Whether the retirement benefit of this case can be seen as earned income

The retirement benefits of this case constitute wage and salary income, and there is a conflict of opinion as to whether they are workers until the day when a lawsuit for retirement benefits becomes final and conclusive, so it is reasonable to view that there is a justifiable reason not to criticize that they neglected their duty to report

Article 20 of the Income Tax Act

Suwon District Court 2016Guhap70759 global income and revocation of disposition

AA

BB Director of the Tax Office

August 17, 2017

October 19, 2017

1. On May 11, 2016, the Defendant revoked the disposition imposing global income tax of KRW 5,090,250 on the Plaintiff on May 11, 2016.

2. The plaintiff's remaining claims are dismissed.

3. Of the litigation costs, 65% is borne by the Plaintiff, and 35% is borne by the Defendant, respectively.

1. Basic facts

A. From December 31, 2007 to November 7, 2013, the Plaintiff served as a full-time lecturer in the name of “DD” operated byCC (hereinafter “CC”).

B.CC withheld the Plaintiff’s tuition fee of KRW 88,510,000 paid to the Plaintiff in 2010 (hereinafter “point income”) as business income and paid the Defendant global income tax. On May 23, 2011, the Plaintiff filed a final return on global income tax base for the global income tax for the year 2010 to the Defendant.

C. On June 30, 2014, the Plaintiff filed a lawsuit claiming payment of retirement allowances againstCC (U.S. District Court Decision 2014Gahap102864, hereinafter “instant prior lawsuit”). On June 26, 2015, the said court rendered a judgment in favor of the Plaintiff by deeming the Plaintiff to be a worker under the Labor Standards Act. AlthoughCC filed an appeal (Seoul High Court Decision 2015Na2036547, Seoul High Court Decision 2016, Apr. 22, 2016), the Seoul High Court rendered a judgment dismissing the appeal on April 22, 2016, and the said judgment became final and conclusive on May 17, 2016.

D. On May 11, 2016, the Defendant issued the instant disposition to correct and notify the Plaintiff of the major tax of global income tax of KRW 9,400,280,280, additional tax for additional payment, and KRW 5,090,250 on the ground that the key income constitutes earned income.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 6, Eul evidence 1 to 5

(2) The purport of the whole pleading

2. Whether the instant disposition is lawful

A. The parties' assertion

With respect to the Defendant’s assertion that the instant disposition is lawful in accordance with the grounds for the disposition and relevant statutes, the Plaintiff asserts that the instant disposition is unlawful on the following grounds.

1) Considering that the Labor Standards Act and the Income Tax Act differ in their legislative purpose, the key income should be deemed as business income even if the Plaintiff was recognized as a worker under the Labor Standards Act in the relevant civil case.

2) The other party to the instant disposition ought to be a withholding agent rather than the Plaintiff.

3) Unless otherwise, the Plaintiff’s failure to return and pay the comprehensive income tax based on the initially controversial income as earned income is justifiable. Thus, the disposition imposing an additional tax for arrears during the instant disposition is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Determination on the first argument

A) Article 20(1)1 of the former Income Tax Act (amended by Act No. 10408, Dec. 27, 2010; hereinafter the same) provides that “the salary, salary, remuneration, annual salary, wage, bonus, allowance, and other benefits of a similar nature that are received by providing labor” as earned income.

B) The following circumstances revealed in full view of the above facts of recognition, the evidence as mentioned above, and the relevant laws and regulations, i.e., providing labor to an employer in substance refers to the provision of labor to an employee in a subordinate relationship. As such, the wage that an employee received by providing labor under the Labor Standards Act ought to be regarded as earned income, and ② The Plaintiff in the prior lawsuit in this case becomes final and conclusive that the Plaintiff constitutes a worker under the Labor Standards Act who provided labor toCC in a subordinate relationship with the aim of wage. Thus, it is reasonable to deem that the pertinent income that the Plaintiff provided and received by the Plaintiff constitutes earned income. Therefore,

