Sejong Electronic Co., Ltd. (Law Firm Choi, Attorneys Choi Sung-ho et al., Counsel for the defendant-appellant)

Head of Geumcheon Tax Office

June 29, 2016

Seoul Administrative Court Decision 2015Guhap53831 decided October 16, 2015

1.The judgment of the first instance, including a claim for exchange change in this Court, shall be modified as follows:

A. On July 10, 2013, the Defendant confirmed that notice of change in income amount of KRW 6,491,887,500 (income Nonparty 1) for the Plaintiff on July 10, 2013 is null and void.

B. On November 12, 2013, the Defendant rendered a disposition of collection of the principal tax of dividend income tax for the year 2010 against the Plaintiff as well as disposition of imposition of KRW 52,348,968 on November 12, 2013, respectively.

2. All costs of the lawsuit shall be borne by the defendant.

1. Purport of claim

In the first place, each disposition specified in paragraph (1) of the disposition is revoked (the plaintiff sought revocation of the disposition of imposition of KRW 908,836,250 and the disposition of imposition of KRW 52,348,968 for additional tax on dividend income tax, and each disposition of imposition of KRW 52,348,968 for additional tax on dividend income tax. This court sought revocation of the disposition of collection of KRW 908,836,250 for the principal tax on dividend income tax in the first place and in the second place, and partly changed the lawsuit in exchange for the first place.)

2. The plaintiff's purport of appeal

The part against the plaintiff in the judgment of the court of first instance is revoked. In the first instance, it is confirmed that the notification of change of income amount under paragraph (1) of the disposition and the imposition of dividend income tax amount of KRW 961,185,218 (including additional tax) are invalid each. In addition, the notification of change of income amount and the imposition of principal tax

3. The defendant's purport of appeal

The part against the defendant in the judgment of the court of first instance shall be revoked, and the plaintiff's claim corresponding to the revocation shall be dismissed.

1. The part citing the judgment of the court of first instance

Of the reasoning of this court’s ruling, the part on “1. 2. Plaintiff’s assertion, and 3. Related Acts and subordinate statutes” is identical to the corresponding part on the grounds of the judgment of the court of first instance (2. 9. 7. 7. 8) except for the following dismissal. Accordingly, it shall be cited in accordance with Article 8(2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

The ○ 4th parallel 12th parallels “Plaintiffs” to 15th parallels are as follows:

【As the Plaintiff did not pay the dividend income tax following the notice of change in the amount of income, on November 12, 2013, the Plaintiff notified the Plaintiff of the payment of the total of KRW 99,719,870 ( KRW 908,836,250, KRW 90, and KRW 90,883,625, and KRW 90,883,625) of the withholding income tax for the year 2010. On August 28, 2015, the said late-payment penalty was corrected from KRW 90,83,625, to KRW 52,348,968 (hereinafter “instant disposition of collecting the principal tax on the dividend income tax of this case”), and the portion concerning the remaining additional tax for late-payment,348,968, which was reduced (hereinafter “Disposition of imposing the dividend income tax of this case”).

○ 4. From 20 to 5.2.

○ 5 pages 11, “The instant notice of tax payment is also null and void” means that “The instant disposition of collection of principal tax on dividend income tax of this case and the imposition of penalty tax are null and void, so it shall be revoked.”

The notice of tax payment of this case is deemed to be "disposition of collection of principal tax of dividend income tax of this case and imposition of additional tax" of 4, 18, 5, 18, 19, 7, and 2.

○ Relevant statutes are replaced by the attached Form of this judgment.

