2. Litigation costs shall be borne by the Plaintiff

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 101,032,820 for the first period of February 6, 2012 against the Plaintiff, KRW 160,80 for the second period of February 2007, KRW 160,808, KRW 160 for the second period of February 6, 2008, KRW 33,55,940 for the second period of year 2008, KRW 83,916,290 for the first period of year 209, KRW 21,295,740 for the second period of year 209, KRW 29,570 for the first period of year 29,060 for the second period of year 2010, KRW 25,490 for value-added tax for the second period of year 25,490 for the second period of year 2010, KRW 36,291 for the second period of year 2015

A. The Plaintiff is a corporation established in accordance with Article 32 of the Civil Code of August 1, 1996 and the Rules on the Establishment and Supervision of Non-Profit Corporations under the jurisdiction of the Minister of Knowledge Economy and the head of its affiliated agency for the purpose of promoting the textile industry by promoting surveys and research on textile export competition countries and overseas textile markets and the production and export structure improvement projects of OO/P textile-related areas.

B. The plaintiff performed the proper purpose business under the Value-Added Tax Act, reported the commencement of the profit-making business on September 18, 2002, and completed business registration (business operation services, export intermediation and display) on September 25, 2002, and then, 000 EXPO business ("PID business") and 000 domestic sales market development business ("D-gu business" hereinafter referred to as "DIM business") and 100 domestic sales market. The plaintiff was included in the 20-year sales tax invoice from 0 years to 10-year sales tax invoice ("20-year sales tax invoice"). The plaintiff was included in the 20-year sales tax invoice from 10-year to 20-year sales tax invoice from 20-year sales revenue from the participant enterprise, 200-year sales revenue from 20-year sales revenue from 10-year sales tax invoice, 30-year sales revenue from 20-year sales tax invoice, etc. (hereinafter "201-year tax base of this case").

D. From the first half to the second half of 2007, the Plaintiff’s business revenue consists of the pertinent tax revenue amount and the instant subsidy. The details are as shown below [Attachment 1]. During the pertinent taxable period, the Plaintiff reported the input tax amount as indicated below, on the ground that the remainder of the input tax amount, other than the instant input tax amount, cannot be deducted.

E. From November 18, 201 to December 16, 2011, the Defendant conducted each tax investigation on the Plaintiff’s return of value-added tax from the first to the second period of 2011, and then, the instant business constitutes a non-taxable business on which value-added tax is not imposed because most of the subsidies were operated as a proper purpose business. However, the instant input tax amount includes a profit-making business that issued sales tax invoice. Since the instant input tax amount is commonly used for a taxable business and non-taxable business and is not distinguishable from the actual ownership, Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 23595, Feb. 2, 2012; hereinafter the same shall apply) should apply mutatis mutandis to Article 61(1) of the former Enforcement Decree.

F. In accordance with the above findings, the Defendant calculated the input tax amount to be deducted as indicated below [Attachment 1], and then deducted the remaining input tax amount from the output tax amount for the instant taxable income amount, and issued a revised notice on February 3, 2012 and February 6, 2012 to the Plaintiff on February 2, 2007, as indicated below [Attachment 2], for the second period from 1st to 201 (presumed) as indicated below (hereinafter “instant disposition”).

G. The Plaintiff dissatisfied with the instant disposition and filed an objection with the OO regional tax office on April 30, 2012, but was dismissed on May 16, 2012, and filed an appeal with the Tax Tribunal on May 30, 2012, but was dismissed on October 2, 2014.

Each entry of Gap evidence 1 through 7, Gap evidence 14, 15, Eul evidence 1 through 3, and 7 (including each number; hereinafter the same shall apply) and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Unlike the proper purpose business, the instant project aims to create profits by making the Plaintiff play an intermediary role in linking regional textile companies to the merchants, etc. in the capital markets abroad, and the subject is limited to the company that filed an application for participation in the instant project, and it is operating with some national subsidies, but has gradually reduced the ratio and, in principle, the amount borne by the participants is a single value-added tax taxable business with the financial resources of the project. A single project may not be deducted from input tax by dividing it into taxable business and non-taxable business.

