[1] In a series of transactions, the principle of trust and good faith, which limits the exporter's input tax deduction and refund at the last stage in a malicious gold bullion transaction with an intent to evade the output tax amount, and whether the principle of trust and good faith likewise applies to an entrepreneur who deducts and refunds the input tax amount without the burden of the output tax amount by sales at the domestic zero tax rate based on a purchase confirmation (affirmative

[2] In a case where the tax authority imposed value-added tax on Gap corporation, and the details include not only the deduction and refund of the input tax, which is the result of applying the zero tax rate based on the export or purchase confirmation, but also the rejection of the deduction and refund of the input tax related to the domestic tax transaction, after examining the details of imposition of value-added tax, the case holding that the court below erred in the misapprehension of legal principles in holding that Gap corporation's assertion of deduction and refund of the input tax amount related to the deduction and refund of the input tax amount related to the domestic transaction based on the export transaction or purchase confirmation, was unlawful without examining whether the imposition of value-added tax is contrary to the principle of good faith, although Gap's assertion of deduction and refund of the input tax amount related to the domestic transaction based on the export transaction or

[1] In a series of consecutive transactions, where an exporter in bad faith fails to pay the value-added tax collected by his/her attempting to make abnormal transactions that are likely to cause losses only by a method of evading the value-added tax from the beginning and not evading the value-added tax (hereinafter “illegal transactions”), the State is bound to pay the input tax amount with other tax revenue inevitably if the exporter is entitled to deduct or refund the input tax amount without bearing the input tax amount as a result of applying the zero-rate tax rate, such as the exporter. However, such a result constitutes an active outflow of the National Treasury beyond the passive gap in tax revenue, and thus, the damage to the value-added tax system itself and the overall tax system may not be affected by the transfer of the burden to the general public. Thus, it would be difficult to view that an exporter in bad faith is not aware of the existence of the duty to deduct or refund the input tax amount, and thus, such legal doctrine is unreasonable in light of the principle of good faith and good faith between the exporter and the exporter in bad faith, and thus, it cannot be seen that there is considerable reason to deny the aforementioned legal relationship between the exporter’s.

[2] In a case where the tax authority imposed value-added tax on Gap corporation, and the details include not only the deduction and refund of the input tax, which is the result of applying the zero-rate tax rate to the domestic transaction based on the export or purchase confirmation, but also the rejection of the deduction and refund of the input tax related to the domestic tax transaction, after examining the details of imposition of value-added tax, the court held that the judgment below erred by misapprehending the legal principles in holding that the imposition of value-added tax was unlawful, without examining such deliberation and determination, on the part of the input tax deduction and refund related to the domestic transaction based on the export transaction or purchase confirmation, after distinguishing the input tax deduction and refund, which is the result of applying the zero-rate tax rate to the domestic transaction based on the export transaction or purchase confirmation, and on the part of the input tax deduction and refund related to the domestic transaction based on the export transaction or purchase confirmation, Gap corporation should have sufficiently deliberated on the fact that its input tax deduction and refund would bring about different tax amounts

[1] Articles 1, 3(1), and 15 of the former Framework Act on National Taxes (Amended by Act No. 911, Jan. 1, 2010); Articles 15 and 17(1) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010); / [2] Articles 1, 3(1), and 15 of the former Framework Act on National Taxes (Amended by Act No. 9911, Jan. 1, 2010); Articles 15 and 17(1) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010)

[1] Supreme Court en banc Decision 94Nu1449 Decided December 21, 1995 (Gong1996Sang, 283) Supreme Court en banc Decision 2009Du13474 Decided January 20, 201 (Gong2011Sang, 454)

Plaintiff (Law Firm Rate, Attorneys So-young et al., Counsel for the plaintiff-appellant)

Sejong Tax Office (Government Law Firm Corporation, Attorneys Gu Chungcheongnam-gu et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2009Nu24506 decided April 8, 2010

The part of the judgment of the court below concerning the imposition of value-added tax except for the negligence of entry in the tax invoice, tax invoice processing, invoice processing, non-issuance, and the submission of the aggregate tax invoice list shall be reversed, and the case shall be remanded to the Seoul High

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

1. As to the fact that the instant tax invoice is a false tax invoice

The judgment of the first instance, as cited by the court below, acknowledged the facts as stated in its reasoning after compiling the evidence of the employment, and determined that the Plaintiff did not constitute a “unlawful tax invoice” written differently from the supplier on the invoice and the actual supplier, and that the Plaintiff’s tax invoice received from the non-party corporation and the non-party corporation and the non-party corporation for purchasing gold bullion amounting to KRW 335,252,004,000 (hereinafter “instant tax invoice”), from January 1, 2003 to December 31, 2004.

