Seoul Administrative Court 2007Guhap948 ( October 24, 2008)

National High Court Decision 2006No2486 ( October 16, 2006)

The good faith principle is applied to exporters of gold bullion transactions via a bombing company.

An exporter’s assertion of deduction or refund of input tax cannot be permitted against the principle of good faith under Article 15 of the Framework Act on National Taxes where he/she knew, or was unable to know, the fact that there was an illegal transaction for the purpose of evading output tax amount in a series of transaction processes.

Article 15 of the Framework Act on National Taxes

2011Nu9364 Revocation of Disposition of Imposition of Value-Added Tax

XX Co., Ltd

Head of the tax office;

Seoul Administrative Court Decision 2007Guhap948 Decided January 24, 2008

Seoul High Court Decision 2008Nu5430 Decided August 22, 2008

Supreme Court Decision 2008Du16858 Decided October 29, 2009

Re-transmission Judgment

Seoul High Court Decision 2009Nu33937 Decided January 26, 2010

[Judgment of re-return]

Supreme Court Decision 2010Du3985 Decided February 24, 2011

September 7, 2011

October 5, 2011

1. All appeals filed by the Plaintiff shall be filed.

2. 80% of the total costs of the lawsuit after an appeal is filed shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

The decision of the court of first instance is revoked. The defendant revoked the disposition of imposition of value-added tax for the first period of October 1, 2005 (the "value-added tax for the first period of October 1005, 2005," 2,256,071,627, value-added tax for the second period of 2003, value-added tax for the second period of 2003, 3,697,778,45, value-added tax for the first period of 204, 2,643, 254, 775, value-added tax for the second period of 204, 824,659, 684, value-added tax for the second period of 204, 94, 189, 750, 624, 474, and 680 won for the business year of 204 (the plaintiff's claim for imposition of value-added tax for the second period of 1,20203 years).

1. Details of disposition;

A. On April 8, 2003, the Plaintiff is a legal entity entity that was established for the purpose of manufacturing and wholesale and retailing the land at the present time by making 00,00 of Jongno-gu Seoul, Jongno-gu, Seoul as the head office (which was changed to the head office as of September 15, 2005) as the head office.

B. From April 2003 to December 2004, the Plaintiff received 73,575,656, and exported the instant gold bullion from an importing enterprise located in Hong Kong (hereinafter “the instant tax invoice”) by applying zero tax rate under the Value-Added Tax Act, and issued sales tax invoices by deducting the input tax amount from the output tax amount on the sales tax invoice for the year 2003, value-added tax for the year 1, 2003, 204, 204, and 204, 204, and 33,575, 656, 496, total supply value for the purchase of gold bullion (referring to gold bullion in this case, and those in the form of raw materials, such as gold bullion: 9.5% in the net order: 9.5% in the gold bullion; hereinafter “the gold bullion”). The Plaintiff issued the sales tax invoice to the Defendant by applying zero-rate tax rate under the Value-Added Tax Act.

C. However, the director of the Seoul Regional Tax Office, from November 8, 2004 to July 22, 2005, found that the Plaintiff’s purchase of gold bullion and reported to export gold bullion to be arising from a modified transaction through a systematic prior recruitment with the relevant company and organization, and notified the Defendant of the tax invoice as taxation data.

Accordingly, the defendant, on October 1, 2005, deducted the plaintiff's input tax amount for the tax invoice of this case and applied the non-taxation tax amount. On October 1, 2005, value-added tax 2,592,071,640 for the first term portion of 203, value-added tax 4,265,587,310 for the second term portion of 203, value-added tax 2,854,262,120 for the first term portion of 204, value-added tax 365,518,630 for the second term portion of 204, corporate tax 94,189,750 for the second term portion of 203, corporate tax 624,474,680 for the second term portion of 204, value-added tax for 383,392,280 for the second term portion of 205,3605.3

D. On March 15, 2011, the Defendant revoked the portion of additional taxes such as failure to submit a list of total tax invoices. Accordingly, the part remaining as a reduction disposition on March 15, 201 among the disposition imposing the value-added tax for the first period of March 2003, 203, 3,697, 778, 459, 2003, 2643, 254, 775, and 824,659, 684 of value-added tax for the second period of March 15, 201 (hereinafter “instant disposition”).

