Review-Supplementary 2016-006 (Law No. 18, 2016)

Educational services provided by overseas subsidiaries shall not be subject to value-added tax exemption.

Education services supplied by the Switzerland subsidiaries are not subject to the VAT exemption, and they are subject to the VAT payment by proxy.

Article 52 of the Value-Added Tax Act by proxy

Seoul Administrative Court-2016-Gu Partnership-78561 Revocation of Disposition of Imposing Value-Added Tax

a

s. Head of the tax office

October 13, 2017

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 of KRW 48,584,386 for the first term in year 2013, KRW 28,707,35 for the second term in February 2013, KRW 18,017,375 for the first term in year 2014, and KRW 11,741,079 for the second term in February 2014, respectively, shall be revoked.

1. Details of the disposition;

A. On June 10, 2008, the Plaintiff reported to a remote lifelong educational establishment pursuant to Article 33 of the former Lifelong Education Act (amended by Act No. 10915, Jul. 25, 201) on June 10, 2008, and operated a business for providing domestic students with 1:1 visual English lectures and receiving tuition fees by developing the teaching materials and video lecture system of English language through information communication media, such as Internet homepage, etc.

B. The Plaintiff’s representative director, BB, was a foreign corporation with no place of business in the Republic of Korea, and the local instructors of the Philippines employed by the said local subsidiary provided 1:1 English lecture to the Plaintiff’s students using the Plaintiff’s video lecture system. The Plaintiff transferred all kinds of operating expenses, such as tuition fees and rents, every month to the said local instructors of the Philippines and the students in the Republic of Korea, while managing the Internet teaching material business log and data management servers in the Republic of Korea.

C. On February 11, 2016, on the ground that services provided by local subsidiaries to the Plaintiff (hereinafter “instant services”) are subject to value-added tax as proxy, the Defendant issued a notice of correction and notification of each value-added tax (including additional tax) for the period from January 1, 2013 to February 2, 2014 as listed in the following table (hereinafter “instant disposition”). (unit: source) (Tax base in the year 1, 2013 to 2013, 2014, 1, 2014, 2014 to the Plaintiff.

441,676,243 260,975,968 163,794,325 106,737,090 calculated tax amount

44,167,624 26,097,596 16,379,432 10,673,709 notified tax amount

(including additional tax) 48,584,386 28,707,355 18,017,375 11,741,079

D. On April 25, 2016, the Plaintiff filed a request for review with the National Tax Service on April 25, 2016, but was dismissed on July 18, 2016. There was no dispute over the grounds for recognition, Gap evidence Nos. 1 through 5, and Eul evidence No. 1, and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) A local subsidiary registered as a private teaching institute under the laws of the Philippines provided lectures to students on its Internet homepage produced by the Plaintiff. The Plaintiff provided only a system necessary for lectures and served as a substitute for each individual. As such, the instant services are educational services exempt from value-added tax pursuant to Article 26(1)6 of the Value-Added Tax Act, and thus are subject to payment by proxy.

is not the case.

2) From September 2013, the Plaintiff: (a) from around 2013, c Co., Ltd. (hereinafter referred to as “CC”) provided students with 1:1 visual English lectures; (b) received service fees from cc instead of receiving direct tuition fees from students; and (c) issued a tax invoice therefor and paid value-added tax. Since the change in the method of paying tuition fees does not constitute value-added tax-added tax exemption on the services provided by the Plaintiff from September 2013, 2013, there is no obligation to pay value-added tax on behalf of the students for the services provided by the subsidiaries from September 2013.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Article 34(1)1 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013); Article 52(1)1 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Aug. 11, 2015); and Article 52(1)1 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Aug. 11, 2015) provides that a person who receives services from a foreign corporation with no domestic place of business shall collect value-added taxes from the person who receives the services

Meanwhile, Article 12(1)6 of the former Value-Added Tax Act and Article 26(1)6 of the former Value-Added Tax Act (amended by Act No. 11873, Aug. 11, 2015) provide that the value-added tax shall be exempted for the supply of educational services prescribed by Presidential Decree. Article 30 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 24359, Feb. 15, 2013); Article 30 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 24638, Jun. 28, 2013); Article 30 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 26983, Feb. 17, 2016); Article 30(1)1 of the former Enforcement Decree of the Value-Added Tax Act provides the Plaintiff with knowledge or training services provided to the pertinent domestic legal entity; the Plaintiff’s education institute or training institute.

2) The Plaintiff asserts that a local subsidiary registered as a private teaching institute under the laws of the Philippines provided lectures to students, and the Plaintiff merely takes charge of the formal replacement, and the instant services are educational services exempt from value-added tax.

According to the statements in Gap evidence 5 and 6 (including each number), it can be recognized that the local subsidiary is an educational and training institution registered with the Office of the Philippines (TESA, Tech v. Develor).

However, in full view of the fact that all of the 1:1 video lectures and related services provided to domestic students are conducted in the name of the plaintiff, and the legal responsibilities for such educational services are borne by the plaintiff and the payment of tuition fees is all all the plaintiff, while maintaining and managing the system continuously, not only managing the overall education process and the operation of the services provided to the students, but also conducting public relations and marketing activities is not a local subsidiary, and its subsidiary is not a local subsidiary, but also receiving tuition fees and all expenses from the plaintiff, it is difficult to see that the plaintiff merely performs a formal role mediating the services provided to the local subsidiary, and the entity that provides the above educational services to the students shall be deemed the plaintiff.

Therefore, the instant services provided by a local subsidiary constitute part of the educational services provided by the Plaintiff to students, and it is reasonable to deem that the other party to the provision of such services is the Plaintiff. Since the value-added tax is exempted when the service provider provides educational services to students, the value-added tax is not exempted for the instant services provided to the Plaintiff.

The plaintiff's above assertion cannot be accepted.

3) The Plaintiff asserts that since around September 2013, c offered video lectures to students recruited from around 2013 and paid value-added tax after receiving service fees from c, the instant service is provided for taxable services and thus, there is no obligation to pay value-added tax on behalf of the students.

In full view of the purport of the evidence No. 7-1, No. 7-2 and the entire pleadings, the Plaintiff may recognize the fact that the Plaintiff provided c with the video language lectures of about 1:1 and received tuition fees for approximately 2 weeks from c and issued tax invoices.

However, even according to the Plaintiff’s assertion, C only recruited students and mediated them with regard to the conclusion of a contract and the payment of tuition fees, and the 1:1 video language lecture offered to students by the Plaintiff using the Plaintiff’s system, as in the case of not going through c, is in charge of the operation and management of the education course. The Plaintiff’s payment paid from c also seems to be similar to that of general tuition fees. The purport of the Value-Added Tax Act exemption of value-added tax on the provision of certain educational services is to support the education business that has completed legitimate registration or report, and it is reasonable to deem that value-added tax is exempted on the provision of such services even if the Plaintiff actually provided such educational services. Considering these circumstances, even if the Plaintiff did not directly conclude a contract with c, the Plaintiff is deemed to have provided educational services that are exempt from value-added tax, so the Plaintiff’s above assertion cannot be accepted.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.