Seoul Administrative Court 2015Guhap51415 (Law No. 18, 2015)

Whether it is subject to value-added tax as agent payment.

It can not be seen as a distribution of profits generated from joint projects, and since it is a price for the supply of services between individual entrepreneurs, there is a duty to pay value-added tax

Articles 1 and 34 of the Value-Added Tax Act

2015Nu62363 Revocation of Disposition of Imposition of Value-Added Tax

○ ○ Brokerage

○ Head of tax office

June 24, 2016

July 15, 2016

1. The plaintiff's appeal is dismissed.

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

Cheong-gu and purport of appeal

The judgment of the first instance shall be revoked. The defendant's list of the attached disposition against the plaintiff on November 9, 2013

Each imposition of value-added tax (including each additional tax) shall be revoked.

2. Purport of appeal

The part against the defendant in the judgment of the first instance shall be revoked. The plaintiff's claim corresponding to the above revocation shall be dismissed.

1. Details of the disposition;

A. The plaintiff's status

The Plaintiff is a corporation that runs a brokerage business for transactions, such as foreign exchange trading, exchange, lending, etc. between financial institutions after obtaining authorization from the Minister of Finance and Economy pursuant to Article 24-2 of the former Foreign Exchange Control Act (amended by Act No. 5550 of Sep. 16, 1998 and repealed by Article 3 of the Addenda to the Foreign Exchange Control Act (amended by Act No. 5550 of Apr. 1, 1999) established on July 20, 1996.

(b) Conclusion of business partnership agreements;

(1) The plaintiff has been engaged in the brokerage business of US dollars/originalization transactions. On February 2008, the plaintiff entered into an agreement with AAA Svice Ltd. (hereinafter referred to as the "AA") and a business partnership agreement (hereinafter referred to as the "the agreement in this case") with a Japanese corporation." (2) The plaintiff entered into the agreement in this case with AA software 1 and AAA protetion 2).

1) AA, on its own initiative or on behalf of, or on behalf of, AA or specifically developed by, AA transaction brokerage services or for any part thereof, and includes any software related to Deal Fed Functions and includes reinforcement, trade rads, modifications, or supplementations, respectively (Article 1 of the present Convention)

(ii) means the starting system developed by, on its own initiative or on behalf of, AA to facilitate the operation of AA transaction brokerage services (Article 1 of the present Convention).

In addition, a non-exclusive license to operate and use the AA document was granted, and a non-exclusive license was made available to the plaintiff's customers through the plaintiff's network to access the AA transaction brokerage service 3) so that the transaction between the plaintiff's customers and foreign financial institutions was mediated.

“3) EBS Spot as of the date of the conclusion of the contract as a foreign exchange electronic, anonymous transaction or transaction intermediary service traded on the basis of goods and NDF.

The term "EBS NDFs" and "EBS PS PPme services" are 'EBS brokerage services (Article 1 of the present Convention), '3) the Plaintiff paid part of the US US US dollars/original exchange brokerage commission and the spot exchange brokerage commission received from customers from 2008 to 2012, as stipulated in the present Convention, and the money paid to AA is 1,509,447,980 won in total (hereinafter referred to as "the payment of this case") as follows:

Amount of taxation period

208 KRW 168,791,809, KRW 246,52,234 of 2009, KRW 215,430,370 of 2010, KRW 213,248,857 of 2010, KRW 223,786,380 of 201, KRW 208,030,2555 of 208, KRW 169,974,658 of 2009, KRW 1,500 of 2011, KRW 2223,786,380 of 201, KRW 208,030, KRW 255, KRW 79,974,658 of 2012, KRW 1,509,47,980 of 20

