The purpose and interpretation method of Article 39 of the Framework Act on National Taxes, which provides for the secondary tax liability of oligopolistic stockholders / Whether the secondary oligopolistic stockholder is an oligopolistic stockholder merely because the primary oligopolistic stockholder is an oligopolistic stockholder (negative in principle)

The main text of Article 39 of the Framework Act on National Taxes provides, “If the property of a corporation is insufficient to cover the national tax, additional dues, and disposition fee for arrears imposed on or to be paid by the corporation, any person who falls under any of the following subparagraphs as of the date on which the national tax liability is established shall be subject to secondary tax liability for the shortage.” Of the foregoing, a person liable for secondary tax liability under Article 39 Subparag. 2 (hereinafter “the foregoing provision”) refers to a shareholder or one partner with limited liability and a person prescribed by the Presidential Decree from among his/her related parties, whose total amount of stocks held or investments exceeds 50/100 of the total number of stocks issued or investments of the corporation concerned and who actually exercise the rights thereto:

The second tax liability stipulated in Article 39 of the Framework Act on National Taxes, in cases where the disposition on default on the property of a corporation originally liable for tax payment is deemed to fall short of the amount of taxes to be collected even after the disposition on default for securing tax collection, shall be made to the extent of the amount which can not be collected from the corporation only by the investors who can substantially control the operation of the corporation, while minimizing judicial order.

On the other hand, the purport of the above provision is to prevent the abuse of corporate personality and thereby to achieve substantial tax equality, since oligopolistic shareholders, a substantial operator who substantially controls the management of the company, belong to themselves and losses are likely to bring about abuse of corporate personality to the company.

However, the secondary tax liability of oligopolistic shareholders is a serious exception to the principle of limited liability of shareholders under private law, and it imposes a supplementary tax liability on a third party who is not the original taxpayer. Therefore, the requirements for its application should be strictly interpreted.

However, the above provision does not stipulate that the second oligopolistic shareholder of a corporation (hereinafter “the second oligopolistic shareholder”) is liable to pay taxes in arrears as the second oligopolistic shareholder of the corporation, and the second oligopolistic shareholder of the corporation (hereinafter “the second oligopolistic shareholder”) is liable to pay taxes in arrears. Therefore, deeming that the second oligopolistic shareholder is an oligopolistic shareholder beyond the first oligopolistic shareholder and also the second oligopolistic shareholder as the second oligopolistic shareholder is not permitted in light of the purport of the above provision and the need for strict interpretation, barring any special circumstances.

Article 39 subparagraph 2 of the Framework Act on National Taxes

Supreme Court en banc Decision 94Nu1463 delivered on June 13, 1995, en banc Decision 93HunBa49 delivered on June 26, 1997, 94HunBa38, 41, 95HunBa64 delivered on June 26, 199 (HunGong22, 467)

Korean Veterans Association (Law Firm LLC et al., Counsel for the plaintiff-appellant)

The director of the Nam-gu Tax Office (Law Firm Barun, Attorneys Jeon Tae-tae et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2017Nu64578 decided January 24, 2018

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

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

1. Scope of secondary tax liability of an oligopolistic stockholder;

A. The main text of Article 39 of the Framework Act on National Taxes provides, “If the property of a corporation is insufficient to cover the national tax, additional dues, and disposition fee for arrears imposed on or to be paid by the corporation, any person who falls under any of the following subparagraphs as of the date on which the liability to pay national tax is established shall assume secondary tax liability for the shortage.” Of the foregoing, the person liable to pay secondary tax under Article 39 Subparag. 2 (hereinafter “instant provision”) refers to a shareholder or one partner with limited liability and a person prescribed by the Presidential Decree among his/her related parties, whose total amount of stocks held or investments exceeds 50/100 of the total number of stocks issued or investments made by the corporation and who actually exercises his/her rights thereto:

B. The secondary tax liability under Article 39 of the Framework Act on National Taxes, in cases where a disposition on default on the property of a legal entity originally liable for tax collection is deemed to fall short of the amount of taxes to be collected even if a disposition on default was taken on the property of the legal entity to secure tax collection, the secondary tax liability under Article 39 of the Framework Act on National Taxes is to impose a supplementary tax liability to the extent of the amount not collectible from the legal entity, limited to the investors who can substantially control the operation of the legal entity, while minimizing the disturbance of judicial order (see Supreme Court Decision 94Nu

Meanwhile, the purport of the instant provision is to prevent the abuse of corporate personality and thereby to achieve substantial tax equality (see, e.g., Constitutional Court en banc Decision 93Hun-Ba49, Jun. 26, 1997).

However, the secondary tax liability of oligopolistic shareholders is a serious exception to the principle of limited liability of shareholders under private law, and it imposes a supplementary tax liability on a third party who is not the original taxpayer. Therefore, the requirements for its application should be strictly interpreted.

C. However, the instant provision only provides for the secondary oligopolistic shareholder as the secondary oligopolistic shareholder for a corporation, and it does not stipulate that the primary oligopolistic shareholder of the corporation (hereinafter “the primary oligopolistic shareholder”) is liable for secondary tax liability for national taxes in arrears as the secondary oligopolistic shareholder for the second oligopolistic shareholder. Therefore, deeming the secondary oligopolistic shareholder as falling under the instant provision by expanding the supplementary tax liability to the second oligopolistic shareholder more than the primary oligopolistic shareholder but to the second oligopolistic shareholder merely because the secondary oligopolistic shareholder is the primary oligopolistic shareholder, it is reasonable to deem that the instant provision is not permissible in light of the purport of the instant provision and the need for strict interpretation, barring any special circumstances.

2. Determination as to the instant case

A. In full view of the adopted evidence, the lower court recognized the fact that the Plaintiff constitutes an oligopolistic shareholder who has acquired shares equivalent to 82.19% of the total number of shares issued by the UNNF Co., Ltd. (hereinafter “NF”) during the period of comprehensive development (hereinafter “long-term comprehensive development”), citing the reasoning of the first instance judgment, recognized the fact that the Plaintiff constitutes an oligopolistic shareholder who acquired the entire shares issued by the UNNF. Then, the lower court determined that the secondary tax liability imposed on the oligopolistic shareholder of a corporation pursuant to the instant provision is unlawful on the ground that the Plaintiff cannot be extended and applied to the Plaintiff solely on the ground that the Plaintiff is an oligopolistic shareholder of the UNF and the Plaintiff cannot be extended and extended to the Plaintiff solely on the ground that the Plaintiff is the oligopolistic shareholder of the UNF.

B. Examining the above provisions, legal principles, and records, the lower court did not err in its judgment by misapprehending the legal doctrine on the scope of establishing secondary tax liability of oligopolistic shareholders, contrary to what is alleged in the grounds of appeal. Meanwhile, the Supreme Court Decision 92Nu10210 Decided May 11, 1993 cited in the grounds of appeal is different from the case, and it is not appropriate to invoke the case in this case.

3. 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 on the bench.

Justices Lee Ki-taik (Presiding Justice)