propriety of a disposition denying the zero tax rate under a written purchase approval

It is reasonable to see that gold bullion is not exported at the time of transaction. Thus, a disposition denying the application of zero tax rate under a purchase approval is legitimate.

Article 11 (Application of Value-Added Tax Act)

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance shall be revoked, and the imposition of value-added tax of KRW 2,515,145,500 against the plaintiff on March 17, 2002 by the defendant shall be revoked.

1. Details of the instant disposition

A. The plaintiff is a corporation established on July 5, 199 for the purpose of wholesale, retail, and export and import of precious metals and yeast.

B. From November 2, 2001 to December 28, 2001, the Plaintiff sold gold bullion 1,620 km (hereinafter “the gold bullion of this case”) to ○○ Commercial Co., Ltd. (hereinafter “○○ Commercial”) for KRW 19,306,732,450 (hereinafter “the transaction of this case”) and received a written approval for purchase of raw materials (goods) from the head of foreign exchange bank from ○ Commercial Co., Ltd. (hereinafter “the purchase approval of this case”) for foreign exchange earnings, the Plaintiff applied the zero-rate tax rate to the supply of the gold bullion of this case and did not collect the amount equivalent to the value-added tax from the Defendant. The Plaintiff sold the sales amount equivalent to the zero-rate tax rate for the second period of 201 by selling the gold bullion of this case to the Defendant.

C. However, the Defendant denied the application of zero tax rate under the Value-Added Tax Act on the instant transaction on the grounds that there is a serious defect in the procedure for issuing the written approval for purchase of the instant case and that ○○ company did not actually export the gold bullion purchased by ○○ company. On March 17, 2002, the Defendant corrected and notified KRW 2,515,145,500 for the second period of value-added tax on March 17, 2002 (hereinafter “instant disposition”).

D. The Plaintiff appealed against the Defendant on June 12, 2001, but was dismissed on July 22, 2002. The Plaintiff filed a request for examination with the Commissioner of the National Tax Service on October 17, 2002, but received a decision of dismissal on April 22, 2005.

[Reasons for Recognition] Evidence Nos. 1 through 3, Evidence Nos. 1 to 1-3, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) Plaintiff

The Plaintiff’s sales of gold bullion at zero tax rate to ○○ Company based on the letter of approval for purchase issued lawfully by the head of the foreign exchange bank, and was unaware of what defects were found in the procedure for issuing the letter of approval for purchase or whether the supplied gold bullion was actually exported. Thus, the disposition of this case is unlawful.

(2) Defendant

Although the Plaintiff knew that there was a significant defect in the process of issuing the letter of approval for purchase of the instant gold bullion at the time of selling the instant gold bullion, the Plaintiff traded the instant gold bullion with the purchaser to evade the value-added tax, or at least there was a significant defect in the process of issuing the letter of approval for purchase of the instant gold bullion. Since the gold bullion sold to ○○

(b) Related statutes;

○ Application of Article 11 of the Value-Added Tax Act

(1) zero tax rates shall apply to the supply of goods or services falling under any of the following subparagraphs:

1. Exported goods;

Article 24 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 17460 of Dec. 31, 2001) Scope of export

(2) The exported goods under Article 11 (1) 1 of the Act shall be deemed to include the following goods:

1. Goods supplied by a businessman by means of a local letter of credit or a written confirmation of purchase;

Article 9-2 of the former Enforcement Rule of the Value-Added Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 258 of April 12, 2002) Scope of local letters of credit, etc.

(2) A written approval for purchase under Article 24 (2) 1 of the Decree and Article 26 (1) 2-2 of the Decree means an approval issued by the head of a foreign exchange bank within 20 days after the end of the taxable period in which goods or services are supplied in accordance with a local letter of credit under paragraph (1).

