[1] The meaning of "the position to substantially control the operation of the corporation" as the requirement for oligopolistic shareholders liable to pay acquisition tax under the main sentence of Article 105 (6) of the former Local Tax Act

[2] Whether Article 105 (7) of the former Local Tax Act, which stipulates that oligopolistic shareholders shall jointly and severally pay acquisition tax liability, is unconstitutional (negative)

[1] An oligopolistic shareholder liable to pay acquisition tax pursuant to the main sentence of Article 105(6) of the former Local Tax Act (amended by Act No. 7843 of Dec. 31, 2005) must meet the formal requirements under Article 22 subparag. 2 of the same Act, and the relevant oligopolistic shareholder must be in a position of substantially controlling the operation of the corporation. In this case, the status of substantially controlling the operation of the corporation does not require the exercise of rights such as using, benefiting from, or disposing of, the corporation's property through the management control of the corporation, but is sufficient if the shareholder is in a position of practically exercising the shareholder's right through exercising the voting right for the shares owned.

[2] A relative or a person with a special relationship who forms an oligopolistic shareholder is practically entitled to exercise the right to manage and dispose of the assets of the relevant corporation in the position of joint business or co-owners. Accordingly, the rights and duties to the relevant assets also belong to the oligopolistic shareholder in substantial and economic joint terms. Therefore, joint understanding of the tax-bearing capacity accords with the principle of fair taxation and substantial taxation. As such, Article 105(7) of the former Local Tax Act (amended by Act No. 7843 of Dec. 31, 2005) which imposes joint and several tax liability on the oligopolistic shareholder to secure tax claims does not unfairly extend the tax liability beyond one’s own responsibility or limited liability to the shareholder, or violates the principle of due process pursued by the no taxation without law. In addition, the above provision aims to secure tax claims based on the substantial and economic capacity jointly held on the assets of the relevant corporation, so that it can minimize damage by exercising the right to indemnity between oligopolistic shareholders and that it is not contrary to the principle of no excessive prohibition and fundamental rights guaranteed by the Constitution.

[1] Article 105 (6) of the former Local Tax Act (amended by Act No. 7843 of Dec. 31, 2005) / [2] Article 105 (6) and (7) of the former Local Tax Act (amended by Act No. 7843 of Dec. 31, 2005)

[1] Supreme Court Decision 92Nu1138 delivered on May 24, 1994 (Gong1994Ha, 1858) / [2] Supreme Court Decision 99Du2222 delivered on July 13, 199 (Gong199Ha, 1666)

Plaintiff 1 and three others (Law Firm Sejong, Attorney Kim Ba-young, Counsel for the plaintiff-appellant)

Head of Gangseo-gu Busan Metropolitan City (Law Firm Shinsung, Attorneys Ansan-gu et al., Counsel for the plaintiff-appellant)

Busan High Court Decision 2005Nu4847 decided Nov. 10, 2006

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

The grounds of appeal are examined.

1. As to the third ground for appeal

An oligopolistic shareholder liable to pay acquisition tax pursuant to the main sentence of Article 105(6) of the former Local Tax Act (amended by Act No. 7843, Dec. 31, 2005; hereinafter the same) shall meet the formal requirements prescribed in Article 22 subparag. 2 of the same Act, and it is required that the oligopolistic shareholder in question has the status of substantially controlling the operation of the corporation (see Supreme Court Decision 92Nu1138, May 24, 1994). In this case, the status of substantially controlling the operation of the corporation does not require the actual management control of the corporation to use, benefit from, or dispose of the corporation's property through the management control of the corporation, but it is sufficient that the oligopolistic shareholder has a status of practically exercising the shareholder's right through exercising the voting right with respect to the shares owned.

The decision of the court below to the same purport is just, and there is no error in the misapprehension of legal principles as to acquisition tax taxation requirements for oligopolistic stockholders.

2. As to the fourth ground for appeal

Article 105 (7) of the former Local Tax Act provides that Article 105 (7) of the same Act shall apply mutatis mutandis to oligopolistic shareholders who are liable to pay acquisition tax under paragraph (6) of the same Article to bear joint and several tax liability by applying Article 18 of the same Act mutatis mutandis.

