Korea

Korea Asset Management Corporation (Law Firm Mono, Attorney Park Jong-ju, Counsel for the plaintiff-appellant)

September 22, 2004

Daegu District Court Decision 2003Gahap199 delivered on November 14, 2003

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the plaintiff.

The judgment of the first instance is revoked. Of the distribution schedule prepared by the Daegu District Court Kimcheon-dong 2001 Taecheon-do 4629 on February 21, 2003, KRW 639,193,520 on the amount of dividends against the plaintiff shall be corrected to KRW 1,975,14,020 on the amount of dividends against the plaintiff, and KRW 20,080,562,324 on the amount of dividends against the defendant as KRW 18,74,61,824 on the amount of dividends against the defendant, respectively.

1. Basic facts

The following facts are not disputed between the parties, or they can be acknowledged in full view of the whole purport of pleadings as to Gap evidence 1, 2, 3-1 through 13, 4-1 through 26, Eul evidence 1-1 through 33, 35 through 43, and 2-1 through 5, and there is no other counter-proof.

A. During the construction of a bonded construction work site after obtaining a license from the head of customs office, Nonparty 1 Co., Ltd. (hereinafter “Party 1”) brought the machinery listed in the separate sheet (hereinafter “instant machinery”) into a bonded construction work site for the large-scale island from abroad, such as France and Germany, and filed an import declaration and a duty return with respect to the instant machinery to the former customs office during the period from February 14, 200 to August 24 of the same year. In this case, the instant machinery falls under the goods used for the construction of a bonded construction work site for the large-scale island, and thus, the value-added tax on the instant machinery was exempted.

B. The Korea Development Bank Co., Ltd. (hereinafter “Korea Development Bank”) completed the registration of the establishment of a mortgage on November 21, 1994 with a maximum debt amount of KRW 40 billion and KRW 5 million with a maximum debt amount of KRW 5 billion with a maximum debt amount of KRW 1.5 billion with a maximum debt amount of KRW 1.5 billion with a view to securing the current and future loans, and the buildings on such land (hereinafter “the instant real estate”).

C. On November 8, 2000, the Korea Development Bank transferred the loan claims against its subordinate islands to a limited liability company specializing in loan-backed securitization. On the 21st of the same month, Yong-Nam General Financial Co., Ltd. transferred its loan claims against its subordinate islands to a limited liability company specializing in loan-backed securitization. At the time of the above assignment of claims, the Korea Development Bank and Yong-Nam General Financial Co., Ltd. notified of the above assignment of claims to its subordinate islands, the principal debtor, and around that time, the Korea Development Bank and Yong-Nam General Financial Co., Ltd. notified of the above assignment of claims to the subordinate islands. Each loan claims against the subordinate islands

D. On May 12, 2001, the Daegu District Court Decision 2001Hu4629, on May 12, 2001, on the basis of each of the above collateral security rights, filed an application for voluntary auction on the instant real estate and machinery with the Daegu District Court Kimcheon-do, 2001doz., and received a decision to commence the auction on the 16th of the same month.

E. After that, as one of the limited liability companies specializing in the tea-backed securitization, the Korea Finance Corporation transferred each of the above loans to the defendant on September 14, 2001 and June 28 of the same year, and notified the fact of the assignment of the above loans around that time to the Hachi Island, the principal debtor. The defendant reported the change to the creditor at the above auction procedure, and on February 13, 2003, as the transferee of each of the above loans claims, filed a report on the change to the creditor, on February 13, 2003, on the principal amount of each of the above loans claims and interest or delay damages up to the date of distribution to 129,103,080,043 won or interest or delay damages up to the date of distribution.

F. Meanwhile, in the above auction procedure on June 22, 2002, the Plaintiff filed a claim for the delivery of KRW 512,367,080, value-added tax, KRW 1,070, KRW 1270, KRW 127,910, KRW 710, and KRW 78,556,330, KRW 251,374, KRW 440, and KRW 180,00, KRW 180,00, KRW 1,912,60, KRW 605, and KRW 760, KRW 512,367,080, KRW 1,070, KRW 127, KRW 910, KRW 392,649,00, KRW 180, KRW 180, KRW 100, KRW 109, KRW 249,205, KRW 305, and value-added tax.

