[1] Whether a new decision or decision to revise an increase may be made within one year from the date the decision or decision becomes final and conclusive in accordance with the special exclusion period stipulated in Article 26-2(2) of the former Framework Act on National Taxes (negative)

[2] Whether it is against the principle of substantial taxation to exempt a taxpayer from the obligation to pay a tax obligation after the lapse of the exclusion period of the right to impose national tax (negative)

[3] In a case where Gap's representative director Eul transferred Eul's shares to Byung, and the head of tax office having jurisdiction over the location of Gap's company Gap, based on the circumstance that Eul's only asset was transferred to Byung on the outstanding payment date of the shares, etc., the transfer value of real estate was included in the transfer value of Eul's shares, imposed corporate tax, and disposed of the transfer value as the bonus belonging to Eul, and notified Gap and Eul of changes in income amount respectively, the head of tax office having jurisdiction over Eul's address designated Eul as the secondary taxpayer due to Gap's failure to pay corporate tax and notified Eul of the change in income amount; and upon Eul's revocation and confirmation in the related lawsuit, the head of tax office having jurisdiction over Eul's domicile of Eul imposed capital gains tax and securities transaction tax with regard to transfer of shares, the court affirmed the judgment below that the disposition of imposition of capital gains tax, etc. on Eul is not a correction of correction

[1] Article 26-2 of the former Framework Act on National Taxes (amended by Act No. 8139, Dec. 30, 2006; hereinafter the same) sets the exclusion period of national taxes under paragraph (1) as five years in principle. Paragraph (2) of the same Article provides, “In case where there is a decision or judgment on an objection, request for examination or adjudgment on national taxes, request for examination or adjudgment under the Board of Audit and Inspection Act, or litigation under the Administrative Litigation Act, a decision or other necessary disposition may be made according to the relevant decision or ruling until one year passes from the date on which the decision or ruling becomes final and conclusive, notwithstanding the provisions of paragraph (1).”

In light of the purport of Article 26-2(2) of the former Framework Act on National Taxes, which is a special provision on the exclusion period for taxation, the exclusion period for special cases stipulated under Article 26-2(2) of the same Act, which is the special provision on the exclusion period for taxation, makes it impossible for the taxation authorities to take any disposition, such as a new decision or a new decision of correction of increase, and a decision of reduction, as well as a decision of correction, etc. upon expiration of the exclusion period for taxation, in a case where the procedure of litigation, such as a request for administrative trial, administrative litigation, etc. against taxation is delayed for a long period, and the decision or decision is made after the exclusion period for taxation expires, the authority to impose taxation can only make a decision of correction in accordance with the relevant decision or decision, or a disposition incidental thereto, and it cannot be said that a new decision or decision of increase, which does not comply

[2] In the absence of a disposition of imposition of national taxes within the exclusion period of the right to impose national taxes under Article 26-2 of the former Framework Act on National Taxes (amended by Act No. 8139 of Dec. 30, 2006), the tax authority is unable to impose taxes for the determination of national taxes, and as a reflective effect, the tax authority is unable to impose taxes for the determination of national taxes, and as a result, the taxpayer is exempted from the obligation to pay tax liabilities, but this cannot be said to go against the principle of substantial taxation.

[3] In a case where Gap's representative director Eul transferred Eul's shares to Byung, and the head of tax office having jurisdiction over the location of Gap's company Gap, based on the circumstance that Eul's only asset was transferred to Byung on the outstanding payment date of Gap's shares, etc., the transfer value of real estate was included in the transfer value of Eul's shares, and the transfer value was disposed of as the bonus belonging to Eul's transfer value, and the head of tax office having jurisdiction over Eul's address designated Eul as the secondary taxpayer due to Gap's failure to pay corporate tax and notified Eul of changes in income amount respectively, and the head of tax office having jurisdiction over Eul's domicile notified Eul of the imposition of transfer income tax and securities transaction tax in relation to the transfer of shares, the case affirming the judgment below's imposition of transfer income tax and securities transaction tax on Eul on the ground that Gap's transfer of shares was subject to taxation of Gap's land, etc. due to the transfer of real estate between Eul and Byung, while it is difficult to view Eul's imposition disposition of transfer income tax and other tax based on Gap's new final judgment.

