Hyundai Urban Development Co., Ltd. (Law Firm Gyeong & Yang, Attorneys O Tae-hwan et al., Counsel for the plaintiff-appellant)

Head of Busan District Tax Office

Daejeon District Court Decision 2009Guhap1398 Decided September 16, 2009

January 14, 2010

1.The judgment of the first instance shall be modified as follows:

A. On May 2, 2008, the Defendant’s disposition of imposing additional tax on the amount exceeding KRW 131,720,850 on the second-term value-added tax for the Plaintiff on May 2, 2007 is revoked in excess of KRW 6,310,322.

B. The plaintiff's remaining claims are dismissed.

2. The total costs of the lawsuit shall be ten minutes, and one of them shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

1. Purport of claim

The Defendant’s disposition of imposing KRW 131,720,850 on the Plaintiff on May 2, 2008 is revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Details of the disposition;

A. The Plaintiff is a corporation established by Hyundai Construction Co., Ltd. (hereinafter “Modern Construction”) by investing in full on August 6, 2007 for the enterprise city development project and related project. The Plaintiff acquired the business rights of the tourism and leisure-type enterprise city development project (hereinafter “instant development project”) that establishes golf courses, themeac, accommodation, etc. in the area of 14,643,69 square meters located in the area of Yan-gun, Chungcheongnam-gun, Chungcheongnam-gun, Nam-gun, the Seoul Special Metropolitan City of 14,643,69 square meters (hereinafter “instant development project”). On September 18, 2007, the Plaintiff obtained approval of the implementation plan of the instant development project from the Ministry of Culture and Tourism on September 18, 2007, and concurrently operates a taxable business (for profit-making business through the operation of golf courses) and

B. On January 25, 2008, the Plaintiff reported the value-added tax for the second period of 2007 to the Defendant. The second period of 2007 (from August 6, 2007 to December 31, 2007) had no supply related to the taxable and tax-free business in relation to the pertinent development business, and there was no supply related to the pertinent development business, and only 38,341,568,79 won was incurred due to the acquisition of business rights or the exercise of the official method. The above purchase price was considered to be a common purchase price, and it is deemed to be calculated according to the ratio of the project cost required for the taxable business and the cost required for the tax-free business (34.35% of the project cost required for the tax-free business, and 65.65% of the project cost required for the tax-free business: the input tax amount related to the taxable business, and the return was made after calculating the input tax amount as KRW 1,317,2858,58.

C. From February 11, 2008 to February 22, 2008, the Defendant conducted on-site verification related to the refund of value-added tax for the second term portion of the Value-Added Tax for the Plaintiff (hereinafter “on-site verification”). The remaining purchase prices, excluding common purchase prices, in the above taxable period, are all the purchase prices related to the tax-free business or the land-related tax amount under Article 17(2)4 of the former Value-Added Tax Act (amended by Act No. 8826 of Dec. 31, 2007; hereinafter the same), and the common purchase price also should be calculated as the input tax amount related to the tax-free business in accordance with the calculation method of common purchase tax under Article 61(4)1 of the Enforcement Decree of the Value-Added Tax Act. Accordingly, in the Plaintiff’s case, on the grounds that there was no input tax amount related to the taxable business within the above period, the Plaintiff did not report on the refund of the input tax amount to the Plaintiff, as above, and the Plaintiff did not report on the refund amount exceeding 2081.

D. Meanwhile, in 2007, the purchase price and the classification of the second purchase price in the year 2007, which the Defendant confirmed as the purchase tax invoice in the instant case, are as shown in the following table (hereinafter “purchase price table”), (The purchase price related to the dredging in the purchase price table shall be the purchase price related to the tax-free business, and the purchase price related to the golf course course shall be the purchase price related to the taxable business, and the purchase price related to the golf course course shall be classified into the development of enterprise cities and other management expenses,

