[1] The legal nature of appropriation of national tax refund and the method of litigation where appropriation is null and void

[2] In a case where a taxpayer transferred a national tax refund claim to another person and notified the director of the tax office to lawfully transfer the claim, but the director of the tax office failed to appropriate the refund without delay, whether the act of appropriating the refund money to the transferor's national taxes in arrears occurs (negative), and the standard for determining whether the appropriation is valid

[3] In a case where Gap corporation, etc. received a decision of refund of value-added tax, Gap corporation, etc. was appropriated for the corporate tax of Gap corporation, etc.; Gap corporation, etc. transferred the national tax refund claim to Eul corporation, and submitted a request for transfer of national tax refund to the head of the competent tax office; subsequently, the head of the competent tax office corrected corporate tax and appropriated it for delinquent national taxes of Gap corporation, etc., which occurred at the time of the national tax refund, the case holding that the judgment below erred by misapprehending the legal principles on the erroneous premise that Gap corporation’s corporate tax refund claims acquired by

[1] The appropriation of a national tax refund is not a disposition that specifically and directly affects the existence, scope, or extinction of a claim for repayment of the tax refund held by the taxpayer, but rather similar to a offset under the Civil Act in that the State's obligation and the tax claim ceases to exist from an equal amount, and where there is no tax claim extinguished, or is void or cancelled automatically, the person liable for tax payment may claim for the refund of the national tax refund already determined at any time on the ground that there is no effect of appropriation.

[2] Comprehensively taking account of the provisions of Articles 51(1) and 53 of the Framework Act on National Taxes and Article 43-4 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 24366, Feb. 15, 2013), where a taxpayer transfers the national tax refund claim to be refunded to another person, and then notifies the head of a tax office in writing stating the name and address of the transferor and transferee, and the right to transfer, and requests a transfer, the head of a tax office shall immediately pay the unpaid amount to the transferee if the transferor is delinquent national taxes, etc. after investigating and ascertaining the existence of other delinquent national taxes, etc. to be paid by the transferor. If the transferee fails to pay the unpaid amount without delay even if he/she received a legitimate request from the taxpayer for transfer, the transferee’s national tax refund claim shall be finally reverted to the transferee. After that, even if such appropriation is finally reverted to the transferor’s national taxes, it shall not become effective to collect the tax claim that is not the transferor’s ownership, in determining whether the appropriation becomes effective.

[3] Where Gap corporation received a decision to refund value-added tax, and Gap corporation was appropriated for corporate tax of Gap corporation, etc., and submitted a request for transfer of national tax refund to Eul corporation, and the head of the competent tax office corrected corporate tax and appropriated it for delinquent national taxes of Gap corporation, etc., which occurred until the time the national tax refund was paid, the case held that the judgment below was lawful in view of the fact that Gap corporation's claim for the refund of value-added tax was determined at the time of the refund of value-added tax, while Gap corporation's claim for the refund of value-added tax was reduced, on the other hand, at the time of the refund of value-added tax, it should be deemed that there was a legitimate request for transfer at the time of submission of a request for transfer to the head of the competent tax office with respect to the portion of transfer of the refund of value-added tax, and furthermore, even if the head of the competent tax office prior to the aforementioned request for transfer of value-added tax was made, it is difficult to view that the refund was newly made for a considerable period of time from the transfer date.

[1] Article 51(2) of the Framework Act on National Taxes, Article 31 of the Enforcement Decree of the Framework Act on National Taxes / [2] Articles 51(1) and 53 of the Framework Act on National Taxes, Article 43-4 of the former Enforcement Decree of the Framework Act on National Taxes / [3] Articles 51(1) and 53 of the Framework Act on National Taxes, Article 43-4 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 24366, Feb. 15, 2013)

[1] Supreme Court Decision 92Nu14250 delivered on December 2, 1994 (Gong1995Sang, 513), Supreme Court Decision 2003Da64435 Delivered on March 25, 2004 (Gong2004Sang, 699) / [2] Supreme Court Decision 2002Da31834 Delivered on September 26, 2003 (Gong2003Ha, 2069), Supreme Court Decision 2008Da31768 Delivered on March 26, 2009 (Gong2009Sang, 699)

Tax accounting corporation (Law Firm Min Jae, Attorneys Gyeong-sung et al., Counsel for the plaintiff-appellant)

Korea

Seoul High Court Decision 2015Na2059212 decided July 22, 2016

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. The appropriation of a national tax refund is not a disposition that specifically and directly affects the existence, scope, or extinction of the right to claim the refund of a taxpayer, but rather similar to a set-off under the Civil Act in that the State’s obligation and the tax claim ceases to exist from an equal amount. In the event there is no tax claim extinguished or the claim becomes null and void or cancelled automatically, the person liable for duty payment may claim the refund of the national tax refund already determined at any time on the ground that there is no validity of appropriation (see, e.g., Supreme Court Decisions 92Nu14250, Dec. 2, 1994; 2003Da64435, Mar. 25, 2004).