C. Disposition of imposition of corporate tax and collection of value-added tax against the plaintiff

On November 9, 2013, the Defendant issued a correction and notification of the total amount of KRW 181,133,720 of corporate tax for each business year of 208-2012 on the ground that the use of the software under Article 12 of the Convention between the Government of the Republic of Korea and the Switzerland for the Avoidance of Double Taxation and Article 93 Subparag. 8 of the Corporate Tax Act is the cost of using the software under Article 12 of the Convention between the Government of the Republic of Korea and the Switzerland for the Avoidance of Double Taxation and Article 93 Subparag. 8 of the Corporate Tax Act (hereinafter referred to as the “instant disposition imposing corporate tax”), and ② on the ground that the Plaintiff was provided with the service from AA and did not pay the value-added tax by proxy, the Defendant corrected and notified the total amount of value-added tax of KRW 16,039,240 for each year of 208 and Switzerland in 2012

(d) Procedures of the previous trial; and

On December 3, 2013, the Plaintiff was dissatisfied with the instant disposition of imposing corporate tax and the disposition of collecting value-added tax, and filed a request for trial on December 3, 2013. On October 22, 2014, the Tax Tribunal rendered a decision to rectify the tax base and tax amount of corporate tax for each business year from 2008 to 2012 by deeming that the Plaintiff’s payment to AA was the business income of AA that cannot be taxed as domestic source business income.

[Reasons for Recognition] Unsatisfy, Gap evidence 1 through 5 (including the relevant branch numbers), Eul evidence 1 and 2, the purport of the whole pleadings

2. Whether collection disposition of value-added tax in this case is legitimate

A. The plaintiff's assertion

The collection disposition of the value-added tax in this case should be revoked because all or part of it is illegal for the following reasons.

1) The Plaintiff, while running a foreign exchange brokerage business jointly with AA, distributes profits generated from the joint business, not from the provision of services from AA and not from the payment of the instant payment. Therefore, the Plaintiff’s payment of the instant payment to A is not subject to value-added tax, and thus, is not obligated to pay value-added tax on behalf of the Plaintiff.

2) Even if the Plaintiff was supplied with the services from AA, since the place where the services are provided to the Plaintiff is located in the AA brokerage system server, there is no obligation to pay the Defendant’s value-added tax on behalf of the Plaintiff.

3) Even if a domestic service was supplied in the Republic of Korea, the portion paid in connection with US US US US dollars/originalization brokerage among the instant payments cannot be included in the tax base for value-added tax, and only the amount allocated to AA out of the fee for brokerage of foreign currency transactions shall be subject to value-added tax.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) As to the assertion that the Plaintiff and AAA runs a foreign exchange brokerage business in a partnership business, a joint business refers to a business in which two or more persons invest under the partnership agreement pursuant to Article 703(2) of the Civil Act operate the joint business and jointly operate the business and distribute profits and losses after setting their shares or the ratio of sharing profits and losses, etc., and all the parties concerned have a direct interest in the success of the business. Therefore, in order to distinguish between a business and a joint business, the determination should be made by comprehensively taking into account the specific and substantial circumstances, such as (i) whether a contract form takes the form of a partnership agreement or partnership agreement; (ii) whether a contract form takes the form of an individual investment between the parties concerned; (iii) whether a profit or loss distribution agreement has been entered into; (iv) whether a property necessary for a joint business has been jointly reverted to the business operation; and (v) whether an external business entity and a type of external business

B) the facts of recognition

(1) On May 19, 2006, the Ministry of Strategy and Finance of Korea announced the direction for the promotion of the Foreign Exchange Market's mid- to long-term development (the mid-term development of the foreign exchange market, April 2002), which was scheduled to complete in 2011, to the end of 2009. According to this, the Ministry of Strategy and Finance planned to abolish the limitation on the export of Korean currency and to liberalize the export of Korean currency by step-by step-in the internationalization of Korean currency until 2009, and also announced the Market-Friendly Foreign Exchange System's construction plan on November 18, 2007. However, due to the global financial crisis that began from the end of 2007, the implementation plan of each of the above implementation plan on October 7, 2008 was reserved provisionally.

(2) The overall content of the instant agreement is as follows.

○AA operates the AA transaction brokerage service 4) so that customers of the market, including customers in Korea, can enter into a derivative currency transaction with the exception of US dollars and won.

4) AA transaction brokerage service means a transaction by anonymous and electronic means of transaction/transaction brokerage service for foreign currencies.

