[1] In a case where a computer software is imported, whether its dutiable value should be added to the value of the computer software in addition to the price of the transmission medium (affirmative)

[2] Requirements for applying the good faith principle or non-taxable practice in customs law relations

[3] The case holding that the royalties cannot be included in the dutiable value on the basis of the software price

[4] The purport of Articles 25(1) and (2) and 26-2 of the former Customs Act

[1] Articles 7(2)(a), (b), (5), and 10(1) of the General Agreement on Tariffs and Trade; Articles 1(1), 8(1), 1(2), and (3) of the Convention on the Implementation of Article VII of the General Agreement on Tariffs and Trade; Articles 1(1), 8(1), 1(2), and 8(1) of the Act on the Promotion of Software Development; Article 10(1) of the Act on September 24, 1984; Article 9-3(1) of the former Customs Act (amended by Act No. 4674 of Dec. 31, 1993); Article 85 subparag. 24 of the Tariff Schedules; Article 3-5(2) of the former Enforcement Decree of the Customs Act (amended by Presidential Decree No. 1404 of Dec. 31, 1993); Article 9-3(1) of the Act on the Protection of Computer Programs’s dutiable value as a price for the imported goods; Article 98(1) of the Act.

[2] In order to ensure that the principle of good faith under Article 2-2(2) of the Customs Act and Articles 15 and 18(3) of the Framework Act on National Taxes is applied or the practice of non-taxation is established, there is an objective fact that the tax authority has not imposed any tax on any matter over a long period, and there is an intention not to impose any tax on any special circumstance even though the tax authority knows that it is able to impose tax on the matter, and such intention should be externally and explicitly expressed.

[3] The case reversing the judgment of the court below which regarded the above royalties as the price for imported goods, on the ground that, in case where the importing company entered the delivery media containing the computer software from the parent company and agreed to pay customers at royalties 40% of the amount claimed in return for the payment of attached goods and information necessary to obtain exclusive right to use the software again and sell the software products in Korea, the above royalties include incidental goods, information, etc. in addition to the cost of using the software, and the price for which the software was installed on the customer’s computer and the price for which the software was installed on the customer’s computer cannot be included in the dutiable value for imported goods

[4] The purpose of Articles 25(1) and (2), and 26-2 of the former Customs Act (amended by Act No. 4674 of Dec. 31, 1993), which does not provide for the period for exercising the right to impose taxes, is to set the period for exercising the right to impose taxes, as well as the period for exercising the right to collect the right to impose taxes, such as customs duties, in addition to the period for exercising the right to impose taxes, and to set the period for exercising the right to impose taxes for such determination. On the other hand, it is difficult to find that there is a declaration of omission because it is difficult to expect an early exercise of the right to impose taxes, and if the returned tax amount or the imposed tax amount is not paid, it shall be deemed that there is no need to waive or terminate the collection of the finalized tax amount within the short-term period, barring special circumstances.

[1] Articles 7(2)(a) and (5), and 10(1) of the General Agreement on Tariffs and Trade; Articles 1(1) and 8(1)(c) of the Convention on Implementation of the General Agreement on Tariffs and Trade; Article 9-3(1)4 of the former Customs Act (amended by Act No. 4674 of Dec. 31, 1993); Article 3-5(2)1 and 2 (see current Article 3-3(1) of the former Enforcement Decree of the Customs Act (amended by Presidential Decree No. 1404 of Dec. 31, 1993); Article 3-5(2)1 and 3(2) of the former Customs Act (amended by Act No. 1404 of Dec. 31, 1993); Article 4(1)9 of the Software Development Promotion Act; Article 8 of the Computer Programs Protection Act / [2] Article 9-3(1)4(2) of the former Customs Act (amended by Act No. 97(314) of Dec. 314, 1997) of the Framework Act

[1] Supreme Court Decision 91Nu10763 delivered on July 14, 1992 (Gong1992, 2443), Supreme Court Decision 93Nu500 delivered on December 7, 1993 (Gong1994Sang, 384) / [2] Supreme Court Decision 95Nu9815 delivered on October 12, 1995 (Gong1995Ha, 3817), Supreme Court Decision 95Nu1575 delivered on January 26, 1996 (Gong196Sang, 828), Supreme Court Decision 96Nu17486 delivered on July 11, 197 (Gong197Ha, 2546) / [4] Supreme Court Decision 95Nu1389 delivered on November 29, 194

