Administrative Fine for Failure to Issue Cash Receipt Case

[27-2(A) KCCR 85, 2013Hun-Ba56ㆍ401ㆍ420, 2014Hun-Ga26, 2014Hun-Ba176ㆍ469ㆍ470ㆍ471, 2015Hun-Ga6ㆍ10ㆍ12, 2015Hun-Ba76ㆍ114ㆍ115 (consolidated),July 30, 2015]

In this case, the Constitutional Court held that the main text of Article 15 Section 1 of the Punishment of Tax Evaders Act, Article 162-3 Section 4 of the former Income Tax Act, and Article 117-2 Section 4 of the former Corporate Tax Act that place a duty on high-income professional businesses to issue receipt for cash payment (hereinafter referred to as the “Cash Receipt”) for purchases exceeding three hundred thousand Won and, for breach of such duty, impose an administrative fine equivalent to fifty percent of the sales value for which the Cash Receipt has not been issued are not in violation of the Constitution.

Background of the Case

(1) While the complainants and requesting petitioners operate the types of businesses such as law practice or general medical clinics that are required to issue the Cash Receipt, they received fine equivalent to 50/100 of the sales value for which the Cash Receipt has not been issued as they failed to comply with the Cash Receipt issuance requirement.

(2) The complainants and requesting petitioners filed an objection to the disposition of fine, and the court upheld the disposition and imposed fine equivalent to 50/100 of the sales value for which the Cash Receipt has not been issued. The complainants and requesting petitioners then filed an objection to the court’s decision, and during a formal trial, filed a motion with the court to request the Constitutional Court for a constitutional review of Article 15 Section 1 of the Punishment of Tax Evaders Act and other provisions. As the court dismissed the motion, the complainants filed a constitutional complaint, and the requesting courts

granted the motion and requested the constitutional review.

Subject Matter of Review

The following provisions are hereinafter collectively referred to as the “Provisions at Issue” - the main text of Article 15 Section 1 of the Punishment of Tax Evaders Act (wholly amended by Act No. 9919 on January 1, 2010, hereinafter referred to as the “Fine Provision”), Article 162-3 Section 4 of the former Income Tax Act (amended by Act No. 9897 on December 31, 2009, but prior to amendment to Act No. 11611 on January 1, 2013, hereinafter referred to as the “Income Tax Act Provision”), and Article 117-2 Section 4 of the former Corporate Tax Act (amended by Act No. 9898 on December 31, 2009, but prior to amendment to Act No. 10423 on December 30, 2010, hereinafter referred to as the “Corporate Tax Provision”) (The Income Tax Provision and the Corporate Tax Provision are hereinafter referred to as the “Mandatory Cash Receipt Issuance Provisions”). The subject matter of review in this case is constitutionality of the Provisions at Issue.

Provisions at Issue

Punishment of Tax Evaders Act (wholly amended by Act No. 9919 on January 1, 2010)

Article 15 (Breach of Obligations to Issue Receipts for Cash Payments)

(1) Any person who breaches obligations pursuant to Article 162-3 (4) of the Income Tax Act and Article 117-2 (4) of the Corporate Tax Act shall be punished by an administrative fine equivalent to 50/100 of the sales value for which receipts for cash payments have not been issued.

The former Income Tax Act (amended by Act No. 9897 on December 31, 2009, but prior to amendment to Act No. 10423 on January 1, 2013)

Article 162-3 (Obligations, etc. to Register as Cash Receipt Merchant

and to Issue Cash Receipts for Cash Payment)

(4) Where any business operator who engages in the type of businesses prescribed by Presidential Decree, among those business operators registered as a cash receipt merchant, supplies goods or services, the amount of transactions (including the amount of value-added tax) for every purchase of which is not less than 300 thousand Won and receives the payment in cash, notwithstanding paragraph (3), he/she shall issue a cash receipt, as prescribed by Presidential Decree, even if the other party does not request the issuance thereof: Provided, that where he/she supplies goods or services to any person who has registered as a business operator pursuant to Article 168 of this Act, Article 111 of the Corporate Tax Act or Article 5 of the Value-Added Tax Act and issues an invoice or a tax invoice pursuant to Article 163 of this Act, Article 121 of the Corporate Tax Act or Article 16 of the Value-Added Tax Act, he/she may choose not to issue a cash receipt.

