[Defendant-Appellee] Korea Co., Ltd. (Attorney Jeong Byung-chul et al., Counsel for defendant-appellee)

The director of the Nam-gu Tax Office (Law Firm Domin, Attorney Cho Yong-chul, Counsel for the plaintiff-appellant)

March 8, 2013

1. On July 13, 2011, the part of the revocation tax amount in the separate sheet No. 2 issued by the Defendant against the Plaintiff is revoked.

2. The plaintiff's remaining claims are dismissed.

3. One-eight of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

The part of each disposition in attached Form 1, which the Defendant made against the Plaintiff on July 13, 2011, seeking revocation of attached Table 3, shall be revoked.

1. Details of the disposition;

A. The Plaintiff entered into a domestic sales contract with Daimer AG (former trade name: Doimer Crysler AG (hereinafter “DG”), which is a German manufacturer of Megsts’ vehicles (hereinafter “benz vehicles”), and engages in wholesale business by importing benz vehicles from DAG, and selling them to the official endors who entered into a sales agency contract with the Plaintiff.

B. 1) The Plaintiff, from January 2007 to January 201, 201, received input tax deduction from 199 units among the bents vehicles imported from DG during the Value-Added Tax period (hereinafter “instant on-board vehicles”), and used them for the purpose of trial boarding and borrowing and lending (to lend vehicles during the repair period of the end-of-life vehicles of DG customers).

2) In addition, the Plaintiff used 295 units of benz vehicles imported from DAG for its officer’s business purposes. Of them, 224 units of 9 units of 9 units of 9 units of 9 units of 9 units of 9 units of 139,456,30 units of 27 units of 27 units of 139,456,30 units of 27 units of 27 units of 27 units of 27 units of 139,456,30 units of 27 units of 27 units of 27 units of 199.

C. After conducting an investigation with the Plaintiff from May 23, 201 to July 11, 2011, the head of the Seoul Regional Tax Office: (a) determined that the instant passenger vehicle constitutes the supply of the Plaintiff, not the Plaintiff’s direct use; (b) used for the Plaintiff’s customers; and (c) the instant passenger vehicle was used for general performance of duties, such as an agent visit or a business trip, etc. by its executives and employees; (d) this constitutes a “tax data” under Article 6(2) of the former Value-Added Tax Act (Amended by Presidential Decree No. 11129, Dec. 31, 2011; hereinafter the same shall apply); and (e) notified the Plaintiff of the taxation data at the price of official delivery, not for the price acquired by the Plaintiff.

D. Accordingly, on July 13, 2011, the Defendant calculated the output tax amount and the additional tax amount due to the self-supply of the instant passenger vehicles and the instant passenger vehicles, and then deducted the Plaintiff’s KRW 139,456,300 paid at the time of filing a revised return, as stated in the aforementioned Section b.2, and issued each disposition on July 13, 201, stating the details of imposition of value-added tax on the Plaintiff (hereinafter “each of the instant dispositions”).

E. The Plaintiff appealed and filed an appeal with the Tax Tribunal on October 10, 201, but the Tax Tribunal dismissed the Plaintiff’s claim on May 22, 2012.

[Ground of recognition] Facts without dispute, Gap evidence 1-1 to 9, Gap evidence 2-1, 2, and 3, the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiff's assertion

1) Claim concerning the instant passenger vehicle

Since the vehicle for display in this case is a vehicle used to promote sales, such as customer viewing, marketing, advertisement and publicity, it is not a small passenger vehicle for non-business purpose under Article 15 (1) 2 of the former Enforcement Decree of the Value-Added Tax Act (hereinafter “vehicle”).

2) Claim concerning the instant pilot vehicle and the entertainment vehicle

A) Since a taxable entrepreneur’s direct use and consumption of goods for his/her own taxable business is the process of creating added value and the created added value would again generate output tax amount, it does not need to be deemed as the supply of goods. Therefore, even if a taxable goods were temporarily used for a tax-free business, it does not constitute a fundamental self-supply. However, the Plaintiff, as part of the selling vehicle, temporarily used the instant passenger vehicle and the entertainment vehicle for the business purpose of its officers and employees, and sold them for taxation purposes, does not constitute self-supply.

B) Even if the instant passenger vehicle and the entertainment vehicle constitute a non-business vehicle, this does not constitute a self-supply, even if the instant vehicle and the entertainment vehicle constitute a non-business vehicle under Article 17(2)4 of the former Value-Added Tax Act [Article 17(2)3 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010)]. In addition, since the input tax amount is not actually deducted for 27 vehicles among the entertainment vehicles in the instant case, it does not constitute a self-supply.

