[Decision] "Unjust Enrichment Does Not Automatically Apply Even If High Tax Rates on Simple Nominee Transactions Are Unlawful"

Published 01 Dec.2025 15:50(KST)

Supreme Court: "Further Examination Needed on Seriousness and Obviousness of Defect"

The Supreme Court has ruled that even if a tax authority's application of a 90% differential tax rate to a simple nominee transaction is unlawful, unjust enrichment under civil law does not automatically apply without first examining the seriousness and obviousness of the defect. On November 6, the Supreme Court's Civil Division 1 (Presiding Justice Seo Kyunghwan) overturned the previous ruling in favor of Korea Development Bank in a lawsuit for the return of unjust enrichment, and remanded the case to the Seoul Central District Court (2025Da214743).

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[Facts of the Case]

Korea Development Bank applies the general tax rate of 14% and withholds income tax at the source when paying interest, subsequently remitting it. In November 2017, the Financial Services Commission and the Ministry of Economy and Finance issued an interpretation stating, "If an account is later found to be a nominee account through a prosecution investigation, National Tax Service audit, or Financial Supervisory Service inspection, the financial assets in the account are considered non-real-name assets subject to a differential tax rate." Based on this interpretation, the National Tax Service, Seoul Metropolitan Government, Anyang City in Gyeonggi Province, and Yeosu City in South Jeolla Province imposed high rates of interest income tax, dividend income tax, and local income tax on Korea Development Bank from 2018 to 2020. The rationale was that Korea Development Bank had applied the general tax rate, rather than the differential tax rate, to interest and dividend income from customers’ nominee accounts, and therefore owed the difference in uncollected taxes. Korea Development Bank paid all the taxes imposed.

In December 2021, the Administrative Division 9 of the Seoul High Court ruled in a case (2021Nu35355) to cancel an income tax collection order issued by the Namdaemun Tax Office Chief against Industrial Bank of Korea, stating, "A 'simple nominee transaction,' where the contributor makes a deposit under the account holder's name and designates the account holder as the party to the deposit contract, should not be subject to a differential tax rate." This ruling was upheld by the Supreme Court. Based on this Supreme Court decision, Korea Development Bank filed a lawsuit against the tax authorities seeking the return of unjust enrichment.

[Lower Court Rulings]

The court of first instance ruled in favor of the plaintiff. The first-instance court stated, "The nominee accounts of Korea Development Bank customers are simple nominee transactions and therefore not subject to the differential tax rate," and "Since the tax authorities collected taxes without a valid tax obligation, the collection was an act without enforceability and is thus null and void." The court further stated, "Korea Development Bank paid taxes on income not subject to withholding or in excess of the amount to be collected," and "The tax authorities obtained unjust enrichment without any legal grounds the moment they received the taxes." The appellate court upheld the first-instance ruling.

[Supreme Court Judgment]

The Supreme Court remanded the case, stating that the lower court failed to examine the seriousness and obviousness of the defect, which is a requirement for the establishment of unjust enrichment. The Supreme Court held, "Even if the tax authorities misinterpreted the law and imposed taxes in a situation where there was room for dispute over the interpretation of the law, this alone constitutes only a misjudgment of the facts required for taxation and does not make the defect obvious," and "The lower court erred by failing to further examine whether the tax authorities' misapplication of the law was so clear as to render the action null and void, thereby not fulfilling the necessary review."