficult to see that the management consulting fee (14 items) of this case is for the plaintiff's business activities or has a reasonable relation with the plaintiff's profit generation, and it is also difficult to view that the management consulting fee of this case among the dispositions of this case does not fall under deductible expenses as provided by Article 19 (2) of the Corporate Tax Act. The corporate tax imposed portion and the disposition of notification of changes in the income amount of attached Table 1

4. Regarding taxation on transfer price of the instant case

A. The parties' assertion

1) The plaintiff's assertion

A) In case where it is intended to adjust the transfer price based on a third party comparable company, the term “normal price” refers to the price applied or deemed as applicable to ordinary transactions with persons other than foreign related parties pursuant to Article 2(1)10 of the former Act. However, among the comparable companies selected by the Defendants, the related companies, among those selected by the Defendants, are dependent on the goods of the above butterri company located in the United Kingdom until Burri Korea Co., Ltd. (hereinafter “Burri Korea”) transfers the clothes business portion on June 30, 202 to Burri Korea Co., Ltd. (hereinafter “Burri Korea”), not less than 60% of the sales and purchase transaction as the goods of the above Burri company’s clothing. As the comparative company located in the United Kingdom National Trade Organization (hereinafter “NonSccus”) depends on Article 2(1)10 of the Enforcement Decree of the former Act, it is no longer suitable between Burri company and the pertinent company’s 10% of the sales and purchase of the goods.

B) In addition, even though there is a significant difference between the Plaintiff and the comparable companies selected by the Defendants in terms of their products or transaction stages, it is unlawful that the transfer price adjustment was made by comparing the annual operating profit rates of the Plaintiff and the comparable companies, by comparing them with the annual operating profit rates of the Plaintiff.

2) The defendants' assertion

A) The Defendants’ application of the net trade profit ratio method as an arm’s length price calculation method in relation to the transfer price taxation of the instant case is reasonable, reasonable, and appropriate for the selection of comparable companies.

B) Even if the Plaintiff’s assertion on the transfer price adjustment of this case was accepted and the disposition of imposing corporate tax for the business year 2001 and 2004 was revoked, in the case of the business year 2002, the amount of KRW 3.1 billion corrected to the extent of the notified tax amount pursuant to the decision of the Tax Tribunal should be revised again to the extent of the notified tax amount, thereby resulting in the Plaintiff’s damage as a whole. Therefore, this part of the claim is unlawful, since there is no legal interest in seeking

B. Determination as to the Defendants’ aforementioned main defense of safety

In the instant case seeking revocation of the disposition of this case where the Plaintiff increased or corrected corporate tax for the business year 2001 and 2004, if the disposition of this case was revoked as alleged by the Defendant Gangnam-gu Tax Office, then the Plaintiff’s increase or decrease of corporate tax amount for the business year 2002 thereafter would result in the Plaintiff’s increase or decrease of corporate tax amount for the business year 2002, and thus, it cannot be deemed that there was no legal interest in seeking revocation of the disposition of this case. Thus, the Defendants’ defense

(c) Fact of recognition;

1) Circumstances, etc. of the transfer price adjustment in the instant case

A) Although the average gross sales profit ratio of the Plaintiff from 2000 to 2004 year reaches 81.9%, the head of the Seoul Regional Tax Office determined that the average operating profit ratio is 12% and that there was a suspicion of transfer of taxable income to HII and HIAI by making excessive payment to HIAI under the pretext of management consulting fees, technology usage fees, franchise usage fees, etc. other than support allowances paid to multi-stage salesmen.

B) In calculating the arm’s length price according to the method of net trade profit ratio under Article 4 and Article 5(1)4 of the former Act and Article 4 subparag. 2 of the Enforcement Decree of the same Act, the director of the Seoul Regional Tax Office selected the comparable enterprise through the following process. 81 companies deemed to run the same type of business as the Plaintiff: (i) 35 companies; (ii) 9 new companies; (iii) 9 companies; (iv) new companies; and (iv) companies whose transactions with specially related persons exceed 50% with each other; (iv) 12 companies, i.e., the Plaintiff’s business and function, i., e., ice companies (hereinafter “Haice”); and (iv) companies whose type of business and function are different, i.e., the final comparable enterprises.

