[1] Where the nominal owner of the taxable object and the actual control or manager are different, the person liable for tax payment (=person in actual control or manager) and the standard for determining whether the taxable object belongs to such case

[2] In a case where the title of transaction, etc. and the actual owner of the transaction, etc. conflict with each other, the person who bears the burden of proof as to the existence of the taxable fact and the tax base (i.e., the tax authority in principle), and in a case where the tax authority imposed tax on the business title by deeming the business title as the actual business owner, whether the business title holder needs to assert and prove that the title of transaction, etc. and the actual owner

[3] The case holding that in a case where Gap entered into an independent accounting agreement with Eul corporation, and sold refined oil produced by Eul corporation under the name of Eul corporation by using the title of Eul corporation's business director at the Eul corporation's business office, and Eul reported and paid corporate tax and value-added tax by adding up the purchase and sale of the above business office, and the tax authority imposed a disposition, such as value-added tax, on Eul corporation regarding the business of the above business office as the business of Eul corporation, the above disposition is unlawful since it violated the principle of substantial taxation

[1] Article 14(1) of the Framework Act on National Taxes declares the principle of substantial taxation by stating that “if the ownership of income, profit, property, act, or transaction subject to taxation is nominal and there is a separate person to whom such ownership belongs, the person to whom such ownership belongs shall be liable to pay taxes and the tax law shall apply.”

Therefore, in cases where there is a person who substantially controls and manages a taxable subject to income, profit, property, act, transaction, etc. different from the nominal owner, the nominal owner on account of form and appearance shall not be the person who actually controls and manages the taxable subject to taxation pursuant to the substance over form principle, rather than the nominal owner as the person liable for duty payment. Furthermore, whether such a case is a case should be determined by comprehensively taking into account various circumstances such as the details of the use of name, the content of the agreement by the relevant party, the degree and scope of the nominal owner’s involvement, the relationship

[2] In principle, the tax authority bears the burden of proving the existence and the tax base of the taxation requirement. This also applies to the case where the tax authority contests that the nominal owner of the transaction, etc. and the substantial owner of the transaction, etc. are different, barring special circumstances, such as a separate legal provision converting the burden of proof. However, as long as the tax authority considers the nominal owner as the actual business operator and imposed tax, it is necessary for the business operator to assert and prove that the nominal owner of the transaction, etc. is different from the actual owner of the transaction, etc. so long as the taxation is imposed, the burden of proof is sufficient to the extent that the judge has a reasonable doubt about the fulfillment of the taxation requirement. As a result, it is unclear whether the substance of the transaction, etc. belongs to the nominal owner, and if it becomes impossible to have the judge conviction, then the disadvantage

[3] In a case where Party A entered into an independent accounting agreement with Party B, and sold refined oil produced by Party B under the name of Party B by using the title of the business director of Party B at the company’s business office, and Party B reported and paid the corporate tax and value-added tax by adding up the purchase and sale of the above business office, and the tax authority imposed a disposition, such as value-added tax, on Party B regarding the business of the above business office as the business entity of Party B, the case holding that Party A supplied refined oil from Party B and sold it independently under his responsibility and calculation, and thus, the transaction of the above business office and the income accrued therefrom belong to Party A, and thus, the above disposition is unlawful as it violates the principle of substantial taxation.

[1] Article 14(1) of the Framework Act on National Taxes / [2] Article 14(1) of the Framework Act on National Taxes; Article 4 of the former Corporate Tax Act (wholly amended by Act No. 10423, Dec. 30, 2010); Article 21(1)2 (see current Article 57(1)2) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013); Article 14(1) of the Framework Act on National Taxes; Article 4 of the former Corporate Tax Act (wholly amended by Act No. 10423, Dec. 30, 2010); Article 21(1)2 (see current Article 57(1)2 (see current Article 57(1)2) of the former Value-Added Tax Act)

Doki Industry Co., Ltd. (Attorneys O Young-young et al., Counsel for the defendant-appellant)

Head of Dong District Office

Daejeon High Court (Cheongju) Decision 2010Nu468 decided April 13, 2011

The appeal is dismissed. The costs of appeal are assessed against the defendant.

