Tax ruling highlights conflict between top courts

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Tax ruling highlights conflict between top courts

With the recent Constitutional Court’s unanimous finding that a prior Supreme Court ruling was in violation of the Constitution, tension is mounting over the legal jurisdiction of Korea’s courts.

The Constitutional Court revealed on Friday that its eight justices on May 31 ruled in favor of two companies that filed a lawsuit against the National Tax Service regarding unfair tax laws, overturning a previous decision in the high court.
There has been a long history of the two courts locking horns, and the latest ruling renews the debate regarding which court has the final say in legal judgment. The law in question was a supplementary provision article of the Regulation Law on Tax Reduction and Exemptions, which stipulates that companies that go public can get their assets revaluated for tax cuts, but once they are no longer public, the tax benefits received must be returned.
This provision was revoked after a revision of the tax law in 1993.

GS Caltex Corporation, a private oil company and one of the two companies that the Constitutional Court backed in its ruling, decided to go public in 1990. After a revaluation of assets, the company received tax reduction benefits through the Regulation Law on Tax Reduction and Exemption.
When GS Caltex gave up on going public in 2003, the National Tax Service demanded it return the 70.7 billion won ($60 million) that had been waivered through the tax exemptions for 10 years, citing the supplementary provision article.
GS Caltex filed a suit in 2005 against the National Tax Service stating that it did not have to pay the 70.7 billion won because the article had been deleted.

The case went to the Supreme Court, which in 2009 sided with the National Tax Service and ruled that GS Caltex had to pay the levy. The high court backed its decision by stating that although the article in question had been repealed, “the effectiveness of the article can be seen as still effective in the case of special situations.”
It said the case of GS Caltex was “a special situation.”
The Constitutional Court’s ruling directly challenges the high court’s interpretation of the law. The two companies plan to appeal to the Supreme Court based on the Constitutional Court’s decision.

By Sarah Kim [sarahkim@joongang.co.kr]

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