[1] In a case where a truster, who is a debtor, entrusted property to a trustee to guarantee the performance of an existing obligation and designates a creditor as a beneficiary, whether there exists a separate supply of goods to the truster’s beneficiary, distinct from the transfer of the trust property (negative)

[2] Whether a defect is significant and apparent in a case where an act of filing a return on a tax base, etc. or a tax disposition based thereon is objectively reasonable and unreasonable (affirmative)

[1] A trust under the Trust Act requires a trustee to manage and dispose of a property right for the purpose of trust by transferring a specific property right to the trustee or disposing of it. Thus, inasmuch as a trustee takes over the property right from the truster and manages and disposes of the trust property on the premise thereof, the trustee supplies goods to the trustee. Therefore, even if a truster, who is a debtor, has designated the obligee as a beneficiary when he/she entrusted the property to the trustee to secure the performance of an existing obligation, such right to benefit belongs to the obligee as the original trust agreement, and thus, it cannot be deemed that there exists a separate supply of goods to the beneficiary of the truster, distinct from the transfer of

[2] Even if the details of a tax return are based on the tax return method, if the act of filing a return on the tax base, etc. or the taxation disposition based on it is unreasonable and reasonable, as in the case where the tax liability is not established by itself, such defect is serious, as well as obvious and invalid.

[1] Article 6 (1) (see current Article 9 (1)) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013); Article 2 of the Trust Act / [2] Article 1 of the Administrative Litigation Act / [1] Articles 1 and 19 of the Administrative Litigation Act

[1] Supreme Court en banc Decision 2012Du22485 Decided May 18, 2017 (Gong2017Sang, 1321) Supreme Court Decision 2014Du6111 Decided June 15, 2017 (Gong2017Ha, 1489)

Hyundai Industrial Development Co., Ltd. (Bae & Yang LLC, Attorneys O Tae-hwan et al., Counsel for the plaintiff-appellant)

Korea

Seoul High Court Decision 2014Nu56293 decided November 18, 2014

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the primary grounds of appeal

A. Article 6(1) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; hereinafter the same) provides that “The supply of goods shall be a delivery or transfer of goods on all contractual or legal grounds.”

A trust under the Trust Act requires a trustee to manage and dispose of a property right for the purpose of a trust by transferring a specific property right to a trustee or disposing of it. As such, the trustee takes over the property right from the truster and manages and disposes of the trust property on the premise that the trustee manages and disposes of it. Therefore, even if the truster, who is a debtor, designates a creditor as the beneficiary of the trust property in trust with the trustee to secure the performance of the existing obligation, such right to benefit belongs to the creditor as a result of the trust agreement, and thus, it cannot be deemed that there exists a separate supply of goods to the beneficiary of the truster, distinct from the transfer of the trust property to the original trustee due to the said designation (see Supreme Court Decision 2014Du6111, Jun. 15, 20

On the other hand, even if the details of a tax return are based on the tax return method, the legal relationship or factual basis that is subject to taxation is entirely nonexistent, and thus, the tax return act or taxation based on it is not established by the tax liability itself, if there is no objectively reasonable legal basis and rationality, such defect is serious as well as obvious invalidation.

B. The reasoning of the lower judgment and the evidence duly admitted by the lower court reveal the following.

(1) On March 30, 2010, the Plaintiff drafted and issued a tax invoice for KRW 108,618,508,847, which is a part of the construction price under the instant contract to the non-party company, with respect to the construction of the instant apartment from Hawon Co., Ltd. (hereinafter “non-party company”) and paid the value-added tax accordingly.

(2) On April 26, 2010, the Plaintiff received the entire order of this case where the Plaintiff’s claim for refund of the refund amount of value-added tax of KRW 10,861,850,886 against the Defendant of the non-party company was seized and entirely attached. The above order was served on the Defendant, who is the garnishee on April 28, 2010, and became final and conclusive around that time.

(3) On June 11, 2010, the non-party company concluded the instant trust contract with the purport of preserving the Plaintiff’s claim against the non-party company by designating the Plaintiff as the first beneficiary, the Korea Asset Trust Co., Ltd. as the trustee, and concluded the instant trust contract with the purport of trusting 61 households, including apartments unsold in the time among the instant apartments, and completed the trust registration on June 16, 2010.

(4) The non-party company filed a return on the instant tax amount on the grounds that the input tax amount exceeds the output amount at the time the return was filed for the first period of value added tax in 2010. However, on August 11, 2010, when the non-party company supplied the instant trusted real estate to the Plaintiff, who is the first beneficiary under the instant trust agreement, the non-party company additionally paid the value-added tax for the portion of the building among the instant trusted real estate (hereinafter “the instant return on the modification”), and did not pay the tax amount accordingly.

(5) On November 1, 2010, the head of Samsung District Tax Office issued a revised return, deemed the sales tax invoice issued by the non-party company to be reasonable and deducted from the refunded tax amount of this case. The head of Samsung District Tax Office issued a revised and notified the non-party company of the correction and notification that the non-party company should pay the value-added tax (including additional tax) 5,173,101,830 won upon the revised return of this case.

C. Examining these facts in light of the aforementioned legal principles and records, even if the non-party company, the truster, entered into the instant trust agreement for the purpose of preserving the Plaintiff’s claim against the non-party company, and designating the Plaintiff as the priority beneficiary, such priority interest is merely attributable to the Plaintiff under the trust agreement. Therefore, solely on the fact that there was a transaction following such trust creation, the supply of goods, which is the cause of value-added tax, between the truster company and the non-party company, and the Plaintiff, the priority beneficiary, cannot be presented. Thus, even based on the reported content, the instant revised return and the instant disposition are not established in the case where the tax liability is not established because there is no legal relationship or fact subject to taxation, and there is no objective reasonable legal basis and rationality

Although the reasoning of the court below did not contain some inappropriate points, it is just to conclude that the revised return and disposition of this case are null and void, and contrary to what is alleged in the grounds of appeal, the court below did not err by misapprehending the legal principles on the “supply of goods” under Article 6(1) of the former Value-Added Tax Act, or the invalidity

2. As to the conjunctive grounds of appeal

The allegation in this part of the grounds of appeal is the first argument in the final appeal and cannot be a legitimate ground of appeal.

3. Conclusion

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.

Justices Kim Jae-hyung (Presiding Justice)