A. Summary

Engineering company A (hereinafter referred to as “the Company”) was founded in March 2005, and began with simple construction work with such things as reinforced concrete structures, before gradually moving into construction of more specialized, larger machines and facilities. On March 21, 2010, one of its 10 regular employees (a daily worker) was injured on the job, and applied to the Employee Welfare Corporation (hereinafter referred to as “the EWC”) for accident compensation. While handling the occupational injury of the worker concerned, the EWC came to believe that the Company was not a construction company, but a manufacturing company instead. The EWC confirmed that the Company’s corporate register stipulated that it was a construction and manufacturing firm together, that in its financial statements since 2007, production costs had been described as higher than construction costs, and that its product sales were much higher than its construction sales.
The EWC then changed the Company’s business registration from construction to “manufacturing of metal products for construction.” Due to this, additional premiums were charged and penalties imposed on the Company in December 2010, in accordance with the change of business registration. Since the Company had been registered as a subcontractor for its construction projects, its daily workers were automatically covered by the main contractor’s Industrial Accident Compensation Insurance. This meant that only resident employees at its head office subscribed to the Insurance separately as administration office staff (905009), with premiums due at a rate of 10:1,000 of the total yearly wages. This was in contrast to the EWC’s determination of the Company as a manufacturer of metal products (21809), with premiums due at a rate of 49/1,000. So, the EWC retroactively charged the Company about KRW 100 million as unpaid premiums. The Company then took legal action in February 2011, filing with the Administrative Appeals Commission for cancellation of the EWC’s fines and additional premiums.
As already mentioned, it was discovered that the Company was registered as a construction firm while the EWC was handling the accident compensation case. The manufacturing costs were listed as greater than construction costs, and product sales greater than construction sales, because the Company had manipulated the dates in order to secure lending from a bank in the near future. During investigation by the Administrative Appeals Commission, the Company was recognized as a construction business, and not manufacturing, by providing verifiable documents for all sales-related VAT invoices issued during the corresponding period. Here, I would like to explain the details of this case and how the Company proved its claims.

B. Reasons for Additional Premiums

The Company began subscribing to Industrial Accident Compensation Insurance on July 1, 2005, and since then it had been considered a “separate administrative office” among various other businesses. As an occupational injury occurred with one of the Company’s employees on March 21, 2010, the EWC investigated the Company’s business registration to determine the applicable business type for insurance. After auditing, the EWC concluded the Company’s business was manufacturing, because, even though the Company did not have a plant for production, it purchased raw materials, assembled or produced metal structures at building sites, and installed them there. The Company was informed of the EWC’s decision to change its business registration to “metal products manufacturing for construction” and charge KRW 101,536,050 in additional premiums for the years 2007 to 2009 and adjust the premiums for 2010.
Although the Company registered its construction license without registering its plant separately, it produced half-finished metal structures on its own premises and installed them on building sites to fulfill contracts with purchasers. When confirming purchase agreements with purchaser M and purchaser W during the years 2007 to 2009, the Company hired daily workers to produce metal structures, fabricate the half-finished products, and then assemble and install them at the building sites. Labor costs occurring at the building sites are evidence that registration as a manufacturing business was more appropriate.
Accordingly, the Company has used its construction license to engage in construction, and besides building operations, it purchased the materials necessary to produce structures to fulfill contracts with purchasers, manufactured half-finished products on its own premises, and welded or otherwise assembled those structures at building sites. Even though the Company did not have a manufacturing facility to produce structures on its premises, it has regularly and continuously produced metal products related to building structures in accordance with contracts with purchasers, thereby justifying the current change of the Company’s registration to “metal products manufacturing for construction.”
C. The Company’s Reasons for Filing for Cancellation

