Seocho 2012west 3174 ( December 27, 2012)

The exception that does not collect income tax from a withholding agent is limited to the case where the income tax is actually collected and paid.

With respect to income tax not withheld, income tax may be levied on either of the withholding agent or the source taxpayer, and the exception that the income tax is not collected from the withholding agent by the direct imposition by the taxation authority or by the reporting of the source taxpayer is applied only when the income tax not withheld is actually collected or paid by the taxation authority.

2013Guhap8714 Revocation of Disposition to collect interest income tax

AAA Construction Corporation

Head of Seodaemun Tax Office

May 31, 2013

July 5, 2013

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of collecting interest income tax of KRW 000 in 2007 against the Plaintiff on October 4, 201, which exceeds KRW 000,000, shall be revoked.

1. Details of the disposition;

A. Notwithstanding Article 127 (1) 1 of the former Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007, hereinafter referred to as the "Income Tax Act") in order to raise business funds in 2007, the Plaintiff did not withhold income tax at the tax rate (25/100) under Article 129 (1) 1 (b) of the Act, notwithstanding Article 129 (1) 1 of the Act.

B. Accordingly, on October 4, 2011, the Defendant notified the Plaintiff that the total amount of income tax of 000 won should be paid in 2007, unless the Plaintiff was withheld pursuant to Article 85(3) of the Act (hereinafter “collection disposition”).

"In addition, on May 1, 201, the Defendant imposed global income tax of KRW 000 on the KimO in 2007, plus KRW 000,000, and on June 1, 2012, imposed global income tax of KRW 000,000 as global income tax: Provided, That the above global income tax amount on OO was notified as the final tax amount calculated by deducting KRW 000,000 (hereinafter referred to as "the income tax in this case") of the income tax not withheld by the Plaintiff as the already paid tax amount, as the final tax amount. In addition, on February 29, 2012, ○○ filed a comprehensive tax return with the head of the tax office on the aggregate of KRW 00,000,000 as interest income accrued in the year 207.

E. The Plaintiff dissatisfied with the collection disposition and filed an objection on December 23, 201, but the head of the Seoul Regional Tax Office dismissed it on January 26, 2012.

F. Accordingly, on May 1, 2012, the Plaintiff filed an appeal against the collection disposition, and the Tax Tribunal dismissed the Plaintiff’s appeal against the instant income tax on December 26, 2012, on the following grounds: (i) the amount of tax calculated by deducting the interest paid by the Plaintiff to KimO and JejuO from the tax base of the income tax subject to withholding; and (ii) the interest paid by the Plaintiff to KimO, PrivateO, and SOO, etc., upon ascertaining whether the competent tax authority imposed and collected the income tax, or whether the said person reported and paid the income tax, and accordingly, determined to correct the tax base and tax amount according to the result.

G. On January 8, 2013, the Defendant corrected and decided the income tax to be paid by the Plaintiff at KRW 342, 141, and 100 (hereinafter referred to as the “instant disposition”), which the tax authority imposed and collected income tax from the Plaintiff’s interest that the Plaintiff paid to Kim ○ and Jeju ○ (the Plaintiff’s interest that the Plaintiff paid to Kim O, Civil O, and SOO, etc. cannot be confirmed by the competent tax authority, and did not deduct it from the tax base).

[Reasons for Recognition] The facts without dispute, Gap evidence 1, evidence 2, 3, and Eul evidence 1 through 4, and the purport of the whole argument

A. The plaintiff's assertion

(1) If the source source obligor did not withhold taxes, and if the tax office considers that anyone among the source obligor and the source obligor can select and impose taxes, such choice under the principle of no taxation without law is excessively unstable, and thus, it cannot be permitted under the principle of no taxation without law. In addition, if the tax withholding agent collects the tax omitted from the source obligor, the legal relationship becomes complicated as a matter of indemnity against the source obligor, and the tax office should first collect the pertinent income tax from the source obligor. Nevertheless, the Defendant imposed the instant income tax on the Plaintiff, the source obligor prior to the instant disposition, and the portion corresponding to the instant income tax should be revoked by unlawful means.

(2) If the income omitted from withholding was included in the tax base of income tax on the source taxpayer, the income tax omitted pursuant to the proviso of Article 85(3)2 of the Act (hereinafter “the proviso of the proviso”) may not be levied on the withholding agent even if the relevant tax was not actually collected. Although the Defendant issued a erroneous deduction of the income tax already paid as the tax amount, it is true that he issued a correction and notice of the comprehensive income tax by including the interest income of OO in the tax base. Thus, the instant income tax cannot be levied on the Plaintiff pursuant to the proviso of the proviso of Article 85(2) of the Act.

Paper in the Appendix

C. Determination

(1) Whether the instant income tax should be fixed first from OO

(A) In light of the language and structure of the provisions related to the Income Tax Act, and in cases where a person who pays interest on borrowed money is liable to withhold and pay the income tax on the interest pursuant to Article 127(1)1 and Article 128 of the Act, and fails to do so, the tax authority may impose the income tax omitted on the withholding agent pursuant to the main sentence of Article 85(3) of the Act. In addition, even if the income is subject to withholding, if a person fails to withhold the income to be reported by adding it to the tax base of the global income tax, the tax authority may directly impose the global income tax on the withholding agent (see, e.g., Supreme Court Decision 200Du10649, Dec. 27, 2001).

(B) Ultimately, the tax authority is entitled to impose the pertinent income tax on one of the Plaintiff or the source taxpayers or on one of the OOOs, which is the withholding agent, and it is in accordance with the purport of the withholding tax system that simplifys the collection affairs and prevents tax evasion, and thereby, that is only a result of neglecting it even though the Plaintiff was able to withhold income tax simply at the time when the Plaintiff pays interest to OOs. If the withholding agent fails to withhold income tax as alleged by the Plaintiff, if the income tax is to be imposed on the source taxpayer first, it would not be able to maintain the withholding system itself because there is no reason to do so. Accordingly, the Plaintiff’s assertion that the instant income tax should be collected from the OO prior to the imposition by the Plaintiff is rejected.

(2) falls under subparagraph 2 of the proviso

(A) The proviso provides for an exception in which no income tax is collected from the withholding agent even when the withholding agent is omitted, and where the original taxpayer has reported and paid income tax by including the amount of income omitted in the tax base for his income tax (Paragraph 1) and the competent tax authority directly imposes and collects income tax from the original taxpayer (Paragraph 2). In light of the content and purport of each subparagraph of the proviso and the source quota system, in a case where the withholding tax is omitted, it would be deemed that the withholding agent is exempt from the obligation to collect the income tax only when it is actually collected or paid.

(B) On June 1, 2012, the Defendant added KRW 000 to the global income tax base for 2007, and corrected and notified the remainder of KRW 000 as the final global income tax by deducting the tax already paid as the global income tax amount, and there is no evidence to prove that the Defendant collected the instant income tax from OOO or paid it by OO, and it is not applicable to the instant case. Accordingly, the Plaintiff’s assertion contrary thereto is not accepted (the Plaintiff’s assertion that the Defendant, while imposing a comprehensive tax on OO, deducted the instant income tax as the already paid tax amount. However, the Plaintiff is not directly related to the legality of the instant disposition, and the Plaintiff should seek reimbursement for the same amount after paying the instant income tax on OO).

3. Conclusion

The plaintiff's claim is dismissed and the costs of lawsuit are assessed against the losing party.