G. On February 21, 2003, the auction court prepared a distribution schedule with the content that dividends amounting to KRW 95,776,210 in the order of first priority among the amount to be actually distributed 20,815,532,054, excluding the execution cost on the date of distribution, and KRW 639,193,520 in the order of first priority among the amount to be distributed to the Gu-U.S., which is the person having the right to seize the pertinent customs duties and additional charges thereon, and the head of the Gu-U.S., who is the person having the right to deliver the said customs duties and additional charges thereon, paid KRW 639,193,520 in the order of second priority to the defendant who is the mortgagee, and filed a lawsuit of demurrer against the distribution within seven days thereafter.

2. The plaintiff's assertion and judgment

A. The plaintiff's assertion

The plaintiff asserts that the amount of 639,193,520 won against the plaintiff among the above distribution schedule shall be 1,975,144,020 won (the amount calculated by deducting the patent fee of 180,000 won from the amount claimed for the original delivery) and that the amount of 20,080,562,324 won against the defendant shall be corrected to 18,74,61,824 won.

(1) The value-added tax of this case, etc. is imposed on the import of goods as a taxable transaction, and it must be collected in accordance with the example of customs collection pursuant to Article 23(3) of the Value-Added Tax Act. Thus, Article 20(1) of the former Customs Act (amended by Act No. 6305 of Dec. 29, 200; hereinafter “Customs Act”). Even if national tax is a national tax, there is a conflict with Article 35(1)3 of the Framework Act on National Taxes so that claims secured by the right of lease on a deposit basis, pledge, or mortgage established prior to the statutory due date cannot be preferred, but Article 26-2(1) of the Customs Act is excluded from the above Framework Act on National Taxes and Article 20(1) of the Customs Act shall take precedence over each secured claim.

(2) The value-added tax on the supply of goods and services is a tax imposed only on the supplier of the goods and services on the basis of added value created at each stage of production and distribution of the goods and services. On the other hand, the value-added tax on the import of the goods are a tax imposed on the owner of the imported goods by recognizing the capacity to pay the customs duties per se on the goods and by itself, which is subject to the ownership of the imported goods, and which is imposed on all of the persons who acquire the security right from the bonded area to own and use the imported goods and take over the imported goods from the bonded area, which can have been predicted to the extent that it would be imposed on the future property. Thus, since Article 35(1)3 proviso of the Framework Act on National Taxes constitutes “national tax and additional dues imposed on

(3) Comprehensively taking into account Article 23(3) of the Value-Added Tax Act, Articles 71(1) through 17(1) of the Enforcement Decree of the Value-Added Tax Act. Any person who imports goods is obliged to file a tax return on customs duties and value-added taxes on such imported goods at the time of filing the said tax return. As customs duties and value-added taxes liability are determined at the time of filing the said tax return, the statutory due date of value-added tax on import of goods is, in principle, an import declaration. Meanwhile, if a construction work is conducted with a license for establishing a bonded construction work site from the head of the relevant customs office upon completion of the construction work, the bonded construction work is deemed to be exempt from value-added tax on the said goods as well as the bonded construction work site No. 20. 40.00.00.000.00.00.0.06.0.0.00.00.0.00.00.0.00.00.0.0.0.0.00.

B. Determination

(1) Whether Article 20(1) of the former Customs Act applies to the value-added tax of this case and its additional charges, etc.

(A) Relevant statutory provisions

Article 1 (Taxable Objects) (1) Value-added tax shall be imposed on the following transactions:

1. Supply of goods or services; and

2. Import of goods.

Article 8 (Import of Goods) The import of goods shall be the taking of goods falling under any of the following subparagraphs into Korea (in cases of goods passing through a bonded area, taking away from the bonded area):

Article 23 (Collection) (3) The customs collector shall collect the value-added tax on the import of goods in the same manner as customs duties are collected.

