Whether game money constitutes taxable goods under the Value-Added Tax Act (affirmative)

According to Article 1(1)1 and (2) of the Value-Added Tax Act and Article 1(1) and (2) of the Enforcement Decree of the Value-Added Tax Act, “goods” subject to the transaction subject to value-added tax include not only tangible things having property value, but also all intangibles other than tangible things having property value such as power, heat, and other natural power and rights that can be managed. Where a game money has purchased it at a cost but sells it after selling it at a cost, it constitutes “goods” under the Value-Added Tax Act, which are objects of transactions having property value, such as rights to use online games, etc. provided by the game company or other intangibles having property value.

Articles 1(1)1 and (2), 17, and 25 of the Value-Added Tax Act; Article 1(1) and (2) of the Enforcement Decree of the Value-Added Tax Act

Plaintiff 1 and one other (Law Firm Dongin, Attorneys Kang Sung-sung et al., Counsel for the plaintiff-appellant)

Gangwon Tax Office (Government Law Firm Corporation, Attorney Gangwon-gu, Counsel for defendant-appellant)

July 22, 2009

1. The plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

The Defendant’s imposition of value-added tax against the Plaintiffs on April 2, 2007 of KRW 3,536,050 (including additional tax; hereinafter the same shall apply), KRW 22,194,890 for the first term of February 2004, KRW 106,843,140 for the second term of February 2004, KRW 161,247,690 for the first term of January 2005, KRW 147,524,060 for the second term of February 2005, and KRW 17,079,220 for the first term of January 2006.

1. Details of the disposition;

A. During the instant taxable period from November 2003 to December 2006, the Plaintiffs made a simplified taxable business registration on the second floor of the building on the ground of Gangdong-gu Seoul Metropolitan Government (Land Number omitted) with the trade name of “Acksan” (However, the name of the business operator is Plaintiff 1 alone), and sell the instant cyber currency, which is necessary online in order to use online ○○ Game services provided by the non-party company, to the non-party company or game users, after purchasing the instant cyber currency, from the non-party company or game users and selling it to other users in need of such purchase. During the instant taxable period, the Plaintiffs reported and paid the value-added tax that is 43,92,000 won from November 1, 2003 to December 2005, which is the tax base of 20% as a simplified taxable person.

B. The Defendant considered the total value of the game money sold by the Plaintiffs during the instant taxable period as the tax base, and applied the tax rate as a general taxable person who is not a simplified taxable person, thereby correcting and notifying the value-added tax (hereinafter “instant disposition”) as stated in the claim regarding the difference between the amount of return of the tax base under the preceding paragraph.

[Reasons for Recognition] 1-1 to 6, 2-1 and 2-2, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant disposition shall be revoked on the grounds that it is unlawful for the following reasons.

(1) The instant game money is owned by the Nonparty Company and can not be used as a means of cash exchange or online transaction, and is merely a simple computer code that does not have property value that enables participation in the game, and does not constitute goods under the Value-Added Tax Act. Accordingly, the Plaintiffs are not business operators under the Value-Added Tax Act.

(2) In a case where the instant game money is deemed as goods under the Value-Added Tax Act, only the amount obtained by deducting the purchase amount from the sales amount shall be deemed as the tax base. Article 17(2)1-2 of the Value-Added Tax Act violates Article 23 of the Constitution on the Guarantee of Property Rights by excessively infringing on property rights contrary to the nature of the value-added tax system, the principle of tax equality, and the principle of substantial taxation.

