National High Court Decision 2007J2566 ( October 12, 2007)

The tax base of value-added tax on a screen play for adults shall not be total amount input in a game machine.

Even if the services provided in the screen game room for adults have the character as a speculative act, they cannot be viewed as being subject to value-added tax because they are identical to the casino, and the value of merchandise coupons shall not be deducted from the total amount input in the game machine in calculating the value-added tax base.

207Guhap9205 Disposition of revocation of Value-Added Tax

Park XX

O Head of tax office

December 3, 2008

January 7, 2009

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of value-added tax for the second term of 2005 against the Plaintiff on May 4, 2007, including KRW 62,26,270, and value-added tax for the first term of 206, respectively, shall be revoked.

1. Details of the disposition;

A. The Plaintiff installed a screen game machine called 'Onet Scot' in the name of Suwon-si XX-dong 000, and operated the game room for adult use (hereinafter "the game room of this case"). The value-added tax for the above game room was 9,125,000 won, and the value-added tax for the first term in 2006 was 10,400 won, and the value-added tax was 10,406,000 won.

B. The game machine installed in the instant game room is a game for entertainment, which was classified as 18 years of age or older by the Korea Media Rating Board pursuant to Article 20 of the former Sound Records, Video Products and Game Products Act (amended by Act No. 7943 of Apr. 28, 2006). It requires approximately 4-5 seconds in the first game, and if a user betting a certain point out of the CREIT creation and operates the game, he/she automatically sets up a gift certificate, which means the value of the gift certificates that the user can obtain according to the result, and then he/she can obtain.

C. A game user of the game of this case puts certain cash into a game machine and puts a game. As long as the game does not reach a certain limit point in the game process, he/she may continue to play a game using the points such as CRED IT creativity, and the cash input by a user of a game machine belongs to the Plaintiff, which is the full owner of the game, and the user of the game machine receives premiums according to the accumulated points in GIFT. The Plaintiff provided gift certificates of KRW 5,000 for the face value purchased from the publisher or merchandise coupon wholesaler.

D. The Plaintiff’s game machine established in the instant game room was set to discharge gift certificates at a certain ratio compared to the input amount (hereinafter “lost ratio”). However, the Plaintiff set the winning ratio at 98% (the above winning ratio is limited to the average ratio for a certain period, and the amount of gift certificates that the individual users can actually acquire at each game is determined differently by chance).

E. The defendant regarded the total amount of cash inputs by the users of the game of this case in the game of this case as the sales amount serving as the value added tax base, and converted the total amount of inputs by period by dividing the total amount of purchase of merchandise coupons of the game of this case by 98% of the average winning rate of the game machine installed in the game of this case by 1.1. The defendant calculated the value divided by 51,961,72 won as sales amount, and calculated the value-added tax base by 1,102,870,813 won for January 2006, 2006, and imposed 62,26,270 won as value-added tax for the plaintiff on May 4, 2007, and 129,347,830 won as value-added tax for the second period of February 2005 (hereinafter "the disposition of this case").

[Reasons for Recognition] Facts without dispute, Gap evidence 1-1, 2, Gap evidence 2, Eul evidence 1-1, 2, Eul evidence 2-2, Eul evidence 2 and 3, the purport of the whole pleadings

2. Related Acts and subordinate statutes: It shall be as stated in Appendix;

3. Whether a disposition is lawful

A. The plaintiff's assertion

(1) The importation of the instant game room is the same as the importation of the casino business, and thus, it does not impose value-added tax on it.

(2) The amount invested by a game user in the game machine is the price for the game machine usage service and merchandise coupon. Since merchandise coupons are monetary substitute securities that are not subject to value-added tax, the object of taxation of value-added tax of the game of this case should be limited to the price for the game machine usage service. Therefore, the tax base is the remaining amount remaining after deducting the face value of merchandise paid from the input amount of the game machine from the input amount of the game machine, and otherwise, if the total input amount of the game machine is viewed as the tax base, the amount higher than the total input amount would be paid as value-added tax. Thus

B. Determination

(1) As to the first argument

Casino business revenues can be classified into gambling revenues, excluding money received by customers, in order for customers who entered casino facilities to gamble with entrance fees received from customers. However, gambling leaves, excluding admission fees, do not constitute value added tax, and such revenues do not constitute value added tax (see Supreme Court Decision 2004Du13288, Oct. 27, 2006).

However, even if the service provided in the game of this case has a character as a speculative act, ① the game of this case is designed in conformity with the standard for dealing with gift certificates at the former Game Establishment (amended by the Ministry of Culture and Tourism No. 2006-24 of Nov. 1, 2006; hereinafter referred to as the "former standard for dealing with gift certificates") and there is a certain limit on the face value of gift certificates which are classified once game hours or released. ② The amount invested in the game of this case can be attributed to the total game of the game, but it may not be returned to the customers, ③ the customers of the game of this case can not be classified into the "service of using the game of this case" and the "goods or cash certificates" as the consideration of the supply of goods or cash certificates, and the provision of merchandise coupons in this case can not be seen as being provided to the game of this case and the provision of goods or merchandise coupons within the scope of 10-6 of the Value-Added Tax Act to be used by the game of this case.

(2) As to the second argument

(2) The purpose of this case is to provide users with an opportunity to acquire gift certificates at a certain probability, rather than to provide cash certificates at a certain rate, because Korea's Value-Added Tax Act, unlike income tax and corporate tax, takes the character of transaction tax imposed on external transactions, which are not substantial income, without any concept of deduction of expenses, and to impose value-added tax at all. ② The Plaintiff's provision to users through the game of this case is not a supply of "service of using the game of this case" and "cash certificate" but rather a supply of an opportunity to users to acquire gift certificates at a certain rate. The gift certificates are provided incidental to the game of this case after the use of the game of this case, and they cannot be seen as having a nature of consideration for each user of the game of this case. ③ It is more appropriate to provide free gifts to the game of this case by the game of this case until the game of this case's use of the game of this case's gift certificates or merchandise certificates are not subject to the imposition of value-added tax, and thus, it cannot be seen as a violation of the tax base of gift certificates or merchandise gift certificates.

4. Conclusion

Therefore, the disposition of this case is legitimate, and the plaintiff's claim seeking revocation is dismissed as it is without merit. It is so decided as per Disposition.