Appellate Court 2013west 4969 (Law No. 13, 2014)

Subsidies for mobile devices shall not be overcharged by mobile communications rates.

To be subject to the reduction of the cost of the mobile communications service, the subsidy is determined according to the quality, quantity, settlement of the cost of delivery and supply of the mobile communications service, and other terms and conditions of supply, and the amount which is directly deducted from the value of supply of the mobile communications service.

Article 13 of the Value-Added Tax Act

2014Guhap64759 Disposition rejecting the rectification of value-added tax

AAA Corporation

The director of the tax office

December 3, 2015

January 28, 2016

1. All of the plaintiff's claims are dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The defendant's refusal to correct the value-added tax as stated in the attached Form shall be revoked.

1. Details of the disposition;

A. In filing a value-added tax return from February 2, 2008 to February 2, 2010 with respect to a corporation that operates a mobile communications service business, the Plaintiff filed a report including the subsidies from the Plaintiff’s agency to the user of the mobile communications service that purchases a device (the subsidies of this case, including the subsidies of this case, 208 OO, 209, OOO, 2009, 2009, OOO, 2010, 1OO, 2010, 2010, hereinafter “the subsidies of this case”).

B. The Plaintiff deemed the instant subsidy as falling under Article 13(2)1 of the former Value-Added Tax Act (amended by Act No. 11129, Dec. 31, 201; hereinafter “Value-Added Tax Act”), and filed a claim for correction of refund of value-added tax OO members from February 2, 2008 to February 2, 2010 as indicated below.

C. However, the defendant considered that the subsidy in this case does not fall under the amount of discount as stipulated in the Value-Added Tax Act, and rendered a disposition rejecting all of the claims for correction as stated in [Attachment 1] (hereinafter "the disposition in this case").

D. The Plaintiff, who is dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal as listed below (attached Table 2), but all appeals were dismissed on May 13, 2014, and thereafter, filed the instant lawsuit on August 8, 2014.

[Ground for Recognition: Facts without dispute, Gap evidence 1 through 3, each entry of Eul evidence 1 through 4, the purport of all pleadings]

2. The assertion and judgment

A. The plaintiff's assertion

In light of the fact that the Plaintiff’s user of the mobile communications service (hereinafter “user of the service”) is subject to the mandatory use period of the mobile communications service under the condition that part of the cost of purchasing the mobile communications service would be subsidized when he newly opens or alters the mobile communications service in accordance with the terms and conditions of the use of the mobile communications service, the instant subsidy shall be deemed to fall under the “amount of discount” if the user of the service terminates the contract under the terms and conditions of the use of the mobile communications service, and the instant subsidy shall not be included in the value-added tax base because it is not the final cost borne by the user of the service. Furthermore, the instant subsidy shall be excluded from the value-added tax base, and if it is subject to the said tax, more tax shall be paid. Ultimately, the instant disposition shall be revoked illegally

(b) Related statutes;

Attached Form is as shown in the attached Form.

(c) Fact of recognition;

1) The Plaintiff’s form of granting the instant subsidy to a service user is two persons depending on the method of purchasing a device by the service user. In other words, (i) where a service user purchases a device at once, the Plaintiff’s payment of a certain amount of money to the service user at once (BB) and (ii) where an agency sells a device to a service user by using a device, the Plaintiff or a credit card company takes over a claim from an agency for the mobile communication service user to make a discount of a certain amount of money out of the amount of the obligation to pay the device (CC support) when the Plaintiff or credit card company claims monthly mobile communication service user fees from the agency (CC support).

2) The devices necessary for the Plaintiff’s service user to use the mobile communications service do not sell the devices directly by the Plaintiff to the service user, DD Co., Ltd. (hereinafter “DDD”) purchases from the manufacturer of the devices to sell them to the agency, and the agency sells them again to the user.

3) In the case of CCC support, an agency supplied a device with DD and sold its installment claims to a service user, which was transferred to the Plaintiff, from February 2, 2008 to January 2, 2010, and from August 2, 2010, transferred the installment claims arising after September 201 to a card company, which was a third party, and the Plaintiff entrusted the collection of installment claims on behalf of the card company. In any case, the Plaintiff collected both telecommunications service charges and the installment payments for the terminal from service users, and in this process, collected by deducting agreed subsidies from each service user.