[1] Article 26-2 (1) and (2) 1 (see current Article 26-2 (6) 1) of the former Framework Act on National Taxes (amended by Act No. 8139 of Dec. 30, 2006) / [2] Article 26-2 of the former Framework Act on National Taxes (amended by Act No. 8139 of Dec. 30, 2006) / [3] Article 26-2 of the former Framework Act on National Taxes (amended by Act No. 8139 of Dec. 30, 2006)

[1] Supreme Court Decision 94Da3667 delivered on August 26, 1994 (Gong1994Ha, 2520) Supreme Court Decision 2004Du11459 Delivered on February 25, 2005 (Gong2005Sang, 515) / [2] Supreme Court Decision 2003Du1752 Delivered on June 10, 2004 (Gong2004Ha, 1177) Supreme Court Decision 2006Du781 Delivered on June 9, 2006

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

Head of the tax office of distribution (Law Firm ELDB Partners et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2016Nu55225 decided December 16, 2016

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 to transfer the instant shares to the Nonparty for KRW 10.5 billion (hereinafter “instant share transfer contract”) with the representative director of Bosung Trade Co., Ltd. (hereinafter “ Bosung Trade Co., Ltd.”) and holding Bosung 25,188 shares of Bosung Trade (hereinafter “ Bosung Trade”), and transferred all of the instant shares to the Nonparty on August 1, 2006, after receiving the down payment of KRW 1.5 billion and the remainder of KRW 9 billion each on August 1, 2006.

2) The Plaintiff reported and paid KRW 52,500,000 under the share transfer contract of this case and KRW 2,216,096,110.

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 deemed that “this case’s stock transfer contract is merely an act and transferred the instant real estate to the Nonparty in the amount of KRW 10.5 billion,” based on the circumstance that the building on the land of 164.6 square meters and 3 floors on the land outside Jung-gu, Seoul and 164.6 square meters, which is the only asset of the Bosung Trade, was transferred from Bosung Trade, the date of the outstanding payment of the stocks of this case (hereinafter “the instant real estate”), and determined and notified that the said transfer value was included in the gross income of 2006,05,854,370 won (hereinafter “previous corporate tax”).

2) On September 7, 2010, the head of Samsung Tax Office, who was the representative director of Bosung Trade, disposed of the said KRW 10.5 billion as bonus belonging to the Plaintiff in 2006, and accordingly notified the change in the amount of income to Bosung Trade (for a legal entity). On November 16, 2010, the head of Samsung Tax Office notified the Plaintiff of the change in the amount of income (for a notification of the change in amount of income).

3) On November 10, 2010, the Plaintiff paid the remainder of KRW 1,225,235,520, excluding KRW 2,225,235,520, which was paid by filing a revised return on global income tax of KRW 3,493,831,630 according to the notice of change in income amount and KRW 2,216,096,110, and securities transaction tax of KRW 52,50,00.

4) Meanwhile, the head of Samsung Tax Office notified the Plaintiff on November 9, 2010 to designate the secondary taxpayer for the previous corporate tax for which the Plaintiff was delinquent and to pay KRW 4,005,854,370 of the previous corporate tax (hereinafter referred to as the “previous disposition”) in accordance with Article 39(1)2 of the former Framework Act on National Taxes (amended by Act No. 8139, Dec. 30, 2006; hereinafter the same) when the Bosung Trade did not pay the previous corporate tax (hereinafter referred to as the “previous 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 with the Seoul Administrative Court 201Guhap30120. On June 29, 2012, the said court rendered a judgment revoking the previous disposition of imposition on the grounds that “the instant stock transfer contract cannot be deemed to constitute the act of pretending or tax avoidance, and thus, Bosung Trade cannot be deemed to have sold the instant real estate to the Nonparty at KRW 10.5 billion,” and the said judgment became final and conclusive on March 26, 2015 by the Supreme Court’s dismissal of the final judgment (hereinafter “prior final and conclusive judgment”).

