Seoul Central District Court 2013 Ghana679166 ( October 23, 2014)

The original taxpayer may exercise the right to demand reimbursement from the withholding agent, so he/she cannot directly make a refund or return of unjust enrichment against the State.

In the withholding tax system, if the withholding agent collects and pays the tax amount on the income not subject to withholding from the source taxpayer, or collects and pays it in excess of the tax amount to be collected, the claim for repayment due shall be vested in the withholding agent, not the source taxpayer.

Article 15 of the Restriction of Special Taxation Act

2014Na12637 Return of Fraudulent Gains

Plaintiff, Appellants

Kim 0

Korea

Seoul Central District Court Decision 2013Gaso679166 Decided January 23, 2014

July 18, 2014

The plaintiff's appeal is dismissed.

Expenses for appeal shall be borne by the plaintiff.

The judgment of the first instance shall be revoked. The defendant shall pay to the plaintiff 19,950,00 won and 9,975,000 won among them, 5% per annum from January 1, 2008 until the service date of a copy of each complaint of this case from October 2009 to the service date of a copy of each complaint of this case, and 20% per annum from the next day to the day of full payment.

1. Basic facts

A. 00 Card Co., Ltd. (hereinafter referred to as "0 card") was established on June 1, 2002 by 100% of the parent company's 00 financial holding companies (hereinafter referred to as "00 financial holding companies") for the purpose of credit card business on September 1, 2002, and was dissolved by the resolution of the general meeting of shareholders on September 24, 2009 (On the other hand, 00 financial holding companies acquired 00 card companies and changed its trade name to 00 card companies on October 1, 2007).

B. The Plaintiff served as the vice president of 00 cards from June 4, 2002 to September 30, 2006, and as the representative director from October 1, 2007 to September 30, 2009.

C. 1) On May 15, 2003, the Plaintiff: (a) from 00 financial branch shares on May 15, 2003, the common shares of 00 financial branch shares 1,661 shares.

On June 15, 2007, the stock option that can be purchased at 11,800 won per share (hereinafter referred to as "the stock option") was granted, and the stock option was wholly exercised on June 15, 2007. At the time, 73,569,012 won per share, which is the standard market price, (=1,661 week x 56,092 won per share - the exercise price of KRW 11,800 per share) was obtained.

2) On December 31, 2007, 00 cards withheld from the Plaintiff and paid to the Defendant the comprehensive income tax calculated by including the above event gains of the Plaintiff’s taxable income in the Plaintiff’s taxable income in the year 2007.

D. 1) On March 25, 2004, the Plaintiff was granted a stock option that can purchase KRW 21,595 per share of 00 ordinary share of 1,161 per share of 21,59 won (hereinafter referred to as “second stock option”) from the 00 financial branch on March 25, 2004, and the Plaintiff exercised the stock option on September 18, 2008 by dividing it into 3,161 common share of 6,000 common share of 6,00 common share of 218,339,809 won [3,161 shares x 47,364 won - the exercised price of 21,595 won] + [6,00 shares at the base price of 4,409 won - 21,595 won].

2) On October 19, 2009, 00 cards withheld from the Plaintiff and paid to the Defendant the comprehensive income tax calculated by including the above event gains of the Plaintiff’s taxable income in the Plaintiff’s taxable income in 2008.

[Ground of recognition] Unsatisfy, entry of Gap evidence 1 to 4 (including branch numbers in case of additional number), the purport of the whole pleadings

2. Related statutes;

former Restriction of Special Taxation Act (amended by Act No. 8146 of Dec. 30, 2006)

Article 15 (Special Taxation for Stock Options)

(1) Any employee (including any employee, etc. prescribed by Presidential Decree in the case of a venture business and a specialized company for parts and materials; hereafter in this Article, the same shall apply) of a domestic corporation prescribed by Presidential Decree, which is a specialized company for parts and materials as defined in subparagraph 2 of Article 2 of the Act on Special Measures for the Promotion of Enterprises, etc. Specializing in Parts and Materials (hereinafter referred to as "specialized company for parts and materials"), and a corporation meeting the requirements prescribed by Presidential Decree which is a stock-listed corporation or a KOSDAQ-listed corporation under the Securities and Exchange Act (hereafter in this Article, the same shall apply) shall be granted a stock option by exercising the stock option until December 31, 2006 (referring to the difference between the market price and the actual purchase price at the time of exercising the stock option, and the stocks shall include the preemptive right) and shall not be deemed as earned income, business income, or other income.

Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 19811 of Dec. 30, 2006)

Article 13 (Special Taxation for Stock Options)

(8) Employees, etc. under the provisions of Article 15 (1) through (4) of the Act shall include officers, but exclude persons falling under any of the following subparagraphs:

former Restriction of Special Taxation Act (amended by Act No. 8347 of April 11, 2007)

[Supplementary Provisions] Article 44 (Transitional Measures for Special Taxation for Stock Options)

Notwithstanding the amended provisions of Article 15, the previous provisions of Article 15 shall apply to the profits accruing from exercising the stock options granted prior to the enforcement of this Act.

