National High Court Decision 2007Nu5120 (Ob. 20, 2008)

Appropriateness of the assertion that the face value of a gift certificate should be deducted in calculating the game site tax base;

In calculating the value-added tax base in the game place where merchandise coupons are offered as free gifts, the total amount invested by the game user in the game machine shall be calculated as the tax base, and the amount of merchandise coupons paid as free gifts shall not be deducted.

The contents of the decision shall be the same as attached.

Article 1 (Taxable Objects)

Article 13 (Tax Base of Value-Added Tax Act)

1. The plaintiff (appointed)'s claim is dismissed.

2. The costs of lawsuit shall be borne by the plaintiff (appointed party).

The Defendant’s disposition of imposition of value-added tax of KRW 285,006,080 for the first term of 2006 against the designated parties on August 8, 2007 shall be revoked.

1. Details of the disposition;

A. From March 21, 2006 to May 2, 2007, the designated parties jointly operated a general game room (hereinafter in this case’s game room) with the trade name of “○○ Gameland” (hereinafter “the instant game room”) which is designed to meet the premium handling criteria of the former game room at ○○-dong, Busan (200-○○-dong, 830-○○○○, Nov. 1, 2006). The method of operation was to store 5,000 won gift certificates at a certain winning rate (the rate of the amount of gift certificates paid to customers compared to the amount of money paid by customers). If the game machine users input certain cash in a certain game and make it possible to pay for the gift certificates according to the game winning conditions, the method of operation was to pay for the gift certificates according to the game winning conditions.

B. The designated parties calculated KRW 159,650,00 as the tax base, and reported and paid KRW 1,593,109 for the first year of 2006.

C. The Defendant determined that the amount calculated by dividing the total amount invested in the game by 1.1 by the customers of the instant game room constitutes the value of supply, and determined as a result of the tax investigation, that the total amount of gift certificates in the instant game room was calculated by multiplying the total amount of gift certificates by 525,00 per cent during the taxable period of January 2006, and the average rate of gift in the game machine was 95 per cent, and then dividing the total amount of gift certificates by 95 per cent, the average rate of gift in the purchase amount of gift certificates, by multiplying the total amount of gift certificates by 95 per cent, and then converting the total amount into the total amount of gift certificates by 1.1.1, the value-added tax base for the first year of 2006 was calculated by dividing it into 2,511,961,722 per cent, and then the amount was calculated by multiplying the total amount by 2,51,006 won by the average rate of gift value of the game machine (including additional tax).

D. On December 5, 2007, the designated parties asked the National Tax Tribunal for a trial on the instant disposition, and the Director of the National Tax Tribunal dismissed it on February 20, 2008.

[Ground of recognition] Facts without dispute, Gap 1 to 3 evidence, Eul 1 to 3, Eul 9-1 to 9-2, and the purport of the whole rice plants

2. Whether the disposition is lawful;

A. The plaintiff's assertion (the appointed party and the appointed party; hereinafter referred to as "the plaintiff")

For the following reasons, the instant disposition should be revoked as it is unlawful.

(1) In full view of the fact that the input of cash in the game room, such as the game room of this case, for the purpose of obtaining merchandise coupons rather than for amusement, and the value-added tax is imposed on the increased value of the game room. Gift certificates paid by the designated parties to customers are not subject to value-added tax, and thus, they cannot be subject to input tax deduction, and gift certificates cannot be deemed as incentives under Article 13(3) of the Value-Added Tax Act. The Sound Records, Video Products and Game Products Act forces a game room business operator to pay 95% of the input amount of the game room to customers as gift certificates, and accordingly, the designated parties paid gift certificates to the customers of the game room of this case. Thus, in calculating the tax base of value-added tax, the amount of gift certificates paid by the designated parties to the customers of the game room of this case should be deducted, and thus, the disposition of this case is unlawful by calculating the tax base without deducting it.

