[1] Whether Article 13(3) of the former Value-Added Tax Act, which provides that "a bounty for the value of supply after the supply of goods or services shall be included in the tax base, shall apply to cases where a dutiable value based on the domestic sale price is determined in accordance with the method provided by Article 33(1) of the Customs Act (negative)

[2] The meaning of "amount calculated based on the unit price of domestically sold in the greatest quantity to a person with no special relationship" under Article 33 (1) 1 of the Customs Act

[1] Article 13(3) of the former Value-Added Tax Act (amended by Act No. 915, Jan. 1, 2010; hereinafter the same) provides for the tax base of value-added tax on the supply of goods or services in Korea and provides that “in addition, incentives for the supply value after the supply of goods or services” shall be included in the tax base. Unlike the provisions of paragraphs (1) through (3) concerning the tax base of value-added tax on the supply of goods or services in Korea, Article 13(4) provides that the total amount of customs duty, customs duties, individual consumption tax, liquor, education tax, special tax and traffic, energy and environment tax shall be the tax base; Article 13(3) of the former Value-Added Tax Act does not apply mutatis mutandis to the calculation of the tax base; Article 4(1) provides that “in cases where the provisions of the former Value-Added Tax Act conflict with those of the latter Value-Added Tax Act concerning the imposition, collection, refund, etc. of value-added tax on imported goods, the tax base shall not be applied to the domestic sale price.

[2] Article 5(1) of the Customs Act provides that a special relationship shall not unreasonably infringe on taxpayer's property rights in light of equity in taxation and the purpose of the pertinent provision. Article 27(4) of the Enforcement Decree of the Customs Act provides that "ordinary profit and general expenses" shall be calculated based on an accounting report prepared in accordance with the generally accepted accounting principles, which is the factor of calculating the dutiable value under Article 33 of the Enforcement Decree of the Customs Act. In addition, other factors in the calculation of the dutiable value are also not inconsistent or conflict between the amount of money which is the basis for the calculation of the dutiable value under the generally accepted accounting principles, unless otherwise provided in particular or otherwise provided, the general accounting principles of the WTO Agreement on the valuation of the imported value of the goods shall be provided for in Article 5(1) of the Customs Act. The general accounting principles of the Korea's Agreement on the valuation of the imported value of the goods shall be deemed to be the most widely accepted accounting principles, and thus, the WTO guidelines for the calculation of the sale value of the goods shall be set out."

[1] Article 13(3) of the former Value-Added Tax Act (Amended by Act No. 915, Jan. 1, 2010); Articles 4(1) and 33 of the Customs Act / [2] Articles 5(1) and 33(1)1 of the Customs Act; Article 27(4) of the Enforcement Decree of the Customs Act

Le high Korea Co., Ltd. (Law Firm LLC, Attorneys Shin Jae- Line et al., Counsel for the plaintiff-appellant)

Head of Incheon Customs Office

Seoul High Court Decision 2009Nu10873 decided July 1, 2010

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. As to whether a sales incentive is deducted when calculating the domestic sale price

A. First, Article 13(3) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter the same) provides for the tax base of value-added tax on the supply of goods or services in Korea only to include the tax base. Unlike the provisions on the tax base of value-added tax on the supply of goods or services in Korea under paragraphs (1) through (3), Article 13 provides that the tax base of value-added tax on the import of goods shall be the aggregate of customs duties and customs duties, individual consumption tax, liquor tax, education tax, special rural development tax, and traffic, energy, and environment tax base; Article 13(3) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter the same shall apply) provides for the tax base of value-added tax on the supply of goods or services in Korea; Article 4(1) provides that the tax base of value-added tax shall be calculated with priority over the domestic sale price calculated based on the basis.

B. Furthermore, Article 5(1) of the Customs Act provides that a special relationship shall not unreasonably infringe on taxpayers’ property rights in light of equity in taxation and the purpose of the pertinent provision. (2) insofar as the calculation is based on an accounting report prepared in accordance with the generally accepted accounting principles for calculating the dutiable value under Article 33(4) of the Enforcement Decree of the Customs Act, “ordinary value-added profits and general expenses” is to be based on the same amount as the sales revenue of the goods in Korea, and thus, it does not conflict with or conflict with other factors which serve as the basis for calculating the dutiable value under the generally accepted accounting principles unless otherwise expressly provided for in other provisions or otherwise, (3) Annex I to the Customs Valuation Agreement to which Korea is a member of the WTO is a member of the WTO, provides for a sale-related accounting standards for the same amount as the sales revenue of the goods in question, and thus, the scope of sales revenue of the goods in question and thus, shall be determined based on the generally accepted accounting principles and guidelines.

C. The judgment of the court below is just and there is no error by misapprehending the legal principles as to the method of determining a dutiable value under Article 33 of the Customs Act.

2. Whether the sales incentive in the instant case was already deducted from the “profit and general expenses”

This part of the ground of appeal argues that, insofar as the Defendant appropriated the sales incentive in this case as an item of sales expenses and general management expenses and deducted it from the “ordinary profit and general expenses” under Article 33(1)2 of the Customs Act, the sales incentive in this case cannot be deducted from the “amount calculated based on the unit price of domestically sold goods to a person without special relations” under Article 33(1)1 of the Customs Act.

However, this cannot be a legitimate ground for appeal, as it was first asserted in the final appeal, and there is no evidence to acknowledge that the Defendant appropriated the sales incentive in this case as an item of sales cost and general management cost, and it is not acceptable without further review.

3. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young (Presiding Justice)