Where a creditor disposes of golf membership of a third party, which was provided as a collateral for the repayment of a claim for construction price to the debtor, through the debtor, the case holding that the transfer of the above golf membership cannot be deemed as the supply of goods subject to taxation under the Value-Added Tax Act.

[1] Articles 1(1)1 and 6(6) of the former Value-Added Tax Act (amended by Act No. 6049 of Dec. 28, 1999) (see Article 6(6)1 of the current Act) Article 17(1) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 16661 of Dec. 31, 199)

Lee-hee et al. and 10 others (Attorney Song-ho et al., Counsel for the defendant-appellant)

Head of North Daegu Tax Office

Daegu High Court Decision 2003Nu1951 delivered on April 23, 2004

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

In a case where an obligor transfers other property rights to a creditor in relation to the repayment of an obligation, the issue of whether such transfer is the same does not simply be determined by the type of documents given and received, but rather by the transaction’s substance and the interpretation of the intent of the parties concerned (see Supreme Court Decision 91Da36932, Feb. 11, 1992). It is presumed that the obligor’s transfer of other property rights to a creditor in relation to the repayment of obligation is by means of a security or repayment for the repayment of obligation, barring any special circumstance, and it does not constitute a substitute for the repayment of obligation (see Supreme Court Decisions 95Da1371, Sept. 15, 1995; 95Da1660, Dec. 22, 1995, etc.). This does not change where a third party transfers property rights in relation to the obligor’s existing repayment of obligation.

According to the facts duly established by the court below and the records, the plaintiffs are paid golf membership fees of golf membership operated by them from the development of each source in order to recover their claims for construction cost against Bosung Co., Ltd. (hereinafter referred to as " Bosung"). However, for the settlement of claims and obligations between the above three parties, the plaintiffs evaluated golf membership fees as KRW 50 million per unit development and purchased them from each source development, and instead, the plaintiffs issued a letter of claim transfer and receipt to transfer their claims for the construction cost of Bosung to each source development, and then received a receipt of payment for the membership fee of this case from each source development. Since the plaintiffs requested Bosung for the disposal of the golf membership fee of this case to collect the above construction cost of this case without being registered as its members, the plaintiffs transferred the above golf membership fee of this case to each party for the purpose of acquiring the above golf membership fee of this case by using the transfer of the above membership fee receipt of this case, the plaintiffs can be seen as being unlawful in light of the above legal principles.

Although the court below's reasoning is somewhat inappropriate, it is just in its conclusion that the transfer of golf membership in this case does not constitute a supply of goods under the Value-Added Tax Act, and there is no error in the misapprehension of legal principles as to transfer of security for transfer, violation of the rules of evidence, or incomplete trial, as otherwise alleged in the ground

The Supreme Court precedents cited in the ground of appeal are different from the case, and it is not appropriate to invoke the case in this case.

However, the part of the court below's decision that the transfer of golf membership in this case constitutes the supply of goods that are not related to the plaintiffs' business cannot be viewed as the supply of goods subject to the above transfer, is inappropriate. However, as long as the judgment of the court below is just, it does not affect the conclusion of the judgment, the argument in the grounds of appeal on this part is not acceptable.

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 Yoon Jae-sik (Presiding Justice)