Meanwhile, comprehensively taking account of the provisions of Articles 51(1) and 53 of the Framework Act on National Taxes and Article 43-4 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 24366, Feb. 15, 2013), where a taxpayer transfers a national tax refund claim to be refunded to another person, and notifies the head of a tax office in writing stating the name and address of the transferor and transferee, and the contents of the right to transfer, etc., and requests a transfer, the head of a tax office shall immediately investigate and verify whether the transferor has any other delinquent national tax, etc. and then pay the transferee any amount remaining after appropriating the national tax in arrears. If the head of a tax office receives a legitimate request from the transferor for transfer but fails to appropriate it without delay, the transferee’s claim to be transferred shall be finally reverted to the transferee, and if the transferee receives a request from the transferor in advance to appropriate it, it shall be deemed that such appropriation would no longer become effective as a result of collecting the tax claim that is not owned by the transferor.

2. The lower court: (a) received a decision to refund the value-added tax of KRW 480,000 and KRW 1 billion from December 3, 2011 by Gyeonggi-do Si Development Co., Ltd. and Equi Hadi Industries Development Co., Ltd. (hereinafter collectively referred to as “transfer corporations”); and (b) held that each of the above value-added tax refunds was appropriated for corporate tax (hereinafter “each of the instant corporate tax”) for 2010 business years of the transferor corporations around December 2, 2011; (c) on December 2, 2011, the transferor corporations transferred the Plaintiff the national tax refund claim amounting to KRW 40 million and KRW 270,000,000 to the head of each competent tax office on February 3, 2012; (d) the head of the competent tax office reduced the amount of national tax refund and KRW 370,000,000,000 from each of the instant corporations on June 30, 2014.

Furthermore, the lower court, on the premise that the claim for refund of each of the instant corporate tax claims was finalized by the transferor corporations acquired by the Plaintiff following the reduction or correction of each of the instant corporate tax, deemed legitimate by the head of the competent tax office appropriating each of the instant corporate tax refunds on July 3, 2014 as the delinquent national taxes, etc. of the transferor corporations accrued until that time, and dismissed all the Plaintiff’s claim seeking payment of the refund of national tax, etc. that was transferred from

3. However, examining the reasoning of the lower judgment in light of the legal doctrine as seen earlier, since each of the instant corporate tax, which was the object of appropriation, was corrected by reduction on or around December 201, such appropriation does not take effect to the extent that it was reduced, and accordingly, the claim for refund of each of the instant corporate tax, which was initially determined and finalized at that time, should be deemed as having been returned within the scope of each of the instant corporate tax refund claims.

Therefore, each claim for refund of value-added tax by the transferor corporation shall be determined on December 2, 201, while each of the above value-added tax refunds was reduced by each of the above corporate tax in this case, it shall be deemed that there was a legitimate request for transfer on or before February 3, 2012, without considering the fact that each of the above claims for refund of value-added tax was appropriated for the corporate tax in the past. Furthermore, even if the head of the competent tax office selected each of the above claims for refund of value-added tax was appropriated for the delinquent national tax, etc. of the transferor corporation accrued until the above time as of July 3 and 10, 2014, it shall be deemed that it was made after about two years and five months from the date of the request for transfer, and it is difficult to view that it was made without delay from the time of receiving the request for transfer. Accordingly, it is reasonable to view that the head of the competent tax office having jurisdiction over each part of the refund of value-added tax that the Plaintiff

Nevertheless, the lower court determined that each of the instant corporate tax refunds was lawful on July 3, 2014 under the erroneous premise that each of the instant corporate tax refunds was newly created, not due to the correction of reduction of corporate tax in the amount of each of the instant corporate tax, on July 3, 2014. In so doing, the lower court erred by misapprehending the legal doctrine on the appropriation and transfer of national tax refund bonds, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on this point is with merit.

However, according to the records, it may be deemed that each transfer corporation's claim for the refund of value-added tax, which the plaintiff takes over and seeks payment, includes the right to claim the payment of value-added tax corresponding to the payment obligation of value-added tax, which is the obligation under public law. If so, such claim is not a civil lawsuit, but subject to the party litigation procedure provided in Article 3 subparagraph 2 of the Administrative Litigation Act (see Supreme Court en banc Decision 2011Da95564, Mar. 21, 2013, etc.). Thus, the court of first instance is the Suwon District Court having jurisdiction over the location of the head of Leecheon District Tax Office, which is the competent administrative agency, and in such a case, the court of first instance and the court below erred by misapprehending the legal principles as to party litigation under the Administrative Litigation Act, and thereby, it is reasonable to transfer the lawsuit of this case to the competent court, including the case where it is evident that it can be dismissed after transfer (see, e.g., Supreme Court Decision 2014Da263654, Feb. 25, 2014).

4. Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Jo Hee-de (Presiding Justice)