[1] Relationship between transfer and closure of business excluded from taxation under the former Value-Added Tax Act

[2] Whether additional tax can be imposed after the cessation of business on the part of the transfer of business, where the transfer of business excluded from the taxable object under the former Value-Added Tax Act is discontinued (negative)

[1] Whether a certain transaction constitutes either the supply of goods or the transfer of business as referred to in Article 6 (6) of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006), is the legal nature of the transaction, and only one of the criteria for determining where the transaction is subject to value-added tax, and is related to determining whether the transaction constitutes the discontinuance of business by the person liable to pay value-added tax, and therefore, it cannot be deemed that the transaction constitutes the transfer of business and thus does not constitute

[2] Under Article 6 (6) of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006), since the transfer of business is not subject to value-added tax, if the business is substantially discontinued due to the transfer of business, there is no obligation to report and pay value-added tax on the business transfer portion within the period stipulated in the Value-Added Tax Act from the date of closedown, and thus, there is no obligation to report and pay value-added tax on the business transfer portion on the basis of the cessation of business.

[1] Articles 3(3) and 6(6) of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006) / [2] Articles 3(3), 6(6), and 22 of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006)

Plaintiff (Attorney Park Yong-young, Counsel for the plaintiff-appellant)

Head of Namyang District Tax Office

Seoul High Court Decision 2004Nu11895 delivered on July 15, 2005

Of the part against the defendant in the judgment below, the part ordering the revocation of the disposition imposing additional tax exceeding 231,400,000 won is reversed, and the corresponding plaintiff's appeal is dismissed. The defendant's remaining appeal is dismissed. All costs of the lawsuit are assessed against the defendant

The grounds of appeal are examined.

1. Whether a certain transaction constitutes the supply of goods and the transfer of business (hereinafter “business transfer”) under Article 6(6) of the former Value-Added Tax Act (amended by Act No. 8142, Dec. 30, 2006) is the legal nature of the transaction concerned, and it merely serves as one of the criteria for determining where the transaction is subject to value-added tax, and it is not related to determining whether the transaction constitutes the business transfer, and thus does not cause any problem of business closure because the transaction concerned constitutes the business transfer. However, in a case where the business transfer is substantially discontinued due to the business transfer, unless the business transfer is subject to value-added tax, the value-added tax on the business transfer portion is not subject to value-added tax within the time limit set in the Value-Added Tax Act, and thus, it cannot be imposed additional tax on the failure to report and pay the value-added tax on the business transfer portion on the basis of such cessation.

According to the reasoning of the judgment below, after recognizing the facts as stated in its reasoning, the court below determined that the sales contract on the wedding building as stated in the judgment of the court below between the plaintiff and the present Il-il Development Co., Ltd. (hereinafter "on the present date development") was illegal on the ground that the contract comprehensively succeeded to the rights and obligations on the real estate rental business and the transfer of business constitutes a transfer of business, and only the replacement of the management body in the case of a transfer of business, and on the ground that the business itself continues to exist without maintaining its identity and the problem on the discontinuance of the business does not occur, the disposition imposing additional tax on May 15, 2002

However, such determination by the court below is difficult to accept in light of the aforementioned legal principles.

In other words, according to the facts duly established by the court below, the plaintiff sold a wedding building, which is a single business place, and received a balance of the purchase price, and at the same time delivered documents related to ownership transfer registration for a wedding hall building and land, and did not engage in a real estate rental business no longer. The current development completed a real estate rental business registration for which the location of a wedding hall building is the location of a business place in the name of the present development branch, and operated a wedding hall lease business for a wedding hall building. If the circumstances are that, even if the legal nature of the sales contract between the plaintiff and the current development constitutes a business transfer as recognized by the court below, the plaintiff should be deemed to have practically discontinued the real estate rental business operated by the plaintiff on May 15, 202, which falls under the date on which the outstanding payment date of the purchase price takes over the status of the lessor.

Therefore, the court below erred by misapprehending the legal principles on the discontinuation of a real estate rental business under the Value-Added Tax Act, just because a sales contract between the plaintiff and the current development constitutes a business transfer.

However, as long as the sale and purchase of the wedding building constitutes a business transfer, it is not subject to value-added tax, and thus, it is not possible to impose penalty tax on the part of the business transfer based on the cessation date because it is deemed that the failure to report and make payment, failure to pay taxes, and failure to submit a list of total amount of income tax for each customer is not subject to value-added tax. Therefore, the judgment of the court below that the disposition imposing penalty tax is unlawful is justified. However, since the part of the judgment of the court below ordering the cancellation of the disposition imposing penalty tax in excess of this part is unrelated to the business transfer, that part of the penalty tax on the revenue of rent

Nevertheless, the court below's revocation of this part of the disposition imposing additional tax is erroneous in the misunderstanding of legal principles as seen earlier, which affected the conclusion of the judgment, and this part of the ground of appeal is with merit.

2. Meanwhile, if penalty tax is calculated by applying Article 22(3)1 and (5)1 of the former Value-Added Tax Act (Amended by Act No. 8142, Dec. 30, 2006); Article 22(5)2 of the former Value-Added Tax Act (Amended by Act No. 7007, Dec. 30, 2003); Article 70-3(6) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 17827, Dec. 30, 200; Presidential Decree No. 17827, Dec. 30, 200; Presidential Decree No. 17040, Oct. 1, 200; Presidential Decree No. 17040, Oct. 14, 200; Presidential Decree No. 170045, Oct. 10, 200; Presidential Decree No. 170050, Jan. 10, 1000>

Therefore, the part of the judgment below against the defendant ordering the cancellation of 231,40,000 won (104,000,000 won + 104,000,000 won + 23,400,000 won) in total as to the transfer of the wedding building among the part against the defendant of the judgment below is justifiable, and the part ordering the cancellation of the disposition imposing additional tax in excess of this is unfair, and thus, it is so reversed. Since this part is sufficient to be judged by the Supreme Court on the basis of the facts established by the court below, it is self-printed in accordance with Article 8 (2) of the Administrative Litigation Act,

For the above reasons, 231,400,000 won of the disposition imposing additional tax as stated in the judgment of the court below is unlawful, and the part of additional tax on the plaintiff's rent revenue is legitimate. Thus, the plaintiff's appeal corresponding to this is dismissed.

3. Therefore, the defendant's appeal is with merit within the above scope of recognition, and the judgment of the court below is reversed and remanded, and the defendant's remaining appeal is dismissed as it is without merit. It is so decided as per Disposition by the assent of all participating Justices on the bench, by applying Article 8 (2) of the Administrative Litigation Act, Articles 98, 101, and 105 of the Civil Procedure Act to the total costs of the lawsuit.

Justices Shin Hyun-chul (Presiding Justice)