If Taxes Are Delinquent... Even Salaries and Coins Can Be Seized [Ko In-sun's Tax Insight]

Additional Tax Burden Greater Than Principal

Credit Decline and Loan/Card Issuance Disruptions

Possible Detention for 30 Days and Travel Bans

The 'Law Street' column by Hankyung Law & Biz provides practical legal knowledge for businesses and individuals. Expert lawyers cover various legal issues such as taxation, inheritance, labor, fair trade, M&A, and finance, and also provide analysis of major rulings.

If taxes are not paid, the state imposes various sanctions ranging from forced collection to public disclosure of the delinquent list. If delinquency is prolonged, it leads to credit decline and restrictions on economic activities such as business limitations and travel bans. If payment is difficult due to temporary cash flow problems, alternatives such as installment payments should be sought.

'Tag' Additional Tax, Snowballing Without End

Taxes are essential resources for the operation of the state and local governments. All citizens have a duty to pay taxes according to the constitution and laws, but there are cases where they cannot pay on time due to various circumstances.

Additional tax is an administrative sanction imposed when a taxpayer fails to fulfill the statutory reporting and payment obligations without just cause. Although there is a condition of 'without just cause,' the legally recognized scope of 'just cause' is very limited, so it is practically operated like strict liability.

The non-reporting additional tax is 20% of the tax amount, the under-reporting additional tax is 10% of the under-reported tax amount, and the delayed payment additional tax is the sum of 3% (fixed amount) of the unpaid tax amount and the amount calculated by applying an annual interest rate of 8.03% (0.022% per day) until payment (delayed amount). In cases of fraudulent acts or offshore transactions, an increased rate is applied.

Additional tax is imposed regardless of the taxpayer's intent or negligence and continues to increase until the principal tax is fully paid. Even after the principal tax is fully paid, the additional tax already incurred does not disappear, increasing the burden.

'Red Tag' Seizure and Public Auction

When taxes are delinquent, the tax authorities issue a demand for payment. If payment is not made after the demand, the delinquent disposition procedure begins. The delinquent's real estate, deposits, salaries, cars, stocks, and recently even virtual assets like Bitcoin are seized.

If taxes are not paid even after seizure, the seized property is sold through a public auction, and the proceeds are used to cover the delinquent tax amount and delinquent disposition costs. The proceeds are used in the order of delinquent disposition costs, principal tax, and additional tax, and any remaining amount is returned to the taxpayer.

When delinquent disposition competes with other creditors' compulsory execution, tax claims generally have priority. However, small tenant deposit return claims and some wage claims may have priority over tax claims.

Risk of Sharp Credit Score Drop

If a certain amount of taxes is delinquent, the National Tax Service and local governments provide delinquent information to the Korea Credit Information Service as 'public information' every year. Financial institutions use this information as essential verification information during loan reviews, which can lead to a drop in credit scores and rejection of loan approvals and extensions.

Additionally, loan limits may be reduced or interest rates may rise, credit card issuance may be rejected, or limits may be reduced. Issuance of guarantee insurance required for lease contracts, construction contracts, bids, deposits, etc., may also be rejected, resulting in restrictions on overall economic activities.

The Blade of Business Suspension ... Business Licenses at Risk

If local taxes are delinquent, the head of the local government can request the competent authority not to grant, approve, license, register, report, or renew the delinquent's business. Even for businesses that have already been approved, suspension or cancellation can be requested.

If national taxes (income tax, corporate tax, VAT) are delinquent, the head of the competent tax office can request restrictions on the renewal of the business license or new licenses. If income tax, corporate tax, or VAT is delinquent three or more times and the delinquent tax amount exceeds 5 million won, business suspension or license cancellation is possible.

In industries requiring license or permit renewal, such as construction, food-related, and transportation, existing license renewals may be refused due to tax delinquency. Additionally, since a tax payment certificate must be submitted when receiving payments from the state or local governments, problems may arise in public bidding and compensation for losses.

Triple Hardships of High Delinquents

30-Day Detention

If national taxes are delinquent three or more times, more than a year has passed since the delinquency occurred, and the total amount of delinquent national taxes exceeds 200 million won, detention for up to 30 days is possible by resolution of the National Tax Information Committee if the taxpayer has the ability to pay but fails to do so without just cause.

For local taxes, the criteria for detention are lower, allowing detention for up to 30 days by resolution of the Local Tax Deliberation Committee if there are three or more delinquencies, more than a year has passed since the delinquency occurred, and the delinquent amount exceeds 50 million won.

Taxpayers can immediately appeal against the detention decision, and detention execution ends if taxes are fully paid. However, detention decisions cannot be executed if more than a year has passed since the court's final decision, leading some delinquents to exploit this to evade.

Nationwide Public Wanted

If the total amount of national taxes delinquent for more than a year exceeds 200 million won, the personal information and delinquent amount of the delinquent can be disclosed after deliberation by the National Tax Information Committee. For local taxes, disclosure is possible if the amount exceeds 10 million won after deliberation by the Local Tax Deliberation Committee.

No Escape Abroad

If the total amount of delinquent taxes exceeds 50 million won for national taxes and 30 million won for local taxes, a travel ban can be imposed. The travel ban is lifted if the delinquent amount is paid or if the reason for the travel ban is resolved through property seizure, collateral provision, etc. Taxpayers can contest the travel ban through administrative litigation, and those in urgent need to travel often apply for suspension of execution along with the main lawsuit.

Paying taxes on time is not only a basic duty of citizens but also avoids long-term disadvantages in business and economic activities in case of delinquency. If payment is difficult due to temporary cash shortages, it is advisable to consult with the tax office or local government to utilize methods such as installment payments. Above all, it is the best way to prevent disadvantages by checking the taxes to be paid in advance and establishing a financial plan in line with the payment schedule.