C&C Co., Ltd. (Law Firm LLC, Attorneys Choi Yong-hwan et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

April 24, 2014

Seoul Administrative Court Decision 2010Guhap39120 decided August 27, 2013

1. All appeals filed by the plaintiff and the defendant are dismissed.

2. The costs of appeal shall be borne by each party.

1. Purport of claim

The Defendant’s disposition of corporate tax (original part) on the dividend income accrued in the business year 2003 against the Plaintiff on December 1, 2008 and disposition of tax collection of KRW 397,023,90 on the dividend income accrued in the business year 2003 and disposition of corporate tax (original part on the capital gains accruing from securities) on corporate tax accrued in the business year 2004 shall be revoked in all exceeding KRW 285,750,215 in the disposition of imposition of KRW 1,267,709

2. Purport of appeal

A. The part of the judgment of the court of first instance against the plaintiff is revoked. The part of the judgment of the court of first instance that exceeds 285,750,215 won among the disposition of imposition of corporate tax (income from the transfer of securities) accrued in the business year 2004 against the plaintiff on December 1, 2008, which was imposed by the defendant as additional tax 1,267,709,715 won is revoked.

B. Defendant: The part against the Defendant in the judgment of the first instance is revoked, and the Plaintiff’s claim corresponding to the revoked part is dismissed.

1. Quotation of judgment of the first instance;

The reasoning of this court's reasoning is as follows: (a) part of the reasoning of the judgment of the court of first instance is written as follows; and (b) the reasoning of the judgment of the court of first instance is as stated in the reasoning of the judgment of the court of first instance, except for the addition of the judgment of the plaintiff and the defendant as stated in Paragraph (3) below; and (c) thus, it is cited in accordance with Article 8 (2) of the Administrative Litigation Act

2. Parts to be dried;

A. Article 26-2(1) of the former Framework Act on National Taxes and Article 12-3(2) of the former Enforcement Decree of the Framework Act on National Taxes are not applicable to the obligation of the Plaintiff to pay corporate tax withheld at source with respect to the dividend income of this case, and Article 27(1) of the former Enforcement Decree of the Framework Act on National Taxes is only applicable to the period of exclusion of the right to impose. However, since the Plaintiff’s obligation to pay corporate tax withheld at source with respect to the dividend income of this case is automatically confirmed by law without the exercise of the tax authority, the provision of Article 26-2(1) of the former Framework Act on National Taxes and Article 12-3(2) of the former Enforcement Decree of the Framework Act on National Taxes are not applicable to the period of exclusion of the right to impose, and the period of extinctive prescription under Article 27(1) of the same Act can only be applied (see Supreme Court Decision 95Nu4056, Mar. 12, 1996).

B. Article 93 subparag. 2 of the former Corporate Tax Act provides that “Article 93 subparag. 2 of the former Corporate Tax Act” of Article 93 subparag. 10(a) of the former Corporate Tax Act shall be applied to Article 98 of the first instance judgment.

3. Additional determination

A. Judgment on the Plaintiff’s assertion

(1) Summary of the Plaintiff’s assertion

(A) The Plaintiff, which is a corporation issuing the instant securities transfer income, did not directly pay the instant securities transfer income to the instant foreign corporation. Thus, it does not constitute a “person who paid income to a foreign corporation” that bears the duty to submit a statement of payment. Therefore, the Plaintiff is not obliged to submit a statement of payment to the Plaintiff. However, the disposition imposing the instant penalty tax on the Plaintiff on the premise that the Plaintiff has the duty to submit a statement of payment on the transfer income

(B) With respect to the income of 41.8% of the transfer income of the instant securities, the tax authority is not treated as non-taxation or exemption due to the Plaintiff’s application for non-taxation or exemption, but as non-taxation in accordance with the relevant tax treaty in the course of the tax investigation with respect to the Plaintiff. Therefore, even if the Plaintiff did not submit the payment record for the portion corresponding to the above 41.8% of the transfer income of the instant securities without filing an application for non-taxation or exemption, the Plaintiff cannot submit the payment record to the Plaintiff as to the portion corresponding to the above 41.8% of the transfer income of the instant securities, taking into account the purport of the system for submitting the payment record into account. Therefore, it is reasonable to view that the Defendant