2) The business profit ratio between the Plaintiff and the comparable companies from 2001 to 2004 is as follows.

In the table 2001 2002 2003 2004 Hadice 15.7% 10.4% 7.20% 9.8% 26.2% 24.9% 23.6% 15.9% 22.65% - Hadice - 11.7% 9.8% 10.7% 10.75% - 11.7% 9.75% - 11.4% 9.4% - 14.5% - Plaintiff 14.53% 15.2% 17.3% 12.05% -

3) The head of the Seoul Regional Tax Office calculated the transfer price adjustment amount in comparison with the scope of the Plaintiff’s operating profit ratio for each business year by comparative firm’s business year as listed below.

201 table 2002.2003.204 average of 2004.2004.21.21.17.0% middle of 19.3% 21.6% middle of 19.6% 9.2% 17.4% of lower 12.5% of 17.6% of 10.2% of lower 10.9% of 10.5% of operating profit 10.2% of 10.5% of 17.2% of 17.3% of 107.3% of 00, 12.05% of 07.05% of 07, 07.05% of 07, 07.05% of 07, 005% of 105% of 105,004, 43,546% of operating income, 00, 0000 of operating profit 16.38% of 7.05% of 20

4) The products and transaction stages between the Plaintiff and the comparable companies are as follows.

The Plaintiff’s health auxiliary foods (Damart, non-resident), ice ice household appliances from multi-level marketing, health auxiliary food multi-level marketing, non-Schcoer-level cosmetics imported from cosmetics contained in the main sentence, as well as ice-type cosmetics imported from ice-type cosmetics, flaps, bath products imported cosmetics also, imported cosmetics imported from bath products, and cosmetics imported cosmetics.

5) The Plaintiff’s five products sold superior to the sale during the period from 2001 to 2004 are health support (Daart) food related to physical adjustment. For reference, the Plaintiff’s five products sold superior to the sales as of the 2005 business year and the percentage are as follows:

본문내 포함된 표 매출액 제품명 종류 비율 총 매출액 47,884,198,385 100% 1위 5,951,052,904 허벌 알로에 겔 건강보조식품 12.4% 2위 5,926,350,420원 뉴트리셔널 프로틴 드링크 믹스 건강보조식품 12.4% 3위 5,901,792,290원 인스턴트 허벌 베버리지 건강보조식품 12.3% 4위 2,266,746,417원 뉴스리셔널 프로틴 드링크믹스-초콜렛맛 건강보조식품 4.7% 5위 1,867,110,334원 서모제틱스 퍼포먼스 프로틴 파우더 건강보조식품 3.9% 합계 45.8%

6) On the other hand, the non-Escision established on December 28, 1996 obtained exclusive authority over the domestic sales of cosmetics and related products for twenty (20) years through a monopoly franchise agreement concluded with the Company around February 1997, and most of the sales and purchase transactions up to now are cosmetics and related products of the Company.

[Ground of recognition] Facts without dispute, Gap 3, 5, 6, 7, 11, 15 evidence, Eul 7 and 14 evidence, the purport of the whole pleadings

D. Determination

1) Article 4(1) of the former Act provides that the tax authorities may determine or rectify the tax base and amount of a resident (including a domestic corporation and a domestic place of business; hereinafter the same shall apply) based on the arm’s length price where one of the parties to an international trade, which is a foreign specially related party, falls short of or exceeds the arm’s length price. Article 5(1)4 provides for “other reasonable methods as determined by the Presidential Decree” only where the arm’s length price cannot be calculated by the methods under subparagraphs 1 through 3, as one of the methods of computing the arm’s length price. Article 4 subparag. 2 of the former Enforcement Decree of the Act provides for “other reasonable methods as determined by the Presidential Decree” as one of the methods deemed reasonable under the aforesaid Presidential Decree. In other words, in an international trade between a resident and a foreign specially related party, the method of determining the arm’s length price calculated based on the net trade profit ratio realized in the relevant trade, among the trades between a resident and a non-specially related party, to the extent that an international trade between a special related party and a special relationship has the highest possibility of risk.

