Whether Article 131 (4) of the Income Tax Act applies to cases where a foreign corporation takes over the stocks of a non-resident's domestic corporation through a successful bid in a voluntary auction procedure and causes domestic source income to a non-resident

The withholding tax is a system that collects taxes from the source of the income when a statutory withholding agent pays the other party the amount of tax subject to withholding to the other party who is the taxpayer. The withholding tax obligation is the first obligor’s obligation to remove the relevant amount of tax from the amount of the tax to be paid to the tax payer’s share. However, it is reasonable to view that Article 131(4) of the Income Tax Act is not applicable because the successful bidder, which is a foreign corporation in an auction of securities such as the case where domestic source income accrues to a nonresident by acquiring the stocks of a non-resident’s domestic corporation in a voluntary auction procedure, should not be paid in full due to the lack of the payment of the auction price, and thus, it infringes on the preferential security right.

Articles 131(4), 134(12), and 178(1) of the Income Tax Act

Seoul High Court Decision 200Na14888 decided May 1, 200

Head of Yongsan Tax Office

Seoul High Court Decision 90Gu12092 delivered on April 17, 1991

The appeal is dismissed.

The costs of appeal are assessed against the defendant.

We examine the grounds of appeal.

1. The reasoning of the judgment below is as follows.

A. The Plaintiff Company established under the laws of Japan and did not have a branch or business office in Korea, and applied for a voluntary auction to secure the loan claims against the Nonparty, a non-resident, by setting a pledge on the shares of the Seoul Michuhol-gu Tourism Corporation, Seoul, which is a domestic corporation, but applied for a voluntary auction. The amount of KRW 63,009,620 corresponding to the execution cost is paid in cash and the remainder of KRW 19,936,90,380 is the amount to be paid in cash to the Plaintiff, the pledgee, and thus, paid in full the auction price by offsetting it.

B. It is reasonable to view that a foreign corporation also has an act subject to taxation within the territory of the Republic of Korea, and that the Plaintiff corporation is also included in the income tax withholding agent. In case of auction, the court or the collection officer is merely an auction agency, and the owner of the object of auction and the successful bidder are the transferor, and in this case, the person who pays the above stock transfer price, which is the domestic source income, to the non-resident, is not the plaintiff, but the owner of the object of auction and the successful bidder is the transferor, and thus, the person who pays the above stock transfer price to the non

C. However, in the case of the voluntary auction of securities, the successful bidder shall pay the total amount of the successful bid price to the head of the office until the date of auction or the date of payment separately determined under Article 540(2) and (3) of the Civil Procedure Act, and shall not be paid after deducting the amount equivalent to the amount from the successful bid price. Thus, in the case of this case, the purchaser, such as the plaintiff, has no intention to withhold the income tax on the owner of the object of auction, and if he collects it from domestic source and is not paid as the auction price, or receives the amount first from the head of the office of the office of the payment, it shall not be permitted because the auction price to return to the secured party is reduced as much as the amount of the auction price is to be collected more than the secured bond and the income tax, the payment period of which comes due after the establishment of the security right, such as the plaintiff, and the same shall also apply to the case where he pays the amount of domestic source income to the owner by the successful bid as the plaintiff,

D. Therefore, it is unlawful that the Defendant imposed the instant securities transfer income tax on the Plaintiff on the ground that the Plaintiff was not obligated to withhold the income tax, on the ground that it was not fulfilled.

2. Examining the records, the fact-finding by the court below is just and there is no obligation to pay withholding taxes to the plaintiff in this case, and there is no error in the misapprehension of the legal principles as to withholding taxes under Article 131 (4) of the Income Tax Act, and the same applies to the case where the non-resident's domestic source income can be collected only by withholding.

3. The term “tax withholding” means a system under which a statutory withholding agent collects the other party’s tax from the source of the income when he pays the other party’s tax subject to withholding to the other party. The tax withholding obligation is originally a withholding agent’s obligation to remove the pertinent tax from the amount of money of the taxpayer’s share and pay it to the taxpayer’s share. In the auction of securities such as this case, it is reasonable to deem that the successful bidder is not subject to Article 131(4) of the Income Tax Act since he did not have to do so unless he pays the total amount of the auction price. In addition, if so, it would infringe on the first priority security right.

Therefore, we cannot accept the arguments asserted from the opposite position. There is no reason for the argument.

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 Lee Jae-chul (Presiding Justice)