[1] The meaning of business income under the Income Tax Act and the method of determining which income constitutes business income or whether it constitutes other income as a temporary income

[2] In a case where there is a reasonable ground for not allowing a taxpayer to assume responsibility for the failure to inform the taxpayer of the tax return and liability, or where there is a justifiable ground for not being able to criticize the fact that he/she neglected such duty, whether an additional tax may be imposed pursuant to the Framework Act

[3] In a case where Gap, an attorney-at-law, performed the corporate bankruptcy officer's duties in a number of corporate bankruptcy cases from 2002 to 2014, and reported the amount of remuneration to other income, but the tax authority imposed additional tax when it imposed global income tax for the taxable year 2009 to 2013, which is the taxable year where the exclusion period of imposition does not have yet to elapse since the tax office considered it as other income, the case holding that there is a justifiable reason that Gap could not be argued that he neglected his duties even if he did not report and pay it as the above business income

[1] Business income under the Income Tax Act refers to income generated from a business, which is a social activity continuously and repeatedly conducted in an independent position for profit-making purposes. Whether a certain income constitutes a business income or other income which is a lump-sum income, shall be determined according to social norms, taking into account the details, period, frequency, mode, and all other circumstances before and after the activity of a taxpayer in relation to whom the income was generated.

[2] In order to facilitate the exercise of a taxation right and the realization of a taxation right, additional tax is an administrative sanction imposed as prescribed by the Act in cases where a taxpayer violates various duties, such as a return and tax payment, and does not impose it if there is a justifiable reason (Article 48(1) of the Framework Act on National Taxes). Therefore, in cases where there is a reasonable ground that a taxpayer cannot be held liable for failure to know his/her duty due to a conflict of views in the interpretation of the tax law beyond a simple scope of land or misunderstanding, or where there is a reason that it is difficult for the taxpayer to criticize the fact that he/she neglected to perform his/her duty, such as when it is difficult

[3] The case holding that in case where Gap, an attorney-at-law, performed the corporate bankruptcy trustee's business in a number of corporations bankruptcy from 2002 to 2014 and reported the amount of remuneration to other income, and the tax authority imposed additional tax at the time of imposing global income tax for the taxable year from 2009 to 2013, which is a taxable year where the exclusion period of imposition does not exceed the exclusion period, considering it as other business income, the tax authority erred by misapprehending the legal principles of the judgment below, which affected the conclusion of the judgment, although there was a conflict of view in the interpretation of tax law as to whether the trustee's remuneration can be imposed as business income, and the tax authority did not have a clear view by imposing additional tax on Gap when considering the process of imposing global income tax, and even if Gap did not report and pay it as above business income, it is excessively harsh to impose additional tax on Gap when considering the process of imposing global income tax.

[1] Articles 4(1)1, 19, and 21 of the Income Tax Act / [2] Articles 2 subparag. 4, and 48(1) of the Framework Act on National Taxes / [3] Articles 4(1)1, 19, and 21(1)19 of the Income Tax Act; Articles 2 subparag. 4, and 48(1) of the Framework Act on National Taxes

[1] Supreme Court Decision 200Du5210 Decided June 15, 2001 (Gong2010Du8430 Decided September 9, 201) (Gong2010Ha, 1930) / [2] Supreme Court Decision 2002Du666 Decided August 23, 2002 (Gong2002Ha, 2237), Supreme Court Decision 2016Du44711 Decided October 27, 2016 (Gong2016Ha, 1851)

Plaintiff (Law Firm LLC, Attorneys Kim So-joon et al., Counsel for the plaintiff-appellant)

Head of the District Tax Office

Seoul High Court Decision 2016Nu68696 decided January 24, 2017

The part of the lower judgment regarding the imposition of additional tax is reversed, and that part of the case is remanded to the Seoul High Court. The remainder of the appeal is dismissed.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Division of business income and other incomes;

A. Business income under the Income Tax Act refers to income generated from a business, which is a social activity continuously and repeatedly conducted in an independent position for profit-making purposes. Whether a certain income constitutes business income or other income which is a lump-sum income, should be determined in accordance with social norms, taking into account the details, period, frequency, mode, and all other circumstances before and after the activity of a person liable to pay tax, and whether the income is for profit-making purposes, and whether the continuity and reflectness are determined (see, e.g., Supreme Court Decisions 200Du5210, Jun. 15, 2001; 201Du8430, Sept. 9, 2010).

B. Based on the following various circumstances, the lower court determined that: (a) the Plaintiff’s remuneration (hereinafter “instant remuneration”) performing corporate bankruptcy-related business and received corporate bankruptcy-related business from 2009 to 2013 constituted business income earned by continuously and repeatedly from his/her own account and responsibility for profit-making purposes.

