Corporate Tax Act | Supreme Court Judgment on Determining the Timing of Attribution of Gross Income for Expropriation Compensation Received under a Declaration of Provisional Execution

This case concerned the determination, for corporate tax purposes, of the timing of attribution of gross income of expropriation compensation received under a judgment in the plaintiff's favor accompanied by a declaration of provisional execution.

The plaintiff filed a lawsuit seeking an increase in the expropriation compensation, obtained a judgment in its favor with a declaration of provisional execution in 2010, and received the expropriation compensation.

Subsequently, in 2014, the Supreme Court rendered a judgment reversing part of the lower judgment and dismissing the remainder of the final appeal.

The plaintiff included the entire increased amount of expropriation compensation arising from the above lawsuit in the gross income for the 2015 business year, in which, after remand, the appellate judgment was rendered and the judgment became final, and accordingly reported and paid corporate tax.

The defendant, determining that the expropriation compensation at issue, which was a portion of the increased amount of expropriation compensation, had become fixed as the plaintiff's gross income in 2014 pursuant to the preceding Supreme Court judgment, reassessed and notified the corporate tax.

The plaintiff sought against the defendant the revocation of the disposition imposing corporate tax for the 2014 business year, and the question of the point in time to which the gross income should be attributed was at issue in this case.

Article 14(1) of the Corporate Tax Act provides that ‘the income of a domestic corporation for each business year shall be the amount calculated by deducting the total amount of deductible expenses belonging to that business year from the total amount of gross income belonging to that business year.’

Article 40(1) of the Corporate Tax Act also specifies that ‘the business year to which the gross income and deductible expenses of a domestic corporation for each business year are attributed shall be the business year that includes the date on which such gross income and deductible expenses become fixed.’

The Supreme Court determined that, under the Corporate Tax Act, even where there is no actual income in reality, the realization of income should be deemed to exist when the right that gives rise to it has definitively accrued.

Accordingly, the Supreme Court stated that, where a recipient has actually received money from a payer under a judgment in the recipient's favor accompanied by a declaration of provisional execution, the possibility of realizing the income under the Corporate Tax Act matures and becomes fixed to a considerably high degree, absent special circumstances, even if the judgment on the merits has not yet become final.

Setting forth the foregoing legal principle, the Supreme Court found that the expropriation compensation at issue should be included in the gross income for the 2010 business year, and it reversed and remanded the lower judgment, which had determined that the amount should be included for the 2014 business year.

The Corporate Tax Act is a law concerning the tax imposed on income earned by a corporation.

The tax rate varies depending on the size and type of business of the corporation, and the Act contains complex provisions, including those on taxable income and the scope of allowable expenses.

The Corporate Tax Act adopts the right-confirmation principle, under which, even where there is no actual income in reality, income is deemed to exist when the right has definitively accrued, and taxable income is calculated accordingly.

The concept of ‘confirmation’ in the right-confirmation principle under the Corporate Tax Act requires that the timing of attribution be determined based on whether the possibility of realizing the income has matured and become fixed to a high degree, taking into account such factors as the management and control over the income, the degree of objectification of the income that has arisen, and the time at which funds for tax payment are secured.

The Corporate Tax Act is an important part of corporate operations and is a complex law that requires specialized knowledge across various fields, including accounting, tax, and law.

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