A relative or other person having a special relationship who forms an oligopolistic shareholder is practically able to exercise the right to manage and dispose of the assets of the relevant corporation in the position of joint business operators or co-owners, so the rights and duties to the relevant assets also belong to the oligopolistic shareholder in substance and economically jointly. Therefore, the joint understanding of the tax-bearing capacity accords with the principle of fair taxation and substance over form. Therefore, in order to secure a tax claim, the above legal provision that imposes joint and several tax liability on them cannot be deemed to extend the tax liability unfairly beyond self-responsibility or limited liability to the shareholders, or to violate the principle of due process pursued by the no taxation without law (see Supreme Court Decision 9Du222, Jul. 13, 199).

In addition, the above provision of the law intends to secure taxation rights based on the substantial and economic capacity that oligopolistic shareholders jointly hold on the assets of the corporation in question, so that it can minimize damage by exercising their rights of indemnity among oligopolistic shareholders, and the public interest of securing taxation rights that are to obtain through joint and several tax liability is not small, and it cannot be said that it infringes on fundamental rights such as property rights, etc. guaranteed by the Constitution in violation of the principle of excessive prohibition.

Ultimately, this part of the ground of appeal that the above provision of law is in violation of the Constitution cannot be accepted.

3. Regarding ground of appeal No. 2

The facts of stock ownership are proved by the tax authorities through the data such as the list of shareholders, the statement of stock transfer status, the register of corporate register, etc.: Provided, That even in cases where it appears to be a single shareholder in light of the above data, in cases where there are circumstances such that the actual shareholder was stolen or registered in the name other than the real shareholder registration, it cannot be deemed to be the above shareholder merely in such name, but the nominal owner who asserts that he is not a shareholder should prove that he is not a shareholder (see, e.g., Supreme Court Decisions 94Nu622, Aug. 12, 1994; 2003Du1615, Jul. 9, 2004).

The court below rejected the plaintiffs' assertion that the plaintiffs are not the beneficial shareholders because the plaintiffs' shares are stated in the specifications of stock transfer by stating that the plaintiffs acquired shares, and the shares in the plaintiffs' names are nominal trust or stolen based on the evidence submitted by the plaintiffs before submission of the plaintiffs. In light of the records, the court below rejected the assertion that the plaintiffs are not the beneficial shareholders. In light of the records, the judgment of the court below is just and there is no error of law by misunderstanding legal principles or misunderstanding of facts due to

4. Regarding ground of appeal No. 1

A. Article 8(2)3 of the former Act on Special Rural Development (amended by Act No. 7330 of Jan. 5, 2005) provides that a person liable to pay acquisition tax under the Local Tax Act shall be subject to imposition and collection of special rural development tax in the same manner as acquisition tax is imposed and collected. Article 105(7) of the former Local Tax Act provides that a person liable to pay acquisition tax shall be jointly and severally liable to pay acquisition tax under Article 105(6) of the former Local Tax Act. Thus, a person liable to pay tax under Article 105(6) of the former Local Tax Act bears not only the acquisition tax but also the special rural development tax.

Therefore, the plaintiffs' assertion in the grounds of appeal on the premise that there is no ground to impose joint tax liability of special rural development tax on the plaintiffs liable to pay tax pursuant to Article 105 (6) of the former Local Tax Act is not acceptable. Thus, the court below did not determine whether to jointly pay special rural development tax, and the judgment below did not err in the misapprehension of the law due to omission of judgment.

B. The Plaintiffs’ assertion that the instant disposition was unlawful by the Defendant’s notice of tax payment without specifying the Plaintiffs’ individual amount of tax payment and the amount of tax jointly and severally paid by each individual, is based on a violation of the procedure for the method of tax payment notice, and it is a new fact alleged in the final appeal to the Supreme Court only before the conclusion of pleadings in the lower court, which does not constitute a matter of obvious and ex officio investigation. Therefore

5. 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 Kim Nung-hwan (Presiding Justice)