(3) The Plaintiffs’ instant game money trading business is a retail business under Article 74-3(4)1 of the Enforcement Decree of the Value-Added Tax Act, which constitutes a simplified taxable person until the second taxable period of 2005, and was not notified that it is converted from the Defendant to a general taxable person even during the first taxable period of 2006, and thus constitutes a simplified taxable person under Article 74-2(2) and (4) of the Enforcement Decree of the Value-Added Tax Act. Therefore, 2% tax rate should be applied pursuant to Article 26(1) and (2) of the Value-Added Tax Act, and Article 74-3(1) and (4) of the Enforcement Decree of the Value-Added Tax Act

B. Relevant statutes

Value-Added Tax Act

Article 1 (Objects of Taxation)

(1) Value-added tax shall be imposed on the following transactions:

1. Supply of goods or services; and

(2) The term "goods" in paragraph (1) means all tangible goods and intangible goods which have property value.

Article 2 (Taxpayer)

(1) A person who independently supplies goods (referring to goods provided for in Article 1; hereinafter the same shall apply) or services (referring to services provided for in Article 1; hereinafter the same shall apply) on a business basis, regardless of whether they are for profit-making purposes (hereinafter referred to as "business operator") shall be liable to pay value-added taxes under this Act.

Article 6 (Supply of Goods)

(1) The supply of goods shall be a delivery or transfer of goods pursuant to all contractual and legal grounds.

Article 13 (Tax Base)

(1) The tax base of value-added taxes on the supply of goods or services shall be the aggregate of the following values (hereinafter referred to as "value of supply"): Provided, That value-added taxes shall not be included:

1. Where payments are given in money, the payments;

Article 17 (Payable Tax Amount)

(1) The amount of value-added taxes payable by an entrepreneur (hereinafter referred to as "paid tax amount") shall be the amount computed by deducting the tax amount under the following subparagraphs (hereinafter referred to as "purchase tax amount") from the tax amount on the goods and services supplied by him/her (hereinafter referred to as "sales tax amount"): Provided, That where an input tax amount exceeds the output tax amount, it shall be a refundable tax amount (hereinafter referred to

1. The tax amount for the supply of goods or services used or to be used for his own business;

(2) The following input taxes shall not be deducted from the output tax amount:

1. An input tax amount in case where the list of the total tax invoices by customer is not submitted under Article 20 (1) and (2), or the input tax amount on the portion not entered or entered differently from the fact, in case where the whole or part of the registration numbers or supply values by transaction parties is not entered or entered differently from the fact, from among the entered items in the submitted list of the total tax invoices by customer, excluding the input tax

1-2. The input tax amount, in case where the tax invoice as provided in Article 16 (1) and (3) is not delivered, or the whole or part of the matters to be entered under Article 16 (1) 1 through 4 (hereinafter referred to as “necessary entry items”) is not entered or entered differently from the fact on the delivered tax invoice;

The input tax amount as prescribed by the Presidential Decree shall be excluded.

Article 25 (Simplified Taxation)

(1) With respect to any individual entrepreneur (hereinafter referred to as a "simplified taxable person") whose proceeds (referring to proceeds including value-added tax; hereinafter referred to as " proceeds from supply") from the supply of goods and services in the immediately preceding calendar year are not less than 48 million won and less than the amount prescribed by the Presidential Decree within the limit of an amount equivalent to not less than 130/100 of that amount, notwithstanding the provisions of Chapters IV through VI, value-added tax shall be imposed and collected pursuant to the provisions of this Chapter.

Enforcement Decree of the Value-Added Tax Act

Article 1 (Scope of Goods)

(1) corporeal articles provided for in Article 1 (2) of the Value-Added Tax Act (hereinafter referred to as the "Act") shall include commodities, products, raw materials, machinery, buildings, and all other tangible articles.

(2) Intangible goods provided for in Article 1 (2) of the Act shall include all intangibles other than tangible things having property value such as power, heat, and other natural power and rights which can be managed.

Article 48 (Calculation of Tax Base)

(1) The tax base as provided for in Article 13 (1) of the Act shall include any money, charge, fees, and all other monetary values in a quid pro quo relationship, regardless of the pretext thereof, received from a trader.

Article 74 (Scope of Simplified Taxation)

(1) "Amount prescribed by Presidential Decree" in the main sentence of Article 25 (1) of the Act means 48 million won.