Article 4-2-7 of the former Foreign Trade Management Regulations (amended by the Ministry of Commerce, Industry and Energy No. 2003-15 of Feb. 6, 2003) (amended by the Public Notice of the Ministry of Commerce, Industry and Energy)

(1) The head of a foreign exchange bank may issue a written confirmation of purchase pursuant to any of the following subparagraphs:

1. A letter of credit for export; 2. An export contract; 3. Foreign currency purchase (deposit); 4. Local letter of credit; 5. purchase confirmation; 6. Documents proving that goods, etc. provided for foreign exchange earnings under the subparagraphs of Article 34 of the Decree are cases of production;

(2) A person who intends to obtain a written confirmation of purchase shall submit three copies of an application for confirmation of purchase of raw materials (goods) for foreign exchange earnings in attached Form 4-2 to the head of the foreign exchange bank, along with the following documents:

1. One copy of a document falling under any subparagraph of paragraph (1);

2. A contract for supply of goods or a certificate of sale of goods for foreign exchange earnings;

(3) The head of a foreign exchange bank may issue a secondary purchase confirmation with the purchase confirmation issued pursuant to the provisions of paragraph (1), and may issue it in sequence in each stage, if the process of manufacturing, processing, and distributing (including the distribution of finished products) raw materials or goods for foreign exchange earnings is several stages.

Article 9 of the Act on Special Cases concerning the Refund of Customs Duties, etc. Levied on Raw Materials for Export

(1) When goods are offered for export, etc., the head of a customs office shall refund customs duties, etc. levied on raw materials for export of the relevant imported goods within two years retroactively from the date

(2) If the raw materials for export are traded by local letter of credit, etc. and the transaction thereof is made within the period as determined by the Presidential Decree from the date of transaction by the local letter of credit, etc. immediately preceding (if there is no transaction by the local letter of credit, etc. immediately preceding), the period from the date of import of the raw materials for export until the date of last transaction by the local letter of credit, etc. shall not be included in the period as referred to in paragraph

Article 10 of the Enforcement Decree of the Act on Special Cases concerning the Refund of Customs Duties, etc. Levied on Raw Materials for Export;

(1) "Period prescribed by Presidential Decree" in Article 9 (2) of the Act means one year.

(2) The head of a customs office may issue a document certifying the amount of customs duties, etc. on the goods transacted in an import (referring to purchase in the course of transactions under a local letter of credit, etc.)

(3) Any person who intends to have a document attesting the amount of customs duties, etc. payable under paragraph (2) issued shall file an application stating the following matters with the head of the competent customs office:

1. Transferor and transferee;

2. Transfer date;

3. The name and specification of the goods;

4. The quantity and tax amount to be transferred.

5. Other matters necessary for the certification of the tax amount payable, as determined by the Commissioner of the Customs Service.

○ Definition of Article 1-1-2 of the Public Notice on the Handling of Refund Affairs, such as Customs Duties, etc. on Raw Materials for Export

The definitions of terms used in this Notice shall be as follows:

1. The term "certificate of average amount of tax" means a document certifying the average amount of tax per unit of raw materials for export (hereinafter referred to as "certificate of average amount of tax") by dividing the aggregate of duties, etc. of raw materials for export imported each month by the item number (K 10 units) of the raw materials for export;

2. The term "certificate of tax payment on basic raw materials" means a document attesting the payable amount of the raw materials for export supplied by the local letter of credit, etc. (hereinafter referred to as "certificate of tax payment");

3. The term "division certificate" means a certificate of import declaration, certificate of ordinary duties, or certificate of payment by installments (hereinafter referred to as "certificate") in order to certify the amount of tax payable on the goods imported or purchased in the original condition;

Article 4-3-1 of the Notice on the Handling of Refund Affairs, such as Customs Duties, etc. on Raw Materials for Export, shall be issued

Cases where a certificate may be issued pursuant to Article 10 (2) of the Decree shall be as follows:

1. Where raw materials are transferred in the state of import or purchase of raw materials to an exporter or a producer of export goods or a person who produces interim raw materials to be used in producing export goods;

2. Where all or part of the goods, the Pyeongtaek certificate of which has been issued pursuant to the provisions of Article 4-1-2, are transferred as referred to in subparagraph 1 without manufacturing and processing them;

3. Where a person who has acquired raw materials provided for in Article 4-2-1 (1) transfers them as provided for in subparagraph 1 in the status of purchase;

C. Determination

(1) Facts of recognition

(A) At the time of the Plaintiff’s transaction, New ○○○, a representative director, was operating a precious metal shop with the trade name of ○○○○○○○○ Dong around 1993, and closed down its operation for a period of one year after establishing Seoul High School and ○○○○○○○○○○ Corporation engaged in precious metal wholesale and export business on July 16, 1998. On July 5, 199, the Plaintiff was established and appointed as the representative director, and resigned on October 16, 2002. On the receipt of the same type of business as the representative director on January 22, 2002, the Plaintiff was found to have been engaged in the transaction for a long time on the grounds of its failure to perform an investigation into the distribution order of the Plaintiff from January 20 to June 200, the Plaintiff was aware of the fact that the Plaintiff had been operating the sales order of the gold bullion in the form of a new sales order of ○○○○ corporation after purchasing the gold bullion price.