2. Judgment on the main claim

A. Whether notice of the change in the income amount of this case is lawful

1) Whether procedural defects exist

Article 81-15(1) of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014; hereinafter the same) provides that “A person who has received prior notice of taxation, etc. may file a request for examination of legality of notification (hereinafter “pre-assessment review”) with the head of a tax office or the director of a regional tax office who has received the notification within 30 days from the date of receipt of the notification,” and Article 81-15(3) of the same Act provides that “The head of a tax office, the director of a regional tax office, or the Commissioner of the National Tax Service who has received a request for pre-assessment review shall make a decision and notify the applicant of the result within 30 days from the date of receipt of the request.” Meanwhile, the main sentence of Article 63-14(4) of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 26066, Feb. 3, 2015; hereinafter the same) stipulates.

However, in a case where a tax authority’s disposition of income and a notice of change in the amount of income is given, the tax authority’s disposition of income and a notice of change in the amount of income are deemed to have paid the relevant amount to the person to whom the income recorded in the notice was given on the date of receipt of the notice of change, and at the same time tax liability for withholding is established, such notice of change in the amount of income is subject to appeal litigation as an act of the tax authority directly affecting the tax liability of the corporation that is the withholding agent. In addition, as the tax authority’s notice of change in the amount of income constitutes a disposition of tax collection ordering the payment of the determined amount of income, which is a prior disposition, even if there is a defect in the notice of change in the amount of income, it shall not be succeeded as it is, unless there is a reason that the tax authority’s disposition and the notice of change in the amount of income are void and void, and it shall not be subject to appeal litigation as to the collection of income tax (see Supreme Court Decision 2009Du14394, Jan. 26, 2012).

In this case, on June 25, 2013, the Defendant: (a) disposed of KRW 6,491,687,500, which was not recovered by March 17, 2010 from the instant advance payment, as dividends to Nonparty 1; (b) notified the Plaintiff of the instant advance notice of taxation that it would be notified of the amount of withholding tax on the said dividend income by omitting it; (c) on July 10, 2013, the Plaintiff notified the Plaintiff of the change in the amount of dividend income of Nonparty 1; (d) on July 22, 2013, the Plaintiff filed a request with the Director of the Seoul Regional Tax Office for the pre-announcement of taxation on the instant advance notice of taxation; and (e) on September 12, 2013, the Director of the Seoul Regional Tax Office made a non-approval decision on the Plaintiff’s request for pre-assessment review on the Plaintiff’s request on September 12, 2013.

First, according to the provisions of Article 81-15 of the former Framework Act on National Taxes and the legal principles as seen earlier, the pre-announcement notice under Article 81-15 (1) of the same Act does not include a simple collection disposition as to whether there exists tax liability and the scope of the taxpayer. Therefore, the pre-announcement notice does not include the above notice of dividend income tax payment, which only collects the notice of change in the amount of income that establishes the obligation to pay withholding income tax. However, the Defendant did not withhold the pertinent taxation until September 12, 2013 when the pre-assessment notice was rendered pursuant to the main sentence of Article 63-14 (4) of the former Enforcement Decree of the Framework Act on National Taxes and the Plaintiff did not request the pre-assessment review before the lapse of the period for which the Plaintiff was entitled to request the pre-assessment review. Accordingly, the instant notice of change in the amount of income is procedural defect in violation of the above provision.

2) Whether the case constitutes serious and obvious defects

A) In order for a taxation disposition to be deemed null and void as a matter of course, the mere fact that there is an illegality in the disposition is insufficient, and the defect is objectively and objectively in violation of important laws and regulations, and in determining whether the defect is significant and obvious, it is necessary to examine the purpose, meaning, function, etc. in the relevant laws and regulations, which serve as the basis for the pertinent taxation, from a teleological perspective and to reasonably consider the specificity of the specific case itself (see, e.g., Supreme Court Decision 90Meu10862, Nov. 27, 190)

B) In full view of the following circumstances, it is reasonable to view that the procedural defect of the Defendant’s notice of change in the amount of income prior to a decision on the request for pre-assessment review is a substantial deprivation of the opportunity to pre-assessment review guaranteed by the former Framework Act on National Taxes, and is significant defect.

