Cho Jae-2017-China-2281 (2018.05.01)

A partner attorney-at-law of a law firm is a secondary taxpayer of his/her affiliated law firm with unlimited liability.

The Attorney-at-Law Act provides that the provisions of the Commercial Act concerning partnership companies shall apply mutatis mutandis to law firms, and it is apparent that attorneys-at-law of law firms fall under the secondary taxpayer of tax liabilities of law firms.

Article 39 (Secondary Liability to Pay Taxes by Investor)

2018Guhap67368 The revocation of the designation as the person liable for secondary tax payment.

Kim ○

○ Head of tax office

May 16, 2019

June 13, 2019

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

On September 29, 2016, the Defendant’s decision to designate and pay the secondary taxpayer for the amount of 40,157,910 won in total as shown in the attached Form 1 of ○○○○ Law Firm as the Plaintiff is revoked.

1. Details of the disposition;

A. From April 17, 2001 to June 31, 2016, the Plaintiff was registered as an attorney-at-law according to the certified transcript of corporate register of ○○ Law Firm (hereinafter referred to as “foreign legal entity”).

B. When the Defendant was unable to cover the delinquent amount of the non-party corporation’s assets, the Defendant deemed the Plaintiff as a general partner of the non-party corporation under the Commercial Act. As to the total amount of 241,189,150 won of the delinquent amount of each value-added tax, corporate tax, wage and salary tax, etc. listed in the attached Table 2 list for which the liability to pay tax was established during the Plaintiff’s service period, the Plaintiff designated the secondary taxpayer pursuant to Article 39 subparag. 1 of the Framework Act on National Taxes, and issued a payment notice to the Plaintiff on September 29, 2016 (hereinafter “instant disposition”). However, the Defendant continuously collected the credit card sales amount of the non-party corporation as of November 2018, and reduced the delinquent amount to 40,157,910 won as shown in attached Table 1).

C. On April 13, 2017, the Plaintiff filed an objection against the instant disposition and filed an appeal with the Tax Tribunal, but was dismissed on May 1, 2018.

2. The plaintiff's assertion

A. At the time of the instant disposition, the Defendant merely indicated only the tax items and unpaid tax amount on the notice, but not notified by the notice of tax payment stating the tax base, tax rate, etc., and thus, the instant disposition was unlawful on the ground of procedural defect (hereinafter “claim”) (hereinafter “instant disposition”).

B. Under the Attorney-at-Law Act, a law firm's member attorney-at-law is not directly defined as a general partner, and Article 39 subparagraph 1 of the Framework Act on National Taxes and Article 58 (1) of the Attorney-at-Law are imposed unlimited and joint liability on the law firm's attorney-at-law based on the partnership company system, although it can be deemed that the partnership company system has not been actually used to be abolished. This is unconstitutional because it violates the principle of self-responsibility and equality, and thus, the disposition of this case

C. The instant disposition that was immediately made against the Plaintiff in a supplementary position even though the Nonparty corporation had the ability to repay, such as raising a notarized income of at least KRW 200 million per annum, is unlawful (hereinafter referred to as “third argument”).

D. Around 2011, the Defendant already seized the sales price of the non-party corporation. Although the card sales revenue of the non-party corporation is sufficient to cover the delinquent amount of the non-party corporation more than 8 million won per month, the Defendant neglected to exercise the appropriate collection right, such as having other creditors first collect claims or having to collect additional tax only once a year by exercising the right of collection under Article 35 of the Framework Act on National Taxes. If the Defendant exercised the right of collection appropriately against the non-party corporation, the delinquent amount of the non-party corporation would not remain. Thus, the instant disposition is unlawful (hereinafter referred to as "non-party corporation's assertion").

3. Relevant statutes;

Attached Form 3 shall be as listed in attached Table 3.

