Re-transmission Judgment

Seoul High Court Decision 2009Nu6041 Decided October 15, 2009

[Judgment of re-return]

Supreme Court Decision 2009Du20243 Decided May 26, 2011

2. All of the claims filed by the Plaintiff are dismissed.

3. Of the total litigation costs, 75% is borne by the Plaintiff, and the remainder is borne by the Defendant, respectively.

The Defendant’s disposition of imposition of value-added tax for the second period portion of the year 2003 against the Plaintiff on December 1, 2005, including KRW 1,727,192,567, value-added tax for the first period portion of the year 2004, KRW 3,498,276,411, and value-added tax for the second period portion of the year 2004 against the Plaintiff on December 1, 2005 is revoked (the Plaintiff partially reduced claims in this Court).

2. Purport of appeal

The same shall apply to the order.

A. From April 11, 2003, the Plaintiff engaged in precious metal wholesale and retail business and export and import business from Jongno-gu Seoul Metropolitan Government 00-1 XXtel 703.

B. As between July 30, 2003 and October 7, 2004, the Plaintiff purchased gold bullion amounting to KRW 51,314,648,851 (referring to gold bullion amounting to KRW 51,314,648,851 (in this case, “gold bullion” refers to gold bullion amounting to at least 995/1,000 in the state of raw materials, such as gold bullion and gold bullion) and exported it to Hong Kong, and filed a return on the refund of value-added tax by deducting the input tax amount from the output tax amount.

C. Upon receipt of the notice from the director of Seoul Regional Tax Office that the tax invoice of this case was false by fraud or other improper means, the Defendant deducted the input tax amount of the entire tax invoice of this case, and revised and notified the Plaintiff on December 1, 2005, the amount of value-added tax amounting to 2,041,227,570 won (including additional tax amounting to 471,052,518 won) for the second period of the year 2003, 3,773,76,150 won for the first period of the year 2004 (including additional tax amounting to 1,019,138,684 won), for the second period of the year 204, for 464,518,740 won for the second period of the second period of the year 204 (including additional tax amounting to 197,289,180 won).

D. On May 3, 2011, the Defendant revoked the portion of the imposition of value-added tax, such as failure to submit a list of total tax invoices. Accordingly, the Defendant imposed a disposition of imposition of value-added tax for the second period of 2003, KRW 3,498,276,411, and value-added tax for the second period of 204, KRW 383,849,516, among the imposition of value-added tax for the second period of 2003 (hereinafter “instant disposition”).

[Ground for Recognition: Facts without dispute, Gap Ll through 8, 11, Eul evidence 1, 2, 29 (including each number; hereinafter the same shall apply), the purport of the whole pleadings]

2. Whether the disposition is lawful;

A. The parties' assertion

The Plaintiff asserts that the instant disposition rejecting input tax deduction or refund based on the instant tax invoice is unlawful, on the other hand, the Defendant asserts that the Defendant’s seeking input tax deduction or refund based on the instant tax invoice is contrary to the principle of trust and good faith, in light of the distribution channel of the said gold bullion.

(b) Fact of recognition;

1) The Plaintiff’s circumstances of establishment

(A) On April 11, 2003, the Plaintiff established the head office in Mapo-gu Seoul Metropolitan Government 100-16, and its trade name as ○○○ Co., Ltd. on October 17, 2003. At the same time, this MM takes office as the representative director and moves its head office to 00-1 XX703, Jongno-gu, Seoul, and changed its trade name as at present.

(B) EM, the representative director of the Plaintiff, was appointed as a customs officer from around 1983, and was retired from the Seoul Customs office on April 2000, and there was no gold bullion trading experience since it was engaged in the self-employed business, such as operation of coffee, etc. at the Handong-si, Busan Metropolitan City. On October 2003, 200, EM had been engaged in gold bullion export business after acquiring management rights from the former representative NN.

2) Characteristics of the transaction of gold bullion under the instant tax invoice (hereinafter “gold bullion”).

