[1] Whether the legal principles on the initial disposition and the disposition of increase or decrease apply to the two dispositions of tax collection, which were conducted in succession with different tax liability units against the withholding agent (negative)

[2] Whether the tax authority is allowed to make a claim by changing the recipient of the amount of income or the amount of income in a lawsuit seeking the revocation of a withholding corporate tax (affirmative with qualification)

[1] Two different tax collection dispositions are separate dispositions against a withholding agent, and the legal principles as to the initial disposition and the adjusted disposition are not applied. Thus, it cannot be deemed that the initial disposition is absorbed into the subsequent disposition, thereby losing its existence value independently, and only the subsequent disposition is not subject to an appeal litigation.

[2] In an appeal seeking a cancellation of a collection disposition, the tax authority may exchange or change the grounds for disposition within the scope of maintaining the identity of the disposition. However, the corporate tax withheld at the same time is established when it pays the income amount or revenue amount, and is automatically determined (Articles 21(2)1 and 22(2)3 of the former Framework Act on National Taxes (amended by Act No. 8830 of Dec. 31, 2007). The tax authority’s disposition on the withholding agent itself against the withholding agent is merely a claim for the performance of the tax liability established by the payment of income or revenue amount, and thus does not affect the existence or scope of the source tax liability borne by the recipient of income or revenue amount. In addition, Article 9(1) of the former National Tax Collection Act (amended by Act No. 10527 of Apr. 4, 2011) provides for the grounds for calculation of the corporate tax for the collection of national tax, but it is reasonable to view that the person receiving the income amount or revenue amount is not a person collecting the income amount.

[1] Article 2(1)1 of the Administrative Litigation Act, Articles 93 and 98 of the former Corporate Tax Act (Amended by Act No. 7838, Dec. 31, 2005) / [2] Articles 21(2)1 and 22(2)3 of the former Framework Act on National Taxes (Amended by Act No. 8830, Dec. 31, 2007); Article 9(1) of the former National Tax Collection Act (Amended by Act No. 10527, Apr. 4, 201)

Neglected Food Co., Ltd. (Attorneys Son Ji-yol et al., Counsel for the plaintiff-appellant)

The Director of the National Tax Service (Law Firm Corporation, Attorneys Gu Chungcheongnam-gu et al., Counsel for the plaintiff-appellant)

Daejeon High Court Decision 2010Nu762 decided February 17, 2011

The judgment of the court below is reversed, and the case is remanded to Daejeon High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Ex officio determination

A. According to the records, the Plaintiff presumed that the collection disposition as of March 6, 2007 of this case and the collection disposition as of May 14, 2008 of this case were related to the initial and increased collection disposition as of May 14, 2008 of this case. The collection disposition as of March 6, 2007 of this case was incorporated into the collection disposition as of May 14, 2008 of this case and lost its independent existence value, and thus, only the collection disposition as of May 14, 2008 of this case is subject to an appeal litigation. The lower court determined that the Defendant, while the first instance court was seeking revocation of the collection disposition as of March 6, 2007 of this case, the Defendant filed an application for alteration of the collection disposition as of May 14, 2008 of this case, and that it was finally seeking revocation of the collection disposition as of March 208 of this case, 209 and the claim for revocation of the collection disposition as of this case.

B. However, it is difficult to accept such a measure by the lower court for the following reasons.

(1) Two collection dispositions, which are conducted in succession with a different tax liability unit against a withholding agent, are separate dispositions, and thus, the legal principles on the initial disposition and the adjusted disposition are not applied. Thus, the initial disposition cannot be deemed as having lost its existence value by absorbing the previous disposition, and only the subsequent disposition shall not be subject to appeal litigation.

(2) Review of the reasoning of the lower judgment and the evidence duly admitted reveals the following facts.

① In UBS Capital B.V., the Netherlands, and the Republic of Korea Confery (Luxembour) in Luxembourg, a corporate entity, constituted a consortium (hereinafter “UBS consortium”) in Korea, S.A.R.L. (hereinafter “KC”) and AOF Hai (Luxembour) S.R.L. (hereinafter “AOF Luxembourg”). UBS Capital in Korea, an investment manager, UBS Capital, a corporation of the Netherlands, constituted a consortium (hereinafter “UBS Confembem”), and had corporations, such as KC, establish a Belgium corporation, which is a Korean corporation, in June 19, 201.

