Plaintiff (Law Firm CSS, Attorney Park Young-young, Counsel for the plaintiff-appellant)

Head of Yeongdeungpo Tax Office

July 24, 2015

Seoul Administrative Court Decision 2013Guhap6633 decided March 18, 2014

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The Defendant’s disposition of imposition of capital gains tax of KRW 1,113,894,270 against the Plaintiff on July 9, 2012 is revoked.

2. Purport of appeal

The judgment of the first instance is revoked, and the plaintiff's claim is dismissed.

1. Details of the disposition;

A. On January 9, 2008, the Plaintiff transferred 16,40,000 shares of Nando Mutual Savings Bank (hereinafter “Nando Mutual Savings Bank”) (hereinafter “instant shares”) to Nonparty 1 and its owner at KRW 16,40,00 (hereinafter “instant shares”) of the total transfer price per share to KRW 10,406,00,000 (hereinafter “instant shares”). However, the Plaintiff did not report and pay the transfer income tax accordingly.

B. On the other hand, on September 10, 2008, the Plaintiff acquired 1,829,000 shares of the former Mutual Savings Bank (hereinafter “former Mutual Savings Bank”) from Nonparty 2 in KRW 11,50,000,000. On December 18, 2008, the former Mutual Savings Bank decided to gratuitously retire shares of 3,585,0153 out of issued shares by holding a temporary shareholders’ meeting on December 18, 2008. Accordingly, the Plaintiff’s 1,646,10 shares of the former Mutual Savings Bank (hereinafter “former Mutual Savings Bank”).

C. On December 7, 2011, the head of Seodaemun-gu Tax Office sent a notice of explanation of taxation data regarding non-declaration of capital gains tax following the transfer of the instant shares to the Plaintiff. On December 21, 2011, the Plaintiff, as a resident, filed a return after the deadline on the capital gains tax attributed to the year 2008, deeming KRW 10,349,99,923 of the acquisition value of shares of the former North Korean mutual savings bank, which was gratuitously retired, as the actual amount of transfer loss, to be the sum of KRW 7,247,340,80 of the capital gains tax for the instant shares, and reported the capital gains amount to KRW 3,102,659,123.

D. Accordingly, on July 9, 2012, the Defendant decided and notified the Plaintiff of KRW 1,113,894,270 (including additional tax) of the transfer income tax for the year 2008 on the ground that the Plaintiff’s gratuitous retirement of shares of the former North Korea Mutual Savings Bank does not fall under the transfer of assets under Article 88 of the former Income Tax Act (amended by Act No. 9270, Dec. 26, 2008; hereinafter “former Income Tax Act”).

E. On September 28, 2012, the Plaintiff filed an appeal against it, but the Tax Tribunal dismissed the Plaintiff’s appeal on December 5, 2012.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, 3, 4, Gap evidence 5, 6-1, 2, Eul evidence 2, the purport of the whole pleadings

2. Whether the instant disposition is lawful

(a) Relevant statutes;

It is as shown in the attached Form.

B. Determination on the Plaintiff’s assertion that the Plaintiff constitutes “non-resident” under the Income Tax Act

(1) The plaintiff's assertion

The Plaintiff constitutes a “non-resident” under the Income Tax Act, and in the case of non-residents, the person who has paid income from the transfer of securities withheld and paid tax. Thus, the instant disposition imposing capital gains tax on Non-Party 1 and the Plaintiff is unlawful.

(2) Determination as to whether a “non-resident” constitutes “non-resident”

(A) Whether it is a non-resident under the Income Tax Act

1) According to Article 1(1) of the former Income Tax Act and Articles 2(1) through (3) and 4 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 21195, Dec. 31, 2008; hereinafter the same shall apply), an individual who has either a domicile in Korea or a domicile in Korea for not less than one year (hereinafter referred to as “resident”) is liable to pay income tax under the Income Tax Act. The address shall be determined based on objective facts of his/her living relationship, such as the existence of a family living together in Korea and a property located in Korea. The domicile shall be determined based on objective facts of his/her living relationship. The domicile shall be the place where a person living in Korea has been residing in Korea for a long time besides his/her domicile, and shall be deemed to have a domicile in Korea for a period of not less than one year. In addition, the period of departure shall be deemed to have the domicile in Korea for which the individual has his/her living in Korea continuously after his/her temporary domicile in Korea.

In addition, in the event that the plaintiff asserts that he is not a resident under the Income Tax Act, it should be determined in light of the plaintiff's living relationship in Korea, and it should not be determined that the plaintiff is not a resident in Korea on the ground of the plaintiff's holding assets or family relationship located in a foreign country (see Supreme Court Decision 92Nu11695 delivered on May 27, 1993).

