Whether a notice of change in the amount of income to a corporation, a withholding agent, constitutes a tax administrative disposition directly affecting a corporation’s tax liability (affirmative) / Whether a notice of change in amount of income constitutes a notice of tax payment (negative)

Notice of change in the amount of income to a corporation that is a withholding agent is a tax administrative disposition directly affecting the tax liability of the corporation that is a withholding agent. A corporation that is a withholding agent is deemed to have paid the amount of income recorded in the notice of change in the amount of income to the person to whom the income accrued, and becomes final and conclusive simultaneously with the establishment of a liability to pay income tax or corporate tax withheld at that time. A withholding agent shall pay the amount of withholding tax as specified in the notice of change in the amount

The notice of change in the amount of income to a corporation that is a withholding agent has the effect of confirming the liability to pay income tax or corporate tax withheld. However, the notice of change in the amount of income is a notice of tax payment that includes matters related to the performance of the corporation's obligation to pay taxes and notifies the withholding agent of the details of the disposition of income, and it does not constitute a notice of tax payment that the tax authority notifies the taxpayer of matters related to the payment of taxes, such as the amount of taxes

Moreover, construing that “tax notice” under Article 63-14(2)3 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 27833, Feb. 7, 2017) includes “those having the nature similar to the tax notice” is not permissible in light of the principle of strict interpretation of tax laws.

Article 81-15(1)2 of the former Framework Act on National Taxes (Amended by Act No. 16097, Dec. 31, 2018; see current Article 81-15(2)2); Article 63-14(2)3 of the former Enforcement Decree of the Framework Act on National Taxes (Amended by Presidential Decree No. 27833, Feb. 7, 2017; see current Article 81-15(1)3 of the Framework Act on National Taxes); Article 9(1) of the former National Tax Collection Act (Amended by Act No. 16842, Dec. 31, 2019; see current Article 6(1))

Supreme Court en banc Decision 2002Du1878 Decided April 20, 2006 (Gong2006Sang, 940) Supreme Court Decision 201Du15800 Decided March 29, 2012 (Gong2011Du12917 Decided September 26, 2013) (Gong2013Ha, 1989)

Burnet Co., Ltd. (Law Firm Subdivision, Attorneys Kim Gyeong-hyeong et al., Counsel for the plaintiff-appellant)

Seoul Regional Tax Office et al.

Seoul High Court Decision 2020Nu40688 decided October 16, 2020

All appeals are dismissed. The costs of appeal are assessed against the Plaintiff.

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

1. Case summary

A. At the time of April 30, 2012, the Plaintiff purchased 24,00 shares (hereinafter “instant shares”) of the Plaintiff from the Nonparty, who was an internal director, for KRW 29,229 per share.

B. On the premise that the market price of the instant shares is KRW 11,691 per share, the head of the Seoul Regional Tax Office: (a) notified the Plaintiff of the change in the amount of income that the Plaintiff disposes of KRW 420,912,00 in the difference between the purchase price and the market price of the instant shares as bonus against the Nonparty on May 12, 2016 (hereinafter “instant notice of change in the amount of income”).

C. On January 2018, the head of the Seocho District Tax Office notified the Plaintiff of the payment of the amount of KRW 143,345,280 as earned income tax for withholding for the year 2013 and the amount of KRW 8,418,240 as additional tax for failure to submit a payment record of earned income for the business year 2012.

D. On January 29, 2018, the Plaintiff paid the total amount of KRW 151,763,520 to the head of Seocho Tax Office.

2. Whether prior notice of taxation prior to notice of change in income amount is an essential procedure (ground of appeal No. 1)

A. Article 81-15(1)2 of the former Framework Act on National Taxes (amended by Act No. 16097, Dec. 31, 2018) provides that a person in receipt of a prior notice of taxation prescribed by Presidential Decree may file a request for pre-assessment review on the details of the notice within 30 days from the date of receipt of the notice. According to delegation, Article 63-14(2)3 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 2783, Feb. 7, 2017; hereinafter the same) provides that “pre-announcement of taxation, the amount of tax to be notified is one million won or more” as one of the “pre-announcement of taxation prescribed by Presidential Decree” under Article 63-14(2)3 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Act No. 16842, Dec. 31, 2019).

Notice of change in the amount of income to a corporation that is a withholding agent is a tax administrative disposition that directly affects the tax liability of the corporation that is a withholding agent. A corporation that is a withholding agent is deemed to have paid the relevant amount of income on the date of receipt of the notice of change in amount of income and becomes final and conclusive simultaneously with the establishment of a tax liability for income tax or corporate tax withheld at that time. A corporation that is a withholding agent shall pay the withholding tax to the head of the competent tax office, etc. by the 10th day of the following month according to the details of disposition of income as stated in the notice of change in amount of income (see Supreme Court en banc Decision 2002Du1878, Apr. 20, 2006; Supreme Court Decision 2011Du129

The notice of change in the amount of income to a corporation that is a withholding agent has the effect of confirming the liability to pay income tax or corporate tax withheld. However, the notice of change in amount of income does not constitute a notice of tax payment informing a taxpayer of matters related to the payment of taxes, such as amount of tax, in legal document, in order to collect taxes, by stating matters related to the performance of the corporation’s obligation to withhold taxes among the details of disposition of income (see Supreme Court Decision 2011Du15800, Mar. 29, 2012).

In addition, interpreting that the “tax notice” under Article 63-14(2)3 of the former Enforcement Decree of the Framework Act on National Taxes includes “the same character as that of the tax notice” is not permissible in light of the strict interpretation principle of tax laws.

B. The Plaintiff asserted that the notice of change in the amount of income in this case constitutes “the amount of tax to be notified is at least one million won,” and that the notice of change in the amount of income in this case, which was made without the notice of taxation, constitutes a subject of the prior notice of taxation, is invalid as it infringes on the Plaintiff’s procedural right to the Plaintiff’s claim for pre-assessment review. The lower court rejected the notice on change in amount on the ground that it does not constitute “the notice of change in amount of income” under Article

The judgment of the court below is just on the basis of the above legal principles, and it did not err by misapprehending the legal principles on the pre-announcement of taxation prior to the notice of change.

3. Existence of defects in the content of notice (Ground of appeal No. 2)

The lower court determined that the notice of change in the amount of income in this case was not unlawful, on the ground that the Plaintiff could not be deemed to have impeded filing an objection against the notice of change in the amount of income in this case, considering the contents of the “written notice of review of explanatory materials on the stock change” delivered to the Plaintiff prior to the notice of change in the amount of income in this case,

Although the reasoning of the lower judgment is inappropriate, in light of the relevant legal principles, the lower court’s conclusion that the notice of change in the income amount of this case is not unlawful is justifiable. In so doing, the lower court did not err by violating the rules of evidence concerning defects in the contents of the notice, nor by failing to exhaust all

4. Whether there is a misapprehension of legal principles as to determining stock value (ground of appeal No. 3)

The lower court determined that it is reasonable to deem that the Plaintiff purchased the instant shares at a high price, and that the defect in the notice of change in the amount of income cannot be seen as apparent, and thus, it cannot be seen as null and void.

Examining the reasoning of the lower judgment in light of the relevant legal principles, the lower judgment is justifiable, and contrary to what is alleged in the grounds of appeal, there were no errors in the misapprehension of legal doctrine

5. Conclusion

The Plaintiff’s appeal is dismissed as it is without merit, and all 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)