A person liable for payment of transfer income tax and public sale of title trust real estate

In a case where the tax authority imposes capital gains tax on a title trustee on the transfer of real estate without knowledge of the title trust, the title trustee does not lose his/her obligation to pay capital gains tax on the transfer of the said real estate, on the ground that the title trustee formally became final and conclusive due to his/her failure to dispute through administrative litigation or litigation, and thus, the title truster’s liability to pay capital gains tax on the transfer of the said real estate is not extinguished. If the tax authority sells the real estate, which is a title trust property on the ground of the foregoing default on capital gains tax, and then appropriates most of the proceeds therefrom

Article 14 (1) of the Framework Act on National Taxes and Article 7 (1) of the Income Tax Act

[Plaintiff, Appellant] Plaintiff 1 and 1 other (Law Firm Domin, Attorneys Park Jae-soo and 1 other, Counsel for plaintiff-appellant) and 1 other (Law Firm 1981, Counsel for plaintiff-appellant) and 1 other, Counsel for plaintiff-appellant)

Plaintiff

Head of Yongsan Tax Office

Seoul High Court Decision 93Gu20858 delivered on February 14, 1995

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

We examine the grounds of appeal.

According to the reasoning of the judgment below, the court below acknowledged that the non-party purchased the forest land of four parcels including the real estate of this case, and completed the registration of ownership transfer under the plaintiff's name without permission, using the seals affixed by the plaintiff at the time when he was under his custody, and thereafter disposed of the forest land of three parcels except the real estate to the third party. The plaintiff was imposed capital gains tax on the transfer of the above three parcels by the non-party, and the defendant did not pay the transfer income tax. The defendant sold the real estate of this case and appropriated most of the proceeds of the sale to the non-party for the transfer income tax and disposition fee for arrears, and paid the remaining proceeds to the plaintiff. The defendant imposed capital gains tax on the non-party on the real estate of this case. Since the non-party was merely the title trustee of the forest land of the above four parcels including the real estate of this case, the non-party's disposal of the real estate of this case should have been imposed on the non-party, so long as the plaintiff was confirmed to be liable to pay the capital gains tax of this case, the non-party's real owner.

However, in the instant case, the duty to pay capital gains tax on the real estate of the three parcels other than the instant three parcels is inevitable under the principle of substantial taxation under Article 14(1) of the Framework Act on National Taxes or Article 7(1) of the Income Tax Act that the non-party who is the actual title trustee of the said three parcels of real estate and is not the plaintiff who is not the actual title trustee (see, e.g., Supreme Court Decision 80Nu376, Feb. 24, 1981; Supreme Court Decision 93Nu517, Sept. 24, 1993). If the tax authority imposes capital gains tax on the transfer of the said three parcels of real estate without knowledge of title trust and only the title trustee is imposed on the plaintiff who is the mere title trustee of the said three parcels of real estate, on the ground that the plaintiff's duty to pay capital gains tax on the transfer of the said three parcels of real estate became final and conclusive, so if the tax authority in arrears appropriates most of the above amount of capital gains tax on the instant real estate after the title trust property of the non-party.

In conclusion, the judgment of the court below is erroneous in the misapprehension of legal principles as to the substance over form principle under the above law, which affected the conclusion of the judgment, and there is a ground for appeal assigning this error.

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Yong-hun (Presiding Justice)