(1) From 2009 to 2013, the year to which the instant disposition is attributed, the Plaintiff, an attorney-at-law, performed the duty of bankruptcy re-election against 11 bankruptcy corporations, and, if all were to be combined from 2002 to 2014, performed the duty of bankruptcy re-election against 40 bankruptcy corporations. In light of the period, frequency, etc. of the instant disposition, continuity and repetition are sufficiently recognized.

(2) The instant remuneration is a total of KRW 925,908,900, and the amount is not smaller than 25% of the Plaintiff’s total revenue. From 2002 to 2014, the sum of the remuneration that the Plaintiff received by the Plaintiff while carrying out the corporate restructuring has reached approximately KRW 2.5 billion.

(3) Even if the appointment of a trustee in bankruptcy according to the court’s decision and the duty is of a strong nature to the public interest, it is difficult to deny the profit-making nature in light of the period during which the Plaintiff performed the corporate restructuring and the amount of the profit accrued therefrom.

C. The above determination by the court below is based on the legal principles as seen earlier, and it did not err by misapprehending the legal principles as to business income and other income under the Income Tax Act, contrary to what is alleged in

2. Principle of good faith, etc.

The lower court rejected the Plaintiff’s assertion that the instant disposition violates the principle of trust and good faith and the principle of prohibition of retroactive taxation. For that reason, the administrative rules, etc. cited by the Plaintiff were merely an expression of general opinion, and the tax authorities did not officially confirm that the instant remuneration was other income since the Plaintiff received the tax amount returned and paid by the Plaintiff, and the tax authorities did not officially confirm that the instant remuneration was other income. Therefore, it cannot be deemed that there was a public expression of opinion or a practice of general recognition that the remuneration of the trustee was imposed on any case or other income

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine on the principle of trust and good faith and the principle of prohibition of retroactive taxation.

3. Reasons for exempting from additional duties.

A. Additional tax is an administrative sanction imposed, as prescribed by the Act, in cases where a taxpayer violates various duties, such as a return and tax payment, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, and is not imposed if there is a justifiable reason (Article 48(1) of the Framework Act on National Taxes). Therefore, in cases where there is a reasonable ground that a taxpayer cannot be held liable for failure to know his/her duty due to a conflict of views in the interpretation of the tax-related Acts beyond the scope of simple land or misunderstanding, or where there is a circumstance that it is difficult to expect the party to perform his/her duty, etc., and there is a justifiable ground that makes it difficult to criticize the fact that he/she neglected the duty (see, e.g., Supreme Court Decisions 202Du66, Aug. 23, 2002; 2016Du4711, Oct. 27, 2016)

B. Review of the reasoning of the lower judgment and the record reveals the following facts.

(1) The appointment of the bankruptcy trustee of the bankrupt corporation was active since around 2000, and there was no explicit judgment prior to the disposition in this case, and there was a variety of opinions in terms of the interpretation of tax law.

(2) The tax authority, through the inquiry of February 11, 200, expressed its opinion that the cost received by the attorney as a trustee in bankruptcy without connection with his/her own business constitutes other income. However, in the event that the bankruptcy-related company performed the business as a "active and repetitive", there is no specific opinion as to whether the remuneration is business income.

(3) Since 2002, the Plaintiff filed a return on other income continuously, and received a request from the tax authority to submit explanatory data, such as materials proving that the pertinent income is other income. However, no subsequent measures have been taken until the instant disposition was taken, and the Defendant: (a) deemed the business income not other income on May 10, 2015 and June 1, 2015; and (b) rendered the instant disposition imposing a comprehensive income tax for 2009 to 2013, which is the taxable year in which the exclusion period of imposition does not expire, on the ground that it is not other income.

C. Examining these factual relations in light of the legal principles as seen earlier, there was a conflict of view in the interpretation of tax law regarding whether the remuneration of the trustee in bankruptcy can be imposed as business income, and the defendant also did not have a clear view as to the disposition of imposition, etc. only when it came to the year 2015. Considering the circumstances leading up to the imposition of global income tax in this case, imposing penalty tax on the plaintiff is excessively harsh. Therefore, it is reasonable to deem that there is a justifiable reason that the plaintiff could not be argued that he neglected his duty even if he did not report and pay the instant remuneration as business income.

D. Nevertheless, the lower court determined that the imposition of each of the instant penalty taxes was lawful on the ground that the Plaintiff was not negligent in neglecting the duty of report and payment. In so doing, the lower court erred by misapprehending the legal doctrine on justifiable grounds for exempting from penalty taxes, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on this point is with merit

4. Conclusion

The part of the lower judgment regarding the imposition of additional tax is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. The remaining appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young (Presiding Justice)