In the case of the supply of interim payment conditional services, the time of supply for the service and the time of attribution of the gross income / Where the parties agree to delay the time of payment under a separate agreement after the time of installment payment falls (negative in principle) / Where the payment deferment agreement is reached before the arrival of the time of installment payment but the contract is terminated in the middle, the time of supply for the service and the time of attribution of the gross income already provided until the termination.

In the case of the supply of interim payment conditional services, as a matter of principle, the time of supply for the service and the time of attribution of earnings shall expire when each portion of the price is agreed to be paid in installments under an agreement between the parties concerned, and if the parties agree to delay the time of payment in separate agreements before each installment payment comes, the time of supply for the service and the time of attribution of earnings may be changed accordingly, but such agreement shall not affect the value-added tax and the corporate tax liability already occurred, in principle, even after the time of installment payment comes. Even if the time of installment payment comes after the termination of the contract after the termination of the contract, if the time of installment payment becomes null and void in the future, the right to receive the payment for the service already supplied becomes final and conclusive in principle, so the time of supply for the service and the time of accrual of earnings shall come at the time of termination of the contract.

Article 9(4) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010; see current Article 16(2)); Article 22 subparag. 2 (see current Article 29(1)); Article 40 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010; see current Article 29(1)); Article 40 of the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 2010);

Albi Plus Co., Ltd. (Law Firm Lee & Lee LLC, Attorneys Yuh Woo et al., Counsel for the defendant-appellant)

Head of Seocho Tax Office

Seoul High Court Decision 2014Nu4162 decided February 13, 2015

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Regarding the part of the Urban Environment Improvement Project Association Establishment Promotion Committee for Zone One (hereinafter referred to as the “Promotion Committee for Zone One”)

A. Article 22 Subparag. 2 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter the same) which provides for the time of supply for services upon delegation of Article 9(4) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter the same) stipulates that where services are supplied on interim payment terms, “the time each portion of the price is determined to be paid” shall be deemed the time of supply for services. Furthermore, Article 40 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter the same shall apply) refers to the time when the amount to be received as a matter of principle and the right to receive the income becomes final and conclusive, i.e., the time when the right to exercise the right is legally (see Supreme Court Decision 91Nu1684, Jan. 21, 20192).

B. 1) The lower court acknowledged the following facts based on evidence.

A) On August 31, 2005, the Plaintiff concluded a contract for specialized management of urban environment rearrangement projects with the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the committee for the

B) On June 30, 2006, the Daejeon Metropolitan City Mayor established a master plan for urban and residential environment improvement on the Daejeon Seo-gu (resident omitted) which included the Daejeon Seo-gu District No. 1, and the head of the Seo-gu Daejeon Metropolitan City U.S. approved the promotion committee on October 30, 2006 as the promotion committee under the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents.

C) On December 28, 2006, the Plaintiff entered into a contract to modify the terms of the contract (hereinafter “instant contract”) on August 31, 2005 with the committee for promotion of long-term zone 1 and the committee for promotion on December 28, 2006, and changed the term “the selection of a contractor” in Articles 7 and 8 of the previous contract to “the selection of a joint executor”.

D) On May 18, 2007, the committee for promotion of the large- One district promotion adopted a resolution on the agenda to select modern industrial development corporation, large forest industry corporation, etc. as a joint implementer by holding a general meeting of residents. On June 15, 2007, the committee for promotion adopted a resolution on the agenda to preferentially pay 40% of the service price to the Plaintiff.

E) Accordingly, from June 22, 2007 to September 18, 2008, the Committee for Promotion of Zone 1 paid to the Plaintiff KRW 4,350,000,000,000, which is 50% of the service price stipulated in the instant contract, as stated in the instant contract, and the Plaintiff included it in the name of advance payment on the account book.

2) Next, the lower court determined that: (a) Article 8 of the instant contract stipulates that the time for payment of service charges may be postponed until both the joint implementer and the contractor are selected; (b) accordingly, the Plaintiff and the long-term one district promotion committee agreed to postpone the time for payment of service charges; and (c) it is reasonable to deem that the payment was made to the Plaintiff by the long-term one district promotion committee, and that the amount of KRW 4.35 billion paid to the Plaintiff by the long-term one district promotion committee was an advance; (d) the Plaintiff did not arrive at the time when the Plaintiff agreed to receive the service charges from the

C. However, we cannot accept the above judgment of the court below as it is.

In the case of the supply of interim payment conditional services, as a matter of principle, the time of supply for services and the time of attribution of earnings comes when each of the payments is paid in installments under an agreement between the parties, and if the parties agree to delay the time of payment under a separate agreement before each of the installment payment comes, the time of supply for services and the time of attribution of earnings may be changed accordingly. However, even if such agreement comes after the time of installment payment, in principle, it may not affect the value-added tax and corporate tax liability already occurred.

