[1] Whether an input tax amount for the acquisition value or acquisition incidental expenses paid by a tax-free entrepreneur who supplies tax-free land in acquiring the land as inventory assets shall not be deducted from the output tax amount, as the input tax amount related to the tax-free business under Article 17 (2) 4 of the former Value-Added Tax Act is "

[2] Meaning of “prepaid supply price” or “prepaid use area” under Article 61(4) of the former Enforcement Decree of the Value-Added Tax Act

[1] According to Articles 12(1)12 and 17(2)4 of the former Value-Added Tax Act (amended by Act No. 9268 of Dec. 26, 2008; hereinafter the same), and Article 60(6) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 21304 of Feb. 4, 2009), the input tax amount on the acquisition value or acquisition incidental expenses paid by the tax-free business operator who supplies the land as the inventory asset while acquiring the land as the inventory asset shall not be deducted from the output tax amount, since the input tax amount on the acquisition value or acquisition incidental expenses paid by the tax-free goods as the “in-house tax amount related to the tax-free business” under Article

[2] The main sentence of Article 61-2 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 21304, Feb. 4, 2009; hereinafter the same) assumes the settlement of accounts based on the amount determined later in proportion to the amount of common purchase tax pursuant to the "estimated supply price" or "estimated use area" under Article 61(4) of the former Enforcement Decree of the Value-Added Tax Act. Thus, the "estimated supply price" or "scheduled use area" under Article 61(4) of the former Enforcement Decree of the Value-Added Tax Act does not mean the amount of supply or use to be actually supplied in the taxable period in which the value-added tax is actually supplied or used, not the estimated amount of supply or use area presumed to be generated in the future based on the business plan, etc. at the time of the return of the value-added tax. Therefore, if an entrepreneur who newly constructs or acquires a building and operates a taxable business and a tax-free business concurrently based on the previous business performance, market situation, business plan, loan proposal, etc., it does not constitute a newly constructed or tax exemption area.

[1] Article 12(1)12 (see current Article 26(1)14), Article 17(2)4 (see current Article 39(1)7) of the former Value-Added Tax Act (Amended by Act No. 9268, Dec. 26, 2008); Article 60(6)1 (see current Article 80 subparag. 1), Article 2 (see current Article 80 subparag. 2), and Article 80 subparag. 3 (see current Article 80 subparag. 3); Article 17(7)4 (see current Article 39(1) of the former Value-Added Tax Act (Amended by Act No. 9268, Dec. 26, 2008); Article 60(6)1 (see current Article 80 subparag. 1); Article 80 subparag. 18(2) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 21304, Feb. 4, 2009)

New Franc Co., Ltd. (Law Firm Chungcheong, Attorneys Kim Jung- enterprise et al., Counsel for the plaintiff-appellant)

port of origin

Seoul High Court Decision 2012Nu9217 decided November 1, 2012

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

Article 17(2)4 of the former Value-Added Tax Act (amended by Act No. 9268 of Dec. 26, 2008; hereinafter the same) provides that an input tax amount related to the business of supplying goods or services exempt from value-added tax (including an input tax amount related to investment) and an input tax amount related to the land as prescribed by the Presidential Decree shall not be deducted from the output tax amount. Article 60(6) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 21304 of Feb. 4, 2009) upon delegation of the said tax amount provides that “The input tax amount related to the land as prescribed by the Presidential Decree” refers to the input tax amount related to the capital expenditure related to the creation, etc. of the land, which falls under any of the following subparagraphs. Article 17(2)4 of the former Value-Added Tax Act provides that an input tax amount related to the acquisition of the land, alteration of the form and quality, building site and building site construction, etc.; Article 17(2)2) of the former Value-Added Tax Act.

According to the relevant provisions, the acquisition value and the input tax amount for the ancillary expenses incurred by the tax-free entrepreneur who supplies tax-free land in acquiring the land as the inventory assets, should not be deducted from the output tax amount because the input tax amount related to the tax-free business under Article 17(2)4 of the former Value-Added Tax Act

According to the reasoning of the judgment below and the record, the Plaintiff’s acquisition of land for a new apartment construction and sales business between the second period of 2006 and the first period of 2008, based on the ratio of financial advisory fees, appraisal fees, credit assessment fees, legal advice fees used for the acquisition of land among the land for the purpose of acquiring land, (C) a certified judicial scrivener fees for the registration of land trust and the transfer of ownership, and (d) a district unit planning planning cost caused by the occurrence of a district unit plan to be KRW 2,327,930,000. The Defendant issued the disposition of this case on the ground that the above amount falls under the “land-related input tax amount” under Article 17(2)4 of the former Value-Added Tax Act and Article 60(6) of the Enforcement Decree of the same Act as the expenses for acquiring the land.

