Appellate Court 2012 Heavy0588 ( October 31, 2012)

Methods of calculating common input tax amount for non-taxable business under the Value-Added Tax Act

Since the contribution of this case is not the price for the provision of services under the above non-taxable business, it cannot be viewed as the supply price of non-taxable business.

Article 81 of the Enforcement Decree of the Value-Added Tax Act

2012 disposition of revocation of the imposition of value-added tax

Korea Gas Safety Corporation

2.The director of Seodaemun Tax Office; 3.Seomun Tax Office

4. The head of the Dongjak Tax Office; 5.Jail Tax Office;

7.8.The Director of the Tax Office 9.Bocheon Tax Office.

11.Chuncheon Tax Office 12.Gang Tax Office

13.The Head of Seo-gu Daejeon District Tax Office 14.15.Cheongju Tax Office

16.Tropher Tax Director 17.Wropher Tax Director

19.The Director of the Jeonju Tax Office 20.Tgu Tax Office 21.Woog Tax Office

22.The Director of the tax office 23.Regradit Tax Office 24.Regrad Tax Office

25.The Director of the Changwon Tax Office 26.Sule Director

28.Director of Jeju Tax Office

September 12, 2013

November 14, 2013

1. The imposition of the value-added tax, in addition to the value-added tax imposed by the Defendants, shall be revoked.

2. The costs of lawsuit are assessed against the Defendants.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff is a nonprofit corporation established for the purpose of protecting the lives and property of citizens by preventing hazards caused by gas and systematically promoting gas safety technology development and gas safety control.

B. The Plaintiff is receiving annual contributions to the expenditure budget exceeding the revenue budget for the purpose of preserving project costs and operating expenses from the government pursuant to Article 29(2) of the High-Pressure Gas Safety Control Act. The details of the Plaintiff’s taxation, tax exemption income and contributions from 2006 to 1, 201 (hereinafter “the instant contributions”) are as follows (unit:,00 won).

Taxation Period

Total

Business revenue amount

Contributions

Taxation

Tax Exemption

206

OOO

OOO

OOO

OOO

2007

OOO

OOO

OOO

OOO

208

OOO

OOO

OOO

OOO

209

OOO

OOO

OOO

OOO

2010

OOO

OOO

OOO

OOO

2011

OOO

OOO

OOO

OOO

2012

OOO

OOO

OOO

OOO

C. The Plaintiff calculated the input tax deduction amount by dividing the input tax amount by the supply value of taxable businesses and tax-free businesses (hereinafter “common input tax amount”) to the input tax amount, which is common to taxable businesses and tax-free businesses, excluding the instant contributions from the value-added tax base, and reported the input tax return amount from February 2, 2006 to January 201. The Plaintiff’s details of input tax return are as follows (unit: 1,000 won).

Total input tax amount

Mutual Aid input Tax Amount

Undeductible input Tax Amount

Related to taxable business

Common purchase tax amount (excess tax amount)

Common purchase tax amount (tax exemption portion)

Tax-Free Projects

OOO

OOO

OOO

OOO

OOO

D. On July 201, the director of the Central Regional Tax Office of Jungbu Regional Tax Office conducted a tax investigation with the Plaintiff, and notified the Defendants of the taxation data that the Plaintiff erroneously applied the method of calculating the common purchase tax amount at the time of the return of value-added tax from February 2, 2006 to January 2011 by failing to deduct the common purchase tax amount equivalent to the contribution of the instant case.

E. Accordingly, between October 4, 201 and October 17, 2011, the Defendants issued a notice of correction and notification of the total value-added tax amount of OOOO (including OOOO directors and OO directors for additional tax on negligent tax returns) to the Plaintiff (hereinafter “instant disposition”) from February 2006 to January 1, 201. The amount of non-deduction of the input tax amount calculated by the Defendants is as follows (unit: KRW 1,000).

The calculation of the input tax amount corresponding to the ○ contribution (the first proportional distribution)

Total input tax amount (1)

Tax-Free Business (Non-Deduction)(B)

Distribution of contributions, earnings (tax and tax exemption) projects;

Tax amount subject to proportional distribution (1-B)

Contribution-Related Corporation

Revenue(Tax & Tax Exemption) Business Related (No.4)

OOO

OOO

OOO

OOO

OOO

○ Calculation of the pro rata input tax related to the profit-making business (the second proportional distribution)

Purchase tax amount related to profit-making business (a)

Tax-related (Deduction)(b)

Methods of calculating common purchase tax related to profit-making business

Tax amount subject to pro rata distribution (a) and (b)

Taxation-Related (Deduction)

With respect to the duty-free business, the Republic of Korea or a foreign country

