[1] In a case where a tax authority imposed a tax disposition before a request for pre-assessment review or a decision thereon is made after notice of the result of a tax investigation, whether the tax disposition becomes invalid due to a significant and apparent procedural defect (affirmative in principle)

[2] In a case where the tax authority made a complaint or notification disposition against a corporation in violation of the Punishment of Tax Evaders Act as to the evasion of corporate tax due to the omission of income, etc. while notifying the corporation of the results of tax investigation, whether it can be deemed that the tax evasion related to the notification of change in income amount due to the disposition of income can be deemed to have been subject to the exception of the pre-assessment review (negative), and in this case, the validity of notification of change in income amount made before a request for pre-taxation

[3] Whether “the fact that the director of a regional tax office having jurisdiction over the place of tax payment has investigated and decided” under the latter part of Article 109(1) of the former Enforcement Decree of the Corporate Tax Act constitutes a necessary entry in the tax payment notice (negative), and whether the defect in the tax payment notice can be supplemented or cured in cases where it is apparent that the necessary entry in the tax payment notice prior to the tax office’s notice on the result of tax investigation, etc. was properly stated and it does not interfere with the determination of objection to the disposition,

[1] In addition to the functions of the pre-assessment review system as a remedy procedure and the scope of remedy, the details and purport of the system introduced, and control methods to efficiently prevent taxpayers from infringing their procedural rights, the principle of due process prescribed in Article 12(1) of the Constitution is not limited to the criminal procedure, but to the same effect as a tax official exercises the right to impose taxes, barring special circumstances, such as where the former Framework Act on National Taxes (amended by Act No. 13552, Dec. 15, 2015) can immediately impose a tax without the pre-assessment review or where a decision on the pre-assessment review is made, the imposition of a tax before a request for a pre-assessment review or a decision thereon is made, even if the request for a pre-assessment review is made after the notice of the results of the tax investigation, is likely to form a system of pre-assessment review itself and make the relationship and objection procedure between the pre-assessment review and the pre-assessment review clear and apparent procedural rights of taxpayers.

[2] In light of the language and structure of Article 81-15(1) main text and Article 81-15(1)2 of the former Framework Act on National Taxes (amended by Act No. 13552, Dec. 15, 2015; hereinafter the same), Article 67 of the former Corporate Tax Act (amended by Act No. 12166, Jan. 1, 2014); Article 106(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26981, Feb. 12, 2016); Articles 9 and 9-2 subparag. 2 of the former Punishment of Tax Evaders Act (amended by Act No. 9919, Jan. 1, 2010; hereinafter the same) and the legislative intent of the same, the taxation authority’s disposition following the inclusion in gross income, etc. and the notice of changes in income amount following the disposition of income following the disposition of taxation cannot be deemed as a tax evasion or omission of Article 28(1).

Therefore, barring any special circumstance, such as the existence of other exceptions to notification of change in the amount of income even before the date of the pre-assessment review, the tax authority shall provide an opportunity for the pre-assessment review to the relevant corporation, which is a taxpayer, before giving the notification of change in the amount of income. Barring such special circumstance, it is reasonable to view that the notice of change in the amount of income made before a request for pre-assessment review or a decision thereon was made, even though there is no such special circumstance, is an infringement on taxpayers’ procedural rights, and procedural defects are grave and apparent and invalid. However, even if Article 192(1) of the Enforcement Decree of the Income Tax Act provides that the head of a tax office or the director of a regional tax office, when determining or correcting the amount of income of a corporation, the notification of change in the amount of income

[3] Article 9(1) of the former National Tax Collection Act (amended by Act No. 16842, Dec. 31, 2019) provides that the necessary matters to be stated in a tax notice shall be indicated with regard to taxable objects, the tax base thereof, tax rates, and the method of calculating the amount of tax. However, the phrase “the fact that the director of a regional tax office having jurisdiction over the place of tax payment has investigated and decided on the place of tax payment” provided for in the latter part of Article 109(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26981, Feb. 12, 2016) shall not be deemed as such necessary matters, and it is difficult to readily conclude that the taxpayer is an objection against the disposition, even if the relevant matters are omitted.