In full view of the above provisions, in order to calculate the arm’s length price of this case, ① the comparable level of international transaction between unrelated parties is required, and ② the said transaction is required to have a high possibility of comparison with the pertinent international transaction in question. In the event of assessing the high possibility of comparison, the elements such as the function of business activities that may affect the price or profit, contractual terms, risks accompanying the transaction, kinds and features of goods or services, market conditions change, and economic conditions, etc. should be analyzed. Meanwhile, in a lawsuit seeking revocation of a tax disposition, the tax authority bears the burden of proving the legality of the pertinent tax disposition, in principle, inasmuch as the tax authority bears the burden of proving the arm’s length price for calculating the arm’s length price for reasons that the transaction price formed in the transaction between a resident and a foreign related party falls short of or exceeds the arm’s length

2) First, we can see whether there is a special relationship under Article 2(1)4 of the former Enforcement Decree of the Act on the Coordination of National Taxes with Round Trade, Burri, Burri, and Sschinacin.

In order to have a special relationship under Article 2(1)8 of the former Act and Article 2(1)4 of the Enforcement Decree of the same Act, it is insufficient to simply have the grounds under each item of Article 2(1)4 of the same Enforcement Decree between a party and the other party. The grounds under each item of Article 2(1)4 of the same Decree shall be the case where “a party can substantially determine the whole or essential part of the business policy of the other party” (see Supreme Court Decision 2008Du14364, Dec. 11, 2008, etc.).

In light of the following circumstances, even though the non-Sccos used in the trade with the U.K. more than 50% of its business activities than 50% as alleged by the Plaintiff, even though the U.K. is dependent on the trade with the U.K. servers (it is difficult to recognize that the evidence submitted by the Plaintiff alone does not constitute 50% or more of the existence ratio of each trade to the non-Sccos Ltd., as to the non-Sccos Ltd., and the U.S., it is difficult to recognize that the Sccos used in the trade with the U.S. company as its major shareholder and its specially related parties were in the position to make a substantial decision on the whole or essential part of the business policies of U.S. trade, it is difficult to view the part of the non-S.P. 2 as being in the position to be in the position to make a substantial decision on the whole or essential part of the business policies of U.S.P.P. 30, 202.

3) Next, in light of the aforementioned legal principles, in full view of the health standards as to whether the arm's length price calculated by the head of Gangnam Tax Office is legitimate, and the following circumstances acknowledged through the overall purport of the arguments, the comparative companies selected by the head of Gangnam Tax Office to calculate the arm's length price are not suitable for the comparative companies due to the low possibility of comparison as well as the reasonable adjustment to the extent that it can overcome such difference, and thus, the transfer price adjustment of this case, which is based on the arm's length price calculated based on the comparative companies with no possibility of comparison, is unlawful.

(A)the type and characteristics of the goods dealt with, and the functions of the business activities;

Of the products handled by the Plaintiff, the sales volume of five higher-tier products exceeds half of the total sales volume with health-supporting foods (multi-level marketing) and the Plaintiff’s transaction is in the multi-level marketing form that sells products manufactured or imported through OEM to multi-level marketing salespersons. On the other hand, among the comparative firms selected by the Defendant, the remaining companies except Haice, among the comparative firms selected by the Defendant, deal with clothing, cosmetics, etc. and deal with health-supporting foods, and take general wholesale or retail method, not only multi-level marketing, but also multi-level marketing. Ultimately, the above companies have a qualitative difference in the product or trading phase (business function) and thus, are unlikely to compare.