(ii) the facts of recognition

① The Plaintiff was studying in the United States in 1982, and graduated from the department of economics of ○○ University around June 1985, and was married with Nonparty 3, a U.S. citizen’s spouse, and acquired the permanent residence of the United States in around 1986. The spouse and children of the Plaintiff are both residing in the United States.

② While the Plaintiff worked as the president of a stock company (large shareholder) in the United States, 5,690 US dollars was earned income in 2008. The Plaintiff’s total income in 2008 constituted USD 118,191.

③ On the other hand, the Plaintiff, as the largest shareholder of Nondo Mutual Savings Bank on October 15, 199, held 40 to 9.98% of the total issued shares, and 2 billion to 4 billion won. On January 9, 2008, Nonparty 1 and Nonparty 1 transferred the transfer price of KRW 10,49,840,000 to the Plaintiff who was a representative director. The Plaintiff worked as a registration director of Nondo Mutual Savings Bank from September 22, 2003 to January 9, 2008, and received benefits from Nondo Mutual Savings Bank from Nondo Mutual Savings Bank from the UN Mutual Savings Bank to the Plaintiff as KRW 24,00,000,700, 2000, 2007, 2007.

④ On March 7, 2008, immediately after the transfer of shares of UNdon Mutual Savings Bank, the Plaintiff established the Dondoe Asset Management Co., Ltd. (hereinafter “Dondoe Asset Management”) on the Dondoe-gu ( Address omitted) Building 1001 as its principal office, and held the Dondoe Asset Management Co., Ltd. (hereinafter “Dondoe Asset Management”) as its representative director until now (the Plaintiff invested 2 billion won at the time of the establishment of the Dondo Asset Management. The Plaintiff held the entire shares by the Dondo Asset Management Co., Ltd. (hereinafter “Dondoe Asset Management”) until 2009. The Dondoe Asset Management was increased to 10.1 billion won capital with capital increase with capital increase, and the Plaintiff’s share ratio was 67.7% around May 26, 2008). On May 26, 2008, the Plaintiff started to prepare for an asset management company and its main license under the former Indirect Asset Management Business Act.

⑤ On September 10, 2008, the Plaintiff entered into a contract with Nonparty 2, the president of Seoul Leisure Group, the largest shareholder of the shares of the former North Korea Mutual Savings Bank, on the share purchase and transfer of management rights for the former North Korea Mutual Savings Bank. The content of the contract is that the Plaintiff takes over KRW 11,500,000 and the management rights for the shares of the former North Korea Mutual Savings Bank, equivalent to 51% of the shares issued by the former North Korea Mutual Savings Bank, which are owned by Nonparty 2, and the time when the share certificates are transferred and the management rights are taken over all.

(6) On the other hand, the Plaintiff established, on June 14, 2007, the Korea Stock Company in size of KRW 50 million and owned 100% of its outstanding shares and worked as representative director by July 10, 2010. However, the report on the confirmation of value-added tax for the year 2007, 2008, and 2010, which was reported by the Korea Stock Company, includes the sales amount as KRW 0.

vii The date of the Plaintiff’s stay in Korea was 143, 2007, 187, 2008, 272, 2009, and 170, 2010.

8) The Plaintiff’s domestic income in 2007 is KRW 1,470,856,238 (=income 1,40,734,280 (interest income) + KRW 121,958 (interest income) + KRW 70,00,00) + KRW 7,476,935,829 (income) for the domestic income in 2008 + KRW 226,910,487 (interest income) + KRW 2,100 (income) for the domestic income in 208 + KRW 7,247,340,380 (income) for the domestic income in 208

[Ground of recognition] Each entry of Gap evidence Nos. 1, 7, 8, 9, 12, Eul evidence Nos. 4, 5, 6, 7, 9, 10, 11, 12, 14, 16, 30 (including the number of branches), and the purport of the whole pleadings

3) Determination

In full view of the above facts and the purport of all pleadings, it is reasonable to deem the Plaintiff as a non-resident in full view of the following circumstances:

① All of the Plaintiff’s wife and children reside in the United States, and the Plaintiff has no family member living together with the Plaintiff in Korea, and does not own real estate located in Korea.

② The Plaintiff stayed in Korea for 143 days in 2007 and 187 days in 2008. According to this, the period during which he/she has his/her residence in Korea does not exceed one year over the two taxable periods from 2007 to 2008.

