[1] Whether a business operator in a bonded area’s provision of goods to a country other than a bonded area without deducting an amount equivalent to the value of value-added tax base on the import of goods from the original value of supply constitutes “the case where the value of supply is entered differently from the fact in the entries of the list of the total value of the sales invoice by customer” as stipulated in Article 22(3)

[2] In a case where Gap corporation, which is an entrepreneur in a bonded area, supplied goods to Eul corporation, which is a domestic entrepreneur outside a bonded area, and Eul corporation paid value-added tax after receiving an import tax invoice equivalent to the above value of supply upon filing an import declaration, and Gap corporation issued a tax invoice without deducting the value of supply from the original value of supply and submitted the tax invoice to the tax authority, and the tax authority imposed additional tax, etc. on Gap corporation under Article 22(3) of the former Value-Added Tax Act, the case holding that the above disposition was unlawful in the misapprehension of legal principles

[1] In light of the contents and purport of Article 48(8) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010); and the system of relevant provisions, etc., where an entrepreneur supplies and supplies goods in Korea outside a bonded area and collects value-added taxes by importing them, the entrepreneur shall enter the value of supply which is the value of value-added tax base for the supply of goods, i.e., the value of supply minus the amount equivalent to the value of value-added tax base for the import of goods, as the value of supply by buyer. Therefore, if the entrepreneur entered an amount which is not deducted from the value-added tax base for the import of goods as the value of supply by buyer, such entry constitutes “the value of supply differently entered in the entry of the list of total tax invoices by customer” under Article 22(3) of the former Value-Added Tax Act, regardless of whether the entrepreneur is liable to pay value-added tax on the transaction portion.

[2] Where Company A, a business operator within a bonded area, supplied goods to Company B, a domestic business operator outside a bonded area, including KRW 2,682,73,00 on several occasions; Company B, upon filing an import declaration, received an import tax invoice of the same amount as the above value of supply; Company A, upon issuing a tax invoice of KRW 2,682,73,00, without deducting the value of supply from the original value of supply; and submitted the tax invoice of KRW 2,682,73,00 to the tax authority upon filing the tax return of value-added tax to Company B; the tax authority stated the supply value of the total by buyer differently from the fact, and imposed an incomplete additional tax under Article 22(3) of the former Value-Added Tax Act (amended by Act No. 7007 of Dec. 30, 203), the case holding that the judgment below erred by misapprehending the legal principles on the total value of supply to Company B and the value-added tax base for the goods received by Company B as KRW 2682,3700,200.

[1] Articles 13(1)1 and (5), and 22(3) of the former Value-Added Tax Act (Amended by Act No. 7007, Dec. 30, 2003); Article 48(8) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010) / [2] Articles 8, 13(1)1 and (5), and 22(3) of the former Value-Added Tax Act (Amended by Act No. 7007, Dec. 30, 2003); Article 48(8) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010)

DBS Korea Co., Ltd. (Law Firm Dongin, Attorneys Lee Han-san et al., Counsel for the plaintiff-appellant)

Head of Pyeongtaek Tax Office

Seoul High Court Decision 2008Nu34896 decided June 23, 2009

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Article 13(1)1 of the former Value-Added Tax Act (amended by Act No. 7007 of Dec. 30, 2003; hereinafter “the Act”) provides that “The tax base of value-added tax on the supply of goods shall be the consideration in a case where any remuneration is paid in money,” and Article 48(8) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043 of Feb. 18, 2010; hereinafter “Enforcement Decree”) upon delegation from Article 13(5) of the same Act provides that “Where a business operator supplies goods in Korea outside a bonded area and the head of a customs office collects value-added tax as the goods fall under a bonded area, an amount equivalent to the tax base on imports shall not be included in the tax base.” Meanwhile, Article 22(3) of the Act provides that “for a corporation with respect to the supply value entered differently from the fact submitted by a business operator by buyer, an amount equivalent to 2/100” shall be added from the refundable tax amount.

In light of the content and purport of Article 48(8) of the Enforcement Decree, and the system of relevant regulations, where an entrepreneur collects value-added taxes by supplying goods in Korea outside a bonded area and importing them, the entrepreneur shall enter the value of supply, namely, the value of supply, which is the tax base for value-added tax on the supply of the goods, minus the amount equivalent to the value-added tax on the import of the goods, as the value of the total tax invoice by buyer. Therefore, if the entrepreneur enters an amount which is not deducted as the tax base for value-added tax on the import of the goods, as the value of the total tax invoice by buyer, regardless of whether the entrepreneur is liable to pay value-added tax on the transaction portion, it constitutes “where the value of supply is entered differently from the fact.”

2. According to the evidence duly admitted by the court below, the plaintiff supplied the goods of this case to Microfa Co., Ltd. (hereinafter " Microfaco") which is a domestic entrepreneur outside the bonded area over several times during the first quarter of value-added tax year of 2003, and issued the tax invoice of this case with the price being the value of supply, and then filed the tax invoice with the defendant, stating the total amount of KRW 2,682,733,00,000, which is the sum of the value of supply for Microfaco, while filing the tax invoice of this case with the defendant. Meanwhile, Microfa Co., Ltd filed an import declaration for the goods of this case with the head of Pyeongtaek customs office during the above taxable period, and received the import tax invoice of this case, which is 2,682,73,000, which is the sum of supply values for Microfaco.

Examining these facts in light of the legal principles as seen earlier, the Plaintiff’s total sum of the price received for the instant goods and the total sum of the amount corresponding to the tax base for value-added tax on the import of the instant goods by microfas, which the Plaintiff received, shall be the same as the total sum of the supply value for microfas to be entered in the first quarter of 2003 by buyer, but the total sum of the supply value for microfas to be entered in the first quarter of 2,682,73,000 won is erroneous, and thus, it constitutes a case where the supply value

Furthermore, the mere fact that the Plaintiff issued the instant tax invoice at the request of the transaction bank at the time of discount of a bill of exchange from the transaction bank in order to recover the price of the instant goods, or that the total amount of the price the Plaintiff received by supplying the instant goods is the value indicated in the column for the value of the total tax invoice by buyer, it is difficult to deem that it is difficult to expect the Plaintiff to accurately state the value of the total tax invoice by buyer according to Article 48(8) of the Enforcement Decree.

Nevertheless, on the grounds indicated in its reasoning, the lower court determined that the instant disposition was unlawful on the ground that, even if the Plaintiff entered the supply value of the buyer by buyer in the supply value included the amount not included in the value-added tax base, it does not constitute a case where the supply value is entered differently from the fact, or that there exists a justifiable reason for entering such price. In so doing, the lower court erred by misapprehending the legal doctrine on the additional tax on false entry by buyer, thereby adversely affecting

3. Therefore, 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 Kim Nung-hwan (Presiding Justice)