National High Court Decision 2007J3644 ( December 26, 2007)

The legitimacy of the assertion that a new officetel is temporarily leased and that it is not a self-supply due to the exclusive use of tax exemption

If a part of a building constructed for the purpose of sale was temporarily leased until it was sold in lots, it cannot be deemed as a private supply. However, in light of the fact that the Plaintiff leased it for residential purpose, it cannot be deemed that the Plaintiff temporarily leased it.

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

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s imposition of value-added tax for the second term of 2006 against the Plaintiff on June 14, 2007 and the imposition of value-added tax for the first term of 2007 (124,461,60) shall be revoked.

1. Circumstances of the disposition;

A. On June 21, 2004, the Plaintiff acquired an officetel building listed in the attached Form 1 (hereinafter referred to as the “officetel of this case”) among the construction works from Kim Jong-sung, and newly constructed it. On September 29, 2006, the Plaintiff obtained the approval of the use of the officetel of this case from the head of Nam-gu Incheon Metropolitan City, and thereafter leased part of the officetel of this case to 00,000.

B. On January 25, 2007, the Plaintiff filed an application for refund of value-added tax of KRW 167,894,681 when filing the final return of value-added tax for the second term portion in 2006.

C. On June 1, 2007, the Defendant issued a corrective notice to the Plaintiff on June 1, 2007, on the following grounds: (a) the Plaintiff’s lease of a part of the instant officetel [the part of neighborhood living facilities (the instant officetel) of 4,872.27 square meters; (b) the part of the officetel leased to the Plaintiff, 312.76 square meters; and (c) the total of 73.2 square meters remaining in the factory room until the time of transfer of the business, excluding 625.8 square meters; and (d) 4,246.47 square meters] was used by the Plaintiff as a residential building (house) for which the value-added tax is exempted; and (b) the Plaintiff’s use of the building for sale, which is the object of value-added tax, constitutes the supply of goods under Article 6(2) of the Value-Added Tax Act; and (c) the Plaintiff’s supply of goods under Article 15(1)1 of the Enforcement Decree of the same Act.

D. The plaintiff appealed and filed an appeal with the National Tax Tribunal on September 10, 2007, but the National Tax Tribunal dismissed the appeal on December 24, 2007.

[Ground of recognition] Facts without dispute, Gap 1 through 5 evidence, Gap 9, 16 evidence, Eul 1 and 6 evidence, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) Although the Plaintiff’s lease of part of the instant officetel was true, it was leased for business, not for residential purpose, and thus, the instant disposition based on the premise that it is a residential lease is unlawful.

(2) Even if it is not so, the Plaintiff newly constructed the instant officetel for the purpose of selling it in lots, distributes the sales leaflets through the advertising company several times, and sells and sells advertisements in a daily newspaper, and makes it inevitable to lease part of the officetel as a house because it did not sell it from the beginning, and there was no business registration from the beginning, and the lease term is only one year, and the period of lease is only one year, and the instant officetel is serious financial difficulties due to the demand for repayment of construction expenses, loans, etc. after the construction of the instant officetel, and the instant officetel and all rights and obligations related thereto are transferred comprehensively to the Intervenor, etc. to the Intervenor, etc., within three months after obtaining approval for use of the instant officetel, the Plaintiff was merely temporarily and temporarily leased a part of the instant officetel until it was sold or sold, and thus, the instant disposition is unlawful.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

(1) On June 21, 2004, the Plaintiff prepared a contract for transfer and acquisition that comprehensively takes over all the rights and obligations of the instant officetel, which are under construction from Kim Il-sung. On the same day, the Plaintiff completed the instant officetel’s business registration by making its trade name as flur, flur, flur and flur as 'real estate', and 'lease'. On June 28, 2004, the Plaintiff changed the owner of the instant officetel from Kim Il-sung to the Plaintiff, and completed its business registration on November 19, 2004 by adding 'new construction and sale of the instant officetel' to the business category of the instant officetel. After which the Plaintiff changed the name on September 1, 2006.

(2) On September 29, 2006, the Plaintiff obtained the use and approval of the instant officetel from the head of Nam-gu Incheon Metropolitan City, and completed the registration of preservation of ownership on October 2, 2006 with respect to the instant officetel, but did not make a separate sectional ownership registration for each of the households of the instant officetel.

(3) From August 2006, the Plaintiff advertised the sales of the instant officetel through Joseon DoD Co., Ltd., a company specialized in the former advertising, and on the other hand, from September 21, 2006 to December 4, 2006, the Plaintiff advertised the sales of the instant officetel to the Incheon rice Luxembourg market.

(4) On December 29, 2006, the Plaintiff sold the instant officetel and its site to the Defendant’s Intervenor, etc., and completed the registration of ownership transfer on January 22, 2007. On January 19, 2007, the Plaintiff drafted a comprehensive transfer and acquisition contract (Evidence A 16-2) with the Defendant’s Intervenor, etc. to the effect that all of the instant officetels businesses are comprehensively transferred to the Defendant’s Intervenor, etc., and the main contents are as follows.

