Seoul High Court 2009Nu33678 (2010.05.06)

early 208west 2464

The exporter's assertion of input tax deduction and refund for the illegal transaction of gold bullion violates the principle of good faith.

If an exporter makes an illegal transaction for the purpose of evading the output tax amount in the course of trading gold bullion, and thereby seeks the input tax deduction and refund even though he knew or was not aware of the fact that the deduction and refund of input tax amount would result in the reduction of other tax revenues by gross negligence, this would be contrary to the principle of good faith.

Article 15 of the Framework Act on National Taxes

2010Du10396 Value-Added Tax and Revocation of Disposition of Imposition of Corporate Tax

○○ Korea Ltd.

○ Head of tax office

The Seoul High Court Decision 2009Nu33678 Decided May 6, 2010

April 14, 2011

Of the judgment below, the part on the imposition of the second term portion and the first term value-added tax in 2003, 2004, excluding additional taxes, such as failure to submit a list of total tax invoices, shall be reversed, and this part of the case shall be remanded to the

The defendant's remaining appeals are dismissed.

The grounds of appeal are examined.

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

The first instance court, cited by the lower court, recognized the facts as indicated in its reasoning after compiling the evidence of employment, and determined that the instant tax invoice does 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. As to the allegation that unfair input tax deduction and refund are contrary to the principle of good faith

A. Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter “Framework Act on National Taxes”) declares that the principle of good faith should be a basic guiding ideology in the field of tax law by stipulating that “A taxpayer shall perform his/her duty in good faith and sincerity. The same shall also apply to a tax official performing his/her duty.” This principle of good faith, which enables a tax official to realize or supplement the existing law, and to secure concrete feasibility in the operation of the law through the function of supplementing the criticism of the law, is also somewhat limited compared to that of the principle of no taxation without law in the field of tax law, and its scope of application is somewhat limited compared to that of the civil law. However, if a tax law provision is applied to an individual case, it would result in an unreasonable outcome that would result in a sound performance, thereby leading to the imposition of value-added tax, it may be excluded from the application of the principle of good faith and good faith under the main text of Article 13 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 supply price shall be collected from the person who receives the supply price thereof. Article 17(1) provides that the value-added tax payable 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 so-called tax credit system where the entrepreneur collects the output tax from the entrepreneur who receives the supply at each transaction stage prior to reaching the final consumer and pays the tax amount to the State, and the entrepreneur who collects the tax amount shall, through the process of receiving the deduction and refund of the input tax amount from the State, make it impossible to properly pay the input tax amount to the final consumer (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 does not evade value-added tax (hereinafter referred to as "illegal transaction"), such as the exporter, in the next transaction stage, if an entrepreneur is entitled to deduct or refund the input tax without the burden of the output tax amount due to the application of zero-rate tax rate as in the next transaction stage, the country has no choice but to make a refund with other tax revenues. This result exceeds the passive gap of tax revenues and constitutes the leakage of the National Treasury. Accordingly, the burden exceeds the damage of the value-added tax system itself, 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 where the existence of an illegal transaction is unknown at all, 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 had been aware that there was an illegal transaction at all stages of the transaction, and he/she had been engaged in the transaction with an opportunity to promote his/her own interest without vagasing it, and his/her transaction profit is attributable to the preceding illegal transaction, and his/her participation in the transaction becomes a critical factor that makes it possible to make an illegal transaction ultimately by taking advantage of the deduction and refund system of the input tax amount, which is a premise, it shall be deemed an act of pursuing unjust profits by abusing the input tax amount deduction and refund system, and thus, such exporter’s deduction and refund of the input tax amount with another tax revenue may not only guarantee the profits accrued from the illegal transaction through the National Treasury, but also may not prevent serious harm to the overall tax system as seen above.

Therefore, in such a case, an exporter’s seeking the deduction and refund of an input tax amount cannot be accepted in light of the universal sense of justice and ethics. Thus, it is unreasonable to deem that this is not permissible as it goes against the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes. Such a legal doctrine is likewise applicable to a case where an exporter was unaware of such an illegal transaction due to gross negligence in light of the perspective of fairness, the gravity of the outcome, and the universal sense of justice, namely, in a case where the exporter was unaware of the existence of such an illegal transaction due to gross negligence, it is reasonable to deem that the same applies to a case where the exporter was unaware of the fact that he was aware of the fact that he was able to have sufficiently known, and even if he was unaware of the fact that he was unaware of the fact, it is not limited

In addition, in such cases, since an exporter who has a mutual relationship with a malicious business entity is entitled to deduct and refund the input tax amount from the State, and thus, the exporter denies the deduction and refund of the input tax amount, it cannot be deemed that the exporter transfers his/her liability for the evasion of value-added tax to the exporter without reasonable grounds (see Supreme Court en banc Decision 2009Du13474, Jan. 20, 201).

C. Examining 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 previously conducted prior to the transaction, and accordingly, seeks the deduction and refund of the input tax amount even though he knew of, or was unaware 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, the Plaintiff, who was involved in an illegal transaction by a malicious entrepreneur, intends to take part of the output tax amount evaded by abusing the input tax deduction and refund system, as well as to take part of the input tax amount evaded by a malicious entrepreneur through the abuse of the input tax deduction and refund system, thereby impairing the basis of the VAT system and the overall tax justice under Article 15

D. Therefore, the court below should have sufficiently deliberated on whether the plaintiff knew or was unaware of the above circumstances in the transaction of the gold bullion in this case due to gross negligence and judged whether the plaintiff's assertion on deduction and refund of the plaintiff's input tax amount violates the principle of good faith.However, the court below erred by misapprehending the legal principles on the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes and failing to exhaust all necessary deliberations. The court below erred by misapprehending the legal principles on the issue of good faith, which affected the conclusion of the judgment, and failing to exhaust all necessary deliberations. The ground of appeal assigning this error is with merit.

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, the part of the judgment of the court below regarding the imposition of value-added tax on the second term portion in 2003 and the first term portion in 2004 except for the additional tax, such as the failure to submit a list of total tax invoices, shall be reversed, and this part of the case shall be remanded to the court below for a new trial and determination. The defendant's remaining appeal shall be dismissed. It is so decided as per Disposition by