② On July 12, 2001, KCH acquired 70,050,000 won as a domestic corporation for the manufacture and business part of H&C, a domestic corporation, and established the Plaintiff for the purpose of producing and selling dry, milk products, and frozen foods by becoming 100% shareholders.

③ On January 12, 2005, KCH transferred the Plaintiff’s share of KRW 100% (2,810,000 shares; hereinafter “instant shares”) to 334,459,577,000 of the Plaintiff’s shares (hereinafter “instant shares”) and acquired the transfer income of the instant shares by transferring the Plaintiff’s shares to 334,459,57,000 shares (hereinafter “the instant shares”). However, the income from the transfer of shares pursuant to Article 13(3) of the Convention between the Republic of Korea and Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income between the Republic of Korea and the Republic of Korea (hereinafter “Korea-Belgium Tax Treaty”) was taxable only in the country of residence of the transferor, and did not withhold corporate tax thereon. Thereafter, SPC was merged with the Plaintiff on April 4, 2005.

④ 피고는 2007. 3. 6. 벨기에 법인인 KCH는 조세회피목적으로 설립된 명목상의 회사에 불과하여 이 사건 주식 양도소득의 실질적인 귀속자가 될 수 없고, 그 배후의 투자자들이 실질적인 귀속자이므로 이 사건 주식 양도소득에 대하여는 한·벨 조세조약이 적용될 수 없다는 이유로, 이 사건 주식 양도소득 중 KCH의 주주인 KC의 투자자로서 우리나라와 조세조약을 체결하지 아니한 케이만군도에 소재하는 유한 파트너십(Limited Partnership)인 CVC Capital Partners Asia Pacific L.P.(KC에 대한 지분 66.67%를 보유하였다. 이하 ‘CVC 아시아’라 한다)에 귀속된 부분(21.32%)과 KCH의 주주인 AOF 룩셈부르크의 배후 투자자들[AOF 룩셈부르크에 대한 지분을 모두 보유한 케이만군도 법인인 AOF Haitai Ltd.(이하 ‘AOF 케이만’이라 한다)의 투자자들을 말한다] 중 우리나라와 조세조약이 체결되지 아니하거나 조세조약상 주식 양도소득에 대하여 거주지국 과세 규정이 없어 국내세법이 적용되는 케이만군도, 싱가포르 등의 거주자들(이하 ‘AOF 귀속 과세대상 투자자들’이라 한다)에게 귀속된 부분(5.24%, 이하 이 부분 주식 양도소득을 ‘AOF 귀속 과세대상소득’이라 한다)에 대한 원천징수분 법인세 8,883,246,360원[≒ 334,459,577,000원 × 26.56%(= 21.32% + 5.24%) × 10%]을 해태 SPC의 납세의무를 승계한 원고에게 납세고지하는 이 사건 2007. 3. 6.자 징수처분을 하였다.

⑤ 그 후 피고는 2008. 5. 14. 이 사건 주식 양도소득 중 당초 KC의 투자자로서 우리나라와 조세조약을 체결한 미국 법인인 Asia Investor L.L.C.(KC의 지분 33.33%를 보유하였다. 이하 ‘AILLC'라 한다)에 귀속되었다고 보아 원고에게 징수처분을 하지 아니하였던 부분(10.64%)은 AILLC의 투자자들이 그 실질적인 귀속자라는 이유로, AILLC의 투자자들 중 우리나라와 조세조약을 체결하지 아니한 홍콩 법인인 Citicorp Securities Asia Pasific Ltd.에 귀속된 부분(6.38%)에 대한 원천징수분 법인세 2,133,852,100원(≒ 334,459,577,000원 × 6.38% × 10%)을 원고에게 납세고지하는 이 사건 2008. 5. 14.자 징수처분을 하였다.

