According to the Second Tax Payment Obligation, major shareholders who own more than 50% of the stocks issued by a corporation and have the right to exercise their voting rights are called controlling shareholders. Controlling shareholders are responsible for paying the corporation's taxes if it fails to do so. This is why controlling shareholders have the Second Tax Payment Obligation, which means that they must pay the corporation's unpaid taxes with their personal assets. Using this logic, if a corporation fails to pay its taxes, an individual's assets can also be seized.
The Second Tax Payment Obligation system exists to prevent corporations that are nothing more than a legal entity from being abused as a means of tax avoidance by individuals. Once a person becomes subject to the Second Tax Payment Obligation, they are obligated to pay the unpaid taxes without any limit on the tax category or amount. However, some people argue that the Second Tax Payment Obligation system is excessive, especially when it comes to corporations that separate ownership and management for responsibility for management or raise capital from multiple shareholders.
For example, suppose Company A is a controlling shareholder of Company B, and Company B is a controlling shareholder of Company C. In this case, neither Company A nor Company C holds any shares of each other. If Company C is unable to pay its taxes, Company B can be designated as the Second Tax Payment Obligation payer for Company C. However, if Company B also lacks the ability to pay taxes, can Company A, which is a controlling shareholder of Company B, be designated as the Second Tax Payment Obligation payer?
This example is a real case in which the court ruled that Company A is not responsible for Company C's unpaid taxes. If Company A is also designated as the Second Tax Payment Obligation payer for Company C, the management of the company will have to bear hidden risks that are invisible and unpredictable. Although the Second Tax Payment Obligation system has a binding force for corporations that are nothing more than legal entities and for their levies and payments, it is true that it contributes to securing tax claims. Properly limiting the scope of this system could further strengthen its positive effects.
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