It is difficult to regard the starting fee paid by the Plaintiff as unrelated to the business.

Since the amount paid by the Plaintiff as the starting fee is not unrelated to the Plaintiff’s lease, but also has the nature of advance payment, it is unreasonable to deduct the input tax amount of the value-added tax from the expenditure not related to the business.

Article 38 of the Value-Added Tax Act

Busan District Court 2015Guhap23749 Disposition of revocation of Value-Added Tax Correction

AA

○ Head of tax office

February 26, 2016

March 18, 2016

1. The Defendant’s disposition of rectification of the value-added tax of KRW 00,000,000 for the first term of November 6, 2014 against the Plaintiff on November 6, 2014 is revoked.

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff is a special purpose corporation, CCC collective investment business entity (hereinafter referred to as “collective investment business entity”), and DD corporation (hereinafter referred to as “Buyer”) that the Plaintiff owns 95% of the shares of 95%, and is a trust business entity of the said real estate investment trust.

B. On December 31, 2013, the seller, the buyer, and the collective investment business entity entered into a contract with the seller to sell the seller at KRW 00,000,000 and KRW 4 underground floors, and the building and accessories attached thereto (hereinafter “the shopping mall in this case”) located on the seller’s ○○○○-dong 0,00,000, and KRW 8,000, and to conclude the transfer of ownership until February 28, 2014 (hereinafter “the sales contract in this case”).

C. On the same day, the buyer, the Plaintiff, and the collective investment business entity leased the shopping mall in this case to the Plaintiff for 15 years from the date when the transfer of ownership is completed in accordance with the instant sales contract, and the Plaintiff entered into a liability lease agreement with the buyer to pay the buyer a deposit of KRW 00 million,000,000, monthly rent of KRW 00,000,000, and monthly rent of KRW 2,300,000 (hereinafter “instant lease agreement”).

D. On January 6, 2014, the buyer, the Plaintiff, and the collective investment business entity agreed to change the rent corresponding to the portion of the instant lease agreement in February 2 and March 2014 to “the starting fee for rent.”

E. On March 31, 2014, the seller, buyer, and collective investment business entity agreed to finally change the scheduled date for completing the transfer of ownership to April 30, 2014.

F. On March 28, 2014, the Plaintiff moved into the shopping mall of this case. On April 24, 2014, the Plaintiff paid KRW 000,000,000 to the seller, and KRW 00,000,000 to the end of April 23, 2014, respectively, as the ownership of the shopping mall of this case was transferred to the buyer, and KRW 00,000,000,000 from April 24, 2014 to the end of April 30, 2014.

G. The Plaintiff, at the time of the return of value-added tax for the first term of January 2014, deducted KRW 00,000,000 from the commencement fee as the input tax amount.

H. On November 6, 2014, the Defendant issued a revised and notified the Plaintiff of KRW 00,000,000 for the first term of November 6, 2014, deeming that the rent commencement fee was an expenditure that is not directly related to the Plaintiff’s business and not an input tax deduction (hereinafter “instant disposition”).

2. Determination on the lawfulness of the instant disposition

A. The parties' assertion

(1) The plaintiff's assertion

The commencement fee of lease is paid as consideration for the lease of the shopping mall of this case, and the disposition of this case which did not deduct it as the input tax amount is unlawful.

(2) The defendant's assertion

As the transfer of ownership was delayed from February 28, 2014 to April 24, 2014 due to a cause not attributable to the Plaintiff, the Plaintiff was not obligated to pay rent for 2.3 months to the Plaintiff. Nevertheless, the Plaintiff paid the money in the name of the commencement fee to facilitate the sale of the shopping mall of this case by a seller with a special relationship, and thus, cannot be deducted as the input tax amount.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(1) Under the current method of imposing value-added tax, the total amount of self-production added and purchased added value is the value of supply in order to ensure that only the entrepreneur’s self-production added value can be imposed. Accordingly, Article 17 of the Act adopts the basic structure that deducts the input tax amount paid for the purchase added value from the output tax amount to the input tax amount to be collected. Under such structure, Article 17 of the Act provides that the whole input tax amount shall be deducted from the input tax amount for the supply or import of goods or services, as long as it falls under the tax amount for the entrepreneur’s own business, and Article 17(1) of the Act provides that the standard is related to the business, and “the input tax amount for the expenditure not directly related to the business” as one of the input tax amounts not deducted from the output tax amount under the principle of value-added tax (see, e.g., Supreme Court en banc Decision 94Nu1449, Dec. 21, 195).

(2) Considering the following circumstances that are acknowledged in light of the following circumstances, the aforementioned evidence and the statement of Gap evidence No. 4, and the inquiry reply to the collective investment business entity about the fact-finding inquiry, the starting fee of the instant case is an expenditure necessary for the Plaintiff to lease or use the shopping mall of this case, and thus, it can be deemed that the starting fee of the instant case is an expenditure related to

1) As a real estate investment trust product, ○○ Investment Trust No. 00 billion won is offered as KRW 0 billion, a collective investment business entity is planned to raise funds of KRW 0 billion in trust principal, KRW 0 billion in secured loans, and KRW 0 billion in lease deposit, acquire the shopping mall in this case and lease it to the Plaintiff for 15 years, and increase annual annual dividend rate of KRW 0.0 billion in lease deposit, and KRW 0.0 billion in annual rent. According to the product proposal, the Plaintiff shall pay KRW 00,000,000 by the end of March 2014 as of the commencement date of lease.

2) If the buyer does not receive a rent commencement fee, the rate of return of the collective investment business entity lowers, and thus, the instant lease contract cannot be concluded or the Plaintiff is bound to increase the rent.

3) Since the Plaintiff is in a series of processes leading to the sale and lease of the shopping mall of this case, the Plaintiff agreed to pay KRW 000,000,000 for any reason, and the said money is not irrelevant to the said lease.

4) The Plaintiff is the actual owner holding 95% of the seller’s shares, and can be deemed the actual party to the instant sales contract. The Plaintiff is not a lessee irrelevant to the said sales contract.

3. Conclusion

Thus, the disposition of this case which did not deduct the starting fee from the input tax amount is illegal.

Therefore, the plaintiff's claim of this case is justified and accepted.