Constitutional Court and Supreme Court: Is the 20-Year Tax Litigation Battle Coming to an End?

Published 17 Jan.2024 16:03(KST)

The Anti-Corruption and Civil Rights Commission to Hold a Public Hearing Next Month

The long-standing tax lawsuit involving hundreds of billions of won, tangled for 20 years due to differing positions between the Constitutional Court and the Supreme Court, is nearing resolution. The Korea Anti-Corruption and Civil Rights Commission (KACCRC), which holds the key to the solution, decided to hold a public hearing in February to reach a conclusion on the tax lawsuit. The Commission intends to invite legal and academic experts as well as various stakeholders to hear diverse opinions and make a decision.

[Photo by Beopryul Newspaper]

KSS Shipping and GS Caltex, among others, were subjected to corporate tax and other tax assessments by the competent tax office in 2004. They had received tax reduction benefits on the premise of going public, but since they failed to list their shares within the deadline, they were required to pay back the reduced taxes. The corporate tax imposed on KSS Shipping amounted to about 14 billion KRW, and the defense tax exceeded 1.4 billion KRW.

KSS Shipping filed a lawsuit arguing that “since the Tax Reduction Regulation Act was fully revised in 1994 without enacting any separate transitional provisions, there is no legal basis to impose the tax.” The Supreme Court and the Constitutional Court took opposing stances on this lawsuit. The Supreme Court deemed the tax assessment legitimate, while the Constitutional Court ruled in favor of the company, stating that interpreting an expired provision as valid violates the constitutional principles of separation of powers and the principle of taxation by law.

Following the Constitutional Court’s ruling, KSS Shipping requested a retrial, but the Supreme Court dismissed it. While the Constitutional Court decided to cancel the trial, the Supreme Court maintained its position that the plaintiff lost. Ultimately, the ball was passed to the KACCRC when So Sun-moo (72, 10th class), an advisory attorney at the law firm Gaon handling the KSS Shipping case, submitted a grievance petition to the Commission in November last year.

Considering the importance of the case, the KACCRC, after careful deliberation, decided to hold a public hearing and invite experts. This is seen as the best way to resolve the endless conflict between the Supreme Court and the Constitutional Court and to legitimize the National Tax Service’s decision.

The key issue in the KSS Shipping tax lawsuit is the ‘legitimacy of the tax assessment’

The public hearing planned by the Korea Anti-Corruption and Civil Rights Commission in February is a preliminary step toward establishing integrated standards for administrative appeals and legislation related to tax trials. However, the prevailing view is that it is essentially aimed at settling the tax lawsuit that has dragged on for 20 years.

The core issue in the KSS Shipping tax lawsuit is whether the tax assessment is legitimate. The Supreme Court judged the tax assessment to be legitimate, while the Constitutional Court directly overturned this. The origin of the tax lawsuit lies in the Tax Reduction Regulation Act. KSS Shipping and others conducted asset revaluation and received tax reductions on the premise of going public. However, they failed to list their shares by the set deadline, and the Jongno Tax Office retroactively reclaimed the reduced taxes in bulk based on Article 23 of the supplementary provisions of the old Tax Reduction Regulation Act.

KSS Shipping owes more than 15.4 billion KRW in taxes alone. KSS Shipping argued that the revised Tax Reduction Regulation Act provides no basis for imposing the tax. However, KSS Shipping lost in both lower courts and the Supreme Court.

The Supreme Court stated, “Since the taxable year for KSS Shipping is 1989, the fully revised law does not apply, and the previous law including the supplementary provisions applies; therefore, the tax assessment based on this is legitimate.”

The Constitutional Court overturned the Supreme Court’s judgment.

KSS Shipping requested a retrial following the Constitutional Court’s limited unconstitutionality ruling, but the Supreme Court dismissed the retrial request and ruled against the plaintiff, citing that the limited unconstitutionality ruling by the Constitutional Court does not constitute grounds for retrial.

KSS Shipping filed a constitutional complaint requesting the cancellation of the Supreme Court’s dismissal of the retrial request. The Constitutional Court initially decided to cancel the trial, stating that the retrial judgment was “a judgment contrary to the binding effect of a constitutional ruling on the law.” The Supreme Court stated, “There is no change in our existing position.”

The KACCRC can issue a recommendation decision citing ‘protection of rights’ and other reasons. However, considering the positions of the Supreme Court, the Constitutional Court, and the National Tax Service, it decided to hold a public hearing.