(2) Determination

(A) As to the first argument

1) On the other hand, Article 120 of the former Corporate Tax Act (amended by Act No. 9267 of Dec. 26, 2008; hereinafter “Corporate Tax Act”) which applies to the disposition of imposing additional tax of this case provides that “A withholding agent shall submit a statement of payment to the head of the tax office having jurisdiction over the place of tax payment as prescribed by the Presidential Decree.” The proviso of Article 98(6) of the Corporate Tax Act provides that “if, however, where shares already issued are transferred in cases where shares are listed under the Securities and Exchange Act, the corporation that issued the relevant shares shall withhold taxes.” Furthermore, Article 162 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 21302 of Feb. 4, 2009; hereinafter “Enforcement Decree”) which applies to the disposition of this case provides that “A withholding agent shall submit a statement of payment to the head of the tax office having jurisdiction over the place of tax payment except as otherwise provided in this Decree, and Article 162-2(3)(6) of the Enforcement Decree provides that “the corporate tax shall be withheld.”.

2) In light of the circumstances, etc. in which a foreign corporation added the proviso of Article 98(6) of the Corporate Tax Act to resolve the problem that is practically difficult to withhold taxes from the foreign corporation in the case of listing through the content, structure, and old subscription sale method (Evidence A, No. 11), it is reasonable to view that the Plaintiff, as a withholding agent of the instant securities corresponding to the capital gains from the transfer of the said stocks, is obligated to submit a statement of payment to the tax authority, as a withholding agent for the instant securities equivalent to the capital gains from the transfer of the said stocks, pursuant to the provisions of the Enforcement Decree of the instant case, in light of the circumstance that the foreign corporation would be deemed to have provided that the issuing corporation should also be liable for withholding taxes from the foreign corporation (Evidence A, No. 11). Accordingly, this part of the Plaintiff’s assertion asserted on a different premise is not acceptable.

3) As to this, the Plaintiff asserts that the enforcement decree of this case was created without delegation of Article 120-2(1) of the Corporate Tax Act, a mother corporation, which provides that a person who actually pays domestic source income to a foreign corporation shall submit a statement of payment, and thus, cannot be a legal basis for imposing additional tax in violation of the principle of no taxation without law.

Therefore, one of the important criteria for determining which provision goes beyond the scope of delegation by the mother law is predictability. This means that the content of the enforcement decree in question is already specifically delegated by the mother law itself, and it must be within the scope that can be predicted by the mother law itself. The existence of such predictability is not determined by only one of the pertinent specific provisions, but should be determined by systematically and systematically considering the legislative purport of the law (see, e.g., Supreme Court Decision 2013Du1829, May 23, 2013). Furthermore, the enforcement decree or the enforcement decree of the law can not change or supplement the contents of individual rights and obligations or determine new contents that are not prescribed by the law, but can not be seen as having been systematically and systematically examined in the legislative purport of the mother law in question and the entire provision of the parent law, and it cannot be seen as being invalid if it does not go beyond the scope of the mother law itself (see, e.g., Supreme Court Decision 2019Du1979, Jan. 29, 2019).

However, the purport of the former Enforcement Decree of the Corporate Tax Act, which can be seen as a delegation provision of Article 120(1) of the Corporate Tax Act, can be expected to have the head of the tax office with respect to the provision of this case, which can be seen as a delegation provision of the Enforcement Decree, bear the duty to submit the payment record if it falls under a withholding agent. ② In the case of listing a company through old stock sale, the provisions of the Enforcement Decree of the Corporate Tax Act, which provides that a foreign corporation should bear the duty to withhold capital gains on the pertinent stocks in order to prevent the issue of impossibility of withholding taxes on the stocks sold by it, also bears the duty to submit the payment record to the issuing corporation in accordance with the proviso of Article 98(6) of the Corporate Tax Act. ③ Furthermore, the provision of this case does not only be newly established under the above provision, but also be newly established under the above provision that stipulates or concrete that the withholding agent should submit the payment record on the basis of the parent corporation’s duty to withhold taxes under the proviso of Article 98(6) of the Corporate Tax Act, which is unconstitutional and thus, cannot be accepted within the scope of delegation provision in this case.

