[1] Whether the payer of income subject to withholding can collect and deduct the source tax prior to the time of payment of the income amount (negative in principle)

[2] In a case where Gap et al. claimed retirement allowance payment against Eul et al., and Eul et al. claimed that the amount of retirement income to be paid to Eul et al. should be calculated by deducting the already paid source tax amount from the original retirement income amount, the case holding that the court below erred by misapprehending the legal principles

[1] In principle, a person liable to collect income tax, etc. withheld under Article 21(2)1 of the Framework Act on National Taxes is established at the time of paying the amount of income, and the relevant beneficiary’s obligation to collect the amount of income is established as well. Therefore, the payer may not collect and deduct the amount of income in advance before the date of payment of income. However, if the payer actually pays income tax, etc. to be withheld before the amount of income after the establishment of the withholding agent’s obligation to pay income due to the legal fiction of the payment of income, etc., if the payer actually paid the amount of income

[2] In a case where Gap et al. claimed retirement allowance payment against Eul et al., and Eul et al. claimed that the amount of retirement income to be paid to Eul et al. should be calculated by deducting the already paid source tax amount from the original retirement income amount, the case holding that the court below erred by misapprehending the legal principles in rejecting Eul's claim on the source tax credit amount on the ground that Eul et al.'s retirement income amount should be calculated by deducting the already paid source tax amount from the original retirement income amount, inasmuch as Eul et al.'s tax withholding obligation for income tax is deemed as retirement income payment for Gap et al. under Articles 146 (1) and 147 (1) of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009) was established, and Eul et al. actually paid income tax

[1] Article 21(2)1 of the Framework Act on National Taxes; Articles 127(1), 146(1), and 147(1) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009) / [2] Article 21(2)1 of the Framework Act on National Taxes; Articles 127(1), 146(1), and 147(1) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009)

[1] Supreme Court Decision 86Meu2872 delivered on October 24, 1988 (Gong1988, 1459) Supreme Court Decision 91Da38075 delivered on May 26, 1992 (Gong1992, 2001)

Plaintiff 1 and one other (Law Firm Dae-Gyeong, Attorneys Kim Jong-chul et al., Counsel for the plaintiff-appellant)

Orion Electricity Co., Ltd. (Law Firm Chang-Gong, Attorneys Park Jong-bong et al., Counsel for the plaintiff-appellant)

Daegu District Court Decision 2012Na13697 Decided April 18, 2013

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

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

1. As to the assertion that withholding tax should be deducted

(1) In principle, a person liable to collect income tax, etc. to be withheld under Article 21(2)1 of the Framework Act on National Taxes is established when the amount of income is paid, and the relevant beneficiary’s obligation to collect the amount of income is established. Thus, the payer cannot collect or deduct the amount of income in advance prior to the due date of income (see, e.g., Supreme Court Decisions 86Meu2872, Oct. 24, 198; 91Da38075, May 26, 1992). However, if the payer actually pays the income tax, etc. to be withheld prior to the due date of income payment, etc., by deeming the payment of income as the legal fiction, etc., if the payer actually pays the income tax, etc. to be withheld prior to the due date of income payment, the amount of tax actually paid may be deducted from

(2) In this case, the plaintiffs claimed that the amount to be paid to the plaintiffs should be calculated by deducting the source tax amount already paid by the defendant. Accordingly, the court below rejected the defendant's assertion on the grounds that the payer cannot collect and deduct the source tax amount in advance before the payment date of the income amount, even if the defendant paid the source tax in advance, and the defendant can withhold the income tax at the stage of paying the retirement allowance after the decision became final and conclusive, and the defendant can withhold the income tax at the stage of paying the retirement allowance. If the beneficiary refuses to receive the retirement allowance after deducting the withholding tax amount, the court below rejected the defendant's assertion on the grounds that the payment may be exempted by depositing the retirement payment.

(3) In accordance with the above legal principle, the above judgment of the court below is not correct.

