The meaning of "family living together in Korea" under Article 2 (3) 2 of the former Enforcement Decree of the Income Tax Act and "when it is deemed that a person will continue living in Korea for not less than one year in view of his occupation and property status," and whether the above provision violates the principle of clarification of tax requirements (negative)

Article 2 (3) 2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010) provides that "family living together in Korea" means a relative near Korea where a person has a domicile in Korea together with a living fund or a place of residence in Korea, and "where a person is deemed to reside in Korea for at least one year in view of his/her occupation and property status" refers to cases closely related to a place of business, such as cases where a person is deemed to have a domicile in Korea for at least one year in light of the purport that he/she is deemed to have a resident as a taxpayer of income tax, or where he/she seems to have a workplace or work relationship, etc., to the extent that he/she needs a residence in Korea for at least one year, or where he/she appears to have a management and disposal of assets in Korea, it is difficult to see that the above provision is unlikely to have a taxpayer's perspective or arbitrary application of laws, and furthermore, it is difficult to expect that the above provision is more definite.

Articles 38 and 59 of the Constitution of the Republic of Korea; Article 1(1)1 (see current Article 1-2(1)1) and (4) (see current Article 1-2(2)) of the former Income Tax Act (Amended by Act No. 8144, Dec. 30, 2006); Article 2(1) and (3)2 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 22034, Feb. 18, 2010);

Plaintiff (Law Firm Apex, Attorneys Song Jae-in et al., Counsel for the plaintiff-appellant)

Head of the tax office;

Seoul High Court Decision 2012Nu31245 decided July 17, 2013

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

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

A. Article 1(1)1 of the former Income Tax Act (amended by Act No. 8144, Dec. 30, 2006; hereinafter the same) provides that “a person who has either a domicile in the Republic of Korea or a domicile for at least one year (hereinafter “resident”) is one of the persons liable to pay income tax.”

Meanwhile, Article 2(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010; hereinafter the same) upon delegation of Article 1(4) of the former Income Tax Act provides that “The address under Article 1 of the Act shall be determined based on objective facts of living relationship, such as the existence of a family living together in Korea and of assets located in Korea,” and Article 1(3) of the same Act provides that “if a person living in Korea falls under any of the following subparagraphs, he/she shall be deemed to have a domestic address in Korea, and if a person living in Korea falls under any of the following subparagraphs, he/she shall be deemed to have a family living in Korea and shall be deemed to have a continuous residing in Korea for 1 year or longer in light of his/her occupation and property status” (hereinafter Article 2(3)2 of the former Enforcement Decree of the Income Tax Act).

B. The principle of no taxation without law adopted by Articles 38 and 59 of the Constitution provides that the National Assembly, which is a representative organ of the people, shall prescribe the requirements and procedures for the exercise of tax rights, such as taxation requirements and collection procedures. However, it is not possible to delegate matters concerning taxation requirements and collection procedures to subordinate Acts and subordinate statutes, such as orders and rules, but only specific and individual delegations may be permitted if it is delegated to subordinate Acts and subordinate statutes, and the provisions of orders and regulations pursuant to such Acts and subordinate statutes or delegations shall be one and clear (see, e.g., Supreme Court Decision 96Nu3913, Dec. 6, 1996). Therefore, whether a taxpayer violates the principle of no taxation without law can be predicted to be subject to taxation because certain acts constitute the pertinent phrase, which is the taxation requirement, and whether the phrase in question accords the possibility of arbitrary and arbitrary application from the point of view of the administrative agencies, and it is not necessary to make a comprehensive decision 2008Da2984, supra.

In light of the purport that a resident is liable to pay income tax, the term “family living together in Korea” under the Enforcement Decree of the instant case as a requirement for deeming that he/she has a domicile in Korea refers to cases closely related to the Republic of Korea, such as when the workplace or work relationship is maintained to the extent that he/she needs to reside in Korea for more than one year, or when he/she seems to have to have a management and disposal of assets in Korea for more than one year. Thus, it is difficult to deem that the Enforcement Decree of the instant case is unlikely to have a possibility from a taxpayer’s standpoint, or that a arbitrary application of the law by the tax authorities is possible, and furthermore, it is difficult to expect that the choice of a more conclusive phrase would not be easily expected as a technical legislation. Therefore, the allegation in the grounds of appeal in the grounds of appeal cannot be accepted.

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

A. The main text of Article 4(1) of the Convention between the Republic of Korea and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea-Japan Tax Treaty”) provides that “for the purposes of this Convention, the term “resident of a Contracting State” means a person liable to pay taxes in the Contracting State in accordance with the laws of that Contracting State according to the address, residence, head office or principal office or other standards of a similar nature.” Article 4(2) of the Korea-Japan Tax Treaty provides that “where an individual becomes a resident of any Contracting State under the provisions of paragraph (1) of this Article, his status shall be determined as follows.” (a) provides that “where he has a permanent residence available in each Contracting State, he shall be deemed a resident of the Contracting State having the permanent residence available to him. Where he has a permanent residence in each Contracting State, he shall be deemed a resident of the Contracting State with which his personal and economic relations are more closely related.” (b) and (a) provides for the criteria under subparagraphs (c) and (a) of the Tax Treaty.

B. The court below acknowledged the following facts: (a) the Plaintiff acquired the instant shares, which were domestically owned on six occasions from January 19, 2006 to February 14, 2006, on eight occasions from July 4, 2006 to July 26, 2006; (b) the Plaintiff did not consider the Plaintiff as a non-resident under the former Income Tax Act and did not file a transfer income tax report; (c) on October 6, 201, the Defendant did not consider the Plaintiff as a resident under the former Income Tax Act, imposed capital gains tax of KRW 1,061,685,350 on the Plaintiff at the same time on KRW 200,000,000,000,000, domestic residents of Japan under the former Income Tax Act, for a long period of time, and the Plaintiff’s investment in the instant shares at KRW 605,000,000,000,000,000,000,0000.

C. Examining the above provisions and relevant legal principles and records, the judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the meaning of permanent residence and significant interests as provided in the Korea-Japan Tax Treaty, as otherwise alleged in the grounds of appeal.

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.

Justices Park Poe-young (Presiding Justice)