[1] In a case where a domestic corporation which conducted a revaluation of assets pursuant to the main sentence of Article 56-2(1) of the former Regulation of Tax Reduction and Exemption Act fails to list its stocks by December 31, 2003, whether a claim to collect corporate tax constitutes a estate claim in the event that the establishment time of corporate tax liability for inclusion in earnings from revaluation spread (=the end of the business year which conducted a revaluation of assets) and the end of the business year arrives before the date bankruptcy is declared against the pertinent corporation (affirmative)

[2] In a case where a taxpayer does not establish an obligation to voluntarily report and pay his tax base and tax amount, whether the additional tax on negligent tax returns and the additional tax on negligent tax payment can be imposed (negative)

[3] In a case where a domestic corporation which conducted a revaluation of assets pursuant to the main sentence of Article 56-2(1) of the former Regulation of Tax Reduction and Exemption Act fails to list its stocks by December 31, 2003, whether the domestic corporation is obligated to voluntarily report and pay corporate tax based on the inclusion of profits from revaluation spread (negative)

[4] Where the head of a tax office determines or revises corporate tax, the time when the resident tax liability to pay corporate tax is established (=when a decision or correction is made)

[5] In a case where Gap corporation assessed assets on the premise of listing stocks for the first time under the main sentence of Article 56-2 (1) of the former Regulation of Tax Reduction and Exemption Act and did not include the revaluation spread in the gross income for the pertinent business year, and the head of the competent tax office imposed corporate tax and additional tax on Gap corporation which was declared bankrupt on December 31, 2003 as it did not list stocks until December 31, 2003, and where the competent local government imposed corporate tax, etc. on Gap corporation based on the tax base, the case holding that since the corporate tax liability based on the inclusion in the net profits for the pertinent business year comes into existence at the end of the pertinent business year, the above corporate tax claim is a tax claim arising from the cause before the bankruptcy is declared, and it constitutes estate claim, but the imposition of additional tax on the premise that Gap corporation did not have the obligation to voluntarily report and pay corporate tax on the revaluation spread, and on the other hand, the resident tax obligation to pay corporate tax

[1] Even if a domestic corporation conducts a revaluation of its assets not subject to the provisions of Articles 4 and 38 of the Assets Revaluation Act, where the domestic corporation falls under the requirements of the main sentence of Article 56-2 (1) of the former Tax Reduction and Exemption Control Act (amended by Act No. 4285 of Dec. 31, 1990), such revaluation spread shall not be deemed as the revaluation spread under the Assets Revaluation Act, and shall not be included in its gross income. However, if the domestic corporation fails to list its stocks by December 31, 2003, the revaluation spread shall not be deemed as the revaluation spread under the Assets Revaluation Act from the beginning, and thus, it shall be included in its gross income for the business year in which the revaluation is made. Since the corporate tax liability based on the inclusion of such revaluation spread in gross income comes into existence at the end of the business year in which the revaluation of assets is made, where the business year arrives before the date the bankruptcy of the corporation is declared, the claim to collect the corporate tax shall be deemed as "for reasons before the bankruptcy declaration" and constitutes Article 28 Article 38 of the Debtor Rehabilitation Act.

[2] The additional tax on negligent tax returns and additional tax on negligent tax returns are administrative sanctions imposed as prescribed by the Act in cases where a taxpayer fails to file a return or pay a tax base and tax amount, or files a return or pay a tax amount less than the amount to be reported and paid, in violation of his/her duty to voluntarily report and pay the tax base and tax amount, and thus, if the obligation to voluntarily report and pay

[3] Even if a domestic corporation conducts a revaluation of its assets not subject to Articles 4 and 38 of the Assets Revaluation Act, if it satisfies the requirements of the main sentence of Article 56-2 (1) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 4285 of Dec. 31, 1990), such revaluation spread shall not be included in the gross income of the business year which includes the date of the revaluation of assets, but shall be included in the gross income and shall be subject to corporate tax only when it fails to list its stocks by December 31, 2003 after the date of the revaluation of assets. Therefore, the business year which includes the date of the revaluation of assets shall retroactively come into existence at the end of the business year, and thus, it cannot be deemed that the domestic corporation has the obligation to voluntarily report and pay corporate tax on the revaluation spread retroactively from the date of the report and payment of the corporate tax for the business year, and as long as there is no separate provision on the duty to report and pay corporate tax on the calculation of the net income, it can only be collected by the tax authority after taxation.

[4] Where the head of a tax office determines or revises corporate tax, he/she shall be liable to pay corporate tax, which becomes the tax base of resident tax to be imposed only when the decision or correction is made.

[5] The case holding that the head of the competent tax office imposed corporate tax on Gap corporation based on the premise that Gap corporation will list its stocks for the first time pursuant to the main sentence of Article 56-2 (1) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 4285 of Dec. 31, 1990), and did not include the revaluation spread under Article 15 (1) 5 of the former Corporate Tax Act (amended by Act No. 4803 of Dec. 22, 1994) in the gross income for the pertinent business year; on the ground that Gap corporation did not list its stocks by December 31, 2003, the above revaluation revaluation spread was not included in the gross income for the pertinent business year and imposed corporate tax on Gap corporation before the date of voluntary declaration and payment of corporate tax for the pertinent business year, and on the premise that Gap corporation did not have an obligation to list its stocks for the pertinent business year as the corporate tax base for corporate tax before the date of declaration and payment of its assets for the pertinent business year.

