If you disagree with a determination on an administrative appeal, you may bring the matter before a court. But you cannot sue immediately. Article 115 of the Act on General Rules for National Taxes imposes a prior administrative appeal requirement.

Tax disputes follow this sequence.

General rule: a lawsuit requires a determination on an administrative appeal

The main clause of Article 115(1) provides:

An action seeking revocation of a disposition under a national tax law ... against which an administrative appeal may be filed cannot be brought until a determination on a request for review has been issued.

The general rule under the Administrative Case Litigation Act allows a choice: an action to revoke a disposition may be brought without first filing an administrative appeal. National tax cases are an exception under this provision.

What is required is a determination on a request for review. A decision on a request for reinvestigation does not suffice. Reinvestigation is optional, so pursuing it alone does not satisfy the prior appeal requirement.

The sequence is:

1. Disposition

2. Request for reinvestigation (optional) or proceed directly

3. Request for review (required)

4. Litigation

Three exceptions

The proviso to Article 115(1) lists three cases:

• Item 1　No determination has been made even after three months have passed, counted from the day after the request for review was filed with the Director of the National Tax Tribunal or the Commissioner of the National Tax Agency.
• Item 2　A person who has brought an action to revoke a reassessment, determination, or similar disposition seeks, while that action is pending, to revoke another reassessment, determination, or similar disposition concerning the tax base or tax amount involved in the first disposition.
• Item 3　There is an urgent need to avoid substantial harm that would arise from waiting for a determination, or there is otherwise a justifiable reason for proceeding without one.

The first exception is commonly used. If no determination is issued after three months, the taxpayer may sue without waiting for one.

The Administrative Case Litigation Act governs litigation

Article 114 of the Act on General Rules for National Taxes defines its relationship with the Administrative Case Litigation Act.

Except where this Section or another national tax law provides otherwise, litigation concerning a disposition under a national tax law is governed by the Administrative Case Litigation Act ... and other laws governing administrative case litigation generally.

In other words, the Act on General Rules for National Taxes governs where it contains a special rule; otherwise, the Administrative Case Litigation Act applies. Basic rules such as the time limit for filing suit and the proper defendant follow the latter Act.

Taxes may still be collected while the dispute continues

This is the point most often misunderstood in practice. The main clause of Article 105(1) provides:

An administrative appeal against a disposition under a national tax law does not prevent the disposition from taking effect, its enforcement, or the continuation of the relevant procedure.

Filing an administrative appeal does not suspend the effect of the disposition. This is the principle of non-suspension of enforcement. Enforcement proceedings for unpaid tax also continue.

There is, however, a proviso. The conversion into cash of seized property, except in cases such as a risk of substantial decline in its value, cannot take place until a decision or determination is made on the administrative appeal.

Thus seizure is not suspended, but a public auction generally must wait.

Collection may be deferred in some cases

Article 105 goes on to provide for deferral.

Paragraph 2　If the authority hearing a reinvestigation request or the Commissioner of the National Tax Agency considers it necessary, it may, on application or on its own initiative, defer collection in whole or in part or suspend the continuation of delinquency collection procedures.

Paragraph 3　If security is offered and a request is made not to seize property or to release a seizure, the authority may grant that request if it considers doing so appropriate.

Paragraph 4　If the Director of the National Tax Tribunal considers it necessary, the Director may, on the review applicant’s request or on the Director’s own initiative, after hearing the views of the authority responsible for collection, request that authority to defer collection or suspend the continuation of delinquency collection procedures.

Paragraph 6　When the Director of the Tribunal makes such a request, the collection authority must defer collection or suspend the procedures, or refrain from seizing property or release a seizure.

The Director of the Tribunal does not personally grant a deferral; the Director requests action by the collection authority. The authority receiving the request must comply. These are two distinct steps.

Each provision requires that action be considered “necessary” or “appropriate.” Filing an application does not automatically stop collection.

A determination binds the administrative authorities; what about a judgment?

Under Article 102(1), a determination binds the administrative authorities concerned. The effect of a court judgment is governed by the Administrative Case Litigation Act.

Article 115(2) also provides that, if litigation concerning the disposition is pending when a decision or determination is made, the person making it must send a copy of the written reinvestigation decision or determination to the court.

Common practical questions

• Whether to pursue litigation after losing a request for review depends on cost, time, and the nature of the issues in dispute.
• Cash flow while the dispute continues is another concern because Article 105 does not suspend enforcement. This needs to be planned early, including whether to offer security.
• Whether to invoke the three-month exception under item 1.

If litigation is a possibility, the way arguments and evidence are prepared must change from the request-for-review stage. It is best to consult us when you receive notice of the disposition.

Legal basis

• Act on General Rules for National Taxes, Article 102 (Binding effect of determinations)
• Act on General Rules for National Taxes, Article 105 (Relationship between administrative appeals and collection of national taxes)
• Act on General Rules for National Taxes, Article 115 (Prior administrative appeal requirement, etc.)
• Act on General Rules for National Taxes, Article 114 (Relationship with the Administrative Case Litigation Act)

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