[1] The case holding that an advertising media company, the principal of which supplied advertising services to an advertiser to a foreign corporation through an advertising substitute event, constitutes a transaction subject to zero-rate tax rate under Article 11 (1) 4 of the former Value-Added Tax Act and Article 26 (1) 1 of the Enforcement Decree of the same Act

[2] The case holding that the duty to issue a tax invoice is not exempted for the advertisement business including the one-time advertisement business, which is a small amount of advertising fees, as it falls under the "business service business"

[3] Whether Article 22(2)1 of the former Value-Added Tax Act, which provides that a corporate entrepreneur shall impose penalty tax if he/she fails to issue a tax invoice, goes against the principle of excessive prohibition, the principle of minimum infringement, and the principle of tax equality (negative)

[1] The case holding that an advertising media company, the principal of which supplied advertising services to an advertiser to a foreign corporation through an advertising substitute event, constitutes a transaction subject to zero tax rate under Article 11 (1) 4 of the former Value-Added Tax Act (amended by Act No. 8826 of Dec. 31, 2007) and Article 26 (1) 1 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 17041 of Dec. 29, 2000)

[2] The case holding that advertising fees do not constitute "business service," and they do not constitute "retail sales", "social service business or private service business", or "business that is impossible or significantly difficult to issue tax invoices," where the business of advertising fees, including the one-time advertising business which is a small amount of money, falls under "business service business,"

[3] In cases where an entrepreneur who is a juristic person fails to supply goods or services and deliver a tax invoice, the provisions of Article 22 (2) 1 of the former Value-Added Tax Act (amended by Act No. 8826 of Dec. 31, 2007) stipulating that an amount equivalent to 2/100 of the value of supply should be added to the payable tax amount or deducted from the refundable tax amount shall not be deemed to go against the principle of excessive prohibition or the principle of minimum infringement. In addition, even if the above provision provides that a juristic person should bear more additional tax than an individual, taking into account the actual difference between the corporation’s business organization and activity, the corporation’s leading role in receiving the tax invoice shall be performed, and the transparency of the accounting shall not be deemed to be more severe than that of the breach of its duty, and it shall not be deemed to be more reasonable to maintain the legal principle of tax equality.

[1] Article 11 (1) 4 of the former Value-Added Tax Act (amended by Act No. 8826 of Dec. 31, 2007); Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 17041 of Dec. 29, 200) / [2] Article 2 (1) 5 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 17041 of Dec. 29, 200) (see current Article 2 (1) 7) and (2), Article 79-2 (1) of the former Enforcement Decree of the Value-Added Tax Act; Article 25-2 (3) of the former Enforcement Rule of the Value-Added Tax Act (amended by Ordinance of the Ministry of Finance and Economy of Apr. 3, 2001) / [3] Article 21 (2) 2 (1) of the former Enforcement Decree of the Value-Added Tax Act (amended by Act No. 2193)

[1] Supreme Court Decision 2004Du12117 decided Sep. 22, 2006 (Gong2006Ha, 1844) / [3] Constitutional Court Order 92HunBa46 decided Aug. 29, 1996 (HunGong17, 449)

Dongil Co., Ltd. (Attorney Lee Yong-sik, Counsel for the plaintiff-appellant)

Head of the tax office;

Seoul High Court Decision 2004Nu15330 decided May 3, 2006

Each appeal is dismissed. The costs of appeal are assessed against each appellant.

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

1. As to the Defendant’s ground of appeal

Article 6(5) of the Value-Added Tax Act that provides that, in cases where goods are supplied or supplied through a commission agent or agent, the principal shall be deemed to have supplied or received the goods directly, except when the principal or the principal is unknown (see Supreme Court Decision 2004Du12117, Sept. 22, 2006).

In full view of all the circumstances, including the contents of the advertising agency contract concluded between the Plaintiff, exclusive advertising agency, and general advertising agency (including both parties, hereinafter “advertisement agency”), the details of the advertising service in this case, the method of paying advertising fees and advertising agency fees, the method of issuing and delivering a tax invoice, and the details of accounting, etc., the advertising agency constitutes quasi-agents who provide advertising services in its own name. Since Article 6(5) of the Value-Added Tax Act applies mutatis mutandis to the supply of services by quasi-Commission agents, the principal who supplies the advertising service to the foreign corporation is the Plaintiff, and the advertising agency is the principal, and the advertising agency is ultimately paid to the Plaintiff through a foreign exchange bank from the foreign exchange advertiser. Accordingly, the Plaintiff’s supply of the advertising service in this case through the exercise of the advertising agency constitutes a transaction subject to Article 11(1)4 of the former Value-Added Tax Act and Article 11(1)4 of the former Enforcement Decree of the Value-Added Tax Act (amended by Act No. 8826, Dec. 31, 2007>