The instant subsidy is only excluded from the tax base pursuant to Article 13(2)4 of the former Value-Added Tax Act, and the taxable business cannot be deemed non-taxable business on the ground that the Plaintiff received the instant subsidy, and so long as the instant project is not a non-taxable business, the input tax amount of the instant case must be deducted from the output tax amount. The relevant input tax amount cannot be deducted solely on the ground that the instant subsidy is excluded from the value-added tax base

2) Even if the Plaintiff concurrently operates a profit-making business and a non-taxable business, Article 17(2)6 of the former Value-Added Tax Act stipulates only the input tax amount related to the tax-free business as the non-deductible tax amount. Article 17(2)6 of the former Value-Added Tax Act was amended to include the non-taxable business on December 31, 201, and Article 61(1) and Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act concerning the method of calculating common input tax in the case of concurrent operation of a taxable business and a tax-free business, is revised to include the non-taxable business on February 15, 2013, the said provision is not applicable in the taxable period related to the instant disposition. Furthermore, the instant subsidy is paid in advance by the Plaintiff before the instant business is conducted, and it cannot be deemed as the supply amount of the non-taxable business, and thus, the instant subsidy is unlawful under the premise that it is

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

Evidence 16 to 18, Eul evidence Nos. 4, 5, and Eul evidence No. 8 to 12

The following facts may be acknowledged in full view of the purport of each entry and all pleadings:

1) The plaintiff has completed business registration as a value-added taxable person on September 25, 2002.

The main contents of the execution projects, financial resources, etc. in the articles of incorporation shall be as follows:

Section 2 (Purpose) The Association is an incorporated association under the "Rules on the Establishment and Supervision of Non-Profit Corporations under the jurisdiction of the Minister of Knowledge Economy and the head of its affiliated office", and is aimed at promoting the textile industry by facilitating research, studies, production of OPP fiber mountainous areas, and projects for upgrading the structure of exports.

Section 4 (Business Activities) In order to achieve the objectives of Section 2, the Association shall carry out the following activities:

1. Research and study on the trends of textile export markets;

2. Research and study on the trends of textile exporting countries;

3. Research and study on the trends of textile import;

4. Projects for opening overseas markets and creating demand;

5. A project for improving mountainous district structure to strengthen export competitiveness;

6. Projects relating to the establishment of export order among fibers.

7. Projects for publicity and publicity in the Republic of Korea and abroad of O Textiles;

8. Projects for establishing and operating the Textiles Information Center;

9. Projects relating to the establishment and operation of textile data rooms.

10. Other necessary projects for the promotion of the textile industry ( April 12, 2004).

Section 5. (Profit-Making Business) This Association shall meet the expenses to be incurred in carrying out the activities specified in Articles 2 and 4.

The following profit-making business shall be conducted to be run:

1. Issuance of publications, such as textile information sheet, textile statistics collection, research report, etc.;

2. Collection of user fees for computerized information;

3. Collection of expenses for participation in symposiums, seminars, etc.;

4. Research service projects of the related agencies and textile industry.

5. Other profit-making businesses necessary for the purposes of the Association and the promotion and operation of exports ( April 12, 2004).

§ 34 (Revenues) The proceeds of the Association shall be as follows:

1. Membership fees and membership fees;

2. Revenue incidental to a profit-making business;

3. Fruits from the property;

4. Reporting funds, donations, contributions and sponsors;

5. Other revenues.

2) PID projects are organized by the OO Metropolitan City, PP, the Korean Textiles Industry Federation, and are supervised by the Plaintiff, and were implemented under the support of the Ministry of Trade, Industry and Energy, the Korea Customs Service, and the O chamber of commerce and industry. PAO projects are exhibitions that provide the above enterprises with marketing opportunities for domestic and foreign users upon receiving applications for participation from regional textile industry enterprises for the activation of regional textile industry, and enable them to share information on the latest textile materials, textile cover through presentation, fashion show, etc., and DMF projects are fairs that enable them to share information on new products, domestic markets, etc. by receiving applications for participation from the textile production enterprises located in the OO and connecting them with the brand and the store merchants located in Seoul.