Korea Computer Language Co., Ltd. (Attorneys Choi Gyeong-tae et al., Counsel for the defendant-appellant)

Head of Kim Jong-po

Seoul High Court Decision 96Gu5911 delivered on July 15, 1997

The part of the lower judgment against the Plaintiff is reversed, and that part of the case is remanded to the Seoul High Court. The Defendant’s appeal is dismissed, and the costs of appeal are assessed against the Defendant

1. We examine the Plaintiff’s grounds of appeal.

A. On the first ground for appeal

Section 1 of Article 7.2 of the GATT 14 provides for "the customs duties and other actual value of imported goods of the same kind" and "the actual value of the goods of the same kind" and "the value of the goods of the same kind" as the time and place prescribed in the laws and regulations of the importing country shall be determined by the Presidential Decree 17 of the Act. It shall be the basis and method for determining the value of the goods of the same kind or of the same kind of goods for sale" and "the value of the goods of the same kind(the value of the goods of the same kind(the value of the goods of the same kind(the value of the goods)" as provided for in subparagraph 4 of Article 7.2 of the former Act, which shall be less than 5 of the Act on the Promotion of Tariffs and Trade. The value of the goods of the same kind(the value of the goods shall be determined by the Ordinance of the Ministry of Trade, Industry and Energy not more than 1) shall be less than 1,000,000

In light of these relevant laws and regulations, in a case where the price for the use of rights such as patent rights is related to imported goods and is paid as the transaction terms of imported goods, the customs value of imported goods includes the royalty for the use of the right in addition to the actual payment price of imported goods (see, e.g., Supreme Court Decisions 91Nu10763, Jul. 14, 1992; 93Nu500, Dec. 7, 1993; hereinafter referred to as “software”), and computer software (hereinafter referred to as “software”) is protected as a right similar to copyright. Thus, the customs value of the communication media in which the software is recorded shall be deemed as the transaction price adjusted by adding the value of the software in addition to the price of the communication media. Furthermore, the customs value of the communication media in which the software is recorded shall be deemed as the transaction price adjusted by adding the value of the software in addition to the price of the communication media. Furthermore, the position of the Korean government, which includes the price of the software, can be deemed as sufficient

The decision of the court below to the same purport is correct, and there is no error in the misapprehension of legal principles, incomplete hearing, or omission of judgment as otherwise alleged in the ground of appeal.

B. On the second ground for appeal

In order to ensure that the principle of trust and good faith under Article 2-2(2) of the Customs Act and Articles 15 and 18(3) of the Framework Act on National Taxes are applied or the practice of non-taxation is established, there exists an objective fact that the tax authority has not imposed any tax on any matter over a long-term period, and there is an intention not to impose any tax on any special circumstance despite the tax authority being aware that it is able to impose tax on the matter, and such intention must be externally or implicitly expressed (see, e.g., Supreme Court Decisions 95Nu9815, Oct. 12, 1995; 95Nu1575, Jan. 26, 1996).

In the same purport, the court below is justified in holding that the disposition of this case is not against the principle of good faith or against the established non-taxable practice merely because the defendant did not take any measures against the plaintiff company to file an import declaration at the price only in the transmission medium after 1989, and there is no error of law by misunderstanding the legal principles as to the principle of good faith, etc.

C. On the third ground for appeal

(1) According to the reasoning of the lower judgment, the lower court recognized and determined as follows.

(A) The Plaintiff Company entered into a technology license agreement with the parent company on October 5, 1989, and entered into a technology license agreement with the parent company on 330 copies of the transmission media, including diskettes, in which main appointment software was recorded, and paid customs duties, etc. on imported goods. The Plaintiff Company imported 330 copies of the transmission media, including diskettes, in which main appointment software was recorded, from the parent company until March 31, 1993.

