In cases where it is objectively evident that a claim that caused income after the establishment of tax liability becomes impossible to recover due to the debtor's bankruptcy, etc., and that there is no possibility of realizing such income in the future, whether it constitutes grounds for ex post facto request for correction under Article 25-2 subparagraph 4 of the former Enforcement Decree of the Framework Act on National Taxes (affirmative in principle), and whether a withholding agent who satisfies the requirements under Article 45-2 (4) of the former Enforcement Decree of the Framework Act on National Taxes may also file a subsequent request for correction

Article 45-2(2) and (4) of the former Framework Act on National Taxes (Amended by Act No. 13552, Dec. 15, 2015); Article 25-2 subparags. 2 and 4 of the former Enforcement Decree of the Framework Act on National Taxes (Amended by Presidential Decree No. 27833, Feb. 7, 2017) (see current Article 25-2 subparag. 5)

Supreme Court Decision 2013Du18810 Decided January 29, 2014 (Gong2014Sang, 525)

Cement Co., Ltd. (formerly: LLC, Law Firm LLC, Attorneys Gangnam-hun et al., Counsel for the plaintiff-appellant)

Head of Three Tax Office

Seoul High Court Decision 2017Nu270 decided December 18, 2017

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Article 45-2(2) of the former Framework Act on National Taxes (amended by Act No. 13552, Dec. 15, 2015; hereinafter the same) provides that “When any transaction or act, etc., which served as the basis for the calculation of the tax base and the amount of tax in the initial return, determination or correction, becomes final and conclusive as different by a ruling on the relevant lawsuit,” etc. (Article 45-2(2) through 4 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 2783, Feb. 7, 2017; hereinafter the same shall apply) provides that “where any of the causes prescribed by Presidential Decree, which is similar to those under subparagraphs 1 through 4, occurs after the statutory due date of return of the relevant national tax, becomes final and conclusive by the ruling on the relevant lawsuit,” and Article 25-2(2) of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 27835, Feb. 7, 2017) refers to cases where a contract becomes void or cancelled:

In light of the structure of relevant provisions and the significance, function, and limitation, etc. of the principle of confirmation of rights under the Income Tax Act, if it becomes objectively evident that a claim that caused income after the establishment of tax liability becomes impossible to recover due to the debtor’s bankruptcy, etc. and that there is no possibility of realizing such income in the future, it is reasonable to deem that such claim constitutes grounds for ex post facto request for correction under subparagraph 4 of Article 25-2 of the former Enforcement Decree of the Framework Act on National Taxes, barring any special circumstance (see, e.g., Supreme Court Decision 2013Du1810, Jan. 29, 2014).

In addition, Article 45-2 (4) of the former Framework Act on National Taxes provides that Article 45-2 (2) of the former Framework Act on National Taxes shall apply mutatis mutandis to cases where a withholding agent pays income tax on earned income through year-end settlement pursuant to Article 137 of the Income Tax Act or pays income tax withheld at source on retirement income pursuant to Article 146 of the Income Tax Act (Article 146) and submits a payment record within the submission deadline pursuant to Article 164 of the Income Tax Act (Article 164, etc.). Thus, in cases where a withholding agent causes prior to a source taxpayer, a withholding agent who satisfies the above requirements shall also be deemed

2. Review of the reasoning of the lower judgment and the record reveals the following facts.

A. On October 4, 2013, the Plaintiff filed an application for commencement of rehabilitation procedures with the Seoul Central District Court No. 2013 Ma195 on October 17, 2013, and received the decision to commence the rehabilitation procedures on October 17, 2013, and on March 18, 2014, the rehabilitation plan (hereinafter “instant rehabilitation plan”) was authorized.

B. Upon the commencement of the rehabilitation procedure as above, the Plaintiff suspended the payment of the amount of retirement benefits (hereinafter “instant benefits”) on October 2013 to Nonparty 1 and Nonparty 13, the executive officer or major shareholder, and suspended the payment of the amount of retirement benefits (hereinafter “instant retirement benefits”) to Nonparty 2 and Nonparty 4, the executive officer or major shareholder on October 16, 2013 or October 31, 2013 (hereinafter “the instant related party”).

C. On November 10, 2013, the Plaintiff submitted a statement of payment concerning the instant benefits and retirement allowances unpaid to the Defendant, and withheld and paid income tax.

D. After that, the instant rehabilitation plan, which was approved, included the exemption of most of the instant payment and retirement allowance obligations.

E. Accordingly, the Plaintiff filed a respective claim for correction on May 16, 2014, with the purport that “The amount of the instant retirement income tax and retirement income tax imposed on the person with special interest in the instant case, except for the instant wage and retirement income tax, shall be deducted from the wage subject to the earned income tax, and the difference between the already paid amount of withholding tax and the retirement income tax, shall be refunded on November 10, 2013.” On December 16, 2014, the Plaintiff filed a respective claim for correction on the aggregate of KRW 72,381,520, and KRW 162,010,340, and KRW 72,381,520, and KRW 162,010,340, respectively, of the income tax on the instant income of Nonparty 1 and Nonparty 13, and Nonparty 2, Nonparty 5, and Nonparty 6, respectively.

F. On January 6, 2015, the Defendant rendered the instant disposition rejecting each of the instant requests for correction filed on May 16, 2014 and December 2, 2014 on the ground that “The circumstance that the instant benefits and retirement allowances were exempted by the authorization ruling of the instant rehabilitation plan does not constitute grounds for filing a subsequent request for correction under Article 45-2(4) and (2) of the former Framework Act on National Taxes.”

3. Examining these facts in light of the legal principles as seen earlier, even if the instant benefits and retirement allowance claim was confirmed, it is objectively apparent that there was no possibility of realizing the future income due to the fact that the instant rehabilitation plan, which was exempted thereafter, became impossible due to the fact that it was approved, and thereby, the Plaintiff’s obligation to withhold income tax on the instant benefits and retirement allowance loses its premise. Thus, this constitutes grounds for filing a subsequent claim for correction under Article 45-2(4) and (2)5 of the former Framework Act on National Taxes, Article 25-2 subparag. 4 of the former Enforcement Decree of the Framework Act on National Taxes

Nevertheless, on the grounds indicated in its reasoning, the lower court determined that the instant benefits and retirement allowances were exempted through the rehabilitation plan does not constitute grounds for filing a subsequent claim for rectification. In so determining, the lower court erred by misapprehending the legal doctrine on the grounds for filing a subsequent claim for rectification, thereby adversely affecting the conclusion of the judgment. The allegation contained in

4. 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 Lee Ki-taik (Presiding Justice)