C) Even if the instant pilot vehicle and the entertainment vehicle constitute a self-supply, the value of supply should be deemed not the sale price set by the Plaintiff at the time of the Plaintiff’s supply to the official sear, but the value acquired by the Plaintiff from the DAG. Moreover, the instant pilot vehicle and the entertainment vehicle constitute depreciable assets. According to Article 49(1)2 of the former Enforcement Decree of the Value-Added Tax Act, in cases where goods offered for a taxable business constitute depreciable assets, the value of supply should be deemed to be the value of supply only the amount calculated by deducting the legal rate corresponding to the taxable period expired from the acquisition price when the goods are deemed to constitute depreciable assets.

D) In a case where the Plaintiff’s transfer of the said vehicle, the output tax amount of the value-added tax declared and paid by the Plaintiff while selling the said vehicle should be deducted from the amount of each disposition of this case.

B. Relevant statutes

Attached Table 4 shall be as stated in the relevant statutes.

C. Determination

1) As to the allegation regarding the instant passenger vehicle

In full view of the purport of the argument in Gap evidence 2-1, the plaintiff provided the time limit of the car in this case in case where official sears, such as Han Sung-sung and Yang Sung-sung Co., Ltd., require their customers to get a trial. The plaintiff entrusted the business of transporting, maintaining, and managing the time limit of the vehicle in this case to G ms (Change: Firm Name before modification) which is a specialized management company. In accordance with the vehicle management regulations, the plaintiff can recognize the fact that a vehicle inappropriate to be used for a trial due to the passage of six months from the date of registration, is being sold and replaced with a new vehicle after its sale.

In full view of the aforementioned facts and the purport of the entire arguments, the following circumstances are acknowledged, namely, (i) sportss vehicles imported and sold by the Plaintiff are high-priced; (ii) a considerable number of consumers wishing to purchase such high-priced vehicles prior to the determination of their purchase intent, and (iii) the Plaintiff and the official sear use part of the sales vehicles for the purpose of fulfilling the consumer’s demand as a trial vehicle; (ii) the National Tax Service and the Ministry of Strategy and Finance provide that the vehicles used by the taxation business entity, including the motor vehicle dealer, for the purpose of the trial or exhibition, do not constitute non-business vehicles under the Value-Added Tax Act; and (iii) the Defendant also acknowledges that the vehicles are used for the purpose of the trial of the Plaintiff’s customers, including the Plaintiff, for the purpose of the purchase and sale of the vehicles for the purpose of the use of the vehicle for the purpose of the trial; and (iii) the Plaintiff’s official vehicle will not be deemed to have been used for the purpose of the Plaintiff’s purchase and sale of the vehicles for the purpose of the Plaintiff’s request.

Therefore, among the dispositions in this case, the part concerning the revocation of the attached Form 2, which is the imposition of value-added tax on the instant non-business vehicle on the premise that the instant passenger vehicle constitutes a non-business vehicle, should be revoked as it is unlawful without further review as to the remainder of the Plaintiff’s assertion.

2) As to the instant argument regarding the instant entertainment vehicle

A) As to the allegation that the instant entertainment vehicle was temporarily used for business purposes and sold as taxable goods, and thus does not constitute self-supply

In light of the following circumstances: ① Article 6(2) of the former Value-Added Tax Act provides that a business operator directly uses or consumes goods produced or acquired in connection with his/her own business shall be deemed the supply of goods. Article 15(1)2 of the former Enforcement Decree of the Value-Added Tax Act provides that “non-business vehicles and goods for their maintenance” shall be deemed to be the supply of goods under the above provision; this would result in the business operator’s temporary consumption of goods without value-added tax if he/she purchases a vehicle for non-business purposes and uses them for non-business purposes after deducting the input tax amount, unlike general consumers. This would result in the business operator’s temporary consumption of goods subject to value-added tax without imposing value-added tax, and thus, would interfere with the purpose of the value-added tax imposed on him/her for consumption, and thus, it would be difficult for the business operator to temporarily use the goods for non-business purposes and bear value-added tax imposed on him/her for 10 years prior to the sale of goods.”

B) As to the allegation that the instant management vehicle constitutes an object of non-deduction of input tax, but does not constitute self-supply

Article 17(2)4 of the former Value-Added Tax Act [Article 17(2)3 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010)] provides that the input tax amount on the purchase, lease, and maintenance of non-business vehicles shall not be deducted from the output tax amount. Article 15(1)2 of the former Enforcement Decree of the Value-Added Tax Act provides that the input tax amount on the purchase, lease, and maintenance of non-business vehicles shall not be deducted from the output tax amount. Article 15(1)2 of the former Enforcement Decree of the Value-Added Tax Act provides that

Article 15 (1) 2 of the Enforcement Decree of the Value-Added Tax Act provides that an entrepreneur who did not receive input tax deduction at the time of a pre-stage transaction shall bear the value-added tax, and thus, even if using it as a non-business vehicle, it is deemed that it is excluded from the scope of self-supply because it is unnecessary to view it as a self-supply, and thus, it does not appear to exclude the input tax deduction within the scope of self-supply.