(A) If the Plaintiff’s purchaser and trader of the gold bullion of this case classifys the tax invoices received by the Plaintiff from 13 companies, including ○○ gold, by taxable period, as shown below:

[Attachment 1]

(B) The plaintiff's major purchasing and trading office of ○○ Fund, which is the actual purchasing and trading office of ○○ Fund, was sentenced to five years of imprisonment and a fine of 15 billion won in the Seoul Central District Court on January 2, 2008 (Supreme Court Decision 2007Da792), and appealed to the Seoul High Court on June 2008 (Supreme Court Decision 2008No108 Decided June 29, 2008) and filed an appeal with the Seoul High Court on the following grounds: (a) in collusion with the actual operators of 45 wide-scale coal companies, who purchased gold bullion as taxation from 45 wide-scale coal companies; and (b) transferred the transaction amount (including value-added tax) through the taxation-oriented company; and (b) the operator of 45 large-scale coal companies evaded the value-added tax amounting to about KRW 74 billion in the manner that almost no property is preserved in the company's name.

(C) On July 24, 2008, 2008 Seoul High Court sentenced 8 years imprisonment and fine of KRW 170 billion to the following facts: SY Co., Ltd., the Plaintiff’s major purchasing and trading office, as the pro-friendly ECC’s representative director, “SY Co., Ltd., committed a crime that evaded taxes of approximately KRW 85 billion in total by conspiracy with CC, etc., using the above SY, etc. as a Domin enterprise.” (Supreme Court Decision 2008No385).

(D) The Plaintiff, which issued the instant tax invoice to the Plaintiff, purchased the instant gold bullion through a typical bone coal company, such as DBD, WHWS, SMbS, ESice, DSS precious metal company, NY industry, MT trade company, GD ballast, SWA, etc.

(E) The Plaintiff purchased all gold bullion stated in the attached tax invoice specifications, and exported them to JS Saty Ltdd. and GD Apeded. On June 18, 2004, the Plaintiff was already exported to GD Apeded by GD Apeded on or before 2 or 3 months.

(F) All the gold bullion transactions in this case were conducted by the Hong Kong via the tax exemption sheet at two to three levels on the date of the import declaration from Hong Kong, and were supplied to the Plaintiff, the exporter, at two to three levels, at the end, through the second-third wholesale, and subsequently exported to Hong Kong on or after the date of import. For example, the gold bullion transactions imported on March 17, 2004 among the gold bullion transactions in this case and brought into the Asian Asia and the Incheon International Air Business Bond around 09:10 on the same day, which were brought into Korea at around 09:10, 19:4 Incheon International Airport on the same day through the order of the Plaintiff 19:44 Incheon International Airport, converting the details of gold bullion transactions exported to the Hong Kong JSTSSSSSS company (SESS Lyd.) into 50 km on the same day.

① The (State)GJ Co., Ltd. imported 50 km from marcous Mouss (H.K) Ltd. to KRW 7,684,074,056, and immediately sold gold bullion to the JG Gad as tax-free amounting to KRW 782,830,000 per 50km.

2)The JGG trade sold the gold bullion amounting to KRW 784,150,00,000, the gold bullion amounting to KRW 50 km, and the (State) HG trade sold the gold bullion amounting to KRW 785,326,750, as the company of heavy coal amounting to KRW 785,326,750.

③ The KDR, which is a major carbon company, sold 808,115,000 won (x1.1,000 won) including value-added tax, to (ju) BDice, and escaped without paying value-added tax of 73,465,00 won included in the above sales price.

④ The amount of the gold bullion (State) sold to the Plaintiff KRW 809,60,000 ($ 736,000,000) including value-added tax, and the amount of the gold bullion sold to the Plaintiff KRW 816,915,00 ($ 742,650,000) including value-added tax. (State) The amount of the gold bullion sold to the Plaintiff KRW 816,915,00 ($ 742,650,00) including value-added tax.