Meanwhile, from around August 1998 to around 2003, the head of new ○○○ and the Plaintiff’s business division who led the instant transaction. From around March 1999, ○○○ was working for the Plaintiff’s business division, ○○○ was an introduction by ○○○, Inc. (hereinafter “○○ trade”). The current ○○○ appears to have been a representative director under the name of ○○ trade and was registered as ○○○○○’s first representative director and was registered as ○○’s representative director. In light of the fact that ○○ was registered as ○○’s first representative director, it seems to have a close relationship with ○○○’s former representative director, and then, from around July 199 to the first day of 200, ○○○○ was serving for a long time at the Plaintiff’s major company operated by ○○○, such as working at ○○○○, and the Defendant was punished by imprisonment with prison labor at the Seoul District Court until the end of September 26, 2000.

(B) The ○○○○○, the representative director of the ○○○○○○ Company, completed the business registration of precious metal manufacturing, wholesale business, etc. on May 17, 200, but did not engage in any business activities until the first quarter of October 30, 2001. From October 30, 2001 to December 28, 2001, it purchased gold bullion equivalent to KRW 42,797,061,915, including the instant gold bullion, at zero-rate tax rate, and did not export it, and distributed gold bullion amounting to KRW 41,017,476,850 in total, without exporting it, and then distributed gold bullion amounting to KRW 4,101,327,685 in the process, and did not evade the value-added tax of KRW 4,101,327,685 in its place of business on January 25, 2002.

(C) The letter of approval for purchase of this case presented by ○○○ Company to the Plaintiff while purchasing the gold bullion of this case was issued to 3,600 km above the total weight of 3,000 km under the export contract. Under the export contract, ○○○ Company of Hong Kong, the opposite contractual party, has to deposit 1,50,000 US$30,000 out of the total purchase amount of 30,000,000 into the ○○ commercial account, but there has not been such deposit. The supply period under the export contract stated that the export contract is from January 10, 201 to March 10, 202 and it is impossible to load 1,00 km or more at the same time, but the date of shipment under the letter of approval for purchase is written as March 10, 201.

In comparison with the letter of contract for sale of goods and the letter of contract for purchase presented by ○○○ Company at the time of the instant transaction, ○○ Company did not add his own profit to the Plaintiff, but stated that the price purchased gold bullion from the Plaintiff is exported abroad as it is. The Plaintiff and ○○ Company repeated the transaction of zero-rate gold bullion at 37 times between November 2, 2001 and December 28, 2001 based on the export contract with the date of shipment on March 10, 2002.

During the instant transaction process, ○○○ Company paid gold bullion payments to the Plaintiff using the Internet remittance, and the gold bullion goods were transported from the Plaintiff’s place of business via ○○ Korea Co., Ltd. on the same day to the Plaintiff’s place of business.

(D) The total value of supply indicated in the aggregate tax invoice for each seller of value-added tax for the second period of 2001, which the Plaintiff reported is KRW 21,597,660,743, among which the supply value of zero-rate tax arising from a transaction with ○○ Company accounts for 89.39% and the supply value of value-added tax imposed due to a transaction with 102 companies is 2,290,928,293 won and is 10.61%.

(E) The Plaintiff purchased gold bullion from ○○ Heavy Co., Ltd., ○○, ○○ Trade Co., Ltd., ○○, and ○○ Trade Co., Ltd. in 2001 at a price including 3% of customs duties, and received from the seller a certificate of subdivision necessary for the refund of customs duties. However, the Plaintiff did not issue a certificate of subdivision necessary for the refund of customs duties to the ○○ Co., Ltd., who traded zero-rate tariff.

