In a case where the tax liability established following the fulfillment of the taxation requirements such as control and management of illegal income, which became final and conclusive as a result of the occurrence of a subsequent cause such as confiscation or collection, and thus becomes final and conclusive as not realizing the income, whether the tax liability may escape from the burden of tax liability by filing a subsequent request for correction (affirmative in principle), and whether the revocation can be sought through an appeal litigation in a case where a tax assessment was made on the ground that there was a lack of grounds for a subsequent request for correction, even though the tax liability for illegal income was established (affirmative)

The purpose of the Criminal Act is to deprive a person of gains from a criminal act and prevent him/her from holding unjust profits. Thus, if confiscation or collection was made with respect to such illegal income, it constitutes realizing the possibility of loss of economic benefits inherent in the illegal income. Therefore, in such a case, since income has not been ultimately realized, it is reasonable to deem that the basis for calculating the tax base and tax amount has occurred after the establishment of the tax liability to have been completed and to allow the person to file a request for reduction by proving the relevant fact.In other words, even if the tax liability was established upon meeting the taxation requirements such as control and management of illegal income, even if the possibility of loss of economic benefits inherent in the illegal income such as confiscation or collection is realized after the occurrence of a subsequent triggering cause, and thus, barring special circumstances, barring special circumstances, a taxpayer can seek for cancellation of the tax liability after filing a request for correction, which is stipulated in Article 45-2(2) of the Framework Act on National Taxes, and thus, can escape from the initial tax liability.

Article 21 (1) 23 and 24 of the former Income Tax Act (Amended by Act No. 9270, Dec. 26, 2008); Article 45-2 (2) of the Framework Act on National Taxes

Supreme Court Decision 81Nu136 delivered on October 25, 1983 (Gong1983, 1752) Supreme Court Decision 97Nu19816 delivered on February 27, 1998 (amended by Supreme Court Decision 2002Du431 Delivered on May 10, 202)

Plaintiff

Head of Namyang District Tax Office

Seoul High Court Decision 2013Nu25346 decided March 6, 2014

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

A. In light of the economic aspect, taxable income is deemed to have a taxable capacity to control and manage income in reality, and thus, it is sufficient to deem that there is a taxable capacity to pay income, and the legal assessment of the causal relationship with which the income was derived is not necessarily required to be lawful and effective (see, e.g., Supreme Court Decision 81Nu136, Oct. 25, 1983). In this regard, Article 21(1) of the former Income Tax Act (amended by Act No. 9270, Dec. 26, 2008; hereinafter the same shall apply) provides that “Bribery” (Article 23) and “money and valuables received through good offices and property in breach of trust” (Article 24) as one of other incomes.

Although a person who received unlawful income, such as a bribe, does not have the right to ultimately hold the income, he/she is subject to taxation. If it is possible to impose tax only when he/she actually controls and manages the profit in economic aspect, such as the owner or legitimate right holder, even though he/she actually controls and manages it, or when he/she is no longer likely to lose the illegal income, it would be more favorable to the person who has lawfully acquired the income, and it would be contrary to tax justice and public interest. In cases where the possibility of loss of economic profit inherent in the unlawful income is realized by restitution of illegal income through legitimate procedures, it would be sufficient to adjust it by deeming that it was not ultimately realized.

However, the purpose of confiscation or collection under the Criminal Act is to deprive a taxpayer of gains from a criminal act and prevent him/her from holding unjust profits. Thus, if confiscation or collection was made with respect to such unlawful income, it shall be deemed that the possibility of loss of economic benefits inherent in such unlawful income is realized. Therefore, since such income is not ultimately realized, it is reasonable to allow a taxpayer to file a request for reduction by proving that there has occurred a change in the basis of calculation of tax base and amount of tax due to the occurrence of a subsequent trigger event after the establishment of tax liability. In other words, even if a tax liability was established once it satisfies the taxation requirement of control and management of illegal income, even if the possibility of loss of economic benefits inherent in such unlawful income as confiscation or collection is realized after the occurrence of a subsequent cause, and thus it becomes final and conclusive that income has not been realized, barring any special circumstances, a taxpayer should be deemed to have obtained a request for correction from the taxpayer for such unlawful income, and thus, it should be deemed that the tax liability can be deemed unlawful after the establishment of a request for correction from the tax office.

Supreme Court Decisions 97Nu19816 delivered on February 27, 1998, and 2002Du431 delivered on May 10, 2002, which held to the effect that a collection judgment becomes final and conclusive in a criminal case on illegal income caused by a criminal act, shall be subject to the Income Tax Act even if it was executed, are to be modified to the extent inconsistent with this Opinion.

B. According to the reasoning of the judgment below, the following facts are revealed: ① the Plaintiff, the head of a partnership of a reconstruction and improvement project, as the head of the reconstruction and improvement project, intended to purchase the general portion preferentially on July 2008, received KRW 50 million from Nonparty 1, and received KRW 38 million from Nonparty 2 in return for the selection of the reconstruction apartment management entity; ② the Plaintiff was punished on April 9, 2010 as a crime of violating the Act on the Aggravated Punishment, etc. of Specific Crimes (Bribery) and was sentenced to an order to additionally collect the above sum of KRW 88 million, and the appeal was dismissed, and the judgment became final and conclusive after the appeal and appeal became final and conclusive, all of KRW 88 million were paid on February 16, 201; ③ Meanwhile, the Defendant deemed the above amount of KRW 88 million as the “brain water,” and thus imposed the income tax reverted to the Plaintiff on September 208, 2012.

Examining these facts in light of the legal principles as seen earlier, even if a tax liability was established for KRW 88 million received as a bribe at the time of its receipt, since the possibility of loss of economic benefits inherent in illegal income, such as additional collection, was realized, and the tax liability established at the time of its establishment was determined as not realizing income, and thus, the disposition of this case on the ground that the tax liability for illegal income was established at the time of its initial establishment is unlawful.

Nevertheless, the lower court determined that the instant disposition was lawful on the ground that even if the Plaintiff paid the surcharge of KRW 88 million according to a criminal judgment that became final and conclusive, it was merely an additional penalty imposed on the criminal act of bribery, and thus, cannot be deemed as having been returned to the original reversion. In so determining, the lower court erred by misapprehending the legal doctrine on illegal income and additional collection, which is subject to income tax, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning this error is with merit.

2. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Sung-tae (Presiding Justice)