Review Division 2008-0129 ( December 23, 2008)

Where all common purchase tax amounts are divided by the input tax amount related to the tax-free business, the tax-free business operator;

Where all common input tax amounts are divided into input tax amounts related to the tax-free business, it is reasonable to regard all input tax amounts as tax-free business and if sales and purchase of taxable business have not occurred, they shall be deemed tax-free business operators.

The contents of the decision shall be the same as attached.

Article 2 (Taxpayer of Value-Added Tax Act)

Article 17 (Payable Tax Amount)

1. The Defendant’s disposition of imposition of KRW 131,720,850 on May 1, 2006 against the Plaintiff is revoked.

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

The same shall apply to the order.

1. Circumstances of the disposition;

A. The plaintiff is a corporation established by the construction company of △△△△ in Seoul Special Metropolitan City (hereinafter referred to as 'Seoul Special Metropolitan City Construction') in full investing on August 6, 2007 for the enterprise urban development project and related projects, and the plaintiff has been acquiring the business rights of tourism and recreation-type enterprise city development project (hereinafter referred to as 'the development project in this case') with the contents of installing golf courses, themeac and accommodation, etc. on the part of 14,643,669 square meters in Seoul Special Metropolitan City (hereinafter referred to as 'the land in this case'), where the construction of the original △△△△ in Seoul Special Metropolitan City was in operation, the construction of the original △△△△ in Seoul Special Metropolitan City is in operation after obtaining approval of the implementation plan of the development project in this case from the Ministry of Culture and Tourism on September 18, 207.

B. On January 25, 2008, the Plaintiff reported the value-added tax for the second half-year period from 2007 to 31 December 2007 (from August 6, 2007 to December 31, 2007). In relation to the pertinent development project, there was no supply related to the taxable business and the tax-free business, and only 38,341,568,79 won was incurred due to the acquisition of business licenses and the exercise of the official approval form. The said purchase price was calculated in accordance with the ratio (34.35% of the project cost required for the taxation business, and 65.65% of the project cost required for the tax-free business: 1,317,208, and 580,000 won was returned.

C. From February 11, 2008 to February 22, 2008, the Defendant conducted on-site verification of the refund of value-added tax for the second period of February 2007 against the Plaintiff (hereinafter “on-site verification”). The purchase price related to the tax-free business occurred during the above period is KRW 1,248,830,00, and the purchase price (common purchase price) is 37,092,738,799, and there is no purchase price related to the tax-free business. After confirming that there is no common purchase price, the remaining purchase price is related to the tax-free business. According to Article 61(4)1 of the Enforcement Decree of the Value-Added Tax Act, the input tax amount for the common purchase price should be calculated as an input tax amount related to the tax-free business. Ultimately, during the above period, the Plaintiff did not report on the tax-free business, on the grounds that there is no input tax amount related to the tax-free business.

D. The Plaintiff filed a request for examination with the Commissioner of the National Tax Service on July 11, 2008, but the Commissioner of the National Tax Service rendered a decision to dismiss the Plaintiff’s request for examination on December 23, 2008 after deliberation by the National Tax Examination Committee.

[Reasons for Recognition] The whole purport of the argument with the testimony of evidence Nos. 1, 2, 1, 2, 3

2. Referral and Determination

A. The plaintiff's principal

1) Although Article 61(1) and (4) of the Enforcement Decree of the Value-Added Tax Act does not explicitly stipulate the method of calculating the input tax amount for a taxable business by dividing the common purchase price by the amount of the project cost needed for the taxable business and the tax-free business under the implementation plan, the above provision is merely a method that the administrative agency established the reasonable internal criteria for the method of calculating the common purchase tax amount for the convenience of taxation administration, and there is no external legal nature. Therefore, if there is a reasonable method that can calculate the common purchase tax even if the method is not under the above Enforcement Decree, it shall be deemed a legitimate method.

2) According to Article 61(4) of the Enforcement Decree of the Value-Added Tax Act, the entire input tax amount on the common purchase price of this case is calculated as the input tax amount related to the tax-free business. As a result, the Plaintiff did not provide any supply with respect to the taxable business during the second taxable period of 2007, and no relevant input tax amount is available, and thereby constitutes a tax-free business operator. However, since a tax-free business operator is not a taxpayer under the Value-Added Tax Act, and thus does not bear the duty to report under the Value-Added Tax Act

3) Additional tax is an administrative sanction imposed under the conditions as prescribed by the Act in cases where a taxpayer violates the duty of declaration, etc. under the Act without any justifiable reason; however, there are circumstances to deem it unreasonable to expect the taxpayer to fulfill such duty; and thus, there is no justifiable reason to impose additional tax. However, in the instant case, the Plaintiff’s calculation of the input tax amount related to the taxable business in an independent manner not under Article 61(4) of the Enforcement Decree of the Value-Added Tax Act is justifiable. Thus, the Defendant’s instant disposition against the Plaintiff is unlawful.

(b) Related statutes;

The entries in the attached Table shall be as follows.

(c) Fact of recognition;

1) The main contents of the instant project approved by the Ordinance of the Ministry of Culture and Tourism consisting of 26.9% of roads, green areas, parks, etc. in the taxable business operated by the Plaintiff and developed land, and 34.35% of the total estimated project cost of the instant project approved by the Minister of Culture and Tourism is 34.35% of the project cost of the instant project, and 65.65% of the project cost related to the tax-free project.