However, the Defendant considered the sum of the prices of the communication media imported by the Plaintiff Company and the prices of the software recorded therein as dutiable value, and calculated the premium rate by dividing the sum of the communication media prices reported in the pertinent business year by the Plaintiff Company’s business year to the parent company according to the technical license agreement, and calculated this premium rate by multiplying the import price by the price of the communication media reported by the Plaintiff Company at the time of import declaration, and imposed customs duties, value-added taxes, etc. on 281 items of the communication media containing the software reported in advance from February 8, 1990 to March 31, 193 (hereinafter “the imported goods of this case”).

However, according to the technology licensing agreement concluded between the Plaintiff Company and the parent company, the parent company provides the Plaintiff Company with kk, tape, document, sales promotions, price information, sample of the re-use permit agreement, and other information necessary for the Plaintiff Company to sell the contract product in the contract area. Under the terms and conditions of this agreement, the parent company grants the exclusive right to re-use the contract product in the contract area and to use the parent company's know-how and technical information and data on the contract product in relation to the Plaintiff Company's performance of its contractual obligation. Accordingly, the Plaintiff Company agreed to pay the Plaintiff Company the royalty 40% of the total amount it claims to the customer in relation to the re-use and maintenance of the contract product in the contract area, and the Plaintiff Company receives technical assistance, training, etc. to obtain the imported product of this case from the parent company in accordance with this technology licensing agreement, and (1) concluded a contract with the domestic customer to use the software of this case to provide the information to the domestic customer system, and (2) made it possible for the Plaintiff Company to use the new program, etc.

At the time of import declaration on the imported goods of this case, there is no transaction price under Article 9-3 of the Customs Act, and software does not have the same kind and quality goods or similar goods as provided in Article 9-4 or 9-5, and it is difficult to calculate the customs value according to the domestic sale price under Article 9-6 due to the type and capacity of computer using software, the sale price of which is different according to the type and capacity of computer, and it is also difficult to calculate the customs value according to the domestic sale price under Article 9-6. The cost of raw materials used to produce the relevant goods under Article 9-7 and expenses necessary for assembling and processing, or its price cannot be determined by the methods under Articles 9-3 through 9-7 because it is difficult to grasp the customs value according to the reasonable method under Article

(B) According to the above facts, the method of calculating the dutiable value of the Defendant’s choice in the instant disposition is legitimate pursuant to Article 9-8 of the Customs Act, based on reasonable criteria consistent with the principles prescribed in Article 9-3 of the same Act. The amount equivalent to 40% of the revenues of maintenance and repair fees included in royalties remitted by the Plaintiff Company to the parent company is also the price for using copyright, know-how, technical information, etc. related to the imported goods supplied by the parent company, and it is also the price for using the copyright, know-how, and technical information related to the imported goods supplied by the parent company. It is reasonable to include the amount directly or indirectly paid by the buyer according to the terms and conditions of transaction

Article 3-3 (2) of the amended Enforcement Decree of the Customs Duties Act excludes the consideration for the use of the right to reproduce a specific device or original idea on other goods in our country using the imported goods in which the specific device or original idea is embodied. The provision is effective from January 1, 1994, and it cannot be applied to the instant disposition imposing customs duties, etc. on the imported goods before March 31, 1993, and it cannot be deemed that the reproduction of the software on the domestic customer’s computer by the Plaintiff company constitutes the reproduction of the relevant goods under Article 9-3 (1) 4 of the Customs Duties Act. Thus, the assessment of the dutiable value of the instant disposition is lawful.

(2) The judgment of this Court

The amount to be added to the media price of the instant imported goods under Article 9-3(1)4 of the Customs Act shall be limited to the price for using the software contained in the instant imported goods. As determined by the lower court, the Plaintiff Company agreed from the parent company to pay 40% of the amount requested by the Plaintiff Company to its customers in return for the Plaintiff Company’s receipt of attached goods and other information necessary for selling the instant imported goods in Korea. Accordingly, if the Plaintiff Company received technical assistance and training from its employees in order to obtain technical information on the instant imported goods, as well as the cost for using the software recorded in the instant imported goods, the royalty transferred by the Plaintiff Company to the parent company does not include the price for receiving attached goods and other information necessary for selling the instant imported goods, technical assistance and training expenses.

