[2] In cases where a taxpayer submits additional information proving that the pertinent good is an originating good pursuant to Articles 10 and 13 of the former Act on Special Cases of the Customs Act for the Implementation of Free Trade Agreements, and Article 6.18 of the Korea-U.S. Free Trade Agreements (FTA), whether the taxpayer is liable to pay customs duties on the imported good (negative); and whether the duty to pay additional customs duties under Article 42(1) of the Customs Act is recognized (negative)

Among penalty taxes, penalty taxes are imposed as sanctions for breach of separate cooperative obligation, irrespective of the principal liability for payment. However, in a statutory provision that serves as the basis for imposing penalty taxes, penalty taxes for non-declaration, underreporting, and failure to pay the tax base and amount by the statutory deadline may not be imposed separately where the principal liability for payment to be reported and paid is not recognized. The same applies to customs duties.

[2] According to Articles 10 and 13 of the former Act on Special Cases of the Customs Act for the Implementation of Free Trade Agreements (wholly amended by Act No. 13625, Dec. 29, 2015); and Article 6.18 of the Korea-U.S. Free Trade Agreement (FTA), a taxpayer may submit additional information proving that the pertinent good is an originating good in the process of confirming the origin of the imported good or the appropriateness of the application of conventional tariffs, etc.; thereby, a taxpayer is not liable to pay customs duties on the imported good determined as subject to the application of conventional tariffs (0%).

Article 42(1) of the Customs Act provides for an amount calculated by multiplying “10/100 of the relevant shortage of customs duties” and “the relevant shortage of customs duties” by a certain rate (Article 42(1) of the Customs Act (Article 42(1)2) as the penalty tax. The penalty tax under each of the above subparagraphs is premised on the existence of a principal liability as well as the penalty tax for non-declaration, underreporting, and nonperformance of payment under the Framework Act on National Taxes. As such, in light of its nature, only the liability for additional duties cannot be separately recognized unless there exists a “insufficient amount of customs duties” which serves

1. Case summary and key issue

A. Case summary

(1) On May 7, 2013 and June 14, 2013, the Plaintiff filed an import declaration by applying the conventional tariff rate (0%) pursuant to the Korea-U.S. Free Trade Agreement (FTA) with respect to the total equity (hereinafter “instant goods”).

(2) On March 27, 2014, the Defendant discovered that the certificate of origin possessed by the Plaintiff was issued in the name of an exporter who is not located in the United States, thereby excluding the application of conventional tariffs, and notified the Plaintiff of KRW 354,136,910, and additional duties KRW 49,474,760, respectively, on March 27, 2014.

(3) When submitting a certificate of origin issued in the name of a producer located in the United States, the Plaintiff filed a new application for the application of conventional tariffs on April 7, 2014 and April 8, 2014. The Defendant refunded the entire principal amount of the said principal tax to the Plaintiff, but maintained the portion of the additional tax as it is (hereinafter “instant disposition”).

B. Issues

The main issue of this case is whether only the obligation to pay additional duties can be separately recognized when the main obligation to pay conventional tariffs under the Korea-U.S. FTA is not recognized.

2. Standard point of determining the legality of taxation disposition

In a tax administrative litigation disputing the illegality of a taxation disposition, the legality of the disposition is determined based on whether the amount of taxation exceeds the reasonable amount of tax, and the parties may assert individual grounds supporting or disputing the amount of tax liability and submit relevant evidence (see, e.g., Supreme Court Decision 87Nu448, Jun. 27, 1989). As to the existence of the obligation to pay additional tax of this case, the existence of the obligation to pay additional tax of this case should be determined by comprehensively taking account of all the materials submitted after the lapse of the period and until the closing of argument, rather than at the time of the disposition. In so doing, the

3. Whether additional tax is reduced or exempted in cases where the principal tax is reduced or exempted after the ex post application of conventional tariff rates under the Korea-U.S. FTA;

A. In order to ensure the faithful fulfillment of obligations under tax-related Acts, additional taxes are independent taxes that are collected in addition to the principal tax amount calculated under tax-related Acts, and the reason for reduction and exemption is recognized in the principal tax does not necessarily include the amount subject to reduction and exemption. In addition, in a case where justifiable grounds exist to not fulfill the obligation to pay additional taxes, additional taxes are not imposed even if the principal tax is liable for payment (see, e.g., Article 2 Subparag. 4,

Among penalty taxes, penalty taxes are imposed as sanctions for breach of separate cooperative obligation, irrespective of the principal liability for payment. However, in a statutory provision that serves as the basis for imposing penalty taxes, penalty taxes without filing a report or failing to pay the tax base and amount within the statutory deadline, which require a taxpayer to fully report or pay the tax base and amount by the statutory deadline, cannot be imposed separately in cases where the principal tax to be reported and paid is not recognized. This also applies to customs duties (see, e.g., Supreme Court Decision 2013Du27128, Apr. 24, 2014).

B. (1) According to Articles 10 and 13 of the former Act on Special Cases of the Customs Act for the Implementation of Free Trade Agreements (wholly amended by Act No. 13625, Dec. 29, 2015; hereinafter “Free Trade Agreement Customs Act”), and Article 6.18 of the Korea-U.S. FTA, a taxpayer may submit additional information proving that the relevant good is an originating good in the course of confirming the origin of the imported good or the appropriateness of the application of conventional tariffs, and thereby, a taxpayer is not liable to pay customs duties on the imported goods determined as eligible for conventional tariffs (0%).

(2) Article 42(1) of the Customs Act provides for an amount calculated by multiplying “10/100 of the relevant shortage of customs duties” and “the relevant shortage of customs duties” by a specific rate (Article 42(1) of the Customs Act (Article 42(1)2). Additional duties under each of the above subparagraphs are premised on the assumption that a principal tax liability exists, as in the penalty tax for non-declaration, underreporting, and nonperformance of payment under the Framework Act on National Taxes. In light of its nature, only the liability for additional duties cannot be separately recognized unless there is a “insufficient amount of customs duties” that serves as the basis for the imposition.

Article 42(1) of the Customs Act, on the premise that the Plaintiff’s submission of the supplementary data on the proof of origin, became final and conclusive as having no liability to pay customs duties on the instant goods. Accordingly, the instant disposition, which was imposed on the basis of calculating additional duties under Article 42(1) of the Customs Act, was unlawful on the ground that the relevant disposition was unlawful. As long as the application of conventional tariffs under the Korea-U.S. FTA on the instant goods was effective, it cannot be deemed that there was a violation of the legitimate collection of customs duties and the taxpayer’s duty to cooperate

C. In the same purport, the lower court did not err by misapprehending the legal doctrine on the relationship between the penalty tax and the principal tax, requirements for the application of conventional tariffs, etc., as otherwise alleged in the grounds of appeal.

4. Conclusion

The Defendant’s appeal is dismissed as it is without merit, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Dong-won (Presiding Justice)