Article 146 (1) of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009) provides that "if a withholding agent pays Class A retirement income, he shall withhold income tax calculated by applying the withholding tax rate to the tax base of such retirement income." Article 147 (1) of the same Act provides that "if a withholding agent who is liable to pay retirement income fails to pay a retirement income to a retired person by December 31 of the current year, the retirement allowance amount shall be deemed to have been paid on the 31st of December. In addition, according to the records, such as the evidence No. 6-1 and No. 2 adopted by the court below, the Plaintiffs retired on October 31, 2005, and the Defendant appears to have paid the income tax and retirement income tax to the Plaintiffs on November 15, 2006, as a withholding agent under the above provisions.

Examining these facts in accordance with the above provision of the Income Tax Act and the legal principles as seen earlier, insofar as the payment of retirement income to the Plaintiffs is deemed to have been in place under the above provision of the Income Tax Act, and the Defendant’s obligation to withhold income tax is established, and on the basis of this, the amount of retirement income for which the Defendant is liable to pay to the Plaintiffs should be calculated by deducting the amount already paid from the original amount. Unlike the Plaintiffs’ assertion, if there are circumstances where it is difficult to deem that the existence or scope of the right to claim retirement allowances, etc. was disputed between the Plaintiffs and the Defendant, which led to the instant lawsuit, and thus, it is difficult to recognize the establishment of the Defendant’s obligation to withhold income tax, such as income tax. However, considering the reasoning of the lower judgment and the first instance judgment, the evidence revealed in the record of the instant case, and the contents of both parties’ assertion, it appears that there was no dispute over the Defendant’s obligation to pay retirement income to the Plaintiffs and its amount itself, and that the issue of whether the payment of interest was delayed or its appropriation was appropriated.

Therefore, the court below should calculate the amount of legitimate income tax, etc. paid by the defendant as a withholding agent on November 15, 2006 from the original retirement income amount, after deducting the amount of the income tax, etc., which is recognized as retirement income for the plaintiffs, and then examine how each payment was made after calculating the amount of the interest for arrears. On the other hand, the court below rejected the defendant's assertion of withholding tax deduction on the above grounds, and recognized the retirement income amount to be paid to the plaintiffs as the amount including the amount already paid as income tax, etc., the court below erred by misapprehending the legal principles on the deduction of withholding tax when calculating the amount of the income to be paid by the withholding agent, which affected the conclusion of the judgment (On the other hand, according to the judgment of the court of first instance cited by the judgment of the court below, the amount paid by the defendant to the plaintiff 1 on February 4, 2008 is less than 40,000 won in the payment column of the defendant company and the amount appropriated for the interest for arrears.

2. As to the assertion that the payment of interest in arrears constitutes a ground for exclusion under the Labor Standards Act

(1) The Defendant asserted that there was a reason to exclude interest in arrears as stipulated in Article 37(2) of the Labor Standards Act and Article 18 subparag. 4 of the Enforcement Decree of the Labor Standards Act, since the Defendant failed to secure the financial resources to pay retirement allowances because of the worker’s illegal occupancy of factories, etc. led by the labor union. However, the lower court rejected it on the ground that there was no evidence to acknowledge such fact.

Examining the record of evidence, etc. adopted by the court below, the above recognition and judgment of the court below are justifiable. There is no violation of law of logic and experience beyond the bounds of the principle of free evaluation of evidence against the law of logic and experience.

(2) The Defendant asserted that there is a reason to exclude interest in arrears under Article 18 subparag. 3 of the Enforcement Decree of the above Act since the existence of all or part of the wage and retirement benefits delayed payment in this case is appropriate to the court or the Labor Relations Commission. However, the lower court determined that such assertion cannot be accepted as long as the Plaintiffs’ claim is accepted.

Since the defendant's assertion that withholding tax should be deducted as seen earlier is reasonable, the court below's reasoning that all claims are accepted is inappropriate. However, examining the reasoning of the court of first instance cited by the court below and the court of first instance as well as the evidence as cited by the court of first instance, the scope of rejection of the plaintiffs' claims according to the defendant's argument in this case is limited to the smaller part of the total amount of claims, and it does not seem to be the cause of delaying the payment of retirement allowances, etc. to the plaintiffs, and there is no evidence to acknowledge that the dispute as to the existence of retirement allowances, etc. is appropriate for the court or the Labor Relations Commission to dispute the existence of retirement allowances, etc. against the plaintiffs

3. Conclusion

Therefore, 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 Sang-hoon (Presiding Justice)