Even if a tax invoice is issued before the time of supply, the input tax amount shall be deducted if the time of supply arrives within the taxable period to which the date of issuance belongs.

Without the intention to receive the input tax early refund, if the tax invoice issued before the time of supply arrives within the taxable period and the fact of transaction is confirmed to be true, the input tax amount shall be deducted.

Article 38 of the Value-Added Tax Act

2017Guhap24624 Return of unjust enrichment of value-added tax

EA and one other

Korea

November 8, 2018

November 29, 2018

1. The defendant shall pay to the plaintiffs 22,209,000 won with 15% interest per annum from July 25, 2018 to the day of complete payment.

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Basic facts

A. On May 25, 2016, the Plaintiffs entered into a contract with BB Construction Co., Ltd. (hereinafter referred to as “BB Construction”) under the following terms (hereinafter referred to as “instant contract”) with the content that the construction of a new neighborhood living facility (hereinafter referred to as “instant building”) is to be awarded to KRW 1,336,50,000 (the supply price of KRW 1,215,000,000, value-added tax, KRW 121,500,000).

B. BB Construction issued five copies of the tax invoice (hereinafter “instant tax invoice”) to the effect that it supplied the Plaintiffs with services equivalent to the total value of KRW 945,000,000 (supply Price) during the second taxable period of value-added tax in 2016.

C. On January 16, 2017, the Plaintiffs filed a return seeking refund of value-added tax of KRW 94,500,000, which is 10% of the amount of the said tax invoice on the grounds of the purchase of fixed assets to the Defendant.

D. The Defendant reported that the value of supply of the instant tax invoice exceeds the construction price paid by the Plaintiffs to BB Construction, and that the Plaintiffs sought refund of value-added tax KRW 73,300,500 to the Defendant on February 7, 2017.

E. On February 17, 2017, the Defendant examined the above contents of the Plaintiffs’ report and refunded KRW 72,291,000 to the Plaintiffs.

Facts that there is no basis for recognition, Gap's evidence 1 through 3 (including branch numbers for those with a serial number), Gap's statement in subparagraphs 1 through 4, and the purport of the whole pleadings.

2. Judgment on the defendant's main defense

A. Summary of defendant's defense

The Plaintiffs shall file a request for examination or adjudgment pursuant to the Framework Act on National Taxes. However, the Plaintiffs do not have filed such request, and the instant lawsuit filed without going through the previous trial procedure is unlawful.

B. Determination

1) Article 17(1) of the Value-Added Tax Act provides that "The value-added tax amount payable by an entrepreneur shall be the amount calculated by deducting the tax amount under each of the following subparagraphs (hereinafter referred to as "purchase tax amount") from the tax amount on the goods or services supplied by him/her (hereinafter referred to as "sales tax amount"): Provided, That an input tax amount exceeding the output tax amount shall be the refundable tax amount (hereinafter referred to as "Refund tax amount")." subparagraph 1 provides that "the tax amount on the supply of goods or services used or to be used for his/her own business" in subparagraph 2, and Article 24(1) provides that "the head of a tax office having jurisdiction over a place of business shall refund the tax amount on the goods or services used or to be used for his/her own business, as prescribed by Presidential Decree" and Article 72(1) of the Enforcement Decree of the Value-Added Tax Act provides that "the refund tax amount under Article 24(1) of the Act shall be refunded to an entrepreneur within 30 days after the expiration of the final return period by each taxable period."

As can be seen, the reason why the Act and subordinate statutes stipulate the duty to pay the tax amount to an entrepreneur liable for value-added tax along with specific provisions on the definition, timing and method of payment, and the duty to pay the tax amount to the State for the entrepreneur liable for value-added tax (hereinafter referred to as the “taxpayer”), is that the legislators have adopted a pre-stage tax credit system based on which the supplier of goods or services collects the amount of the tax from the entrepreneur who supplied the goods or services at each transaction stage before reaching the final consumer and pays it to the State through the process of deducting the amount of the tax amount from the State’s input tax amount, and ultimately imposes it on the final consumer in the following following following order: (a) in a case where the amount of tax collected in any taxable period exceeds the amount of tax collected in transactions, the tax amount equivalent to the value-added tax amount created by the taxpayer is collected, and thus, it can be deemed that the legislators has been specially recognized in accordance with the taxation techniques, tax policy demands (see, e.g., Supreme Court en banc Decision 2002Da29740, Nov. 27, 2019).