In March 2005, the Company was founded as a small construction company with KRW 220 million in capital. If a small construction company like this one had to pay more than KRW 100 million in penalties, this becomes an imminent matter of survival. Since its establishment, the Company had managed typical construction projects with ten regular employees, sometimes hiring from 3 to 100 temporary workers to meet subcontract obligations.
In the Company’s estimation, the EWC based its decision only on documentation stating that the Company’s business license stipulated “construction and manufacturing” and its income statement showed that product sales were larger than construction sales. However, in reality, the Company did not produce any original products, did not own a production facility, and did not hire any personnel to regularly produce. It is for these reasons that the Company put forward that it cannot be considered a manufacturing business.
Even in legal terms, this Company does not satisfy the Enforcement Regulation (Article 4) of the Industrial Accident Compensation Insurance Act: “When the employer produces original products on a regular basis and installs them directly according to a contract with purchasers, this installation is deemed to be part of manufacturing. However, if such installation includes other building projects besides installing its own original products to fulfill subcontracts, this installation is not deemed manufacturing.” The Company’s biggest building contracts were to install three subcontractors’ products for their customer companies. The Company completed three projects as their subcontractor: 1) For Company S, the Company installed their product, a drying oven, in the Hyundai Motors Ulsan plant after tearing down the outdated facility; 2) For Company M, the Company installed a heat-retaining facility for gas pipes in the Hyundai Iron Dangjin plant; and 3) For Company W, the Company installed pipes in the same Dangjin plant. Such subcontracting projects were not related to manufacturing at all, but purely to construction.

D. Details of the Decision by the Administrative Appeals Commission

1. Details of the case
1) Mar. 21, 2010        A daily worker suffers an occupational injury and applies to the EWC for compensation
2) May 25 ~ Nov. 11, 2010        The EWC audits the Company to confirm business type
3) Nov. 11, 2010        The EWC changes the Company’s business registration and charges additional premiums
4) Feb. 9, 2011        The Company files an administrative appeal
5) June 1, 2011        Two investigators from the Administrative Appeals Commission visit the Company to investigate
6) Aug. 9, 2011        Judgment hearing held and decision made to cancel change to business registration and         charges of additional premiums

2. Decision of the Administrative Appeals Commission
1) The EWC claimed that the business the injured employee worked for should be considered a business “manufacturing metal products for construction” because the Company manufactured metal products for construction on its premises and installed them at construction sites. In addition to this, while the Company’s business license stated it was a “construction and manufacturing” company, its income statements showed product sales were a bigger portion of its income than construction sales, which the Company claims it intentionally falsified in order to secure a bank loan. To back this up, the Company stated that it didn’t have the personnel, machines, or facilities to manufacture metal products for construction on its premises, and that it has never produced any metal products. When considering these claims, it is necessary that “type of business” be judged in practical terms by looking at the Company’s goods and services, its production process, etc., not details of the business license, corporate registration, or financial statements.
2) “Manufacturing” as a business type categorization means a business produces new products by physically or chemically changing organic or inorganic substances, and shall have a typical place and facility to manufacture, process, and assemble materials. The EWC also admitted in its investigation report and rebuttal to the Administrative Appeals Commission that the Company had not registered itself as a manufacturing plant, and was not equipped with production facilities.
3) In 2007, its income statement showed KRW 70 million in product sales and KRW 1.3 billion in construction sales, with actual calculation of tax invoices for sales as KRW 1.37 billion, the same as its income statement. The company stated that some money was made from product sales even though there were no product sales. In 2008, its income statement stipulated KRW 600 million in product sales and KRW 400 million in construction sales, but its actual tax invoices claimed construction sales of KRW 1 billion in 2008. In 2009, its income statement showed KRW 2.6 billion in product sales and KRW 200 million in construction sales, but its actual construction sales were KRW 2.8 billion according to tax invoices issued in 2009. Accordingly, we determine that the product sales given in the 2007, 2008, and 2009 income statements were falsified, regardless of the details of its actual sales the Company gave, in order to prepare favorable documents to secure loans from banks in the future. Except for the facts that the Company’s business license showed that it was licensed for manufacturing, its financial statement showed details for product sales, and documentation on the Company’s business submitted by the employer to the EWC showed that the Company began its manufacturing from November 1, 2007, we could not find any other evidence that the Company, in practical terms, produced and sold metal products for construction.