C. The tax authority's decision to refund and the disposition of this case 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) With respect to the instant share transfer contract, the Defendant respectively decided and notified the Plaintiff of 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 the exclusion period of national taxes in principle at paragraph (1) of the same Article as five years. Paragraph (2) of the same Article provides, “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 or other necessary disposition may be made according to the relevant decision or judgment until one year passes from the date on which the decision or judgment becomes final, notwithstanding the provisions of paragraph (1).

The special provision of Article 26-2 (2) of the former Framework Act on National Taxes, which is a special provision for the exclusion period, is that the taxation authority cannot take any disposition such as a new decision or a new decision of correction of increase, and a decision of correction of reduction, etc. when the exclusion period under paragraph (1) of the same Article expires, as a result, in order to prevent occurrence of unreasonable cases where the decision or judgment is made after the lapse of the exclusion period for taxation due to prolonged delay in the procedure of litigation, such as a request for administrative appeal or administrative litigation, etc. against a taxation, the taxation authority may only make a decision of correction or disposition incidental thereto according to the relevant decision or decision, and it does not require a new decision or an increase decision that 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 of real estate between corporations and the Nonparty, and its tax item is “corporate tax.” On the other hand, the instant disposition is subject to the Plaintiff’s stock transfer income and transfer itself arising from the transfer of stocks between the Plaintiff and the Nonparty, and its tax item is “transfer income tax” and “securities transaction tax,” and it is difficult to view the instant disposition as a decision of correction or disposition incidental thereto according to the previous final and conclusive judgment. Therefore, the instant disposition is a new decision different from the previous disposition, and it is reasonable to deem that the period of exclusion under the previous final

C. In the same purport, the lower court’s determination that the period of exclusion from special cases under the preceding final and conclusive judgment does not apply to the instant disposition is justifiable in accordance with the foregoing provision and legal doctrine. In so doing, the lower court did not err by misapprehending the legal doctrine regarding the principle of fair taxation, the scope of

3. As to the remaining grounds of appeal

A. Regarding ground of appeal No. 2

The gist of this part of the grounds of appeal is that the exemption from tax liability is contrary to the principle of substantial taxation, even if the Plaintiff transferred the instant shares to the Nonparty and obtained economic benefits equivalent to KRW 10.5 billion.

However, in the event that a tax imposition disposition is imposed within the exclusion period of the national tax imposition right stipulated in Article 26-2 of the former Framework Act on National Taxes, the tax authority is no longer able to impose a tax for the determination of national taxes, and as a reflective effect, the tax authority is exempted from the obligation to pay the tax liability. However, this cannot be said to be an inevitable result under the exclusion period system and the result 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 preceding 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. Accordingly, the Plaintiff became exempted from tax liability under the instant stock transfer contract. 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. Regarding ground of appeal No. 4

The gist of the grounds of appeal in this part is that there was an error of law by misapprehending the legal principles as to res judicata or binding force in the judgment of the court below. However, since the special exclusion period pursuant to the previous final and conclusive judgment is not applicable to the instant disposition, the instant disposition was made after the lapse of the exclusion period, and thus, was illegal. In addition, the instant disposition did not be determined contrary to the res judicata or binding force of the previous final and conclusive judgment, and the instant disposition cannot be deemed a disposition based on the binding force of the previous final and conclusive judgment. The Defendant’s ground of appeal on a different premise is without merit.

C. Regarding ground of appeal No. 5

The gist of this part of the grounds of appeal is as follows: (a) if the period of special exclusion pursuant to the preceding final judgment does not apply to the disposition of this case, which only differs 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 the dispute is anticipated; and (b) this would infringe on the taxpayer’s property rights and cause non-efficiency in tax administration. However, as seen earlier, it is difficult to regard the instant disposition as a disposition that merely differs from the legal evaluation of the previous disposition, as otherwise alleged in the grounds of appeal; and (c) the tax authority’s pursuit of tax administration efficiency by applying the tax law in accordance with the correct legal evaluation at the same time to protect the taxpayer’s property rights at the same time. The first Defendant’

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.

Justices Min You-sook (Presiding Justice)