Whether the principle of trust and good faith, which limits the exporter's input tax deduction and refund at the final stage, can also be applied to the deduction and refund of input tax amount related to domestic tax transactions by an intermediate taxable business entity, in an variable gold bullion transaction with a malicious business entity whose purpose is to evade the output tax amount during a series of continuous transactions (negative)

The principle of trust and good faith applies only to cases where the input tax is deducted or refunded through the application of zero-rate tax rate for exports, and it is sufficient that the difference between the output tax amount and the input tax amount should be paid to the National Treasury because it does not cause direct loss to the National Treasury, even if the input tax amount is recognized as deduction. In addition, it is sufficient to restrict the exporter's input tax deduction or refund at the final stage to maintain the foundation of the system of tax credit at all stages, and further to deny the deduction or refund of the input tax amount by the exporter. In light of the above, the principle of trust and good faith applies only to cases where the input tax amount is deducted or refunded through the application of zero-rate tax rate for exports, and the deduction or refund of the input tax amount related to domestic tax transactions is not applicable.

Articles 1, 3(1), and 15 of the Framework Act on National Taxes, and Articles 15 and 17 of the Value-Added Tax Act

Supreme Court en banc Decision 2009Du13474 Decided January 20, 201 (Gong2011Sang, 454)

Monaco Co., Ltd. (Law Firm Rate, Attorneys Lee Jong-soo et al., Counsel for the plaintiff-appellant)

Head of each tax office (Government Law Firm Corporation, Attorneys Doh-ho et al., Counsel for defendant-appellant)

Supreme Court Decision 2007Du20379 Decided December 24, 2008

Seoul High Court Decision 2009Nu623 decided November 17, 2009

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

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

After compiling the adopted evidence, the lower court acknowledged the facts as indicated in its reasoning, and determined that the tax invoice 34 (hereinafter “instant tax invoice”) issued by the Plaintiff when purchasing gold bullion amounting to KRW 29.263 billion (hereinafter “instant gold bullion”) from Nonparty 1 Co., Ltd. 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. On the ground that unfair input tax deduction and refund claim are contrary to the principle of good faith

A. In a series of series of transactions, where a malicious business operator in one step does not pay the value-added tax collected by him/her by attempting to make an abnormal transaction that is likely to cause losses (hereinafter “illegal transaction”) only by having the intent to evade value-added tax from the beginning and not evading value-added tax, if he/she does not pay the value-added tax, the exporter engaged in the transaction with the knowledge of the illegal transaction at the preceding stage, and his/her opportunity to promote his/her own interest without any string, and his/her transaction profit is ultimately connected to the aforementioned illegal transaction. Furthermore, if his/her participation in the transaction becomes a critical factor that makes it possible to make the illegal transaction ultimately by taking advantage of the system of deduction and refund of the input tax amount, which is a premise thereof, it shall be deemed an act of pursuing unjust benefits by abusing the system of deduction and refund of the input tax amount. Accordingly, the deduction and refund of the input tax amount to such exporter by using other tax revenue as the source of revenue from the illegal transaction cannot prevent serious harm to the overall tax system.

Therefore, in such a case, an exporter’s claim for deduction and refund of the input tax amount cannot be accepted as it goes against the principle of good faith as stipulated under Article 15 of the Framework Act on National Taxes. Furthermore, in light of the perspective of fairness, the importance of the outcome, and the universal sense of justice, it is reasonable to deem that the same applies to a case where an exporter was unaware of such an illegal transaction due to gross negligence, i.e., the relationship with a malicious business operator, and where the exporter did not know of the existence of such an illegal transaction, even though he could sufficiently have known of such fact, and even if he did not know of such fact, the same applies to a case where he did not know of the fact that he did not have been able to have been able to have been able to have been able to have been able to have been able to have been able to have been able to have been able to have been able to have been able

However, the principle of good faith is applicable only to cases where the input tax amount is deducted or refunded through the application of zero-rate tax rates for exports, and it is sufficient that the difference between the input tax amount and the input tax amount is paid to the National Treasury because it does not occur directly to the National Treasury, even if the input tax amount is recognized as the purchaser and malicious business operator. In addition, it is sufficient to restrict the exporter's input tax deduction or refund at the final stage to maintain the foundation of the pre-stage tax credit system, and further to deny the deduction or refund of the input tax amount by the State. In light of the above, the principle of good faith is applicable only to cases where the input tax amount is deducted or refunded through the application of zero-rate tax rates for exports, and it is not applicable to the deduction or refund of the input tax amount related to the domestic tax transaction.

B. According to the reasoning of the judgment below and the record, the subject of the instant judgment is that the Defendant’s imposition of value-added tax on the Plaintiff’s assertion of the deduction and refund of input tax invoices received from domestic tax transaction.

However, according to the legal principles as seen earlier, the Plaintiff’s assertion of deduction and refund of input tax amount related to domestic tax transactions cannot be contrary to the principle of good faith. Therefore, the Defendant’s ground of appeal on the premise that the principle of good faith is applied to the assertion of deduction and refund of input tax amount related to domestic tax

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 Kim Ji-hyung (Presiding Justice)