2017Du30757 Revocation of Capital Gains Tax Imposition Disposition, etc.

Plaintiff:

Attorney Lee Jae-de et al., Counsel for the plaintiff-appellant

The director of the tax office.

Law Firm LBP Partners et al., Counsel for the defendant-appellant-appellant

Seoul High Court Decision 2016Du55225 Decided December 16, 2016

August 20, 2020

The appeal is dismissed.

The costs of appeal are assessed against the defendant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Case summary

(a) Status of the Plaintiff and the details of the return and payment of capital gains tax following stock transfer;

1) On June 7, 2006, the Plaintiff entered into a contract with the Nonparty to transfer the instant shares in KRW 10.5 billion (hereinafter referred to as “instant stock transfer contract”) with the representative director of Bosung Trade Co., Ltd. (hereinafter referred to as “ Bosung Trade”) and the representative director of Bosung Trade Co., Ltd. (hereinafter referred to as “ Bosung Trade”), and the holding of Bosung Trade’s shares in KRW 25,188 (hereinafter referred to as “instant shares”) and transferred all of the instant shares to the Nonparty, after receiving the payment of the down payment of KRW 1.5 billion on the same day, and the remainder of KRW 9 billion on August 1, 2006.

2) The Plaintiff reported and paid securities transaction tax of KRW 52,50,000 and capital gains tax of KRW 2,216,096,110 following the instant stock transfer.

B. Taxation by the tax authority following the reorganization of transactions and the progress of the previous litigation related thereto

1) On August 1, 2006, the date of the outstanding payment of the stocks of this case, the head of Samsung District Tax Office, based on the circumstance that the buildings with 164.6 square meters of land and 164.6 square meters of the land of this case (hereinafter “the real estate of this case”) and 164.6 square meters of the land of this case, which are the sole assets of Bosung Trade, were transferred from Bosung Trade, the transfer of the stocks of this case to the non-party is the most unfair act, and Bosung Trade transferred the real estate of this case to the non-party in 10.5 billion won. The above transfer value is included in the gross income of Bosung Trade in the business year of 2006, and decided and notified the previous corporate tax of 2006, corporate tax of 4,005,854,370 won (hereinafter “previous corporate tax”).

2) The head of Samsung Tax Office disposed of the said KRW 10.5 billion as bonus belonging to the year 2006 against the Plaintiff who was the representative director of Bosung Trade, and accordingly, made a notification of the change in the amount of income (use of law) on September 7, 2010. On November 16, 2010, the Plaintiff issued a notification of the change in the amount of income (use of notification of income) to the Plaintiff on November 10, 2010. (3) On November 10, 2010, the Plaintiff paid KRW 2,216,096,110 and the remainder of KRW 1,25,235,520 after filing a revised notification of the change in amount of income (use of notification of income) to the Defendant on November 10, 2010.

4) On the other hand, the head of Samsung Tax Office notified the Plaintiff on November 9, 2010 to designate the secondary taxpayer for the previous corporate tax in arrears for which the Bosung Trade did not pay the previous corporate tax pursuant to Article 39(1)2 of the former Framework Act on National Taxes (amended by Act No. 8139 of Dec. 30, 2006; hereinafter the same) and to pay the Plaintiff KRW 4,005,854,370 of the previous corporate tax (hereinafter referred to as the “previous imposition disposition”).

5) On September 9, 2011, the Plaintiff filed a lawsuit against the head of Samsung Tax Office seeking revocation, etc. of the previous disposition of imposition by the Seoul Administrative Court 201Guhap30120, and on June 29, 2012, the said court rendered a judgment revoking the previous disposition of imposition on the ground that, on the grounds that “the instant stock transfer contract cannot be deemed to constitute the act of pretending or tax avoidance” or “the instant real estate cannot be deemed to be sold to the Nonparty at KRW 10.5 billion” on July 10, 2006, the said judgment became final and conclusive as the dismissal of the Supreme Court’s final judgment on March 26, 2015 (hereinafter “prior final and conclusive judgment”). The developments leading up to the decision by the tax authority on refund and the instant disposition against the Plaintiff.

1) On April 15, 2015, the head of Samsung District Tax Office revoked the notification of change in the amount of income to the Plaintiff and the designation of the secondary taxpayer in accordance with the previous final judgment. On June 9, 2015, the Defendant rendered a decision to refund global income tax of KRW 3,493,831,630 to the Plaintiff.

2) As to the transfer of the instant shares to the Plaintiff, the Defendant respectively decided and notified KRW 2,216,096,110 of the transfer income tax on May 6, 2015, and KRW 52,500,000 of the securities transaction tax on July 3, 2015 (hereinafter collectively referred to as “instant disposition”).

