[Plaintiff, Appellee] ○○○ Savings Bank Co., Ltd. (Counsel Jeong Byeong-mun and 3 others)
[Defendant, Appellant] Director of Samseong Tax Office (Counsel Law Firm WIZ and 1 other)
[Judgment Below] Seoul High Court Decision 2023Nu45325 decided December 5, 2023
[Order]
The appeal is dismissed. The costs of the appeal shall be borne by the Defendant.
[Reasoning]
The grounds of appeal (including the supplementary brief on grounds of appeal submitted after the deadline for submission of the grounds of appeal, to the extent that it supplements the grounds of appeal) are examined as follows.
1. Overview of the Case
According to the reasoning of the judgment below and the evidence duly adopted and examined by the court below, the following facts may be recognized.
A. The Plaintiff is a stock company established on February 3, 1972 pursuant to the Mutual Savings Banks Act (상호저축은행법) and engaged in the financial business.
B. Pursuant to Article 33 of the former Act on the Employment Promotion and Vocational Rehabilitation of Persons with Disabilities (장애인고용촉진 및 직업재활법) (before being amended by Act No. 18308 on July 20, 2021; hereinafter the "former Disabled Employment Act"), the Plaintiff reported and paid to the Minister of Employment and Labor the employment levy for persons with disabilities (장애인 고용부담금) for the years 2018 and 2019 (hereinafter the "instant disabled employment levy").
C. In reporting corporate tax for the business years 2019 and 2020, the Plaintiff reported and paid corporate tax without including the instant disabled employment levy as a deductible expense (손금).
D. On November 16, 2021, the Plaintiff filed a claim for correction (경정청구) with the Defendant seeking a refund of corporate tax for the business years 2019 and 2020, on the ground that the instant disabled employment levy did not fall under Article 21, Item 5 of the former Corporate Tax Act (법인세법) (before being amended by Act No. 20613 on December 31, 2024; hereinafter the "former Corporate Tax Act") (a public charge imposed as a sanction for nonperformance of an obligation or violation of a prohibition, restriction, etc. under statutes) and therefore should be included as a deductible expense.
E. On December 7, 2021, the Defendant rejected the Plaintiff's above claim for correction on the ground that the instant disabled employment levy fell under the public charges not deductible as expenses as provided in Article 21, Item 5 of the former Corporate Tax Act (hereinafter the "instant disposition").
2. History of Amendments to the Relevant Provisions
A. Article 16, Item 5 of the former Corporate Tax Act (before being amended by Act No. 5033 on December 29, 1995) provided that "public charges other than those prescribed by Presidential Decree" were non-deductible, and each item of Article 25, Paragraph 1 of the former Enforcement Decree of the Corporate Tax Act (법인세법 시행령) (before being amended by Presidential Decree No. 14861 on December 30, 1995) enumerated various public charges eligible for deduction, among which Item 32 designated the disabled employment levy as one of the deductible public charges.
B. When the Corporate Tax Act was amended by Act No. 5033 on December 29, 1995, Article 16, Item 5 thereof provided that "public charges prescribed by Presidential Decree" were non-deductible, thereby delegating to Presidential Decree the designation of public charges that would exceptionally be non-deductible, while in principle including public charges as deductible expenses. However, Article 25, Paragraph 1 of the Enforcement Decree of the Corporate Tax Act as amended by Presidential Decree No. 14861 on December 30, 1995 provided that "'public charges prescribed by Presidential Decree' under Article 16, Item 5 of the Act means public charges excluding the following (excluding special membership fees)," thereby in practice continuing to take the same approach as before of enumerating various deductible public charges, among which Item 32 continued to designate the disabled employment levy as one of the deductible public charges.
C. Meanwhile, the Constitutional Court rendered a decision holding that public charges, in principle, have the character of business expenses and should be included as deductible expenses under the Corporate Tax Act, and that deductibility should be denied only in cases prescribed by statute where, exceptionally, the charge does not have the nature of an expense or where it is undesirable to allow deduction for tax policy or technical reasons; that Article 16, Item 5 of the former Corporate Tax Act (before being amended by Act No. 5033 on December 29, 1995), by providing that public charges other than those prescribed by Presidential Decree shall not be included as deductible expenses, establishes that public charges are non-deductible in principle; and that, absent special circumstances justifying this otherwise, this violates the substantive principle of no taxation without law in that it taxes income that does not actually exist, and is therefore unconstitutional (Constitutional Court en banc Decision 96Hunba36 through 49, decided July 16, 1997).
