Seoul High Court 2008Nu32081 ( October 08, 2009)

It is necessary to determine whether to refund gold bullion to an exporter of gold bullion transaction via a bombing company by applying the good faith principle.

In a series of gold bullion transactions, if a malicious business operator knew, or was unable to know, the circumstances that there was an illegal transaction for the purpose of evading the output tax amount, and that the deduction and refund of the input tax amount would lead to the reduction of other tax revenues by gross negligence, the exporter’s assertion of input tax deduction and refund cannot be permitted against the good faith principle.

209Du19670 Disposition of revocation of imposition of value-added tax, etc.

○○ Co., Ltd.

○ Head of tax office

Seoul High Court Decision 2008Nu32081 Decided October 8, 2009

February 24, 2011

The part of the judgment of the court below pertaining to the imposition of value-added tax, excluding additional tax for failure to record the tax invoice, shall be reversed, and this part of the case

The remaining appeals are dismissed.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the fact that the instant tax invoice is a false tax invoice

After compiling the adopted evidence, the court below acknowledged the facts as stated in its reasoning, and determined that the tax invoice 26 (hereinafter referred to as the "tax invoice of this case") received by the plaintiff when purchasing gold bullion equivalent to the total amount of 565km and 32.836 billion won in supply value (hereinafter referred to as "the gold bullion of this case") from Cheongkk Co., Ltd. (hereinafter referred to as "△kk"), did not constitute a false tax invoice.

The ground of appeal on this part is that the above judgment of the court below is erroneous, but it is merely an error in the selection of evidence or fact-finding which belongs to the exclusive jurisdiction of the court below and thus cannot be a legitimate ground of appeal.

2. On the ground that unfair input tax deduction and refund claim violate the principle of good faith

A. Article 15 of the former Framework Act on National Taxes (amended by Act No. 911, Jan. 1, 2010; hereinafter “Framework Act on National Taxes”) declares that the principle of trust and good faith is also applicable to the tax law field by stipulating that “A taxpayer shall perform his/her duty in good faith when he/she performs his/her duty. The same shall apply to a tax official performing his/her duty.” It is natural that such principle can also be applied to legal relations concerning value-added tax (Article 1 and Article 3(1) main text of the Framework Act on National Taxes).

B. Article 15 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010) provides that when an entrepreneur supplies goods or services, the value-added tax on the value-added tax shall be collected from the person who receives the supply thereof. Article 17(1) provides that the value-added tax to be paid by an entrepreneur shall be the amount obtained by deducting the input tax amount from the output tax amount, and that the input tax amount exceeding the output tax amount shall be refundable. This is based on the prior development tax deduction system, where the entrepreneur who receives the goods or services, pays the output tax amount to the State through each transaction process up to the final consumer, and the entrepreneur, who collects the tax amount, pays it to the State, and ultimately imposes the burden on the final consumer in turn through the process of deducting and refunding the input tax amount from the input tax amount (see, e.g., Supreme Court Decision 9Da3984, Nov. 12, 199).

Therefore, in a series of continuous transactions, where a malicious entrepreneur has attempted to evade value-added tax from the beginning to the end and does not pay the value-added tax collected by him by attempting to make an abnormal transaction that only causes losses if he/she fails to evade value-added tax (hereinafter referred to as "illegal transaction"), such as an exporter at the next transaction stage, if an entrepreneur is entitled to deduct and refund the input tax without the burden of the output tax amount due to applying the zero-rate tax rate, such as the exporter at the next transaction stage, the country is bound to make a refund with other tax revenues. However, this result exceeds the passive gap of tax revenues and constitutes an active outflow to the National Treasury. Accordingly, the damage to the value-added tax system itself and the burden is imposed on the general public, thereby causing serious harm to the overall tax system.