[1] Article 38 subparag. 2 (see current Article 47 subparag. 2 of the Debtor Rehabilitation and Bankruptcy Act) of the former Bankruptcy Act (amended by Act No. 7428, Mar. 1, 2005); Article 9(2) and Article 15(1)5 (see current Article 18 subparag. 1) of the former Enforcement Decree of the Corporate Tax Act (amended by Act No. 4814, Dec. 2, 1994); Article 12(1)5 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 1468, Dec. 31, 1994); Article 16 subparag. 19 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Act No. 1475, Dec. 16, 200); Article 19-2 of the former Enforcement Decree of the Corporate Tax Act (amended by Act No. 1481, Dec. 31, 1990)

[2] Supreme Court Decision 2002Du10780 decided Jun. 24, 2004 (Gong2004Ha, 1249) / [4] Supreme Court Decision 2002Du7852 decided Jul. 8, 2004 (Gong2004Ha, 1357)

Korea Deposit Insurance Corporation (LLC, Kim & Lee LLC, Attorneys O Jong-min et al., Counsel for the plaintiff-appellant)

Republic of Korea and one other (Attorney Choi So-young, Counsel for the plaintiff-appellant)

Seoul High Court Decision 2006Na21950 decided March 19, 2009

The part of the judgment of the court below regarding Defendant Republic of Korea’s additional tax claims and additional dues claims and Defendant Jongno-gu’s respective parts are reversed, and that part of the case is remanded to Seoul High Court. The remaining appeal against Defendant Republic of Korea

The grounds of appeal are examined.

1. As to Defendant Republic of Korea’s ground of appeal

A. Article 38 of the former Bankruptcy Act (amended by Act No. 7428, Mar. 31, 2005; hereinafter the same applies) provides that "the following claims shall constitute estate claims" and subparagraph 2 thereof provides that "a claim that may be collected according to the example of the National Tax Collection Act or the collection of national taxes: Provided, That a claim for reasons arising after the declaration of bankruptcy shall be limited to those arising to the bankruptcy estate."

Meanwhile, Article 9(2) of the former Corporate Tax Act (amended by Act No. 4803, Dec. 22, 1994; hereinafter the same) and Article 12(1)5 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 1468, Dec. 31, 1994); however, in calculating the amount of income of a domestic corporation for each business year, “asset evaluation marginal profit” shall be included in gross income. However, Article 15(1)5 of the former Corporate Tax Act provides that “the revaluation margin under the Assets Revaluation Act” shall not be included in gross income. Article 56-2(1) main sentence of the former Act of the Regulation of Tax Reduction and Exemption (amended by Act No. 4285, Dec. 31, 1990; hereinafter the same) provides that a corporation, which intends to list stocks for the first time at the Korea Stock Exchange, shall be deemed to have been revaluated by the 1st day of each month and its provisions under Articles 4 and 38(131 of the former Enforcement Decree of the Assets Revaluation Act.

Comprehensively taking account of these legal provisions, where a domestic corporation’s revaluation of assets does not follow the provisions of Articles 4 and 38 of the Assets Revaluation Act, but falls under the requirements of the main sentence of Article 56-2(1) of the former Regulation on Tax Reduction and Exemption Act, such revaluation shall not be deemed as the revaluation spread under the Assets Revaluation Act, and shall not be included in the gross income. However, if the relevant corporation fails to list stocks by December 31, 2003, the revaluation spread shall not be deemed as the revaluation spread under the Assets Revaluation Act from the beginning, and thus, it shall be included in the gross income for the business year during which the revaluation of assets is conducted. The corporate tax liability for inclusion in the gross income from such revaluation revaluation spread is established at the end of the business year in which the revaluation of assets is conducted. Thus, where the business year ends before the date on which the bankruptcy is declared, the claim to collect the corporate tax shall be deemed as a estate claim under Article 38 subparag. 2

B. First of all, the lower court determined that (i) on July 1, 1990, under the premise that the stocks were listed for the first time pursuant to the main sentence of Article 56-2(1) of the former Regulation of Tax Reduction and Exemption Act, the lower court did not include the amount of KRW 3,521,197,718 (hereinafter “instant revaluation spread”) in the gross income for 190 business years (from July 1, 1990 to June 30, 1991) under the premise that the mutual savings and finance company of the Republic of Korea before the bankruptcy (hereinafter “Korea Mutual Savings and finance Company”) did not list the stocks by 190.3 years before the bankruptcy, and (ii) on the ground that the previous mutual savings and finance company of the Republic of Korea did not list the stocks by 190.3 years before the date on which it reported and declared the corporate tax for 190 years after the date on which it reported and declared the corporate tax for 190 business years (hereinafter “the additional tax for additional tax for 3 years”).

