In a case where the Defendant, who is a credit service provider, was prosecuted for violation of the Punishment of Tax Evaders Act on the ground that he/she evaded taxes by “Fraud or other unlawful act” because he/she did not prepare or destroy and conceal relevant documents, such as transaction books, and did not report global income tax, commercial buildings, and value-added tax on interest income from credit business, the case holding that a series of acts by the Defendant constitute “Fraud or other unlawful act” under Article 3(1

In a case where the Defendant, a credit service provider, was prosecuted for violating the Punishment of Tax Evaders Act on the grounds that he/she evaded taxes by failing to prepare, destroy, or conceal the relevant documents, such as transaction account books, and failing to file a report on global income tax on interest income from credit business, commercial buildings, and value-added tax on rental income, the case holding that the lower court erred by misapprehending the legal doctrine on the grounds that the Defendant’s series of acts by actively making it impossible or considerably difficult to impose and collect taxes by failing to prepare, or concealing the transaction account books, etc. from the beginning with intent to evade tax, in light of the circumstances such as the fact that the Defendant was obligated to keep and record account books in good faith in accordance with the Income Tax Act, and that the Defendant was engaged in a credit business for a considerable period of time, and that he/she did not prepare account books in itself even though he/she was engaged in a considerable amount of credit business.

Article 9(1)3 of the former Punishment of Tax Evaders Act (wholly amended by Act No. 919, Jan. 1, 2010); Article 3(1) and (6) of the Punishment of Tax Evaders Act (see current Article 3(1) and (6) of the Punishment of Tax Evaders Act

Defendant

Prosecutor

Attorney Lee Lee-soo

Jeju District Court Decision 2012No546 decided July 25, 2013

The judgment below is reversed, and the case is remanded to Jeju District Court Panel Division.

The grounds of appeal are examined.

1. The court below held that the defendant, alone, engaged in the bond business, collected the loan by calculating the interest on the basis of the loan certificate or the particulars stated in the passbook from the debtor, and stated the loan details on a simple camera, but operated by the method of returning the loan certificate or the note received in return and destroying the note. Thus, the defendant cannot be deemed to have actively concealed or discarded the account books related to the credit business beyond the report or false report, and the defendant cannot be deemed to have actively concealed or discarded the relevant documents even in relation to the lease proceeds. The court below acquitted the defendant on the charges of this case that the defendant evaded the tax by "Fraud or other unlawful act".

2. However, we cannot accept the above judgment of the court below as it is.

A. In the crime of tax evasion under Article 3(1) of the Punishment of Tax Evaders Act (wholly amended by Act No. 919, Jan. 1, 2010; hereinafter the same shall apply), the term “Fraud or other unlawful act” refers to an act that enables the tax evasion, and is recognized as unlawful by social norms, i.e., a deceptive scheme that makes the imposition and collection of taxes impossible or considerably difficult. Therefore, it does not constitute mere failure to file a tax return under the tax law or making a false tax return without accompanying other acts, but it does not constitute such failure to file a tax return or making a false tax return. However, in addition to circumstances where active concealment intention, such as failure to file a tax return or underreporting, and intentionally failing to enter revenues or sales, etc. in the account book, it may be recognized that the imposition and collection of taxes are impossible or remarkably difficult (see Supreme Court Decision 2013Do13829, Feb. 21, 2014).

B. The following circumstances revealed by the evidence duly adopted by the first instance court, namely, ① the Defendant asserted that he did not prepare separate books during the period from 2001 to 2008, but the Defendant was obligated to keep and record books in good faith pursuant to the Income Tax Act as an entrepreneur operating a credit business, and the Defendant’s failure to prepare any books despite having engaged in a long-term credit business is very exceptional in itself. ② Furthermore, the Defendant had been subject to tax investigation regarding the credit business income in 197 to 2000 from July 28, 2001, which was conducted on account of 197 or 200, but it was consistent that he did not prepare books regarding the request of a tax official to submit the said business registration, and (3) the Defendant did not submit all the documents stating that he did not have prepared the books of account at the time of the tax investigation on the instant case, and that he did not have any separate books of account to the effect that he did not return the separate books of account, including the name of the Defendant’s tax obligor and the receipts, and presented them.

C. Nevertheless, the lower court determined otherwise on the grounds stated in its reasoning that the Defendant cannot be deemed to evade taxes by “Fraud or other unlawful act”. In so doing, the lower court erred by misapprehending the legal doctrine on “Fraud or other unlawful act” under Article 3(1) of the Punishment of Tax Evaders Act, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on this point is with merit.

3. Conclusion

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kwon Soon-il (Presiding Justice)