○ As of the date of the conclusion of this Convention, US$/Korean currency transactions can be conducted only between banks located in Korea, and the Plaintiff shall provide the Plaintiff’s network and system for the said transactions.

○A and the Plaintiff provide some of their customers in Korea with access to AAA transaction brokerage services through the Plaintiff’s network.

○ The Plaintiff and AA shall mutually cooperate with each other so that all existing liquiditys of the Plaintiff’s system are transferred to AAA transaction brokerage services prior to the date the Korean won currency is fully liberalized.

(3) According to the present Convention, AA shall grant the Plaintiff a non-exclusive license for the operation and use of AA Software, AA professional soil and AA documents so that the Plaintiff may provide the Plaintiff with AA transaction brokerage services (Article 2) and distribute AA transaction brokerage services to the Plaintiff’s customers (Article 3). The Plaintiff shall make reasonable efforts to renew the existing AA customer agreement through the Plaintiff’s customer network (Article 3), and shall promptly modify or correct the errors or disagreements in the AA transaction brokerage services at the service level (Article 4(3)), and shall make reasonable efforts to ensure that the development or revision of technology to provide AA transaction brokerage services is interchangeed with the Plaintiff’s networks and specifications (Article 4(4)). The Plaintiff and the AA shall enhance the Plaintiff’s initial efforts to ensure that all existing customers may access the AA transaction brokerage services through the Plaintiff’s network to the Plaintiff’s customer agreement, and that such efforts shall be made to ensure that the Plaintiff’s business operator and the other party’s business operator’s business operator’s business online marketing service at the Plaintiff’s request for discount and discount (Article 4).

(4) In addition, according to the instant agreement, the Plaintiff, AA, and EO shall bear their legal, accounting, audit, business, installation, development, and other expenses incurred in connection with the instant agreement (Article 9(1)); AA shall bear the expenses for the development and operation of communications circuits from the AA server located in Japan to Seoul; the Plaintiff shall bear all daily costs for the operation and maintenance of the Plaintiff’s network; and the Plaintiff shall bear 50% of the initial distribution and financial economic division of the AA-Spot Exchange Work Work Work Work Work Work, and the new system or report development cost required to meet the real-time reporting requirements of the Bank of Korea (Article 9(3)); and a certain percentage of the following profits shall be paid to AA (Article 9(2)).

* The Plaintiff’s obligation to be paid to AA in connection with the spot exchange transaction of KRW commences on January 1, 2008.

* However, if the internationalization of Korean currency is not realized by January 1, 2013, the rate of the amount payable to AA shall be 30% until the date of the internationalization of Korean currency.

* The AA payment rate shall be applied at 50% per month if the average daily trading volume calculated on the basis of Washington, 2009, 1.00 billion dollars in 2010, and 2.0 billion dollars in 201 after 2010. If the average daily trading volume falls short of the above limit, the AA payment rate shall be 75% per month.

(5) Under the instant agreement, the Plaintiff is in charge of domestic marketing business, installation, maintenance and repair of terminals, and provision of network infrastructure, and AA was in charge of overseas marketing business, the development of brokerage system programs, the development and maintenance of brokerage system business, and the maintenance and repair of brokerage systems, the operation of customer service centers, the production of electronic transaction manuals, etc.

(6) Until February 2012, the Plaintiff paid AA a certain percentage of the U.S. dollars/original exchange brokerage commission and the spot exchange brokerage commission for foreign currency exchange in kind, the Plaintiff did not pay the U.S. dollars/original exchange brokerage commission from March 2012 to the time of liberalization of Korean currency export and import.

[Reasons for Recognition] Facts without dispute, Gap evidence 5, 7, 8 (including the relevant number), Eul evidence 3 and 4, the purport of the whole pleadings

C) Determination

In light of the legal principles as seen earlier, considering the following circumstances, it is difficult to deem that the Plaintiff operated a foreign exchange brokerage business jointly with AA, and the instant agreement is a combined business service agreement with the Plaintiff, the main purpose of which is to provide the Plaintiff with software and computer systems for foreign exchange brokerage and to permit the use of AAA’s trademark, in light of the aforementioned facts of recognition and the purport of the entire pleadings.