2) During the second taxable period of 2007, there was no supply relating to the pertinent development project, and there was no output tax amount at all.

3) On-the-spot confirmation by the Defendant, the purchase price and the classification table of the two purchase price in 2007 confirmed as the purchase tax invoice (hereinafter referred to as “the table of this case”) are as follows (Provided, That in value, it was cut down to KRW 1,00).

4) The Defendant classified the purchase amount related to the dredging between the purchase amount in the instant table, and the purchase amount related to the golf course course as the purchase price related to the tax-free business. The details related to the development of enterprise cities and other management expenses were classified as the common purchase price.

[Reasons for Recognition] Uncontentious Facts, Evidence No. 2, Evidence No. 2, Evidence No. 2, 3, 4, the whole purport of pleading

D. Determination

1) Article 61(1) and (4) of the Enforcement Decree of the Value-Added Tax Act merely establishes an internal standard for the method of calculating common input tax amount for the convenience of taxation administration. Thus, if the administrative agency distributes the common input tax amount according to a reasonable method of calculation, not the method under the above Enforcement Decree, it shall be deemed legitimate.

Article 36 of the Value-Added Tax Act provides that matters necessary for the enforcement of this Act shall be prescribed by the Presidential Decree, and it is necessary to enforce the Value-Added Tax Act, but it is delegated to the Presidential Decree with regard to matters not stipulated in the Act. However, as to the business of this case, with respect to a business operating a taxable business or a tax-free business that is included in all of its business contents, there is no provision in the Value-Added Tax Act. The Enforcement Decree of the Value-Added Tax Act provides for the method of proportional distribution in accordance with delegation under Article 36 of the Value-Added Tax Act. Thus, Article 61 of the Enforcement Decree of the Value-Added Tax Act shall be binding

2) In the second taxable period of 2007, whether the Plaintiff constitutes a duty-free business entity and thus, is not a person liable to pay value-added tax

According to the Enforcement Decree of the Value-Added Tax Act, input tax amount related to a taxable business and a business concurrently operating a tax-free business shall be calculated based on actual attribution, and an input tax amount related to a tax-free business, which is commonly used for a taxable business and a tax-free business and is included in a tax-free business and for which actual attribution is not distinguishable, shall be calculated proportionally by multiplying the common input tax amount by the ratio of the supply price to the total supply price (Article 61(1)). If there is no supply price related to a taxable business and a tax-free business during the taxable period or no supply price exists for a business, the ratio of the purchase price related to the total purchase price excluding common purchase price, the ratio of the estimated supply price related to the total expected supply price, the ratio of the estimated use price related to the tax-free business related to the total expected use area, etc

In the instant case, as seen earlier, that there was no supply price for taxable business and tax-free business during the second taxable period of 2007, the input tax amount related to the tax-free business among the common input tax should be calculated first by the method under Article 61(4)1 of the Enforcement Decree of the Value-Added Tax Act. According to the instant table, the total purchase price excluding the common purchase price in the instant case is limited to KRW 1,248,830,00 (=82,580,000 + 422,250,000), which is the sum of the purchase prices related to the golf course course in the instant case. Since all of them are related to the tax-free business, the ratio of the purchase price related to the total purchase price excluding the common purchase price is 100%. Accordingly, the common purchase price of the Plaintiff during the second taxable period of 2007 is divided into the purchase price related to the tax-free business, and as a result, the Plaintiff has no relation to the purchase price during the said taxable period.

Meanwhile, Article 47-4 (1) of the Framework Act on National Taxes provides that "where a taxpayer files a tax base return within the statutory due date of return pursuant to the tax law and a taxpayer files a tax return or the taxpayer files a tax return exceeding the tax amount to be returned under the tax law, the person liable to impose additional tax on over-reported return shall be the taxpayer." Article 2 of the Value-Added Tax Act provides that "the person liable to impose additional tax on over-reported return pursuant to the above law shall be the taxpayer." Article 2 of the Value-Added Tax Act provides that "the person who supplies goods or services independently for business regardless of the existence of profit for profit", "the person liable to pay additional tax on over-reported return under Article 47-4 (1) of the Framework Act on National Taxes" shall be the taxpayer under the Value-Added Tax Act, and such a person is naturally a taxable entrepreneur operating a taxable business, and it is reasonable to interpret that the tax exemption entrepreneur who is exempted from the tax exemption business

However, as seen earlier, the Plaintiff’s input tax amount related to the taxable business is all the input tax amount related to the tax-free business as a result of the fact that there is no output tax amount and the common input tax amount are distributed in proportion to the input tax amount related to the tax-free business during the two taxable periods in 2007, and even if the Plaintiff concurrently operates the taxable business and the tax-free business, it should not be deemed a taxable business if there is no purchase or sales related to the taxable business, as in such a case. Therefore, it is reasonable to deem the Plaintiff

Therefore, the plaintiff is not a business owner liable to pay the value-added tax, and it is not a taxpayer liable to pay the excess additional tax on the return of refund under the Framework Act on National Taxes, and the disposition of this case on which the plaintiff is liable to pay the excess additional tax on the return of refund. The disposition of this case is unlawful without examining whether the plaintiff's calculation of the input tax amount related to the tax-free business in its own way, not by the method provided for in Article 61 (1) and (4) of the Value-Added Tax

3. Conclusion

If so, the plaintiff's claim is reasonable, and therefore, it is so decided as per Disposition.