Plaintiff (Attorney Kim Jin-jin, Counsel for the plaintiff-appellant)

Head of Seocho Tax Office

October 15, 2009

1. On October 11, 2005, the defendant confirmed that each attachment disposition against the deposit claims in the separate sheet against the plaintiff on October 11, 2005 is invalid.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

The following facts shall not be disputed between the parties, or may be recognized by comprehensively taking into account the respective descriptions of Gap evidence 1 through 3, Eul evidence 1-1, 2, and Eul evidence 2 through 5, and the whole purport of pleadings:

A. Hungsung Co., Ltd. (hereinafter “Nonindicted Co., Ltd.”) was established on March 22, 198 and operated a housing construction business. During the period from January 1, 1996 to December 31, 197, the Nonparty, a father of the Plaintiff, owned 120,800 shares out of 180,00 shares issued by the Nonparty Co., Ltd., and 5,400 shares out of 3% by the Plaintiff.

B. The Defendant imposed corporate tax for the business year of 1996 and the value-added tax for the first year of 1997 on the non-party company, but the non-party company's delinquent taxes and the property of the non-party company is insufficient to cover the above delinquent national tax. The non-party and the plaintiff are oligopolistic shareholders. Among them, the Plaintiff's lineal descendants living together with the non-party who are the largest shareholder and constitutes secondary taxpayers under Article 39 (1) 2 (c) of the former Framework Act on National Taxes (amended by Act No. 5579 of Dec. 28, 1998; hereinafter "former Framework Act on National Taxes") and notified the non-party company of the payment of the total amount of delinquent national tax (including the corporate tax for the business year of 1996, 850,765, 230 won, 528, 406, 60 won, and additional dues (hereinafter "instant disposition").

C. At the time of October 11, 2005, the Defendant seized each of the deposit claims listed in the separate sheet in the name of the Plaintiff in order to collect KRW 1,462,796,580 (including additional tax) in total the delinquent amount and the amount of loss in arrears (hereinafter “each of the instant attachment dispositions”).

2. Whether each of the attachment dispositions of this case is legitimate

A. The plaintiff's assertion

Although the second taxpayer designation disposition of this case became final and conclusive formally, since the Constitutional Court rendered a decision of unconstitutionality pursuant to Article 39(1)2(c) of the former Framework Act on National Taxes, which is a basis law, the attachment disposition based on the above designation disposition is null and void due to lack of legal grounds.

(b) Related statutes;

Framework Act on National Taxes (amended by Act No. 5579 of Dec. 28, 1998)

Article 39 (Secondary Liability for Tax Payment of Contributors)

(1) Where the property of a corporation (excluding any corporation whose stocks are listed on the Korea Stock Exchange) is insufficient to cover the national taxes, additional dues, and disposition fee for arrears that are imposed on or to be paid by such corporation, any of the following persons as of the date on which the liability to pay national taxes is established shall be subject to the secondary liability

1. General partners;

2. An oligopolistic stockholder who falls under any of the following items:

(a) A person who holds the greatest number of stocks or invests the greatest number of stocks;

(b) A person who actually controls the management of a corporation;

(c) A person living together with the person prescribed in items (a) and (b);

(d) Officers as prescribed by the Presidential Decree;

(2) For the purpose of paragraph (1) 2, the term “excess shareholder” means a person who is a relative or has other special relations with a stockholder or partner with limited liability as prescribed by the Presidential Decree, and the total amount of stocks owned or investments of which is not less than 51/100 of the total amount of issued and outstanding stocks or investments

Framework Act on National Taxes (amended by Act No. 5579, Dec. 28, 1998)

Article 39 (Secondary Liability for Tax Payment of Contributors)

(1) Where the property of a corporation (excluding a corporation whose stocks are listed on the Korea Stock Exchange) is insufficient to cover the national tax, additional dues, and disposition fee for arrears that the corporation has imposed on or is to pay, the person falling under any of the following subparagraphs as of the date on which the liability to pay national taxes is established shall be subject to secondary tax liability for such shortage: Provided, That in the case of an oligopolistic stockholder under subparagraph 2, the limit of the amount calculated by multiplying the amount calculated by dividing the shortage by the total number of stocks issued (excluding non-voting stocks; hereafter the same shall apply in this Article) or total amount of investment of the corporation by the number of stocks owned (excluding non-voting stocks) or investments (in the case of an oligopolistic stockholder under subparagraph 2

