[1] Requirements to be included in the value-added tax base in a case where a supplier receives money or money from a third party, other than a person who receives goods or services, in relation to the supply (i.e., the relevant supply) / Standard for determining whether money, etc. paid by a third party is in a quid pro quo relationship with the relevant supply

[2] In a case where Gap corporation entered into a consignment contract with home shopping company and sold computer, etc., and the home shopping company sold goods to the purchaser at a discount price by issuing discount coupons, etc. according to the agreement with Gap company and received only sales commission deducted as the product discount amount from Gap corporation, the case holding that in a case where Gap corporation deemed the discount amount as an amount of discount which is not included in the value-added tax base and reported only the sales amount as the value-added tax base, and the tax authority imposed a value-added tax on this case, the case holding that the discount amount constitutes a discount amount under the former Value-Added Tax Act

[1] Examining the language, content, and purport of Article 13(1) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010); Articles 48(1) and 52(2) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 24638, Jun. 28, 2013); where a supplier receives money or monetary value from a third party who is not the recipient of goods or services in connection with a certain supply, and where the supplier receives money or monetary value from a third party who is not the recipient of the goods or services, it may be included in the tax base of the value-added tax. However, if such provision is distinct from that of the supply, and it cannot be seen as having a quid pro quo relationship, it shall not be included in the tax base of the value-added tax. Furthermore, whether the money or monetary value paid by a third party exists in the relevant supply and a quid pro quo relationship between the supplier and the third party in connection with the supply.

[2] In a case where Company A entered into a consignment contract with Company A and sold computer, etc., and Company A sold goods at discounted prices by issuing discount coupons, etc. according to the agreement with Company A and received only sales commission from Company A, and Company A filed a value-added tax base on the remainder of sales after considering the discount amount as the discount amount not included in the value-added tax base, and the tax authority imposed a value-added tax on Company A, the case holding that the judgment below erred by misapprehending the legal principle on the sales discount amount as unlawful on the ground that the contractual relationship between Company A and Home shopping companies is an explicit consignment relationship, and the fiduciary Home shopping companies received the sales amount and paid the sales commission to Company A and the consignee Company A pay the sales commission on the sales discount amount, and the discount amount is directly deducted from the sales price of goods, which is the value-added tax amount under the former Value-Added Tax Act (amended by Act No. 915, Jan. 1, 2010).

[1] Article 13(1)1 and 2 of the former Value-Added Tax Act (Amended by Act No. 915, Jan. 1, 2010; see current Article 29(3)1); Article 29(2)1 of the former Value-Added Tax Act (see current Article 29(3)2); Article 29(5)1 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 24638, Jun. 28, 2013; see current Article 48(1) and (2)1 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010); Article 13(1)1 of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010; see current Article 29(3)1); Article 29(2)1 of the former Enforcement Decree of the Value-Added Tax Act (see current Article 29(3)2)1)1)1);

Crocom Co., Ltd. (Law Firm New Village, Attorney Song-chul et al., Counsel for defendant-appellant)

Head of Yongsan Tax Office

Seoul High Court Decision 2013Nu14254 decided November 27, 2013

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

The grounds of appeal are examined.

1. Article 13(1) of the former Value-Added Tax Act (amended by Act No. 915, Jan. 1, 2010; hereinafter the same) provides that the tax base of value-added tax on the supply of goods or services shall be the aggregate of the values under each of the following subparagraphs (hereinafter referred to as “value of supply”). Subparagraph 1 provides that “If a payment is made in money,” “the price” is “the market price of goods or services supplied by the person himself/herself,” and Article 48(1) of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24638, Jun. 28, 2013; hereinafter the same shall apply) provides that “The tax base stipulated under Article 13(1) of the former Value-Added Tax Act includes any monetary value having a quid pro quo relationship, regardless of the pretext of payments, commissions, fees, and any other consideration received from a trader:

Meanwhile, each subparagraph of Article 13(2) of the former Value-Added Tax Act provides for “the amount that is not included in the tax base.” Of them, Article 52(2) of the former Enforcement Decree of the Value-Added Tax Act provides that “The amount of overcharge as provided for in Article 13(2)1 of the Act refers to the amount which is directly deducted from the ordinary supply value at the time of supply of goods or services in accordance with the payment of quality, quantity, and the cost of delivery and supply, and other terms and conditions of supply.”

Examining the language, content, and purport of Article 13(1) of the former Value-Added Tax Act, and Articles 48(1) and 52(2) of the former Enforcement Decree of the Value-Added Tax Act, where a supplier receives money or money from a third party who is not a person who is not a supplier of goods or services in connection with a certain supply, it may be included in the tax base for value-added tax if the supply is in a quid pro quo relationship. However, if it is distinct from the supply concerned, and it is only related to other supply between a third party and a supplier, and it cannot be deemed that it is not included in the tax base for value-added tax on the relevant supply, it is reasonable to deem that it is not included in the tax base for value-added tax. Furthermore, whether the money or money has a quid pro quo relationship paid by a third party should be determined by comprehensively taking into account various circumstances, including the reason and basis for payment, the purpose and motive pursued by a third party, whether payment of money, etc. can be evaluated as performance under such legal relations.

2. A. Based on the adopted evidence, the court below acknowledged the following facts: (a) the Plaintiff: (a) was engaged in the manufacture and sales of telecommunications equipment, computer peripheral devices, etc.; (b) from 2006 to 2009, the Plaintiff entered into a consignment contract with home shopping and home shopping (hereinafter “instant home shopping business”); and (c) the Home shopping business entity issued discount coupons, etc. in accordance with the agreement with the Plaintiff and sold goods to the purchaser at a price lower than the initial designated price; and (d) the instant home shopping business entity received only sales commission (hereinafter “the instant discount amount”) deducted from the Plaintiff pursuant to the agreement, and (c) the Plaintiff recognized the remainder of sales commission, excluding the instant discount amount, as the value-added tax base.

Then, the lower court determined that the instant discount amount is unlawful in view of the following: (a) the contractual relationship between the Plaintiff and the instant home shopping company is an explicit consignment relationship; (b) the instant home shopping company, the trustee, received the sales proceeds from the purchaser; and (c) the Plaintiff, the truster, should pay the Plaintiff the sales commission; (b) the goods purchaser paid the price of the goods discounted by the instant home shopping company; and (c) the sales discount and the deduction of the sales commission was made pursuant to the agreement between the above and the trustee; and (c) the instant discount amount was reduced in the sales price of the goods; and (d) the sales commission was reduced in the sales price of the service between the Plaintiff and the instant home shopping company; and (e) the deduction of the sales commission was directly deducted from the usual sales price, which is the price of the goods, in accordance with the terms and conditions of the supply of the goods; and thus, (e) the instant discount amount falls under the discount amount under the former Value-Added Tax Act.

B. Examining the aforementioned legal provisions and legal principles, the lower court did not err in its judgment by misapprehending the legal doctrine regarding the discount amount under the former Value-Added Tax Act, or by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules.

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 Park Poe-young (Presiding Justice)