[1] The meaning of "transfer of business" not deemed the supply of goods under Article 6 (6) 2 of the former Value-Added Tax Act

[2] Purport of the proviso of Article 6 (6) 2 of the former Value-Added Tax Act, and whether such proviso is contrary to the above proviso of Article 17 (3) of the Enforcement Decree of the same Act or is null and void beyond the scope of delegation (negative)

[1] The term "transfer of business not deemed the supply of goods under the main sentence of Article 6 (6) 2 of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006) and Article 17 (2) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 1930 of Feb. 9, 2006) refers to the comprehensive transfer of property for business by place of business to replace only the main agent while maintaining the identity of business by comprehensively transferring physical and human facilities, rights, and obligations, including property for business. In this case, even if the former employee was not transferred as it is, it cannot be an obstacle to recognizing the transfer of business.

[2] The purport of the proviso of Article 6 (6) 2 of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006) provides that where a business transferor issues a tax invoice under Article 16 among "transfer of business" not deemed a supply of goods under the main sentence of Article 6 (6) 2 of the same Act (amended by Presidential Decree No. 8142 of Dec. 30, 2006), "cases prescribed by Presidential Decree" can be viewed as the supply of goods exceptionally. The purport of the proviso of Article 17 (3) of the Enforcement Decree of the same Act is to allow the business transferee to deduct the input tax amount by deeming it as a supply of goods only in cases where the business transferor decides that a business transferor is a taxable transaction and issues a tax invoice to prevent an unfair deduction of the input tax amount after the business transferor's collusion with the business transferor and thus, the above proviso cannot be deemed as null and void only in cases where the business transferor or transferee has reported the above provision to enable the business transferee to deduct the input tax amount.

[1] Article 6 (6) 2 of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006), Article 17 (2) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 1930 of Feb. 9, 2006) / [2] Article 6 (6) 2 of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006), Article 17 (3) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 1930 of Feb. 9, 2006)

[1] Supreme Court Decision 91Nu13014 delivered on May 26, 1992 (Gong1992, 2053) Supreme Court Decision 97Nu12082 delivered on May 14, 1999 (Gong1999Sang, 1194) Supreme Court Decision 2002Du8800 Delivered on January 10, 2003 (2003Sang, 645)

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

Head of Suwon Tax Office

Seoul High Court Decision 2005Nu14686 delivered on December 7, 2005

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

The term "transfer of business not deemed the supply of goods under the main sentence of Article 6 (6) 2 of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006; hereinafter referred to as the "Act") and Article 17 (2) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 1930 of Feb. 9, 2006; hereinafter referred to as the "Enforcement Decree") means that the transfer of physical and human facilities, rights and obligations, etc. including business property for each place of business is comprehensively transferred to replace only the main body of business while maintaining the identity of the business (see Supreme Court Decisions 97Nu12082, May 14, 199; 2002Du800, Jan. 10, 2003; hereinafter referred to as the "Act") and where the former employee falls under this case, the transfer of business cannot be impeded even if the former employee was not transferred.

In the same purport, the judgment of the court of first instance, as cited by the court below, judged that the transfer of the land for a asphalt factory (land 3,772m2) owned by the non-party company (hereinafter "non-party company") to the plaintiff under the contract for the transfer of factory in this case and its ground facilities such as buildings, machinery facilities, fixtures, tools, test equipment, etc., business facilities such as construction sections, tools, test equipment after August 31, 2003, business rights and securities after August 31, 2003 constituted a comprehensive transfer of physical and human facilities, including business property, and not a "transfer of business" which is not deemed a supply of goods under the above provision (in so determining, it seems that the above provision contains the purport that the transfer of business does not interfere with the recognition of the transfer of business even if the plaintiff agreed not to be responsible for the wages and retirement allowances, etc. of the previous employees). It is justifiable and there is no violation of the rules of evidence against the transfer of business.

2. Regarding ground of appeal No. 2

The proviso of Article 6 (6) 2 of the Act provides that "any business operator shall be excluded from the cases prescribed by Presidential Decree in which he/she issues a tax invoice under Article 16" among "transfer of business," which is not deemed the supply of goods, and Article 17 (3) of the Enforcement Decree delegated by him/her provides that "the case where the tax amount collected by the business transferor under Article 15 of the Act has been returned and paid in accordance with Article 18 or 19 of the Act." Thus, even though the Plaintiff received the tax invoice from the non-party company in connection with the acquisition of the business of this case and was subject to the collection of the value-added tax, unless the non-party company reported and paid the above tax amount, the acquisition of the business of this case shall not be deemed an exception to the supply of goods under Article 6 (6) 2 of the Act and Article 17 (3) of the Enforcement Decree of the Act, and therefore, the Plaintiff shall not be entitled to deduct the input tax amount under the above tax invoice.

The judgment of the court below to the same purport is just, and there is no error in the misapprehension of legal principles as to business transfer.

3. As to the third ground for appeal

The purport of the proviso of Article 6 (6) 2 of the Act (hereinafter “the Act”) which provides that where a business transferor issues a tax invoice under Article 16 among the “transfer of business” that is not deemed a supply of goods under the main sentence of the same subparagraph, where a business transferor issues a tax invoice under Article 16, the supply of goods shall be deemed an exceptional case where the business transferor decides that the business transfer is a taxable transaction and issues a tax invoice, thereby allowing the business transferee to deduct the input tax amount by deeming the business transferee to be an exceptional case only in such cases as prescribed by the Presidential Decree, in order to improve the problem that the business transferee would be denied the input tax deduction. Thus, the purport of the Act of this case under Article 17 (3) of the Enforcement Decree shall be in compliance with the purport of the Act of this case, and even if the business transferor is allowed to deduct the input tax amount unfairly after receiving the tax invoice in collusion with the business transferor, the provisions of the Act of this case cannot be deemed null and void due to the limitation of delegation of the Act of this case.

The judgment of the court below to the same purport is just, and there is no error in the misapprehension of legal principles as to Article 17 (3) of the Enforcement Decree.

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

Justices Park Si-hwan (Presiding Justice)