1. General partners;

2. An oligopolistic stockholder who falls under any of the following items:

(a) A person who exercises a substantial right over the stocks or investment shares in excess of 51/100 of the total issued stocks or total investments of the relevant corporation;

(b) An honorary chairperson, chairperson, president, vice president, senior managing director, managing director, director, or any other person who actually controls the management of the corporation, notwithstanding the title thereof;

(c) The spouse (including the person in de facto marital relations) of the person stipulated under items (a) and (b) and the lineal ascendants and descendants living with such person

(2) For the purpose of paragraph (1) 2, the term “excess shareholder” means a person who is a relative or has other special relations with a stockholder or partner with limited liability as prescribed by the Presidential Decree, and the total sum of his stocks owned or investments is 51/100 or more of the total number of stocks issued or investments of the juristic person concerned.

C. Determination

Article 39(1)2(c) of the former Framework Act on National Taxes (amended by Act No. 5579, Dec. 28, 1998; hereinafter the same) provides that the imposition of corporate tax and value-added tax based on the secondary tax liability against the plaintiff shall be based on Article 39(1)2(c) of the former Framework Act on National Taxes (amended by Act No. 5579, Dec. 28, 1998; hereinafter the same). Article 39(1)2(c) of the former Framework Act on National Taxes provides that "a person who lives together with a person prescribed in items (a) and (b) of the oligopolistic shareholder, who owns the greatest number of shares or who actually controls the management of the corporation, shall be liable for secondary tax liability without asking several

On May 28, 1998, the Constitutional Court rendered a decision that Article 39(1)2(c) of the former Framework Act on National Taxes (amended by Act No. 5579, Dec. 28, 1998; Act No. 5579, May 28, 1998; however, regardless of whether an oligopolistic shareholder himself/herself is a person who actually controls the management of a corporation or exercises a substantial right over stocks at least 51/100 of the total amount of stocks issued by the relevant corporation, to impose the secondary tax liability on the “all delinquent tax amount” of the corporation solely on the ground that he/she is jointly responsible for daily expenses with a person who owns the largest number of stocks among oligopolistic shareholders, without clearly setting the scope and limit of liability, and uniformly imposing the secondary tax liability on the “all delinquent tax amount” of the oligopolistic shareholder under Article 39(1)2(c) of the former Framework Act on National Taxes (amended by Act No. 5579, Dec. 28, 1998).

Meanwhile, the taxation disposition and the attachment disposition, which are procedures for the disposition on default, are separate separate administrative dispositions, and even if the final binding force of the disposition on taxation has already been achieved, there should exist legal grounds as at the time of the disposition on default in order to proceed with the procedures for the disposition on default, such as the attachment and collection of property of a delinquent taxpayer. As seen earlier, even if the disposition on default was already conducted and final and conclusive prior to the above decision on unconstitutionality, as long as Article 39(1) and (2) through (c) of the Framework Act on National Taxes, which are the grounds for the disposition on default, becomes invalid due to the decision on unconstitutionality (as long as the provisions of Article 39(1) and (2) through (c) of the Framework Act on National Taxes were amended according to the purport of the decision on unconstitutionality, even if the provisions of the Act which are the grounds for the disposition on taxation in this case, which were unconstitutional, are invalid due to the absence of any laws that were based on the previous disposition on unconstitutionality after the above decision on unconstitutionality.

However, even if Article 39(1)2(c) of the revised Framework Act on National Taxes is applied, if the Plaintiff still is deemed to bear secondary tax liability for the delinquent tax amount of the non-party company (the scope thereof is limited to 3% per share), there are questions as to whether each of the instant dispositions cannot be deemed to be permissible within a limited scope of 3% per share, based on Article 39(1)2(c) of the revised Framework Act on National Taxes, based on the relevant statutes. However, unless the Defendant revoked the previous tax assessment and did not make a new tax assessment based on the amended provisions of the amended Act, it is difficult to review whether the final tax assessment is in conformity with the amended provisions of the Act at the stage of the disposition on delinquent tax, without any other tax assessment, or limit the scope thereof.

3. Conclusion

Therefore, the plaintiff's claim of this case is justified and it is so decided as per Disposition.

[Attachment]

Judge Jeong-sung (Presiding Judge)