[1] In an administrative trial, whether it can be acknowledged that a criminal judgment already became final and conclusive on the same factual basis is inconsistent with the facts established (negative in principle)

[2] Requirements for a taxpayer to receive a tax invoice different from the fact and receive a deduction or refund of an input tax amount, which constitute “the case where a taxpayer evades, obtains a refund or deduction of a national tax by fraudulent or other unlawful means” under Article 26-2(1)1 of the former Framework Act on National Taxes or “the case where a taxpayer undergoes a return of a tax amount of value-added tax or files a return in excess of the refundable amount due to an unlawful act” under Article 47-3

[3] The meaning of “Fraud or other unlawful act” or “unlawful act” under Article 26-2(1)1 and Article 47-3(2)2 of the former Framework Act on National Taxes and the circumstance where active concealment intent appears, whether the act of lending a deposit account in another person’s name constitutes an unlawful act because it was made impossible or considerably difficult to impose and collect taxes, and thus, the act of lending a deposit account constitutes an unlawful act

[1] Article 202 of the Civil Procedure Act, Article 8(2) of the Administrative Litigation Act / [2] Article 26-2(1)1 of the former Framework Act on National Taxes (Amended by Act No. 11124, Dec. 31, 201; see current Article 26-2(1)2); Article 26-3(2)2 of the former Framework Act on National Taxes (Amended by Act No. 12848, Dec. 23, 2014; / [3] Article 26-2(1)1 of the former Framework Act on National Taxes (Amended by Act No. 11124, Dec. 31, 201); Article 26-2(1)3 (see current Article 26-2(1) of the Framework Act on National Taxes); Article 26-2(1)2 of the former Framework Act on National Taxes (Amended by Act No. 111243, Dec. 31, 2014);

[1] Supreme Court Decision 2011Du28240 Decided May 24, 2012 / [2] Supreme Court Decision 2013Du19516 Decided February 27, 2014 (Gong2014Sang, 776), Supreme Court Decision 2014Du11618 Decided January 15, 2015 (Gong2015Sang, 261) / [3] Supreme Court Decision 2014Do3411 Decided February 18, 2016 (Gong2016Sang, 468)

Plaintiff (Law Firm Bupyeongan, Attorneys Choi Jong-chul et al., Counsel for the plaintiff-appellant)

Head of the Daegu Tax Office

Daegu High Court Decision 2018Nu4053 decided December 21, 2018

Of the lower judgment, the part of the disposition imposing value-added tax for the first to second years 2009 and the disposition imposing value-added tax for the second years 201 to 2014 is reversed, and that part of the case is remanded to the Daegu High Court. The remainder of the appeal is dismissed.

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

1. Case summary

The reasoning of the lower judgment and the evidence duly admitted by the lower court reveal the following facts.

A. The Nonparty, who is the head of the unilateral headquarters of the State Party Co., Ltd. (hereinafter “Unilateral”), supplied original services at a price of KRW 20,000 or KRW 30,000 per difficulty (hereinafter “actual sales price”) compared to the Plaintiff and the arm’s length price; however, the Nonparty agreed to issue a tax invoice under the name of the Axx (hereinafter “Axx”).

B. Accordingly, the Nonparty received the original cost calculated by the Plaintiff as the actual selling price from the Plaintiff, and delivered part of the cost of the original cost received from the Nonparty to the Aex, and the Aex re-paid the cost of the original cost received from the Nonparty to the State on the pretext of the price for supply. In the process, the unilateral country issued a zero-rate tax invoice to Aex.

C. From January 2009 to September 2014, 2014, architecture issued to the Plaintiff a tax invoice of KRW 9,546,605,457 (hereinafter “instant tax invoice”) on the aggregate of the supply values according to the actual sales price at the request of the Nonparty. At the competent tax office, architecture reported and paid all the value-added tax on the instant tax invoice from January 1, 2009 to the second period from 2014.

D. Meanwhile, the Plaintiff omitted a sales declaration equivalent to KRW 1,975,402,964, total value of supply from the first half to the second half of 2014 on the grounds that the Plaintiff did not issue a tax invoice, while supplying the original intention supplied from the unilateral country to ○○○○ or △△△△△△△△△△△, etc.

E. As a result of the Plaintiff’s tax investigation, the director of the Seoul Regional Tax Office confirmed the fact that the Plaintiff was issued the instant tax invoice under the title of architecture, and that the Plaintiff supplied the instant tax invoice to ○○○○, etc. without partially issuing the tax invoice, and confirmed the omission of the sales declaration, and notified the Defendant of the taxation data.

