In a case where the tax liability established following the fulfillment of the taxation requirements such as control and management of illegal income, which became final and conclusive as a result of the occurrence of a subsequent cause such as confiscation or collection, and thus becomes final and conclusive as not realizing the income, whether the tax liability may escape from the burden of tax liability by filing a subsequent request for correction (affirmative in principle), and whether the revocation can be sought through an appeal litigation in a case where a tax assessment was made on the ground that there was a lack of grounds for a subsequent request for correction, even though the tax liability for illegal income was established (affirmative)

Article 45-2 (2) of the Framework Act on National Taxes and Article 21 (1) 23 and 24 of the former Income Tax Act (Amended by Act No. 8144, Dec. 30, 2006)

Supreme Court en banc Decision 2014Du5514 Decided July 16, 2015 (Gong2015Ha, 1266)

Plaintiff

Head of Geumcheon Tax Office

Seoul High Court Decision 2011Nu32395 decided March 28, 2012

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

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

1. Taxable income is deemed to have a taxable capacity to control and manage income in light of the economic aspect, and thus, it is sufficient to deem that there is a taxable capacity to pay the income, and the legal assessment of the causal relationship with which the income was derived is not necessarily lawful and effective (see, e.g., Supreme Court Decision 81Nu136, Oct. 25, 1983). In this regard, Article 21(1) of the former Income Tax Act (amended by Act No. 8144, Dec. 30, 2006; hereinafter the same shall apply) provides that “Bribery” (Article 23) and “money and valuables received through good offices and property in breach of trust” (Article 24) as one of other income, and such income may be business income if it is continuously and repeatedly earned.

Although a person who received unlawful income, such as a bribe, does not have the right to ultimately hold the income, he/she is subject to taxation. If it is possible to impose tax only when he/she actually controls and manages the profit in economic aspect, such as the owner or legitimate right holder, even though he/she actually controls and manages it, or when he/she is no longer likely to lose the illegal income, it would be more favorable to the person who has lawfully acquired the income, and it would be contrary to tax justice and public interest. In cases where the possibility of loss of economic profit inherent in the unlawful income is realized by restitution of illegal income through legitimate procedures, it would be sufficient to adjust it by deeming that it was not ultimately realized.

However, in crimes such as bribery, acceptance of good offices, and breach of trust under the Criminal Act, the purpose of confiscation or collection is to deprive a taxpayer of benefits from a criminal act and prevent such unlawful income from holding unjust profits. If confiscation or collection has been made with respect to such unlawful income, it shall be deemed that the possibility of loss of economic benefits inherent in such unlawful income is realized. Therefore, as such income is not ultimately realized, it is reasonable to allow a taxpayer to claim reduction by proving that there has occurred a change in the basis of calculation of tax base and amount of tax due to the occurrence of a subsequent trigger event after the establishment of tax liability. In other words, even if a tax liability was established once it satisfies the taxation requirement of control and management of illegal income, it shall be deemed that the possibility of loss of economic benefits inherent in such unlawful income as confiscation or collection is realized after the occurrence of a subsequent cause, and thus it becomes final and conclusive that income has not been realized, barring any special circumstances, a taxpayer shall be deemed to have been 150,000,000 won after filing a request for correction from the tax office (see Supreme Court en banc Decision 2015).

2. According to the reasoning of the judgment of the court of first instance cited by the court below, ① arrange matters belonging to the duties of officers and employees of financial institutions on February 16, 2005 and March 3, 2005, and ② on January 23, 2008, the plaintiff was punished by imprisonment for a violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes ("Act on the Aggravated Punishment, etc. of Specific Economic Crimes ("Act on the Aggravated Punishment, etc. of Specific Economic Crimes ("Act on the Aggravated Punishment, etc. of Specific Economic Crimes ("Act on the Aggravated Punishment, etc. of Specific Economic Crimes ("Act on the Aggravated Punishment, etc. of Specific Economic Crimes ("Act on the Aggravated Punishment, etc. of Specific Economic Crimes ("Act on the Aggravated Punishment, etc. of Specific Economic Crimes) and was sentenced to an additional collection amount of KRW 529 million already consumed, and thereafter, the above judgment became final at that time, and the defendant did so by considering that the above KRW 700 million constitutes other income tax under Article 21 (1).705.

Examining these facts in light of the legal principles as seen earlier, with respect to KRW 529 million among KRW 70 million received by the Plaintiff as a broker, even if the liability for tax payment was established at the time of its receipt, since the possibility of loss of economic benefits inherent in the illegal income, such as confiscation, is realized, and the liability for tax payment, which was initially established, loses its premise because the possibility of loss of economic benefits inherent in the illegal income, such as confiscation, was confirmed as not realized, and thus, the portion of the disposition of this case concerning KRW 529 million claimed by the Plaintiff among the disposition of this case on the ground that there was a deficit for which the liability for tax payment on illegal income was established.

Nevertheless, the lower court determined that the part of the instant disposition was lawful on the ground that even though the Plaintiff was subject to forfeiture of KRW 529 million in accordance with the criminal judgment that became final and conclusive by the final and conclusive judgment, it was merely an additional punishment for the criminal act of good offices and thus cannot be deemed as a restoration to the original reversion. In so determining, the lower court erred by misapprehending the legal doctrine on illegal income and confiscation which is subject to income tax, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on this point is with merit.

3. 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 In-bok (Presiding Justice)