B. Changes in market conditions, economic conditions, etc.

The Plaintiff paid technical fees, franchises, and management consulting fees to HII and HI AI by means of USD 100, not won-paid payment. However, among the comparative firms selected by the Defendant, Hice is a multi-level company with pure domestic base and is not almost affected by the foreign exchange rate, but it does not seem that the Defendant adjusted the difference in operating income due to exchange rate while using Hice as the comparative entity, while adjusting the transfer price of this case.

C) As seen earlier, from 100,752,00,00 won in 200 to 100,752,00,000 won in 203, 43,546,00,000 won in 204, the Plaintiff’s operating profit rate is 17.2% in 2002 to 11.3% in 2003, and 4.5% in 2004. This seems to be due to the type of business belonging to the Plaintiff, which is a multilevel marketing business, and the characteristics of health-supporting food, which is the Plaintiff’s main product, are sensitive to business fluctuations. Considering these impacts, even if the comparative company selected by the Defendant is admitted as it is, the average operating profit rate of 2001 to 204% in 2004 to 205% in 205, the average income rate of 1.3% in 2005% in 205% in 2005.

D) In this case, the Plaintiff appears to have not adjusted the difference in the impact of net profits generated therefrom, even though it is essentially different in the type of the product dealt with with with by all the comparable companies in terms of the transactional stage (business activity function), and economic conditions, including exchange rates, and there is no evidence to support that there was no reasonable adjustment to the extent that such difference in the transaction was overcoming.

E. Sub-decision

Therefore, among the dispositions of this case, the part imposing corporate tax for the business year 201, 2004 due to the tax adjustment of transfer price of this case and the attached Table 1-Attachment 2-Attachment 1-Attachment 2-Attachment 1-Attachment 2-Attachment 3-Attachment 2-

5. Scope of revocation of the instant disposition

As seen above, the Plaintiff’s assertion regarding imposition due to the transfer price adjustment among the dispositions of this case is with merit, so it is a principle that the Plaintiff’s legitimate tax amount to be imposed lawfully by the data supporting the objective tax base and tax amount of each corporate tax of 2001 and 2004, which the Plaintiff submitted by the parties, until the conclusion of the pleadings of this case, shall be deliberated and confirmed, and only the exceeding part shall be revoked.

However, in cases where a reasonable amount of tax is not calculated based on all submitted data, the court is not the tax authority, and it is inevitable to revoke the entire amount of the taxation. In such cases, the court is not obligated to calculate the reasonable amount of tax by finding ex officio reasonable and reasonable methods of calculating the reasonable amount of tax (see Supreme Court Decision 94Nu13527, Apr. 28, 1995). Regarding this case, it can be known that not only the portion arising from the transfer price adjustment but also the management consulting fee of this case has been adjusted in deductible expenses, and it is impossible to confirm the details of the inclusion of deductible expenses due to the transfer price adjustment and the total amount of corporate tax for each business year of 201 and 204, and even if all materials were submitted until the closing of argument at the time of closing of argument, it is impossible for the court to newly calculate the entire amount of the Plaintiff’s corporate tax and additional tax, and thus, the entire disposition of this case is revoked.

6. Conclusion

Therefore, the plaintiff's claim for cancellation of the disposition of this case by the head of Gangnam District Tax Office is justified within the above recognition scope, and the remaining claims are groundless, but it is impossible to newly calculate the legitimate tax amount. Thus, it is entirely accepted in the sense that the head of Gangnam Tax Office should re-calculated the corporate tax (including additional tax) pursuant to the disposition of this case. The plaintiff's claim on the notification of change in income amount in the attached Table 1-Attachment 2 of the Seoul Regional Tax Office's transfer price adjustment of the transfer price of this case is justified, and the plaintiff's claim on the notification of change in income amount in the attached Table 1-Attachment 1 relating to the management consulting fee

[Attachment]

Judges Cho Il-young (Presiding Judge) Kim Jong-san Kim Tae