Albi Plus Co., Ltd. (Law Firm Lee & Lee, Attorney Park Woo-hwan, Counsel for the defendant-appellant)

Head of Seocho Tax Office

January 30, 2015

Seoul Administrative Court Decision 2012Guhap29011 Decided March 14, 2014

1.The judgment of the first instance shall be modified as follows:

The Defendant’s disposition of imposition of value-added tax for the second term of 2006 against the Plaintiff on August 3, 201, 174,277,410 won, value-added tax for the first term of 207, 179,227,450 won, value-added tax for the second term of 207, 14,893,440 won, value-added tax for the second term of 2007, 41, 342,910 won, value-added tax for the second term of 2008, 57,62,560 won, value-added tax for the first term of 209, 108,895,480 won, corporate tax for the business year of 2007, 1,254,751,690 won, corporate tax for the business year of 208, 2008, 2096, 806 won.

2. All costs of the lawsuit shall be borne by the defendant.

1. Purport of claim

The latter part of paragraph (1) of this Article is as follows.

2. Purport of appeal

A. The plaintiff's purport of appeal

The Defendant’s imposition of KRW 29,220,350 for the second term portion of 206 against the Plaintiff on August 3, 201; imposition of KRW 29,596,180 for the first term portion of 207; imposition of KRW 41,342,910 for the second term portion of 208; imposition of KRW 57,62,560 for the first term portion of 209; imposition of KRW 154,340,420 for the business year of 2007; imposition of KRW 154,340,420 for the first term portion of 209; imposition of KRW 88,561,260 for the business year of 208; and imposition of KRW 88,46,80 for the corporate tax for the business year of 209.

B. The defendant's purport of appeal

The part against the defendant in the judgment of the court of first instance is revoked, and all of the plaintiff's claims corresponding to the above revocation are dismissed.

1. Details of the disposition;

A. The Plaintiff is a company established on August 29, 2002 for the purpose of specialized management, etc. of rearrangement projects.

B. From April 7, 2011 to April 26, 201, the Defendant conducted a tax investigation with the Plaintiff, and received KRW 4.35 billion from the date of 2007 to the date of 2008 from the Urban Environment Improvement Project Association Establishment Promotion Committee (hereinafter “○○○ Zone Promotion Committee”) and received KRW 70 million from the △△△ Zone Establishment Promotion Committee (hereinafter “△△△ Zone Promotion Committee”) during the business year of 2006, but omitted sales of KRW 5.41 million in total from the business year of 2006 to the business year of 206, KRW 5.44,1 million in total, KRW 208, KRW 207, KRW 2084, KRW 207, KRW 2084, KRW 2007, KRW 947, KRW 2007, KRW 2085, KRW 2007, KRW 20087, KRW 2007, KRW 947,20074,2075.

C. On October 28, 201, the Plaintiff appealed and filed a petition for a trial with the Tax Tribunal, but the said petition was dismissed on May 30, 2012.

[Reasons for Recognition] Unsatisfy, Gap evidence 1 (including a provisional number; hereinafter the same shall apply), Eul evidence 1 to 9, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) As to the provision of services to the ○○○ District Promotion Committee

(A) The Defendant determined that the master plan was formulated on June 30, 2006, and that the designation of the rearrangement zone was completed on December 28, 2007, but the establishment of the master plan was completed on December 18, 2009, and did not designate the rearrangement zone.

(B) The amount that the Plaintiff received from the committee for promotion of ○○ area is not the amount for providing services, but the advance payment. In addition, since the committee for promotion of ○○ area requested the postponement of payment of the service amount, the time of supply for the services related to value-added tax and the year to which the corporate tax belongs

(2) As to the provision of services to the △△△ District Promotion Committee

(A) The Plaintiff was selected as a specialized management contractor before the committee for promotion of △△△ District was approved as the committee for promotion under the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents, and thus the contract concluded between the Plaintiff and the committee

(B) Since the Committee on Promotion of △△△ District cancels a contract concluded between the Plaintiff and the Committee on Promotion of △△ District, the time of supply for the service has not yet arrived and the supply price of the service has not

(C) The amount that the Plaintiff received from the △△△ District Promotion Committee is the advance payment, and since the △△ District Promotion Committee requested the Plaintiff to postpone the payment of service charges, the time of supply for services related to value-added tax and corporate tax did not arrive at the year to which

B. Relevant statutes

It is as shown in the attached Form.