F. On May 9, 2016, the Defendant issued a correction and notification of the sum of value-added tax of KRW 2,375,696,870 (including additional tax) to the Plaintiff from the first to the second period of 2014 (hereinafter “instant disposition”).

2. Judgment on ground of appeal No. 6

Although an administrative judgment is not bound by the fact-finding in a criminal trial, the fact that the criminal judgment already became final and conclusive on the same factual basis is a flexible evidence. Thus, barring any special circumstance where it is deemed difficult to adopt a factual judgment in a criminal trial in light of other evidence submitted in the criminal trial, the facts opposed thereto cannot be acknowledged (see Supreme Court Decision 2011Du28240, May 24, 2012, etc.).

The lower court found, based on the evidence duly admitted, that “the Plaintiff was convicted of having received the instant tax invoice of KRW 9,546,605,457 in total in value by means of issuing a false tax invoice as if he/she was supplied with the Plaintiff, even though he/she was not supplied with the original contractor,” and that the judgment became final and conclusive. In so doing, the lower court determined that, in light of such factual basis, the Plaintiff received the “unlawful tax invoice” written by the supplier differently from the actual supplier of the relevant tax invoice from the actual supplier.

In light of the above legal principles and records, the judgment of the court below is just, and contrary to the allegations in the grounds of appeal, the court below did not err by misapprehending the legal principles on the probative value of a criminal judgment

3. Determination on grounds of appeal Nos. 1 through 4

A. Article 26-2(1)3 of the former Framework Act on National Taxes (amended by Act No. 11124, Dec. 31, 2011) provides that, in principle, the exclusion period of imposition of national taxes, other than inheritance tax and gift tax, shall be five years from the date on which the relevant national tax may be assessed,” and subparagraph 1 provides that, in cases where a taxpayer evades a national tax, or obtains a refund or deduction, due to a “Fraud or other unlawful act,” it shall be ten years from the date on which the relevant national tax may be assessed.

Article 47-3(2)2 of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014) provides that where a taxpayer undergoes a tax return for value-added tax or undergoes a tax return for an excessive refund due to a “unlawful act,” the total amount equivalent to 40/100 of the aggregate of the unlawfully underreported tax payable and unlawfully overreported refunded tax amount and the unlawfully refunded tax amount and the amount equivalent to 10/100 of the general underreported tax amount shall be the penalty tax (see, e.g., Article 47-3(2)1 and 2 of the former Framework Act on National Taxes before amended by Act No. 11124, Dec. 31, 2011).

In a case where a taxpayer receives a tax invoice different from the fact and receives an input tax amount deduction or refund, the taxpayer should be aware that such act would cause a decrease in the national tax revenue as a result of evasion of the taxpayer’s liability for value-added tax payment under Article 26-2(1)1 of the former Framework Act on National Taxes (see, e.g., Supreme Court Decisions 201Du1516, Feb. 27, 2014; 201Du1516, Feb. 16, 2015).

B. Examining the following circumstances revealed by the facts and the record as seen earlier in light of the aforementioned provisions and legal principles, it is difficult to deem that the Plaintiff was aware that the Plaintiff would have obtained an input tax deduction based on the instant tax invoice different from the fact would result in a decrease in national tax revenues.

(1) In the instant tax invoice, the term “purchase transaction supplied by the Plaintiff from Axex” is entirely different from the “transaction supplied by the Plaintiff to ○○○, etc.,” and there is no other evidence to deem that the said purchase transaction and the sales transaction constituted a single transaction. Furthermore, it is difficult to deem that the Plaintiff omitted a sales report amounting to KRW 1.975 million in order to conceal the amount of profit earned by the Plaintiff from a unilateral purchase transaction with the State. As such, the portion omitted from the Plaintiff’s sales report was generated from the sales transaction with ○○, etc., all other parties to the transaction, not from the purchase transaction, and thus, it is difficult to consider whether the said purchase transaction constitutes an unlawful transaction.

(2) The Plaintiff paid the output tax amount on the instant tax invoice to the original purchase price received from the Plaintiff via the Nonparty. Therefore, it is difficult to deem that the Plaintiff was aware that the Plaintiff would cause a decrease in national tax revenue in relation to the said purchase transaction solely on the sole basis of the fact that the value-added tax amount equivalent to 3-5% of the supply price was reduced according to the agreement concluded with the Nonparty.

