1. Article 17(1) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter “the Act”) provides that “The value-added tax to be paid by an entrepreneur shall be the amount calculated by deducting the tax amount on the supply of goods or services and the import of goods used or to be used for his/her own business from the tax amount on the goods or services supplied by him/her.” Article 17(1)2 of the same Act provides that “the input tax amount on expenditure not directly related to his/her business” as one of the input tax amounts not deducted from the output tax amount.

2. citing the reasoning of the judgment of the court of first instance, the Plaintiff and Dong 2 Co., Ltd. (hereinafter referred to as the “Dong 2”) enter into a joint project agreement with the Dong 2, Dongdaemun-gu, Seoul (hereinafter referred to as the “Dong 2”) on December 29, 2006 on the execution of the market improvement project in which the site for the Dong 2, which is a conventional market, is the project zone. The Plaintiff shall take charge of all affairs, permission, business, financing, etc. prior to the application for approval for the purchase and sale contract for the project site and jointly manage the funds and the share ratio after obtaining the approval for the project. ② On December 28, 2006, the Plaintiff agreed to determine the amount of 70 million won for the acquisition and sale of the stocks at the expense of the Plaintiff and the Dong 2, 200 million won for the provision of services such as advice and advice on finance, etc. (hereinafter referred to as the “Dong 2, 300 million won for the acquisition and sale of the stocks.”).

Based on such factual basis, the lower court determined that: (a) the main purpose of the instant 1 transaction was to raise funds of KRW 120 billion; (b) most of the transaction was to acquire stocks and acquire land with the Dongbu Office; (c) the Plaintiff’s acquisition of stocks was not inevitable in carrying out the instant market improvement project; and (d) the instant 2 transaction was merely a fee paid as the price for a service contract to inspect the assets and liabilities with the Dongbu Office in advance to acquire stocks with the Dongbu Office; and (c) the Plaintiff was not directly related to the instant market improvement project; and (d) the input tax amount for the instant 1 and 2 transaction was to contribute to the expenditure not directly related to the instant market improvement project, and constitutes an input tax amount subject to non-deduction as stipulated in Article 17(2)2 of the Act.

3. However, we cannot accept the judgment of the court below for the following reasons.

A. Under the current method of imposing value-added tax, in order to ensure that only an entrepreneur’s self-production added value is imposed, the total amount of self-production added and purchased added value is the value of supply, and the basic structure is to deduct the input tax amount that is paid with respect to the input tax amount that is paid with respect to the purchase added value from the output tax amount that is to be collected. Under such structure, Article 17 of the Act provides that the input tax amount that is paid with respect to the input tax amount that is paid with respect to the input tax amount that is paid with respect to the input tax amount that is paid with respect to the input tax amount that is paid with respect to the supply or import of goods or services that is either used or used for his own business shall be deducted from the output tax amount, and Article 17 of the Act provides that the relevant standard is related to the business, as one of the input tax amounts that is not deducted from the input tax amount that is not automatically related to his business, and such provision is understood as a case that cannot be naturally deducted from

Therefore, the input tax amount for an expenditure not related to a business cannot be deducted from the output tax amount under Article 17(1) and (2)2 of the Act, but the existence of business relevance in this context should be determined individually by examining whether the expenditure was necessary for the implementation of the business in light of the purpose and circumstance of the expenditure, the contents of the business, etc.

B. The reasoning of the judgment below and evidence duly admitted by the court below are as follows: ① ownership of about 75% of the land size within the 2000 shares and the consent of the 2000 shares were essential for the implementation of the 200 shares and ② ownership of about 60 shareholders from the 200 shares and the 200 shares and the 200 shares and the 200 shares shares shares were owned by the 200 shares and the 200 shares shares acquired by the 200 shares and the 206 shares shares acquired by the 200 shares and the 206 shares shares acquired by the 200 shares and the 206 shares shares acquired by the 200 shares and the 206 shares shares acquired by the 206 shares and the 206 shares shares acquired by the 206 shares and the 206 shares shares acquired by the 200 shares shares and the 206 shares acquired by the 206 shares shares shares and the 206 shares acquired by the 2006 shares respectively.

Examining these facts in light of the legal principles as seen earlier, in order to promote the market improvement project in this case, it is deemed that there was a need for the Plaintiff to take over the shares with the Dong Branch, which owned most part of the land area in the market improvement zone in this case. As such, the first and second transactions in this case, which were provided with services such as due diligence for stock acquisition, financing, and financial advice, are necessary for the execution of the market improvement project in this case, and thus, their input tax amount does not constitute the non-deductible input tax amount stipulated in Article 17(1) and (2)2 of the Act.

Nevertheless, the lower court determined that the input tax amount for the first and second transactions of this case constitutes an input tax amount subject to non-deductible under Article 17(2)2 of the Act, as it is related to the expenditure not directly related to the market improvement project of this case. In so doing, the lower court erred by misapprehending the legal doctrine on the input tax amount subject to non-deductible under Article 17(1) and (2)2 of the Act, and the grounds for appeal assigning this error are with merit.

4. Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Sang-hoon (Presiding Justice)