Seoul High Court 2009Nu7495 ( August 26, 2009)

National High Court 2006west0490

The exporter's assertion of input tax deduction and refund for the illegal transaction of gold bullion violates the principle of good faith.

If an exporter makes an illegal transaction for the purpose of evading the output tax amount in the course of trading gold bullion, and thereby seeks the input tax deduction and refund even though he knew or was not aware of the fact that the deduction and refund of input tax amount would result in the reduction of other tax revenues by gross negligence, this would be contrary to the principle of good faith.

Article 15 of the Framework Act on National Taxes

Revocation of imposition, including value-added tax, 200Du18165

-Appellant

○○ Co., Ltd.

-Appellee

○ Head of tax office

Remand Supreme Court Decision 2008Du21027 Decided February 26, 2009

1. The Seoul High Court Decision 2009Nu7495 Decided August 26, 2009

2. The Seoul High Court Decision 2009Nu7495-1 Decided October 7, 2009

April 14, 2011

Of the judgment of the court below, the part excluding the aggregate tax invoices and the additional tax, shall be reversed, and this part of the case shall be remanded to the Seoul High Court.

The defendant's remaining appeals are dismissed.

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

1. As to the Defendant’s ground of appeal

A. As to the fact that the instant tax invoice was a false tax invoice

The lower court determined that the instant tax invoice does not constitute a false tax invoice after comprehensively taking account of the employment evidence, and determined that the instant tax invoice was not a false tax invoice.

The ground of appeal on this part is that the above judgment of the court below is erroneous, but it is merely an error in the selection of evidence or fact-finding which belongs to the exclusive jurisdiction of the court below and thus cannot be a legitimate ground of appeal.

B. On the ground that unfair input tax deduction and refund claim violate the principle of good faith

(1) Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter “Framework Act on National Taxes”) declares that the principle of good faith should be a basic guiding ideology in the field of tax law by stipulating that “A taxpayer shall perform his/her duty in good faith and sincerity. The same shall also apply to a tax official performing his/her duty.” This principle of good faith, which enables a tax official to realize or supplement the existing law, and to secure concrete feasibility in the operation of the law through the function of supplementing the criticism of the law, is also somewhat limited compared to that of the principle of no taxation without law in the field of tax law, and its scope of application is somewhat limited compared to that of the civil law. However, if a tax law provision is applied to an individual case, it would result in an unreasonable outcome that would result in a sound performance, thereby leading to the imposition of value-added tax in light of the universal justice and ethics, it may be excluded from the application of the principle of no taxation without law.

(2) Article 15 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010) provides that when an entrepreneur supplies goods or services, the value-added tax on the value of the supply thereof shall be collected from the person who receives the supply thereof. Article 17(1) provides that the value-added tax payable by an entrepreneur shall be the amount obtained by deducting the input tax amount from the output tax amount, and that the input tax amount exceeding the output tax amount shall be refunded. This is based on the principle that the entrepreneur collects the output tax from the entrepreneur who receives the supply at each transaction stage prior to reaching the final consumer and pays the tax amount to the State, and the entrepreneur who collects the tax amount shall, through the process of receiving the deduction and refund as the input tax amount from the State, make it impossible to properly pay the input tax amount to the final consumer (see, e.g., Supreme Court Decision 9Da3984, Nov. 12, 199).

Therefore, in a series of continuous transactions, where a malicious entrepreneur has attempted to evade value-added tax from the beginning to the end, and does not pay the value-added tax collected by him by attempting to make an abnormal transaction that only causes losses if he/she does not evade value-added tax (hereinafter referred to as "illegal transaction"), as in the next transaction stage, if an exporter is entitled to deduct and refund the input tax without the burden of the output tax amount as in the zero-rate tax rate as in the next transaction stage, the country has no choice but to make a refund with other tax revenues. This result exceeds the passive gap in tax revenues and constitutes the leakage of the National Treasury. Accordingly, the burden exceeds the damage of the value-added tax system itself, thereby causing serious harm to the overall tax system.