본문내 포함된 표 매입내역 날짜 계정항목 가액(천원) 계정 적요 부남호 준설 관련 2007. 10. 20. 기공식 부지조성 451,000 신승토건, 기업도시 기공식 부지조성 공사 2007. 10. 30. 17,580 2007. 10. 30. 토취장 개발 30,000 인정컨설턴트, 토취장개발을 위한 생태환경질 조사 2007. 11. 9. 준설용역 234,000 혜인이엔씨, 부남호 준설 설계용역 2007. 11. 9. 28,000 2007. 11. 27. 토취장 개발 38,000 우성엔지니어링, 토취장 인허가추진(착수금) 2007. 12. 3. 준설용역 28,000 혜인이씨, 부남호준설사업 사전재해 영향성검토용역 소계 826,580 ？ 골프장코스 관련 2007. 10. 29. 골프장 건설 24,000 인정컨설턴트, 태안기업도시 골프장 인허가용역 2007. 11. 13. 44,250 인성골프, 기업도시 골프코스 실시설계용역 2007. 11. 12. 84,000 송호골프, 기업도시 골프코스 설계용역 2007. 11. 12. 44,250 송호골프 기업도시 골프코스 실시설계용역 2007. 11. 30. 84,000 인정컨설턴트, 기업도시 골프코스 설계용역 2007. 11. 30. 84,000 오렌지엔지니어링, 기업도시 골프코스 설계용역 2007. 12. 3. 44,250 오렌지엔지니어링, 기업도시 골프코스(해외) 실시설계용역 2007. 12. 4. 13,500 오렌지엔지니어링, 골프코스설계 시공기술 및 대관업무지원 소계 422,250 ？ 기업도시개발 관련 2007. 10. 2. 기업도시 전체공통 24,530 현대아트 외, 기업도시 기공식 비용 2007. 10. 19. 237,300 기업도시 기공식 행사비 엠비씨애드컴 2007. 10. 19. 330,000 2007. 10. 19. 270,346 삼호텍엔지니어링, 친수형 인공수로 설계용역/사례조사비 2007. 11. 9. 72,930 현대엔지니어링, 기업도시 실시설계 추가조사 용역 2007. 11. 15. 69,000 엠비씨애드컴, 기업도시 기공식 행사비 2007. 11. 20. 360,000 엠비씨애드컴, 기업도시 기공식 행사비 2007. 11. 30. 1,659,200 현대엔지니어링, 기업도시 실시설계용역(2차 기성) 2007. 11. 30. 1,101,800 현대엔지니어링, 기업도시 실시설계 인허가용역(준 공급) 2007. 11. 30. 15,133 현대건설, 기업도시 개발관련 환경질 조사 용역 2007. 12. 3. 121,550 현대엔지니어링, 기업도시 실시 설게 추가조사용역 2007. 12. 20. 31,450,000 현대건설, 사업권 양도대가 2007. 12. 28. 21,981 현대건설, 기업도시 개발관련 환경질 조사 용역 소계 35,733,770 ？ 기타 관리비 관련 2007. 10. 31. 일반 관리비 277,057 현대건설, 10월분 용역비 2007. 10. 31. 기타 일반관리비 등 130,513 법률자문비용 등 10월분 일반관리비 계 2007. 11. 30. 일반 관리비 381,465 현대건설, 1월분 용역비 2007. 11. 30. 기타 일반관리비 등 205,259 법률자문비용 등 11월분 일반관리비 계 2007. 12. 31. 일반관리비 354,580 현대건설, 12월분 용역비 2007. 12. 31. 기타 일반관리비 등 10,090 감사 착수금 등 12월분 일반관리비 계 소계 1,358,964 ？ 합계 38,341,564 ？

E. The Plaintiff filed a request for examination with the Commissioner of the National Tax Service on July 11, 2008. However, the Commissioner of the National Tax Service rendered a decision to dismiss the Plaintiff’s request for examination on December 23, 2008 after deliberation by the National Tax Examination Committee.