3) The Plaintiff calculated expenses incurred in relation to the use of subsidies in relation to the PED project by dividing the details of subsidies into exhibition hall usage fees, exhibition hall development expenses, exhibition hall operation expenses, publicity expenses, expenses for the maintenance and guidance of exhibition enterprises, loan inducement and support expenses, general operation expenses (books printing expenses, personnel expenses, travel expenses, etc.) and applied for subsidies to the OO Metropolitan City and PP. In relation to the PE project, the Plaintiff calculated the expenses incurred in the division into personnel expenses, direct (e.g., exhibition activities, operation of the website, promotion support, information support, support for the construction of human cinemas, public relations expenses, transportation expenses, operation of the committee, and miscellaneous expenses) and applied for subsidies to the OO Metropolitan City and PP. PP pursuant to Articles 4 and 6 of the former Ordinance on the Management of Subsidies of the OO Metropolitan City (amended by Ordinance No. 4643, Dec. 22, 2014); and PP was paid to the Plaintiff under Article 36 of the former Ordinance on the Management of Subsidies (amended by Ordinance No. 3845, 584, 2014, 2014).

4) The Plaintiff can only use the instant subsidy for the instant project, and arrange revenue and expenditure from the instant subsidy to a separate account while using it. After completing the instant project, the OO Metropolitan City and PP shall submit the performance report of the subsidized project and the statement of execution expenses clearly stating the performance report of the subsidized project and the execution expenses for each financial resource.

D. Determination

1) Whether the instant project includes non-taxable projects

A) Article 1(1)1 of the former Value-Added Tax Act provides that “The value-added tax shall be imposed on the supply of goods or services,” Article 1(3) provides that “services refer to all services and other activities having property value other than goods,” and Article 7(1) provides that “the supply of services” means either the provision of services or the use of goods, facilities or rights pursuant to all contractual or legal grounds, and Article 7(3) provides that the supply of services to others without receiving any consideration shall not be deemed the supply of services. Therefore, if the portion of the instant services is included in the supply of services to others without receiving any consideration, such portion constitutes a non-taxable business as a non-taxable business.

B) In full view of all the following circumstances known by the above facts, it can be sufficiently recognized that the instant business contains non-taxable business.

① Article 4 of the Plaintiff’s articles of incorporation provides that the Plaintiff’s proper purpose businesses include research and study projects related to textile exportation and importation, overseas survey and demand creation, projects related to domestic and foreign publicity and publicity of O Textiles, and other projects necessary for the promotion of the textile industry. Article 5 of the Plaintiff’s articles of incorporation provides for the collection of participation expenses, such as learning and seminars, as profit-making business, and both the proper purpose business and profit-making business are prescribed.

② Although the Plaintiff is paid participation fees and rental fees from participating companies in the instant project, it does not exceed 20% of the total project cost, excluding the first and second taxable periods in 2010. The remainder of the project cost is fully covered by the instant subsidy, and its average ratio reaches 89.01%. The amount of the subsidy is 89.01% in 201 and the second (Scheduled) was 92.00% in 2007 from 1st to 2nd (2nd) in 2009, and is similar to that of the second (2nd) in 207.

③ The beneficiaries of the instant services provided by the Plaintiff through the instant project are primary participants, but the part of the supply of services is free of charge (such as the provision of transportation services so that they may participate in exhibitions, etc.) by other textile companies, domestic and foreign, and the general public, as well as participating companies, in addition to participating companies. Above all, the instant project is a public service that should be conducted by OO Metropolitan City and PP by seeking activation and strengthening of competitiveness through domestic and foreign publicity and publicity of the regional textile industry. Since the Plaintiff is running a business on behalf of OO Metropolitan City and PP, the Plaintiff is providing such services to OO Metropolitan City and PP. As seen thereafter, insofar as the instant subsidy cannot be seen as a consideration for the provision of services, the Plaintiff is bound to have provided services without compensation to OO Metropolitan City and PP.

④ Even if the project is carried out under one name of PID and DMF project, there are parts that include not only the participating company but also the supply of services to many parties, such as OO Metropolitan City and PP. Accordingly, there are both taxable and non-taxable projects.

C) Since both taxable and non-taxable businesses are included in the instant business, the Plaintiff can be deemed concurrently operating a taxable and non-taxable business through the instant business. The Plaintiff’s assertion that the instant business is a single taxable business or does not include a non-taxable area in the instant business is without merit.

