Company Receiving Service Fees into Employee Account… Court Rules "Corporate Tax Justified"

A company that was heavily taxed for allegedly trying to evade taxes by receiving service fees into employees' personal accounts filed an appeal but lost in the first trial. According to the legal community on the 11th, the Seoul Administrative Court Administrative Division 5 (Presiding Judge Kim Sun-yeol) recently ruled against consulting firm A in the first trial of the lawsuit seeking cancellation of the corporate tax imposition filed against the head of Samsung Tax Office and the Seoul Regional Tax Office.

Earlier, A had signed a business system provision contract to receive 33% of the consulting fees from the company team leaders in exchange for providing office space, telephones, and internet environment. However, the tax authorities pointed out through a 2019 tax investigation that from 2013 to 2018, A failed to report sales totaling about 15.5 billion KRW by receiving service fees paid by customers into the team leaders' personal accounts instead of the company account. The tax authorities imposed a total tax of about 3.8 billion KRW on A, including corporate tax of about 850 million KRW and value-added tax of about 2.9 billion KRW, and notified that the income amount should also be revised.

A filed a tax appeal against the tax authorities' decision but, after it was dismissed, initiated an administrative lawsuit. During the trial, A argued that "the team leaders are individual business owners, not employees," and "the tax authorities should calculate the tax base based on 33% that goes to the company, not the entire service fees received by the team leaders."

However, the first trial court rejected this argument, stating, "The party supplying the services to the customers should be considered A, and the entire amount of the service fees should be regarded as revenue for the company." All service contracts were signed under A's name, and the team leaders were shown to be employees of A, so customers recognized A as the service provider. The court said, "Although the company had a business system provision contract with the team leaders, this was merely an internal agreement on how to distribute the service fees. This alone does not recognize the team leaders as the parties supplying the services." The court also cited the fact that the team leaders deposited the service fees received into their personal accounts to the company first, and A later settled 67% of the amount as evidence.

The court also found the imposition of punitive additional taxes to be justified. It added, "A used nominee accounts and manipulated and concealed income and profits. This is fraudulent behavior intended to obstruct the process of imposing and collecting taxes," and "A prepared double-entry books by instructing the team leaders not to receive service fees into the company account, and the amount of omitted sales was large and over a long period. A's omission of sales was not merely a failure to report but fraudulent behavior." A has appealed the first trial ruling.

This content was produced with the assistance of AI translation services.