2) Judgment on the second argument

A) Article 80(2)2 of the former Income Tax Act provides that “Where a person who has filed a final return on the tax base (including a person who has failed to file a final return on tax base) is omitted or erroneous in his/her year-end tax settlement and it is deemed difficult for the withholding agent to perform withholding due to his/her resignation, the head of the competent tax office shall rectify

B) From December 31, 2007 to November 7, 2013, the Plaintiff served as a full-time lecturer of the instant private teaching institute operated byCC and retired from office on November 7, 2013;CC withheld at source income in 2010 as business income and paid income tax; and on May 23, 201, the Plaintiff filed a final return on the tax base of global income tax for which 2010 belongs to the Defendant on May 23, 2011, as seen earlier. According to the above facts, the Plaintiff already retired on May 11, 2016, which was the date of the instant disposition, made it difficult for the Plaintiff, other thanCC, to perform its withholding duty. Therefore, it is legitimate for the Defendant to take the instant disposition against the Plaintiff, which was lawful. This part of the Plaintiff’s assertion is without merit.

3) Determination on the third argument

A) Additional tax is an administrative sanction imposed as prescribed by the Act in cases where a taxpayer violates various duties, such as a return and tax payment, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, and is not imposed when justifiable grounds exist (Article 48(1) of the Framework Act on National Taxes). Therefore, in cases where a reasonable ground exists that makes it impossible for the taxpayer to assume liability for failure to know his/her duty due to a conflict of views in the interpretation of the tax-related Acts beyond a simple scope of land or misunderstanding, or where a justifiable ground exists that makes it difficult to criticize the fact that the taxpayer neglected to perform his/her duty, such as when it is difficult to expect the relevant party to fulfill his/her duty, penalty tax may not be imposed (see, e.g., Supreme Court Decision 2017Du36

B) In light of the following circumstances that can be acknowledged by comprehensively considering the purport of the entire arguments as to the instant case, it is reasonable to view that there exists a justifiable reason to criticize that the Plaintiff neglected his/her duty to pay the key income as earned income even if the Plaintiff did not report and pay the income as earned income until May 17, 2016, which became final and conclusive by the appellate court judgment of the instant prior suit. Accordingly, the disposition imposing an additional tax for arrears during the instant disposition is unlawful

(1) Although the Plaintiff’s employer employed six full-time instructors including the Plaintiff as workers, the Plaintiff entered into a lecture agreement with the said full-time instructors, which is not a labor contract, and thereafter withheld income tax (3% of the total amount paid) calculated by applying the tuition fee paid to the said full-time instructors as business income.

(2) SinceCC rejected the Plaintiff’s claim for retirement allowance by asserting that the Plaintiff did not constitute a worker, even from the appellate trial of the instant prior suit, based on the circumstances described in (a) above, it seems that it was difficult for the Plaintiff to file a return on and pay the global income tax based on the key income as earned income, or to requireCC to withhold the earned income tax.

(3) Determination as to whether a labor provider provided labor in a subordinate relationship with an employer for the purpose of wage ought to be made by comprehensively taking account of various economic and social conditions, such as whether a labor provider provided labor for the purpose of wage; whether the provision of the employment rules or service regulations applies; whether a business operator’s duty and working hours and places are determined; whether a labor provider bears risk, such as the possibility of independent business operation and profit-making; whether a labor provider bears remuneration and income tax withheld; and whether the social security system law recognizes the status of an employee as an employee (see Supreme Court Decision 2015Da59146, Jan. 25, 2017). However, given the above circumstances, in light of the interpretation of the Labor Standards Act and tax-related Acts, there was a conflict of opinion as to whether a labor provider can be recognized as an employee until May 17, 2016, and it is difficult to deem that the Plaintiff, other than a legal expert, constitutes the wage and salary income.

3. Conclusion

Thus, the plaintiff's claim is reasonable within the above scope of recognition, and the remainder is accepted.

The claim is dismissed on the ground that it is without merit.