2) Calculation of the portion constituting non-taxable business among the input tax amount of the instant case

(A)the method for calculating the common input tax amount;

Article 17(1) of the former Value-Added Tax Act provides that the amount of value-added tax payable by an entrepreneur shall be the amount calculated by deducting the amount of tax, etc. for the supply of goods or services used or to be used for his own business from the amount of tax for the goods or services supplied by him, and that the input tax amount for expenditures not directly related to his business under Article 17(2)3 shall not be deducted from the output tax amount. As such, where an entrepreneur concurrently runs a taxable business and a non-taxable business, the input tax amount shall be deducted from the output tax amount for the taxable business, and the input tax amount related to the non-taxable business shall not be deducted from the input tax amount for the taxable business. Such principle of calculating the value-added tax amount shall be the same as where the entrepreneur concurrently runs a taxable business and the tax-exempt business, and Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act provides that the input tax amount related to the taxable business shall be calculated in proportion to the total value of tax-free supplies for the taxable business (excluding the total value of tax-free business).

B) The computation method of the instant input tax amount

As seen earlier, the Plaintiff’s instant business includes both taxable and non-taxable business areas. Therefore, the input tax amount in this case is not only a taxable business but also a non-taxable business area, and cannot be divided into actual attributions as it is used for the Plaintiff’s proper business, and the input tax amount related to the non-taxable area cannot be deducted from the output tax amount due to the taxable business. Therefore, in applying the analogy of Article 61(1) and (4) of the former Enforcement Decree of the Value-Added Tax Act

However, among the instant businesses, the non-taxable areas are areas where the cost for the supply of the pertinent services is not given, and thus, cannot be calculated by its nature. The Plaintiff’s payment of the instant subsidy cannot be viewed as the price for the supply of goods or services. Thus, Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act, which provides for the calculation of common input tax according to the ratio of supply value for the tax-free business and the taxable business, cannot be immediately inferred. There is no choice but to find out that it conforms to the calculation method of the instant input tax out of other reasonable methods of calculation, such as the method under each subparagraph of paragraph (4). Of the Plaintiff’s revenue, 80% of the instant subsidy was used as the instant subsidy, and most of the instant subsidies were used as the purchase amount related to the instant input tax amount, as alleged by the Plaintiff, if all the input tax amount was deducted from the output tax amount for the taxable business other than the non-taxable areas. This would result in a refund rather than by unfairly increasing the Plaintiff’s input tax amount deduction from the output tax amount.

Taking into account all the methods, etc. under Article 61(1) and (4) of the former Enforcement Decree of the Value-Added Tax Act, ① The instant subsidy was subsidized as expenses necessary for the implementation of the instant project, and the Plaintiff was unable to use the instant subsidy for any purpose other than the purpose of the project; ② the Plaintiff applied for subsidies by dividing the total expenses incurred for the instant project in detail into the amount of subsidies and received the instant subsidy. The instant subsidy was executed by dividing the Plaintiff’s fee for exhibition halls, exhibition hall installation expenses, exhibition hall installation expenses, exhibition hall installation expenses, exhibition hall installation expenses, exhibition hall installation expenses, exhibition hall installation expenses, exhibition hall installation expenses, promotion expenses, exhibition company and guidance expenses, loan inducement expenses, general operation expenses, etc., and was used as purchase amount related to the instant input tax amount. ③ After the completion of the instant project, the Plaintiff submitted the performance report on the instant project and the settlement statement of project expenses concerning the use of the instant subsidy, etc., it is recognized as the most reasonable method to determine the ratio of input tax and non-taxation project based on the ratio of the instant subsidy.

According to the above method, if the amount to be deducted from the output tax amount among the input tax amount of this case is calculated, the input tax amount of this case = the input tax amount of this case x the tax revenue amount of this case x the tax revenue amount of this case (the tax revenue amount of this case + the subsidy of this case). As a result, although Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act was intended to be the same amount by analogy, this is reasonably derived from considering the circumstances that the subsidy of this case was used only for the business of this case, and there is no reasonable method, and there is no other reasonable method. Although the Defendant was erroneous in applying Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act by immediately analogy, the disposition of this case is legitimate, as it calculated the portion concerning the taxable business of each taxable

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.