(3) Examining the above facts in light of the legal principles as seen earlier, it is reasonable to view that the collection disposition as of March 6, 2007 and the collection disposition as of May 14, 2008 of this case as of May 2008 is a separate disposition that differs from the transferred shares, and thus, does not apply to the tax liability unit. Therefore, the collection disposition as of March 6, 2007 of this case was incorporated into the collection disposition as of May 14, 2008 of this case, and thus, it cannot be deemed that the independent existence value is lost, and only the collection disposition as of May 14, 2008 of this case may not be subject to appeal litigation.

(4) If so, there is a lot of room to view that the Plaintiff’s amendment of the purport of the claim to seek revocation of the collection disposition on May 14, 2008 of this case, including the amount of the tax collected on March 6, 2007 of this case, was caused by mistake. Thus, the court below should have judged the purport of the claim by exercising the right of adequate explanation, allowing the Plaintiff to revise or correct the purport of the claim, or seek revocation of each collection disposition on this case, and after individually examining whether the Plaintiff satisfied the requirements for filing a lawsuit.

C. Nevertheless, the lower court did not separately determine the illegality of the collection disposition on March 6, 2007 of this case on the premise that the collection disposition on March 6, 2007 of this case, which was absorptioned into the collection disposition on May 14, 2008 of this case and lost its independent existence value, and only the collection disposition on May 14, 2008 of this case is subject to appeal litigation. In addition, the lower court determined on the merits of this case, without examining whether it satisfies the requirements for filing a lawsuit against the part concerning the collection disposition on May 14, 2008 of this case, seeking cancellation after the elapse of 11 months from the date of the disposition, without examining whether it satisfies the requirements for filing a lawsuit against the owner on May 14, 2008 of this case. Accordingly, the lower court erred by misapprehending the legal doctrine on the tax liability unit, etc. of the collection disposition, which affected the conclusion of the judgment.

However, according to the above, the court below's decision on the legitimacy of the duty payment notice by the collection disposition on March 6, 2007 of this case is correct in conclusion. Thus, the court below's grounds for appeal on this part are examined in sequence.

2. As to the Plaintiff’s grounds of appeal related to CVC Asia

A. The substance over form principle under Article 14(1) of the former Framework Act on National Taxes (amended by Act No. 8830, Dec. 31, 2007; hereinafter the same applies) refers to the person to whom the property belongs, not the nominal owner, but the person to whom the property belongs, if there is another person to whom the income, profit, property, transaction, etc. belongs, unlike the nominal owner. Therefore, the nominal owner of the property is not capable of controlling and managing it, and there is another person who actually controls and manages it through the control, etc. over the nominal owner, and the difference between the nominal owner and the real owner arises from the purpose of tax evasion, the income on the property shall be deemed to have been reverted to the person who actually controls and manages the property and shall be a tax obligor (see, e.g., Supreme Court en banc Decision 2008Du8499, Jan. 19, 201). Such principle applies to the interpretation and application of tax treaties having the same effect as the Act (see, e.g., Supreme Court Decision 2012014Du16.

Meanwhile, in a case where an unincorporated association, foundation or other organization of a foreign country is a profit-making organization that obtains domestic source income provided in Article 119 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) or Article 93 of the former Corporate Tax Act (amended by Act No. 7838 of Dec. 31, 2005), and distributes it to its members, if it can be deemed a foreign corporation under the former Corporate Tax Act, the organization shall be liable for tax payment and shall collect corporate tax on domestic source income. If it cannot be deemed a foreign corporation under the former Corporate Tax Act, the member of the organization shall be liable for tax payment and shall collect income tax or corporate tax on the income distributed to each of its members, depending on the status of its members. In this context, whether the organization can be deemed a foreign corporation under the former Corporate Tax Act as a foreign corporation should be determined based on whether it can be deemed as a separate subject of rights and obligations independent from its members under the Korean judicial (judicial) in light of the content and substance of the country established (see, etc.).

