1. Regarding ground of appeal No. 1

Article 12(1)16 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter “the Act”) provides that “goods or services supplied by religious, charity, academic, relief, or other organizations for public interest, as prescribed by the Presidential Decree,” and Article 37 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 1930, Feb. 9, 2006; hereinafter “Enforcement Decree”) provides that “The goods and services provided by the Presidential Decree” under Article 12(1)16 of the Act refers to the goods falling under any of the following subparagraphs.”

Article 12(1)16 of the Act, Article 37 subparag. 1 of the Enforcement Decree of the Value-Added Tax Act, Article 35 subparag. 2(d) of the Enforcement Decree of the Act, and Article 11-3(3) of the former Enforcement Rule of the Value-Added Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 12 of Apr. 22, 2008) separately provides that “Research Services for the development of new theories, methods, public law, or public law, etc. conducted by individuals, corporations, unincorporated associations, foundations, or other organizations in their independent capacity” shall be included in the scope of “services Services supplied by scientific research organizations or technical research organizations in connection with scientific research or technical research” subject to value-added tax exemption pursuant to the provisions of Article 12(1)16 of the Act, Article 37 subparag. 1 of the Enforcement Decree of the Value-Added Tax Act, and Article 16 subparag. 16 of the former Enforcement Decree of the Value-Added Tax Act shall not be included in the existing scientific research or technical research organization.

(1) The lower court determined that: (a) the Plaintiff was a non-profit incorporated association established with the permission of the head of literature and delivery for the purpose of contributing to the national development by promoting the development of human ability and the efficiency of various institutions through theoretical and practical research over the whole process of action science on September 24, 1968; (b) the Plaintiff provided personality and aptitude test (hereinafter “instant services”) from general enterprises during the value-added tax period from February 2, 199 to February 2, 2005; (c) the Plaintiff provided services at the request of its employees; and (d) the Plaintiff did not issue and deliver statements by regarding KRW 4,49,359,321 as the object of value-added tax exemption; and (d) the Defendant did not report value-added tax on the instant services provided by the Plaintiff on December 11, 2006 to the Plaintiff on the new method of research and application of Article 16(1) of the Enforcement Decree of the Act, rather than on the new method of research and application of Article 17(2(1).

Examining the reasoning of the judgment below in light of the aforementioned legal principles and records, the court below erred in holding that the services exempt from value-added tax under Article 12(1)16 of the Act and the latter part of Article 37(1) of the Enforcement Decree are limited to “services engaged in new theories, methods, construction methods, or official research, etc. to develop a new science or technology.” However, the conclusion that the instant services merely constitute the Plaintiff’s existing research findings provided by simply applying or using them, and thus do not constitute VAT exemption under the above provision is justifiable. Therefore, contrary to what is alleged in the grounds of appeal, the court below did not err by misapprehending the legal principles on the scope and method of determination of services provided by academic research organizations in relation to academic research,

2. Regarding ground of appeal No. 2

In order to establish a non-taxable practice under Article 18(3) of the Framework Act on National Taxes, there must be an intention not to impose taxes on not only an objective fact that has not been imposed over a considerable period of time, but also a tax authority’s knowledge that it is able to impose taxes on the matter. Such public opinion or intent must be expressed explicitly or implicitly, and there must be circumstances to deem that the tax authority expressed its intent not to impose taxes on the state of non-taxation for a considerable period of time, unlike mere omission of taxation (see Supreme Court Decision 2001Du4795, May 30, 2003).

The lower court determined that even if the tax authority did not impose value-added tax on the Plaintiff on the same service as the instant service prior to the instant disposition, insofar as the tax authority did not express its public view that it would not impose value-added tax on the Plaintiff, it cannot be deemed that the tax authority’s non-taxable practice was established.

Examining the reasoning of the judgment below in light of the records, the judgment of the court below is based on the above legal principles, and there is no error of law by misapprehending the legal principles as to non-taxation practice as alleged

3. As to the third ground for appeal

Under the tax law, penalty taxes are administrative sanctions imposed, as prescribed by the Act, in cases where a taxpayer violates various obligations, such as a return and tax payment, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim without justifiable grounds. The taxpayer’s intention or negligence does not constitute a justifiable reason that does not constitute a breach of duty (see Supreme Court Decision 2002Du10780, Jun. 24, 2004, etc.).

In light of the evidence duly admitted, the Plaintiff’s deeming the instant service as eligible for the exemption of value-added tax and failure to report the value-added tax seems to be due to the erroneous interpretation of the relevant statutes. Therefore, it cannot be deemed that there exists a justifiable reason for not imposing additional tax on the Plaintiff.

In the same purport, the lower court did not err by misapprehending the legal doctrine on justifiable grounds for which no penalty tax is imposed under tax law, as alleged in the grounds of appeal

4. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Shin Young-chul (Presiding Justice)