Furthermore, if it is clear that the necessary entries of the tax notice are properly stated in the notice of tax investigation results sent by the tax authority prior to the taxation disposition, and it does not interfere with the decision of whether the taxpayer is dissatisfied with the disposition and the request for objection, the defect of the tax notice can be supplemented or corrected.

[1] Article 12(1) of the Constitution of the Republic of Korea; Article 81-15(1)1 of the former Framework Act on National Taxes (Amended by Act No. 1352, Dec. 15, 2015); Article 81-15(2)2 (see current Article 81-15(3)2) of the former Framework Act on National Taxes) / [2] Article 12(1) of the Constitution of the Republic of Korea; Article 81-15(1)1 of the former Framework Act on National Taxes (Amended by Act No. 1352, Dec. 15, 2015; Article 81-15(2)2 (see current Article 81-15(3)2); Article 81-19 of the former Enforcement Decree of the Corporate Tax Act (Amended by Act No. 13552, Dec. 16, 2014; Presidential Decree No. 1961, Feb. 19, 2019>

[1] Supreme Court Decision 2016Du49228 Decided December 27, 2016 (Gong2017Sang, 257) / [3] Supreme Court Decision 2008Du5773 Decided November 11, 2010

CK Co., Ltd. (Law Firm Gongskro, Attorneys Seo Jin-jin et al., Counsel for the defendant-appellant)

The Head of the East District Tax Office and one other (the Government Law Firm Corporation, Attorneys Cho Jae-ho et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2017Nu31554 decided June 20, 2017

The part of the lower judgment regarding the notification of change in the amount of income by the director of the Seoul Regional Tax Office is reversed, and that part of the case is remanded to the Seoul High Court. The appeal against the director of the Dongdaemun District Tax Office is dismissed. The costs of appeal incurred between the Plaintiff

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

1. Regarding ground of appeal No. 1

A. Determination on the assertion regarding notification of changes in the amount of income accrued in the business year 2007 or 2009

1) A) Article 81-15 of the former Framework Act on National Taxes (amended by Act No. 13552, Dec. 15, 2015; hereinafter the same) provides, “A person who has received written notice of the result of a tax investigation under Article 81-12 (hereinafter “written notice of the result of a tax investigation”) may request a review on the legality of the content of the notice to the head of a tax office or the director of a regional tax office who has received the notice within 30 days from the date of receipt of the notice (hereinafter “pre-assessment review”).” Article 81-15 of the former Framework Act on National Taxes (amended by Act No. 1352, Dec. 15, 2015) provides, “Where a person files a

Unless there are special circumstances, such as that the former Framework Act on National Taxes, etc. can immediately impose a tax without undergoing a pre-assessment review or an exception to taxation even before a decision on the pre-assessment review is made, it is possible to impose a tax before a request for a pre-assessment review or its decision on the result of a pre-assessment review, and it is likely that the relationship between the decision on pre-assessment review and the decision on the pre-assessment review may be mitigated in principle, as well as the procedure and purport of the pre-assessment review, and the method of control for the efficient prevention of taxpayers from infringement of their procedural rights, and that the principle of due process prescribed in Article 12(1) of the Constitution shall not be limited to criminal procedure, but also be limited to the case where a tax official exercises the right to impose a tax, barring special circumstances, such as where the former Framework Act on National Taxes, etc. provides for an exception for taxation without undergoing a pre-assessment review, etc. (see Supreme Court Decision 2012Du4286, Dec. 27, 2016).

B) Meanwhile, Article 67 of the former Corporate Tax Act (amended by Act No. 12166, Jan. 1, 2014; hereinafter the same) provides that a tax authority shall impose a disposition of income, such as bonus, dividend, other external outflow, and internal reservation, on the person to whom the amount included in the calculation of the corporate tax is attributed, as prescribed by Presidential Decree. The proviso to Article 106(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26981, Feb. 12, 2016; hereinafter the same) delegated by the tax authority stipulates that the amount included in the calculation of the corporate tax shall be deemed as bonus if it is unclear to whom the amount of outflow was attributed. Article 9 of the former Punishment of Tax Evaders Act (wholly amended by Act No. 9919, Jan. 1, 2010; hereinafter the same) provides that Article 9-2 of the same Act shall punish a person who evades a tax through fraud or other unlawful act.