In light of the above provisions and legal principles, the part concerning corporate tax claim of this case among the above judgment of the court below is just, and contrary to the allegations in the grounds of appeal, there are no errors in the misapprehension of legal principles as to the timing of establishment of corporate tax claim and estate claim

C. However, in the judgment of the court below, the part concerning the additional tax claim of this case is not acceptable for the following reasons.

The additional tax on negligent tax returns and additional tax on negligent tax returns are administrative sanctions imposed as prescribed by the Act in cases where a taxpayer fails to file a return or pay tax base and tax amount in violation of his/her duty to voluntarily report and pay, or files a report or pays tax amount below the amount to be reported and paid (see Supreme Court Decision 2002Du10780, Jun. 24, 2004, etc.). Thus, if the obligation to voluntarily report and pay is not established, it may not be imposed.

According to the above legal provisions, even if a domestic corporation conducts asset revaluation without accordance with Articles 4 and 38 of the Assets Revaluation Act, if it satisfies the requirements of the main sentence of Article 56-2 (1) of the former Regulation of Tax Reduction and Exemption Act, the revaluation margin shall not be included in the gross income for the business year to which the date of asset revaluation belongs, but shall be included in the gross income and shall be subject to corporate tax. Therefore, the period of accrual of the gross income shall be retroactively to the business year to which the date of asset revaluation belongs, and the corporate tax liability for the same shall be retroactively established at the end of the business year to which the date of asset revaluation belongs, and thus, it shall not be deemed that the domestic corporation has the obligation to voluntarily report and pay corporate tax on the revaluation margin retroactively to the date of report and payment of corporate tax for the business year to which the date of asset revaluation belongs. Thus, unless there is any separate provision on the duty to report and pay corporate tax on the calculation of the gross income from such revaluation spread, it shall be deemed that the tax authority can collect it after the tax imposition method.

Examining the facts acknowledged by the court below in light of the above legal principles, the Korea Mutual Saving and Finance Company cannot be deemed to have a duty to voluntarily report and pay corporate tax on the revaluation spread of this case until September 28, 1991, which is the date of the report and payment of corporate tax for the 1990 business year, to which the date of asset revaluation belongs, and the disposition imposing the penalty tax on the premise that such a duty exists shall be null and void because the defect is significant and apparent. Ultimately, it cannot be said that the Defendant Republic of Korea

Nevertheless, the lower court erred by misapprehending the legal doctrine on the establishment of additional tax claims and thereby adversely affecting the conclusion of the judgment, on the premise that the Defendant Republic of Korea holds the instant additional tax claims, which constitutes estate claims under Article 38 subparag. 2 of the former Bankruptcy Act. The ground of appeal assigning this error is with merit.

2. As to the grounds of appeal against the defendant Jongno-gu

The court below acknowledged that the head of the regional tax office imposed the aggregate of 3,136,258,180 won of the corporate tax and additional tax on January 16, 2004 to the Mutual Saving and Finance Company of Korea on the basis of the adopted evidence, and the head of the regional tax office imposed the aggregate of 282,263,230 won of the resident tax and its additional tax (hereinafter “the resident tax of this case”) on July 10, 2004. Since the corporate tax liability of this case was established on June 30, 191 as of June 30, 1991, when the corporate tax liability of this case was established on the basis of the 1990 business year after the end of the 1990 business year, it determined that the resident tax of this case of the defendant Jongno-gu constitutes the estate claim under Article 38 subparagraph 2 of the former Bankruptcy Act.

However, in cases where the head of a tax office determines or revises corporate tax, the corporate tax that serves as the tax base of the resident tax to be imposed shall be determined only when the decision or correction is made (see Supreme Court Decision 2002Du7852, Jul. 8, 2004, etc.). Therefore, the taxpayer tax liability of the resident tax to be imposed on the mutual savings and finance company of the Republic of Korea on January 16, 2004 by making a decision of correction imposing the total amount of 3,136,258,180 won of the corporate tax and the additional tax to be imposed on the mutual savings and finance company of the Republic of Korea as of January 16, 2004 shall be established. However, since the bankruptcy of the mutual savings and finance company of the Republic of Korea was made prior to the declaration of bankruptcy, the resident tax claim of this case constitutes the tax claim arising from the cause after the declaration of bankruptcy, and

Nevertheless, the lower court determined that the instant resident tax claim of Jongno-gu was due to a cause arising before the declaration of bankruptcy and constitutes estate claims pursuant to Article 38 subparag. 2 of the former Bankruptcy Act. In so determining, the lower court erred by misapprehending the legal doctrine on the timing of establishment of resident tax claim to be corporate tax and estate claims, thereby adversely affecting the conclusion of the judgment. The allegation contained in

3. Conclusion

Therefore, among the judgment of the court below, the part concerning the claim for additional dues and additional dues thereon and the part concerning the defendant Jongno-gu is reversed, and this part of the case is remanded to the court below for a new trial and determination. The remaining appeal against the defendant Republic of Korea is dismissed. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Ji-hyung (Presiding Justice)