The case holding that, in the case of shareholders registered only as officers of a corporation and did not participate in the management of the company or receive wages or dividends from the shareholders, they do not constitute a secondary taxpayer under Article 39 (1) 2 (a) of the former Framework Act on National Taxes, since they are merely shareholders in the form of lending only the name of shareholders, not the actual owners of shares, and there was no room for them to actually exercise their rights to the shares.

Article 39(1)2(a) and (2) of the former Framework Act on National Taxes (Amended by Act No. 8139, Dec. 30, 2006); Article 20 subparag. 1 of the Enforcement Decree of the Framework Act on National Taxes

Plaintiff 1 and one other (Law Firm LLC, Attorneys Ojin-hwan et al., Counsel for the plaintiff-appellant)

The head of Yangcheon Tax Office

Seoul High Court Decision 2008Nu20569 decided April 9, 2009

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

The grounds of appeal are examined.

1. Article 39(1)2 of the former Framework Act on National Taxes (amended by Act No. 8139, Dec. 30, 2006; hereinafter “the Act”) provides that where the property of an unlisted corporation is insufficient to cover the national tax, additional dues, and disposition fee for arrears imposed on or to be paid by the corporation, the secondary liability to pay such shortage shall be imposed on the person who actually exercises the rights to 51/100 or more of the total number of issued and outstanding shares of the relevant corporation as of the date on which the liability to pay national tax is established (a). Article 39(2) of the former Framework Act on National Taxes provides that “a shareholder” means a shareholder and his relative or other specially related person, as prescribed by the Presidential Decree, who holds more than 51/100 of the total number of issued and outstanding shares of the relevant corporation. Furthermore, Article 20 subparag. 1 of the Enforcement Decree of the Framework Act on National Taxes provides that “a relative or other specially related person within the degree of relationship prescribed by the Presidential Decree” under Article 39(2).

2. After compiling the adopted evidence, the court below found facts as stated in its holding, and determined that the Plaintiffs cannot be deemed to have obtained permission to use their names, such as allowing Nonparty 2 to use their seal imprints and providing their certificate of seal imprints, among the shares issued by Nonparty 1 Company. Furthermore, in light of the fact that the Plaintiffs provided a certificate of personal seal impression necessary for applying for registration in establishing Nonparty 1 Company, and that all the payment procedures for share price are conducted by means of fictitious payment, etc., the Plaintiffs cannot be deemed to have borrowed their names to Nonparty 2. Rather, the Plaintiffs cannot be deemed to have been merely the nominal holders who borrowed their names to Nonparty 2. Rather, the Plaintiffs merely delegated their authority to exercise their rights to shares to Nonparty 2, and the fact that Nonparty 1 Company’s trade name was changed to Nonparty 3 Company and a new registered representative director gather the Plaintiffs, the Plaintiffs cannot be deemed to have held the right to exercise their rights to shares after changing their names.

3. However, it is difficult to accept the above determination by the court below for the following reasons.

According to the evidence duly adopted by the court below, the non-party 2 had been running his personal transportation company, including ○○ Transportation, △△△△, and △△△△△, several times since 1987, and had been running the cargo transportation business. The non-party 2 established the non-party 1 corporation on November 10, 2003 and had no occupation. The non-party 2 stated the plaintiffs who were the representative director and auditor and the non-party 4 as the shareholder and the representative director respectively, and changed the shareholder and the representative director to the non-party 5 because the non-party 4 was disqualified. At the time, the plaintiffs were registered only as the executives, and did not receive wages or dividends from the company. The non-party 2 did not know that the non-party 1 corporation was operating the non-party 1 corporation independently and did not know the non-party 2's representative director at his discretion on November 29, 2005 and did not know the non-party 1 corporation and the non-party 2 corporation's representative director at his discretion over 6 months and the non-party 16.

In light of the above circumstances, since the non-party 2 was actually controlling and operating the above company while actually owning the shares of the non-party 1 corporation, the plaintiffs are merely a shareholder in the form of lending only the name of the shareholders, who is not the actual owner of the above shares, and as long as the non-party 1 corporation was not aware of the fact that the business was resumed in the business year 2006 after the closure of its business and the trade name, the head office and the representative director were changed to the non-party 3 corporation after the closure of its business, the plaintiffs did not have any room for exercising the above rights. Thus, it is reasonable to view that the plaintiffs do not constitute the secondary taxpayer under Article 39 (1)

Nevertheless, the lower court determined that the Plaintiffs constituted the secondary taxpayer as above erred by misapprehending the legal doctrine regarding oligopolistic shareholders liable for secondary tax payment.

4. Therefore, 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 Lee Hong-hoon (Presiding Justice)