[Reasons for Recognition]

Facts without dispute, Gap evidence 1, 2, Eul evidence 1, 2, 3 and 4, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

(a) Relevant statutes;

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

B. The assertion and judgment

(1) Method of calculating the input tax amount

(A) The plaintiff's assertion

The method for which the Plaintiff calculated input tax amount for a taxable business by dividing the common purchase amount in proportion to the project cost required for the taxable business and the tax-free business under the implementation plan is not explicitly stipulated in Article 61(1) and (4) of the Enforcement Decree of the Value-Added Tax Act. However, the above Enforcement Decree is merely an example provision establishing the reasonable internal standards for the method of calculating common purchase tax amount for the convenience of taxation administration, and there is no external legal nature. Therefore, if there is a reasonable method to calculate the common purchase tax even if it is not a method under the above Enforcement Decree, it shall be deemed a legitimate method.

(B) Determination

Article 17 of the former Value-Added Tax Act provides for the type of input tax which is not deducted from the output tax amount under paragraph (2) of the same Article, while Paragraph (7) provides for the necessary matters concerning the scope of input tax amount not deducted under paragraph (2) of the same Article. Accordingly, Article 61 of the Enforcement Decree of the Value-Added Tax Act provides for the method of calculating input tax amount related to the tax-free business where an entrepreneur concurrently runs a taxable business and a tax-free business under paragraph (1). Paragraph (3) of the same Article provides for the method of calculating input tax amount related to the tax-free business notwithstanding paragraph (1) of the same Article. Paragraph (4) of the same Article provides for the goods subject to deduction of input tax amount where there is no supply amount of the taxable business and the tax-free business during the pertinent taxable period. In full view of the above provisions, Article 61 of the Enforcement Decree of the Value-Added Tax Act provides for the method of calculating input tax amount under Article 17 (7) of the former Value-Added Tax Act, and thus, it is reasonable to view that the above provision of the Plaintiff’s tax exemption method.

(2) Justifiable reasons as reasons for exemption of penalty tax

(A) The plaintiff's assertion

In this case, even if the Plaintiff calculated an input tax amount related to a taxable business and reported an excess refund pursuant to its independent calculation method, which is the reason for imposing additional tax, even if it is acknowledged that the Plaintiff violated its duty of care, the Plaintiff’s above calculation method constitutes an accurate and reasonable method of allocating input tax, and thus, the Defendant’s disposition of this case is unlawful.

(B) Determination

Under the tax law, additional tax is an administrative sanction imposed in accordance with the tax law in order to facilitate the exercise of the right to impose taxes and the realization of tax claims where a taxpayer violates a return and tax liability under the tax law without justifiable grounds. It is not considered the taxpayer's intentional or negligent act. However, it is unreasonable for the taxpayer to be unaware of his/her duty to do so, unless there are justifiable grounds that it is unreasonable for the taxpayer to expect the performance of his/her duty to do so, or there is a reason that it is unreasonable for the taxpayer to expect the performance of his/her duty to do so. Thus, the tax should be imposed on the non-performance of tax obligations under the tax law, unless there is a justifiable reason that it is not attributable to the breach of duty to do so (see Supreme Court Decisions 201Du4689, Nov. 13, 2002; 2001Du4849, Nov. 8, 2002; 9Du31516, Aug. 19, 1997).

(3) Whether the liability for additional tax payment exists

(A) The plaintiff's assertion

Even if the application of Article 61(4)1 of the Enforcement Decree of the Value-Added Tax Act is recognized, the common input tax amount of this case is calculated as the input tax amount related to the tax-free business in accordance with the above provisions. Therefore, the Plaintiff’s disposition based on the premise that the Plaintiff is liable for tax payment is unlawful, since the Plaintiff’s sales related to the taxable business during the second taxable period of 2007, as well as the input tax amount, and all of the Plaintiff’s business activities were carried out in relation to the tax-free business.

(B) Determination

In implementing the instant development project, there is no dispute between the parties concerned regarding the fact that the Plaintiff had no supply related to the taxable business and the tax-free business during the second taxable period of 2007. In addition, there is no difference between the parties concerned regarding the fact that the purchase price related to the dredging in the said purchase price list falls under the purchase price related to the exempted business, the common purchase price related to the enterprise city and other management expenses (total purchase price of 37,092,734,000) and the common purchase price related to the enterprise city and other management expenses (total purchase price of 37,092,734,000), the purchase price related to the golf course falls under the purchase price related to the golf course, and the purchase price related to the golf course corresponds to the land-related purchase tax not deducted from the output

