Income Tax Imposed on 'Figurehead' Who Lent Their Name... Court Rules "Not Invalid"

Judgment Dismissing Plaintiff in Income Tax Imposition Invalidity Lawsuit
"Name Lending, Tax Evasion Encouraged with Agreement of Actual Business Operator"

The court has ruled that the tax authorities' decision to impose comprehensive income tax on a 'nominal president' who only lent their name to a company cannot be deemed invalid.

According to the legal community on the 8th, the Seoul Administrative Court, Administrative Division 2 (Presiding Judge Shin Myung-hee) recently ruled against plaintiff A in a lawsuit seeking to nullify the comprehensive income tax imposition filed against the Seongnam Tax Office.

A was registered with the tax authorities as the representative of Company B from 2018 until its closure in 2019. When Company B failed to file corporate tax, the Seongnam Tax Office imposed comprehensive income taxes on A, the company representative, in September 2021, amounting to 123 million KRW for 2018 and 44 million KRW for 2019, based on a corporate tax estimation decision.

The corporate tax estimation decision refers to the practice of considering the estimated income of a corporation that has not filed corporate tax as the income of the corporate representative and imposing income tax on the representative accordingly.

In response, A's side argued, "I was merely a nominal president who lent my name at the request of C, the actual operator of the company, and was nothing more than a daily worker employed by C," and claimed, "The tax imposition violates the principle of substantive taxation, is illegal, and has serious defects, thus should be nullified."

However, the court did not accept A's claims. The bench stated, "Name lending is an act that promotes tax evasion in agreement with the actual operator, and since it is difficult for outsiders to ascertain the true substance, the tax authorities should, barring special circumstances, regard the business name holder as the actual operator for taxation purposes."

It added, "The burden of proving that taxation on a separate actual operator, rather than the business name holder, is possible because the actual situation differs lies with the party contesting the taxation of the name holder."

Furthermore, the court noted, "Considering that the company did not file corporate tax leading to the estimation decision and the subsequent imposition on the representative, that A was registered as the company representative from 2018 until its closure in 2019, that A admitted to lending the name to C, and that A appeared to have accepted the tax legal responsibility, the tax imposition in this case cannot be considered invalid."

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