Therefore, in light of the content, form, legislative intent, etc. of the Value-Added Tax Act, the State’s duty to pay the amount of tax refundable to a taxpayer is directly generated by the provisions of the Value-Added Tax Act and subordinate statutes regardless of whether the State has actually paid the amount of tax collected excessively from a taxpayer in any taxable period. Therefore, the legal nature of the duty is not a duty to return unjust enrichment recognized by the Value-Added Tax Act and subordinate statutes, but rather a duty to return unjust enrichment recognized to adjust the financial status between a beneficiary and a loss, and is specifically determined

Therefore, a taxpayer’s claim for the refund of value-added tax against a country corresponding to a taxpayer’s obligation to pay the refund of value-added tax is not a civil lawsuit, but a party’s lawsuit under Article 3 subparag. 2 of the Administrative Litigation Act (Supreme Court en banc Decision 2011Da95564 Decided March 21, 2013).

2) In light of the above legal principles, the Defendant’s obligation to pay the tax amount refundable of value-added tax shall be based on a party suit as an obligation under public law directly arising pursuant to the provisions of the Value-Added Tax Act. The Administrative Litigation Act provides for the principle of the transfer of administrative appeal and the exception thereof in a revocation suit (Article 18(1) of the Administrative Litigation Act and Article 56(2) of the Framework Act on National Taxes), and applies mutatis mutandis to a lawsuit seeking confirmation of illegality of omission (Article 38(2) of the Administrative Litigation Act). However, the principle of the transfer of administrative appeal does not apply mutatis mutandis to a lawsuit seeking confirmation of invalidity, etc. and a party suit, such as this case, is applicable only to a lawsuit seeking revocation of a tax disposition and

3. Determination on the merits

A. The plaintiffs' assertion

After entering into a contract with BB Construction, the plaintiffs have been performing the relevant construction. Some of the construction works have been conducted in advance, and some of them have been paid after payment. The defendant has only refunded only part of 94,50,000 won, which is the amount that the plaintiffs are duly entitled to receive on the grounds of the inconsistency between the time of issuance of the tax invoice and the time of payment. The plaintiffs seek refund of the remaining 22,209,000 won and damages for delay.

B. Facts of recognition

As indicated below, the fact that the plaintiffs paid the construction price to BB Construction and the fact that BB Construction Tax Invoice were issued are acknowledged by the evidence and the purport of the whole pleadings that the parties did not dispute, or that the parties did not dispute.

Judgment

1) The main text of Article 39(1)2 of the Value-Added Tax Act, considering the fact that it is essential to compare the input tax amount to be deducted by an entrepreneur at each transaction stage in each taxable period with the output tax amount to be collected by the former business operator at each transaction stage, to verify each other. Meanwhile, the proviso of Article 39(1)2 of the Value-Added Tax Act provides for a sanctions to ensure the accuracy and integrity of the tax invoice by restricting the deduction of the input tax amount by a tax invoice that contains different descriptions from the facts. However, in cases where a tax invoice that contains different descriptions in the proviso of Article 37 of the Value-Added Tax Act is deemed not to impede the normal operation of the pre-stage tax credit system or to undermine the essential functions of the tax invoice, permitting the deduction of the input tax amount is delegated to the Enforcement Decree. Article 75(2)2 of the Enforcement Decree of the Value-Added Tax Act, one of the requisite descriptions of the tax invoice issued under Article 32 of the Act, but is erroneous, regarding the remaining descriptions in the relevant tax invoice or discretionary transactions.

In light of the language, structure, purport, etc. of these provisions, the input tax amount for the transaction shall be deducted pursuant to Article 75 subparag. 2 of the Enforcement Decree, in cases where even if an entrepreneur does not bear value-added tax and is issued a tax invoice prior to the time of supply with the intent to receive an early refund of the input tax amount, barring any special circumstance, such as where the entrepreneur is issued a tax invoice prior to the time of supply, the time of supply arrives within the taxable period to which the date of issuance belongs and where the transaction is confirmed to be genuine in view of the fact that the relevant tax invoice is other entries in the tax invoice (see, e.g., Supreme Court en banc Decision 2002Du5771, Nov. 18, 2004; 2014Du35