2. As to the grounds of appeal Nos. 1 and 3

A. Article 26-2 of the former Framework Act on National Taxes sets in principle the exclusion period of national taxes under paragraph (1) as five years. Article 26-2 of the former Framework Act on National Taxes sets in paragraph (2) as follows: “Where there is a decision or judgment on any objection, request for examination or adjudgment on national taxes, request for examination under the Board of Audit and Inspection Act, or litigation under the Administrative Litigation Act, a decision of correction or other necessary disposition may be made according to the relevant decision or judgment until one year passes from

Article 26-2 (2) of the former Framework Act on National Taxes, which is a special provision for the exclusion period, provides that when the exclusion period under Article 26-2 (1) of the former Framework Act on National Taxes expires, the taxation authority cannot take any disposition, such as a new decision or a new decision for correction of increase, and a decision for correction of reduction, etc., as a result, in order to prevent occurrence of unreasonable cases where the decision or decision is made after the lapse of the exclusion period for taxation due to prolonged delay in litigation procedures, such as a request for administrative appeal or administrative litigation, etc. against a taxation disposition, the taxation authority may only make a decision for correction or disposition incidental thereto according to the relevant decision or decision, and it does not require a new decision or decision for correction which does not comply with the relevant decision or decision (see, e.g., Supreme Court Decisions 94Da3667, Aug. 26, 1994; 2004Du1495, Feb. 25, 2005).

B. Examining the facts in light of the aforementioned legal principles, the previous disposition subject to the prior final and conclusive judgment is subject to capital gains from universal trade, such as land of universal trade arising from the transfer transaction between corporations and the non-party, and its detailed items are subject to corporate tax. On the other hand, the instant disposition is an individual and non-party, and its tax items are subject to capital gains from the Plaintiff’s stock transfer and transfer itself arising from the transfer transaction between the Plaintiff and the non-party, and it is difficult to regard the instant disposition as a decision of correction or disposition incidental thereto according to the previous final and conclusive judgment. Therefore, since the instant disposition is a new decision different from the previous disposition, it is reasonable to deem that the period of exclusion under the previous final and conclusive judgment does not apply to the instant disposition. In the same purport, the lower court’s determination that the period of exclusion under the previous final and conclusive judgment does not apply to the instant disposition is justifiable in accordance with the aforementioned provisions and legal principles. In so doing, it did not err by misapprehending the legal principles on the principle of fair

3. As to the remaining grounds of appeal

A. As to the ground of appeal No. 2, this part of the ground of appeal is against the principle of substantial taxation to exempt the Plaintiff from its tax liability even if the Plaintiff transferred the instant shares to the Nonparty and obtained economic benefits equivalent to KRW 10.5 billion.

However, the taxation authority is no longer unable to impose a tax for the determination of national taxes unless there is a tax imposition disposition within the exclusion period of the national tax imposition right stipulated in Article 26-2 of the former Framework Act on National Taxes. As a reflective effect, a taxpayer is exempted from the duty to pay a tax obligation. However, this cannot be said to be an inevitable result under the exclusion period system, which is contrary to the principle of substantial taxation (see Supreme Court Decision 2006Du781, Jun. 9, 2006).

As seen earlier, since the period of special exclusion under the previous final judgment does not apply to the instant disposition, the instant disposition was made after the exclusion period of general exclusion expires, and thus, is unlawful, and the Plaintiff became exempted from tax liability following the transfer of stocks. This is an inevitable result arising from the exclusion period system, which cannot be deemed as going against the principle of substantial taxation, and thus, the Defendant’s ground of appeal on a different premise is rejected.

B. As to the ground of appeal No. 4, the purport of this part of the ground of appeal is that there was an error of law by misapprehending the legal principles as to res judicata and binding force in the judgment of the court below. However, since the period of exclusion under the preceding final judgment is not applicable to the instant disposition, the instant disposition was made after the lapse of the period of exclusion, and thus, was unlawful. In addition, the instant disposition did not go against the res judicata or binding force of the preceding final judgment, and it cannot be deemed that the instant disposition was a disposition made at the binding force of the preceding final judgment. The Defendant’s ground of appeal on a different premise is without merit.

C. As to the ground of appeal No. 5, the gist of this part of the ground of appeal is as follows: (a) if it is deemed that the special exclusion period pursuant to the previous final and conclusive judgment is not applicable to the instant disposition that differs only from the legal evaluation under the same factual basis as the judgment of the court below, the tax authority is bound to impose double taxation if a dispute is anticipated; (b) this would infringe a taxpayer’s property right and result in a non-efficiency in tax administration. However, as seen earlier, it is difficult to deem the instant disposition as a mere different legal evaluation on the previous disposition, as otherwise alleged in the ground of appeal, it is difficult to deem that it is a disposition that differs only from the previous tax assessment; and (c) the tax authority is obliged to pursue the tax administration efficiency by applying the tax law and at the same time to protect

4. Conclusion

Therefore, the appeal is dismissed, 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 on the bench.

Justices Min Il-young

Justices Kim Jae-in

Justices Lee Jae-hwan

Chief Justice Noh Jeong-ok