The court below's decision to the effect that the defendant's act of offering the advertisement services to the foreign corporation is illegal in the case of holding the exclusive advertising agency and the general advertising agency with the status of the plaintiff's agent or the person entrusted with the affairs of the advertisement agency, and that the plaintiff is recognized as the actual supplier of the advertisement services in accordance with the actual conditions of the advertisement agency's execution of the advertisement agency. Thus, the defendant's decision to the purport that the contract of offering the advertisement services to the foreign corporation of this case is illegal in the case of uniformly considering the supply agent of the advertisement services to the foreign corporation of this case as an advertising agency which is not the plaintiff, not the plaintiff. However, the conclusion is just in its conclusion, and there is no error of law such as

2. Plaintiff’s ground of appeal

(a) Whether the business falls under the business exempted from the issuance of tax invoices;

Article 79-2 (1) of the former Enforcement Decree of the Value-Added Tax Act provides that "any business operator who runs the business falling under any of the following subparagraphs among general taxable persons shall issue receipts pursuant to Article 32 (1) of the Act." Article 79-2 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act provides that " retail business" shall be "any business that supplies goods or services to consumers who are not entrepreneurs, as prescribed by the Ordinance of the Ministry of Finance and Economy." Article 25-2 of the former Enforcement Rule of the Value-Added Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 193 of April 3, 2001; hereinafter the same shall apply) delegated by him provides that "social service and personal service business" under subparagraph 6, and Article 9 of the former Enforcement Decree of the Value-Added Tax Act provides that "any other business similar to those under subparagraphs 1 through 8, and Article 2 (1) of the former Enforcement Decree of the Value-Added Tax Act shall be included in the Korean Standard Industrial Classification."

According to the reasoning of the judgment below, according to the Korean Standard Industrial Classification table as of the starting date of the taxable period of this case, advertising business including the small amount advertising business operated by the plaintiff as the actual business entity falls under "business service", and the above "retailing business", "social service business", or "private service business" shall not be deemed to fall under "other business similar to subparagraphs 1 through 8" under Article 25-2 subparagraph 9 of the former Enforcement Rule of the Value-Added Tax Act, which mainly supplies goods or services to consumers who are not the business entity. In addition, in the advertisement of small amount, the contents of advertisement are mainly offered, sought, real estate brokerage, or coming-of-age and marriage, and advertisement fees are excessive, and most of the advertisement applications are made by telephone, and the plaintiff cannot be deemed to fall under "business operator who is impossible or considerably difficult to issue tax invoices" under Article 25-2 subparagraph 9 of the above Enforcement Rule. In light of the related Acts and subordinate statutes and the records, the judgment of the court below is justified and there is no violation of law as to the rules as to interpret the grounds for appeal.

(b) Whether there is any justifiable reason for neglecting the duty to issue the tax invoice;

In light of the records, the court below's rejection of the plaintiff's assertion that the advertising client did not want to issue a tax invoice or could not identify the client's resident registration number, etc. that is to be entered in the tax invoice due to his/her personal identity, and that there is no other evidence to acknowledge it, the court below's rejection of the plaintiff's assertion that there is a justifiable reason not to cause any negligence on the duty to issue a tax invoice, is just and acceptable, and there is no violation of the legal principles as to the legitimate reason in imposing additional tax and the rules of evidence

C. Whether the principle of good faith is violated and abuse of rights

In light of the records, the court below is just in rejecting the plaintiff's assertion that imposing the additional tax on the non-issuance of the tax invoice of this case on the grounds that the non-issuance of the tax invoice of this case constitutes a violation of the good faith principle or an abuse of rights, and there is no illegality in the misapprehension of legal principles as to the good faith principle and the rules of evidence as otherwise alleged in the ground of appeal.

D. Whether Article 22(2)1 of the former Value-Added Tax Act (amended by Act No. 7007 of Dec. 30, 2003; hereinafter the same) is invalid

Article 22(2)1 of the former Value-Added Tax Act, which provides that an entrepreneur who supplies goods or services and fails to issue a tax invoice, shall either add an amount equivalent to 2/100 of the value of the supply to the payable tax amount or deduct the said amount from the refundable tax amount (hereinafter “the aforementioned provision of additional tax”), provides that “The legislative purpose of this provision is to realize the function as input tax deduction and taxation data of the tax invoice, which serves as the basis for its operation, and thereby to establish a transaction normalization and tax base cultivation and to establish a based tax,” and the disadvantages incurred by the imposition of additional tax as sanctions against the non-issuance of the tax invoice may not be deemed significantly higher than the public interest than the sanction against the non-issuance of the tax invoice, or excessively harsh than the content of the breach of duty, cannot be deemed as contrary to the principle of excessive prohibition or the principle of minimum infringement.

In addition, even if the above additional tax provision provides that an individual shall bear more additional tax than that of an individual who is a juristic person, considering the actual difference that a juristic person bears more severe social responsibility than that of an individual in business organization or activity, it cannot be deemed a reasonable difference based on the legislative judgment that the juristic person performs a leading role in the receipt of tax invoices and shall maintain the transparency of accounting affairs more strongly (see Constitutional Court Order 92HunBa46 delivered on August 29, 196). Thus, the ground of appeal that the above additional tax provision is in violation of the Constitution and thus null and void is without merit.

3. Conclusion

Therefore, each appeal is dismissed, and the costs of appeal are assessed against each appellant. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Hong-hoon (Presiding Justice)