C) In light of the language, structure, legislative intent, etc. of the pertinent provisions, the imposition of corporate tax based on the inclusion in the calculation of earnings, etc. and the notice of change in the amount of income accrued from the disposal of income, etc. are separate dispositions. Thus, even if the tax authority filed a complaint or notice of violation of the Punishment of Tax Evaders Act on the evasion of corporate tax due to the omission in gross income, while notifying the corporation of the result of the tax investigation, it constitutes a case where the evaded corporate tax is accused or notified of the violation of the Punishment of Tax Evaders Act under Article 81-15(2)2 of the former Framework Act on National Taxes, and cannot be deemed as an exception to the pre-assessment review on the tax evasion related to the notice of change in the

Therefore, barring any special circumstance, such as the existence of other exceptions to the notification of change in amount of income even before the date of the pre-assessment review, the tax authority shall give the relevant corporation an opportunity for pre-assessment review before giving the notification of change in amount of income. In the absence of such special circumstance, a notification of change in amount of income made before a request for pre-assessment review or a decision thereon is made, which infringes on taxpayers’ procedural rights, and it is reasonable to deem that such procedural defect is significant and apparent. However, even if Article 192(1) of the Enforcement Decree of the Income Tax Act provides that the head of a tax office or the director of a regional tax office, when he/she determines or revises the amount of income of a corporation, he/she shall notify the relevant corporation of the change in amount of income disposed of as dividend, bonus and other income within 15

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

A) On April 7, 2015, the director of the Seoul Regional Tax Office issued a written notice to the Plaintiff regarding the result of the tax investigation (hereinafter “Notification of the result of the tax investigation of this case”) containing taxation data for each of the dispositions of this case.

B) On April 10, 2015, the director of the Seoul Regional Tax Office issued the notice of tax investigation of this case on April 10, 2015, on the ground that the Plaintiff’s omission of sales leaked out of the company, but it is not clear that it reverts to the Nonparty, the representative director, and accordingly, issued the notice of change in income amount (hereinafter “the notice of change in income amount of this case”).

C) After May 7, 2015, the director of the Seoul Regional Tax Office filed an accusation against the Plaintiff with the Seoul Northern District Prosecutors' Office due to the suspicion of the tax evasion for the corporate tax belonging to the business year from 2010 to 2013 and the value added tax belonging to the year from 2010 to 2013.

3) Examining these facts in light of the aforementioned provisions and legal principles, the defendant director of the Seoul Regional Tax Office appears to have filed a complaint against the plaintiff regarding the evasion, etc. of corporate tax pursuant to Article 81-15(2)2 of the former Framework Act on National Taxes, and cannot be deemed to have filed a complaint or notification of tax evasion related to the notification of changes in the amount of income of this case even if the tax evasion was involved in the notification of changes in the amount of income of this case. Therefore, the notice of changes in the amount of income of this case was made after the notification of the results of the tax investigation of this case, unless there are special circumstances, such as there are grounds for exception to the notification of changes in

4) Nevertheless, the lower court determined otherwise, solely based on its stated reasoning, that the notice of change in the amount of income of this case constitutes “a case of accusation or notification in violation of the Punishment of Tax Evaders Act” under Article 81-15(2)2 of the former Framework Act on National Taxes, and thus, was lawful even without going through a pre-assessment review. In so determining, the lower court erred by misapprehending the legal doctrine on exceptional grounds which may have not gone through

B. Determination as to the assertion regarding the imposition of corporate tax (including additional tax) for the business year 2007 to 2009 and the imposition of the value-added tax for the second period from 2007 to 2009

The plaintiff alleged in the grounds of appeal that the above disposition was unlawful since it was made before a request for pre-assessment review or a decision thereon was made, even though it was not made after the notice of the result of the tax investigation in this case was made for the violation of the Punishment of Tax Evaders Act. However, the above assertion was not made prior to the closing of argument in the court below, and it was first raised for the first time in the

