근로관계의 분쟁해결금과 소득세법상 사례금 - 대법원 2022. 3. 31. 선고 2018다286390 판결 등의 평석 및 실무상 시사점 -

An honorarium is a payment given to an individual for her service, for which a payment is not required. The Income Tax Act (“ITA”) of Korea classifies an honorarium as ‘Other Income’, one of taxable income categories. Where an employer and an employee compromise on employment-related claims, the employer usually gives the employee a settlement payment. It is often disputed among employers, employees and tax authorities whether such payment falls under the concept of an honorarium and is subject to withholding tax. This article reviews the Supreme Court Ruling 2018Da286390, dated March 31, 2021 (“GE Ruling”) and analyzes a few issues on tax treatment of settlement payments for employment-based disputes. The Supreme Court Ruling 2016Du48232, dated October 27, 2016 (“LG Chemical Ruling”) and the Supreme Court Ruling 2016Da17729, dated July 20, 2018 (“STX Engine Ruling”) regarded a settlement payment as not only an honorarium but an object of withholding tax. On the other hand, the Supreme Court adjudicated that settlement payments were not subject to withholding tax since they were not an honorarium in the GE ruling as well as the Supreme Court Ruling 2018Da237237, dated March 31, 2022 (“Qualcomm Korea Ruling”). The key difference between the former rulings and the latter ones is whether the compromise between an employer and an employee was based on the illegality of dismissal from employment. The compromises of the LG Chemical Ruling and the STX Engine Ruling contained relevant clauses acknowledging disciplinary dismissals were legitimate. However, the employers and the employees of the GE Ruling as well as the Qualcomm Korea Ruling reached compromises based on the illegitimacy of the dismissal. In these cases, the settlement payments were paid to the employees by the employers for compensatory damages. It is a righteous approach for the Supreme Court to analyze the nature of a settlement payment from the standpoint of whether the dismissal was legitimate. Also, according to the GE Ruling and the Qualcomm Korea Ruling, any party who argues that settlement payments are subject to tax bears the burden of proof on whether the settlement payments are an honorarium. After the GE Ruling and the Qualcomm Korea Ruling, it is likely that the illegality of dismissal will be a key issue in disputes on withholding of settlement payments. It is necessary for employers and employees to discuss the nature of settlement payments and the illegitimacy of dismissal, when they compromise on employment-related litigations.