Appellate Court 2016No1634 (Law No. 24, 2016)

In case where a person with wage and salary income and other income fails to file a final tax return on global income tax, the exclusion period for imposition of seven years shall apply.

In the event that a year-end tax settlement on wage and salary income was conducted and a final tax return on global income was not filed, and other income is later found, the period for exclusion from imposition of seven years is applied in accordance with Article 26-2(1)2 of the Framework Act on National Taxes since the income tax for the pertinent taxable year was not underreported

Article 26-2 (1) 2 of the Framework Act on National Taxes, and Articles 21 and 73 (1) 1 of the Income Tax Act

2016Guhap75753 global income and revocation of such disposition

AA and one other

O Head of tax office

November 18, 2016

December 16, 2016

1. All of the plaintiffs' claims are dismissed. 2. Costs of lawsuit are assessed against the plaintiffs.

The Defendant’s imposition of KRW 138,602,50 of global income tax for the year 2008 and KRW 9,934,640 of global income tax for the year 2008 against Plaintiff AB on February 1, 2016 shall be revoked.

1. Details of the disposition;

A. On March 6, 2006, Plaintiff A2 purchased KRW 898,800,00 (hereinafter “the instant contract”). B. The Plaintiff purchased KRW 20,80,00 from CCC No. 2, OOO 20,07 square meters and two parcels (hereinafter “the instant real estate”). On April 1, 2006, the Plaintiff purchased land construction for the establishment of the instant real estate from the competent D market on October 30, 207, but the CCC did not transfer the ownership of the instant real estate, and subsequently revoked the instant contract on April 1, 2008. The CCC purchased KRW 150,000 due to the cancellation of the above contract, and paid KRW 30,000,00 for each of the instant claims for adjudgment 20,000,000,000 to Plaintiff 36,000,000,000 won, respectively.

A. The plaintiffs' assertion

According to the purport of Articles 4 and 73(1) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009; hereinafter referred to as the "former Income Tax Act"), in cases where a worker pays the income tax by year-end settlement, the final return on the tax base is not required. As long as the plaintiffs performed the basic tax liability for wage and salary income by year-end settlement, the omission of other income in this case is not a return but a return of some income, and thus the exclusion period of imposition should be applied. Therefore, the above disposition is unlawful since the Plaintiffs’ global income tax liability for the year 2008 for which the exclusion period has already expired at the time of the disposition in this case. (b) The relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

According to Article 26-2 (1) 2 of the Framework Act on National Taxes, if a taxpayer fails to file a tax base return by the statutory due date of return, a national tax may be imposed for seven years from the date on which the national tax can be imposed. Article 73 of the former Income Tax Act provides that "any person who has only labor income may choose not to file a final tax base return." In addition, Article 21 of the former Income Tax Act provides for "other income" as "other income shall be defined as follows." subparagraph 7 of the same Article provides that "other income shall be treated as income other than interest income, dividend income, real estate rental income, business income, labor income, annuity income, and transfer income, and industrial secrets, industrial secrets, trademark rights, business rights (including the right of lease of a store prescribed by the Presidential Decree) and other similar assets or rights, and the plaintiffs are not obligated to file a final tax return on global income pursuant to Article 10 of the former Income Tax Act, and the plaintiffs are not obligated to file a final tax return on global income pursuant to Article 27 of the former Income Tax Act.

Then, the plaintiffs' claims in this case are dismissed as it is without merit. It is so decided as per Disposition by the assent of all participating Justices.