Article 71 (Collection of Import of Goods) (1) The provisions of Articles 4 through 6 and 17 through 19 of the Customs Act shall apply mutatis mutandis to the case where the head of customhouse collects the value-added tax in accordance with Article 23 (3) of the Act.

Article 2 (Definitions) (1) The term “import” in this Act means the taking in Korea of goods falling under any of the following subparagraphs (in case of goods passing through a bonded area, taking in person from the bonded area):

1. Goods which arrive in Korea from any foreign country (including marine products, etc. caught by foreign vessels, etc. in the high seas); and

2. Goods on which an export declaration is accepted;

Article 20 (Priority Given to Collection of Customs Duties) (1) Customs duties on dutiable goods shall be collected in preference to other taxes, public charges, and claims.

Article 26-2 (Collection, etc. of Internal Taxes) (1) With respect to the imposition, collection, refund, disposal, etc. of value-added tax, special consumption tax, liquor tax, education tax, traffic tax and special agricultural and fishing villages tax (hereinafter referred to as "in-house national tax, etc.") imposed and collected by the head of a customs office on imported goods, when the provisions of the Framework Act on National Taxes, the National Tax Collection Act, the Value-Added Tax Act, the Special Consumption Tax Act, the Liquor Tax Act, the Education Tax Act, the Traffic Tax Act and

(2) The provisions of this Act concerning the imposition, collection, refund, etc. of customs duties shall apply to the imposition, collection, refund, etc. of additional duties, additional duties and expenses for disposition on default under this Act.

If any national taxes in arrears collected by the head of any customhouse are in arrears, the head of any customhouse shall transfer without delay the taxes to the head of any tax office having jurisdiction over the domicile of the person liable for duty payment, and the head of any tax office concerned shall take over them.

Article 3 (Relation to Tax-Related Act) (2) Where the head of a customs office provides for special provisions concerning this Act with respect to the national taxes imposed and collected by him under the Customs Act and the Act on Special Cases concerning the Refund of Customs Duties, etc. Levied with Materials

Article 35 (Priority of National Taxes) (1) National taxes, additional dues, or disposition fees for arrears shall be collected in preference to other public imposts and other claims: Provided, That this shall not apply to any of the following public imposts and other claims:

3. With respect to the sale of property for which the fact that the establishment of the right of lease on deposit basis, the pledge right, or the mortgage has been registered before the date falling under any of the following items (hereinafter referred to as the "legal due date") is proved under the conditions as prescribed by the Presidential Decree, if the national tax or additional dues (excluding the national tax and the additional dues imposed on the property) is collected from the proceeds of sale,

(a) For the returned tax amount, in case of the national tax for which a duty to pay is determined by the tax base and return of tax amount (including the interim prepayment corporate tax and the value-added tax paid by preliminary return),

(b) Where the Government determines, revises, or occasional assessment of the tax base and amount, the date of sending a tax notice for the relevant tax amount;

(B) Determination

(3) Article 35 (1) 3 of the Framework Act on National Taxes is derived from the unique nature of the customs duties, which provides that the head of a customs office shall not give priority to the payment of value-added taxes (see Supreme Court Decision 78Da1689, Feb. 7, 197) and Article 26-1 (1) of the same Act shall apply mutatis mutandis to the imposition and collection of value-added taxes for the following reasons, on the grounds that the provisions of Article 26-1 (2) of the same Act concerning the imposition and collection of value-added taxes are different from those of the current Article 3 of the Framework Act on National Taxes, on the grounds that the provisions of Article 3 of the same Act concerning the imposition and collection of value-added taxes (including the provisions concerning the imposition and collection of taxes under paragraphs 3 through 7 of the same Article) are different from those of the current Article 17 (8) of the same Act, on the grounds that the above provisions concerning the imposition and collection of value-added taxes are different from those of the Act.