(1) As asserted by the Plaintiff, the fact that the Plaintiff entered into the instant agreement is changing into a market where a short-term loan transaction between financial institutions, including Korean won, takes place.

It seems that the need to convert into a multi-level profit structure has emerged as the rapid changes in domestic and foreign financial markets have been predicted.

In other words, upon the conclusion of the instant agreement, the Plaintiff introduced the AA transaction brokerage system through the Plaintiff’s network to transfer overseas customers to the Plaintiff’s network (Article 3(2) of the instant agreement). In preparation for the internationalization of Korean currency, the Plaintiff was able to establish a network environment in advance to secure the lead right of US dollars/originalization in foreign financial institutions (see subparagraph 3 of the instant agreement and subparagraph 5 of the strategic internal report on business partnership).

(2) According to the instant Convention, AA is only obligated to maintain all intellectual property rights to provide brokerage services to the Plaintiff and third party software suppliers’ permission to use (see Articles 6 and 11 of the instant Convention), and AA does not have scheduled that AA will operate foreign exchange brokerage business in the Republic of Korea as joint business operators of the Plaintiff and the Plaintiff.

(3) The instant agreement does not provide for the agreement on the settlement of losses, which can be deemed as a characteristic of a joint business, while the money the Plaintiff receives from customers is divided into “broage brokerage or transaction commission,” and the money paid to AA by the Plaintiff is classified into “a license fee,” and even if the customer does not pay a brokerage fee to the Plaintiff, the Plaintiff is obliged to pay a license fee to AA at the due date in accordance with the payment rate stipulated in the instant agreement (see Article 15(3) of the instant agreement) and considerable portion of the instant agreement is nothing more than that of the Plaintiff’s business and the Plaintiff’s obligation to prevent the Plaintiff from being paid to the Plaintiff, in light of the fact that the Plaintiff’s technical matters necessary for the construction of brokerage services and the quality of system errors or information errors and so forth, it is difficult to accept the instant provision that the Plaintiff would not be deemed as a joint business of the Plaintiff and the Plaintiff’s license to use the software in question, rather than that of the Plaintiff’s business and the Plaintiff’s license to use the software in question.

(5) According to the materials examined before the Plaintiff entered into the instant agreement with AA (Evidence 3 of the above), the structure of the transaction of the instant agreement is as follows: ① the Plaintiff was provided with the “AA(s)” from AA; ② the Plaintiff was provided with the “AA(s)” to domestic customers; ② the Plaintiff was provided with the “AA(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s)(s

5) The partnership agreement, the document title of the instant agreement, is a contract document prepared in order to provide for the items of all necessary matters concerning the technical alliance with the other party between the parties to the contract in ordinary terms.

The agreement of this case states that the money paid is "licsefe" (the plaintiff asserts that the agreement of this case is a trade agreement on the ground that it includes the plaintiff's "business rights to the domestic business of the AA product", "distribution of a certain part of the transaction to all domestic financial institutions through the electronic intermediary system of the AA", and "share in the domestic US dollars/U.S. dollars exchange market", but it is difficult to see that the plaintiff plans to acquire the shares of the AA or the domestic business rights of the AA product under the premise of the trade relationship).

(6) Although the Plaintiff and AA shared some costs, such as marketing costs related to the instant Convention, they agreed to bear the costs of the principal duties performed by each of the parties (see Article 9(3)(a) and (c) of the instant Convention, and to bear all of the costs related to the instant Convention (see Article 9(1) of the instant Convention), it is difficult to view that the Plaintiff and AA agreed to share the costs of joint business losses.

(7) The Plaintiff, through foreign exchange brokerage, accounted for the instant payment to AA as deductible expenses, of the entire commission received from customers.

2) As to the assertion that AA is not obligated to pay value-added tax on behalf of the Plaintiff because it is Japan where AA provides services to the Plaintiff.

