Seoul High Court 2009Nu6010 ( August 14, 2009)

National High Court Decision 2006No1324 (Law No. 11, 2006)

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.

The part of the judgment below against the plaintiff and the part against the defendant pertaining to the imposition of value-added tax excluding additional tax, such as failure to submit a list of total tax invoices, shall be reversed, and this part of the case shall

The defendant's 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. Plaintiff’s ground of appeal

Although it is not clear whether a party's claim of a complaint contains a subject matter of a lawsuit, if it is evident that the claim is asserted from the original cause of the claim, it shall be deemed that the subject matter of a lawsuit is included in the claim of the complaint. Ultimately, the parties clearly stated the subject matter of a lawsuit by arranging the claim in accordance with the cause of the claim and clearly specifying the subject matter of a lawsuit. Thus, whether the subject matter of a lawsuit is complied with shall be determined at the time of submission of the complaint, not at the time of alteration of the claim (see, e.g., Supreme Court Decision 88Nu10251, Aug. 8, 1989).

According to the reasoning of the judgment below and the evidence duly admitted by the court below, the plaintiff reported 460,104,330 won to the amount of refund of the value-added tax for the second half-year period of 2004; (2) the defendant, on October 10, 2005, deemed that most of the refund amounts reported by the plaintiff constitutes input tax amount for 853,50 won, and thus, constitutes not subject to refund; (3) a disposition rejecting refund of the remaining return amount (hereinafter referred to as "disposition rejecting refund of this case"); and (4) a disposition imposing value-added tax for 141,591,100 won for the second half-year amount of value-added tax (hereinafter referred to as "disposition imposing value-added tax for 140,736,850 won for the above amount of refund; and (4) a disposition revoking the above disposition imposing value-added tax for 205,000 won for the above amount of refund after deducting 140,750 won for the above amount of refund tax for -106.

In light of the above facts in light of the legal principles as seen earlier, the notice of KRW 140,736,850 against the Plaintiff is combined with the refund refusal disposition of this case and the additional tax imposition disposition of this case. The Plaintiff stated in the complaint that “the Plaintiff’s claim for the second term portion of the penalty tax imposition of KRW 140,736,850” was revoked is not merely seeking partial revocation of the disposition imposing additional tax of this case, but also seeking revocation of the refund refusal disposition of this case. Thus, it is reasonable to view that the Plaintiff sought revocation of the refund refusal disposition of this case by clearly stating that the Plaintiff sought revocation of the refund refusal disposition of this case in the application for modifying the purport of the claim. Thus, it cannot be deemed that the Plaintiff newly added the claim for revocation of the refund refusal disposition of this case only when it added to the Plaintiff’s claim for revocation.

Nevertheless, the court below rejected the claim for revocation of the refund refusal disposition of this case on June 3, 2009, on the premise that the claim for revocation of the disposition of imposition of value-added tax of KRW 140,736,850 on the second quarter of 2004 by the original complaint shall be deemed to have been sought only for revocation of part of the disposition of imposition of additional tax of this case, and on June 3, 2009, the amendment of the purport of the claim for revocation of the disposition of this case shall be extended to KRW 141,591,100, and it shall be deemed to have newly added the claim for revocation of the refund refusal disposition of this case, separate from this, on the ground that it was filed on June 3, 2009, after the period for filing the lawsuit expires. The court below erred in the misapprehension of the legal principles as to the amendment of the purport

2. As to the Defendant’s ground of appeal

A. As to the fact that the instant tax invoice was a false tax invoice

According to the reasoning of the lower judgment, the lower court determined that the first purchase tax invoice and the second tax invoice of this case did not constitute a false tax invoice, after compiling the evidence of employment.

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.

B. Regarding the fact that unfair input tax deduction and refund claim are contrary to the principle of good faith

(1) 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 drive away from reliance in the performance of his/her duties. The same shall apply to a tax official’s performance of his/her duties.” This principle of good faith, which enables the 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, such as supplementing or supplementing it, is somewhat limited in the field of tax law, and its scope of application is somewhat limited compared to that of the principle of no taxation without law. However, if a tax law provision is applied to an individual case, it would result in an unreasonable consequence, which would result in a sound performance of his/her duties in light of the universal justice and ethics, thereby excluding the application of Article 13(1) of the Framework Act on National Taxes.