Therefore, the lower court, first of all, should have deliberated on the time when the Plaintiff and the Committee for Promotion of Zone One (1) agreed on the deferment of payment, and ① before and after the time of installment payment as stipulated in the contract of this case, and further, due to the agreement on deferment of payment, determined when the time of installment payment as stipulated in the contract of this case, and determined whether the time of installment payment and the time of accrual of earnings have arrived.

Nevertheless, the lower court, without such deliberation and determination, determined that the Plaintiff’s time of supply for services and the time of attribution of earnings regarding the instant contract was not yet arrived solely on the ground that such delay of payment is recognized. In so doing, the lower court erred by misapprehending the legal doctrine on the change of time of payment for interim payment conditional services, the time of supply for services under the Value-Added Tax Act, and the time of accrual of earnings under the Corporate Tax Act, thereby failing to exhaust all necessary deliberations, thereby adversely affecting

2. Regarding the part of the Promotion Committee for the Establishment of Housing Redevelopment and Rearrangement Project Cooperatives (hereinafter “New Reconstruction1 District Promotion Committee”) in the New Reconstruction1 District

A. In the case of the supply of interim payment conditional services, as a matter of principle, the time of supply for the service and the time of attribution of earnings at the time when each portion of the price is paid in installments under an agreement between the parties, and if the parties agreed to delay the time of payment under a separate agreement before each installment payment comes, the time of supply for the service and the time of attribution of earnings may be changed accordingly, but such agreement may not, in principle, affect the value-added tax and the corporate tax liability that have already occurred even after the time of installment payment comes. Furthermore, even if the aforementioned time of installment payment was agreed upon before the maturity of the time of installment payment, if the service is terminated in advance and becomes invalid in the future, the right to receive the price for the service already supplied is finalized, and thus the time of supply for the service and the time of attribution of earnings for the portion already supplied shall be deemed to come at the time of termination of the agreement.

B.1) Review of the reasoning of the lower judgment and the record reveals the following facts.

A) On December 2, 2004, the Plaintiff entered into a contract with the Committee for Promotion of New Reconstruction Zone 1 and the Committee for Promotion of New Reconstruction Zone 1 to provide specialized management services (hereinafter “instant contract”). Article 7 of the contract provides that the Plaintiff shall be paid in 10% of the service cost in installments according to each performance stage, such as entering into a contract, establishment of a basic plan, approval of a promotion committee, and the selection of a contractor, but Article 8 provides that the Committee for Promotion of New Reconstruction Zone 1 may request the Plaintiff to postpone the payment of the service cost before the construction is selected.

B) The Plaintiff received total of KRW 700 million from March 8, 2006 to April 17, 2008 from the Promotion Committee for New Interest Zone 1, and appropriated it as an advance payment.

C) On February 26, 2009, the New Heung-1 District Promotion Committee obtained the approval of the Promotion Committee from the head of Yeongi-do, Chungcheongnam-do, and on May 15, 2009, held the first Promotion Committee and passed a resolution on the agenda selected by the Plaintiff instead of the Plaintiff as a specialized management business entity, and sent the instant termination notice to the Plaintiff on May 19, 2009, stating that “the termination of the contract and the settlement of expenses” was notified to the Plaintiff.

2) Examining the above facts in light of the legal principles as seen earlier, as to the portion of the service payment that the time for installment payments pursuant to each of the instant contracts came and the Plaintiff received from the Committee for Promotion of New Heung District 1, there is room to view that the time of supply and the time of attribution of earnings when the notice of termination of the instant contract comes at the time of notification of termination of the instant contract, even if the Plaintiff was requested for postponement of payment under Article 8 of the instant contract, and it does not change solely on the ground that the Plaintiff appropriated it

C. Therefore, the lower court should have determined whether the time when the new Heung District Promotion Committee requested the postponement of payment to the Plaintiff, and whether the instant contract becomes invalid in the future, and whether the Plaintiff’s right to receive the payment for the services that had already been supplied by that time has already been established, by sufficiently examining whether the time of supply for the services and the time of attribution of earnings has arrived. Nevertheless, the lower court determined that, without such deliberation and determination, solely on the ground that the Committee for Promotion of New Heung District requested the Plaintiff to postpone payment under Article 8 of the instant contract. In so determining, the lower court erred by misapprehending the legal principles on the time of supply for the services under the Value-Added Tax Act and the time of attribution of earnings under the Corporate Tax Act, and failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning this error is with merit.

3. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Min Il-young (Presiding Justice)