③ Article 2(3) of the former Enforcement Decree of the Income Tax Act provides that “When a resident has an occupation ordinarily required to reside in Korea for at least one year, he/she shall be deemed to have an address in Korea.” In addition, on March 7, 2008, the Plaintiff taken office as a representative director after establishing the Gap Asset Management. Around September 10, 2008, the Plaintiff acquired the shares and the right of management equivalent to 51% of the total issued shares from the largest shareholder of the former North Korean mutual savings bank. However, the Plaintiff taking office as the representative director of the Gap Asset Management and taking over the shares and the right of management of the former North Korean mutual savings bank after transferring the instant shares. Therefore, in determining whether the obligation to pay capital gains tax on the resident at the time of the transfer of the instant shares, it cannot be deemed that the above circumstances constitute direct judgment materials on whether the Plaintiff falls under Article 2(3) of the former Enforcement Decree of the Income Tax Act (and it is difficult to deem that the Plaintiff has an occupation that the Plaintiff has a continuous in Korea for at least one year.).

④ From September 22, 2003 to January 9, 2008, the date of stock transfer, the Plaintiff received benefits while serving as the largest shareholder of the Korea Mutual Savings Bank. However, it is difficult to view such a bank’s registered director’s position as “an occupation which requires continuous residence in Korea for not less than one year” under Article 2(3) of the former Enforcement Decree of the Income Tax Act. Furthermore, it is difficult to view that the Plaintiff’s earned income 2,100,000, which the Plaintiff received from the Unnnnnnnnnnan from the Knnnnnnan Investment to April 30, 208, in light of its amount or period of payment, is considered to have received as remuneration for temporary provision of labor. In addition, in light of the fact that the Plaintiff owned 10% of issued stocks of the Knnnan Investment Company after establishing a representative director in Korea on June 14, 2007, it is difficult to view that the Plaintiff’s employment report was included in the above business report for 20 years or more.

⑤ The Plaintiff repeated entry and departure several times in 2007 and 2008, and the aggregate of the days of stay in Korea during the two taxable periods in 2007 and 2008 does not exceed one year. In addition, in light of the above-mentioned Plaintiff’s residence, etc., it cannot be said that the Plaintiff’s purpose of departure is clearly deemed as temporary.

(6) In light of other objective facts in relation to the Plaintiff’s domestic period of stay in the taxable year 2008, existence of a family living together in the Republic of Korea, holding of domestic assets, occupation in the United States, amount of wage and salary income, etc., it is reasonable to deem that the Plaintiff constitutes a non-resident under the former Income Tax Act at the time of the transfer of the instant shares, even if the Plaintiff voluntarily expressed that he/she is a resident in filing a tax return on earned income in

(3) Whether it is possible to impose capital gains tax on non-residents

(A) In the trial, the Defendant added the grounds that the transfer income from the transfer of stocks of this case constitutes domestic source income under Article 119 subparag. 12 of the former Income Tax Act, which is subject to the transfer income tax on a nonresident, on the premise that the Plaintiff is a nonresident.

(B) According to Article 16(1) of the Convention between the Republic of Korea and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and the Encouragement of International Trade and Investment (hereinafter “Korea-U.S. Tax Convention”), where an individual, a resident of one Contracting State, stays in the other Contracting State for a period of not less than 183 days in total during the taxable year, the other Contracting State may impose capital gains tax on the income accruing from stock transfer on a resident of one Contracting State. Since the Plaintiff was staying in Korea for not less than 183 days in total during the taxable year 2008, the capital gains tax on the transfer of

(C) However, according to Articles 119, 121, and 156 of the former Income Tax Act, income from the transfer of stocks by a nonresident who has no business place in Korea, such as the Plaintiff, must be imposed separately as to the income from the transfer of stocks by the Plaintiff, and the person who pays income to a nonresident shall withhold and pay the income tax from the transfer of stocks by the nonresident in full. In the withholding system, in principle, the tax law exists only between the withholding agent and the tax office which is the withholding agent and the withholding agent, and in the case between the taxpayer and the tax office, the withheld tax is paid from the taxpayer when the withholding agent pays the tax at the tax office, and in principle, the taxpayer shall not be held liable for the non-performance or delay of the tax obligation from the withholding agent (see Supreme Court Decision 82Nu177, Feb. 14, 1984, etc.). Accordingly, the Defendant, as the withholding agent, shall collect the transfer income tax from the transferee of the stocks in this case, and shall not impose the transfer income tax directly on the Plaintiff.

