[1] The scope of recognition of "delivery or transfer" under Article 6 (1) of the Value-Added Tax Act

[2] Standard for determining whether a specific transaction constitutes the supply of goods under the Value-Added Tax Act, and the person who bears the burden of proving that a specific transaction constitutes “illegal tax invoice” under Article 17(2)1-2 of the same Act (=the tax authority)

[3] The case holding that it is difficult to conclude that a part of the entire transaction, which is one of the nominal transactions, is not the supply of goods subject to value-added tax, solely on the ground that there is a so-called wide carbon business entity that does not pay the amount equivalent to the value-added tax and prepares and delivers a tax invoice, while purchasing gold bullion exempt from value-added tax at the middle stage and supplying it to a person who is not recommended to be exempted from value-added tax, etc.

[1] Articles 1(1)1 and 6(1) of the Value-Added Tax Act / [2] Article 17(2)1-2 of the Value-Added Tax Act / [3] Articles 1(1)1 and 6(1) of the Value-Added Tax Act

[1] Supreme Court Decision 85Nu286 delivered on September 24, 1985 (Gong1985, 1441), Supreme Court Decision 99Du9247 delivered on March 13, 2001 (Gong2001Sang, 902) / [2] Supreme Court Decision 92Nu2431 delivered on September 22, 1992 (Gong1992Ha, 3034 delivered on April 14, 2006), Supreme Court Decision 2005Du16406 Delivered on December 11, 2008 (Gong2009Sang, 40)

Plaintiff Co., Ltd. (Law Firm Sejong, Attorneys double-luminous et al., Counsel for the plaintiff-appellant)

Head of the tax office;

Seoul High Court Decision 2007Nu21008 decided July 2, 2008

The part of the lower judgment imposing value-added tax is reversed, and that part of the case is remanded to Seoul High Court. The Defendant’s appeal is dismissed.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Plaintiff’s ground of appeal

Article 1(1)1 of the Value-Added Tax Act provides that “the supply of goods” is subject to value-added tax, and Article 6(1) provides that “the supply of goods shall be a delivery or transfer of goods on all contractual or legal grounds.” In light of the characteristics of value-added tax as multi-stage transaction tax, “delivery or transfer” under Article 6(1) of the Value-Added Tax Act includes all acts of causing the transfer of authority to use and consume goods, regardless of the existence of actual profits (see, e.g., Supreme Court Decisions 85Nu286, Sept. 24, 1985; 9Du9247, Mar. 13, 2001; 9Du9247, Mar. 24, 2001; 200.1). In such a case, the issue of whether a specific transaction constitutes the supply of goods under the Value-Added Tax Act is determined by comprehensively taking account of the purpose and circumstance of each transaction, the owner of the goods, the subject of payment, and the payment of profits, etc.

According to the facts duly established by the court below and the records, the plaintiff purchased gold bullion 366 km in total from September 30, 2003 to May 14, 2004 (hereinafter "the gold bullion in this case") from 9 companies, including the non-party corporation, etc. (hereinafter "the supplier in this case"), and received the delivery of the gold bullion in this case on the date of purchase, and received all of the price (hereinafter "the transaction in this case"), and received tax invoices 9 (hereinafter "tax invoices in this case"), respectively, from the suppliers in this case. The plaintiff can find the fact that the gold bullion in this case was wholly exported to the revenue market in Hong Kong on the date of purchase.

Examining these facts and records in light of the legal principles as seen earlier, most of the series of entire transactions until the pertinent gold bullion is imported and exported (hereinafter “instant entire transactions”), and there is a so-called wide carbon company that purchased gold bullion exempt from value-added tax at the intermediate stage and supplied gold bullion subject to value-added tax to a person who did not obtain recommendation, and prepared and issued a tax invoice, and did not pay the amount equivalent to value-added tax, it is difficult to readily conclude that the instant transaction, one of the entire transactions of this case, is not a nominal transaction, and is not a supply of goods subject to value-added tax.

Nevertheless, the lower court determined that the instant tax invoice constituted a “unlawful tax invoice” on the ground that the instant transaction was merely a nominal transaction without supplying goods, on the grounds that the instant transaction was included in the entire transaction of the instant case, in which the so-called wide carbon company was opened. In so doing, the lower court erred by misapprehending the legal doctrine on the “supply of goods” and “unlawful tax invoice,” thereby adversely affecting the conclusion of the judgment.

The ground of appeal pointing this out is with merit.

2. As to the Defendant’s ground of appeal

According to Articles 76(5) and 116(2)2 of the former Corporate Tax Act (amended by Act No. 8141 of Dec. 30, 2006), Article 76(5) of the same Act (amended by Act No. 8141 of Dec. 30, 2006), and Article 116(2)2 of the same Act, the chief of the district tax office having jurisdiction over the place of tax payment shall issue an amount calculated by adding an amount equivalent to 2/100 of the unpaid amount as corporate tax in cases where a corporation is supplied with goods by a business operator in connection with its business and fails to receive a tax invoice under Article 16 of the Value-Added Tax Act. Article 16 of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006) provides that "where an entrepreneur registered as a taxpayer supplies goods, he shall deliver a tax invoice stating the business operator's registration number, name or title, registration number

As seen earlier, insofar as the instant transaction cannot be deemed to be a supply of goods subject to value-added tax, it is reasonable to view that the instant tax invoice received accordingly is also a legitimate tax invoice under Article 16 of the former Value-Added Tax Act. Accordingly, the lower court’s determination that the Defendant’s disposition imposing corporate tax by deeming the instant tax invoice as a “illegal tax invoice” and applying the provisions on additional tax payable, is unlawful on the ground that the provision on additional tax payable for lack of evidence cannot be applied to the actual transaction under the pretext of disguised transaction, is not appropriate, but its conclusion is justifiable.

The court below did not err in the misapprehension of legal principles as to the penalty tax provision for lack of evidence, as alleged in the grounds of appeal.

3. Conclusion

Therefore, the part of the judgment below imposing value-added tax is reversed, and that part of the case is remanded to the court below for a new trial and determination. The defendant's appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ahn Dai-hee (Presiding Justice)