C. Facts of recognition

(1) As to the provision of services to the ○○○ District Promotion Committee

(A) On August 31, 2005, the Plaintiff entered into a contract for specialized management of the urban environment rearrangement project in ○○○ District with the committee for promotion of the urban environment rearrangement project in ○○ District. The main contents are as follows.

Article 1 (Purpose of this Agreement) The purpose of this Agreement is to prescribe the responsibilities and obligations of “A” and “B” for the execution of all duties and successful improvement projects following the implementation of the urban environment rearrangement project in Daejeon U.S. District. ① The amount of services shall be KRW 33,00 per square meter: Provided, That the value-added tax shall be calculated separately by applying the total floor area of the household design; ② the amount of services shall be calculated by preferentially applying the total building area of the household design; ② the “A” shall be paid to “B” in cash or a commercial bank’s cashier’s book. After the conclusion of the performance ratio of the performance of the duties, the payment rate of services shall be 10% after the establishment of the 10% basic plan for the performance of the duties, and the payment of 10% of the amount of services shall be 10% after the establishment of the 10% project implementation plan after the announcement of the approval of the 10% project implementation plan after the announcement of the approval of the 10% project implementation plan.

(B) On June 30, 2006, the Daejeon Metropolitan City Mayor established a master plan for urban and residential environment improvement as to the Daejeon Sung-gu ( Address 1 omitted) which includes the area of ○○○○ on June 30, 2006. On October 30, 2006, the head of Daejeon Metropolitan City basin head approved the promotion committee as the promotion committee under the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents.

(C) On December 28, 2006, the Plaintiff entered into a contract with the committee for promotion of ○○ District and the committee for promotion of urban environment rearrangement projects (hereinafter “instant contract”), which amended the terms and conditions of the contract as of August 31, 2005. The main contents of the contract are as follows.

Article 1 (Purpose) The purpose of this Agreement is to prescribe the responsibilities and obligations of “A” and “B” for the execution of all duties and successful improvement projects following the implementation of the urban environment rearrangement project in the Daejeon Seo-gu District. (2) The amount of services shall be 40,000 won per square meter: Provided, That the value-added tax shall be calculated separately by applying the total floor area of the services to “B” in preference to the project implementation after the authorization for the implementation of the project, and the amount shall be determined after the authorization for the implementation of the project is made. ① The amount of services shall not be paid to “B” in cash or by a commercial bank’s cashier’s cashier’s checks. The amount of services shall not be paid at least 10% prior to the date of the implementation of the project after the establishment of the 10% basic plan after the conclusion of the performance ratio of the project, and 10% after the designation of the joint implementer of the project, 10% of the total amount of services to be paid after the authorization for the implementation of the project.

(D) On May 18, 2007, the ○○○ District Promotion Committee held a general meeting of residents to report on the fact that the Plaintiff was selected as a collaborative company, and passed a resolution on the agenda to accept it. A resolution was adopted on the agenda to be selected as a joint implementer by Hyundai Industrial Development Co., Ltd., Large Forest Industry Co., Ltd.

(E) On June 15, 2007, the ○○○ District Promotion Committee held the fifth promotion committee and resolved on the agenda on the advance payment of 40% of the service amount to the Plaintiff.

(F) On the other hand, on December 28, 2007, Daejeon Metropolitan City Mayor designated and publicly announced the Daejeon Sung-dong District including ○○○○ District as an urban renewal acceleration district on December 18, 2009, and on December 18, 2009, the said urban renewal acceleration plan was determined and publicly announced regarding the urban renewal acceleration district.

(G) The amount that the Plaintiff appropriated as an advance with the ○○ District Promotion Committee from June 22, 2007 to September 18, 2008 is as follows.

On October 1, 2008, 200, 350,000 on December 22, 2006, 200, 200,000 on August 22, 2008, 200 on October 23, 2008, 200,000 on October 1, 200, 200,000,000 on October 1, 2008, 200,000 on September 30, 200,000 on September 30, 200, 200,000 on a total of 4,350,000,000,000

(h) On September 18, 2008, the Plaintiff entered into an agreement with the ○○○ District Promotion Committee, and the main contents are as follows.

The attached “A” (the Committee for Promotion of ○○○ Area) and “B” (the Plaintiff) included in the main text of the same Act agree as follows in preference to the Special Management Services Agreement (hereinafter “the Project”) Specialized in the Urban Environment Improvement Projects of ○○○ Area (hereinafter “the Project”). 1. “A” has the obligation to repay and return “B” as funds paid in advance to “B” for the smooth implementation of the Project. 2. LG electronic and SK&C joint and several sureties and one bank borrow money from “B” and then make it difficult to implement the Project. 3. If it is objectively deemed difficult to implement the Project due to the suspension and delay of the Project, “B” shall reimburse the funds paid in advance from “B”.