⑤ On March 17, 2004, the Plaintiff exported the gold bullion in KRW 749,457,482 to the Hong Kong JS Tits (JS Lt.) on the day of the 50km of the said gold bullion to KRW 50km, and the price was paid on March 17, 2004, after the mold.

(G) The Plaintiff exported not only the domestic market on the date of export but also the price at a lower than the international market price.

(h) Meanwhile, gold bullion importers pay customs duties equivalent to 3% of the price of gold bullion at the time of the import of gold bullion, which is included in the transaction price of gold bullion and transferred to the purchaser, and gold bullion exporters are entitled to refund 3% of customs duties paid to the purchaser. For this purpose, "the certificate of division" under the "Act on Special Cases Concerning the Refund of Customs Duties, etc. Levied on Raw Materials for Export" should be issued from the purchaser and trader. However, in the instant gold bullion transaction, the parties, including the Plaintiff, did not receive at all necessary installments for the refund of customs duties, and the Plaintiff, the exporter, did not take necessary procedures for the refund of 3% customs duties.

(i) The Plaintiff purchased gold bullion from the purchaser of the instant gold bullion on the same day, and exported the said gold bullion to JSTS Sy Ltd. and GDAfax (GD) in Hong Kong on the same day, and the price was paid after the mold, but did not secure any security against the export trader.

(j) On April 3, 2008, the prosecutor of the Seoul Central District Prosecutor's Office filed a complaint with the Seoul Central District Prosecutor's Office on the crime that the Plaintiff's representative director and the Plaintiff's representative director were evading value-added tax amounting to 6.6 billion won in total by submitting false purchase tax invoices in collusion with the Plaintiff. On April 3, 2008, the prosecutor of the Seoul Central District Prosecutor's Office ordered that the Plaintiff was not prosecuted on the ground that the statute of limitations has expired on January 25, 2008, and sentenced that the Plaintiff was sentenced to heavy punishment for the principal offense of the above crime, and that the instantM appears to be "the president of the land name".

[Grounds for Recognition: Evidence Nos. 9, 10, Evidence Nos. 1 through 28, and the purport of the whole pleadings]

C. Determination

1) Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter referred to as the “Framework Act on National Taxes”) provides that “A taxpayer shall drive away decently and faithfully in performing his/her duties. The same shall apply where a tax official performs his/her duties.”

This principle is naturally applicable to legal relations concerning value-added tax (Article 1 and Article 3(1) main text of the Framework Act on National Taxes). In a case where a malicious entrepreneur does not pay the value-added tax collected by him/her by attempting to make an abnormal transaction in which only profit is created by a method of evading value-added tax and rather than by a method of evading value-added tax (hereinafter “illegal transaction”), among a series of continuous transactions, in which case the exporter knew that there was an illegal transaction at all stages, such an exporter’s seeking deduction and refund of input tax amount is not allowed in violation of the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes (see, e.g., Supreme Court en banc Decision 2009Du13474, Jan. 20, 201).

2) The instant tax invoice is related to all export transactions. In light of the transaction behavior, distribution channel, the period, quantity and value of the Plaintiff’s transaction, the Plaintiff’s representative director’s experience, the Plaintiff’s establishment process of the Plaintiff’s company, and the result of the investigation of relevant customer offenses, etc., it is reasonable to view that the Plaintiff knew or was unaware of the fact that there was a malicious business operator with intent to evade output tax in the series of transactions in the instant gold bullion transactions.

As above, the Plaintiff’s assertion of input tax deduction or refund of the instant tax invoice based on the instant gold bullion transaction cannot be permitted against the principle of trust and good faith stipulated under Article 15 of the Framework Act on National Taxes, where a malicious entrepreneur exists and a malicious entrepreneur was aware of, or was negligent in, the existence of the instant gold bullion transaction.

3) The instant disposition rejecting the deduction or refund of input tax pursuant to the instant tax invoice is lawful.

3. Conclusion

The judgment of the first instance is revoked. All of the claims filed by the plaintiff are dismissed.