[1] Whether the other party to whom a service is provided is a domestic corporation or a foreign corporation's domestic place of business is subject to the zero tax rate pursuant to Article 11 (1) 2 of the former Value-Added Tax Act (negative)

[2] The standard for determining whether the zero tax rate applies (=the place where the service is provided) and the place where the service is provided in a case where the important and essential part of a single service provided by a domestic corporation is performed domestically (=the place where the service is provided

[1] Article 11(1)2 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013) provides that the zero tax rate shall apply to the supply of “services”. In addition, “services provided overseas” is not whether the other party to the service is a domestic corporation or a foreign corporation, or a domestic place of business of a foreign corporation.

[2] Article 10(2)1 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013) sets the place where the service is supplied as “the place where the service is provided or the goods, facilities, or rights are used.” Thus, whether the zero-rate tax is applicable should be determined on the basis of the place where the service is provided. If the important and essential parts of a single service provided by a domestic corporation are performed overseas, the place where the service is provided should be deemed overseas even if the part of the service provided was performed domestically

[1] Article 11(1)2 (see current Article 22) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013) / [2] Article 10(2)1 (see current Article 20(1)1) and Article 11(1)2 (see current Article 22) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013)

[2] Supreme Court Decision 2004Du7528, 7535 decided June 16, 2006 (Gong2006Ha, 1375)

B&L Co., Ltd. (Attorneys Kim Su-soo et al., Counsel for the plaintiff-appellant-appellee)

Head of the District Tax Office

Seoul High Court Decision 2013Nu28444 decided May 28, 2014

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. As to the grounds of appeal Nos. 1 and 3

Article 11(1)2 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; hereinafter the same) provides that the zero tax rate shall apply to the supply of “services provided overseas.” In addition, “services provided overseas” does not prevent whether the other party to the service is a foreign corporation or a domestic place of business of a foreign corporation.

Therefore, even if the other party to whom the service was provided by the Plaintiff constitutes a domestic corporation or a foreign corporation exists in the Republic of Korea, the allegation in the grounds of appeal that there was an error of mistake of facts and misapprehension of legal principles in the judgment of the court below on the contrary cannot be accepted

2. Regarding ground of appeal No. 2

A. Article 10(2)1 of the former Value-Added Tax Act defines the place where the service is supplied as “the place where the service is provided or the goods, facilities, or rights are used.” Thus, whether the transaction is subject to zero-rate tax should be determined based on the place where the service is provided. In a case where the important and essential parts of a single service provided by a domestic corporation are performed overseas, even if a part of the service provided was performed domestically (see Supreme Court Decision 2004Du7528, 7535, Jun. 16, 2006, etc.).

B. The lower court determined that: (a) the Plaintiff’s business of purchasing and recovering overseas convertible bonds issued by Korean listed companies from Hong Kong Branch (hereinafter “CS”) in early 2009 from Lagilink Pted (hereinafter “LPL”) 200; (b) during that process, the Plaintiff, a domestic corporation, provided and arranged the acquisition of the CSS bonds to the Plaintiff on March 19, 2010, and received US$850,00 as consideration for the entire service; (c) the Plaintiff’s business of purchasing and arranging the acquisition of the CSS bonds from the Hong Kong Branch of the Hong Kong Bank; and (d) the Plaintiff’s business of offering the instant services to the Plaintiff on the premise that the payment was made on March 19, 2010, based on the fact that the payment for the instant services was made on the premise that it was made on the basis that the Plaintiff’s purchase and sale of the bonds was made on behalf of the Plaintiff’s representative director of the large-scale Investment Bank; and (d) the Nonparty’s business of the Plaintiff’s redemption terms and conditions.

The judgment of the court below is in accordance with the above provisions and legal principles, and there is no error in the misapprehension of legal principles as to the method of determining the place of supply in a case where multiple services are provided in a single service transaction.

3. As to the fourth ground for appeal

The court below determined that the disposition of this case was unlawful on the ground that the service of this case constitutes a foreign service subject to zero tax rate, and did not render any judgment as to whether the service constitutes a zero tax rate under Article 11 (1) 4 of the former Value-Added Tax Act, and therefore, it did not err in the misapprehension of legal principles as to interpretation of Article 11 (1) 4 of the former Value-Added Tax Act. The ground of appeal that the judgment of the court below erred in the misapprehension of legal principles as to interpretation

4. Conclusion

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

Justices Kim Yong-deok (Presiding Justice)