A. The purport of Article 13(1)3 of the Value-Added Tax Act and whether Article 52(1) of the Enforcement Decree of the Value-Added Tax Act is violated

(b) Relationship under Articles 18 (3) and 52 (1) of the Enforcement Decree of the same Act;

(c) Methods of calculating the market price of services in determining the tax base of value-added tax.

A. Article 13(1)3 of the Value-Added Tax Act (hereinafter “Value-Added Tax Act”) provides that the market price of the service supplied when a person receives an unfair low price under Article 13(1)3 of the same Act shall not be deemed as the free supply of the service under Article 7(3) of the same Act in order to prevent a person with a special relationship from evading taxes unfairly by borrowing transactions with him/her, and the case where a person receives an unreasonably low price is entitled to create a value-added tax. However, it does not constitute a violation of the principle of fair taxation or the principle of no taxation without law on the ground that the difference between the market price and the actual price is avoided, and the transaction with a person with a special relationship who receives an unreasonably low price under Article 13(1)3 of the same Act does not constitute a violation of Article 52(1) of the Enforcement Decree of the same Act.

B. Article 18(3) of the Enforcement Decree of the Value-Added Tax Act provides that a business operator or a person in a special relationship shall not be included in others under Article 7(3) of the Enforcement Decree of the same Act. Since the parent corporation, which regulates the scope of others under Article 7(3) of the same Act, provides that the scope of persons who are subject to non-taxation shall be subject to the free supply of services to the related parties, and thus, the scope of non-taxation shall be expanded and invalid as it goes against the principle of no taxation without the law. Thus, in determining the scope of special relationship under Article 13(1)3 of the same Decree, which is the provision on the tax base of value-added tax, Article 52(1) of the same Decree, which is the provision on the tax base of value-added tax

C. The tax authority shall calculate the market price of services on the basis of the price formed in a normal transaction with an unrelated party under Article 50 of the Enforcement Decree of the Value of the Tax Act, and even in the absence of such a actual transaction, the tax authority shall calculate the market price by taking into account the land category, location, surrounding environment, utilization status, the adequate transaction price of neighboring and similar lands in the adjacent and similar areas, individual factors, etc., and it shall not be deemed as the basis for the total rent acquired by leasing a building to another party under the National Tax Service’s business instruction and the instructions prescribed by the established rules.

(a) Article 13(1)3 of the Value-Added Tax Act; Article 52(1)2 of the Enforcement Decree of the Value-Added Tax Act; Article 7(3) of the Value-Added Tax Act; Article 18(3) of the Enforcement Decree of the Value-Added Tax Act; Article 52(1)3 of the Enforcement Decree

C. Supreme Court Decision 86Nu863 delivered on May 12, 1987, Supreme Court Decision 87Nu236 delivered on September 8, 1987

[Judgment of the court below]

Head of Mapo Tax Office

Seoul High Court Decision 85Gu1060 delivered on June 24, 1986

The appeal is dismissed.

The costs of appeal are assessed against the defendant.

We examine the grounds of appeal.

Based on its reasoning, the lower court determined that the Plaintiff imposed the instant tax based on the market price of the above rent pursuant to Article 7(3) of the Value-Added Tax Act, Article 18(1)3 of the Enforcement Decree of the same Act, and Articles 52(1) and 50(1) of the same Enforcement Decree of the same Act, and Article 18(3) of the Enforcement Decree of the Value-Added Tax Act, on the ground that the Plaintiff’s above provision of services to Nonparty Company constitutes a case where the Plaintiff’s above provision of services to Nonparty Company constitutes an unreasonable low price in trading with a person with a special relationship, and thus, the Plaintiff paid the global income tax and defense tax. Accordingly, the lower court determined that the instant tax was imposed based on the market price of the above rent, and determined that Article 18(3) of the Enforcement Decree of the Value-Added Tax Act, which the Defendant’s provision of services on the basis of delegation of the Act, is invalid, and that Article 13(1)3 of the Enforcement Decree of the Value-Added Tax Act does not apply to the above price of services.

However, Article 18 (3) of the Enforcement Decree of the Value-Added Tax Act (see Supreme Court Decision 86Nu694 delivered on September 2, 1987) provides that the supply of services to a third party without receiving any consideration under Article 7 (3) of the Value-Added Tax Act shall not be deemed the supply of services, and the supply of services to a third party shall not be deemed the person having a special relationship under Article 18 (3) of the Enforcement Decree of the above Act. Article 7 (3) of the above Enforcement Decree of the above Act provides that the person having a special relationship with the third party under Article 7 (3) of the above Act shall not be included in the supply of services. The purport of Article 13 (1) 3 of the Enforcement Decree of the above Act is that the scope of the non-taxation object is reduced by expanding the scope of the taxable object and thus becomes null and void, and therefore, Article 18 (1) 3 of the above Act provides that the person having a special relationship with the third party under Article 13 (1) of the above Enforcement Decree shall not be unfairly lower than the market price of the goods or services.

This is because the market price of the service supplied at an unreasonably low price under Article 13 (1) 3 of the Value-Added Tax Act is to prevent a business operator from unfairly evading tax through transaction with a person with a special relationship. Unlike the case where the business operator receives an unreasonably low price, it can be seen as a whole and creating added value, but it can not be seen as a free supply of service under Article 7 (3) of the Value-Added Tax Act in order to prevent the difference between the market price and the actual price from being compared to the market price, and it cannot be deemed as a violation of the principle of fair taxation or the principle of no taxation without law because the scope of non-taxation is expanded and the scope of the taxable object is reduced and thus, it cannot be deemed as a violation of the principle of no taxation without law.

Therefore, the lower court’s determination that no value-added tax cannot be imposed on the difference between the actual price and the market price even in the case of an unreasonably low price cannot be deemed as a misunderstanding the legal doctrine of no taxation without the law due to a mistake in interpreting the above relevant statutes.

However, the court below held to the effect that in calculating the market price of the service in this case as a family determination, it is reasonable to order the cancellation of the tax disposition in this case by the party members and the party members (see, e.g., Supreme Court Decisions 86Nu863, May 12, 1987; 87Nu236, Sept. 8, 1987; 87Nu236, Sept. 8, 1987; 87Nu2066, Sept. 12, 1987) on the ground that it is reasonable to order the cancellation of the tax disposition in this case as seen above, since it is not legally binding and reasonable to consider the land category, location, surrounding environment, utilization situation, reasonable transaction price of neighboring and similar lands in the neighboring and similar areas, and individual factors, etc.

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the defendant. It is so decided as per Disposition by the assent of all participating Justices.

Justices Park Jong-hee (Presiding Justice)