Tax service needs more lawyers to handle lawsuits

The National Tax Service (NTS) has decided to increase the number of its staff with legal background for help in high-profile tax disputes.

As a first step, the Seoul office has opened up a litigation office and recruited Choi Jin-soo, a lawyer and former judge, as its head.

Additionally, starting this year the NTS will be hiring 10 to 20 lawyers every year. The target is to secure a pool of 100 or so legal professionals working at the litigation office in Seoul.

This is the first time since the tax agency was set up in 1966 that it will recruit such large numbers of employees with legal expertise.

“We started to expand our hiring of legal professionals since last year and now have roughly 20 lawyers,” said an NTS official. “We plan to increase that number to 100.”

On Friday the NTS held a ceremony to launch the litigation office. Commissioner Lim Hwan-soo and some 200 employees who have been working on litigations at the tax agency’s branches throughout the country attended.

The reason the tax agency decided to strengthen its litigation operation is because major companies and leading financial companies have lawyered up, via major law firms and with former judges and prosecutors, and are taking the taxation agency to court over their tax bills. The NTS litigation office is opening in Seoul because 65 percent of the legal battles are in the nation’s capital.

“Tax-related lawsuits are becoming more complex and specialized and the tax laws are having trouble catching up to the rapidly changing economic situation,” said Commissioner Lim. “This is the last chance for the tax agency to secure legitimacy in taxation.”

He asked the employees to take the cases as second tax investigations and thoroughly review the legal points at issue.

For important high-profile cases, three men including a legal expert will work as a team.

The number of legal battles filed against the NTS has been growing in recent years. In 2009 the number of cases was 1,258. That figure increased to 1,881 in 2013. The money involved in such legal struggles has gone up as well, from 1.1 trillion won ($976 billion) in 2009 to more than 2.77 trillion won as of 2013.

There have been cases the tax agency has lost. One was a case last month in which KB Kookmin Bank sued over a 400 billion won tax bill. The bank won and the NTS had to refund the tax.

As of 2013 the NTS has lost 45.6 percent of the high-profile cases involving taxes exceeding 5 billion won.

Analysts say the NTS is losing because the tax laws haven’t caught up to the more complex and new forms businesses done today.

That includes expansion of international trade. New types of transactions are one of the reasons the NTS has trouble winning in court.

With the NTS losing more cases, companies have become bolder in their challenges. The first act a company or financial institution takes when slapped with a tax bill is to file a lawsuit, a change from the largely passive attitudes of the past.

Another problem for the NTS is shrinking tax collections.

In 2013, the NTS had to refund 810 billion won worth of tax due to challenges, according to the Tax Tribunal.

“We’re overloaded and spend a lot of time working late due to the increasing numbers of cases in which the taxed subjects are not yielding,” said a Tax Tribunal official.

Some say hiring 10 lawyers a year will not really help battle the increasing number of legal challenges.

“Plaintiffs are free to spend as much as they want on legal dispute while the NTS works on a tight budget and therefore can’t pay much in hiring high-profile legal teams,” said a NTS official.

“Therefore the only choice we have in enhancing our countermeasures against legal disputes is to secure experts within our organization.”

The NTS is also hoping to improve the expertise of its employees through healthy competition within the organization with the hiring of lawyers.

BY KIM DONG-HO, LEE HO-JEONG [lee.hojeong@joongang.co.kr]