Framework Act on National Taxes — Priority of National Taxes and Secondary Tax Liability

Articles are cited from the version in force on 11 August 2026 (Act No. 21860), checked on 20 September 2026.

Why and how far national taxes come first

The principle in Article 35(1) is simple: national taxes and enforced collection costs are collected in priority to other public charges and claims. It is a policy judgment that the state cannot run without taxes, so they rank ahead of private claims.

The problem is the exceptions. If the rule were unlimited, anyone who lent money relying on the land register could be pushed back at any time. So the article sets out five exceptions.

Exceptions to the priority of national taxes (proviso to Article 35(1))
Item	What ranks ahead	Rationale
1	Disposition and enforced collection costs of local taxes and public charges	The cost of running that procedure comes first
2	Costs of compulsory execution, auction and bankruptcy procedures	Same reason
3	Claims secured by a jeonse right, pledge or mortgage created before the statutory date, a lease with opposability and a fixed date, or a provisional registration for security	Protecting those who relied on publicly registered security
4	Top-priority repayment amounts under housing and commercial leases	Housing for small-sum tenants
5	Employment-related claims such as wages, severance pay and accident compensation that rank ahead of national taxes	Livelihood

The statutory date is the dividing line

Item 3 is the heart of this chapter. If a security interest was created before the statutory date, the security prevails over the national tax. If not, the national tax prevails.

Deciding priority

\begin{aligned}\text{Security date} < \text{Statutory date} &\Rightarrow \text{Security first} \\ \text{Security date} > \text{Statutory date} &\Rightarrow \text{National tax first}\end{aligned}

The statutory date is defined in Article 35(2). Typical examples are the filing date for taxes finalised by return, and the date the payment notice is sent for taxes the government determines or corrects.

The statutory date is neither the payment deadline nor the date of default. It is closer to the day the tax became visible to the world. Taxes do not appear on the land register, so the law uses a point in time that someone taking security can check.

Amendments in 2022 and 2023 added item 3-2. Where property subject to a jeonse right or the like is sold after being transferred, inherited or given, national taxes the previous owner owed still rank ahead within a certain amount. The owner’s earlier arrears follow the property even when the owner changes, which is something to check before signing a jeonse contract.

Secondary tax liability — liability borne by persons who are not the taxpayer

When the tax cannot be fully collected from the original taxpayer’s property, persons in certain relationships bear supplementary liability for the shortfall. There are four types.

Types of secondary tax liability
Article	Who	Limit
Article 38	Liquidators and those who received distributions of residual property	Value of the property distributed or received
Article 39	Investors (unlimited liability partners, oligopolistic shareholders)	For oligopolistic shareholders, the amount apportioned by shareholding. Listed companies excluded
Article 40	The corporation	Limited to three cases, such as when the investor's shares find no buyer at public sale
Article 41	Business transferees	Value of the property acquired

Three features are common to all: supplementarity (the original taxpayer’s property is insufficient), a limit (the liability is not unlimited), and a reference date. Article 39 targets investors as of the date the tax liability was established; Article 41 covers national taxes finalised before the transfer date.

Property-based tax liability of holders of security by transfer (Article 42)

Whereas secondary tax liability is imposed on persons, this liability attaches to property. If a taxpayer is in arrears and has property held as security by transfer, tax can be collected from that property only when the taxpayer’s other property falls short.

The statutory date appears here too. Property that became security by transfer before the statutory date of the tax is excluded. The structure protecting whoever took security first is the same as in Article 35.

Tying it together in one case

Suppose A Co., Ltd. is in arrears on corporate tax.

A’s real estate is sold at public auction. If a mortgage was created before the statutory date, the mortgagee is paid first (Article 35(1)3).
If there is still a shortfall, secondary tax liability can be imposed on oligopolistic shareholder B in proportion to B’s stake (Article 39). If A is a listed company, this route is closed.
If B’s property is also insufficient and B’s shares find no buyer at public sale, company A bears secondary tax liability (Article 40).
If A transferred its business to C and the tax was finalised before the transfer date, C is liable up to the value of the property acquired (Article 41).

The sequence is clear: the original taxpayer → the priority test against secured creditors → supplementary liability of related persons. At each stage, the next step is reached only when there is a shortfall.

What remains

The specific types of statutory date (Article 35(2)) vary by tax and method of finalisation. Check the article directly.
The shareholding threshold for oligopolistic shareholders and the scope of related parties are set by presidential decree and change frequently.
The calculation method for item 3-2 (property transferred, inherited or given) is also in the presidential decree. It is a common question in jeonse contract practice.

The next chapter covers amended returns, requests for correction and returns after the deadline, the ways of undoing tax paid in error.

References

Korea Law Information Center, Framework Act on National Taxes, Articles 35, 38, 39, 40, 41 and 42 (in force 11 August 2026, Act No. 21860; checked 2026-09-20)