[Jeon Daegyu's 7 Wins 8 Losses] Discharge of Tax Claims and Criminal Liability

Mr. A, who operates a large franchise restaurant, falsified sales records to pay less tax as his business became difficult. The restaurant's sales continued to decline, and he eventually filed for a regular rehabilitation procedure with the court because he could not apply for personal rehabilitation due to bank-secured loans exceeding 2 billion won. The rehabilitation process proceeded smoothly, and the rehabilitation plan was approved. During the rehabilitation process, a tax investigation was conducted on Mr. A, revealing that he had evaded 300 million won in taxes. Mr. A's actions constitute tax evasion. Can the evaded tax claims (tax claims) be discharged by the approval of the rehabilitation plan? If the tax claims are discharged, will Mr. A avoid criminal punishment as a tax evader?

In rehabilitation procedures, tax claims are, in principle, debts subject to discharge (rehabilitation claims). If tax claims are rehabilitation claims, and if the administrator (generally Mr. A himself) does not list them in the creditor list, and the state or local government does not report the tax claims, they are discharged (extinguished) by the approval of the rehabilitation plan. When tax claims are discharged, the taxpayer is not required to pay the overdue taxes.

If the debtor (taxpayer) had the intent to evade taxes during the rehabilitation process, they would not list the tax claims in the creditor list. Mr. A, as the administrator, also did not list the tax claims related to the evaded sales (such as value-added tax, income tax, etc.) for this reason. Tax authorities inevitably discover the existence of tax claims through subsequent tax investigations when taxpayers deliberately evade sales. Therefore, tax authorities cannot report tax claims during the rehabilitation process. In this case, the tax claims are extinguished by the approval of the rehabilitation plan. In the above case, since the tax claims were neither listed in the creditor list nor reported, Mr. A's tax claims, despite the intent to evade taxes, are extinguished.

Since tax claims belong to the state or local governments and are a source of revenue, their collection must be secured. Therefore, tax laws grant the state and others not only priority collection rights but also self-execution rights to secure tax claims. Furthermore, if the taxpayer's actions are seriously illegal and antisocial, criminal punishment is imposed. This is called a tax crime. Tax crimes are broadly divided into tax evasion crimes related to tax evasion and tax order crimes related to violations of tax administrative order. For national taxes, the establishment and punishment of tax crimes are stipulated in the Tax Crime Punishment Act, and the investigation and punishment procedures are regulated by the Tax Crime Punishment Procedure Act. For local taxes, both the establishment, punishment, and procedures of tax crimes are stipulated in the Local Tax Basic Act.

If the tax claims are extinguished, does that mean Mr. A will not be punished as a tax criminal? First, the issue is whether a tax crime is established. Since the establishment of a crime is judged based on the time the act was committed, it is difficult to consider that an established crime disappears even if the tax claims are extinguished. Also, the absence of civil liability does not exempt criminal punishment. Therefore, even if the tax claims are extinguished by the approval of the rehabilitation plan, it does not affect the establishment of a tax crime. Next, the question is whether the tax authorities have the right to file a complaint. Unlike other criminal cases, tax crimes require a complaint from the Commissioner of the National Tax Service, the head of the local tax office, or the head of the local government or an investigating officer of the violation case to prosecute. Even if the tax claims are extinguished by the approval of the rehabilitation plan, since the tax crime is established, the right of complaint by the Commissioner of the National Tax Service, etc., remains.

In conclusion, Mr. A may be exempted from paying taxes by the approval of the rehabilitation plan, but he cannot avoid criminal punishment as a tax criminal. Of course, whether the statute of limitations for the tax evasion act has passed must be considered separately.