“4) The Plaintiff specified the criteria for subsidization for the service users it provides in the form of the terms of mobile telephone service (W-SMA), and the main contents of which are as follows (hereinafter referred to as the “instant terms of use”). Articles 35 and 35 (Establishment of Terms of Agreement)

The Company may set the obligatory use period (hereinafter referred to as the "agreement period") for not more than O months on condition that the customer supports the work of purchasing the device (hereinafter referred to as "subsidies") when he/she opens a new subscription (including number transfer) or changes the terminal.

Article 36 (Payment of Subsidies)

1. The Company may grant subsidies automatically according to the terms of the agreement established pursuant to Article 35 and the degree of contribution of customers.

(2) A company shall grant a subsidy only to a new terminal which has no opening capacity to sell at the place of business which has concluded an entrustment contract with the company.

(3) Matters concerning the setting of a contract period, the amount of the subsidy, the method of calculating the amount of the subsidy (hereinafter referred to as "liability for penalty") shall be at the risk of complying with individual contracts between customers and the company

4. The company may vary the amount of subsidy according to the needs for business policies.

(5) In order for a minor to receive the subsidy under paragraph (1), I shall obtain the consent of his/her legal representative.

Article 37 (Those Excluded from Subsidy Payments)

(1) Notwithstanding the provisions of Article 36, no subsidy shall be paid to any of the following cases:

1. Subscription lines for rental services, such as international programming, hotel leasing lines, etc.;

2. A line of public telephone installed in buses and trains;

3. Customer whose date of payment of fees has expired as of the date of payment of subsidies, but has not paid usage fees: Provided, That in cases of full payment of usage fees, subsidies shall be granted.

4. Customers whose penalty remains due to the lapse of the existing contract period as of the date of payment of subsidies: Provided, That if penalty is paid in full, subsidies shall be paid;

5. Where the terminal of a customer is an illegal reproduction terminal;

6. Customers using programs which are agreed upon among the subscribers to the agreed discount fees (Provided, That if the existing customer terminates the agreed discount program, subsidies shall be granted and in such cases no penalty shall be imposed upon the termination of the agreed discount program);

Article 38 (Duty to Pay Penalty)

(1) A customer who has received a subsidy by setting a contract period shall pay a penalty, as otherwise determined by the company, if he/she terminates the contract before the contract expires (including termination due to the overdue payment, loss of a device, etc.).

(2) The penalty under paragraph (1) shall be calculated in accordance with the methods under subparagraphs 1 through 4.

1. Calculation forms of penalty: Amount agreed upon = Amount of penalty 】 (Period of agreement - Period of use after agreement)/ period of agreement;

2. The agreed amount means the amount recorded by the customer in writing on the mobile telephone contract and signed and sealed by him.

* Provided, That the agreed amount shall be posted on the website by the company (referred to the amount posted on the website on the circulation network).

It shall be determined within the agency and may have a difference of KRW 00,000 for each agency.

3. The additional amount paid on the condition of the use of a specific fare system or an additional service is excluded from the calculation of the agreed amount.

4. The period of use after the arrangement shall be calculated from the time the service was opened with the subsidy, and the period of suspension of use shall not be included in the period of use after the arrangement.

(3) If the title is changed, the transferor shall pay the penalty in principle: Provided, That the transferee may succeed to the penalty by agreement between the transferor and the transferee, and in such case, the transferee shall be liable to pay the penalty to the transferee.

Article 39 (Exemption from Penalty)

(1) In any of the following cases, the obligation to pay a penalty under Article 38 (1) is exempted:

1. If the customer terminates at his principal place of living within an OO due to a defect in the monetary quality, the penalty shall be exempted or reduced in accordance with the following standards:

(a) Where a customer returns all the goods he/she has received at the time of purchase, such as terminals, chargingrs, wire ropes, auxiliary goods, etc. without damaging such parts: Exemption from penalty;

(b) Where the returned terminal functions are damaged by circumstances or appearance: Reduction or exemption of the penalty within O per cent of the penalty;

(c) Where the performance of the returned device is not returned or the returned device is damaged: No penalty shall be reduced or exempted;

2. Where termination is made due to the death, emigration, etc. of a customer (Provided, That he/she shall submit documents proving the relevant grounds);

3. Where a customer fails to become aware of matters concerning the agreed period and penalty at the time of accession, except that where he/she has signed or sealed the principal on the items related to mobile telephone contracts, or where he/she has signed or sealed the documents specified in attached Table 2 by an agent who has submitted them, penalty shall not be exempted;

Article 40 (Verification of Fixing Period of Customer Agreements)

(1) A customer shall fully confirm the agreed period and the agreed amount and sign the relevant column of the mobile telephone contract.

