"Seizure of Expired Insurance Claim Bonds Is Illegal"

"No Obligation to Pay Cancellation Refunds to Tax Office
Does Not Affect Statute of Limitations on Tax Arrears"

Graphic by Asia Economy DB

[Asia Economy Reporter Moon Chaeseok] A ruling has been made that it is illegal for tax authorities to seize insurance claim bonds that have lost their validity.

On the 16th, the Anti-Corruption and Civil Rights Commission announced that it recommended a tax office chief to correct the starting date for calculating taxes related to overdue insurance payments.

This conclusion was reached after receiving a grievance complaint stating that the tax authorities had seized insurance claim bonds and left them unattended for over 15 years, causing the overdue taxes not to expire.

According to the Commission, the tax office chief seized the insurance claim bonds that Mr. A held against the insurance company in January 2005 because Mr. A failed to pay value-added tax.

Mr. A only became aware of the seizure of the insurance claim bonds last February through a notice sent by the insurance company. The insurance company subsequently paid approximately 1.3 million KRW in surrender refunds to the tax office chief.

However, this insurance contract lost its validity around July 2001 because Mr. A did not pay the premiums. Around July 2003, two years later, the statute of limitations for the right to claim premium refunds was also completed.

In the end, the tax office chief seized non-existent insurance claim bonds based solely on the data provided by the insurance company.

The Commission cited precedent that if two years have passed since the contract lost validity due to non-payment of premiums and the statute of limitations for the right to claim premium refunds is completed, the creditor's seizure of the insurance claim bonds also becomes ineffective.

Even if the insurance company paid the surrender refund of the expired contract to the tax authorities, it is reasonable to apply the statute of limitations law as ruled by the court. This is because the money paid was not legally obligated.

Even if the seizure by the tax authorities was lawful, the Commission judged the tax office chief’s seizure of the insurance claim bonds to be illegal, considering that it prevented the collection of insurance claim bonds for 15 years without justifiable reason.

This is why the Commission recommended the tax office chief to correct the starting date for the statute of limitations on the overdue taxes Mr. A owed.

According to the Commission, a total of 485 complaints regarding "damage relief due to long-term neglect of seized property" have been received over the past four years. This accounts for about 10% of all tax-related complaints and is increasing annually.

In December last year, the Commission recommended that the National Tax Service and the Ministry of the Interior and Safety prepare institutional improvement measures such as enabling taxpayers to check the details of seized property themselves and organizing insurance claim bonds that have been seized for a long time based on expired insurance contract information.

Vice Chairman Kwon Tae-sung of the Commission said, "We will strive to fundamentally resolve complaints by identifying systemic problems confirmed during the grievance handling process."