D. When the Enforcement Decree of the Corporate Tax Act was amended by Presidential Decree No. 15564 on December 31, 1997, the public charges non-deductible under Article 25 were changed to "those not paid as a mandatory obligation under statutes (Item 1)" and "those imposed as a sanction for nonperformance of an obligation or violation of a prohibition, restriction, etc. under statutes (Item 2)." This amendment was made with the intent of comprehensively providing that any public charge paid as a mandatory obligation under statutes would thereafter be immediately recognized as a deductible expense, replacing the previous method of enumerating the scope of public charges recognized as deductible expenses.
E. Thereafter, when the Corporate Tax Act was wholly amended by Act No. 5581 on December 28, 1998, Article 21 prescribed matters concerning the non-deductibility of taxes and public charges, and Item 5 thereof provided "other public charges prescribed by Presidential Decree" as one type of tax and public charge subject to non-deduction; pursuant to this delegation, Article 23 of the Enforcement Decree of the Corporate Tax Act, wholly amended by Presidential Decree No. 15970 on December 31, 1998, respectively provided "those not paid as a mandatory obligation under statutes (Item 1)" and "those imposed as a sanction for nonperformance of an obligation or violation of a prohibition, restriction, etc. under statutes (Item 2)." This was merely a relocation to Article 23 of provisions with identical content to the "scope of public charges" that had been provided in Article 25 of the Enforcement Decree of the Corporate Tax Act prior to the wholesale amendment.
F. When the Corporate Tax Act was amended by Act No. 6293 on December 29, 2000, Article 21 was amended to elevate the level of legislation so that public charges subject to non-deduction would be directly prescribed by statute, whereas previously Article 21, Item 5 of the Corporate Tax Act (before amendment) delegated to Presidential Decree the designation of public charges subject to non-deduction, and Article 23 of the former Enforcement Decree of the Corporate Tax Act (before being amended by Presidential Decree No. 17033 on December 29, 2000) prescribed the public charges subject to non-deduction pursuant to such delegation. Article 21 of the Corporate Tax Act as thus amended provided in Item 6 that "public charges imposed as a sanction for nonperformance of an obligation or violation of a prohibition, restriction, etc. under statutes" shall not be included as deductible expenses, and when the Corporate Tax Act was amended by Act No. 10423 on December 30, 2010, the location of the provision was changed to Item 5.
G. When the Corporate Tax Act was amended by Act No. 20613 on December 31, 2024, Article 21, Item 5 was changed to "public charges imposed on the ground of nonperformance of an obligation or violation of a prohibition, restriction, etc. under statutes," with the previous wording "as a sanction" being deleted.
3. Issue of the Instant Case
The instant disposition concerns corporate tax for the business years 2019 and 2020. The issue in this case is whether the instant disabled employment levy falls under "a public charge imposed as a sanction for nonperformance of an obligation or violation of a prohibition, restriction, etc. under statutes" as provided in Article 21, Item 5 of the former Corporate Tax Act, and in particular, whether it constitutes "a public charge imposed as a sanction" within the meaning of that provision, such that it is subject to non-deduction.
4. Determination
A. The former Disabled Employment Act aims to promote the employment and vocational rehabilitation of persons with disabilities so that they may lead a life worthy of human dignity through occupational activities suited to their abilities (Article 1).
The former Disabled Employment Act provides that a business owner who employs 50 or more regular employees shall employ persons with disabilities in a ratio prescribed by Presidential Decree, not exceeding 5/100 of the total number of employees (hereinafter the "mandatory employment ratio") (Article 28, Paragraph 1), and that a business owner who employs persons with disabilities below the mandatory employment ratio (excluding a business owner who employs 50 or more but fewer than 100 regular employees) shall pay a disabled employment levy annually to the Minister of Employment and Labor as prescribed by Presidential Decree (Article 33, Paragraph 1).
The disabled employment levy constitutes a "levy" (부담금) under the Framework Act on the Management of Charges (부담금관리 기본법), namely, a monetary payment obligation other than tax, imposed pursuant to statute in connection with a specific public interest project, regardless of the provision of goods or services, by an imposing authority such as the head of a central administrative agency, regardless of its designation as a contribution, charge, contribution fee, or otherwise (Article 2, Article 3, and Item 67 of the [Attached Table]).
Meanwhile, Article 2, Item 8 of the former Framework Act on National Taxes (국세기본법) (before being amended by Act No. 17650 on December 22, 2020) provides: "'Public charge' means a claim collectible pursuant to the procedure for disposition on default under the National Tax Collection Act, excluding national tax, customs duty, temporary import surtax, local tax, and disposition on default expenses related thereto." In relation to this, Article 37, Paragraph 1 of the former Disabled Employment Act provides: "Where a person liable to pay fails to pay the levy or any other charge collected under this Act, the Minister of Employment and Labor shall demand payment thereof by setting a due date," and Paragraph 3 of the same Article provides: "Where a person who has received a demand under Paragraph 1 fails to pay the levy or any other charge collected under this Act by the payment deadline, the Minister of Employment and Labor may collect it pursuant to the procedure for disposition on default of national taxes."