Of course, even if there are the above reasons, if an exporter is in a situation where the existence of an illegal transaction is unknown at all, he/she may not, in principle, deny that the exporter is entitled to deduction and refund of the input tax amount as prescribed by the Value-Added Tax Act. However, if the exporter was aware that there was an illegal transaction at the pre-stage stage, and he/she had engaged in a transaction with an opportunity to promote his/her own interest without vagasing it, and his/her transaction profit is attributable to the aforementioned illegal transaction, and his/her participation in the transaction is ultimately a critical factor that makes it possible to make an illegal transaction ultimately by taking advantage of the deduction and refund system of the input tax amount, which is a premise, it shall be deemed an act of pursuing unjust profits by abusing the input tax amount deduction and refund system which is a premise, and thus, such exporter’s deduction and refund of the input tax amount with another tax revenue may not guarantee the profits accrued from the illegal transaction through the National Treasury, nor may it prevent any serious harm to the overall tax system as seen above.

Therefore, in such a case, an exporter’s seeking the deduction and refund of an input tax amount cannot be accepted in light of the universal sense of justice and ethics. Therefore, it is unreasonable to deem that this is not permissible as it goes against the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes. Such a legal doctrine is likewise applicable to a case where an exporter was unaware of the existence of such an illegal transaction due to gross negligence in light of the perspective of fairness, the gravity of the outcome, and the universal sense of justice, namely, the relationship with a malicious business entity, in which the exporter was aware of the existence of such an illegal transaction, and if the exporter was aware of the existence of such illegal transaction due to gross negligence, it is reasonable to deem that the same applies to a case where the exporter was unaware of the fact that he was sufficiently aware of the fact that he was unaware of the fact

In addition, in such cases, since an exporter who has a mutual relationship with a malicious business entity is entitled to deduct and refund the input tax amount from the State, and thus, the exporter denies the deduction and refund of the input tax amount, it cannot be deemed that the exporter transfers his/her liability for the evasion of value-added tax to the exporter without reasonable grounds (see Supreme Court en banc Decision 2009Du13474, Jan. 20, 201).

(3) Examining in light of the aforementioned legal principles, if the Plaintiff, an exporter, has a malicious entrepreneur who makes an illegal transaction for the purpose of evading the output tax amount in the course of a series of transactions prior to the transaction, and thus, seeks the deduction and refund of the input tax amount even though he knew of or was unaware of the fact that the Plaintiff’s deduction and refund of the input tax amount would result in a decrease in other tax revenues by gross negligence, the Plaintiff’s taking advantage of the input tax deduction and refund system as a malicious entrepreneur’s illegal transaction is seeking partial distribution of the output tax amount evaded by a malicious entrepreneur as a profit by abusing the input tax deduction and refund system, and thus, it is not permissible in violation of the good faith principle as stipulated in Article 15 of the Framework Act on National Taxes.

(4) Thus, the court below should have sufficiently examined whether the plaintiff knew or was unaware of the above circumstances in the transaction of the gold bullion in this case by gross negligence, and judged whether the plaintiff's claim for deduction and refund of the plaintiff's input tax amount was against the principle of good faith. However, the court below held that the plaintiff's claim for deduction and refund of the plaintiff's input tax amount should be allowed on the ground that the tax invoice in this case does not constitute a false tax invoice without such deliberation and determination, and thus the disposition of imposition of the value-added tax in this case (including the additional tax for a bad faith and the additional tax for a bad faith, but excluding the additional tax for a bad faith in payment, which is irrelevant to the principle of good faith) was unlawful. The court below erred in the misapprehension of legal principles as to the principle

2. Plaintiff’s ground of appeal

In an additional judgment, the court below rejected Plaintiff’s claim on the ground that the Supreme Court reversed the disposition rejecting value-added tax, which included the disposition rejecting value-added tax in the judgment of the court below before remanding, and thus, the part rejecting value-added tax was included in the judgment of the court below. However, the Supreme Court reversed only the part rejecting the disposition imposing value-added tax in the judgment of the court below before remanding and remanded it to the court below, and that the part rejecting the disposition rejecting value-added tax was not subject to judgment of the court below. However, in light of the corresponding part of the judgment of the Supreme Court on the grounds of remand, the part rejecting the disposition rejecting value-added tax was also included in the disposition rejecting value-added tax, and it is evident that the part rejecting the disposition rejecting the return of value-added tax was also included in the disposition rejecting the return of value-added tax in the judgment of remanding. Therefore, the judgment of the court below’s additional remand constitutes the scope of judgment of the court below and the judgment of the court below which affected

3. Conclusion

Therefore, among the judgment of the court below, the part excluding the additional tax against the failure to make a list of total tax invoices and the additional judgment are reversed, and this part of the case is remanded to the court below for a new trial and determination, and the defendant's remaining appeal is dismissed. It is so decided as per Disposition by the assent of all participating