[1] In a case where an entrepreneur who supplied goods or services fails to issue a tax invoice without justifiable grounds despite the receipt of the value-added tax by the supplier of the goods or services, and the supplier fails to deduct the input tax amount, whether the supplier is liable to compensate for damages equivalent to the input tax amount not deducted (affirmative in principle), and whether the same applies to a case where the supplier did not deduct the input tax amount through the procedure for issuing the purchaser-issued tax amount (affirmative in

[2] The meaning of "person who is supplied with services" under Article 32 (1) of the Value-Added Tax Act and method of determining who is "person who is supplied with services" due to contractual grounds

[3] In case where a lessee sub-leases the leased object with the consent of the lessor, legal relations between the lessor and the lessee, the lessee and the sub-lessee, and whether the lessee may set up a defense against the lessor on the ground that the lessee paid the sub-lease to the sub-lease prior to the time of the sub-lease (negative)

[4] In a case where Company A sub-leaseed the building leased to Company B with the consent of Company B, and Company B directly paid Company B with the rent included in value-added tax, and Company B was obligated to issue a tax invoice to Company B, the case holding that Company A was not obligated to issue a tax invoice to Sub-lessee B who did not provide the leased service, and that this is the same even if Company B paid Company B directly to Company B

[1] If an entrepreneur who supplied goods or services fails to issue a tax invoice without just cause and a person who received the supply of goods or services fails to deduct the input tax amount without just cause, the supplier is liable to compensate for damages equivalent to the input tax amount not paid to the supplier. This is also true in the absence of special circumstances, in light of the following: (a) the supplier is obligated to issue the tax invoice to the person who received the supply; (b) the legislative intent or purpose of the issuance system of the purchaser-issued tax invoice; and (c) the function and time limit for the use thereof, etc.

[2] According to Article 32(1) of the Value-Added Tax Act, where an entrepreneur supplies goods or services (excluding the supply of goods or services exempt from value-added tax), a tax invoice must be issued to the person who receives the service. Here, “person who receives the service” refers to a person who receives the service, etc. on contractual or legal grounds. As such, when a “person who receives the service” is determined by contractual grounds, the parties to the contract that causes the provision of the service, the contents of the contract, the supply of the service, and the payment relationship shall be taken into account in all circumstances, including the parties to the

[3] In a case where a lessee sub-leases the object with the consent of the lessor, the former lease agreement between the lessor and the lessee continues to exist, and the lessor still can claim the lessee for rent (Article 630(2) of the Civil Act). Since a new lease agreement between the lessee and the sub-lessee exists, the lessee may demand the lessee to rent. On the other hand, the lessee does not have direct legal relations between the lessor and the sub-lessee, but only assumes the direct obligations of the lessor for the protection of the lessor. In this case, the sub-lessee cannot set up a defense against the lessor on the ground that the lessee paid the sub-lease to the sub-leased prior to the due date of rent under the sub-lease agreement (Article 630(1) of the Civil Act).

[4] In a case where Gap corporation sub-leases the building leased to Eul corporation with Eul's consent, and Byung paid the rent included in value-added tax to Byung directly, and Gap corporation is obligated to issue a tax invoice to Byung, the case holding that the tax invoice is to be issued to the person who supplied the goods or services, and the lessor Gap supplied the leased services to Eul corporation, and the sub-lessee Byung was merely supplied with the leased services from Eul corporation, and the sub-lessee Byung was not obligated to issue a tax invoice to Byung who did not provide the leased services, and even if Byung paid the rent directly to Byung, the same applies

[1] Article 32(1) of the Value-Added Tax Act, Article 126-4 (see current Article 34-2 of the Value-Added Tax Act) of the former Restriction of Special Taxation Act (Amended by Act No. 14390, Dec. 20, 2016); Article 121-4 (see current Enforcement Decree of the Value-Added Tax Act) of the former Enforcement Decree of the Restriction of Special Taxation Act (Amended by Presidential Decree No. 27848, Feb. 7, 2017) / [2] Article 32(1) of the Value-Added Tax Act / [3] Article 630 of the Civil Act / [4] Article 32(1) of the Value-Added Tax

[2] Supreme Court Decision 2005Du1497 decided Dec. 22, 2006 / [3] Supreme Court Decision 2006Da45459 decided Mar. 27, 2008 (Gong2008Sang, 604)

No. nicoa Corporation

Defendant (Attorney Lee Jae-soo, Counsel for defendant-appellee)

Daejeon High Court Decision 2016Na15905 decided September 6, 2017

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

The grounds of appeal are examined.