B. Considering the wording and content of the former Disabled Employment Act and other provisions, together with the purpose and nature of the disabled employment levy, the disabled employment levy constitutes a public charge imposed on the ground that a business owner failed to perform the obligation to employ persons with disabilities under Article 28, Paragraph 1 of the former Disabled Employment Act; however, it cannot further be regarded as "a public charge imposed as a sanction," and consequently cannot be regarded as "a public charge imposed as a sanction for nonperformance of an obligation under statutes" that is subject to non-deduction under Article 21, Item 5 of the former Corporate Tax Act. The specific reasons are as follows.
1) Article 19, Paragraph 1 of the former Corporate Tax Act provides: "Deductible expenses (손금) shall be the amount of losses or expenses (hereinafter 'deductible expenses' [손비]) arising from transactions that reduce the net assets of the relevant corporation, excluding the return of capital or contributions, the disposition of surplus funds, and matters prescribed by this Act." Paragraph 4 thereof provides: "Matters necessary for the scope and classification of deductible expenses shall be prescribed by Presidential Decree." Accordingly, Article 19 of the Enforcement Decree of the Corporate Tax Act provides: "Deductible expenses under Article 19, Paragraph 1 of the Act shall include the following, except as otherwise provided by the Act and this Decree," and Item 10 thereof lists "taxes and public charges."
Under the Corporate Tax Act, public charges are, in principle, deductible because they are "all public burdens compulsorily imposed by the State or public entities on the people or members of public entities," and because they are compulsorily imposed in connection with a corporation's certain business, the existence of assets, transactions, or other acts, and thus bear the character of business expenses. However, exceptionally, deductibility may be denied only in cases prescribed by statute where, by their nature, they do not have the character of expenses, or where it is undesirable to allow deduction for tax policy or technical reasons (see Supreme Court en banc Decision 2001Du1949, decided March 18, 2004). In this context, the provision in Article 21, Item 5 of the former Corporate Tax Act designating "public charges imposed as a sanction for nonperformance of an obligation or violation of a prohibition, restriction, etc. under statutes" as non-deductible can be seen as reflecting the policy consideration that, if a public charge imposed as a sanction for nonperformance of an obligation or violation of a prohibition, restriction, etc. were allowed to be deducted, it would in effect result in the State subsidizing that amount or diminishing the sanctioning effect, which would be improper. However, considering comprehensively that public charges fundamentally have the character of business expenses and, as a matter of principle, should be deductible, and that following the Constitutional Court's decision of unconstitutionality holding that the previous method under the Enforcement Decree of the Corporate Tax Act of restrictively enumerating deductible public charges violated the substantive principle of no taxation without law, the legislative scheme was changed to one in which the Corporate Tax Act and its Enforcement Decree separately prescribe non-deductible public charges, resulting in an expansion of the scope of deductible public charges up to the present, whether a given public charge satisfies the requirements for non-deduction under Article 21, Item 5 of the former Corporate Tax Act must be strictly interpreted in accordance with the principle of no taxation without law.
2) Persons with disabilities, due to their physical or mental conditions, are prone to tangible and intangible social prejudice and indifference, making it extremely difficult in reality for them to obtain employment suited to their abilities; therefore, measures at the societal and national level are necessary to guarantee their right to work. Reflecting this purpose, the former Disabled Employment Act introduces a mandatory employment system for persons with disabilities to promote their employment, the ultimate objective of which is to realize the right of persons with disabilities to achieve independence on their own.
However, employing persons with disabilities realistically requires improvements to work facilities and equipment, refinement of the workplace environment, and special employment management, and inevitably entails greater economic burden compared to employing non-disabled persons. This may create an imbalance in economic burden between business owners who faithfully fulfill their obligation to employ persons with disabilities and those who do not. Taking this into account, the disabled employment levy system, in accordance with the principle of social solidarity responsibility, allows members of society to jointly bear risks that arise socially, thereby equitably adjusting the economic burden of employing persons with disabilities between business owners who employ them and those who do not, and serves the role of establishing a joint contribution fund to reduce and support the burden that a business owner newly employing an unemployed person with a disability bears due to improvements in work facilities, etc. Furthermore, it also serves as an effective means of securing the practical effectiveness of the mandatory employment system for persons with disabilities.