2. Regarding ground of appeal No. 2

A. The argument in the grounds of appeal on this part is that the director of the Seoul Regional Tax Office corrected the Plaintiff’s corporate tax base and tax amount, and the purport that the Defendant director of the Seoul Regional Tax Office investigated and corrected the Plaintiff’s corporate tax base and tax amount in accordance with the latter part of Article 109(1) of the former Enforcement Decree of the Corporate Tax Act should be stated to the effect that the Seoul Regional Tax Office investigated and corrected the Plaintiff’s corporate tax base and tax amount, and that each of the dispositions of this case should be revoked unlawfully on the ground of procedural defects not stated in the notice of tax payment. However, on the basis of erroneous fact-finding that the head of the Dongdae District Tax Office corrected and notified the Plaintiff’s corporate tax base, the lower court

B. However, in full view of the following circumstances revealed by the relevant legal principles and records, even if there were errors in the lower judgment as alleged in the grounds of appeal, it cannot affect the conclusion of the judgment, and thus, the allegation in the grounds of appeal as to such errors cannot be accepted without further review.

1) Article 9(1) of the former National Tax Collection Act (amended by Act No. 16842, Dec. 31, 2019) provides that the necessary matters to be stated in a tax notice shall include the taxable object, its tax base, tax rate, method of calculating the amount of tax, etc. However, the phrase “the fact that the director of a regional tax office having jurisdiction over the place of tax payment has investigated and determined the place of tax payment” provided for in the latter part of Article 109(1) of the former Enforcement Decree of the Corporate Tax Act that ought to be stated in a tax notice cannot be deemed as such necessary matters, and it is difficult to readily conclude that a taxpayer is dissatisfied with a decision on whether to object to the disposition

2) Furthermore, if it is evident that the mandatory descriptions of the tax investigation notice sent by the Seoul Regional Tax Office prior to the taxation disposition were properly stated in the notice of tax investigation results, etc., and it does not interfere with the taxpayer's decision as to whether to object to the taxation disposition and the request for objection, thereby the defect of the tax payment notice can be corrected or cured (see Supreme Court Decision 2008Du5773, Nov. 11, 2010). However, even if the purport that the investigation and correction by the Seoul Regional Tax Office was not stated in the instant tax investigation notice, it is written in the notice of the results of the instant tax investigation that the purport was sent to the Plaintiff prior to the instant tax assessment, and thus, it was not entirely hindered by the Plaintiff. Thus, even if the Seoul Regional Tax Office revised the corporate tax assessment standard against the Plaintiff, the defect of the tax investigation notice related to the investigation and correction of the Seoul Regional Tax Office's corporate tax assessment standard is corrected or cured, each of the dispositions of this case cannot be deemed unlawful.

3. As to the third ground for appeal

The lower court acknowledged that the head of the Seoul Regional Tax Office’s tax investigation type was converted from “general consolidated investigation” to “criminal investigation,” and that the tax period subject to investigation was extended from “from January 1, 2010 to December 31, 2013” to “from January 1, 2007 to December 31, 2013,” and determined that the head of the Seoul Regional Tax Office could not be deemed to have violated the notification procedure or infringed the Plaintiff’s interest while converting the type of tax investigation or expanding the scope of investigation.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower judgment did not err by misapprehending the legal doctrine on the illegality of notice of tax investigation, contrary to what is alleged in

4. As to the fourth ground for appeal

The lower court determined that the input tax amount of value-added tax, which is 10% of the value-added tax, cannot be included in deductible expenses in calculating the Plaintiff’s corporate tax pursuant to Article 21 subparag. 1 of the former Corporate Tax Act, on the premise that the value-added tax should be calculated by multiplying the amount by 100/110 pursuant to Article 29(7) of the Value-Added Tax Act, on the grounds that the Plaintiff’s input tax amount, which is 10%

In light of the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine on the interpretation of the Value-Added Tax Act, such as the grounds of appeal.

5. Conclusion

Therefore, the part of the judgment of the court below regarding the notice of change in the amount of income of the director of the Seoul Regional Tax Office is reversed, and that part of the case is remanded to the court below for a new trial and determination. The appeal against the director of the Dongdaemun District Tax Office is dismissed, and the costs of appeal incurred between the plaintiff and the director of the Dong Seodaemun Tax Office are assessed against the plaintiff. It

Justices Ahn Jae-chul (Presiding Justice)