(i) The Nonparty testified in this court for the following purposes.

The instant case was well known because the ○○○○○ District Promotion Committee was the chairperson of the ○○ District Promotion Committee. Around June 15, 2007, the ○○○ District Promotion Committee passed a resolution on the case of advance payment of cooperative companies: Provided, That the ○○○ District Promotion Committee was a nominal borrower to raise funds, but the Plaintiff and the designer were responsible for the repayment of raised funds and the payment of interest. The ○○○ District Promotion Committee agreed on September 18, 2008 that “the Plaintiff would repay KRW 4,350,000 and bear interest to the Plaintiff.” However, the principal and interest of the ○○○ District Promotion Committee continued to be repaid to the Plaintiff on the ground that the ○○○○ District did not have been paid the principal and interest of the ○○ District to the Plaintiff, but the ○○○ District Promotion Committee did not have been paid to the Plaintiff at the first time after the establishment of the ○○ District Promotion Committee’s basic plan.”

[Reasons for Recognition] Facts without dispute, Gap's evidence 1 through 9, 20, 27 evidence, Eul's evidence 10, 11, the non-party witness's testimony, and the purport of the whole pleadings

(2) As to the provision of services to the △△△ District Promotion Committee

(A) On December 2, 2004, the Plaintiff entered into a “Special Management Service Contract for Housing Redevelopment Improvement Project” with the Committee for Promotion of △△△△ District. The main contents are as follows.

The purpose of this Agreement is to stipulate the responsibilities and obligations of “A” and “B” for the performance of the services on behalf of the Committee for the Implementation of the Projects and the successful implementation of the Housing Redevelopment Project within the △△△ Zone 2. In the event of the cancellation of the Agreement, “I” shall be paid in cash or by cashier’s checks issued by commercial banks as follows: (1) “I” shall be paid 10% of the amount of the services after the designation of the Committee for the Implementation of the Projects and 10% of the amount of the services after the 10% of the amount of the services are due after the designation of the Committee for the Implementation of the Projects and 4. In the event of the cancellation of the Agreement, “I” shall be 10% or more of the amount of the services to be “I” due to the 10% or more of the amount of the services to be “I” after the approval of the General Meeting for the Implementation of the Projects.

(B) On February 24, 2006, the △△△△ District Promotion Committee held a general meeting of residents to report the fact that the Plaintiff was selected as a management entity specialized in improvement projects, and decided to authorize the Plaintiff to do so.

(C) On February 206, 2006, the △△△△ District Promotion Committee borrowed KRW 1 billion from the Switzerland Construction Co., Ltd., Shin Dong-dong Construction Co., Ltd, deemed as joint and several sureties, with the Plaintiff as a joint and several sureties.

(D) The amount that the Plaintiff appropriated as an advance from March 8, 2006 to April 17, 2008 by receiving from the △△△ District Promotion Committee is as follows:

on 100,000,000 on 08. 100,000 on 08. 100,000 on 008. 00,000,000 on 00 on 17, 2008, aggregate of 700,000,000 on 17, 200 on 17, 2008

(E) On February 26, 2009, △△△ District Promotion Committee was approved as a promotion committee under the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents.

(F) On May 15, 2009, the △△△△ District Promotion Committee held the first promotion committee and resolved on the agenda to be selected as a rearrangement project management company instead of the Plaintiff as a rearrangement project management company.

(G) On May 19, 2009, the Committee for Promotion of △△△ District sent a document notifying the Plaintiff of “the termination of the contract and the settlement of expenses” and the main contents are as follows.

The △△△△△△ District Promotion Committee included in the main text entered into a contract with the Plaintiff on December 3, 2004, but on May 15, 2009, the promotion committee held on May 15, 2009 failed to select the Plaintiff as a management contractor of the housing redevelopment improvement project in the △△△△△△ District, so as to settle service charges and loans between the △△△ District Promotion Committee and the Plaintiff upon termination of the ○ contract and smoothly implement the project in the future.