Article 26-2 of the Framework Act on National Taxes (Period for Exclusion from National Tax Imposition)

(1) No national tax may be levied after the period prescribed in the following subparagraphs expires: Provided, That where a mutual agreement procedure is in progress in accordance with the treaty for the prevention of double taxation (hereinafter referred to as "tax treaty"), Article 25 of the Adjustment of International Taxes Act shall apply:

1. Where a taxpayer evades a national tax, or receives a refund or deduction by fraudulent or other unlawful means prescribed by Presidential Decree (hereinafter referred to as "illegal acts"), for ten years from the date on which the national tax is assessable [15 years in cases where the national tax is evaded, refunded or deducted by unlawful means arising from international trade as defined in Article 2 (1) 1 of the Adjustment of International Taxes Act (hereinafter referred to as "international trade"). In such cases, where the national tax evaded, refunded or deducted by unlawful means is corporate tax, it shall be 10 years from the date on which the income tax or corporate tax on the amount disposed of under Article 67 of the Corporate Tax Act is assessable (15 years in cases where the income tax or corporate tax on the amount disposed of under Article 67 of the Corporate Tax Act is evaded, refunded or deducted due to unlawful acts committed in international trade);

1-2. If a taxpayer becomes liable to pay penalty tax under any of the following items due to unlawful means, it shall be for ten years from the date on which the relevant penalty tax is assessable:

(a) Article 81 (3) 4 of the Income Tax Act;

(b) Article 76 (9) 4 of the Corporate Tax Act;

(c) Article 60 (2) 2, (3) and (4) of the Value-Added Tax Act;

2. Where a taxpayer fails to file a tax base return by the statutory due date of return, for seven years from the date on which the national tax is assessable;

3. If a taxpayer does not fall under subparagraphs 1, 1-2 and 2, it shall be for five years from the date on which the national tax is assessable;

4. Notwithstanding subparagraphs 1, 1-2, 2 and 3, in cases of an inheritance tax or gift tax, it shall be for ten years from the date on which it is assessable: Provided, That it shall be 15 years from the date on which it is assessable, in any of the following cases:

(a) Where a taxpayer evades inheritance tax or gift tax, or receives a refund or deduction by unlawful means;

(b) Where a return is not filed under Articles 67 and 68 of the Inheritance Tax and Gift Tax Act;

(c) Where a person who has filed a return under Articles 67 and 68 of the Inheritance Tax and Gift Tax Act has made a false return or omission in the return, as prescribed by Presidential Decree (limited to the portion which is reported falsely or omitted); 4-2. Where income tax under the latter part of Article 88 (1) of the Income Tax Act is levied along with the gift tax as a result of onerous donation, such income tax shall be the period prescribed in subparagraph 4;

Where a loss carried forward is deducted, the income tax or corporate tax in the taxable period in which the loss is incurred shall be one year from the statutory due date of return in the taxable period in which the loss is deducted, notwithstanding subparagraphs 2 and 3.

Article 4 (Classification of Income) of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009)

(1) Income of a resident shall be classified as follows:

1. Total sum of interest income, dividend income, real estate rental income, business income, labor income, pension income, and other income generated in the year of global income;

2. Income generated from retirement and lump-sum payments received under the National Pension Act or the Public Officials Pension Act, etc. (including lump-sum payments received in a form other than pensions, such as additional dues and allowances; hereinafter the same shall apply).

3. Transfer income: Article 21;

(1) Other income shall include interest income, dividend income, real estate rental income, business income, labor income, annuity income, retirement income, and capital gains as follows:

7. Money and other valuables received in consideration of the transfer or lease of mining rights, fishing rights, industrial property rights and industrial information, industrial secrets, trademark rights and business rights (including the right to lease a store prescribed by Presidential Decree), rights incidental to permission to collect earth, sand and rock, rights to develop and use underground water, and other assets or rights similar thereto; 10. Penalty and compensation received in consideration of a breach or termination of a contract;

(1) A resident who has global income in the relevant taxable period shall report the global income tax base to the head of a tax office having jurisdiction over the place for tax payment from May 1 to 31 of the year following the relevant taxable period, as prescribed by Presidential Decree.

(2) Paragraph (1) shall apply even where there is no tax base in the relevant taxable period or deficit.

(3) A final return on tax base of global income shall be filed under paragraph (1).

Article 73 (Exception to Final Return on Tax Base)

(1) Notwithstanding the provisions of Articles 70 and 71, a resident falling under any of the following subparagraphs may choose not to file a final return on the tax base of the relevant income:

1. A resident having only employment income; and