Of course, even if there are the above reasons, if an exporter is in a situation in which the existence of an illegal transaction is unknown, he/she may not, in principle, deny that the exporter is entitled to deduct or refund an input tax amount under the conditions as prescribed by the Value-Added Tax Act. However, if the exporter was aware of the existence of an illegal transaction at the pre-stage stage, he/she had engaged in a transaction in order to promote his/her own interest without vagabonds, and his/her transaction profit is attributable to the aforementioned illegal transaction, and his/her participation in the transaction is ultimately a critical factor that makes it possible to make an illegal transaction ultimately by securing the market of the illegal transaction, it shall be deemed an act of pursuing unjust profits by abusing the input tax deduction and refund system, which is a premise. Accordingly, even if such exporter receives a tax revenue from another tax revenue, making the exporter’s deduction and refund of the input tax amount would be the guarantee of benefits arising from the illegal transaction through the National Treasury, as well as preventing serious harm to the general tax system as seen above.

Therefore, in such a case, an exporter’s claim for deduction and refund of the input tax amount cannot be accepted as it goes against the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes. Furthermore, in light of the perspective of fairness, the importance of the outcome, and the universal sense of justice, it is reasonable to deem that the same applies to a case where an exporter was unaware of such illegal transaction due to gross negligence, namely, the relationship with a malicious business operator, and where the exporter did not know of the existence of such illegal transaction, even though he could have sufficiently known it, if he did not know that he did not know of it, the same applies to a case where he did not know of the fact that he did not have been aware of it, and it does not apply to a case where there was a specific conspiracy or accomplice relationship

In addition, in such cases, since exporters who are in a mutual relationship with malicious business operators receive deduction and refund of input tax from the State, and thus, deny the deduction and refund of input tax to such exporters, it cannot be said that they transfer to exporters without reasonable grounds the responsibility for the evasion of value-added tax by malicious business operators.

Meanwhile, Supreme Court en banc Decision 94Nu1449 Decided December 21, 1995 ruled that since Article 17(2) of the former Value-Added Tax Act (amended by Act No. 4663, Dec. 31, 1993) provides that the deduction of the input tax amount under paragraph (1) of the same Article shall not be denied without such special provision, since the Supreme Court en banc Decision 94Nu149 Decided December 21, 1995 provides that the deduction of the input tax amount cannot be denied without such special provision. However, the purport of the en banc Decision is not to prevent the denial of the deduction and refund of the input tax amount by exceptionally amending the permissible points under paragraph (1) of the same Article in accordance with the principle of good faith (see Supreme Court en banc Decision 2009Du13474, Jan. 20, 20

C. According to the reasoning of the lower judgment and the first instance judgment cited by the lower court, the following facts are revealed.

(1) On March 23, 2004, the Plaintiff is a company established for the purpose of gold, silver wholesale, and precious metal export business. The Plaintiff’s actual representative is a person who works for several companies and retired on April 30, 2004 and had no experience of engaging in gold bullion business previously.

(2) All of the instant gold bullions were imported from a foreign country to be distributed as tax-free gold, but were converted into a malicious business operator, and were exported through the Plaintiff through a taxation sheet at the second stage after they were converted into tax-free gold, and were exported from the date of import to the date of import or within 2,00 days from the date of import of the relevant gold bullions.

"(3) The plaintiff exported the gold bullion of this case to the pertinent issue date of the tax invoice of this case. On March 29, 2004, △△△△ Bank Lt. (foreign corporations located in Hoju) and the remaining 25 times exported the gold bullion to ○○ Investment Investment Lt. (foreign corporations located in Hong Kong) respectively. Meanwhile, as a result of the investigation conducted by the Seoul regional tax office, the above ○○ Investment Lt. and the main revenue sources of the gold bullion of this case were in fact identical to the above "AAnng", and the above companies were confirmed to be not a normal business, such as not presenting documents related to export and import and trade, and their place of business are unclear." (4) The malicious business operator who converted the gold bullion of this case into the taxation payment of the gold bullion of this case into its circulation did not have any mental illness ability to purchase the gold bullion of this case, which was lower than the normal purchase price of the gold bullion of this case (i.e., the purchase price added to the value-added tax amount).

(5) The price of the pertinent gold bullion exported by the Plaintiff was set lower than the import price of the domestic importer at all times.