The former Corporate Tax Act (amended by Act No. 9898 on December 31, 2009, but prior to amendment to Act No. 10423 on December 30, 2010)

Article 117-2 (Obligation, etc. to Become Cash Receipt Merchants and to Issue Cash Receipts)

(4) Where a domestic corporation that engages in the type of business prescribed by Presidential Decree supplies goods or services for an amount of 300,000 Won or more for each transaction (including the valued added tax thereon) and is paid in cash, notwithstanding paragraph (3), it shall issue the Cash Receipt, as prescribed by Presidential Decree, although a consumer does not request the issuance of a Cash Receipt: Provided, that the domestic corporation may elect not to issue a Cash Receipt if it issues an invoice or tax invoice under Article 121 of this Act, Article 163 of the Income Tax Act or Article 16 of the Value-Added Tax Act after having supplied goods or services to a person who has registered his/her business under Article 111 of this Act,

Article 163 of the Income Tax Act or Article 16 of the Value-Added Tax Act.

Summary of the Decision

The Provisions at Issue aim to establish fair trade order with respect to the types of businesses that involve frequent cash transactions such as high-income professional businesses and to prevent tax evasion by bringing out into the open the tax base for those businesses. If a legislator is mandated to impose fine at his or her own discretion, determining the amount of the fine also falls under the legislative discretion. As the fine rates in this case, i.e., fifty percent of the sales value for which the Cash Receipt has not been issued, is determined flexibly in proportion to the transaction amount, and in light of factors such as composite income tax rate of the high-income professional businesses, such penalty cannot be seen as an unreasonably burdensome one. Furthermore, as to the act of failure to issue the Cash Receipt itself, it is difficult to view that factors such as motive, types, circumstances, methods, or ex-post circumstances of the act of violation render a considerable difference in the degree of illegality of such act.

As the businesses under the business categories required to issue the Cash Receipt can issue the Cash Receipt by entering a customer’s cell phone number without separate charge immediately after a cash transaction in excess of certain amount took place, the procedure of issuing the Cash Receipt cannot be regarded as a complicated one. Moreover, the issuance does not require significant time and money. Also, the businesses can avoid violating the obligation to issue the Cash Receipt by issuing the Cash Receipt anonymously within five days from the date of the cash transaction or a tax invoice as to the transaction with a registered business operator. A fine can also be reduced if a fined person voluntarily pays the fine within a fixed period during which a fined person must present his or her opinion or is qualified as a recipient under the National Basic Living Security Act. For these

reasons, the Provisions at Issue do not infringe on the freedom to conduct their occupation of the complainants and requesting petitioners.

Summary of Dissenting Opinion by Three Justices

The Fine Provision imposes a fine at a flat-rate determined solely based on the amount for which the Cash Receipt has not been issued without considering specific and individual circumstances of each violation of the duty to issue the Cash Receipt. This is not only in contrary to the purpose of the Act on the Regulation of Violations of Public Order but also hardly a punishment that corresponds to the principle of responsibility.

Unlike an additional tax, the substance of which is similar to that of a fine, the Fine Provision does not have provisions at all that provide possible reduction for the circumstances in which there are justifiable grounds for delay in issuing the Cash Receipt or in case of voluntary issuance after the lapse of a prescribed period. Because the legislative purpose of the Provisions at Issue can be still met to a sufficient extent, even by adjusting the additional tax rate upward or specifying possibility of a fine reduction with maintaining the form of a fine, the Fine Provision that does not provide possibilities of reduction is an excessive means that restricts the freedom to conduct their occupation of the complainants and requesting petitioners.