In addition, when the plaintiff specified the purpose of use as non-business vehicles by using it for the duties of officers and employees, the provision of deemed supply under Article 6 (2) of the former Value-Added Tax Act applies to the obligation to pay the value-added tax. Since then, even if the plaintiff paid KRW 139,456,30, when filing a revised return for non-deduction of the input tax amount for 27 vehicles among the entertainment vehicles in this case, such circumstance alone cannot be said to retroactively terminate the liability to pay the value-added tax already occurred (However, as seen earlier, the defendant imposed the value-added tax on the vehicles in this case after filing a revised return for non-deduction of the input tax amount, and deducted KRW 139,456,300, which the plaintiff paid after filing a revised return for non-deduction of the input tax amount).

C) As to the allegation that the calculation of the value of supply of the instant entertainment vehicle is illegal

(1) Article 13(1)2 of the former Value-Added Tax Act provides that “The market price” of the goods supplied by a business entity shall be the “market price of the goods or services supplied by the business entity” in the event of any consideration other than money as a tax base for value-added tax on the supply of goods. Article 50(1)1 of the former Enforcement Decree of the Value-Added Tax Act provides that “The market price” shall be the price continuously traded or traded between a business entity and a third party in a situation similar to the transaction in question. Article 13(2) of the same Act provides that Article 6(2) of the Value-Added Tax Act shall apply mutatis mutandis to the calculation

In light of the purport of the above provision, the tax base for self-supply of non-business vehicles shall be the market price of the relevant vehicle, and the market price shall be the price determined at the time when the Plaintiff, the importing wholesaler, who is an official with no special relation, continuously traded in a similar situation with the above self-supply, is the price determined at the time of the supply to the official endr.

(2) Article 49 of the former Enforcement Decree of the Value-Added Tax Act provides that, where depreciable assets used by a business are deemed as the supply of goods and imposed, it is difficult to calculate the general transaction price thereof, and it is necessary to reflect the amount reduced in value due to such use, only the amount calculated by deducting the statutory rate according to the taxable period passed from the acquisition price shall be deemed as the market price. The Plaintiff’s assertion that the depreciable assets, such as the Plaintiff’s assertion, shall not be deemed as the provision that the acquisition price will be deemed as the market price if they are not

In addition, Article 49 of the former Enforcement Decree of the Value-Added Tax Act and Article 24 (1) 1 (b) of the Enforcement Decree of the Corporate Tax Act provide that vehicles shall be deemed as depreciable assets. However, considering the overall purport of the pleadings in the statement No. 2-1 of the evidence No. 2-1, the Plaintiff classified the instant entertainment vehicle into sales inventory assets on the balance sheet and sells it for a certain period, and it can be recognized that the Plaintiff does not include depreciation costs by using it as tangible assets or as fixed assets on the balance sheet. Thus, the instant entertainment vehicle cannot be deemed as depreciable assets. Therefore, it cannot be deemed that only the amount calculated by deducting the statutory rate corresponding to the taxable period elapsed from the acquisition value on the premise that the instant vehicle is depreciable assets should be calculated as the value of supply.

D) As to the Plaintiff’s assertion that the output tax amount of value-added tax reported and paid should be deducted when selling the instant management vehicle.

However, in light of the following: (a) the Value-Added Tax Act adopts the so-called tax credit at the pre-stage stage based on which the supplier of goods or services collects the output tax from the supplier before reaching the final consumer and pays it to the State; and (b) the entrepreneur subject to the collection of such tax through the process of receiving the input tax deduction and refund from the State, and ultimately imposes the burden on the final consumer (see Supreme Court Decision 99Da33984 delivered on November 12, 199, etc.). If the Plaintiff had a third party use the instant management vehicle for its business, it shall be deemed that the Plaintiff constitutes a self-supply. Accordingly, if the Plaintiff sold the instant management vehicle to a third party, it is reasonable to view that the Plaintiff should pay the value-added tax at this stage; and (c) if the Plaintiff sold the instant management vehicle to the third party, it does not seem to result in double taxation at that stage; and (d) the Plaintiff’s return and refund of the input tax amount should not be viewed as the output tax amount.

E) Sub-decisions

Therefore, the imposition of value-added tax on each of the instant dispositions related to the entertainment vehicle is legitimate, and the Plaintiff’s assertion on this part is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is accepted within the scope of the above recognition, and the remaining claim is dismissed as it is without merit. It is so decided as per Disposition.

[Attachment]

Judges Ba-hee (Presiding Judge)