On the other hand, it is reasonable to view that the taxpayer, who is liable to pay the additional tax on excess refund under Article 47-4 of the Framework Act on National Taxes, refers to a person liable to pay national taxes under tax-related Acts and a person liable to pay national taxes (Article 2 of the Framework Act on National Taxes). The taxpayer under the former Value-Added Tax Act refers to a person who independently supplies goods or services for a business regardless of for profit (Article 2(1) of the former Value-Added Tax Act) and includes not only a taxable entrepreneur but also a person who concurrently runs a taxable business and a tax-free business like the Plaintiff, regardless of the existence of profit-making profit (Article 2(1) of the former Value-Added Tax Act). Furthermore, there is no ground to view that the Plaintiff’s taxation entrepreneur (or a concurrent entrepreneur) has substance as a tax-free entrepreneur solely on the ground that there is no sales and input tax related to the taxable business during the pertinent taxable period. Accordingly, this part of the Plaintiff’s assertion based on the premise that the Plaintiff falls under a tax-free entrepreneur is not justified in accordance with the method of calculating the input tax amount.

(4) Calculation of a reasonable amount of tax

(A) The plaintiff's assertion

Even if the Plaintiff is not a de facto tax-exempt business entity, the purchase price of golf course related to the instant development project falls under the purchase price related to a taxable business, and thus, in calculating the aforementioned purchase price in accordance with Article 61(4)1 of the Enforcement Decree of the Value-Added Tax Act, it should be excluded from the purchase price related to a tax-free business. Therefore, the part of the instant disposition exceeding the reasonable penalty tax due to the disposition

(B) Determination

In the instant case, there is no supply price for taxable business and tax-free business during the second taxable period of 2007. Since the input tax amount based on the purchase price related to the golf course of this case constitutes the land-related purchase tax amount not deducted from the output tax amount under Article 17(2)4 of the former Value-Added Tax Act, Article 61(4)1 of the Enforcement Decree of the Value-Added Tax Act provides that the input tax amount related to the tax-free business shall be calculated from among the common purchase tax amount by multiplying the total purchase price (excluding the common purchase price) by the ratio of the purchase price related to the tax-free business, and the purchase price related to the tax-free business refers to the purchase price related to the business that supplies the goods or services exempt from the value-added tax. However, Article 17(2)4 of the former Value-Added Tax Act provides that the purchase price related to the tax-free business shall be deducted from the input tax amount related to the land-related purchase tax amount, and therefore, whether the purchase price related to the land-related purchase price should be included.

In light of the following facts: (a) Land-related purchase tax amount under Article 17(2)4 of the former Value-Added Tax Act refers to the input tax amount related to capital expenditures for the creation, etc. of land (Article 60(6) of the Enforcement Decree of the Value-Added Tax Act); (b) It is interpreted as a type of undeductible from a tax policy perspective different from the input tax amount related to the tax-free business under Article 17(2)4 of the former Value-Added Tax Act; and (c) it is interpreted as not including the purchase tax amount related to the tax-free business under Article 61(4)1 of the Enforcement Decree of the Value-Added Tax Act.

Based on this, if a reasonable tax amount is calculated (hereinafter the calculation shall be based on the amount stated in the above purchase price table), first of all, 1,248,830,00 won, excluding common purchase price (37,092,734,000 won) of the total purchase price of this case (38,34,500 won) and 6.19% of the purchase price (826,580,580,000 won) relating to sub-Namhing (826,58,248,830,00 won) which is the above 2,45,168,163,200 won, 205, 365, 205, 306, 265, 205, 305, 265, 205, 306, 205, 205, 306, 205, 306, 405, 205, 65, 206.

3. Conclusion

Therefore, the part of the disposition of this case which exceeds KRW 6,310,322, which is the fair penalty tax, is unlawful. Thus, the plaintiff's claim of this case is accepted within the scope of the above recognition, and the remaining part is dismissed as it is without merit. It is so decided as per Disposition by the court of first instance which has partially different conclusions, and it is so decided as per Disposition.

[Attachment Form 5]

Judges Cho Soo-soo (Presiding Judge) Maximum index