Plaintiff

Head of the Distribution Tax Office and one other (Government Law Firm, Attorney Kim Young-jin, Counsel for the defendant-appellant)

November 2, 2011

Seoul Administrative Court Decision 2011Guhap5155 decided June 3, 2011

1. Revocation of a judgment of the first instance;

2. On August 22, 2007, the value-added tax imposed on the Plaintiff on January 7, 2002, 7,381,04 won, 202, 7,525,219 won, 7,215,87 won, 203, 7,414,042 won, 203, 204, 7,194, 94, 95 won, 92, 155 won, 27,092,15 won, 205, 12,863,063, 12,016, 205, 205, 207, 363, 208, 206, 364, 208, 206, 206, 363, 208, 206, 364, 206, 207, 36363, 2863, 2, 2, 3667

3. The total costs of the lawsuit shall be borne by the Defendants.

The same shall apply to the order.

1. Details of disposition;

The reason why this Court may use this part is the corresponding part of the judgment of the court of first instance, except for the addition of the “after the preparation of the “after the third nine nineth place” (no omission or error was found with respect to the contents reported by Nonparty 1, who is the wife of the plaintiff). It shall be cited in accordance with Article 8(2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act.

2. Whether each disposition of this case is legitimate

A. The plaintiff's assertion

A tax investigation may commence only when there exist grounds prescribed by each subparagraph of Article 81-5(2) of the former Framework Act on National Taxes (amended by Act No. 8139, Dec. 30, 2006; hereinafter the same). The Seoul Regional Tax Office erred by misapprehending the Plaintiff and Nonparty 1, who did not have any relevant reason. Even if Nonparty 1 had a reason to initiate a tax investigation, Nonparty 1 submitted relevant data in the course of the tax investigation and explained all the source of the funds for acquiring land and buildings (hereinafter “influent real estate”) in Seocho-gu Seoul Metropolitan Government ( Address 1 omitted) (hereinafter “influent real estate”). However, the tax official requested financial transaction information to the financial institution according to the practice without examining the supporting materials submitted, and used the obtained materials as taxation data for the Plaintiff.

Each disposition of this case against the plaintiff is unlawful as it was conducted based on the tax investigation voluntarily commenced.

The Defendant received financial transaction information from Nonparty 1 in violation of the Act on Real Name Financial Transactions and Confidentiality for the purpose of tax investigation after voluntarily conducting a tax investigation with respect to Nonparty 1. The instant disposition is also unlawful in that it was made by using illegally collected taxation data in the course of tax investigation with respect to Nonparty 1.

(b) Related statutes;

Attached Table 1 is as stated in the relevant Acts and subordinate statutes.

C. Determination

According to Article 81-5(1) of the former Framework Act on National Taxes, a tax official shall presume that a taxpayer is sincere and a taxpayer’s return, etc. submitted by him/her is true. Paragraphs 2, 3, and 4 of the same Article clearly state the grounds for commencing a tax investigation by excluding the presumption of loyalty with the taxpayer. In light of the enormous influence of a tax investigation on the taxpayer’s property right or business, various side effects that may arise when the tax authority conducts a tax investigation without permission, a tax investigation may commence only when it falls under the grounds prescribed by the Act, and whether it falls under the grounds for commencing a tax investigation shall be strictly interpreted.

On the other hand, in principle, the defendant bears the burden of proving that the tax assessment was lawful with respect to the facts that constitute taxation requirements, such as the tax cause and tax base amount. Thus, the defendant must prove that the tax investigation was lawfully commenced.

The following facts are acknowledged in light of the overall purport of the pleadings in evidence Nos. 2, 3, 7, 1, 2, and 1, 2. The Seoul Regional Tax Office determined that the source of funds is unclear in light of the tax return data or electronic data, etc. already secured in relation to the acquisition of real estate by Nonparty 1 to KRW 2.867 million on June 10, 2004. The Seoul Regional Tax Office concluded that the Plaintiff, the husband of Nonparty 1, owns the land and buildings Seocho-gu Seoul Metropolitan Government ( Address 2 omitted), and carries on real estate leasing business. The Seoul Regional Tax Office concluded that there is a high possibility that the Plaintiff, the husband of Nonparty 1, would have donated the funds created by the Plaintiff from the omission of the rent income to Nonparty 1 as the real estate acquisition fund at issue. Accordingly, the Seoul Regional Tax Office decided to conduct the instant tax investigation against the Plaintiff and Nonparty 1.