In this way, the disabled employment levy system was introduced to distribute among business owners the economic burden associated with employing persons with disabilities, by collecting funds from business owners who fall below the mandatory employment ratio for persons with disabilities and paying employment incentive subsidies to business owners who employ persons with disabilities in excess of the mandatory employment ratio; and given that, ideally, a state in which the obligation to employ persons with disabilities is perfectly observed such that the levy need not be collected at all remains desirable, the disabled employment levy can be seen as having a strong character as an "inducing/adjusting (special) levy" whose primary purpose is to promote the employment of persons with disabilities who face difficulty in obtaining employment, rather than a fiscal purpose (see Constitutional Court en banc Decision 2001Hunba96, decided July 24, 2003). Therefore, the disabled employment levy must be understood as inherently having the character of a business expense arising in connection with a business owner's business or the existence of assets, transactions, or other acts.
3) Fines and administrative fines, which are representative examples of sanctions imposed for nonperformance of an obligation, require the existence of a liability element such as intent or negligence as a requirement for their imposition (Articles 13 and 14 of the Criminal Act (형법); Article 7 of the Act on the Regulation of Violations of Public Order (질서위반행위규제법)). However, the disabled employment levy arises uniformly upon satisfaction of the requirements set forth in Article 33 of the former Disabled Employment Act, without regard to liability elements such as intent or negligence; moreover, there is no separate penal provision punishing a business owner's violation of Article 28, Paragraph 1 of the former Disabled Employment Act by failing to fulfill the obligation to employ persons with disabilities.
In addition, while the occurrence of a disabled employment levy under Article 33 of the former Disabled Employment Act becomes an issue when a business owner employs persons with disabilities below the mandatory employment ratio prescribed in Article 28, Paragraph 1 of the same Act, this does not mean that all business owners are uniformly required to pay the disabled employment levy. That is, while Article 28, Paragraph 1 of the former Disabled Employment Act imposes the obligation to employ persons with disabilities on "a business owner who employs 50 or more regular employees," Article 33, Paragraph 1 of the same Act separately designates "a business owner who employs 100 or more regular employees" as the party subject to payment of the disabled employment levy, with the result that a business owner who employs 50 or more but fewer than 100 regular employees is not required to pay the disabled employment levy even if that business owner employs persons with disabilities below the mandatory employment ratio. This shows that, although the disabled employment levy itself arises as a result of nonperformance of the obligation to employ persons with disabilities under statute, it does not necessarily bear the character of a "sanction" premised on legal blameworthiness, but rather is merely an independent monetary payment obligation paid to achieve the policy objective concerning the employment of persons with disabilities in accordance with the requirements prescribed by Article 33 of the former Disabled Employment Act.
4) Even according to the history of amendments to the relevant provisions discussed above, until the amendment of December 31, 1997, the Enforcement Decree of the Corporate Tax Act explicitly provided that the disabled employment levy was deductible; it was only after the aforementioned Constitutional Court decision that, as non-deductible public charges came to be prescribed comprehensively by definitional provisions in the parent statute, the provision of the Enforcement Decree of the Corporate Tax Act designating the disabled employment levy as deductible was deleted. It is difficult to find that, either before or after that amendment, or up until the enactment of the former Corporate Tax Act and its Enforcement Decree applicable to this case, there arose a new need to render the disabled employment levy non-deductible due to social changes or a shift in policy, or that there was any discussion to that effect in the legislative process leading to the former Corporate Tax Act and its Enforcement Decree.
C. The court below, for the reasons stated in its judgment, rejected the Defendant's argument that the instant disabled employment levy should be non-deductible, citing, among other things, Article 11 of the Addenda to the amended Enforcement Decree of the Corporate Tax Act (as amended by Presidential Decree No. 15564 on December 31, 1997), and determined that the instant disabled employment levy cannot be regarded as "a public charge imposed as a sanction for nonperformance of an obligation under statutes" as provided in Article 21, Item 5 of the former Corporate Tax Act, and that the instant disposition, premised on a different view, was unlawful.
Examining the reasoning of the judgment below in light of the relevant provisions and legal principles set forth above, this determination by the court below is justified, and there is no error, as alleged in the grounds of appeal, of misunderstanding the legal principles regarding the meaning of "sanction" under Article 21, Item 5 of the former Corporate Tax Act, the legal nature of the disabled employment levy, the principle of no taxation without law, or the like.
5. Conclusion
The appeal is dismissed, and the costs of the appeal are to be borne by the losing party. It is so decided by the unanimous opinion of the participating Justices as set forth in the Order.
Justice Roh Kyung-pil (Presiding Justice), Lee Heung-gu (Justice in Charge), Oh Seok-jun, Lee Suk-yeon