[Reasons for Recognition] Unsatisfy, Gap evidence Nos. 1, 2, 12, 14 through 16, the purport of the whole pleadings

D. Determination

(1) From 2006 to 2009, the Defendant rendered the instant disposition by deeming that the time when the Plaintiff supplied the service related to value-added tax and corporate tax were due to the arrival of the year to which the time when the service was supplied and corporate tax was attributed. First, we examine whether the time when the service was supplied and the year to which the taxable income was reverted in each business year.

(2) According to Article 9(2) of the former Value-Added Tax Act (amended by Act No. 9617 of Apr. 1, 2009) and Article 22 subparag. 2 of the Enforcement Decree thereof, where a service is supplied on the condition of interim payment, the time when each portion of the price is determined to be supplied shall be deemed the time of supply for the service. Under the interpretation of Articles 14(1) and 40 of the former Corporate Tax Act (amended by Act No. 9898 of Dec. 31, 2009), the business year to which a corporation income belongs shall, in principle, be deemed to be the year when the amount received and the right to receive the income becomes final and conclusive, i.e., the year when the right to receive the income becomes final and conclusive (see Supreme Court Decision 91Nu1684, Jan. 21, 192). Therefore, if the Plaintiff provided the service in the form as seen earlier, it shall be deemed that the service was supplied on the condition of interim payment, and thus the Plaintiff’s income shall be added.

Meanwhile, in cases where the content of a contract is prepared in writing between the parties as a disposal document and the objective meaning of the text is clear, barring any special circumstance, the existence and content of the expression shall be recognized. If the objective meaning of the text is not clearly revealed, the content of the contract and the motive and background leading up to the conclusion of the contract, the purpose and genuine intent to be achieved by the contract by the parties concerned, transaction practices, etc. shall be comprehensively considered, and the contents of the contract shall be reasonably interpreted in accordance with logical and empirical rules, social common sense, and transaction norms so as to fit the ideology of social justice and equity. In particular, in cases where a significant impact on the legal relationship between the parties by interpreting different meaning of the text differently from the objective meaning of the text, it shall be more strictly construed (see, e.g., Supreme Court Decisions 2010Da67319, Dec. 9, 2010; 2012Da42666, Nov. 13, 2014).

(3) Determination on the part of rendering services to the ○○○ District Promotion Committee

In light of the above facts and the following circumstances: (a) it is reasonable to view that the pertinent business year did not arrive at the time when the Plaintiff was to receive service payment from the committee for promotion of ○○○ area; and (b) it is reasonable to deem that the pertinent business year did not arrive.

① As seen earlier, Article 8(1) of the instant contract concluded on December 28, 2006 between the Plaintiff and the committee for promotion of ○○○ District provides that “Before the committee for promotion of ○○ District may request the Plaintiff to suspend the payment of service costs until the fund is raised or the joint implementer is selected by the PF, notwithstanding the provisions of Article 7.” In light of the content and purport of the instant contract, it is reasonable to deem that the committee for promotion of ○○ District may postpone the payment of service costs before the joint implementer and the construction is selected.

In this regard, the plaintiff asserts that the contract in this case was without the approval procedure of the residents' general meeting, and that the contract in this case was concluded retroactively on August 2007 for the PF loan, and thus is null and void. Accordingly, the time for payment of the service cost is postponed before the construction is selected without connection with the selection of the joint implementer under the existing contract on August 31, 2005. However, according to the evidence No. 3, the "case of the selection of the joint implementer" is proposed as the case No. 3 agenda of the residents' general meeting on May 18, 2007, and the plaintiff also stated that the separate execution method with the constructor was changed from the existing sole execution method with the constructor at the residents' general meeting on May 18, 2007. Thus, the above assertion is without merit in light of the fact that the joint execution method with the constructor was already discussed and it seems that the contract in this case was concluded.

On the other hand, the defendant asserts that if only one of the co-implementers and the contractor is selected, payment shall not be delayed thereafter. On May 18, 2007, Hyundai Industrial Development Co., Ltd. and Daelim Industrial Co., Ltd. were selected as co-implementers, it cannot be delayed. However, as seen earlier, Article 7(1) of the contract of this case states that the time for payment of each service cost is set and the joint implementer is to be paid 10% of the service cost after the joint implementer and the contractor are selected. It is natural to interpret that it is sufficient to consider that one of the co-implementers is selected as one of the above co-implementers. According to Article 8(1) of the contract of this case, it is unreasonable to interpret the same phrase differently, and that it is not reasonable to deem that the joint implementer should not be designated as the joint implementer at the time of implementation of the contract of this case, but the joint implementer should not be deemed to be the one of the owners of land, etc. and the joint implementer at the time of implementation of the contract of this case.