(D) Determination as to the defendant's assertion that the source taxpayer may directly impose and collect withholding tax from the source taxpayer

1) The defendant's assertion

Based on Articles 80(2) and 85(3) of the former Income Tax Act and Article 45-2(4) of the former Framework Act on National Taxes (amended by Act No. 9259, Dec. 26, 2008; hereinafter the same), the Defendant asserts that income tax may be levied directly on any person who is not a withholding agent under the former Income Tax Act, and the Supreme Court has interpreted that income tax may be levied on any person who is not a withholding agent after the en banc Decision 79Nu347 Decided September 22, 1981.

2) Determination

However, for the following reasons, the income tax cannot be imposed directly on the original taxpayer for the income subject to separate taxation such as the transfer income of the instant shares.

① The above Supreme Court decision states that the income to be collected at source may be imposed as global income tax if the income to be reported is the income to be added to the global income tax standard under the former Income Tax Act. However, there is no procedure and procedure of reporting the Plaintiff himself/herself, which is the income income earner subject to separate taxation, and even if the withholding agent omitted or under-collections the income tax, there is no opportunity to return the income tax liable to pay the income tax to the source taxpayer. Accordingly, there is no legal ground for imposing and collecting the income tax at source

(2) According to Article 80 (2) 1-2 of the former Income Tax Act, where the head of a regional tax office having jurisdiction over the place of tax payment or the head of a regional tax office having jurisdiction over the place of tax payment deems it difficult to collect the global income tax or the final return on tax base of retirement income tax under Articles 70, 71 and 74 of the same Act (including cases where the final return on tax base is not made because it is possible not to make the final return on tax base under Article 73 of the same Act, such as the person having only employment income; hereinafter the same shall apply) from the person who has made the final return on tax base of global income tax or retirement income tax under Article 77, 138, 143-4, 144-2 or 146 of the same Act, or where there is an omission or error in the final return on tax base of global income from the person liable to pay tax due to the closing or missing of the tax withholding agent, etc., the said provision shall be corrected. However, even if there is no provision on the final return on tax base of global income and retirement income tax in question.

③ The proviso of Article 85(3) of the former Income Tax Act provides that only the amount of tax to be collected pursuant to Article 158(1) of the former Income Tax Act, which is not the amount to be collected from the withholding agent, shall be collected in cases where the income subject to withholding, which has not been withheld at the tax base returned and paid by the withholding agent, is already included (Article 85(1)1). However, the above provision is merely a provision on the procedures for collecting the amount of tax on global income and retirement income of a resident, which provides that only the amount of tax to be collected on the income subject to withholding shall be collected from the withholding agent without overlapping the amount of tax to be collected on the income subject to withholding, and it cannot be deemed that the State created the State’s right to impose the amount of tax on the source withholding agent. The above provision is based on the premise that the income subject to withholding under the language and system is included in the amount of tax subject to separate final return and payment by the taxpayer, and the same does not apply to the

④ According to Article 45-2(4) of the former Framework Act on National Taxes, where a withholding agent pays a withheld tax amount and submits a payment record within the deadline for submission, he/she may request the head of the competent tax office to determine or correct the tax base and amount of the national tax for which the initial return and the revised return have been filed. However, in relation to the payment act of a withholding agent, the above provision provides a withholding agent and a withholding agent with an opportunity to contest the legitimacy of the withholding tax amount, thereby expanding and protecting the rights of a source taxpayer and avoiding the circulation of the claim, and it cannot be deemed that the above provision grants the head of the competent tax office

C. Determination as to the defendant's assertion of abuse of right

(1) The defendant's assertion

Since 2005, the Plaintiff filed a report as “resident” while receiving benefits from UNNNN mutual savings banks to the date of the transfer of the instant shares. In addition, the Plaintiff voluntarily indicated the return on the deadline of transfer income tax related to the transfer of the instant shares as a resident and reported the relevant tax amount on the premise that he/she is a resident. Nevertheless, the Plaintiff began to claim that the Plaintiff is a non-resident only when the instant lawsuit was pending on June 12, 2013. Accordingly, the Plaintiff’s assertion that the Plaintiff is a non-resident under the former Income Tax Act and subordinate statutes goes against the principle

(2) Determination

However, it cannot be said that the plaintiff's assertion or the lawsuit of this case is contrary to the principle of good faith or good faith on the ground that the plaintiff reversed his position as to whether it is a resident under the interpretation of the former Income Tax Act.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be accepted on the grounds of its reasoning, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed as it is without merit, and it is so decided as per Disposition.

[Attachment Omission of Related Acts]

Judges Cho Jong-tae (Presiding Judge)