[1] Legislative intent of Article 26-2(1)1 of the former Framework Act on National Taxes / Meaning of “Fraud and other unlawful acts” under Article 26-2(1)1 of the former Framework Act on National Taxes, and whether it constitutes a mere failure to report under tax law or making a false report without accompanying other acts (negative)

[2] The case holding that in case where Gap transferred part of the stocks of the non-listed corporation Byung corporation Eul, which was held in title trust with Eul et al. and reported transfer income tax under the name of each nominal owner, and the tax authority imposed global income tax on Gap on the ground that the dividend paid to the stocks held in title trust belongs to Gap, and imposed transfer income tax on Gap on the ground that Gap underreporting the value of the stocks transferred by Gap, the case holding that the above global income tax and transfer income tax exclusion period is reasonable to be five years in accordance with Article 26-2 (1) 3 of the former Framework Act on National Taxes, on the ground that the act of title trust of Gap's stocks and subsequent incidental acts derived from the purpose

[1] The legislative intent of Article 26-2(1)1 of the former Framework Act on National Taxes (amended by Act No. 911, Jan. 1, 2010; hereinafter the same) is to extend the exclusion period of the right to impose national taxes, in principle, to 5 years in order to ensure prompt determination of tax-related relations, in cases where there are unlawful acts such as making it difficult for the tax authority to detect the taxation requirements on national taxes or forging false facts, it is difficult to expect the exercise of the right to impose national taxes because it is difficult for the tax authority to detect the omission report, and it is difficult to expect the exercise of the right to impose national taxes

Therefore, “Fraud and other unlawful act” under Article 26-2(1)1 of the former Framework Act on National Taxes refers to a deceptive scheme or other active act that makes it impossible or considerably difficult to impose and collect taxes, and it does not constitute merely a failure to file a tax return under the tax law or filing a false tax return without accompanying other acts. In addition, even if a taxpayer gets income by forging his/her name, barring special circumstances, such as where the nominal owner obtains income by forging his/her name, it comes from the purpose of tax evasion, and where the nominal owner engages in such active act as the preparation of a false contract and the false payment to the tax authority, false tax return to the tax authority, false registration and registration, and preparation and keeping of a false account book, etc., it cannot be deemed that the nominal owner alone constitutes “Fraud or other unlawful act” under Article 26-2(1)1 of the former Framework Act.

[2] In a case where Gap transferred part of the stocks of the non-listed corporation Byung, which was held in title trust with Eul et al. and reported capital gains tax under the name of each stock owner, on the grounds that the dividends paid to the stocks held in title trust belong to Gap, the tax authority imposed global income tax on the grounds that the dividends paid to Gap actually accrue, and imposed capital gains tax on Gap for underreporting the value of the stocks transferred by Gap, the case holding that the judgment below erred by misapprehending the legal principles on the grounds that each of the above dispositions was lawful within 10 years, on the sole ground that it is difficult to readily conclude that Gap had consistently held title trust with the purpose of evading tax, such as the avoidance of progressive tax, etc. for a long time, on the ground that it cannot be deemed that the act of title trust of Gap's stocks and the incidental acts followed thereby were illegal acts arising from the purpose of evading tax, and thus, the exclusion period of capital gains tax and capital gains tax are reasonable.

[1] Article 26-2(1)1 of the former Framework Act on National Taxes (Amended by Act No. 9911, Jan. 1, 2010) / [2] Article 26-2(1)1 and 3 of the former Framework Act on National Taxes (Amended by Act No. 9911, Jan. 1, 2010)

[1] Supreme Court Decision 2013Du7667 Decided December 12, 2013 (Gong2014Sang, 196), Supreme Court Decision 2014Du2522 Decided September 15, 2015 (Gong2015Ha, 1675), Supreme Court Decision 2015Du4158 Decided April 13, 2017 (Gong2017Sang, 1023)

Plaintiff (Law Firm Name Rate, Attorneys Lee Dong-sik, Counsel for the plaintiff-appellant)

The Director of Incheon Tax Office

Seoul High Court Decision 2017Nu38555 decided October 18, 2017

The part of the lower judgment against the Plaintiff is reversed, and that part of the case is remanded to the Seoul High Court. The Defendant’s appeal is dismissed.

The grounds of appeal are examined.

1. As to the Plaintiff’s grounds of appeal (to the extent of supplement in case of supplemental appellate briefs not timely filed)

A. Article 26-2(1)3 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter the same) provides that, in principle, the exclusion period of imposition of national taxes, other than inheritance and gift taxes, shall be five years from the date on which the relevant national taxes may be imposed, and, in subparagraph 1, subparagraph 1 provides that, “where a taxpayer evades, evades, or obtains a refund or deduction from, national taxes by fraudulent or other unlawful means, the relevant national taxes shall be ten years from the date on which the relevant national taxes may be imposed

The legislative intent of Article 26-2(1)1 of the former Framework Act on National Taxes is to extend the exclusion period of national tax imposition to 10 years, in principle, in cases where there is any unlawful act such as making it difficult to discover the taxation requirement of national tax or making it difficult for the tax authorities to find out any false fact, and it is difficult to expect the exercise of the imposition right because it is difficult for them to find out that there is a report of omission, so it is difficult for them to expect the exercise of the imposition right.