2) According to the following circumstances that can be acknowledged by the facts acknowledged as above and the purport of the entire argument, it is reasonable to view that the instant tax invoice constitutes a case where the fact of transaction is confirmed in view of the fact that some of the requisite entries of the tax invoice under Article 75 subparagraph 2 of the Enforcement Decree of the Value-Added Tax Act were erroneously entered differently from the fact, but the remaining requisite entries or discretionary entries entered in the relevant tax invoice

① A tax invoice is a document evidencing the determination of value-added tax, which is issued at the time of transaction, to ensure the truth of the documentary evidence, and has the function of mutual verification between taxpayers who facilitate the circulation of income tax and corporate tax as well as value-added tax by exposing transactions between the parties under the current VAT system adopting the pre-stage tax credit law.

Therefore, in principle, a tax invoice that is issued differently from the actual time of supply should be denied the deduction of an input tax amount. However, even if a tax invoice is written differently from the time of supply for goods or services, it is necessary to allow the deduction of an input tax amount to the extent that it does not impair the essential functions of the said tax invoice. Such a tax invoice is also consistent with the nature of the current value-added tax system, the principle of substantial taxation, and the principle of equity in taxation, calculated by the tax

② For this reason, the Supreme Court precedents have allowed input tax deduction by applying Article 60(2)2 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 23595, Feb. 2, 2012) without referring to whether the preparation date is entered as “ mistake” in the case where a tax invoice issued after the supply time is delivered within the taxable period to which the relevant time of supply belongs, even before the establishment of Article 60(2)3 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 23595, Feb. 2, 2012) (see, e.g., Supreme Court en banc Decision 2002Du5771, Nov. 18, 2004).

③ The date of commencement under the instant contract shall be June 25, 2014; and the date of completion of the instant contract shall be September 9 of the same year.

30. The defendant also recognized the remainder of the tax invoice of this case excluding the amount of KRW 223,00,000 paid by the plaintiffs to BB construction on October 12, 2016 and refunded value-added tax to the plaintiffs. In light of the fact that the time of supply for BB construction services under the contract of this case is the second time of 2016 where the tax invoice of this case was issued.

④ If an entrepreneur permits an input tax deduction on the sole basis that the tax invoice delivered prior to the time of supply was confirmed to have been supplied with goods or services and that payment was made thereafter, it may enjoy unjust gains from which the amount is refunded in advance without paying the price. However, the Plaintiffs paid KRW 946,236,362 out of the supply price of the instant tax invoice during the second period of 2016, which was the value of the said tax invoice during the same taxable period, as the construction price to BB. As such, in light of the fact that the Plaintiffs paid most of the supply price of the said tax invoice to BB construction, and that the difference has not been paid, it is difficult to deem that the Plaintiffs had the intent to receive unjust refund of the tax amount.

⑤ In addition, considering that the Plaintiffs agreed to pay the construction cost in installments each phase of the construction project as stipulated in the instant special agreement, and the actual Plaintiffs paid the construction cost to BB construction from time to time to time in order to facilitate the construction project under the instant contract, the Plaintiffs appears to have thought that only the total amount of the construction cost would coincide with the Plaintiff’s receipt of the instant tax invoice. However, there is no evidence suggesting that the Plaintiffs had any intention to tax evasion, etc. differently, and in a broad sense, it can be deemed that a tax invoice was issued differently from the fact that part of the requisite entries was erroneously stated in the instant contract.

3) Therefore, even though the tax invoice of this case is issued in advance prior to the time of supply for a part of the amount, it shall be deemed that the time of supply arrives within the taxable period to which the date of the issuance belongs and that the transaction is confirmed to be true in view of the fact of transaction as other entries in the tax invoice. Thus, the input tax amount of KRW 945,00,000 for

Therefore, even though the defendant should refund 94,50,000 won, which is the value-added tax equivalent to 10% of the above value, to the plaintiffs, the defendant is obligated to pay to the plaintiffs 22,209,000 won (=94,500,000 won - 72,291,000 won) and damages for delay calculated at the rate of 15% per annum under the Act on Special Cases Concerning the Promotion, etc. of Legal Proceedings, etc. from July 25, 2018 to the day of full payment after the copy of the complaint of this case claimed by the plaintiffs is served.

3. Conclusion

Therefore, the plaintiffs' claims are reasonable, and it is decided as per Disposition by admitting them.