The defendant asserts that the tax investigation of this case against the plaintiff constitutes a ground under Article 81-5 (2) 1, 4, 5, and (4) of the former Framework Act on National Taxes, Article 34 of the former Regulations on the Management of Investigations (wholly amended by National Tax Service Directive No. 1661, Jul. 27, 2007; hereinafter the same) and that the tax investigation of this case was lawfully commenced.

① The grounds for tax investigation under Article 81-5(2)1 of the former Framework Act on National Taxes refer to cases where a taxpayer fails to perform his/her duty to cooperate in tax payment, such as filing a return, tax invoice or statement of account, preparation, submission, submission of payment records, and submission prescribed by tax-related Acts. The results of the tax investigation of this case reveal that the details of the report filed by the Plaintiff are partly different from the facts, and there is no evidence to acknowledge that the Plaintiff failed to perform its duty to cooperate in tax payment as prescribed by

② The reason for the tax investigation under subparagraph 4 is “where there is clear evidence to prove the omission or error in the details of the return.” The head of the Seoul Regional Tax Office determines that the source of the tax return or electronic data already secured by Nonparty 1 regarding the acquisition of high-priced real estate was unclear in light of the current status of Nonparty 1’s property, and did not have clear evidence to acknowledge the omission or error in the details of the return itself. The source of the funds to acquire real estate is the Plaintiff, and the suspicion that the Plaintiff had raised the relevant funds by omitting the rental income is not based on clear evidence, but based on a vague trend.

③ The reason for the tax investigation prescribed in subparagraph 5 is that “the Commissioner of the National Tax Service acknowledges that there exists a suspicion of falseness as a result of the analysis of the details of the taxpayer’s return.” The Defendant does not submit any result of the analysis of the content of the return to Nonparty 1 as well as the Plaintiff until the closing of pleadings at the trial. The head of the Seoul Regional Tax Office has analyzed the content of the Plaintiff’s return in good faith, and there is no evidence that there was no reason to acknowledge that there was a suspicion of falseness.

④ The reason for tax investigation under Article 81-5(4) of the former Framework Act on National Taxes is “a case where the head of the Seoul Regional Tax Office determines the tax base and the amount of tax for the items of taxation for which tax base and the amount of tax are determined through the investigation and determination of the relevant tax office.” The reason for tax investigation conducted by the head of the Seoul Regional Tax Office is Article 81-5(2) of the former Framework Act on National Taxes while commencing the instant tax investigation. The Defendant added the above reason during the trial proceeding. Not only is it difficult to view the two as identical from the basic facts, but also the tax items to be investigated against the Plaintiff are “integrated investigation of individual taxes (integrated investigation of

(5) The grounds for tax investigation prescribed in Article 34(1) of the former Regulations on the Management of Tax Investigations mean that “where a related person, such as a related person who has invested or has transactional relations, is selected as a person subject to tax investigation in consideration of the efficiency of the investigation, convenience of taxpayers, etc. in conducting a tax investigation, or there is a suspicion of tax evasion, the relevant person may be investigated at the same time.” The former Regulations on the Management of Tax Investigations may commence only if the grounds prescribed by the Act are applicable. However, the former Regulations merely stipulate the internal business rules of the National Tax Service regarding the procedures for tax investigation, and do not delegate the authority to prescribe the grounds for commencement of the tax investigation to the Commissioner of the National Tax Service, and there is no binding effect on the people and the court. In addition, according to the above provisions, it is difficult to view that the related person has a special relationship merely with the purport that the former person subject to tax investigation may conduct the simultaneous investigation with the specific person subject to tax investigation. This should also be viewed as having provided for a separate reason for commencement of the tax investigation.

The instant tax investigation against the Plaintiff is unlawful as it does not fall under the grounds for commencement of the tax investigation under the former Framework Act on National Taxes. Each of the instant dispositions is unlawful as it was based on the tax investigation illegally commenced.

3. Conclusion

The judgment of the first instance shall be revoked. Each disposition of this case shall be revoked.

[Attachment Form 7]

Judges Kim Jong-dae (Presiding Judge)