[1] In a case where a principal tax liability to be reported and paid is not recognized, whether penalty tax for non-declaration, underreporting, and insincere payment may be imposed on the premise that the amount of principal tax becomes effective (negative), and whether the same applies to customs duties (affirmative)

[2] In a case where there is no "underpaid customs duties" which serves as the basis for imposing additional duties under Article 42(1) of the Customs Act, whether liability for additional duties may be recognized (negative) / Whether the existence of liability for additional duties may be determined differently depending on whether a prior declaration was filed to obtain the reduction of or exemption from customs duties (negative), and in a case where a prior declaration was made at the time of a prior declaration, even if there was an error, thereby supplementing it within a legitimate period, whether the legitimate collection of the amount of customs duties to be secured under Article 42(1) of the Customs Act, and whether there was a violation of a taxpayer's duty

[1] In order to ensure the faithful performance of obligations under tax-related Acts, additional taxes are independent taxes to be collected in addition to the principal tax calculated under tax-related Acts, and where there are justifiable grounds for reduction and exemption of the principal tax, additional taxes are not included in the principal tax. On the other hand, where there exist justifiable grounds for non-performance of such obligations, additional taxes are not imposed even if the principal tax liability exists (see, e.g., Article 2 subparag. 4, Articles 47,

According to the type of additional tax, there are penalty taxes imposed as a sanction for breach of separate cooperative obligation, regardless of the principal tax liability. However, under the statutory provision that serves as the basis for imposing additional tax, penalty taxes for non-declaration, underreporting, and failure to pay the tax base and amount by the statutory deadline on the premise that the amount of principal tax can be determined valid, cannot be imposed separately where the main tax liability to pay is not recognized. The same applies to customs duties.

[2] Article 42(1) of the Customs Act provides for an amount calculated by multiplying “10/100 of the relevant shortage of customs duties” and “the relevant shortage of customs duties” by a certain rate (Article 42(1) of the Customs Act) to “when collecting the shortage of customs duties” (Article 42(1) of the same Act. Additional duties under each of the above subparagraphs are premised on the final existence of a principal tax liability as in the penalty tax for failure to file a return, underreporting, or payment in good faith under the Framework Act on National Taxes. As such, in light of its nature, only liability to pay additional duties may not be separately recognized unless there is

In general, in order to obtain a reduction or exemption of customs duties, the filing of an application for reduction or exemption prior to the acceptance of the import declaration is in principle, but the Customs Act and subordinate statutes stipulate that “within five days from the date on which the relevant notice of payment was received” may legally submit an application for reduction or exemption (Article 112(2)1 of the Enforcement Decree of the Customs Act). The purport of allowing an application for reduction or exemption of customs duties within a given period after the import declaration is to protect the rights and interests of taxpayers by taking into account the complexity of the customs laws and regulations, etc., and there is no basis for determining the existence or exemption of additional customs duties depending on the prior declaration. Furthermore, even if there was an error at the time of the prior declaration, it cannot be said that there was a violation of the legitimate collection of the amount of customs duties to be secured by Article 42 of the Customs Act and the taxpayer’s duty

[1] Article 2 subparag. 4 of the Framework Act on National Taxes, Articles 47 and 48 of the Framework Act on National Taxes, Article 42(1) of the Customs Act / [2] Article 42(1)1 and 2 of the Customs Act, Article 112(2)1 of the Enforcement Decree of the Customs Act, Article 2 subparag. 4, Article 47, and Article 48 of the Framework Act on National Taxes

[1] Supreme Court Decision 2009Da28738 Decided November 10, 201 (Gong2011Ha, 2523) Supreme Court Decision 2013Du27128 Decided April 24, 2014 (Gong2014Sang, 1152)

Asian Aeronautical Co., Ltd. (Law Firm Sejong, Attorneys Kang Shin-op et al., Counsel for the plaintiff-appellant)

Head of Daegu Customs Office

Daegu High Court Decision 2015Nu4526 decided October 16, 2015

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Case summary and key issue

A. Case summary

(1) The Plaintiff imported aircraft parts, etc. from Germany Lufth transportationa Teckic AG (hereinafter “LHT”) and had been subject to tax reduction or exemption under the former Customs Act. On July 1, 2011, the Free Trade Agreement between the Republic of Korea, the European Union, and its member states (hereinafter “Korea-EU FTA”) entered into force on July 1, 201, the Plaintiff filed an application for the application of the FTA on the import of aircraft parts 941 in total from July 1, 201 to February 17, 2013, and as regards the import of some 616 items, the Plaintiff filed an application for the application of the FTA FTA on the import of aircraft parts 941 in duplicate.

(2) However, as a result of a written investigation of import verification, LHT revealed that LHT was not an approved exporter subject to conventional tariffs, but an error in the invoice entered in LHT’s invoice. On June 27, 2013, the Defendant imposed on the Plaintiff on June 27, 2013, KRW 2 billion on the remainder 325 items for which the instant 941 imported goods did not jointly file an application for reduction or exemption of the tariff rate, and KRW 2.9 billion in value-added tax, and KRW 1.57 billion in the aggregate of the customs duties, KRW 2.57 billion in value-added tax, and each additional tax (hereinafter “instant disposition”). (hereinafter “instant penalty tax”).

