[1] The meaning of “Fraud and other unlawful acts” under Article 27(2)6 of the former Enforcement Decree of the Framework Act on National Taxes as one of the common conditions of the unfair non-declaration penalty and the unfair under-declaration penalty, and whether it constitutes a mere failure to report under the tax law or making a false report without attaching the circumstances showing the intention of active concealment (negative) / In a case where a taxpayer gets income through a disguised representation of his/her name, whether it constitutes “Fraud and other unlawful acts” under Article 27(2)6 of the former Enforcement Decree of the Framework Act on National Taxes (negative)

[2] The case affirming the judgment below holding that in case where Gap did not report transfer income tax on the transfer of shares under the name of the title trustee Byung after the title trust was held against Eul corporation's shares Byung, and the interest and dividend income related to the title trust shares was reported under the name of the title trustee, and the head of the competent tax office imposed transfer income tax on Gap's inheritor an imposition of unjust non-reported additional tax and global income tax on transfer income tax, the portion exceeding the amount of general non-reported additional tax on the imposition of non-reported additional tax on transfer income tax and the portion exceeding the amount of general non-reported additional tax on the imposition of non-reported additional tax

[1] Legislative intent of Article 47-2(2)1 and Article 47-3(2)1 of the former Framework Act on National Taxes (amended by Act No. 11124, Dec. 31, 201); and Article 27(2)6 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 23592, Feb. 2, 2012; hereinafter the same) is to impose heavy sanctions on taxpayers who violate the duty to report tax base or tax amount by unlawful means, where it is difficult for the tax authorities to find any fact that serves as the basis for calculating the tax base or tax amount of national taxes, or where there is any fraudulent act, such as fraudulent and other unlawful acts committed in the name of taxpayers to make it considerably impossible to impose and collect taxes, or to make a false representation in the name of taxpayers or to make a false representation in the name of a false representation in the name of tax evasion or to make a false representation in the name of taxpayers not to file a false tax return.

[2] The case affirming the judgment below holding that in case where Gap did not impose capital gains tax on Eul's stock title trust act and did not report capital gains tax on the transfer of Eul's stocks under Eul's title trustee Byung's title trust, and filed global income tax on interest and dividend income related to the title trust shares under the name of the title trustee, and the head of the competent tax office imposed capital gains tax on Gap's inheritor for imposition of unjust non-reported and global income tax on Gap's heir, in light of all circumstances, such as the fact that the title trust was not attributable to the purpose of tax evasion, such as avoiding the progressive tax rate, and the fact that there was no circumstance to deem that the title trust was attributable to the purpose of tax evasion, and even if there was a difference in the calculated tax amount due to the difference in tax rates related to global income tax, the act of title trust of Eul's stocks and the incidental acts subsequent thereto cannot be deemed as an active act attributable to the purpose of tax evasion, and the part exceeding the amount of general non-reported penalty tax

[1] Article 47-2(2)1 of the former Framework Act on National Taxes (Amended by Act No. 11124, Dec. 31, 201; see current Article 47-2(1)1); Article 47-3(2)1 (see current Article 47-3(1)1); Article 27(2)6 of the former Enforcement Decree of the Framework Act on National Taxes (Amended by Presidential Decree No. 23592, Feb. 2, 201; see current Article 12-2(1) and Article 3(6) of the current Punishment of Tax Evaders) / [2] Article 47-2(2)1 of the former Framework Act on National Taxes (Amended by Act No. 11124, Dec. 31, 201; see current Article 47-2(1)1 of the former Framework Act on National Taxes); Article 47-3(2)1 of the former Enforcement Decree of the Framework Act on National Taxes (Amended by Presidential Decree No. 23612(2)1)1, Feb. 1, 1, 2017-3)

[1] Supreme Court Decision 2015Du1243 Decided February 18, 2016 (Gong2016Sang, 453)

Plaintiff 1 and two others (Law Firm Han, Attorneys Park Jong-sik et al., Counsel for the plaintiff-appellant)

Head of Seocho District Tax Office and one other (Law Firm Jinjin, Attorneys Kim Yong-ho, Counsel for the plaintiff-appellant)

Seoul High Court Decision 2014Nu57654 decided May 8, 2015

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

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 by the director of the regional tax office