4. Determination

A. As to the argument ①

Article 12 of the National Tax Collection Act provides that the head of a tax office shall, when he/she intends to collect a taxpayer's delinquent amount from a secondary taxpayer, notify the secondary taxpayer of the taxable period, items of taxation, amount of tax, grounds for calculation thereof, deadline for payment, place of payment, the amount to be collected from the secondary taxpayer, the basis for calculation thereof, and other necessary matters. According to the purport of the whole pleadings, the defendant is recognized to have notified the secondary taxpayer of matters concerning the taxable period, items of taxation, tax base, tax rate, calculated tax amount, and the basis for calculation of the amount of delinquent amount in arrears in accordance with the above provision in detail. The disposition of this case also appears to have been made by the same form of payment notice. Thus, the plaintiff's assertion is without merit.

B. As to the argument

Article 58 (1) of the Attorney-at-Law Act provides that the provisions of the Commercial Act concerning partnership companies shall apply mutatis mutandis to law firms, and an unlimited partnership company shall be comprised only of general partners liable for direct, unlimited and joint liability for company obligations (Article 212 of the Commercial Act). In the case of general partners, a partner attorney of law firm shall be liable for secondary tax liability for company's tax obligations pursuant to Article 39 (1) of the Framework Act on National Taxes. In the interpretation of such provisions, it is apparent that a partner attorney of law firm is liable for secondary tax liability for law firm's tax obligations, and the disposition of this case issued

[A] The foregoing provisions cannot be deemed as infringing on the principle of self-responsibility, the principle of tax equality, or property rights (see, e.g., Constitutional Court Order 98HunBa2, Mar. 25, 199; Constitutional Court Order 2014HunBa203, Nov. 24, 2016; Constitutional Court Order 2014HunBa203, 463, 2015HunBa305, 375, 2016HunBa62, etc.)]

C. As to the assertion

In order to establish the secondary tax liability, it requires that the amount of shortage in collection should be the main tax liability, but once the main tax liability is delinquent, the occurrence of the shortage in collection does not necessarily require that the actual execution of the disposition on default with respect to the main taxpayer for the purpose of the disposition on default, and if the disposition on default is made, it would result in an amount of shortage in collection objectively (see, e.g., Supreme Court Decision 95Nu14756, Feb. 23, 1996). The standard time for determining the illegality of the disposition on taxation in a tax lawsuit is at the time of such disposition (see, e.g., Supreme Court Decision 90Nu8220, Mar. 22, 191)

As to the instant case, it is reasonable to view that: (a) the Defendant’s failure to pay the credit card sales claim of Nonparty Corporation was continuously collected from 201 to 201; (b) the amount in arrears at the time of the instant disposition was totaled KRW 241,189,150; and (c) the amount in arrears at the time of the interim prepayment declaration of corporate tax around August 2016; and (d) the amount in arrears was reported as deficit at the time of the interim prepayment declaration of corporate tax; and (c) it is reasonable to deem that the amount in arrears was objectively insufficient even if it was appropriated as the property of Nonparty Corporation at the time of the instant disposition; and therefore, (e) the Defendant satisfied the requirements for designating the secondary taxpayer. Accordingly, the Plaintiff’s assertion on this part is without merit.

D. As to the argument

The Plaintiff’s dispute by the instant lawsuit is the illegality of the instant disposition in which the Plaintiff designated the Plaintiff as the secondary taxpayer against the non-party corporation and notified the non-party corporation. While the secondary taxpayer may contest the validity of the notice of tax disposition against the secondary taxpayer on the ground of the illegality of the disposition of imposition against the original taxpayer, as seen earlier, the base period for determining the illegality of the taxation disposition is the time of the disposition, and as such, matters concerning the collection and appropriation of the tax amount imposed on the non-party company, such as having independence as separate administrative disposition, are not related to the illegality of the taxation disposition (see, e.g., Supreme Court Decisions 92Nu18481, Jun. 11, 1993; 2009Du20380, Sept. 8, 2011). However, even if there is an error in the collection procedure against the non-party company, the validity of the instant disposition does not affect the validity of the disposition in this case’s case’s disposition [in addition, even if the Plaintiff’s failure to perform its collection procedure, etc.]

5. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.