Constitutional Court Cancels Supreme Court Ruling Dismissing GS Caltex Tax Lawsuit Retrial Appeal... Third Time in History

Seodaemun Constitutional Court Grand Chamber, Jaedong, Jongno-gu, Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Constitutional Court has annulled the Supreme Court ruling that rejected a retrial request against a court decision contrary to the Constitutional Court's limited unconstitutionality ruling. Following last month, this marks the third time in history that the Constitutional Court has annulled a ruling, signaling that the conflict between the Constitutional Court and the Supreme Court over the binding force of 'limited unconstitutionality' decisions is expected to deepen.

On the 21st, the Constitutional Court decided unanimously to annul the Supreme Court rulings that dismissed appeals against retrial dismissal decisions by the Seoul High Courts, which had rejected retrial requests filed by GS Caltex, KSS Shipping, and AK Retail. These companies had each filed constitutional complaints seeking to annul court rulings applying Article 23 of the Supplementary Provisions of the former Tax Reduction and Regulation Act, which the Constitutional Court had declared partially unconstitutional.

However, the Constitutional Court dismissed constitutional complaints regarding the retrial remand rulings and Supreme Court rulings that applied Article 23 of the Supplementary Provisions of the former Tax Reduction and Regulation Act, reasoning that these rulings were finalized before the Constitutional Court's unconstitutionality decision and thus do not exceptionally qualify as subjects of constitutional complaints.

Additionally, constitutional complaints against the original administrative tax assessments, which were the basis of the disputes, were also dismissed on the grounds that these assessments are not subject to constitutional complaints unless the related court rulings are exceptionally annulled by constitutional complaint. Justices Lee Seok-tae and Lee Young-jin dissented on this point.

The Constitutional Court first reiterated the legal principles it set forth in the 2014HunMa760 case, which was the second case in history since 1997 where a ruling was annulled.

The Court stated, "The Constitution grants the Constitutional Court the power of judicial review over laws, and the unconstitutionality decisions made by the Constitutional Court as an exercise of this power are binding on all state agencies and local governments, including the courts. Limited unconstitutionality decisions, which involve constitutional interpretation leading to partial unconstitutionality rulings, also have binding force on all state agencies and local governments, including the courts."

It further pointed out, "Court rulings that deny the binding force of unconstitutionality decisions are not only contrary to the binding force of the Constitutional Court's decisions but also directly violate the constitutional determination that grants the Constitutional Court the power of judicial review over laws."

The Court clarified, "The limited unconstitutionality decision in this case caused the loss of effect of the provisions of Article 23 of the Supplementary Provisions of the former Tax Reduction and Regulation Act applicable after January 1, 1994, the enforcement date of the fully revised former Tax Reduction and Regulation Act as of December 31, 1993. This limited unconstitutionality decision is binding on all state agencies and local governments, including the courts."

It continued, "The petitioners are parties to the case that triggered this limited unconstitutionality decision and filed retrial requests for the adverse rulings finalized before the limited unconstitutionality decision was announced, pursuant to Article 75, Paragraph 7 of the Constitutional Court Act. However, the courts denied the binding force of the limited unconstitutionality decision and dismissed the retrial requests, and the Supreme Court also dismissed the retrial appeals without hearing for the same reason."

The Constitutional Court concluded, "Therefore, the retrial dismissal rulings and the Supreme Court's dismissal of retrial appeals in this case are all 'rulings contrary to the binding force of unconstitutionality decisions on laws.' Constitutional complaints against these rulings are permissible, and the petitioners' constitutionally guaranteed right to request a trial was infringed. Accordingly, all such rulings must be annulled pursuant to Article 75, Paragraph 3 of the Constitutional Court Act."

Regarding whether the original rulings that rejected the cancellation of tax assessments are subject to constitutional complaints, the Court noted, "It is institutionally justified for judges to apply laws before an unconstitutionality decision is made. Therefore, rulings applying laws not yet declared unconstitutional by the Constitutional Court cannot be considered illegal exercises of public authority simply because an unconstitutionality decision was later announced, and thus cannot be subject to constitutional complaints."

