Whether Article 157 (4) 2 of the former Enforcement Decree of the Income Tax Act violates the principle of equality under the Constitution, the principle of no taxation without law, and the principle of excessive prohibition (negative)

Article 94(1)3(a) of the former Income Tax Act (Amended by Act No. 10408, Dec. 27, 2010); Article 157(4)2 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 22580, Dec. 30, 2010); Article 20 of the Enforcement Decree of the Framework Act on National Taxes

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

The director of the tax office.

Seoul High Court Decision 2013Nu32931 decided August 19, 2014

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

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

1. As to the grounds of appeal Nos. 1, 2, and 3

Article 94(1)3(a) (hereinafter “instant legal provision”) of the former Income Tax Act (amended by Act No. 10408, Dec. 27, 2010 and enforced from January 1, 2011) provides that “The transfer of stocks, etc. of a stock-listed corporation prescribed by Presidential Decree by taking into account the ratio of stocks owned, the total market value, etc. of the stocks owned by the stock-listed corporation under the Financial Investment Services and Capital Markets Act shall be subject to taxation of capital gains tax; and Article 157(4)2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010 and enforced from January 1, 2011; hereinafter “the Enforcement Decree of this case”) stipulates that “any of the major shareholders prescribed by Presidential Decree of the instant legal provision shall be one of the “stocks of the immediately preceding business year that belongs to the date of the transfer of stocks, etc.; any of the shareholders or other specially related shareholders (hereinafter “one of 100 billion won or more”).

The legislative purpose of the legal provision of this case is to promote the equity of taxation in cases where other assets, such as real estate, are transferred, and to prevent the alteration of illegal donation using listed stocks. As such, taxation on the transfer margin of listed stocks conforms to the principle of tax equality. In addition, in order to prevent modified donation using listed stocks, not only one shareholder who transfers stocks, etc. but also his/her spouse and children, etc., as well as the shares, etc. of the related parties, should be identified and taxed together. In addition, in light of the accessibility of information on the relevant standard of major shareholder under the Enforcement Decree of this case and the status of stockholding of major shareholders, etc., if a shareholder who owns listed stocks has paid attention and attention to the extent that he/she may be subject to taxation under the Enforcement Decree of this case, it seems that the provision of this case violates the principle of equality under the Constitution, the principle of no taxation without law, and the principle of no excessive donation, and thus, it cannot be deemed null and void.

The judgment below to the same purport is just, and there is no error by misapprehending the legal principles on the equality principle, the principle of no taxation without law, and the principle of excessive prohibition, or by failing to exhaust all necessary deliberations.

2. As to the fourth ground for appeal

In light of the legislative purpose and background of the legal provisions of this case, the court below is just in rejecting the plaintiffs' assertion that "limited to cases where the legislative purpose of the legal provisions of this case and the Enforcement Decree of this case is for tax avoidance purpose, where it is proved that the taxpayer has no purpose of tax avoidance, it shall be interpreted that the taxpayer can be exempted from tax liability if it is proved that the taxpayer has no purpose of tax avoidance, and there is no error in the misapprehension of legal principles

3. As to the fifth ground for appeal

Under the tax law, where a taxpayer violates various obligations, such as a return and tax payment, as prescribed by the Act without justifiable grounds, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, an additional tax is an administrative sanction imposed as prescribed by the Act, and the taxpayer’s intentional or negligent act does not constitute a justifiable reason that does not cause the breach of duty (see Supreme Court Decision 2002Du10780, Jun. 24, 2004; 2002Du10780, Jun. 24, 2004; etc.). Meanwhile, it is unreasonable for the taxpayer to be unaware of his/her duty due to conflict of opinion due to a wrongful construction of the tax law beyond the scope of mere land or mistake, beyond the scope of the law, and thus, it cannot be deemed that there is a legitimate ground for misunderstanding of the duty to pay taxes or misunderstanding of the duty to pay taxes (see, e.g., Supreme Court Decision 200Du6464, Aug. 23, 2002).

The lower court determined that there was no justifiable reason for the Plaintiffs to not report and pay the transfer income tax on the ground that there is no provision such as disclosing the current status of assets held by both spouses under the Income Tax Act, and it is unreasonable to expect the Plaintiffs, who are married couple, to grasp the situation of mutual stockholding and pay the transfer income tax.

In addition to the above circumstances cited by the court below, in light of the legal provisions of this case and the Enforcement Decree provisions of this case clearly and objectively define the taxation requirements and effects, and the Supreme Court already declared that the Enforcement Decree provisions of this case cannot be seen as invalid provisions against Article 10 of the Constitution, etc. (see Supreme Court Decision 2006Du4394, Nov. 10, 2006, etc.), the above judgment of the court below is just, and there is no error of law by misapprehending the legal principles as to the justifiable reason for exempting from penalty, thereby failing to exhaust all necessary deliberations.

4. Conclusion

Therefore, all appeals are 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 on the bench.

Justices Lee Sang-hoon (Presiding Justice)