Whether not only the grounds for tax authorities’ rectification of increase but also the grounds for excessive report on the initial report can be asserted in an appeal litigation seeking revocation of a disposition of increase correction (affirmative)

A disposition to increase tax base and tax amount is not a disposition to additionally determine the tax base and tax amount originally reported by the original taxpayer or the tax amount determined by the tax authority as they are, but also a single tax base and tax amount as a whole including the tax base and tax amount finalized in the initial return or determination. Thus, regardless of the lapse of the objection period against the initial return or determination, only the disposition to increase tax becomes the object of an appeal litigation regardless of whether the initial return or determination has expired, and whether the amount of tax is unlawful in an appeal litigation seeking the cancellation of the disposition to increase tax base and tax amount should be determined by whether the initial return exceeds the legitimate tax amount. The grounds for excessive report or the grounds for tax authority’s correction are merely an illegal reason supporting the illegality of the disposition to increase tax base and tax amount. All appeals litigation on the request for correction or tax disposition are all appeals for the same purpose with the same purpose to determine the existence of justifiable tax base and tax amount, and it is inconsistent with the protection of the rights and interests of the taxpayer or the litigation economy of the tax authority.

Article 45-2(1)1 and 2 of the former Framework Act on National Taxes (Amended by Act No. 8830, Dec. 31, 2007); Article 21(1)2 of the former Value-Added Tax Act (Amended by Act No. 8826, Dec. 31, 2007);

Supreme Court Decision 2002Du9261 Decided August 16, 2004 (Gong2004Ha, 1550) Supreme Court Decision 2004Du9197 Decided November 10, 2005 (Gong2005Ha, 1982) (amended) Supreme Court Decision 2006Du17390 Decided May 14, 2009 (Gong2009Sang, 891Sang, 201Du48555 Decided March 29, 2012)

Plaintiff 1 and one other

The director of the tax office

Seoul High Court Decision 2009Nu35605 decided May 27, 2010

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

The grounds of appeal are examined.

1. As to the grounds of appeal on the principle of fair taxation

Based on the reasoning of the judgment of the court of first instance, the court below acknowledged the following facts: (a) the Defendant sent a guide to the effect that in the event of non-compliance with the notification of the value-added tax for the taxable period from the 1st to the 1st 2006 period on the basis of the non-party’s tax invoice for the non-party issuance of the non-party, the Defendant would be able to impose tax on the whole of the taxable period in question if the non-compliance with the notification of the revised return was issued; and (b) the Defendant issued a revised disposition of value-added tax for the said three taxable periods only for the said three taxable periods; (c) the non-compliance with the notification of the revised return was issued for the 11 taxable periods for the non-compliance with the notification; and (d) the Defendant issued a revised disposition for the whole six taxable periods for the non-party’s six taxable periods (hereinafter “each disposition of this case”); and (e)

The above judgment of the court below is just and acceptable, and there is no error in the misapprehension of legal principles as to the principle of fair taxation. The ground of appeal on this part is without merit.

2. As to the grounds of appeal on the service of the revised report guide

The plaintiffs' allegation in this part of the grounds of appeal is nothing more than an error of the selection of evidence or fact-finding, which belongs to the exclusive jurisdiction of the court below, and therefore cannot be a legitimate ground of appeal.

3. As to the grounds of appeal on processing sales

A. Article 45-2(1) of the former Framework Act on National Taxes (amended by Act No. 8830, Dec. 31, 2007; hereinafter “Framework Act on National Taxes”) provides that “any person who has filed a return of tax base within the statutory due date of return may request the head of the competent district tax office to determine or correct the tax base and amount of the national tax for which the initial return and the revised return have been filed within three years after the statutory due date of return, in any of the following cases (where a determination or correction is made pursuant to the provisions of each tax-related Act, referring to the tax base and amount of tax after such determination or correction is made).” Article 45-2(1)1 provides that “Where the tax base and amount of tax recorded in the return of tax base exceeds the tax base and amount that must be reported under the tax-related Acts,” and subparagraph 2 provides that “if the deficit or

Article 21(1) of the former Value-Added Tax Act (amended by Act No. 8826 of Dec. 31, 2007) provides that “The head of a district tax office having jurisdiction over a place of business, the head of a district tax office having jurisdiction over a place of business, the head of a district tax office having jurisdiction over a place of business, or the Commissioner of the National Tax Service shall determine or correct the tax base of value-added tax or the amount of refundable tax for the taxable period only in the following cases.”

B. In a case where the tax authority made a disposition of increased correction on the grounds that there are errors or omissions in the tax base and amount reported by the taxpayer, the taxpayer can file a request for correction on the disposition of increased correction pursuant to Article 45-2(1) of the Framework Act on National Taxes, and the system of a request for correction does not prevent the filing of an appeal litigation on the disposition of imposition of the tax amount itself. Thus, the taxpayer may dispute the disposition of increased correction by filing an appeal suit seeking revocation of the disposition of increased correction, separate from the application for correction (see Supreme Court Decision 2001Du5989, Sept. 27

A disposition to increase tax base and tax amount is not a disposition to additionally determine only the tax base and tax amount originally reported by the original taxpayer or determined by the tax authority without additional determination of the tax base and tax amount as they are, but also a single tax base and tax amount as a whole including the tax base and tax amount finalized in the initial return or determination. Thus, regardless of whether the objection period against the initial return or determination has expired or not, only the disposition to increase tax becomes subject to appeal litigation (see, e.g., Supreme Court Decisions 2006Du17390, May 14, 2009; 201Du4855, Mar. 29, 2012). In an appeal litigation seeking revocation of the increase tax base and tax amount, the determination of illegality of the increase tax disposition should be made based on whether the tax amount exceeds legitimate tax amount, and the reason to increase tax return or tax authority’s grounds to request revocation of the tax base and tax amount in the initial return is an unlawful reason that supports the illegality of the increase disposition (see Supreme Court Decision 2002Du9261, Aug. 16, 2004).

In contrast, Supreme Court Decision 2004Du9197 Decided November 10, 2005, which held that even if sales, etc. are overreported with respect to value-added tax, which is a tax on the method of filing a tax return, a taxpayer shall file a request for correction of the amount of tax in order to challenge it, and that a taxpayer cannot claim the grounds for excessive return in a lawsuit seeking revocation of a tax disposition by the tax authority, should be modified to the extent inconsistent with this.

C. Therefore, in this case where the plaintiffs asserted the grounds for excessive report of the processing turnover, the court below should have deliberated and confirmed the processing turnover among the sales revenue in the pertinent taxable period by the plaintiffs, and should have judged the illegality of each disposition of this case by calculating the reasonable tax amount after excluding the tax base of value-added tax reported by the plaintiffs. However, the court below rejected the plaintiffs' assertion that the taxpayer can object to the procedure of a request for reduction correction, etc. even if the portion reported by the taxpayer as to the value-added tax, which is a tax on the method of tax return, is confirmed by the return and the sales are excessive, and the taxpayer can not dispute the tax base and tax amount confirmed by the report, and determined that each disposition of this case is legitimate. In this case, the court below erred by misapprehending the legal principles as to the scope of grounds for objection against the taxpayer who filed an excessive report in the appeal litigation seeking the revocation of the increase correction disposition, which affected the conclusion of the judgment. The ground for appeal pointing this out is with merit.

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 Yang Sung-tae (Presiding Justice)