[1] The meaning of "a person who acts for or has been delegated to a withholding agent, who bears the duty of withholding within the scope of his/her authority or delegation" under Article 73 (4) of the former Corporate Tax Act, and the elements to deem that there exists an implied delegation in the duty of withholding taxes

[2] The case affirming the judgment below holding that Gap bank did not bear the withholding duty under Article 73 (4) of the former Corporate Tax Act, in case where Gap bank concluded a current deposit agreement with the commercial paper issuer and delivered commercial paper papers to the issuer, and the holders of the said commercial paper deposited with the Korea Securities Depository withdrawn the commercial paper before maturity, unlike ordinary settlement process, and received the bill money directly from the ordinary commercial bank that it trades with the Korea Securities Depository and received the bill money and imposed additional tax, etc. on Gap bank on the ground that it was the payer bank Gap bank, the payment bank, the withholding duty, etc. was not withheld, and the tax authority imposed additional tax, etc. on Gap bank on the ground that it was the payer bank, the payment bank.

[1] In full view of the language, purport, etc. of Article 73(1)1 and (4) of the former Corporate Tax Act (amended by Act No. 11607, Jan. 1, 2013; hereinafter the same), the term “person who is represented or delegated by a withholding agent or a person who is obligated to withhold taxes within the scope of the authorized or delegated authority” under Article 73(4) of the former Corporate Tax Act refers to a person who is authorized or delegated by the person liable to pay the interest income under Article 73(1)1 of the same Act as well as the person who pays the income amount to the source taxpayer and who is liable to withhold taxes, i.e., the withholding business, the withholding business, and the corporate tax to be withheld at the competent tax office. However, in order to have an implied delegation in light of the nature, effect, etc. of withholding taxes, there must be extenuating circumstances to the extent that delegation is identical to the case of explicit delegation.

[2] The case affirming the judgment below holding that Gap bank did not have an obligation to withhold taxes from Gap bank on the ground that Gap bank did not have an explicit consignment from its issuing company on the ground that it did not have an obligation to withhold taxes from the current deposit contract and did not have an obligation to withhold taxes from Gap bank on the ground that Eul bank did not have an obligation to withhold taxes from the current deposit contract. The Gap bank did not have an interest income from the discount of the commercial papers which caused the discount amount which is income subject to withholding taxes, and it did not have an obligation to withhold taxes from the issuing company on the ground that the holders of the above commercial papers who deposited with the Korea Securities Depository withdrawn the commercial papers before maturity, unlike ordinary settlement procedure, and received the discount amount directly from the ordinary commercial banks that transacted with the Korea Securities Depository without going through the Korea Securities Depository.

[1] Article 73(1)1 and (4) of the former Corporate Tax Act (Amended by Act No. 11607, Jan. 1, 2013) / [2] Article 73(1)1 and (4) of the former Corporate Tax Act (Amended by Act No. 11607, Jan. 1, 2013)

Han Bank and one other (Law Firm LLC, Attorneys Kang Han-hun et al., Counsel for the plaintiff-appellant)

The director of the tax office

Seoul High Court Decision 2016Nu66263 decided May 17, 2017

All appeals are dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

citing the reasoning of the judgment of the court of first instance, the court below acknowledged the following facts: ① Plaintiff Han Bank Co., Ltd. (hereinafter “Plaintiff Bank”) loaned money to its customers as collateral with a credit guarantee certificate issued by the Credit Guarantee Fund, the Korea Technology Credit Guarantee Fund, various credit guarantee foundations, etc. (hereinafter “credit guarantee institutions”); ② The terms and conditions of the credit guarantee institutions applicable to the above credit guarantee institutions include commonly the following: “The principal not exceeding the amount of guarantee amount multiplied by the ratio of guarantee amount, and the accrued interest pursuant to the agreed interest rate until the date of the fulfillment of the guarantee obligation; ③ the Plaintiff bank received the payment from the credit guarantee institution for the guarantee obligation and accounts as the collection of the principal and interest on the loan principal under the guarantee ratio or guarantee limit as the collection of each credit; ④ On the other hand, the Defendant failed to pay interest by arbitrarily collecting the principal in advance even though the Plaintiff bank did not have agreed on the order of satisfaction of the obligation, and thereby included it in the gross income, thereby imposing corporate tax, etc. on the Plaintiffs.

Then, the lower court determined that it was unlawful to include the interest income in the gross income, on the ground that the total amount of a guaranteed obligation under a credit guarantee contract clearly specifies the principal and interest interest in accordance with the rate of guarantee, and that a credit guarantee agency pays the total amount, and thus, the payment of the payment cannot be applied to the provisions on the application of appropriation under the Corporate Tax Act, etc.

In light of the relevant legal principles and records, the lower court did not err in its judgment by failing to exhaust all necessary deliberations as alleged in the grounds of appeal.