(B) On the second argument

In light of the above legal principles, the Plaintiff’s obligation to submit a statement of domestic source income of a foreign corporation under Article 120-2(1) of the Corporate Tax Act shall be limited to cases where it is confirmed that the Plaintiff is subject to non-taxation or exemption pursuant to Article 98-4 of the Corporate Tax Act, or where it is recognized that the exception provided for in each subparagraph of Article 162-2(1) of the Enforcement Decree of the Corporate Tax Act is acknowledged. As prescribed by Article 98-4 of the Corporate Tax Act, the Plaintiff did not file an application for non-taxation or exemption of the capital gains of this case with the tax authority as to the capital gains of this case. Furthermore, the above capital gains does not appear to have any exception to the duty to submit a statement of payment under the Enforcement Decree of the Corporate Tax Act. Furthermore, even if the Plaintiff’s principal tax cannot be imposed upon the Plaintiff’s request for non-taxation or exemption of the capital gains tax pursuant to Article 98-4 of the Corporate Tax Act, this case’s taxation authority’s imposition of non-taxation or exemption of the capital gains tax cannot be deemed unlawful.

B. Judgment on the defendant's assertion

(1) The defendant's argument

(A) On March 18, 2008, prior to the expiration date of the extinctive prescription of the right to collect corporate tax on the dividend income paid on September 19, 2003 ( October 10, 2008), which falls under the disposition of collecting the corporate tax of this case, the Defendant notified the Plaintiff of the pre-announcement of taxation (hereinafter “pre-announcement of taxation of this case”) and the Plaintiff requested the National Tax Service to review the propriety of the taxation before taxation. Accordingly, the Defendant has no choice but to withhold the determination of the tax amount on the above dividend income during the review period upon the Plaintiff’s request for review on the legality review (hereinafter “the review period on legality”), and it is reasonable to view that the statute of limitations of the right to collect corporate tax of this case has been suspended during the review period on legality of the corporate tax of this case. Therefore, it cannot be deemed that the statute of limitations of the right to collect the corporate tax of this case

(B) The notice of taxation of this case is an administrative act conducted prior to the tax payment notice for the relief of taxpayer’s rights, and if it is determined by applying the Civil Act mutatis mutandis pursuant to Article 27(2) of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter “Framework Act on National Taxes”) that applies to this case, it is a cause for suspending extinctive prescription corresponding to the peremptory notice under Article 174 of the Civil Act. Furthermore, as long as the defendant has deferred the notice of determination of the amount of tax to be collected during the period of review of the Plaintiff’s request for review as to the propriety of the judgment prior to the tax payment of this case, it is reasonable to view that the collection disposition of the corporate tax of this case continues to be “peremptory notice” during

(2) Determination

(A) As to the first argument

In addition, Article 28(3) of the Framework Act on National Taxes provides that "the period of installment payment under tax-related Acts, the period of deferment of collection, the grace period for disposition on default, the period of payment by annual installments, and the period during which a tax official filed a lawsuit for revocation of a fraudulent act under Article 30 of the National Tax Collection Act, and there is no provision regarding the period for review of legality like the defendant's assertion. ② In addition, Article 27(2) of the Framework Act on National Taxes provides that the extinctive prescription shall be governed by the Civil Act except as otherwise provided in the Framework Act on National Taxes or the tax-related Acts. However, Articles 179 through 182 of the Civil Act provide that the suspension period of prescription under Articles 179 through 182 of the Civil Act does not include the "Suspension of prescription" that is not included in the prescription period for a certain period of suspension as provided in the above Article 28(3) of the Framework Act on National Taxes, and in light of the facts that the extinctive prescription period can not be suspended during the trial period as alleged by the defendant.

(B) On the second argument

On the other hand, Article 28(1) of the Framework Act on National Taxes only provides for the interruption of extinctive prescription, “the notice of tax payment, demand or demand for payment, demand for delivery, and seizure.” As such, the notice alleged by the Defendant does not constitute a cause for interruption of extinctive prescription under the above Framework Act on National Taxes; ② the notice alleged by the Defendant is merely a prior notice that a certain amount of tax should be imposed on a taxpayer in the future; and ② it is deemed insufficient to view it as a direct notification of intent to seek performance on a taxpayer. ③ Furthermore, even if the notice of tax notice as alleged by the Defendant is acknowledged as a peremptory notice which is a cause for interruption of extinctive prescription under the Civil Act, it is merely a provisional measure under the Civil Act, and thus, it is necessary to take additional measures such as a judicial claim within six months. In addition, considering that the Defendant’s prior notice of tax notice as alleged by the Defendant does not take effect on the basis of the instant prior notice of tax imposition based on the Civil Act only for a series of procedures such as the Plaintiff’s request for review of taxation prior notice, as alleged by the Defendant, it cannot be accepted.

4. Conclusion

If so, the judgment of the court of first instance is legitimate, and all appeals by the plaintiff and defendant are dismissed.

Judges Kim Dong-ok (Presiding Judge) Gyeong-gu