B. Based on the adopted evidence, the lower court determined that, in light of the following facts: (a) KCH’s developments leading up to the acquisition and transfer of the instant shares; (b) the status of directors and employees; (c) details of business activities; (d) methods and timing of liquidation; and (e) the substance of KC and Luxembourg as a Luxembourg’s subsidiary company, the shareholders of KCH, of the instant shares, only performed the transaction party’s role in the acquisition and transfer of the portion (21.32%) corresponding to the CVI Asia’s investment shares among the instant shares; and (b) the actual entity is the CVC Asian Asia, a corporation as a limited partnership of Kmando; and (c) the disparity between such form and substance was derived solely from the purpose of tax avoidance; (b) therefore, it is reasonable to deem that the source taxpayer of corporate tax withheld from the portion corresponding to the CVC’s investment shares among the instant shares, as CVC Asia Asia.

C. Examining the reasoning of the lower judgment in light of the evidence duly admitted, the lower court’s aforementioned determination is based on the legal doctrine as seen earlier. In so doing, it did not err by misapprehending the legal doctrine on the principle of substantial taxation, the interpretation and application of the Korea-Belgium Tax Treaty, or the principle of non-discrimination, as otherwise

3. As to the Defendant’s first ground of appeal

(a) In an appeal seeking the revocation of a collection disposition, the tax authority may exchange and change the grounds for the disposition to the extent that the identity of the disposition is maintained;

However, corporate tax withheld is a tax liability established at the time of paying the income amount or revenue amount and automatically determined at the same time (Article 21(2)1 and Article 22(2)3 of the former Framework Act on National Taxes). The taxation authority’s tax collection disposition against the withholding agent is merely a claim for the performance of the tax liability that has already been determined by payment of the income amount or revenue amount, and thus does not affect the existence or scope of the original tax liability that the withholding agent bears. Furthermore, Article 9(1) of the former National Tax Collection Act (amended by Act No. 10527, Apr. 4, 2011) provides that “the basis for calculation of the tax amount” shall be specified in a tax payment notice for the collection of national tax, but it is difficult to view that the recipient of the income amount or revenue amount is also included in “the basis for calculation of the tax amount”. In light of such legal principles, it is reasonable to view that the basic element of withholding tax in principle does not change the scope of disposition or revenue amount to the scope of the tax collection disposition.

B. The record reveals the following facts: (a) the Defendant: (b) did not regard the first AOF income subject to the imposition of AOF income as an investor subject to the imposition of AOF income on March 6, 2007; and (c) took a disposition to collect AOF income on March 6, 2007, by deeming the said income subject to the imposition of AOF income as an investor subject to the imposition of an AOF income; and (d) added the grounds for disposition that only AF case ought to be deemed the actual owner from the preparatory document

C. Examining the above facts in light of the legal principles as seen earlier, the Defendant’s act of claiming differently the recipient of the income amount or revenue amount while maintaining the fact of paying the income amount or revenue amount, which was the premise of the disposition taken on March 6, 2007 of this case, cannot be deemed to have changed in the basis of the payment of income amount or revenue amount. Therefore, the Defendant’s addition of the above grounds for disposition is permitted as a change in the grounds for disposition to the extent that the identity of the disposition is maintained.

D. If so, the lower court did not determine whether a substantial person to whom AOF taxable income belongs is an investor subject to taxation belonging to AOF and, on its premise, did not determine whether the investor is a legal entity. Accordingly, the lower court should first determined whether only AOF case possessing a stake in AOF Luxembourg is a foreign corporation or a foreign corporation independent of the former Corporate Tax Act according to the aforementioned legal doctrine, and if so, an investor subject to taxation belonging to AOF case, which can only be a member of AOF case, can not be a taxpayer. Thus, the lower court should have deliberated on the grounds for the disposition additionally affixed to AOF case by the Defendant on March 6, 2007, and should have determined whether the part concerning the taxable income belonging to AOF portion among the disposition taken on March 6, 207.

Nevertheless, the lower court, without determining the above, determined that the portion of corporate tax collection on the income subject to the attribution of AOF was unlawful solely on the ground that there is no evidence to acknowledge that the investors are corporations.

Therefore, such judgment of the court below is erroneous in the misapprehension of the legal principles on profit-making organizations that can be seen as foreign corporations or foreign corporations under the former Corporate Tax Act, and on the addition and modification of the grounds for disposition in tax litigation, thereby failing to exhaust all necessary deliberations, which affected the conclusion of the judgment. The defendant's ground of appeal

4. 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 Shin Young-chul (Presiding Justice)