(3) A disposition to refund value-added tax on Axx shall not affect the determination of whether the tax authority recognizes that the Plaintiff would cause a decrease in national tax revenues at the time of filing a value-added tax return, as it was conducted ex post facto by the tax authority.

C. Therefore, the Plaintiff’s act of deducting the input tax amount under the instant tax invoice different from the fact during the second period of 2009 to 2012 and the second period of 2013 to 2014 cannot be deemed as “Fraud or any other unlawful act” or “unlawful act” as provided in Articles 26-2(1)1 and 47-3(2)2 of the former Framework Act on National Taxes. Accordingly, the imposition disposition of the value-added tax (including additional tax) on the purchase transaction in the instant case from the date of the instant disposition was set at the exclusion period of five years under Article 26-2(1)3 of the former Framework Act on National Taxes, and the imposition of the value-added tax (including additional tax) on the second period of 209 to 2012 and the second period of 2013 to 2014 may not be deemed as the imposition of the additional tax on the purchase transaction in the instant case.

D. Nevertheless, solely on the grounds stated in its reasoning, the lower court determined that the imposition of value-added tax for the first or second years from 2009 to 2010 was lawful within the exclusion period for imposition of ten years, on the erroneous premise that the Plaintiff sufficiently recognized that the instant tax invoice would result in a decrease in national tax revenue as a result of the instant tax invoice different from the fact, and that the imposition of value-added tax for the second years from 2009 to 2012 and the second period from 2013 to 2014 was lawful.

E. In so determining, the lower court erred by misapprehending the legal doctrine on the imposition requirements for the long-term exclusion period and the non-reported additional tax as prescribed in Articles 26-2(1)1 and 47-3(2)2 of the former Framework Act on National Taxes, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on

4. Judgment on ground of appeal No. 5

A. “Fraud or other unlawful act” or “unlawful act” under Articles 26-2(1)1 and 47-3(2)2 of the former Framework Act on National Taxes refers to a deceptive scheme or other unlawful act that makes it impossible or considerably difficult to impose and collect taxes, and it does not constitute mere failure to file a report under the tax law or filing a false report without attaching circumstances showing the intention of active concealment (see, e.g., Supreme Court Decision 2015Du44158, Apr. 13, 2017).

Generally, it cannot be readily concluded that a deposit account in another person’s name was made using the borrowed-name account alone to be an active act or an active act of concealing a specific act, such as motive and circumstance. However, in cases where a false entry in the account book, exchange, return, or other concealment of means of payment, such as checks, is included, the act of depositing in several borrowed-name accounts or repeating deposits in the other borrowed-name account in sequential order while using the borrowed-name account, or where it is deemed that there is an active intent of concealment due to the apparent effect of concealment, etc. due to a special relationship with the nominal owner, even if one deposit is made in one time, it may constitute an unlawful act because it made impossible or considerably difficult to impose and collect taxes (see Supreme Court Decision 2014Do3411, Feb. 18, 2016, etc.).

B. According to the records, the Plaintiff asserted that “an omission of a report on sales by means of an account in the name of the spouse does not constitute an unlawful act” on the second day for pleading of the lower judgment. If so, the lower court should have deliberated on whether there was another concealment in addition to the Plaintiff’s use of the account in the name of the spouse, and whether there were other circumstances to recognize the intent of the Plaintiff’s active concealment of sales, and then should have determined whether the omission of a report on sales by means of the account in the name of the spouse constitutes an unlawful act.

C. Nevertheless, without examining these points, the lower court, without directly determining whether the Plaintiff’s act of omitting the sales revenue deposited into the account under the name of the spouse constitutes an unlawful act, determined that the imposition of the value-added tax for the second period from 2009 to 2010 on the omitted sales was lawful within the ten-year exclusion period, and that the imposition of the value-added tax for the second period from 209 to 2013 and the second period from 2014 was lawful. In so determining, the lower court erred by failing to exhaust all necessary deliberations or omitting judgment, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning this error is with merit.

5. Judgment on the ground of appeal No. 7

The allegation in the grounds of appeal on this part is a new argument that the Plaintiff would only pay back to the final appeal, and cannot be a legitimate ground of appeal. Furthermore, the legal provision imposing additional tax on illegal underreporting is not in violation of the principle of excessive prohibition, as alleged in the grounds of appeal.

6. Conclusion

Therefore, among the judgment below, the part of the imposition disposition of value-added tax for the first or second period of 2009 to 2010 and the imposition disposition of additional tax for the second period of 201 to 2014 is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The remaining grounds of appeal are dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Jong-hee (Presiding Justice)