A) Article 34 of the Value-Added Tax Act on behalf of a person who receives the service for the purpose of maintaining the neutrality of taxation and ensuring the equity in taxation.

If a foreign corporation that supplies services does not have the obligation to pay value-added taxes, it is not subject to the above Article 34 of the Value-Added Tax Act, but there is no room for a person who receives services from a foreign corporation outside our territory to be liable to pay value-added taxes (see Supreme Court Decision 82Nu483, Jan. 18, 1983). Meanwhile, the Value-Added Tax Act provides that the place where the services are supplied or the goods, facilities, or rights are used, as well as the place where the services are actually provided, and the meaning of the "place where the services are provided" includes not only the place where the services are actually provided, but also the place where the services are used, from the perspective of the consumers who are supplied services, and the important and essential parts of the services are also provided domestically (see Supreme Court Decision 197Nu1965, Jan. 18, 198).

B) In light of the above legal principles, it is reasonable to view that the Convention is a service contract whose main content is to provide the Plaintiff with software and computer system for foreign exchange brokerage and permit the use of the AAA's trademark rights, etc., i.e., permission for the use of the AA transaction brokerage system, as seen earlier. In light of the fact that the AA transaction brokerage service of this case is supplied to customers via the Plaintiff's network rather than the AA's network, and that the AA provides the Plaintiff with software and computer system to allow domestic customers to provide the AA transaction brokerage service, from the standpoint of the Plaintiff, the place where the service is supplied from the standpoint of the Plaintiff, as the place where the service is used, the right to use the AA transaction brokerage service, which is an essential and essential part of the AA transaction brokerage service, is located in the Republic of Korea where the Plaintiff's domestic customers have access to the AA transaction brokerage system (Article 15 of the Convention, even if the Plaintiff had to pay value-added tax to the Plaintiff at the time of the Plaintiff's payment of the AA.

In this regard, the plaintiff asserts that the services provided by AA to the plaintiff through the AA transaction brokerage service are itself a brokerage of the EO's transactions in this case, which is located in Japan, the most important and essential part of the services are carried out in Japan outside the territory. However, as seen above, it cannot be said that the services provided by AA to the plaintiff are itself a brokerage of the transactions in this case, and only the fact that the AA transaction brokerage service system is maintained and managed through EO's server in Japan, it cannot be concluded that the place of the supply of services under the Convention in this case is Japan. Thus, the plaintiff's above assertion is without merit.

3) Of the instant payments, the portion of the U.S. dollars/original brokerage commission is equivalent to the cost of the service.

Determination on the assertion that the tax base of value-added tax should be excluded;

However, according to the evidence adopted earlier, the part of the instant payment, which was the brokerage commission incurred in the spot exchange brokerage, is not based on the AA transaction brokerage service provided by the AA to the Plaintiff, but is arising from the transaction using the Plaintiff’s existing transaction system.

However, according to the facts acknowledged earlier, the payment of this case does not necessarily require the plaintiff to actually act as a broker for foreign exchange transactions with the plaintiff's customers using the AA transaction brokerage service, and according to the scheduled ratio of license fees under the 208 attached Table 2, which the plaintiff should pay to AA during the period from 2008 to 2012, the rate of profit payment related to the in-kind exchange transaction is gradually increased from 5% to 30% each year, and 50% each year after the liberalization of the won currency is realized. If the won currency is not realized by January 1, 2013, the payment of this case is 30% until the date of implementation of the Korean won currency internationalization. Accordingly, the plaintiff is not entitled to the payment of this case's monetary capability, status of AAA in the foreign exchange brokerage market, expectation for expanding the scope of its business by introducing the transaction brokerage service in this case, and the small-scale domestic currency market for this case's transactions in this case's currency is not subject to the payment of the US currency exchange contract.

4) Therefore, the Plaintiff is liable to pay value-added tax on the instant payment amount on behalf of AA, because it was supplied with software for foreign exchange brokerage and other business services by AA, a foreign corporation with no domestic place of business, and provided for foreign exchange brokerage business subject to value-added tax exemption. Ultimately, the disposition to collect value-added tax of this case is lawful.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit, and the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.