Cho High Court Decision 2009Du2421 ( August 28, 2009)

In the event that the honorarium has been paid upon delegation of the right to dispose of the payment, it shall be submitted.

Where an attorney-at-law delegated the right to disposition on the payment of judgment amount by the client of the case and paid a honorarium in the form of the referral fee to the intermediate office manager, he/she shall be allowed to submit the payment record, as it falls

The contents of the decision shall be the same as attached.

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The imposition of global income tax (additional tax not submitted on April 1, 2009) 23,04,460 won for the Plaintiff on April 1, 2009 and 2,304,440 won for resident tax and 2,304,440 won for the Plaintiff shall be revoked.

1. Circumstances of the disposition;

A. The Plaintiff, an attorney-at-law, through the Gangseo-gu in 2003, accepted a lawsuit seeking compensation from thisB and 20 other (hereinafter referred to as “non-party props”) on the non-party’s land incorporated into a river on eight lots, including 4-2 m2 and 16 m2, Gangseo-gu, Gangseo-gu, Seoul. At the time, the Plaintiff received the full amount of compensation from the Plaintiff’s account in the said lawsuit, and then paid 27% of the total amount of compensation to the Plaintiff, and paid 10.5% of the compensation to the Gangwon-do, and the remainder 62.5% of the compensation to the non-party props (hereinafter referred to as the “instant agreement”).

B. On April 19, 2005, the Plaintiff filed a lawsuit claiming compensation against Seoul Central District Court 2003Gahap21808, the Seoul Central District Court rendered a favorable judgment against the Seoul Central District Court to the effect that “the Seoul Special Metropolitan City shall pay the amount calculated by the rate of 20% per annum from April 10, 2003 to the date of full payment,” which is the sum of KRW 7,807,694,988, and the amount calculated by the rate of 20% per annum from April 10, 2003 to the date of full payment.” The above judgment became final and conclusive around that time.

C. In accordance with the above winning judgment, the Plaintiff received KRW 10,973,554,760 in total from the Seoul Special Metropolitan City to the account in the name of the Plaintiff (hereinafter “instant judgment amount”), and transferred the total amount of KRW 1,152,223,250 (hereinafter “instant dispute amount”) to the Gangwon on May 6, 2005 pursuant to the instant agreement, and remitted the remainder amount to the Nonparty.

D. On April 1, 2009, the Defendant issued the instant disposition imposing global income tax (additional tax not submitted) 23,044,460 won and resident tax 2,304,440 won on the Plaintiff on April 1, 2009, on the ground that the Plaintiff did not submit the payment record despite its duty to submit the payment record to the head of the district tax office having jurisdiction over withholding taxes, etc., by receiving delegation of the receipt of compensation from the Nonparty’s props, and paying the amount of issues to the Gangseo to the Plaintiff.

[Ground of recognition] Facts without dispute, Gap 1 through 5 evidence, Eul 1 and 2 evidence, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's principal

The disposition of this case is illegal for the following reasons.

① It is difficult to view the issue amount paid by the Nonparty to the Gangwon-A as an arrangement fee or a honorarium for the right to property under the Income Tax Act, and thus, it is not recognized that the Plaintiff shall submit the written report.

② The Plaintiff, at the direction of the Nonparty’s props, remitted the key amount to the Gangwon-A, not paid on behalf of or with delegation from the Nonparty’s props.

③ The Plaintiff did not know the fact that the pertinent amount constitutes other income amount, and cannot be said to have the obligation to confirm it to the Plaintiff. The instant disposition imposed on the premise that the pertinent amount is subject to withholding tax and the submission of written evidence is recognized, is in violation of the principle of trust and good faith, and is also in violation of the equity in taxation and the purpose of taxation.

(b) Related Acts;

It shall be as shown in the attached Form.

C. Determination

1) Whether the obligation to submit a payment record for the key amount is recognized

Article 164 (1) 5 of the former Income Tax Act (amended by Act No. 117528 of May 31, 2005, hereinafter referred to as the "Act") provides that a person who pays other income to an individual liable for income tax in the Republic of Korea shall submit a written statement of payment concerning the other income to the head of the competent district tax office, etc. by the end of February of the year following the year in which the date of payment falls. Article 21 (1) 17 of the Act provides that a honorarium shall be deemed to fall under other income for which the income tax liability is recognized, and Article 21-2 (1) 1 of the former Income Tax Act provides that "money and valuables received in return for the management of the business on behalf of the other person" shall be included.

According to the facts acknowledged above, the Gangseo may know that it managed the claims for compensation for river punch land on behalf of the non-party, and received the amount of the issue under the name of "many expenses" in return for it through the instant agreement. Thus, the amount of the issue is an honorarium paid to an individual liable for income tax payment under Articles 21 (1) 17 and 164 (1) 5 of the Act, and therefore, it shall be deemed that the amount of the issue constitutes other income. Therefore, it is recognized that it shall submit a written payment report for the amount of the above issue.

2) Whether the Plaintiff was acting on behalf of another simple payment that is not a delegation

Article 164 (9) of the Act provides that an act of a person who pays other income to an individual liable for income tax in the Republic of Korea on behalf of the person who is liable for payment, or of the delegated person, shall be deemed as an act of the principal or the delegating person within the scope of delegation.

The fact that the Plaintiff entered into the instant agreement with the Nonparty, and the Plaintiff received the full amount of the instant judgment in accordance with the said agreement to the account in the name of the Plaintiff, and then remitted the amount at issue to the Gangwon-A. According to the above facts of recognition, it is reasonable to view that the Plaintiff is obligated to submit the payment record to the Plaintiff as it remitted the amount at issue to the Gangwon-A in the Plaintiff’s name with the delegation of the right to dispose of the payment of the instant judgment amount from the Nonparty, and the Plaintiff’s remittance cannot be deemed as a mere factual act by the Nonparty’s instruction. In light of the content of the instant agreement, the Plaintiff’s remittance cannot be deemed as a mere factual act by the Nonparty’s instruction (in light of the content of the instant agreement, it does not mean that the Plaintiff did not know that the issue amount

3) Whether the instant disposition is against the good faith and purpose

In full view of the aforementioned facts and the purport of the entire pleadings, the Plaintiff appears to have entered into the agreement in this case with the aim of avoiding the risk of the Nonparty’s prop to receive the instant judgment and not paying the remuneration, and securing the amount of remuneration to be received from the Nonparty’s props. ② Although Nonparty’s props had already been ruled against the land incorporated into a river, they seems to have re-invened the claim suit upon the recommendation of the Gangwon, and it appears that the Plaintiff would have agreed to pay 10.5% of the amount of compensation when receiving the winning of the Gangwon-do. ③ In full view of all the circumstances such as the fact that the Plaintiff accepted the above claim from the Nonparty’s prop through the Gangwon-do, and the Plaintiff appears to have been aware of the role and degree of the content of the agreement, etc., the Plaintiff cannot be deemed to have known or known that the issue amount received by Gangwon-A constitutes other income tax obligation, and therefore, it is difficult to deem that the Plaintiff violated the purpose of taxation and the principle of equity in this case’s taxation.

3. Conclusion

Thus, the plaintiff's claim of this case is dismissed for reasons.