A. As to the grounds of appeal Nos. 1 and 2

(1) Article 47-2(2)1 of the former Framework Act on National Taxes (amended by Act No. 11124, Dec. 31, 2011; hereinafter the same) provides that where a taxpayer has any tax base without filing a return in an unjust manner, the amount of penalty tax to be paid shall be either added to the amount of penalty tax to be paid or deducted from the amount to be refunded. Article 47-3(2)1 of the former Framework Act on National Taxes provides that where a taxpayer has any tax base under filing a return in an unjust manner, the amount of penalty tax to be paid or to be refunded shall be deducted from

In addition, Article 47-2(2) of the former Framework Act on National Taxes defines the meaning of “unfair method”, which is common to both an unfair and unreported additional tax and an unfair and under-reported additional tax, as “the method prescribed by the Presidential Decree, in which a taxpayer violates the duty to report the tax base or amount of national tax on the basis of the concealment or disguise of all or part of a fact that serves as the basis for calculating the tax base or amount of national tax,” and Article 27(2)6 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 23592, Feb. 2, 2012; hereinafter the same) as one of the “unfair method”.

The legislative purport of the above provisions lies in imposing heavy sanctions on taxpayers who violate the duty to report the tax base or the amount of tax by unlawful means, in a case where it is difficult for the tax authority to discover any fact that serves as the basis for calculating the tax base or the amount of national tax or where there is any fraudulent act, such as creating a false fact or forging false facts, and it is difficult for the tax authority to exercise the right to impose taxes. Therefore, the term “Fraud or other unlawful act” used as one of the unlawful methods under Article 27(2)6 of the former Enforcement Decree of the Framework Act on National Taxes refers to a deceptive act which makes it impossible or considerably difficult to impose and collect taxes, or other active act which makes it difficult to do so, and it does not constitute simply a failure to report under the tax law or making a false report without attaching the circumstances showing the intention of active concealment. Furthermore, even if a taxpayer gets income from the disguised name, it is derived from the purpose of tax evasion and payment of false contracts, false tax return to the tax authority, false tax return, false registration, false registration, preparation and keeping of accounting books, etc.

(2) After finding the facts as indicated in its reasoning based on the evidence adopted, the lower court determined that: (a) even if Nonparty 1 (hereinafter “the deceased”) sold the shares under the name of the title trustee under the general method of transfer of the shares without cancellation of the existing title trust relationship, it did not report capital gains tax on the shares in the name of the title trustee in 2007 and 2008; (b) it did not appear that the title trust was derived from the purpose of evading tax, such as avoidance of progressive tax rate; (c) it appears that the title trust was an incidental act to ordinarily follow the title trust of the shares with the effect of termination; and (c) even if the deceased did not report capital gains tax on the shares in the name of the title trustee under the name of the title trustee in 207 and 208, it did not constitute an unlawful disposal of the shares under the name of the title trustee under the general method of transfer; and (d) it did not constitute an unlawful act of tax evasion under the name of the title trustee under the global income tax return based on the automatic transfer method, and under the title trust agreement.

(3) Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court’s reasoning was somewhat inappropriate, but its conclusion that it cannot be deemed an active act derived from the purpose of evading tax, is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal doctrine on the illegal and unreported additional

B. Regarding ground of appeal No. 3

(1) The lower court acknowledged the facts as indicated in its reasoning based on its adopted evidence. The lower court determined that: (a) the Plaintiffs included the balance, etc. of the borrowed name account in the name of Nonparty 2 and Nonparty 3 while reporting inheritance after the deceased’s death; (b) the remaining title trust shares except for Nonparty 2’s shares were already sold, and it was difficult for the Plaintiffs, the heir, from the standpoint of the deceased, to ascertain all the content of income related to the title trust shares managed by the deceased; and (c) the Plaintiffs specifically known that the deceased, after the result of the tax investigation conducted after the deceased’s death, title trust was held in the name of the deceased; (b) on the grounds that, upon reporting inheritance, the part of the money withdrawn within two years prior to the commencement date of the inheritance tax, which was not known as the source of use, in the account in the name of the title trustee, could not be deemed to have been included in the inherited property, and thus, the portion exceeding the amount of the general penalty tax for underreporting the return of the inheritance tax base by unjust means is unlawful

(2) Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court’s aforementioned determination is justifiable, and contrary to what is alleged in the grounds of appeal, did not err by misapprehending the legal doctrine

2. As to the appeal by the chief of the District Tax Office against the defendant

Although Defendant Seocho District Tax Office filed an appeal against the judgment of the court below, it did not state the grounds for appeal in the petition of appeal, nor did it state the grounds for appeal in the petition of appeal.

3. 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 Kim Shin (Presiding Justice)