(2) 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 of the supply thereof shall be collected from the person who receives the supply 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 refunded. This is based on the process that the entrepreneur collects the output tax from the entrepreneur who receives the supply at each transaction stage before reaching the final consumer and pays the tax amount to the State, and the full number of the tax amounts shall be imposed on the final consumer in the following following order through the process that the entrepreneur deducts the input tax amount from the input tax amount, and ultimately imposes it on 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"), as in the next transaction stage, if an exporter is entitled to deduct or refund the input tax without the burden of the output tax amount due to applying the zero-rate tax rate as in the next transaction stage, as in the next transaction stage, the country has no choice but to make a refund with other tax revenues. Such a result is more than the passive gap of tax revenues, and thus, it constitutes an active outflow to the National Treasury, and thus, the burden exceeds the damage of the value-added tax system itself and is transferred to the general public, and it would cause 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 may deduct or refund the input tax amount as prescribed by the Value-Added Tax Act. However, if the exporter had been aware that there was an illegal transaction at that pre-stage stage, and he/she had engaged in a transaction with an opportunity to promote his/her own interest without vagasing it, and his/her transaction profit is attributable to the aforementioned illegal transaction, and his/her participation in the transaction was ultimately a critical factor that makes it possible to make an illegal transaction ultimately by securing the market for 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, and thus, the exporter’s deduction and refund of the input tax amount with another tax revenue from another tax revenue may not be a serious obstacle to the overall tax system as seen above, as well as to guarantee the benefits accrued from the illegal transaction to the National Treasury.

Therefore, in such a case, an exporter’s seeking the deduction and refund of an input tax amount cannot be easily paid in light of the universal sense of justice and ethics, which is contrary to the principle of trust and good faith as stipulated in Article 15 of the Framework Act on National Taxes, and thus, it shall not be permitted. Such a legal principle is equally applicable to a case where an exporter was unaware of such 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 illegal transaction due to gross negligence, in view of the relationship with a malicious business operator, it is reasonable to deem that the same applies to a case where the exporter was unaware of the fact that he was fully aware of the fact that he did not have been aware of the fact that he did not have been aware of the fact that he

In addition, in such cases, since an exporter who is in a mutual relationship with a malicious business entity is entitled to deduct and refund the input tax amount from the country to the National Treasury, the exporter denies the deduction and refund of the input tax amount as a sanction against such exporter, it cannot be said that the exporter transfers it to the exporter without reasonable grounds (see Supreme Court en banc Decision 2009Du13474, Jan. 20, 201).

(3) Examining in light of the aforementioned legal principles, if the Plaintiff, an exporter, is 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 circumstances leading to the reduction of the input tax amount in other tax revenues or did not know it by gross negligence, then the Plaintiff, who took advantage of the illegal transaction of a malicious entrepreneur, seeks to receive part of the output tax amount evaded by a malicious entrepreneur by abusing the input tax deduction and refund system, as well as obtain part of the output tax amount evaded by a malicious entrepreneur by abusing the input tax deduction and refund system, and thus, it is not permissible in violation of the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes.

(4) 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 by gross negligence, and judged whether the plaintiff's claim for deduction and refund of the plaintiff's input tax amount was contrary to the principle of good faith. However, without examining and making a determination, the court below held that each of the value-added taxes (including the penalty tax for failure to report and the penalty tax for failure to pay, but excluding the penalty tax for failure to submit the aggregate tax invoice, etc.) on October 10, 2005 should be allowed to be imposed as illegal. Thus, 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 Tax and failing to exhaust all necessary deliberations, which affected the conclusion of the judgment. The ground of appeal pointing this out is with merit.

Meanwhile, the principle of trust and good faith is applicable only to cases where the input tax amount is deducted and refunded through the application of zero-rate tax rates on exports, and it does not apply to cases where the input tax amount is deducted and refunded through the domestic tax transaction. According to the reasoning of the judgment below, the additional disposition of the value-added tax in this case includes not only the deduction and refund of the input tax amount but also the deduction and refund of the input tax amount related to the domestic tax transaction as a result of the Plaintiff’s application of zero-rate tax rates on exports, and also the deduction and refund of the input tax amount is not applicable to cases where the input tax amount is deducted and refunded to the National Treasury because the difference between the input tax amount and the input tax amount are paid to the National Treasury. In addition, it is sufficient to limit the exporter’s input tax amount deduction and refund in the final stage to maintain the foundation of the system of deduction of the pre-stage input tax amount, but also, it is necessary to review whether the refund and refund of the input tax amount is in violation of the principle of trust and good faith.

C. 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.

3. Conclusion

Therefore, the part of the judgment below against the plaintiff and the part against the defendant concerning the imposition of value-added tax excluding additional taxes, such as failure to submit a list of total tax invoices, are reversed, and this part of the case is remanded to the court below for further proceedings consistent with this Opinion. The defendant's remaining appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices