In a case where a taxpayer reported the tax base and amount of national tax, which is the method of filing a tax return, and completed the registration of the creation of a mortgage on property for sale, and thereafter the tax authority issued a disposition of rectification to increase the amount of tax initially reported, whether the amount of tax initially reported may be collected prior to the claim secured by the mortgage, etc., by setting the statutory due date for the initial return pursuant to Article 35(1)3(a) of the

In light of the legislative purport of Article 35(1)3 of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014); and the content and structure of relevant provisions, etc., if a taxpayer reported the tax base and tax amount of national tax, which is the method of filing a tax return, and completed the registration of creation of a mortgage on property sold after completing the registration of creation of a mortgage, etc., even if the tax authority subsequently notified the amount of tax initially reported, the tax amount initially reported shall be deemed to have been collected prior to the amount of tax initially reported by the tax authority upon rectification of the amount of tax to be increased. As for the amount of tax initially reported, the statutory date for filing the initial report pursuant to Article 35(1)3(a) of the former Framework Act on National Taxes (amended by Act No. 128

Article 35(1)3 of the former Framework Act on National Taxes (Amended by Act No. 12848, Dec. 23, 2014)

Song Forest Credit Union

Korea

Incheon District Court Decision 2016Na65179 Decided May 17, 2017

The judgment below is reversed, and the case is remanded to Incheon District Court Panel Division.

The grounds of appeal are examined.

1. Article 35(1)3 of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014) (hereinafter “instant provision”) provides for a claim secured by the right to lease on a deposit basis, pledge, or mortgage where national tax or additional dues are collected from the proceeds of sale of the property for which the fact of registration or record of establishment of the mortgage, etc. is proved, as an exception to the principle of national tax priority. Accordingly, Article 35(1)3 of the same Act provides that “if a national tax for which the duty to pay taxes is determined by the return of the tax base and amount of taxes, the date on which the tax return is filed in the case of a national tax for which the tax base and amount of taxes are determined, corrected, or occasionally imposed, the date on which a tax notice is sent for the notified tax amount shall be the statutory due date.”

The purpose of the instant provision is to properly harmonize the judicial request to ensure the safety of transaction in relation to the security right that involves disclosure and the request for public interest to secure the realization of tax claims, etc. (see Supreme Court Decision 2005Du9088, Nov. 24, 2005, etc.).

Accordingly, in the case of national tax by the method of filing a return, the date on which the return was made shall be the statutory date for the pertinent amount of national tax, while in the case of (b) the government’s correction of the amount of tax, etc., the date on which the notice of tax payment is sent shall be the statutory date for the pertinent amount of tax to the extent that the secured party can anticipate.

In light of the legislative purport of the instant provision and the content and structure of the relevant provision, where a taxpayer reported the tax base and tax amount of national tax, which is the method of filing a return, and completed the registration of creation of a mortgage on property for sale, etc., even if the tax authority later notified the amount of tax increased than the initially reported, it should be deemed that the amount of tax initially reported may be collected prior to the claim secured by the mortgage, etc., by setting the statutory due date for the initial return pursuant to the instant provision and the statutory due date for the tax return. In such cases, it is difficult to view otherwise on the grounds that only the corrective disposition is subject to the adjudication of an appeal litigation in principle

2. A. Review of the reasoning of the lower judgment and the record reveals the following facts.

1) The Nonparty, who is engaged in clothing, miscellaneous and retail business under the trade name of “○○○○” and “△△△△△△△△”, filed a report on KRW 88,268,509 (○○) on July 16, 2009 and KRW 46,357,734 (△△△△△△) on July 17, 2009, but did not pay the same.

2) On August 18, 2009, Songcheon-dong Branch Credit Union completed the registration of the establishment of a neighboring mortgage of KRW 94,900,000 with respect to the instant building owned by the Nonparty on Bupyeong-gu, Incheon ( Address omitted) and the second floor Yeng Yeng-gu, Incheon, which was owned by the Nonparty, and completed the registration of the establishment of a neighboring mortgage of KRW 94,90,000 with respect to the registration of the establishment of a new mortgage on July 1, 2010.

3) On September 8, 2009, the director of the Namcheon Tax Office notified the Nonparty of the payment of KRW 407,170 (○○), and KRW 46,955,740 (△△△△△△), including the additional tax, on the amount of the tax reported by the Nonparty. After calculating the value-added tax including the omitted sales, he/she then notified the Nonparty of the payment of the difference between the amount adjusted on July 1, 2010 and the amount of the tax initially notified, and the payment of KRW 3,147,816 (○○) and KRW 2,982,906 (△△△△△).

4) The Plaintiff filed an application for an auction of real estate rent with the Incheon District Court 2015 Tata2890 on the instant building. On February 3, 2015, the Defendant filed an application for issuance in the auction procedure on the ground that the Nonparty failed to pay the value-added tax amounting to KRW 245,430,460 on the first half of the year 2009.

5) The instant building was sold on July 31, 2015. The distribution court, on October 20, 2015, prepared a distribution schedule that distributed KRW 31,024,267 to the Defendant and did not distribute to the Plaintiff, but the Plaintiff raised an objection to the distribution against the Defendant on the date of distribution.

B. Examining these facts in light of the legal principles as seen earlier, for the Non-Party’s value-added tax of KRW 88,268,509 and value-added tax of KRW 46,357,734, total amount of KRW 134,626,243, which was reported by the Non-Party on July 17, 2009 and value-added tax of KRW 134,626,243, the statutory due date under the provision of this case is the statutory due date. Therefore, the pertinent amount of tax so reported is the legal due date of July 16, 2009 and July 17, 2009. Accordingly, it is justifiable to collect the amount of tax so reported prior to the Plaintiff’s claims that completed the registration of creation, and to prepare a distribution schedule that the dividend court distributes to the Defendant in preference to the Plaintiff.

C. Nevertheless, the lower court determined that, on the erroneous premise that, if a correction disposition is issued after the initial return was filed, the initial return should be deemed the date of sending a tax notice for the payment of increased tax amount, even until the statutory due date of the initial return, the Plaintiff’s right to collateral security interests shall take precedence over the Defendant’s entire value-added tax claim for the first time, 2009, and that KRW 31,024,267 distributed to the Defendant ought to revise the distribution schedule by deeming that the Plaintiff’s right to collateral security interests ought to be distributed to the Plaintiff. In so determining, the lower court erred by misapprehending the legal doctrine on the statutory due date under Articles (a) and (b)

3. Therefore, 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 Kim Shin (Presiding Justice)