Therefore, “Fraud or other unlawful act” under Article 26-2(1)1 of the former Framework Act on National Taxes refers to a deceptive scheme or other unlawful act that makes it impossible or considerably difficult to impose and collect taxes, and it does not constitute simply failing to file a tax return under the tax law or filing a false tax return without accompanying other acts (see Supreme Court Decision 2013Du7667, Dec. 12, 2013). Furthermore, even if a taxpayer gets income by forging his/her name, barring any special circumstance, such as where the nominal name arises from the purpose of tax evasion, and the false payment of the price is made, false tax return to the tax authority, false registration, false registration, and preparation and keeping of a false account book, etc., the nominal name alone does not constitute “Fraud or other unlawful act” under Article 26-2(1)1 of the former Framework Act on National Taxes (see Supreme Court Decision 2015Du41585, Apr. 13, 2017).

B. Review of the reasoning of the lower judgment and the evidence duly admitted by the lower court reveals the following facts.

(1) In around 1981 and 1994, the Plaintiff held a title trust with Nonparty 1, Nonparty 2, and Nonparty 3 on part of the shares issued by the Choyang Transportation Co., Ltd. for an unlisted corporation.

(2) Around May 2, 2008, the Plaintiff transferred all the shares held in a title trust as above to Nonparty 4, along with those held in his own name. Around August 29, 2008, the Plaintiff reported the transfer income tax under the name of each nominal owner, including himself.

(3) The Defendant: (a) imposed global income tax for the year 2004 and 2005, on March 9, 2015, on the ground that the dividend paid for the shares held in title trust, as above, belonged to the Plaintiff; (b) imposed global income tax for the year 2004; and (c) imposed global income tax for the year 2005 on the 11st day of the same month. In addition, on March 17, 2015, the Defendant imposed a disposition imposing transfer income tax for the year 2008 on the Plaintiff on the ground that the Plaintiff under-reported the value

C. Examining the following circumstances revealed through the above facts and the record in light of the legal principles as seen earlier, the Plaintiff’s act of nominal trust of shares and subsequent incidental acts do not constitute an active act derived from the purpose of tax evasion.

(1) Although the Plaintiff maintained a part of the shares in title trust from around 1981 to 1994, in the instant case where there is no sufficient proof of the Defendant as to the circumstances such as the difference in the application of global income tax rate according to the specific income size of the parties to title trust, the financial status of the Choyang Transportation Co., Ltd., the details of dividends, the possibility of the application of progressive tax rates on the transfer income of unlisted stocks, and the possibility of predicting such circumstances, and the circumstances leading to tax evasion purposes, it is difficult to readily conclude that the Plaintiff, solely on the sole basis of the fact that the title trust existed, consistently with the purpose of tax evasion, such as the avoidance of progressive tax rate, etc.

(2) Although the income tax of the title trustee was collected and paid on the dividend of the shares held in title trust, this is only based on the result of the uniform withholding of income tax from the title trustee, the nominal owner, while paying the dividend in the situation where the existing title trust relationship has not been resolved, and there is no circumstance to deem that the active act of the title trust parties was involved.

(3) In the event that the existing title trust relationship was not resolved, the Plaintiff merely disposed of the shares under the name of the title trustee as a method of general share transfer, and filed a full return on capital gains tax thereon. Furthermore, insofar as there is a somewhat different difference in the basic capital gains tax deduction as a result of the title trust, insofar as the circumstances, such as the capital gains tax rate varies due to the title trust, it cannot be deemed that there was an affirmative act in accordance with the purpose of tax evasion solely on the basis of the difference in the

D. Therefore, it is reasonable to view that each of the above global income tax and transfer income tax are five years in accordance with Article 26-2(1)3 of the former Framework Act on National Taxes. Since both the imposition of global income tax and the imposition of transfer income tax are apparent in fact that the five-year period has elapsed from the date on which the relevant national tax can be imposed, each of the above dispositions was made after the lapse of the exclusion period, and is unlawful.

Nevertheless, solely on the grounds indicated in its reasoning, the lower court determined that the Plaintiff’s act of acquiring and transferring shares under the name of the title trustee constitutes “Fraud or other unlawful act” under Article 26-2(1)1 of the former Framework Act on National Taxes was lawful within the exclusion period of ten years, and rejected the Plaintiff’s assertion that each of the above dispositions was unlawful with the intention of exclusion period of ten years. In so determining, the lower court erred by misapprehending the legal doctrine on “Fraud or other unlawful act” under Article 26-2(1)1 of the former Framework Act on National Taxes. The Plaintiff’s ground of appeal pointing this out is with merit.

2. As to the Defendant’s ground of appeal

According to the reasoning of the lower judgment, the lower court determined that the imposition of gift tax on a different premise is unlawful on the ground that the transfer price of stocks ought to be calculated by deducting the above settlement amount from the sum of the down payment and the amount stated in each share transfer contract, after recognizing the fact that the Plaintiff paid the settlement amount to Nonparty 4.

The defendant's ground of appeal is just because the plaintiff did not have paid the above settlement amount or did not have paid shares transfer, and it did not err in the selection of evidence and fact-finding which belong to the full power of the fact-finding court, and even considering the records, the above determination by the court below is just, and there is no violation of the bounds of the principle of free evaluation of evidence in violation of the logical and empirical rules, or failing to exhaust all necessary deliberations.

3. Conclusion

Therefore, the part of the judgment below against the plaintiff is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The defendant's appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices

Justices Kwon Soon-il (Presiding Justice)