(2) In addition, the Defendant determined the instant tax base on the premise that the designated parties purchased gift certificates of 525,000 during the taxable period of value-added tax for the first quarter of year of 2006 on the sole basis of the gift certificates sales status data reported by the Korea Game Industry Development Institute (hereinafter “Korea Game Industry Development Institute”) from gift certificates issuers (hereinafter “the sales status data”). The designated parties purchased gift certificates of 34,500 gift certificates from ○○, Inc., Ltd. (hereinafter “OB”), during the taxable period of value-added tax for the first quarter of year of 2006. Thus, the instant disposition is unlawful.

(3) The instant disposition that imposes a joint payment obligation on the total value-added tax for the first period of January 2006 on the designated parties, since the designated parties run the game of this case with the remaining designated parties only until April 9, 2006, and thereafter did not have a position as a partner.

(b) Related statutes;

Article 1 (Taxable Objects)

Article 13 (Tax Base of Value-Added Tax Act)

C. Determination

(1) Determination on the assertion on the method of calculating the tax base

Article 1 (1) 1 of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006; hereinafter the same) provides that "services are subject to value-added tax" in Article 1 (3) of the former Value-Added Tax Act means all services and other acts which have property value other than goods. Article 13 (1) of the Act provides that the tax base of value-added tax for the supply of goods or services shall be the total value under each of the following subparagraphs if money is paid. On the other hand, Article 13 (3) provides that "value-added tax for the supply of goods or services" shall not be deducted from the tax base after the provision of goods or services. Since the Republic of Korea's value-added tax which adopts the pre-stage tax credit method is a transaction belt that is imposed on the external game use of merchandise coupons, unlike income tax and corporate tax, and thus, it is difficult for the game service provider to easily provide the amount of gift certificates or merchandise coupons to be paid to the game service provider as a certain amount of money or merchandise.

(2) Determination as to the assertion on the quantity of merchandise coupons purchased

In principle, the tax base and amount of value-added tax shall be determined by the actual amount revealed by the method of the on-site investigation, and in order to determine it by the method of the on-site investigation, it shall be exceptionally permitted only when there is no taxpayer’s account books or documentary evidence, etc. or when there is no other method to disclose the actual amount in question without credibility because the important part is insufficient or false (see, e.g., Supreme Court Decision 98Du915, Oct. 8, 199). If such estimated taxation is conducted, and if reasonable and reasonable to reflect the actual amount near the truth in the method and content of the estimation in accordance with each subparagraph of Article 69(1) of the Enforcement Decree of the Value-Added Tax Act, it is legitimate (see, e.g., Supreme Court Decision 94Nu15202, Jul. 30, 196).

In light of the following facts: (a) the Plaintiff’s ○○○○○○○ 1, 2, and 7, and (b) the Plaintiff’s 1, 8, and 10-1, respectively, were installed in the instant game room on the 130th floor and 30-year basis; (c) the average winning rate of the games installed on the 2nd floor is 95%; (d) the current sales situation of the instant game tickets (hereinafter “○○ 5”) was 6,000,000,000 won for each of the 1,000-6,000-6,0000,0000,0000-7,0000,0000-7,000,000-7,000,000-7,000-7,000,000-7,000,000-7,000-7,000).

(3) Determination as to the assertion on the renunciation of a partnership relationship

In full view of the purport of the argument in Eul evidence No. 6, the game of this case was operated from March 21, 2006 to May 2, 2007, the game of this case was operated from March 21, 2006 to May 2. 2, 2007. The Appointer's joint business operator's quantity was the defendant on July 2, 2007, when investigating the game of this case's game of this case's game of this case's game of this case's game of this case's game of this case's game of this case's game of this case's game of this case's No. 8 to 12, it is not sufficient to view that the Selection's quantity was "one person among joint business operators operated like the remaining Appointer's game of this case's game of this case's game of this case's game of this case's game of this case's game of this case's game of this case's game of this case's of this case's of this case's opening.

3. Conclusion

Therefore, the plaintiff's assertion is dismissed as it is without merit. It is so decided as per Disposition.