1. Article 14(1) of the Framework Act on National Taxes declares the principle of substantial taxation by stipulating that “If the ownership of the income, profit, property, act, or transaction subject to taxation is nominal and there is a separate person to whom such ownership belongs, the person to whom such ownership belongs shall be liable to pay taxes and to whom the tax law shall apply.”

Therefore, in cases where there is a person who substantially controls and manages a taxable subject to income, profit, property, act, transaction, etc. different from the nominal owner, the nominal owner on account of form and appearance shall not be the person who actually controls and manages the taxable subject to taxation in accordance with the substance over form principle, rather than the nominal owner as the person liable for duty payment. Furthermore, whether such a case is a case should be determined by comprehensively taking into account various circumstances such as the details of the use of name, the content of the agreement between the parties concerned, the degree and scope of the nominal owner’s involvement, internal responsibility and

Meanwhile, in principle, the tax authority bears the burden of proving the existence of tax requirements and the tax base. This also applies to cases where the tax authority contests that the nominal owner of the transaction, etc. is different from the actual owner of the transaction, etc., barring any special circumstance, such as a separate legal provision converting the burden of proof. However, as long as the tax authority imposed tax on the nominal owner by deeming the nominal owner as the actual business owner, it is necessary for the business owner to assert and prove that the nominal owner of the transaction, etc. is different from the actual owner of the transaction, etc. In this case, the need for proof is sufficient to the extent that the judge would have a reasonable doubt as to the fulfillment of the tax requirements. As a result, it is unclear whether the substance of the transaction, etc. belongs to the nominal owner, and if it becomes impossible to obtain conviction from the judge, then the disadvantage incurred therefrom is returned to the tax authority that bears the ultimate burden of proof. Accordingly, the assertion and burden of proving that the nominal owner is entitled to the taxation prior to the repeal of Article 16 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 196488.2, Jun. 19, 19, 197.

2. According to the reasoning of the lower judgment, the lower court acknowledged the following facts: (a) the Defendant’s liability to assert and prove that it is possible to impose tax on the actual owner of the oil, etc. on Nonparty 1, who is not the nominal owner, by settling accounts in the name of the Plaintiff; (b) based on the evidence adopted by Nonparty 1, sold refined oil produced by the Plaintiff under the name of the Plaintiff while using the Plaintiff’s title of business at the Daejeon Daejeon World Trade Organization in accordance with an independent accounting arrangement concluded with the Plaintiff; and (c) the Plaintiff reported and paid corporate tax and value-added tax by adding the purchase and sale of the head office and the sales of the Daejeon Daejeon Daejeon Trade Organization to the Plaintiff at the time of the Plaintiff’s purchase and sales of the said Daejeon’s account; and (b) determined that the Plaintiff’s independent sales agreement, which was concluded between the Plaintiff and the Plaintiff’s employee, was unlawful; and (c) the Plaintiff’s independent sales and sales of the instant building, which was in violation of the Plaintiff’s sales agreement.

In light of the aforementioned legal principles and records, the court below erred by misapprehending the legal principles of the previous precedents that the burden of proof is converted to the other party to the taxation disposition in a case where there is a difference between the name and the substance of the transaction, etc., but the court below actively recognized the transaction of the Daejeon Daejeon Daejeon Daejeon Business Office and judged the propriety of the instant disposition based on it, which did not lead to any error in finding the facts. Thus, the misapprehension of the legal principles as to the burden of proof did not affect the conclusion of the judgment. Meanwhile, in light of the above legal principles, the ultimate burden of proof on the actual transaction, etc. is still borne by the tax authority. Accordingly, it is proper for the court below to find the above facts, and there is no error of law by misapprehending the legal principles as to the method of determining the actual owner to apply the principle of substantial taxation, or by failing to exhaust all necessary deliberations, which affected the conclusion of the judgment, contrary to logical and empirical rules.

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ko Young-han (Presiding Justice)