(6) Meanwhile, according to the statement of the transport invoice, etc., the gold bullion transaction in the instant gold bullion is already stated as being transported by the relevant company or there is no prior record of the time for transportation. Moreover, the gold bullion transaction in the instant gold bullion transaction began to transfer the gold bullion deposited in advance by the Plaintiff to the predevelopment business entity in the order of the pre-development stage and led to the imported business entity. The time required for the transfer of the gold bullion was paid in a timely manner to the extent that it does not require only several minutes for each stage. The time required for the transfer of the gold bullion was paid in a timely manner to the extent that it does not require only a few minutes for each stage, and there was a case where the gold bullion transaction in the instant gold bullion transaction started from the Plaintiff to the importer and completed the payment from the Plaintiff to the importer.

(7) When the Plaintiff reported the value-added tax for the first and second quarter of 2004, the Plaintiff sought deduction and refund of the input tax amount on the grounds of applying the zero-rate tax rate for the export of the gold bullion, but the Defendant rendered each of the instant dispositions, including the disposition of refusal to apply for refund and the disposition of imposition of value-added tax for recovering the amount of refund, to the purport that the Plaintiff rejected it on September 1, 20

D. According to the above facts, the Plaintiff could have purchased and exported the instant gold bullion in a short time while enjoying profit margins is due to the fact that a malicious entrepreneur in the middle stage supplied the instant gold bullion at a low price and made an illegal transaction of evading the output amount. In light of the structure of the transaction, it is almost impossible for the Plaintiff to engage in an illegal transaction in bad faith without securing the market by exporting a large amount of gold bullion. Accordingly, the Plaintiff and a malicious entrepreneur are in an inevitable mutual relationship.

In addition, if the plaintiff cannot obtain input tax deduction or refund, the burden of the tax amount is considered to exceed the profit margin, and the transaction is impossible due to this, so the mutual dependence relationship is premised on the plaintiff's deduction or refund of input tax amount by applying the zero-rate tax rate for exports. In addition, since these series of transactions are conducted within a short period of time, it is difficult for the State to block it in advance.

Examining these circumstances in light of the legal principles as seen earlier, if the Plaintiff, an exporter, has a malicious entrepreneur who makes an illegal transaction for the purpose of evading the output tax amount in the course of a series of transactions prior to the transaction, and thus, seeks the deduction and refund of the input tax amount even though he knew of the fact that the Plaintiff’s deduction and refund of the input tax amount would result in a decrease in other tax revenues by gross negligence, this is not only the Plaintiff, who took advantage of the illegal transaction of a malicious entrepreneur, intended to receive part of the output tax amount evaded by a malicious entrepreneur by abusing the input tax deduction and refund system, but also would undermine the basis of the VAT system and the overall tax justice under Article 15 of the Framework Act on National Taxes.

E. If so, the court below should have sufficiently examined whether the plaintiff knew or was unaware of the above circumstances in the transaction of the gold bullion in this case, and should have determined whether the plaintiff's assertion for deduction and refund of input tax violates the principle of good faith.

Nevertheless, the court below held that the Plaintiff’s assertion on deduction and refund of input tax amount should be allowed solely on the ground that the instant tax invoice does not constitute a false tax invoice without deliberation and determination, and that the Defendant’s imposition of the value-added tax (including the penalty tax for failure to file a return and the penalty tax for failure to pay, but excluding the penalty tax for failure to pay in a tax invoice is irrelevant to the principle of trust and good faith) was unlawful. Thus, the court below erred by misapprehending the legal principles on the principle of trust and good faith as stipulated in Article 15 of the Framework Act on National Taxes, which

3. As to the imposition disposition of corporate tax

The defendant also stated this part of the petition of appeal as subject to appeal, but there is no legitimate ground of appeal in the petition of appeal or appellate brief.

4. Conclusion

Therefore, among the judgment of the court below, the part on the imposition of value-added tax, excluding the additional tax against the failure to state the tax invoice, is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The remaining appeal is dismissed. It is so decided as per Disposition by