2016Du38112 global income, revocation of disposition, etc.

Mel Maut International Social Social Social Socialist Libers

Law Firm LLC et al., Counsel for the defendant-appellant

The director of the tax office.

Law Firm Namsan, Attorneys Jeong Ui et al., Counsel for the plaintiff-appellant

Seoul High Court Decision 2015Nu37060 Decided April 20, 2016

September 24, 2020

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

The grounds of appeal are examined.

1. Requirements for establishing the secondary tax liability of the corporation;

A. Article 40(1) of the Framework Act on National Taxes provides that if the property of the general partner or oligopolistic stockholder (hereinafter referred to as “investors”) of a corporation is insufficient to cover the national tax, additional dues, and disposition fee for arrears to be paid by the investors as of the expiration date of the payment period of national tax, the corporation shall be liable to pay the shortage within the limit of the value of the investor’s stocks or investment

The secondary tax liability of a corporation under Article 40 of the Framework Act on National Taxes is to ensure tax collection and achieve substantial equality in taxation by minimizing judicial order in cases where it is deemed that there is a shortage of tax to be collected even after the disposition on default on the property of an investor who is the original person liable for tax payment is made.

However, the secondary tax liability of such a corporation is exceptionally imposed on the third-party corporation, which is not the original taxpayer, even though the investor and the corporation are the subject of independent rights and obligations, and the interpretation of tax laws and regulations must be strict. Therefore, the requirements for its application should be strictly interpreted.

B. Article 40(1) of the Framework Act on National Taxes provides that only a case falling under any of the subparagraphs of the same paragraph shall be subject to secondary tax liability, and subparagraph 2 of the same Article provides that “Where the transfer of investors’ stocks or investment shares is restricted by law or the articles of incorporation of the juristic person” (hereinafter “instant provision”). In full view of the intent of the secondary tax liability system of the juristic person as seen earlier, the strict interpretation of the applicable requirements, the language and text of the instant provision, the limitation on transfer, and the nature and relationship of the restriction on seizure, etc., of investors’ stocks cannot be deemed as falling under the requirements of the instant provision until the procedure of disposition on default under the National Tax Collection Act is limited due to reasons other than the restriction on transfer under the Act. Therefore, even if the disposition on default, etc. under the National Tax Collection Act is limited because the investors’ stocks, etc. issued by a foreign juristic person are assets located in the head office or principal office of the relevant foreign juristic person, such reasons cannot be deemed as a case where the transfer of investors’ stocks, etc. is restricted by the Act.

2. Regarding ground of appeal No. 2

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

1) The Plaintiff is a foreign corporation established in Hong Kong in 2006. The Plaintiff is a foreign corporation that is established in Hong Kong in 2006. The Plaintiff is a shareholder holding 100% of the Plaintiff’s equity interest. The Nonparty held 100% of the Plaintiff’s equity interest, and the Nonparty held title trust to the Lystford Business Inc. in the Republic of Korea.

2) On April 13, 2011, the Defendant imposed on the Nonparty the global income tax in 2006 to 2010, respectively.

3) The Defendant: (a) on April 23, 2013, on the premise that the Nonparty is a shareholder with 100% share in the Plaintiff’s assets; (b) on April 3, 2013, the Nonparty designated the Plaintiff as the secondary taxpayer pursuant to Article 40 of the Framework Act on National Taxes; (c) imposed global income tax, etc. on the Plaintiff on April 25, 2013 to the extent of the Plaintiff’s net asset value; and (d) on April 12, 2013, the Plaintiff changed the payment period to April 20, 2013 pursuant to Article 14(1)7 of the National Tax Collection Act on the grounds that the Plaintiff could not evade national taxes (hereinafter “the instant disposition of imposition against the Plaintiff”); (d) on April 23, 2013, the Defendant held the Plaintiff’s claim for seizure of the Plaintiff’s shares based on the legal principles as to the Plaintiff’s claim for seizure against the Plaintiff’s respective shares issued to the Plaintiff, including the Plaintiff’s claim for seizure.

C. Nevertheless, the lower court acknowledged the facts as indicated in its holding, on the ground that the Plaintiff’s shares are located in a foreign country and are not subject to compulsory execution by the tax authority, and on the ground that the transfer of the Plaintiff’s shares constitutes limited cases under the customary international law having the same effect as the domestic law, determined that the Defendant’s secondary tax liability for the amount of national tax in arrears was lawful. In so determining, the lower court erred by misapprehending the legal doctrine on the interpretation of “where the transfer of the Plaintiff’s shares is restricted by law” under the provision of this case, thereby adversely affecting the conclusion of the judgment

3. Conclusion

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 Kim Jae-hwan

Justices Park Sang-ok

Chief Justice Noh Jeong-hee