[Basis] Evidence Nos. 4, 5, 9, 10, 12 (including various numbers), Eul evidence Nos. 1-3, 3-2, 5-5-1, 6, and 7-1, 2, 5, 10-1, 3, 4, 11, 12, 16-2, 4, 5, 6, 17, 18-1 through 5, and the purport of the whole pleadings

(2) Determination

(A) According to Article 11(1)1 of the Value-Added Tax Act and Article 24(2)1 of the former Enforcement Decree of the Value-Added Tax Act, the exported goods shall apply the zero-rate tax rate, and even if an entrepreneur supplies goods through a local letter of credit or a letter of approval for purchase as determined by the Ordinance of the Ministry of Finance and Economy, the zero-rate tax rate shall apply to such exported goods. Article 9-2(2) of the former Enforcement Rule of the Value-Added Tax Act provides that the head of a foreign exchange bank shall issue a letter of approval within the taxable period to which

However, under the value-added tax system, the application of zero-rate tax rate is recognized only for exports in order to prevent double taxation, and is equivalent to the above exports for domestic consumption, only in cases where the application of zero-rate tax is consistent with the national policy purpose of encouraging foreign exchange earnings to the extent that it does not impair foreign exchange management and the order of collection of value-added tax (see, e.g., Supreme Court Decision 83Nu409, Dec. 27, 1983).

In light of the above purport of applying the zero-rate tax rate and relevant statutes, where (1) a supplier of goods sells goods by applying the zero-rate tax rate with the knowledge of the defect in obtaining a false purchase approval or issuing a purchase approval with the knowledge of the defect in obtaining a false purchase approval, and (2) a buyer’s use of a purchase approval under the intention to evade taxes by selling them in Korea not for the purpose of export is hard in light of transaction practices, and where a supplier of goods fully aware of such fact applies the zero-rate tax based on a lawful purchase approval presented by the buyer, it would undermine the order of collection of value-added tax

(B) In full view of the facts acknowledged earlier, the following circumstances may be inferred, and in light of this, even if the Plaintiff conspireds to evade ○○ Commercial Code and did not engage in the instant transaction, it appears that the Plaintiff engaged in the instant transaction with the knowledge that there was at least a significant defect in the process of issuing the instant purchase approval.

① The Plaintiff’s representative director, ○○○, and ○○○, who had been engaged in the instant transaction through ○○ and the Plaintiff, are now aware of the illegal distribution process of domestic transactions for the purpose of evading value-added tax. Moreover, ○○ is directly involved in the instant transaction through ○ trade, and ○○ appears to have been directly and indirectly related to ○○○ is also directly and indirectly related to ○○’s illegal transaction.

(2) The ○○ commercial company purchases at the zero tax rate on a short-term basis, and distributes it illegally in Korea without exporting it, thereby evading or concealing a large amount of value-added tax in the process.

③ Since ○○○ Company purchased 3% of the 3% customs duties at the price included in the 3% customs duties from the Plaintiff, it was sufficiently known that the Plaintiff would face the situation of exporting 2% or 2.5% of the 2% customs duties if the Plaintiff did not receive a divisional certificate from the Plaintiff, but the Plaintiff did not issue a divisional certificate to the ○○ Company, which appears to be due to the Plaintiff’s well-known knowledge that the transaction in the instant case would not be exported to the ○ Company, but be distributed in Korea.

④ In light of the empirical rule, it is extremely exceptional to believe that the subject of the instant transaction is currently the subject of the transaction, and the scale of the transaction is large enough, and thus, only the letter of approval for purchase, which sufficiently knows that there is a defect with ○○ commercial company having no particular perception about the transaction or any other defect prior to the transaction, is conducting a large amount of transaction without confirming the other matters.

5. The fact that there is no reasonable ground to purchase the present through transactions with the Plaintiff, who is an intermediary wholesaler taking expenses, even though the currently purchasing company can purchase the present from the currently supplying company directly.

D. Sub-committee

Therefore, since the instant transaction is not subject to zero tax rate, the instant disposition is lawful.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be dismissed due to the ground for rejection, and the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.

* Note *

1) Divided certificate means the head of customs office to refund customs duties on raw materials imported or purchased under Article 9(1) of the Act on Special Cases Concerning the Refund of Customs Duties, etc. Levied on Raw Materials for Export (hereinafter “Special Act”), Article 10(2) and (3) of the former Enforcement Decree of the Special Act on Special Cases, and Article 4-3-1 of the Public Notice on the Handling of Refund Affairs, such as Customs Duties, etc. Levied on Raw Materials for Export.