The ground of appeal on this part is erroneous in the judgment of the court below, but it is merely erroneous in the selection of evidence or fact-finding which belongs to the exclusive jurisdiction of the court below, which is a fact-finding court, and the ground of appeal on the purport that the tax invoice of this case is a tax invoice different from the fact-finding, is merely a ground of appeal raised in the final appeal, and it

2. On the ground that unfair input tax deduction and refund claim are contrary to the principle of good faith

A. Article 15 of the former Framework Act on National Taxes (amended by Act No. 911, Jan. 1, 2010; hereinafter “Framework Act on National Taxes”) declares that the principle of trust and good faith is also applicable to the field of tax law by stipulating that “A taxpayer shall perform his/her duty in good faith when he/she performs his/her duty. This shall also apply to a tax official performing his/her duty.” This principle is natural that such principle may also be applicable to legal relations concerning value-added tax (Article 1 and Article 3(1) main text of the Framework Act on National Taxes).

Article 15 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010) provides that when an entrepreneur supplies goods or services, the value-added tax on the value of the supply thereof shall be collected from the person who receives the supply thereof. Article 17(1) of the same Act provides that the value-added tax to be paid by an entrepreneur shall be the amount obtained by deducting the input tax amount from the output tax amount, and that the input tax amount in excess of the output tax amount shall be refundable. This also adopts the so-called “pre-stage tax credit” system by stipulating that the entrepreneur who supplies the goods or services shall collect the output tax amount from the entrepreneur who receives the supply at each transaction stage up to the final consumer, and the entrepreneur who collects the tax amount shall, in turn, pay the tax amount to the final consumer in turn through the process of deducting the input tax amount from the input tax amount, and ultimately imposes it on the final consumer (see, e.g., Supreme Court Decision 9Da3984, Nov. 12, 1999).

Therefore, in a series of continuous transactions, where a malicious entrepreneur has attempted to evade value-added tax from the beginning to the end, and does not pay the value-added tax collected by him by attempting to make abnormal transactions that are likely to cause losses (hereinafter “illegal transactions”) only through the method of evading value-added tax, the country is bound to make a refund of the input tax without the burden of the output tax amount, such as the exporter at the next transaction stage, if an entrepreneur is entitled to deduct or refund the input tax amount without the burden of the output tax amount due to the application of zero-rate tax rate, such as the exporter at the next transaction stage. However, such a result exceeds the passive gap of tax revenue and constitutes the divulgence of the active national treasury, thereby causing serious harm to the overall tax system.

Of course, even if there are the above reasons, if an exporter is in a situation in which the existence of an illegal transaction is unknown, he/she may not, in principle, deny that the exporter is entitled to deduct or refund an input tax amount under the conditions as prescribed by the Value-Added Tax Act. However, if the exporter was aware of the existence of an illegal transaction at the pre-stage stage, he/she had engaged in a transaction in order to promote his/her own interest without vagabonds, and his/her transaction profit is attributable to the aforementioned illegal transaction, and his/her participation in the transaction is ultimately a critical factor that makes it possible to make an illegal transaction ultimately by securing the market of the illegal transaction, it shall be deemed an act of pursuing unjust profits by abusing the input tax deduction and refund system, which is a premise. Accordingly, even if such an exporter receives a tax revenue as other tax revenue, making the exporter’s deduction and refund of the input tax amount out of the illegal transaction as well as preventing any serious harm to the general tax system as seen above.

