[1] Standard for determining whether a transaction under Article 10(2)1 of the former Value-Added Tax Act is a transaction subject to the authority to impose taxes / Where the important and essential parts of the service provided by a foreign corporation are domestically carried out, whether the place where the service is supplied is deemed to be a domestic place where the service is supplied, even if part

[2] In a case where a foreign corporation with a domestic business place supplies a domestic corporation for business activities, and the essential and essential part of the services were conducted at the domestic business place, whether the income earned from the services shall be deemed to belong to the domestic business place (affirmative)

[1] Article 10 (2) 1 (see current Article 20 (1) 1) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010) / [2] Articles 2 (1) 2, 3 (3) (see current Article 3 (4)) and 97 (1) of the former Corporate Tax Act (Amended by Act No. 7838, Dec. 31, 2005);

[1] Supreme Court Decision 2004Du7528, 7535 decided June 16, 2006 (Gong2006Ha, 1375) / [2] Supreme Court Decision 91Nu8852 decided June 23, 1992 (Gong192, 2303)

E. Mexico (Law Firm LLC, Attorneys So-young et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

Seoul High Court Decision 2013Nu21313 decided September 25, 2014

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

The grounds of appeal are examined.

1. Article 10(2)1 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010) provides that “the place where the service is provided or the goods, facilities, or rights are used” where the service is supplied. Thus, whether the imposing authority is a transaction subject to the imposition of tax should be determined on the basis of the place where the service is provided. If the important and essential parts of the service provided by a foreign corporation were performed in Korea, even if part of the service provided by the foreign corporation was performed in Korea, the place where the service is supplied should be deemed domestic (see Supreme Court Decision 2004Du7528, 7535, Jun. 16, 2006

In addition, Articles 2(1)2, 3(3), and 97(1) of the former Corporate Tax Act (amended by Act No. 7838 of Dec. 31, 2005) provide that a foreign corporation is liable to pay corporate tax in cases where there are income generated from sources in Korea as prescribed in Article 93 with respect to the foreign corporation. If the important and essential parts of services provided by a foreign corporation having a domestic place of business to a domestic corporation for business activities have been performed at the domestic place of business, the income accrued from such services shall be deemed to belong to the domestic place of business. Even if a part of such services was performed overseas, the part of the services shall not be deemed to belong to the domestic place of business independently (see Supreme Court Decision 91Nu852, Jun. 23, 1992)

2. The lower court: (a) concluded a public-private partnership agreement with the Government of the Republic of Korea on June 13, 2003, with the Government of the Republic of Korea that CoCoC Development CoCoC Ltd (hereinafter “CoC Development”) designated as an implementer of the Incheon Hancheon Construction Project; (b) concluded a contract for providing domestic and foreign services, including consulting services, business development and management services, technology management services, plans and schedule services, construction forecast services, project financing services, project financing services, project financing services, and traffic research and management services; (c) the Plaintiff established a branch office in Korea on November 14, 2003 (hereinafter “Plaintiff branch office”) with the Government of the Republic of Korea; and (c) the Plaintiff deemed that the value-added tax was levied on the Plaintiff’s income accrued to the Plaintiff’s branch office outside of Korea through value-added tax and the corporate tax was not imposed on the Plaintiff’s income accrued to the Plaintiff’s branch office outside of Korea and the Plaintiff’s corporate tax was not imposed on the Plaintiff’s 20th service contract.

Furthermore, the lower court determined that: (a) the instant domestic provision service contract and the foreign provision service contract are the operator of the Incheon Diplomatic Construction Project, which is to be established in Korea, and concluded to receive advice and consulting services related to environmental survey, transportation survey, preparation of bids to select subcontractors, preparation of legal agreement, consultation with the government departments and agencies, etc.; (b) most of the place where the Plaintiff’s activities are performed and the place where the results are used are used; (c) the Plaintiff’s provision of services continues to be conducted from the preparation stage of the project to the completion of the Incheon Diplomatic Construction Project, including all specialized areas related to the Incheon Diplomatic Construction; (d) the provision of foreign services can achieve the purpose of the supply of services only by combining it with the domestic service itself, rather than its own purpose; and (e) the Plaintiff’s mere provision of domestic or foreign transaction based on the main basis of whether the business operator stays in Korea or overseas, and the provision of domestic and foreign value-added tax can be deemed to be lawful on the grounds that it is not clearly distinguishable from the domestic supply method.

Examining the above legal principles and records, the lower court’s determination is justifiable. In so doing, it did not err by misapprehending the legal principles as to the place of supply of services supplied by a foreign corporation and the reversion of income accrued therefrom to a domestic place

3. 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 Lee Sang-hoon (Presiding Justice)