[Grounds for Recognition: Evidence Nos. 1 through 5, Evidence No. 7, Evidence No. 1, 4, 19, 25 (including paper numbers), and the purport of the whole pleadings]

2. Scope of adjudication of this court;

In the judgment prior to remand, the Defendant rendered a decision revoking the disposition of imposition of corporate tax of KRW 994,189,750 in 2003 against the Plaintiff on October 1, 2005, and corporate tax of KRW 624,474,680 in 204. The Defendant appealed against this, but the Defendant’s appeal was dismissed in the judgment of remand.

Since the part of the Plaintiff’s claim for revocation of imposition of corporate tax among the claims becomes final and conclusive by the judgment of remanding, this Court’s scope of adjudication is limited to the claim for revocation of the instant disposition, which was left by the reduction disposition on March 15, 2011.

3. Whether the disposition is lawful;

A. The parties' assertion

The Plaintiff asserts that the instant disposition rejecting input tax deduction or refund based on the instant tax invoice is unlawful, while the Defendant asserts that the Defendant’s seeking input tax deduction or refund based on the instant tax invoice is against the principle of trust and good faith, in light of the distribution channel of the instant gold bullion.

(b) Fact of recognition;

1) All transactions of the gold bullion in this case were imported from a foreign country and distributed as tax-free gold, and were made at 6-8 stages from an ordinary importer to the Plaintiff, who is the final exporter. Of which, 3-4 stages, there was a malicious business operator, such as Osp and Had Had, who did not fulfill the obligation to pay value-added tax by voluntarily closing the gold bullion after selling it at a price lower than the purchase price. Moreover, even though the gold bullion in this case was treated as exported by the Plaintiff on the date of import on most of the date of import, the gold bullion in this case was treated as exported by the Plaintiff, and thus there was little change in the market price, and thus, it was traded at a different price by an importer, a gas supplier, an interim transaction stage, and the Plaintiff, etc., who is the exporter.

2) Notwithstanding that the instant gold bullion was imported from Hong Kong and exported to Hong Kong by the importer or the next tax-exempt entity, which is a tax-exempt entity, directly, or transported to the Plaintiff without going through an intermediate trading entity, the Plaintiff appears to have received the tax invoice as if it was done through a normal transaction through each transaction phase, and as if it was done through the payment and transportation data, etc., the Plaintiff would have received the input tax deduction.

3) In ordinary gold bullion transactions, it is common practice that cash is made at the same time as the gold bullion transactions. However, in the case of the Plaintiff, the Plaintiff purchased gold bullion on credit from the purchasing place of domestic gold bullion, and then paid the purchase price by receiving the export price from the exporting place. The export price is not paid at the same time as the transfer of gold bullion, but the gold bullion is transferred to the Hong Kong import (P.G.M. Ltd., etc.) and the export price is transferred after 2-3 days. Meanwhile, if the export price is deposited at the final export place, it would result in the importing enterprise in the order of the Plaintiff, which is promptly settled within 2-3 hours through Internet banking.

4) According to the results of tracking the serial number of the gold bullion of this case, 141.319 cases and 31 cases confirmed by the importer are always less export price than the first import price, among 119 cases of 130 cases of the Plaintiff’s export, 100 cases among 119 cases where the international gold bullion export price was confirmed on the date of export is always lower than the lowest price of gold bullion (kino.o. Room provision, and the price of Hong Kong market) at a price lower than the lowest price of gold bullion 536,000 won by exporting 4,210 cases of gold bullion import declaration data from October 1, 200 to December 31, 2004.

5) In ordinary cases, an export declaration certificate is accepted after a contract is confirmed in writing between an importer and an exporter. However, the Plaintiff received the export declaration certificate prior to the exchange of the export declaration certificate with the importer without clearly stating the date of the contract in the export contract and specifying the volume, amount, exchange rate, etc. of the export.

6) In each of the instant transactions, the parties to the transaction, including the Plaintiff, did not receive at all the divisional certificates under the Act on Special Cases Concerning the Refund of Customs Duties, etc. Levied on Raw Materials for Export necessary for the exporter to refund 3% of customs duties while exporting gold bullion.