Therefore, it is difficult for an exporter to seek the deduction and refund of an input tax amount in such a case, which is contrary to the good faith principle as stipulated in Article 15 of the Framework Act on National Taxes, and thus, it is not permissible as it is not permissible. Furthermore, in light of the fair perspective, the importance of the outcome, and universal justice sense, if an exporter was unaware of such an illegal transaction due to gross negligence, it shall be deemed that the same applies to a case where an exporter was unaware of such illegal transaction due to gross negligence, i.e., the relationship with a malicious business operator, even though he could sufficiently have known of such fact, and even if he did not know of such fact, he did not know of such fact, it shall not be limited to a case where there was a specific competitive or co-offender relationship with a malicious business operator who was engaged in illegal transactions with the exporter. In such a case, the above legal doctrine is likewise applicable to a case where an exporter who was subject to a malicious business operator’s deduction and refund of an input tax amount by obtaining the deduction and refund of an input tax amount from the exporter.

B. Meanwhile, in light of the fact that a malicious entrepreneur and an exporter in bad faith are not only an essential factor in a series of variable gold bullion transactions, but also an intentional factor between the exporter and malicious entrepreneur, even if their input tax deduction is recognized, the difference between the output tax amount and the input tax amount is paid to the State, so it would not cause direct loss to the National Treasury. Moreover, it would be sufficient to restrict the exporter’s tax deduction and refund at the final stage to maintain the foundation of the pre-stage tax credit system, and further, denying the tax deduction and refund of the input tax amount by the State would result in the result of unfair profit-making by the State, the above principle of good faith is applicable only to cases where the input tax amount is deducted and refunded through the application of zero-rate tax rates for exports, and it is not applicable to the deduction and refund of the input

C. Examining these legal principles in light of the records of this case, the pertinent disposition imposing the value-added tax includes not only the deduction and refund of the input tax amount as a result of applying the zero-rate tax rate to the sales through the export or purchase certificate of gold bullion, but also the rejection of the deduction and refund of the input tax amount related to the domestic tax transaction. Thus, if the Plaintiff, who sold gold bullion through the export or purchase certificate of gold bullion, was a malicious business operator who makes an illegal transaction for the purpose of evading the output tax amount, and thereby, sought the deduction and refund of the input tax amount even though he knew of the circumstances that the deduction and refund of the input tax amount to the Plaintiff would cause a decrease of other tax revenues through the previous transaction process, the Plaintiff, who was involved in an illegal transaction by a malicious business operator, abused the input tax deduction and refund system, would not only gain a part of the input tax amount evaded by a malicious business operator, but also undermine the basis of the system and overall tax justice under Article 15 of the Framework Act on National Taxes.

Therefore, the lower court should have deliberated on the details of the disposition imposing the value-added tax in this case, divided the input tax deduction and refund as a result of applying the zero-rate tax rate to the domestic transaction through the export transaction or the purchase confirmation, and determined whether the Plaintiff knew or was unaware of the aforementioned circumstances in the course of the instant gold bullion transaction in accordance with the legal doctrine as seen earlier, and should have sufficiently deliberated on whether the Plaintiff’s assertion on deduction and refund of the Plaintiff’s input tax amount violates the principle of good faith.

D. Nevertheless, the court below held that the Defendant’s claim for deduction and refund of the Plaintiff’s input tax amount should be allowed solely on the ground that the instant tax invoice does not constitute a false tax invoice without deliberation and determination, and thus, the Defendant’s disposition of imposition of the value-added tax (including the penalty tax for unfaithful return and the penalty tax for unfaithful payment, but excluding the penalty tax for failing to submit a tax invoice, a tax invoice processing, invoice issuance, and a list of total tax invoices) was unlawful. Thus, the court below erred by misapprehending the legal principles on the principle of good faith under Article 15 of the Framework Act on National Taxes, thereby failing to exhaust all necessary deliberations, which affected the conclusion of the judgment. The

3. Conclusion

Therefore, the part of the judgment of the court below regarding the imposition of value-added tax except for the incomplete entries in the tax invoice, the processing, issuance of tax invoices, non-issuance of the aggregate tax invoices, and the submission of the aggregate tax invoices shall be reversed, and this part of the case shall be remanded to the court below for a new trial and determination, and the remainder of the appeal shall be dismissed. It

Justices Park Si-hwan (Presiding Justice)