Seoul High Court 2008Nu17181 (Law No. 23, 2009)

early 2006 U.S. High Court Decision 0016 (2007.03.09)

An input tax amount of a gold bullion exporter who has undergone a bomb shall not be deducted in violation of the principle of good faith.

In a case where an exporter of gold bullion trades with the knowledge that there was an illegal transaction at the entire phase, seeking the deduction and refund of an input tax amount cannot be easily accepted in light of a common sense of justice and ethics, which is contrary to the principle of trust and good faith, and thus, it is not permissible.

Article 15 of the Framework Act on National Taxes

2011Nu13141 Revocation of Disposition of Imposition of Value-Added Tax, etc.

AAice Ri

Head of the tax office;

Seoul Administrative Court Decision 2007Guhap21136 decided May 28, 2008

August 31, 2011

November 2, 2011

1. The plaintiff's appeal is dismissed.

2. The plaintiff shall bear the total costs of the lawsuit after filing the appeal.

The Defendant’s imposition of KRW 1,322,612,10 for the first term portion of 2004 against the Plaintiff on October 1, 2005, the imposition of KRW 147,495,00 for the second term portion of 2004, and the imposition of KRW 29,301,00 for the second term portion of value-added tax for the year 2004, and the imposition of KRW 248,856,960 for the corporate tax for the business year 2004 is revoked.

Purport of appeal

"The part against the plaintiff in the judgment of the court of first instance shall be revoked. The defendant revoked on October 1, 2005 the imposition of value-added tax 1,322,612,10 won for the first term portion for the first term of 2004, and the second term value-added tax 147,495,000 won for the second term of 2004, and the imposition of additional tax 29,301,00 won for the second term of 204 (Provided, That the part seeking revocation of the imposition of additional tax such as failure to submit a list of total tax invoices (hereinafter referred to as "un submitted additional tax") among value-added tax is excluded from the scope of the judgment of the court of first instance after separation and determination as follows)", * The part against the defendant in the judgment of first instance against the defendant [the plaintiff's claim corresponding to that part shall be dismissed] was excluded from the scope of the judgment of the court of first instance for the first time after separation and determination as follows:

1. Reasons for the disposition and scope of adjudication of the party concerned after remand;

The Plaintiff is a legal entity established on December 26, 2003 for the purpose of doing the current and precious metal wholesale and retail business. The Plaintiff purchased gold bullion 780km (hereinafter referred to as “instant gold bullion”) from GDart Co., Ltd. for KRW 11,311,680,000 in total of the supply value and received tax invoices 9 (hereinafter referred to as “tax invoices of this case”). The instant gold bullion was exported to the business entity located in Hong Kong on the date of purchase.

[The following table omitted]

The Plaintiff, based on the instant tax invoice, export transaction, etc., received a refund of KRW 984,449,160 for KRW 147,49,160 for KRW 204 for the refund of KRW 147,495,00 for the second period of input tax in 2004, and filed a corporate tax base and tax amount for the business year 2004. On October 1, 2005, the Defendant deemed the instant tax invoice as “unlawful tax invoice” and filed a revised and notified the value-added tax and corporate tax as follows (hereinafter “instant disposition”).

(1) Disposition for imposition of value-added tax for the first term of 2004 KRW 1,322,612,110 (additional tax for non-declaration 983,838,800 and non-declaration of refund, etc.; KRW 98,383,800, additional tax for non-declaration of return; KRW 98,383,800, additional tax for non-declaration of return; and KRW 142,06,515)

② The Plaintiff’s rejection disposition and imposition disposition of additional tax amount of KRW 29,301,00 for input tax amount of KRW 147,495,00 for which the Plaintiff applied for refund at the time of filing a value-added tax return of KRW 271,204 (additional tax of KRW 14,733,00 for failure to submit and additional tax of KRW 14,73,00 for failure to file a return)

③ The Plaintiff filed a lawsuit seeking revocation of the instant disposition of KRW 248,856,960 of the corporate tax attributed to the business year 2004 (additional Tax Collecting Evidence). The first instance court revoked the part related to the corporate tax and dismissed the Plaintiff’s claim on the part related to the value-added tax. The Plaintiff and the Defendant appealed against the part related to the value-added tax. The first instance court revoked the part related to the value-added tax and dismissed the Defendant’s appeal (as a result, the Plaintiff’s appeal was dismissed). The Supreme Court reversed the part related to the disposition imposing value-added tax excluding the additional tax, such as the failure to submit the tax, and remanded the remaining appeal. Accordingly, the scope of the judgment after the remand is limited to the penalty tax imposed on the Plaintiff.

[Reasons for Recognition] Unsatisfy, Gap 1, 2, 5-7, and 9

2. Determination as to whether the instant tax invoice is “other tax invoice than the fact”

The reason why this Court is to use with respect to the plaintiff's assertion(b) related laws and regulations(c) is the corresponding part(6) of the first instance court's decision(6). The reasons why this Court's decision is based on Article 8 (2) of the Administrative Litigation Act, Article 11420 of the Civil Procedure Act(2).

D. Determination

Article 1(1)1 of the Value-Added Tax Act provides for “supply of goods subject to value-added tax.” Article 6(1) provides that “The supply of goods shall be delivery or transfer of goods on all contractual or legal grounds.” In light of the fact that value-added tax is multi-level transaction, “delivery or transfer” under Article 6(1) of the Value-Added Tax Act includes all acts causing the transfer of authority to use and consume goods, regardless of actual gains (see, e.g., Supreme Court Decisions 85Nu286, Sept. 24, 1985; 9Du9247, Mar. 13, 2001; 200. It is difficult to determine that a specific transaction from among the continuous trading methods constitutes “the supply of goods prescribed in the Value-Added Tax Act.” Article 6(1) of the Value-Added Tax Act provides that “The sale of goods constitutes “the supply of goods” under Article 6(2)4 of the former Value-Added Tax Act, which is no more than 30.

3. Determination as to the assertion of violation of the duty of new gender theory

A. Defendant’s assertion

In light of the distribution channel, etc. of the gold bullion of this case, the Defendant’s filing of an input tax deduction or refund cannot be permitted against the principle of good faith.

B. Determination

Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter “the Framework Act on National Taxes”) provides that “where a taxpayer performs his/her duty, he/she shall faithfully engage in such duty.” This principle also applies to the legal relationship concerning value-added tax (Article 1 and Article 3(1) of the Framework Act on National Taxes). Such principle applies naturally to a malicious entrepreneur’s malicious intent to evade value-added tax from the beginning stage of a series of transactions, and only if a malicious entrepreneur fails to create profits and avoid value-added tax only through a method of evading value-added tax, it would be deemed that the exporter did not pay the value-added tax (hereinafter “illegal transaction”), seeking deduction or refund of the input tax amount is contrary to the principle of trust and good faith prescribed in Article 15 of the Framework Act on National Taxes, and thus, it cannot be permitted for the exporter to make a transaction with the intent to obtain refund of the input tax amount by gross negligence during which the exporter did not know the pertinent transaction.

4. Conclusion

In the instant disposition, the Plaintiff’s claim against the denial and refusal of the refund of the input tax amount, and the penalty tax against the failure to report and pay the input tax amount is without merit. As a result, the judgment of the first instance is justifiable.