(5) From October 2006 to January 2, 2007, the Plaintiff entered into a lease agreement with 119 residents, including ○○, with respect to the 119 households among the total 121 households of the instant officetels, including KRW 3 million to KRW 25 million, monthly rent of KRW 230,000 to KRW 450,00 (Provided, That the rent deposit is determined to have no monthly rent in the case of KRW 25,00,00), and the lease period of 1 to 2 years, and most of them are tenants who are non-business operators, and approximately 10 households, including ○ Construction Co., Ltd. (the rent leased to the business operators was excluded from value-added tax).

(6) In addition, in each of the above lease agreements, the lessee shall be subject to the provisions of the Office of Management of the ○○ Office Office. The lessee shall bear the obligation of restoration upon the expiration of the contract, but reimburse the actual cost at the time of drum, cooling machine, air conditioners, attached bags, gas bags, and shoes. In raising pet animals, it is not possible to move in. In the event of raising pet animals, it shall be notified in advance one month prior to the extension of the contract, and it shall be automatically extended if not notified. There is no stipulation on the relation of interest and obligation arising from the transfer of the instant officetel.

(7) In the instant officetel, each household is equipped with household appliances, such as drum washing machines, air conditioners, air conditioners, and gas bags. A lessee filed an application for the division of water rates with the Incheon Metropolitan City Waterworks Business Headquarters for the benefit of household water rates around January 2007.

(8) Meanwhile, the Defendant’s Intervenor, etc. leased the instant officetel for a residential purpose, which is exempt from value-added tax, after having taken over it, until now. The Defendant’s Intervenor asserted that the instant officetel was leased for a residential purpose, and that it was acquired by transfer for a housing rental business.

[Ground of recognition] Facts without dispute, Gap evidence 3, Gap evidence 7 through 9, Gap evidence 13, 16, 19, Eul evidence 8, 11, and 12, and the purport of the whole pleadings

D. Determination

(1) Article 1(1)1 of the Value-Added Tax Act (hereinafter “the Act”) provides that the value-added tax shall be imposed on the transaction of supplying goods or services. Article 6(2) of the Act provides that the case where an entrepreneur directly uses or consumess goods produced or acquired in connection with his/her own business for his/her own business, which is prescribed by the Presidential Decree, shall be deemed to be the supply of goods. Accordingly, Article 15(1)1 of the Enforcement Decree of the Act provides that a person who is deemed to be the supply of goods under Article 6(2) of the Act refers to the goods used or consumed for the business of supplying the goods or services exempt from the value-added tax as one of the supply. Meanwhile, Article 12(1)11 of the Act and Article 34(1) of the Enforcement Decree of the Act provides that the supply of rental services of a house (a building used for the regular residence) shall be exempted

As above, the purport of deeming goods produced or acquired in relation to his/her own business as the supply of goods is that the supply of goods is presumed to be an indirect consumption tax expected to transfer to the final consumer. If the input tax is converted into a tax-free business due to the production or acquisition for a taxable business, the transfer of value-added tax is suspended because the output tax does not occur, and thus, the basic structure of value-added tax is maintained by viewing the business operator in such cases as in the final consumer status (see, e.g., Supreme Court Decision 91Nu1329, Aug. 14, 192). Thus, if the business operator temporarily and temporarily leases part of the building constructed for the purpose of sale until the sale is carried out, it cannot be deemed that such temporary and temporary lease constitutes a so-called person who directly uses and consumes for his/her own business (see, e.g., Supreme Court Decision 90Nu2383, Oct. 12, 190).

(2) First, as to whether the Plaintiff leased the instant officetel for non-residential purposes, the Plaintiff appears to have leased the instant officetel for non-commercial purposes, and as seen in the above recognition, about 110 households, except for the portion leased to the business entity, such as the corporation, etc. among the instant officetels, reside in the lessee who has not completed the business registration. The lessee of the instant officetel filed an application for the adjustment of the cost of household water rates to receive benefits from the instant officetel, and most of the above lessees have leased and resided in the instant officetel for residential purposes (Evidence A No. 11). In light of the structure, internal facilities, etc. of the instant officetel, the Plaintiff appears to have leased the instant officetel for non-commercial purposes. Accordingly, the Plaintiff’s assertion on this part is without merit.

(3) Next, as to whether the instant officetel is temporarily leased until the instant officetel was sold or sold, the following circumstances are acknowledged as follows: ① the Plaintiff’s acquisition of the instant officetel from Kim Il-sung and registered its business at the same time; and subsequently, the Plaintiff added the “new construction and sale of the instant officetel” (the Plaintiff reported the instant officetel as the “real estate,” while filing the instant value added tax). ② While the Plaintiff acquired the instant officetel for the purpose of sale, it did not make specific efforts to sell or purchase the instant officetel and sell the instant officetel, it is difficult for the Plaintiff to claim that the Plaintiff continued to sell or sell the instant officetel without any specific housing rent for each of the instant households, and that it was difficult for the Plaintiff to claim that the rent or sale of the instant officetel was made for each of the following reasons:

3. Conclusion

If so, the plaintiff's claim for objection case is without merit, so it is judged the same as the order.