① The pre-assessment review system was introduced upon the amendment of the Framework Act on National Taxes by Act No. 5993 on August 31, 199. It is a procedure established to enhance the effectiveness of the protection of taxpayers’ rights by notifying taxpayers of the details of taxation prior to the tax disposition and allowing them to file a lawful review with the tax authority. A taxpayer may have an opportunity to state his/her opinion prior to the tax disposition by filing a request for pre-assessment review. Accordingly, the tax authority can correct the illegal and unreasonable taxation by itself in advance. Such a pre-assessment review system is important for the prior and preventive remedy procedure for the taxation disposition.

(2) Of course, there is a method of appeal such as filing an objection, request for trial, administrative litigation, etc. as an ex post facto remedy procedure. However, even if a taxation disposition is revoked or modified later, it is difficult to restore disadvantages such as burden of litigation costs, time and effort waste, etc., and the pre-assessment review is subject to examination as well as unfair disposition, and the scope of remedy is wide compared with the administrative litigation, and the decision is made within 30 days and can be promptly recovered (Article 81-15(3) of the former Framework Act on National Taxes). Unless there are special circumstances, the independent significance of the pre-assessment review system cannot be denied. Accordingly, the tax authority should substantially guarantee taxpayers the opportunity of pre-assessment review prior to the tax disposition. In this case, there is no such exception as above, such as the reason for collection before the tax payment period.

③ Article 81-15(8) of the former Framework Act on National Taxes provides that “The application, method, and other necessary matters for the pre-assessment review shall be prescribed by Presidential Decree,” and the main sentence of Article 63-14(4) of the Enforcement Decree of the same Act provides that “the competent tax office shall withhold the taxation disposition until a pre-assessment review decision is made.” This is to ensure the substantial opportunity and effectiveness of the pre-assessment review. Therefore, it is difficult to regard it as a decoration provision. The pre-announcement notice of taxation in this case also explains that the result of the pre-assessment review should be reflected after the pre-assessment decision (Evidence No.

If the tax authority imposes a taxation before a pre-assessment review decision, it may cause confusion as to whether it is a decision on a request for pre-assessment review or a final taxation disposition, and it may not go through the ex post facto remedy procedure. The notice on the change of the amount of income in this case does not have any explanation as to what relationship with the pre-announcement procedure and how to take the appeal procedure, and it is more dangerous than the above risk.

Therefore, the taxation disposition prior to the decision on the request for pre-assessment review violates the taxpayer's right to the prior remedy procedure, and not only the pre-assessment review system itself be punished, but also the relationship between the pre-assessment decision and the taxation disposition and the legal relationship related to the appeal procedure, and it is an important violation of laws and regulations.

④ Moreover, in the instant case, the Defendant’s notice of change in the amount of income does not simply have been made before a pre-assessment decision was rendered, but it was made before the Plaintiff’s request due to the lapse of the period (within 30 days from the date of receipt of the pre-assessment notice) set forth in Article 81-15(1) of the former Framework Act on National Taxes. As seen earlier, the Plaintiff’s request for pre-assessment review itself is unreasonable by pre-assessment of taxation to be made at the later stage than the pre-assessment review procedure set forth in the former Framework Act on National Taxes. In addition, this is not different from the beginning of the taxation, which prevents the Plaintiff’s opportunity for pre-assessment review. In addition, under Article 81-15(7) of the former Framework Act on National Taxes, a taxpayer may request a pre-assessment request for the pre-assessment review and the tax base and tax amount to be determined at an early stage within the period set forth in the pre-assessment review request. In view of such circumstances, the Defendant may also be deemed to have infringed the aforementioned taxpayer’s prior choice by imposing a tax assessment.