It added, "The retrial target rulings and remand rulings in this case were made before the limited unconstitutionality decision on Article 23 of the Supplementary Provisions of the former Tax Reduction and Regulation Act was announced. These rulings do not violate the binding force of unconstitutionality decisions on laws and thus are exceptionally not subject to constitutional complaints. Therefore, the constitutional complaint requests against these rulings are inadmissible."

GS Caltex conducted asset revaluation and reported and paid corporate taxes based on the assumption of listing shares on the Korea Stock Exchange under Article 56-2 of the former Tax Reduction and Regulation Act before its amendment on December 31, 1990. However, it did not list shares on the Korea Stock Exchange by the deadline of December 31, 2003, as stipulated in the enforcement decree of the same law.

Accordingly, the Yeoksam Tax Office imposed approximately 70 billion KRW in corporate tax and asset revaluation tax for each business year after 1990, recalculated under Article 23 of the Supplementary Provisions of the former Tax Reduction and Regulation Act on April 16, 2004.

GS Caltex filed an administrative lawsuit seeking cancellation of this tax imposition. After losing in the first trial but winning in the appellate court, the Supreme Court overturned the decision, and the remand trial at the Seoul High Court was ongoing when GS Caltex requested a constitutional review of Article 23 of the Supplementary Provisions of the former Tax Reduction and Regulation Act. After the request was dismissed, GS Caltex filed a constitutional complaint with the Constitutional Court.

On May 31, 2012, the Constitutional Court issued a limited unconstitutionality decision stating that "interpreting Article 23 of the Supplementary Provisions of the former Tax Reduction and Regulation Act as not having lost effect despite the enforcement of the amended Tax Reduction and Regulation Act violates the Constitution."

Meanwhile, GS Caltex's remand trial was finalized on June 4, 2009, before the Constitutional Court's limited unconstitutionality decision. GS Caltex requested a retrial at the Seoul High Court under Article 75, Paragraph 7 of the Constitutional Court Act, but the court dismissed it, refusing to accept the binding force of the limited unconstitutionality decision.

GS Caltex appealed the retrial dismissal ruling by the Seoul High Court to the Supreme Court, but the Supreme Court also dismissed the appeal without hearing on November 15, 2013, for the same reason.

Ultimately, GS Caltex filed constitutional complaints with the Constitutional Court against the Seoul High Court's retrial dismissal ruling, the Supreme Court's dismissal of the retrial appeal, the remand ruling and Supreme Court ruling finalized before the limited unconstitutionality decision, and the tax assessment cancellation.

AK Retail and KSS Shipping also filed constitutional complaints seeking annulment of court rulings after receiving tax assessments of 10.4 billion KRW and 6.5 billion KRW, respectively, arguing that Article 23 of the former Tax Reduction and Regulation Act was unconstitutional and received limited unconstitutionality decisions.

Previously, the Constitutional Court unanimously ruled unconstitutional in a constitutional complaint case filed by Professor Nam Mo of Jeju National University and others seeking annulment of retrial dismissal rulings by courts. This was the second ruling annulment since 1997.

At that time, the Supreme Court stated, "It is inappropriate for the Supreme Court to respond immediately to this Constitutional Court decision, as it may exacerbate public anxiety due to conflicts between constitutional institutions. However, we wish to clarify our principled position as follows: The Supreme Court has maintained that limited unconstitutionality decisions, which declare only specific interpretations or applications of a legal provision unconstitutional while leaving the provision itself intact, cannot be given the effect of unconstitutionality decisions under Article 47 of the Constitutional Court Act. Consequently, limited unconstitutionality decisions do not bind the courts and cannot be grounds for retrial. This is an established Supreme Court precedent."

The Supreme Court also stated, "The authority to interpret and apply laws is an essential aspect of judicial power, and interpreting laws in harmony with constitutional norms is a fundamental principle of legal interpretation and application. The authority to interpret and apply laws, including constitutional interpretations, is exclusively vested in the courts, with the Supreme Court as the highest court. Any interference by other state agencies in this authority, such as prescribing interpretation standards for laws and compelling courts to apply laws accordingly in specific disputes, is impermissible under the constitutional principle of separation of powers and judicial independence."

Following the Constitutional Court's decision on this day, the Supreme Court stated, "There is no change in the Supreme Court's previously announced position, and there are no plans to issue additional statements."

This content was produced with the assistance of AI translation services.