2. Regarding ground of appeal No. 2

A. Article 73(1)1 of the former Corporate Tax Act (amended by Act No. 11607, Jan. 1, 2013; hereinafter the same) provides that “Where a person who pays interest income under Article 127(1)1 of the Income Tax Act to a domestic corporation pays such amount, he/she shall withhold and pay corporate tax equivalent to the amount calculated by applying the tax rate of 14/100 to the amount paid by the person who pays the said amount.” Article 73(4) of the same Act provides that “The act of a person who acts on behalf of or is delegated to a withholding agent shall be deemed the act of the person in question or his/her delegate within the scope of his/her authority or delegation,

In full view of the language, purport, etc. of the above provisions, it is reasonable to view that “a person who acts as an agent or has been entrusted by the withholding agent, who bears the obligation to withhold taxes within the scope of the authorization or delegation” under Article 73(4) of the former Corporate Tax Act refers to a person who is authorized or delegated by the person liable to pay the interest income amount under Article 73(1)1 of the same Act, as well as the person who pays the income amount for the source taxpayer, i.e., the duty to withhold corporate tax from the source taxpayer and the duty to pay corporate tax withheld at the competent tax office. Such delegation of the duty to withhold taxes may be implicitly made, but in order to have an implied delegation in light of the nature and effect of withholding taxes, there is a circumstance under which the intent to

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

1) The ordinary process of issuance and payment of corporate bills is as follows:

A) The issuer shall issue commercial papers for the purpose of raising short-term funds and request a discount to an investment trading company, including securities companies, and a broker, etc. (hereinafter “the discount”).

(b)The discount authority shall pay to the issuing company the balance obtained by deducting its fees from the discounted amount of notes, and, in the case of direct acceptance of commercial papers, shall retain it until maturity or transfer it to other investors in the form of sale.

C) Investors do not keep the actual commercial papers, but deposit them to the Korea Securities Depository and entrust the exercise of their rights. The Korea Securities Depository shall, upon maturity, present the commercial papers to the general commercial bank that it trades (hereinafter “Presentation Bank”).

D) A presenting bank notifies payment banks that have opened the current account of an issuing company through a clearing house to the fact that it makes payment of bills, and the paying banks confirm the balance of the current account and then withdraw the amount and pay the amount to the presenting bank through the electronic transfer of the clearing house.

e) The presenting bank shall pay the amount of the bill to the Korea Securities Depository, the Korea Securities Depository, and the discount institution in sequence to investors.

2) The Plaintiff bank is a payment bank that concludes a current account agreement with the issuer of corporate bills and delivers corporate bills to the issuer of corporate bills.

3) Unlike the ordinary settlement process as seen earlier, the bearer of the commercial paper in this case withdrawn the commercial paper at the Korea Securities Depository prior to the maturity of the bill, and received the bill by presenting it directly to the presenting bank without going through the Korea Securities Depository. Accordingly, the interest income from the discount of the bill by the Korea Securities Depository, etc. was not withheld.

4) The Defendant: (a) deposited the instant corporate bills in the Korea Securities Depository, which were directly invested by discount institutions, but did not transfer to other investors in the form of sale, and received the amount of the bills by withdrawing them before maturity and proposing payment; (b) on the ground that the Plaintiff bank, the paying bank, is liable to withhold the amount of the said bills (hereinafter “the instant discount amount”), the Defendant issued the instant second disposition imposing penalty tax or penalty tax for failing to submit the payment record against the Plaintiffs.

C. The lower court determined to the effect that the Plaintiff bank was not liable to withhold taxes under Article 73(4) of the former Corporate Tax Act on the grounds that it cannot be deemed that the Plaintiff bank was authorized or delegated to withhold taxes from the issuing company, on the grounds that the Plaintiff bank did not explicitly entrust its business of collecting withholding taxes in addition to the payment of the instant corporate bills under the current deposit contract, and that the Plaintiff bank was not involved in the discount of the instant corporate bills, which is the cause of the occurrence of the instant discount amount, which is income subject to withholding taxes, and that it is difficult for the Plaintiff bank to conceal its implied intent to delegate withholding taxes in view of the amount of fees received from the issuing company in connection with the entrustment of payment of the bills.

D. Examining the record in light of the aforementioned provisions and legal principles, the lower court did not err in its judgment by misapprehending the legal doctrine on the scope of withholding obligation under Article 73(4) of the former Corporate Tax Act. Meanwhile, the remaining grounds of appeal purporting that the Plaintiff bank constitutes a person who pays interest income under Article 73(1) of the former Corporate Tax Act and bears withholding obligation under the said provision cannot be a legitimate ground of appeal, as it was raised only once in the final appeal. Moreover, even if examining the record, it cannot be deemed that the Plaintiff bank paid interest income as one’s own performance. Accordingly, this part of the grounds

3. Conclusion

Therefore, all appeals are 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 Lee Ki-taik (Presiding Justice)