(3) On July 1, 2013, the deadline for submission of an application for reduction or exemption under Article 112(2)1 of the Enforcement Decree of the Customs Act, the Plaintiff filed an application for reduction or exemption of the imported goods on July 1, 2013. On July 26, 2013, the Defendant refunded the Plaintiff the respective principal tax on the customs duties and value-added tax, but did not refund the instant penalty tax.

(4) Accordingly, the Plaintiff filed the instant lawsuit seeking revocation of the imposition of the instant additional tax, and the first instance court and the lower court determined that the imposition of the additional tax was unlawful. The Defendant dissatisfied with this, asserting that, as the penalty can be imposed and collected independently from the principal tax, the instant additional tax should be paid even if the principal tax was reduced and exempted under other provisions.

B. Issues

The main issue of this case is whether only the liability to pay penalty taxes can be separately recognized when the obligation to pay principal taxes of customs duties and value-added taxes is not recognized.

2. Regarding ground of appeal No. 1

In a tax administrative litigation disputing the illegality of a taxation disposition, the legality of the disposition is determined depending on whether the amount of taxation exceeds a reasonable tax amount. The parties concerned may assert individual grounds supporting or disputing the amount of tax liability and submit relevant evidence (see, e.g., Supreme Court Decision 87Nu448, Jun. 27, 1989). As to the existence of a tax liability of this case, the existence of a tax liability of this case shall be determined by comprehensively taking into account all the materials submitted after the lapse of the period not at the time of the disposition and by the time of closing of argument, and the judgment of the court below did not err by misapprehending the legal principles as to the base point

3. As to the grounds of appeal Nos. 2 and 3

A. Additional tax is an independent tax to be collected in addition to the principal tax calculated under tax-related Acts in order to ensure the faithful fulfillment of obligations under tax-related Acts, and where there are justifiable grounds for reduction and exemption of the principal tax, it is not included in the penalty tax. On the other hand, where there exist justifiable grounds for non-performance of obligations, no additional tax is imposed even if the principal tax liability exists (see, e.g., Articles 2 subparag. 4, 47, and 48

According to the type of additional tax, there are penalty taxes imposed as sanctions for breach of separate cooperative obligation, regardless of the principal tax liability. However, under the statutory provision that serves as the basis for imposing additional tax, penalty taxes for non-declaration, underreporting, or non-payment, which requires a taxpayer to report or pay within the statutory deadline on the premise that the amount of principal tax becomes effective, cannot be imposed separately where the main tax liability to report or pay is not recognized. This also applies to customs duties (see, e.g., Supreme Court Decisions 2009Da28738, Nov. 10, 201; 2013Du27128, Apr. 24, 2014).

B. (1) Article 12(2)15 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013); Article 46 subparag. 8 of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24683, Jun. 28, 2013) stipulates that customs-free or reduced goods, such as parts of aircraft, are subject to exemption from value-added tax. Furthermore, Article 89(1)1 of the former Customs Act (amended by Act No. 11602, Jan. 1, 2013); Article 35 of the former Enforcement Rule of the Customs Act (amended by Ordinance of the Ministry of Strategy and Finance, Feb. 23, 2013) provides that customs-free or reduced goods, such as parts of aircraft, etc., shall be subject to exemption from value-added tax, and each of the said provisions shall not be recognized as legitimate.

(2) As to the instant penalty tax, the part of the value-added tax first is premised on the existence of the principal liability for value-added tax, which is both an under-reported penalty tax under Article 47-3 of the Framework Act on National Taxes and an under-paid penalty tax under Article 47-4. Therefore, in light of the aforementioned legal doctrine, the said liability for tax payment cannot be recognized

(3) Next, the portion of penalty tax is deemed to be with respect to the penalty tax. Article 42(1) of the Customs Act provides that “When collecting underpaid customs duties, the amount of penalty tax shall be calculated by multiplying “10/100 of the relevant shortage of customs duties” and “the relevant shortage of customs duties” by a specific rate (Article 2 subparag. 2). The penalty tax under each of the above subparagraphs is premised on the final existence of a principal tax liability, as in the penalty tax for non-declaration, underreporting, and insincere payment under the Framework Act on National Taxes. In light of its nature, only the liability to pay penalty tax cannot be separately recognized unless “insufficient customs duties”, which serves as the basis

In general, in order to obtain a reduction or exemption of customs duties, the filing of an application for reduction or exemption prior to the acceptance of the import declaration is in principle, but the Customs Act and subordinate statutes stipulate that “within five days from the date on which the relevant notice of payment was received” may legally submit an application for reduction or exemption (Article 112(2)1 of the Enforcement Decree of the Customs Act). The purport of allowing an application for reduction or exemption of customs duties within a given period after the import declaration is to protect the rights and interests of taxpayers by taking into account the complexity of the customs laws and regulations, etc., and there is no basis for determining the existence or exemption of additional customs duties depending on the prior declaration. Furthermore, even if there was an error at the time of the prior declaration, it cannot be said that there was a violation of the legitimate collection of the amount of customs duties to be secured by Article 42 of the Customs Act and the taxpayer’s duty

C. In the same purport, the lower court determined that there was no additional tax as long as there was no amount of customs duties and value-added tax payable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence, or by misapprehending the legal doctrine

4. Conclusion

Therefore, the appeal is 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.

Justices Kwon Soon-il (Presiding Justice)