In light of the relevant provisions as seen earlier, the above KRW 2,327,930,00, which is the expenses incidental to the Plaintiff’s acquisition and supply of land as inventory assets, cannot be deducted from the output tax amount because it constitutes an input tax amount related to the tax-free business under Article 17(2)4 of the former Value-Added Tax Act. Therefore, the lower court’s conclusion that the pertinent disposition, which did not deduct the amount from the output tax amount, is justifiable, and contrary to what is alleged in the grounds of appeal, did not err by misapprehending the legal principles, which affected the conclusion of the judgment

2. Regarding ground of appeal No. 2

A. According to the main sentence of Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act pursuant to delegation of Article 17(7) of the same Act, "in cases where an entrepreneur concurrently operates a taxable business and a tax-free business, an input tax amount related to the tax-free business shall be calculated according to the actual attribution, but an input tax amount which cannot be distinguished from the actual attribution as it is used for a taxable business and a tax-free business (hereinafter referred to as "common input tax amount") shall be calculated in proportion to the common input tax amount in proportion to the ratio of the total supply price to the expected supply price of the tax-free business, among the total supply price." Article 61(4) of the Enforcement Decree of the same Act provides that "in applying the provisions of paragraph (1), where there is no supply price of the taxable business and the tax-free business during the pertinent taxable period, or there is no supply price of the business, the proportional calculation in the pertinent taxable period shall take precedence over subparagraphs 1 and 2, and subparagraph 3 shall take precedence over the expected supply price related to the total purchase price (excluding common purchase price).

In addition, the main text of Article 61-2 of the former Enforcement Decree of the Value-Added Tax Act provides that "where an entrepreneur calculates the input tax amount by dividing it pursuant to Article 61 (4), it shall be calculated by the following formula at the time of filing a final return on the tax amount to be paid for the taxable business, the supply value of the tax-free business, the taxable business, and the taxable period for which the use area of the tax-free business is determined by the acquisition of the relevant goods." Meanwhile, Article 106 (1) 4 of the Restriction of Special Taxation Act, Articles 106 (4) 1 and 51-2 (3) of the Enforcement Decree of

B. As above, the main sentence of Article 61-2 of the former Enforcement Decree of the Value-Added Tax Act is premised on the settlement of the estimated amount of common input tax pursuant to the “prepaid supply price” or “prepaid use area” under Article 61(4) of the same Enforcement Decree. Thus, “prepaid supply price” or “prepaid use area” does not mean the determined amount of supply or use area actually supplied or used in the taxable period, but means the estimated value of supply or use area presumed to occur in the future based on the business plan, etc. at the time of the report of value-added tax. Therefore, if an entrepreneur concurrently operates a taxable business or a tax-free business by acquiring a new building and a tax-free business based on the materials such as the past business performance, market situation, business plan, loan proposal, etc. at the time of the report of value-added tax, it is not objective and reasonable, and thus, it cannot be deemed that the predetermined amount of tax exemption amount becomes separate from the estimated amount of tax exemption amount under Article 61(4) proviso of the former Enforcement Decree of the Value-Added Tax Act.

C. According to the reasoning of the lower judgment and the evidence duly admitted by the lower court, the following facts are revealed: (a) Hyundai Securities Co., Ltd., the Korea Credit Rating Co., Ltd. and the Korea Credit Rating Co., Ltd. drafted for financial advice and credit assessment on the Plaintiff during the second period of 2006; (b) the documents prepared for financial advice, etc. on the Plaintiff during the first period of 2008; and (c) the business plan prepared by the Plaintiff, etc. to obtain a loan from a financial institution during the first period of 2008; (b) there are a few changes in each quarter in the documents, including the business plan, etc.; (c) the estimated quarterly area, such as the portion below national housing size and the number of households in excess of national housing size; and (d) the Defendant calculated the ratio of supply price of apartment houses and commercial buildings exceeding national housing size among the entire land and buildings subject to tax exemption (tax exemption 20.9%) and the ratio of supply price of

Examining these facts in light of the legal principles as seen earlier, the estimated quarterly area indicated in each of the above documents is the area estimated to be used in the future by objective and reasonable methods, which is the area classified as the Plaintiff’s provision of a taxable business and a tax-free business based on the Plaintiff’s past business performance, market situation at the time, business plan, etc. Thus, the input tax amount related to the tax-free business among the common input tax amount should be calculated proportionally in proportion to the “ratio of the estimated use area related to the tax-free business for the total expected use area” which can be known for each of the respective taxable periods pursuant to Article 61(4)3 of the former Enforcement Decree of the Value-Added Tax Act.

D. Nevertheless, according to the evidence submitted by the Defendant, the lower court erred by misapprehending the common purchase tax amount to be divided into the “ratio of the estimated supply price related to the general expected supply price” under Article 61(4)2 of the former Enforcement Decree of the Value-Added Tax Act, on the ground that the instant project cannot be deemed as a case where the planned area to be provided for a taxable business and a tax-free business can be divided by newly constructing

Therefore, such judgment of the court below is erroneous in the misapprehension of legal principles as to the meaning of "where a building can be newly constructed or acquired and to be provided for a taxable business and a tax-free business" under the proviso of Article 61 (4) of the former Enforcement Decree of the Value-Added Tax Act. In addition, since the amount of land-related purchase price cannot be separated because it is commonly used for a taxable business and a tax-free business is the amount excluded from the purchase price related to the land, the court below should calculate the ratio of the estimated use area of the building related to the tax-free business to the total expected use area of the building, excluding the entire land, in calculating the input tax amount related to the tax-free business. However, it is not reasonable to calculate the ratio of the supply value

3. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim So-young (Presiding Justice)