Securities and Exchange Act

Article 2 (Definitions)

(13) Listed corporations, unlisted corporations, stock-listed corporations, and stock-listed corporations mean each of the following persons, respectively:

3. Stock-listed corporation: An issuer of securities listed on the securities market, which falls under any of the following items:

(a) Stock certificates;

former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009)

Article 20 (Earned Income)

(1) Earned income shall be the following incomes generated in the corresponding year:

1. Class A:

(a) Salary, salary, remuneration, annual allowance, wage, bonus, bonus, allowance, and other benefits of a similar nature that are received due to the provision of labor;

2. Class B:

(a) Pay received from a foreign institution or the United Nations Forces (excluding the United States Armed Forces) stationed in the Republic of Korea;

Enforcement Decree of the Income Tax

Article 38 (Scope of Earned Incomes)

(1) The earned income referred to in Article 20 of the Act shall include the following incomes:

17. Profits (referring to the difference between the market price and the actual purchase price at the time of exercising the stock option, and the stock includes the preemptive right) accruing from exercising the stock option granted to an officer or employee of the relevant corporation or a corporation in a special relationship under the provisions of Article 87 of the Enforcement Decree of the Corporate Tax Act with the relevant corporation (hereafter in this subparagraph, referred to as the relevant corporation, etc.);

Enforcement Decree of Corporate Tax Act

Article 87 (Scope of Specially Related Persons)

(1) "Related person prescribed by Presidential Decree" in Article 52 (1) of the Act means a person in a relationship falling under any of the following subparagraphs with a corporation (hereinafter referred to as a "related person"):

2. Stockholders (excluding minority shareholders, etc.; hereafter in this Sub-section the same shall apply) and their relatives;

2. Assertion and determination

A. The plaintiff's assertion

(1) If an employee of a subsidiary, such as the Plaintiff, exercises stock options of the parent

Article 15(1) of the Act on Special Cases Concerning the Restriction of Taxation applies. As such, profits from exercising each stock option are not subject to withholding, and there is no legal ground for the Defendant’s tax paid on this portion. Accordingly, the Plaintiff sought a refund of the income tax erroneously or erroneously paid to the head of the tax office, which is the competent authority of the Defendant, but the head of the tax office rejected it. Accordingly, the Defendant is obliged to pay to the Plaintiff the global income tax of KRW 19,950,000 paid by 0 card as unjust enrichment and the delay

B. Determination

1) In the withholding tax system, if a withholding agent collects and pays a tax amount on income which is not subject to withholding from a withholding agent, or collects and pays it in excess of the amount of tax to be collected from a withholding agent, the claim for refund arising therefrom shall be reverted to a withholding agent who is not a withholding agent. This shall be deemed to have obtained a profit without any legal cause in relation to a withholding agent. Therefore, the withholding agent may claim the amount equivalent to the claim for repayment against the withholding agent as unjust enrichment (see Supreme Court Decision 2002Da68294, Mar. 14, 2003).

2) In light of the above legal principles, even if income tax has been overpaid or erroneously paid, as alleged by the Plaintiff, the original taxpayer is entitled to exercise the right to demand reimbursement from the withholding agent, and thus, it cannot be directly refunded to the State or a claim for restitution of unjust enrichment. On a different premise, the prior Plaintiff’s claim in this case is without merit without further review.

3) As to the interpretation of the laws on taxes or charges, the requirements for imposition or reduction or exemption of such laws.

It is not permitted to interpret the requirements in accordance with the text of the law, and to interpret it extensively or analogically without any reasonable reason, and in particular, it is in line with the principle of fairness to strictly interpret the provisions that can be seen as the provision that is clearly preferential in terms of the requirements for reduction or exemption (see, e.g., Supreme Court Decisions 97Nu20090, Mar. 27, 1998; 2001Du731, Apr. 12, 2002). The said special provision does not stipulate the employees of a start-up corporation entitled to non-taxation benefits as included in the employees of a corporation having a special relationship with the corporation under the Corporate Tax Act, and there is no reasonable ground to expand the provision.

4) Meanwhile, the Plaintiff asserts that the aforementioned special taxation provision should be applied to the Plaintiff, as it received answer or reply from the National Tax Service and the Ministry of Finance and Economy income tax system that the said special taxation provision applies to the employees of the subsidiaries of the start-up corporation. It appears to the purport that the Defendant’s act should be subject to the good faith principle or the doctrine of speech

According to Article 15 of the Framework Act on National Taxes, a tax official has a duty to perform his/her duties in good faith and sincerity, and Article 18(3) of the same Act provides that "after any interpretation of tax-related Acts or practices in tax administration has been generally taken by taxpayers, any act or calculation conducted by such interpretation or practices shall be deemed justifiable, and no tax shall be imposed retroactively by any new interpretation or practice." However, in order to establish the good faith principle or non-taxation practice as provided in Articles 15 and 18(3) of the Framework Act on National Taxes, there is an objective fact that taxes have not been imposed on certain matters over a long period of time, and it is interpreted that there is an intention that the tax authority would not impose taxes on certain matters with the knowledge that it can impose taxes on him/her, and such intent is expressed externally or implicitly. In particular, if the expression of intention is merely a general theoretical statement on the abstract question of the taxpayer, the application of the above principle shall be denied (see, e.g., Supreme Court Decisions 89Nu3816, Oct. 10, 1984).

3. Conclusion

Then, the plaintiff's claim shall be dismissed as it appears to be a mother or without merit, and the first claim shall be dismissed.

The judgment of the court of appeal is just in conclusion, and the plaintiff's appeal is dismissed. It is so decided as per Disposition.