The meaning of “Fraud and other unlawful act” under Article 9(1) of the former Punishment of Tax Evaders Act, and whether it constitutes a case in which active concealment is revealed, such as not reporting or underreporting taxable objects and not intentionally failing to enter revenues or sales in the account book (affirmative), and the criteria for its determination

In the former Punishment of Tax Evaders Act (wholly amended by Act No. 919, Jan. 1, 2010), “Fraud or other unlawful act” in the crime of tax evasion under Article 9(1) of the former Punishment of Tax Evaders Act refers to an act that enables the tax evasion, which 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, simply failing to file a tax return or filing a false report under tax law without accompanying other acts does not constitute such act, or making a false report. However, in addition to the circumstances where the active intent of concealing such as intentionally failing to enter revenues or sales in the account book, it may be recognized that the imposition and collection of taxes are impossible or considerably difficult. Whether the active concealment intention can be objectively revealed should be determined by comprehensively taking into account not only whether the basic book stating revenues or sales, etc. is falsely prepared, but also whether the method of imposing taxes is the method of imposing taxes, whether the pertinent tax return is a false tax return or a false report, or whether the relevant tax return is a false, details of false or false report, or false documents.

Article 9(1) of the former Punishment of Tax Evaders Act (wholly amended by Act No. 9919, Jan. 1, 2010) (see current Article 3(1) and (6))

Supreme Court Decision 2011Do13605 Decided March 15, 2012 Supreme Court Decision 2010Do9871 Decided June 14, 2012

Defendant 1 and one other

Defendants

Law Firm Dadam et al.

Seoul High Court Decision 2013No2737 decided November 1, 2013

All appeals are dismissed.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed by Defendant 1).

1. As to Defendant 1’s ground of appeal

“Fraud or other unlawful act” in the crime of evading tax under Article 9(1) of the former Punishment of Tax Evaders Act (wholly amended by Act No. 919, Jan. 1, 2010; hereinafter “former Act”) refers to an act that is deemed unlawful by social norms, i.e., a deceptive scheme that makes it impossible or considerably difficult to impose and collect taxes. Therefore, it does not constitute mere failure to file a return under tax law or filing a false return without accompanying other acts, but it does not constitute such failure or filing a false return. However, in cases where active intent is added, such as intentional omission of income or sales in books, etc., the imposition and collection of taxes can be recognized as being impossible or considerably difficult (see, e.g., Supreme Court Decision 2010Do9871, Jun. 14, 2012). In such cases, the determination of whether a false declaration or document can be deemed to have been made in light of social norms as well as the method and method of filing a false declaration or false tax return, as well as the method and method thereof.

According to the judgment below, the first instance court, and evidence duly admitted by the court below, ① Nonindicted Co. 1 (hereinafter “Nonindicted Co. 2”) was a waste incineration company operated by Defendant 2, and sold all the rights and basic property to Nonindicted Co. 2 for KRW 14.3 billion on December 5, 2005, and thereafter was substantially discontinued. ② The book value of basic property such as the above rights and license is 8.2 billion won, and thus, Nonindicted Co. 1 was liable to pay KRW 1.5 billion for corporate tax on disposal profits of KRW 6.4 billion. Meanwhile, Defendant 2 did not enter the above KRW 9.2 billion in the book value of Nonindicted Co. 1, 2000,000,000,000 won, which was 1.5 billion won, in accordance with the above 1.4 billion, the total amount of corporate tax was 9.2 billion won, which was 1.5 billion won or more, and was 1.5 billion won or more on the balance sheet, which was 200 billion won or more.

Examining the aforementioned factual background, in particular, the background leading up to Defendant 1’s request for the return of Nonindicted Company 1’s corporate tax and various circumstances, such as Defendant 1’s specific method, etc. in order to not pay corporate tax, in light of the legal principles as seen earlier, the Defendants’ act would suffice to be deemed as objectively revealed the intention to evade corporate tax, rather than simply making a false report under the tax law.

Although there are some inappropriate points in the reasoning of the judgment below in this part, the conclusion that Defendant 1’s act under the facts charged of this case constitutes “Fraud or other unlawful act” under Article 9(1) of the former Act is just and acceptable. In this regard, there is no error of law by misapprehending the legal principles on “Fraud or other unlawful act” under Article 9(1) of the former Act, which is alleged by Defendant 1 as the ground of appeal.

The ground of appeal on the following grounds: (a) there is an error in calculating the amount of evaded tax, or there is an error in the misapprehension of legal principles as to deductible expenses and gross income under the Corporate Tax Act; or (b) there is no error in the misapprehension of legal principles as to deductible expenses and gross income, which is alleged by Defendant 1 only

2. As to Defendant 2’s ground of appeal

According to the records, Defendant 2 appealed against the judgment of the court of first instance, and asserted a mistake of facts as well as unreasonable sentencing on the grounds of appeal, but withdrawn the assertion of mistake of facts on the second trial date of the court below, and left only the grounds of unfair sentencing as the grounds of appeal. In such a case, the argument that the court below erred in the misapprehension of legal principles

3. Conclusion

Therefore, all appeals are dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Chang-suk (Presiding Justice)