1. According to the reasoning of the lower judgment, the lower court rejected the Defendant’s allegation that the Plaintiff did not receive input tax deduction from the Defendant on the wind that the Plaintiff did not issue a tax invoice, i.e., the Defendant did not receive the Defendant’s input tax deduction. As to the defense that the Plaintiff’s failure to issue the Plaintiff’s tax invoice constituted damages claim equivalent to the amount of the Plaintiff’s input tax deduction due to the Plaintiff’s failure to issue the said tax invoice, the lower court did not issue a tax invoice to the Defendant on the rent of KRW 495 million (including value-added tax, the lower court’s KRW 495 million, and the amount of KRW 49.5 million, which appears to be erroneous in error) of the Plaintiff’s total amount that the Plaintiff received from the Defendant, and accordingly, acknowledged that the Defendant did not receive the input tax deduction upon filing a value-added tax return. However, the lower court rejected the Defendant’s assertion that there was no proximate causal causal relation between the Plaintiff’s failure to issue the tax invoice and the Plaintiff’s sales tax invoice through the procedure.

2. Where an entrepreneur supplies goods or services (excluding the supply of goods or services exempt from value-added tax), he/she shall issue a tax invoice to the person who receives the goods or services (Article 32(1) of the Value-Added Tax Act); and where a person liable to prepare and issue a tax invoice under the Value-Added Tax Act fails to issue a tax invoice (Article 10(1)1 of the Punishment of Tax Evaders Act); on the other hand, Article 126-4 of the former Restriction of Special Taxation Act and Article 121-4 of the Enforcement Decree of the same Act (Article 121-4 of the Enforcement Decree of the Value-Added Tax Act) provide for special cases where a supplier of goods or services fails to issue a tax invoice to the person who receives the goods or services after obtaining confirmation of the fact of transactions from the competent tax office; in particular, where a supplier who is in an economically superior position fails to issue a tax invoice to avoid disclosure of the tax base, the person who intends to issue the tax invoice may receive the deduction of the input tax without assistance from the supplier (seller).

If an entrepreneur who supplied goods or services fails to receive a tax invoice from the person who received the goods or services without justifiable grounds, but fails to obtain a deduction of the input tax amount, the supplier shall, in principle, be liable for damages equivalent to the input tax amount that has not been deducted from the person who received the goods or services. This shall be construed as the same in light of the following: (a) the supplier is obligated to issue the tax invoice to the person who received the goods or services; and (b) the legislative intent or purpose of the system for issuing the purchaser-issued tax invoice; and (c) the function and time limit for the use thereof, etc., even if the person who

Therefore, it is inappropriate for the lower court to have determined that there is no proximate causal relationship between the Plaintiff’s failure to issue the Plaintiff’s tax invoice and the Defendant’s damage.

3. However, in light of the following reasons, the lower court’s conclusion rejecting the Defendant’s counterclaim is justifiable.

According to Article 32(1) of the Value-Added Tax Act, where an entrepreneur supplies goods or services (excluding the supply of goods or services exempt from value-added tax), a tax invoice must be issued to the person who receives the service. The term “person who receives the service” refers to a person who receives the service due to contractual or legal grounds. As such, in determining who is a “person who receives the service” due to contractual grounds, all circumstances such as the parties to the contract that causes the service in question and the contents thereof, and the payment relationship of the price shall be taken into consideration (see Supreme Court Decision 2005Du1497, Dec. 22, 2006, etc.).

In addition, in a case where a lessee sub-leases the leased object with the consent of the lessor, the former lease contract between the lessor and the lessee continues to exist, and the lessor is still entitled to demand the lessee to rent (Article 630(2) of the Civil Act). Since a new lease contract between the lessee and the sub-lessee exists, the lessee is entitled to demand the lessee to rent. On the other hand, the lessee does not have direct legal relations between the lessor and the sub-lessee. However, for the protection of the lessor, the lessee bears the direct obligations to the lessor. In such a case, the sub-lessee cannot set up a defense against the lessor on the ground that the lessee paid the sub-lease to the sub-leased prior to the payment due date under the sub-lease contract (see Article 630(1) of the Civil Act; Article 206Da45459, Mar. 27, 2008).

According to the reasoning of the lower judgment and the record of the first instance judgment cited by the lower court, the following facts are revealed: (a) the co-defendant ○○○○○○○, Co-Defendant 2, Ltd. (hereinafter “○○○○○○○”) of the lower judgment, which leased the instant building from the Plaintiff as indicated in the judgment of the first instance that was held by the Plaintiff; and (b) the Defendant provided monthly rent (including value-added tax) for 11 months (from October 10, 2014 to September 9, 2015) to the Plaintiff (However, in the case of rent for August 2015, value-added tax was not paid).

Examining these facts in light of the legal principles and related Acts and subordinate statutes as seen earlier, a tax invoice is issued to an entrepreneur who supplies goods or services, and the Plaintiff, a lessor, supplied leased services to ○○○○○○○, a lessee, and the Defendant, a lessee, was only supplied with a lease services again from ○○○○○○○○○○○. As such, the Defendant cannot be deemed to have a duty to issue a tax invoice to the Defendant who did not provide a lease services, and this does not change with the Defendant’s direct payment to the Plaintiff. Ultimately, the Defendant’s counterclaims set-off, premised on the Plaintiff’s duty to issue

4. 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 Jae-hyung (Presiding Justice)