(2) The Company shall provide customers with relevant details, such as the contract period, agreed amount, method of calculating penalty, etc., by oral explanation, telephone counseling (customer), Internet homepage (www.O.O.O.O.), and keeping a distribution network.

3. The Company shall not require the customer to perform other unfair obligations in addition to the terms agreed upon by mutual agreement with the customer.

5) The details of the instant subsidy granted under the terms and conditions of use are divided by agreement type and duration.

Examining the following [Attachment 3] records:

[Reasons for Recognition: The background of the above disposition as examined, grounds for its recognition, Gap evidence Nos. 4, 7 through 9, Eul evidence No. 10, and the purport of the whole pleadings]

D. Determination

Article 13 (2) of the Value-Added Tax Act provides that "the amount falling under any of the following subparagraphs shall not be included in the tax base of value-added tax" and Article 52 (2) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 24638, Jun. 28, 2013) provides that "the amount of overcharge under Article 13 (2) 1 of the Act shall be the amount of direct deduction of a certain amount from the ordinary supply value at the time of the supply of goods or services in accordance with the terms and conditions of the quality, quantity, delivery and payment of the goods or services, and other terms and conditions of the supply of the goods or services." Thus, in order to constitute "the overcharge amount under the Value-Added Tax Act and the Enforcement Decree of the Value-Added Tax Act" as alleged by the plaintiff, the above subsidies are related to the transaction of the supply of the mobile communications service, and are directly deducted from the supply value of the service.

① As seen earlier, the Plaintiff granted the right to receive a discount amount to the service users by means of limiting the use of the subsidy to settle the price of the device, as seen earlier, to the service users who meet the requirements for subsidization under the instant terms and conditions of use.

② Specifically, in the case of BB agreement type, the service user paid the remainder of the subsidy amount to the agency as the price for the device and received the device. In the case of CCC support type, the claim for the total fee was made in a way that the subsidy was deducted from the mobile installment collected by the Plaintiff or the card company (see evidence 9). As seen earlier, the instant terms and conditions of use clearly state that the instant subsidy is paid as part of the purchase cost of the device.

Furthermore, even in claiming mobile communications fees, the Plaintiff separately indicates items such as the discount rate and the automatic discount under the subscription conditions, and separately indicates the value-added tax equivalent to the discount rate, and does not include the value of supply (Evidence No. 9 and No. 10). On the account of the statement, the instant subsidy in the statement is indicated as being deducted from the device, and is only deducted from the sum of the mobile communication rates that are added to value-added tax, such as discount and value-added tax, and the amount of collection agency for small payment, etc., on which the mobile communication rate or the device installment is deducted from any item, and did not indicate whether the amount is included in

③ The instant subsidy was provided for the purpose of gaining profits from the transaction of the supply of the mobile communications service, and was provided differently according to the period on the condition that the mobile communications service was provided for a certain period of time. However, as seen above, insofar as the amount was deducted from the supply value of the mobile communications service, it constitutes the discount amount related to the supply of the device, not the mobile communications service. At the same time, the mobile communications service provided by the Plaintiff is deemed to be only the incentive that is not deducted from the supply value.

④ The Plaintiff’s assertion is that the value-added tax corresponding to the instant subsidy was not paid from the customers because it was not recognized as sales discount, but was paid. However, the Plaintiff provided mobile communications service to the service users and collected 10% of the value-added tax on mobile communications charges that did not deduct the instant subsidy from the said subsidies (see Evidence No. 9, No. 10). In other words, the actual burden of value-added tax is the service user. In other words, when excluding the instant subsidy from the tax base, the corresponding value-added tax is paid to the service user without the duty to pay the Plaintiff as the service user, and it is unfair that the Plaintiff, the supplier of the instant subsidy, who is not the supplier, has not been paid the Plaintiff. In other words, if the instant subsidy is excluded from the tax base, the value-added tax on the portion corresponding to the subsidy paid by the Plaintiff would result in the Plaintiff simply transferring it to the service user.

Ultimately, the plaintiff's assertion cannot be accepted, and the disposition of this case is legitimate.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.