Article 74-2 (Time of Application of Simplified Taxation and General Taxation)

(1) The period during which the provisions concerning simplified taxable persons apply or are not applicable under Article 25 of the Act shall be the proceeds from supply in the calendar year from the second taxable period of the year following the year in which the proceeds from supply in the calendar year fall short of the amount provided for in Article 74 (1) or become more than that provided for in Article 74 (1) to the first taxable period of the following year: Provided, That where a new business

(2) In case of paragraph (1), the head of the competent tax office of the enterpriser concerned shall notify the fact not later than 20 days prior to the commencement of the taxable period in which the provisions concerning a simplified taxable person are applied or not to be applied pursuant to Article 25 of the Act, and deliver a business registration certificate by correcting

(4) Notwithstanding the provisions of paragraph (1), the provisions concerning simplified taxable persons under Article 25 of the Act shall apply to an entrepreneur to whom the provisions of Article 25 of the Act are not applied at the time prescribed in paragraph (1) of this Article until the taxable period in which the date of receipt of the notification under paragraph (2) is included.

C. Determination

(1) Determination as to the assertion of the above A. (1)

According to Article 1(1)1 and (2) of the Value-Added Tax Act and Article 1(1) and (2) of the Enforcement Decree of the Value-Added Tax Act, “goods” subject to the transaction of value-added tax include not only tangible things having property value, but also all intangibles other than tangible things having property value such as power, heat, and other natural power and rights that can be managed. The game money of this case is the object of the transaction with property value as the plaintiff purchased it at a cost and sold it with profits remaining after selling it. As such, it constitutes “goods” under the Value-Added Tax Act, which is the kind of rights to use online ○○ Game Services provided by the non-party company, or other intangibles with property value. Accordingly, this part of the plaintiff’s assertion from other premise is without merit.

(2) Determination as to the assertion of the above A. (2)

According to Articles 13(1)1, 17(1)1, 17(2)1, and 1-2 of the Value-Added Tax Act, value-added tax provides that the amount of input tax collected at the time of purchase from “sales tax amount” with the price, etc. received as money at the time of sale shall be “paid tax amount” (as alleged by the plaintiff, this part of the plaintiff’s assertion is not based on its assertion itself). In order to receive input tax deduction, unless there are exceptional cases, the necessary tax invoice shall be issued from the supplier, and the list of the total tax invoices shall be submitted. Accordingly, it is proper that the Defendant calculated the sales tax amount by considering the total sum of supply values of game money sold by the plaintiffs during the taxable period in this case, and that the Plaintiffs received the input tax amount at the time of purchase from “sales tax amount” and submitted it to the Defendant on the premise that the Plaintiffs received the input tax amount at the time of purchase and submit it to the Defendant on the premise that there is no reason to view the Plaintiff’s purchase tax invoice.

(3) Determination as to the assertion of the above A. (3)

Article 25(1) of the Value-Added Tax Act and Article 74(1) of the Enforcement Decree of the Value-Added Tax Act provide that an individual entrepreneur whose price for the supply of goods and services for the immediately preceding calendar year is less than 48 million won shall be a simplified taxable person. According to each of the statements in Article 74(1) through (6) of the Value-Added Tax Act, in the case of the Plaintiff, it can be recognized that the above price for the supply during the taxable period in this case exceeds the above standard amount, and the Plaintiff shall not be a simplified taxable person regardless of whether the Plaintiff has registered a simplified taxable person. In addition, Article 74-2(2) and (4) of the Enforcement Decree of the Value-Added Tax Act shall apply only to the case where the taxpayer has faithfully filed a value-added tax return, and it shall not apply to a bona fide taxpayer who files a return of sales omitted to be applied as a simplified taxable person

3. Conclusion

Thus, the plaintiffs' claim of this case is dismissed as it is without merit.

Judges Lee Jong-hee (Presiding Judge) et al.