In addition, Article 9-3 (1) 4 of the Customs Act, "the price for the right to reproduce the relevant goods in our country" refers to the price for using the imported goods in which a specific device or original idea is embodied for using the imported goods to reproduce the relevant device or original idea for another goods, so if the plaintiff, a domestic importer, imported the original copy of the software, installed it to a domestic customer's computer, and paid part of the money received as the price for the right to reproduce the goods, in light of the contents of the above Convention, even if Article 3-3 (2) of the Enforcement Decree of the Customs Act amended on December 31, 1993, was enforced, in light of the contents of the above Convention, it cannot be included in the customs value of the so-called "the right to reproduce" as determined by the court below.

Meanwhile, even when determining a dutiable value pursuant to Article 9-8 of the Customs Act, it is based on data that can be used in accordance with reasonable criteria consistent with the principles prescribed in Articles 9-3 through 9-7. As such, the Defendant’s alternative method regarding the calculation of a dutiable value of the imported goods of this case is considerably deviating from the principle prescribed in Article 9-3 of the Customs Act by including the amount that is not included in the dutiable value of the imported goods in the dutiable value, and therefore, the instant disposition of this case is unlawful in terms of the assessment method

Nevertheless, the lower court determined that the Defendant’s assessment of the dutiable value of the instant imported goods was lawful. In so doing, the lower court erred by misapprehending the legal doctrine on the method of calculating the dutiable value, thereby failing to exhaust all necessary deliberations. The allegation in the grounds

2. We examine the defendant's grounds of appeal.

Article 25(1) of the Customs Act provides that the right to collect customs duties shall expire if it is not exercised within two years from the date on which it can be exercised, and that Article 25(2) provides that the right to collect customs duties shall expire if it is not exercised within five years from the date on which it is possible to evade customs duties or pay customs duties without good cause by deceit or other unlawful means. Article 26(2) of the same Act provides that the right to collect customs duties shall expire if it is not exercised within five years from the date on which it can be exercised

The purport of this provision under the Customs Act, which does not provide for the period for exercising the right to impose duties, is to set the period for exercising the right to impose duties, etc., as well as the period for exercising the right to impose duties, etc., in addition to the period for exercising the right to collect the determined amount of customs duties, etc., and to set the period for exercising the right to impose duties, etc. on imported goods in a short term. Meanwhile, it is difficult to find out that the "where customs duties are evaded by deceit or any other unlawful means" provided in paragraph (2), and it is difficult to expect an early exercise of the right to impose duties as it is difficult to expect an omission return, and where the returned amount of duties or the imposed amount of duties are not paid, the collection of the determined amount of duties should not be waived or terminated in a short term (see Supreme Court Decision 94Nu

As determined by the court below, the disposition of this case is not paid by the plaintiff but ordered correction by adding it to the price added to the price for software use. Accordingly, in this case where the legitimate period of exercise of the imposition right is at issue, the question is whether the latter part of Article 25 (2) of the Customs Act constitutes "where customs duties are not paid without justifiable reason" or "where customs duties are not paid without justifiable reason," and as seen above, the amount of royalties that the plaintiff company pays to the parent company at the time of import declaration of the imported goods of this case is not determined, and if the plaintiff's software installed on the customer's computer and the payment is not included in the customs value of imported goods pursuant to Article 9-3 (1) 4 of the Customs Act, it cannot be deemed that only the price of the delivered medium is a fraudulent or other unlawful method, and even if the plaintiff company did not file a revised declaration at the price including the royalty amount after the fact, it is difficult to view that it constitutes a fraudulent or other unlawful method.

The decision of the court below to the same purport is just, and there is no error in the misapprehension of legal principles as otherwise alleged in the ground of appeal.

3. Therefore, the part of the judgment below against the plaintiff is reversed, and that part of the case is remanded to the court below for a new trial and determination. The defendant's appeal is dismissed, and the costs of appeal against this part are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Chocheon-sung (Presiding Justice)