7) A public official in charge of the plaintiff's export service's overseas business trip results, ① L.P.G. Dealer stated that the above company was located in Hong Kong, but the building manager confirmed whether the company was listed in the Hong Kong Trade Development Bureau, website, Hong Kong telephone number division, and Exchange, but its existence was not confirmed. ② P.G.M. Ltd. is located in the Hong Kong's vacant land and the Red Cross, and the yellow A (N.A., Seoul)'s representative took over gold bullion transported from the Hong Kong's export company to the Hong Kong airport without a separate verification procedure in 2004, but the investigator stated that it was "1-2 early 2, 2004" and that it was not a new portion of the gold bullion's list for the last six months, and it was not a new portion of the gold bullion's list.

8) GangnamB, the representative director of the Plaintiff, worked as an employee in the gold bank for 15 years from the gold bank, operated the △△△△ in selling low-price release release from the gold bank from 1994 to 1998. From 1999 to 2000, the gold bullion trading company, which was a gold bullion trading company, was engaged in the business of △△△△. The GangnamB heard that, among the instant suppliers, the gold bullion could be viewed as a profit if the gold was exported from the newCC that operated the company, the company, and Park Do-D that operated the △△△△△△△.

9) The Plaintiff’s capital was purchased and exported the gold bullion in this case from the first year of its establishment even though it was 500 million won. The Plaintiff’s representative director GangnamB, at the time of investigation of the Seoul Regional Tax Office, prepared by borrowing from their friendships the capital at the time of its establishment, and the customer stated that the Plaintiff traded the gold bullion in the introduction of Park Dok, which operated the Dok-gu Seoul Regional Tax Office.

[Ground for Recognition: Facts without dispute, Gap evidence 6 through 11, Eul evidence 1 through 24 (including paper numbers), the purport of the whole pleadings]

C. Determination

1) Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter referred to as the “Framework Act on National Taxes”) provides that “A taxpayer shall drive away decently and faithfully in performing his/her duties. The same shall apply where a tax official performs his/her duties.”

This principle is naturally applicable to legal relations concerning value-added tax (Article 1 and Article 3(1) main text of the Framework Act on National Taxes). In a case where a malicious entrepreneur does not pay the value-added tax collected by him/her by attempting to make an abnormal transaction in which only profit is created by a method of evading value-added tax and rather than by a method of evading value-added tax (hereinafter “illegal transaction”), among a series of continuous transactions, in which case the exporter knew that there was an illegal transaction at all stages, such an exporter’s seeking deduction and refund of input tax amount is not allowed in violation of the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes (see, e.g., Supreme Court en banc Decision 2009Du13474, Jan. 20, 201).

2) The instant tax invoice is related to all export transactions. In light of the transaction behavior, distribution channel, the period, quantity and value of the Plaintiff’s transaction, the Plaintiff’s representative director’s experience, the Plaintiff’s establishment process of the Plaintiff’s company, and the result of the investigation of relevant customer offenses, etc., it is reasonable to view that the Plaintiff knew or was unaware of the fact that there was a malicious business operator with intent to evade output tax in the series of transactions in the instant gold bullion transactions.

As above, the Plaintiff’s assertion of input tax deduction or refund of the instant tax invoice based on the instant gold bullion transaction cannot be permitted against the principle of trust and good faith stipulated under Article 15 of the Framework Act on National Taxes, where a malicious entrepreneur exists and a malicious entrepreneur was aware of, or was negligent in, the existence of the instant gold bullion transaction.

3) As to this, the Plaintiff asserts that the Plaintiff’s assertion that the Defendant violated the principle of trust and good faith, which was committed by the Defendant, was not based on the disposition at the time of the instant disposition, and thus cannot be set up as the grounds for the disposition. In a lawsuit seeking revocation of a taxation disposition, the subject of deliberation is whether there exists the taxable value determined by the tax authority, and the tax authority may submit all the arguments and materials supporting the objective tax base and tax amount until the closing of argument at the trial court (see Supreme Court Decision 2003Du12615, May 1

4) The instant disposition rejecting the deduction or refund of input tax pursuant to the instant tax invoice is lawful.

4. Conclusion

The judgment of the first instance is justifiable. All appeals filed by the Plaintiff are dismissed.