(2) Whether the value-added tax of this case and additional dues thereon constitute the pertinent tax

(A) Relevant statutory provisions

Article 35 (1) 3 is as seen earlier.

Article 18 (Preference of National Taxes) (1) National taxes imposed on the property prescribed in Article 35 (1) 3 and (2) of the Act shall be the inheritance tax, gift tax, and revaluation tax.

(B) Determination

Article 35(1)3 of the Framework Act on National Taxes provides that the legislative purport is to properly harmonize the Plaintiff’s request for judicial taxation on the import of goods and taxation rights with respect to the real estate covered by the security interest. Thus, even if the pertinent tax is preferentially imposed on the claims secured by the security interest, the term “national tax imposed on the said property” under the proviso of Article 35(1)3 of the same Act means that the taxpayer who acquired the security interest can be imposed on the said property to the extent that it is highly probable that the said property will be imposed on the future, and thus, it is difficult to view that there is no reason to view that there is no special provision regarding the value-added tax imposed on the import of goods and taxation rights under Article 18(1)3 of the Enforcement Decree of the Framework Act on National Taxes to be imposed on the import of goods and taxation rights (see, e.g., Supreme Court Decisions 201Da4376, Jan. 10, 2003; 9Da23184, Mar. 18, 1999>

(3) Legal date

(A) Relevant provisions

(1) Any person who intends to import goods (excluding goods notified by the head of any customhouse under Article 17-2) shall file a declaration on the payment of customs duties (hereinafter referred to as “duty declaration”) with the head of any customhouse under the conditions as prescribed by the Presidential Decree when he files an import declaration.

(2) When the head of a customs office knows that there is a shortage of money already collected due to an error in the application of the provisions on tax base, tax rate, customs duty reduction and exemption, etc., or other reasons, he/she shall collect the shortage.

(3) When the head of any customhouse intends to collect customs duties under paragraphs (1) and (2), he shall serve a duty payment notice on a person liable for duty payment as prescribed by the Presidential Decree.

(4) A person who has been notified of paragraph (3) shall pay the relevant tax amount to the head of a customs office within 15 days from the date of receipt of such notification

Article 106 (Exemption of Value-Added Tax) (2) Any import of the goods falling under any of the following subparagraphs shall be exempted from the value-added tax:

4. Bonded warehouse construction articles under the Customs Act to be used for taxable businesses;

Article 22 (Determination of Liability for Tax Payment) (1) The amount of national taxes shall be determined in accordance with procedures prescribed by relevant tax-related Acts.

Article 10-2 (Determination of Tax Liability) (1) The time when the tax amount is determined in accordance with the procedures prescribed in Article 22 (1) of the Act, shall be as follows:

1. For income tax, corporate tax, value-added tax, special consumption tax, liquor tax, securities transaction tax, education tax or traffic tax, when the tax base and tax amount of the relevant national tax are reported to the Government: Provided, That this shall not apply to cases falling under subparagraph

2. Where the Government determines the tax base and amount of the national taxes under subparagraph 1, the time of determination;

(B) Determination

Article 35 (1) 3 (b) of the Framework Act on National Taxes is the statutory due date for the delivery of the value-added tax on the 10th day after the due date for the return or the 2nd day after 7th day after the due date for the payment of the value-added tax. According to the above 2nd day of 7th day after the due date for the 2nd day of 0th day after the due date for the 2nd day of 0th day after the due date for the 2nd day of 7th day after the due date for the 2nd day of 0th day after the due date for the 2nd day of 0th day after the due date for the 2nd day of 0th day after the due date for the 2nd day of 0th day after the due date for the 2nd day of 0th day after the due date for the 2nd day of 0th day after the due date for the 2nd day of 2nd day of 20th day after the due date for the 2nd day of 4th day.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be dismissed as it is without merit, and the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.

Judges Kim Su-chul(Presiding Judge) Lee Jong-chul(Presiding Judge)