⑤ Under Article 12(1) of the Constitution, the principle of due process is not limited to criminal proceedings, and is applied to all state actions. Even in cases where a tax official exercises the right to impose taxes, the principle of due process should be equally observed (see Supreme Court Decision 2012Du911, Jun. 26, 2014, etc.). Article 81-15(2) of the former Framework Act on National Taxes exceptionally lists cases where a taxpayer is unable to file a request for pre-assessment review. As seen earlier, the function and scope of remedies as a prior remedy procedure, the details and purport of the introduction of the system, the legislative intent of the main sentence of Article 63-14(4) of the former Enforcement Decree of the Framework Act on National Taxes, which was prepared for the effective guarantee of the pre-assessment review system, and the control method for the efficient prevention of a taxpayer’s infringement of procedural rights, even if the same taxation disposition is inevitable even in cases where it has been made through legitimate pre-assessment review procedure, it constitutes a serious procedural tax disposition to deny the taxpayer’s right.

C) Next, the existence of such defect is objectively clear by itself under the main text of Article 63-14(4) of the former Enforcement Decree of the Framework Act on National Taxes. In other words, it is an administrative disposition in which the notice of change of income tax becomes final and conclusive after Supreme Court en banc Decision 2002Du1878 Decided April 20, 206. Accordingly, it is objectively clear that the notice of change of income constitutes “determination or rectification of tax base and tax amount” under the main sentence of Article 63-14(4) of the former Enforcement Decree of the Framework Act on National Taxes.

In addition, the proviso of Article 63-14 (4) of the former Enforcement Decree of the Framework Act on National Taxes provides that "Provided, That this shall not apply to cases falling under any of the subparagraphs of Article 81-15 (2) of the Act, or where an application is made pursuant to paragraph (7) of the same Article." In this case, there is no exceptional reason prescribed by the above proviso, such as the reason for collection prior to the due date of the tax payment.

D) On this issue, the Defendant asserts that although the notice of change in the amount of income of this case was made before the pre-assessment review was made, the collection disposition of the principal tax on the dividend income of this case following the notice of change in the amount of income of this case was conducted after the pre-assessment review was made, it cannot be deemed that the Plaintiff was deprived of the opportunity to relieve the Plaintiff’s prior right, and that the defect

However, a disposition to be reserved until a pre-assessment decision under the main sentence of Article 63-14(4) of the former Enforcement Decree of the Framework Act on National Taxes is not a "decision or decision of correction of tax base and amount of tax", or a collection disposition is not a "decision or decision of correction of tax base and amount of tax," but a separate claim against the tax collection disposition itself against the relevant tax collection disposition, which is not a basis for the collection disposition (see, e.g., Supreme Court Decision 2009Du14439, Jan. 26, 2012). Thus, the collection disposition following the notice of change in the amount of income in this case was conducted after the pre-assessment review decision, and thus, it cannot be deemed that there was any defect in the opportunity for the plaintiff to remedy the right in this case

3) Sub-decisions

Therefore, the notice of the change in the income amount of this case is significant and clear so that it can be said that the defect is void as a matter of course.

B. Whether the main collection disposition of dividend income tax of this case and the imposition disposition of additional tax are legitimate

1) As seen earlier, the notice of the change in the amount of income in this case is so serious and clear that its defect is null and void, and thus, the collection disposition of the principal tax on the dividend income in this case and the imposition disposition of additional tax are also null and void as there are no grounds.

2) However, the Plaintiff sought revocation of the collection disposition of the principal tax of the instant dividend income tax and the imposition disposition of the additional tax. Since the Plaintiff’s respective revocation claims are included in the purport of seeking revocation of the purport of declaring invalidation, the Plaintiff’s claim shall be accepted and the main tax collection disposition of the instant dividend income tax and the imposition disposition of additional tax shall be revoked.

3. Conclusion

Thus, the plaintiff's primary claim, including the part that was changed for exchange in this court, shall be accepted for all of the reasons, and therefore, the decision of the court of first instance shall be modified differently from this conclusion, and it is so decided as per Disposition.

[Attachment]

Judges Kim Yong-open (Presiding Justice)