The meaning of "goods or services supplied to a nonresident or foreign corporation having no domestic place of business in Korea" under Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 10981 of December 31, 1982) to which the zero-rate tax applies

Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 10981, Dec. 31, 1982) provides that "goods or services supplied to a nonresident or foreign corporation having no domestic place of business in the Republic of Korea" shall be considered to be goods or services supplied without going through a domestic place of business through a direct transaction with a nonresident or foreign corporation. Thus, even if a nonresident or foreign corporation having a domestic place of business is a nonresident or foreign corporation having a domestic place of business, the zero-rate tax rate shall apply to goods or services supplied without going through a domestic place of business through a direct transaction with such nonresident or foreign corporation.

Article 26 (1) 1 of the Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 10981 of December 31, 1982)

Supreme Court Decision 85Nu133 Decided June 11, 1985

Attorney Cho Jong-sung et al., Counsel for the defendant-appellant

Head of Seodaemun Tax Office

Seoul High Court Decision 83Gu953 delivered on May 17, 1985

The appeal is dismissed.

The costs of appeal shall be borne by the defendant.

We examine the grounds of appeal.

1. As to ground of appeal No. 1

Article 11(1)4 of the Value-Added Tax Act provides that the zero tax rate shall apply to goods or services to be acquired in foreign currency other than foreign currency exported from the country of exportation, services, vessels or aircraft’s overseas navigation services, which are prescribed by the Presidential Decree. Article 26(1)1 of the Enforcement Decree of the Value-Added Tax Act (amended by the Presidential Decree No. 10981 of Dec. 31, 1982) provides that the goods or services supplied to non-residents or foreign corporations having no domestic place of business in Korea shall be paid in foreign exchange certificates or won at a foreign exchange bank. The so-called zero tax rate, namely, the purpose of the zero tax rate is to prevent double taxation in the country of exportation and the country of importation with respect to the overseas supply of goods or services, so only the goods or services originally supplied in foreign country becomes zero tax rate, but Article 11(1)4 or 26(1)4 of the Value-Added Tax Act provides that the aforementioned goods or services shall be subject to zero tax rate as prescribed by the Presidential Decree.

In light of such legislative intent, "goods or services supplied to a nonresident or foreign corporation having no domestic place of business in the Republic of Korea" under Article 26 subparagraph 1 of the Enforcement Decree of the above Act means goods or services supplied without going through a domestic place of business through a direct transaction with a nonresident or foreign corporation in the Republic of Korea. Therefore, even if a nonresident or foreign corporation having a domestic place of business is a nonresident or foreign corporation having a domestic place of business, the zero-rate tax rate shall be applied to such goods or services supplied without going through a direct transaction with the nonresident or foreign corporation having no domestic place of business.

Therefore, the court below's decision that the disposition of this case by the defendant that excluded the application of the zero tax rate and imposed value-added tax on the ground that the plaintiff provided services to a foreign corporation through a direct transaction with a foreign corporation is a domestic place of business is just and contrary to this, the court below's decision is justified and it cannot be adopted as a separate opinion to criticize the legal principles of the court below

2. As to the second ground for appeal:

In light of the records, the court below's decision that the plaintiff collected evidences and reported the above services under a direct contract of a foreign corporation, regardless of whether there is a branch of the foreign corporation in Korea, on the premise that when the plaintiff provided the above services under the direct contract of the head office of the foreign corporation and the foreign corporation filed a final return of value-added tax for each taxable period from the second to the second period from 1977 to the second period from 1982, the plaintiff provided the service of issuing a certificate of sale of goods to the foreign corporation and received fees in Korean currency through foreign exchange banks, the plaintiff filed a return on the premise that the zero-rate tax rate is applied to all of the foreign corporations.

The theory of the lawsuit argues that there is no evidence that the plaintiff had made a direct transaction without going through a foreign corporation and its domestic place of business, or that the tax authority must prove the reason for taxation, tax rate, tax amount, etc. Therefore, it is clear that the issue of whether a foreign corporation traded by the plaintiff has a domestic place of business in Korea and whether the plaintiff traded with a foreigner through a domestic place of business in Korea belongs to the defendant's burden of proof.

3. Therefore, the appeal shall be dismissed, and the costs of the appeal shall be assessed against the losing party and it is so decided as per Disposition by the assent of all participating judges.

Justices Lee Chang-chul (Presiding Justice)