② Article 8(3) of the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents provides that an urban environment improvement project may be implemented by a cooperative or a land owner, etc., or jointly conducted by a cooperative or a project owner, etc., with the consent of a majority of the cooperative members or owners of a plot of land, etc., a constructor, a registered project operator, or a person meeting the requirements prescribed by Presidential Decree. Article 11(2) of the same Act provides that where an urban environment improvement project is implemented by the owners of a plot of land, etc. pursuant to Article 8(3) of the same Act, a constructor or a registered project operator shall be selected as a contractor as prescribed by the regulations under Article 2 subparag. 11(b) after obtaining authorization for the implementation of the project. As seen earlier, the instant contract is distinguished from a joint implementer and a contractor, and as such, Article 8(1) of the same Act stipulates that the payment of service costs can be delayed until the joint implementer and the contractor are selected.

③ However, there is no evidence to prove that the Defendant was selected as a contractor in connection with the urban environment rearrangement project of ○○ Area until the time of the instant disposition. Thus, the committee for promotion of ○○ Area could have requested the postponement of the time of payment of service costs.

⑤ In full view of the following circumstances, there was an agreement between the committee for promotion of ○○ Area and the Plaintiff to postpone the time of payment of service cost, and it is reasonable to deem that the ○○ Area Promotion Committee paid KRW 4,350,000 to the Plaintiff.

(a) The non-party, who was the chairperson of the committee for promotion of ○○ Area, failed to pay the service cost to the plaintiff, and instead, the plaintiff borrowed 4,350,000,000 won from one bank on condition that the principal and interest should be repaid. The committee for promotion of ○○ Area was held on June 15, 2007 and decided to first pay 40% of the service cost to the plaintiff first. (c) On September 18, 2008, the plaintiff entered into an agreement with the committee for promotion of ○○ Area and the "the committee for promotion of ○○ Area had the obligation to repay the principal and interest to the plaintiff." (d) Although the committee for promotion of ○○ Area was borrowed from the committee for promotion of ○○ Area, the plaintiff did not have any obligation to pay the principal and interest to the plaintiff, the interest amount of ○○ Area was set up in the basic plan and part of the loan to the plaintiff.

(4) Determination as to the provision of services to the △△△ District Promotion Committee

In light of the following facts, it is reasonable to view that the time of supply and the time of attribution of earnings have not yet arrived because the Plaintiff did not arrive at the time of receiving the service payment from the Committee for Promotion of △△ Zone, like in the case of ○○○ Zone:

① Article 10(1) of the “Special Management Service Contract for Housing Redevelopment Improvement Projects in △△ District” concluded on December 2, 2004 by the Plaintiff and the “△△△△ District Promotion Committee” provides that “The Committee may request the Plaintiff to postpone the payment of service costs, notwithstanding the provisions of Article 9, if the funds are raised by the PF or the construction works are selected before the construction works are selected.” Thus, it is clear that the time of payment of service costs may be postponed until the construction works are selected.

② However, there is no evidence to prove that the contractor was selected in relation to the housing redevelopment project in the △△ district at the time of the instant disposition. On the other hand, around February 2006, the committee for promotion of the △△△△ district, by making the Plaintiff as a joint guarantor, borrowed KRW 1.0 billion from the Oelim Construction Co., Ltd., etc., and then using the loan money as a joint guarantor for the improvement project costs, and then the Plaintiff is liable for reimbursement for the borrowed money. (b) the Plaintiff received KRW 70 million from the committee for promotion of the △△ district and appropriated the borrowed money as a joint guarantor; (c) there is no evidence to prove that the Plaintiff claimed payment of the service cost against the committee for promotion of the △△△ district even though the process of performing its duties, such as the conclusion of the contract and the approval of the committee for promotion, etc.

(5) Therefore, the instant disposition is unlawful without examining the remainder of the Plaintiff’s remaining arguments, as it does not meet the taxation requirements, since the time of supply of services and the year of year of accrual of earnings on both the ○○○ and △△△△△ region

3. Conclusion

If so, the plaintiff's claim is justified, and the defendant's appeal shall be dismissed as it is without merit, and the judgment of the court of first instance shall accept the plaintiff's appeal and the judgment of the court of first instance shall be modified as above, since it is unfair to conclude it partially differently.

[Attachment]

Judges Cho Jong-tae (Presiding Judge)