OOO

OOO

OOO

OOO

OOO

○ Amount of additional tax (excluding additional tax)

Undeductibled tax amount

- Undeductible reported tax amount

Additional Collection Tax Amount

Total Scope of the Act

Contribution-Related Corporation

Proportional distribution tax amount of profit-making business:

OOO

OOO

OOO

OOO

OOO

F. On December 30, 2011, the Plaintiff appealed and filed an appeal with the Tax Tribunal. On May 31, 2012, the Tax Tribunal rendered a decision that “The imposition of the value-added tax totaling the value-added tax on the Plaintiff from February 2, 2006 to January 1, 2011, the Defendant excluded the input tax amount that actually belongs to the taxable business from the common input tax amount subject to proportional distribution, thereby correcting the relevant tax base and tax amount, and dismissing the remainder of the claim.”

G. Accordingly, according to the decision of the Tax Tribunal, the Defendants considered the instant contributions as the Plaintiff’s supply price for the non-taxable business and calculated the input tax amount to be deducted in proportion to the supply price for the tax, tax exemption, and non-taxable business as listed below, and corrected the disposition imposing the said value-added tax by reducing the total amount of the value-added tax as the total amount of the value-added tax as OO

(unit:,000 won)

Total input tax amount

Mutual Aid input Tax Amount

Undeductible input Tax Amount

Related to taxable business

Common purchase tax amount (tax portion)

Common purchase tax amount (non-taxable portion)

Common purchase tax (tax exemption)

Tax-Free Projects

OOO

OOO

OOO

OOO

OOO

OOO

[Based on recognition] Each entry of Gap's No. 1 site No. 4 (including branch numbers; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The plaintiff asserts that the disposition of this case is unlawful for the following reasons.

1) The Plaintiff was an entrepreneur who operates both a taxable business and a tax-free business and did not engage in a separate non-taxable business, and even if the Plaintiff operated a non-taxable business, the instant contribution cannot be deemed to have a quid pro quo relationship with the non-taxable business. Therefore, in order to calculate the common input tax amount, Article 61(1) of the Enforcement Decree of the Value-Added Tax Act cannot be inferredly applied

2) Since non-taxation practices have been established with respect to the methods already reported by the Plaintiff, the instant disposition goes against the principle of trust protection.

3) Since the Plaintiff’s failure to report has justifiable grounds, the part on imposition of penalty tax in the instant disposition is unlawful.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Facts of recognition

1) As stipulated in Article 28(2) of the High-Pressure Gas Safety Control Act, Article 4 of the Plaintiff’s articles of incorporation provides that ① professional education and public relations projects for gas safety, ② research and development projects, ③ development and distribution of technology and machinery, ④ collection and provision of information and statistics, ④ voluntary inspection and inspection by other inspection institutions, ⑤ service projects, ② services entrusted by administrative agencies such as inspection, education, supervision of construction, inspection and evaluation, ④ international technical cooperation projects, ④ improvement projects for free installation of machinery and appliances, ② pilot projects, and ① certification projects are conducted.

2) Under the High-Pressure Gas Safety Control Act and the Act on Special Accounts for Energy and Energy, the Plaintiff received contributions from the Government each year in accordance with the method of securing revenues and expenditures. The method of securing revenues and expenditures refers to the method of compensating the remainder of annual revenues and expenditures less the institution’s own revenues and expenditures from the total budgets for each business year. In the case of a business year 2007, the Plaintiff received contributions from the Government by preparing a budget bill for the budget bill for the amount of expenditures from the Government (labor cost OO, OOOO, OOOO, OOO, OOO, OOO, sO, sO, sO, sO, sO, sO, sO, sO, sO, sO, sO, sO).

3) The Plaintiff’s class and expense details on the income statement for the business year 2007 settlement are as follows:

(unit: cost)

Revenue

OOO

Revenue

OOO

Technical Consulting Revenues

OOO

Revenues from research and development

OOO

Educational revenue

OOO

Incidental Revenues

OOO

Revenues from contributions

OOO

General Management Expenses

OOO

Operating Expenses for the ordinary road;

OOO

Labor Expenses

OOO

Project Costs

OOO

Project Costs

OOO

Technical instruction costs

OOO

Technical Consulting Project Costs

OOO

Project expenses for safety inspection

OOO

Expenses for research and development

OOO

Project costs for data computerization

OOO

Expenses for education

OOO

Promotional Project Costs

OOO

Business Profits

OOO

4) The Plaintiff gains self-generating through inspection (legal inspection of gas facilities and products), technical consulting (detailed diagnosis and performance certification of products at large plant plants), research and development (research services entrusted by policy tasks or external institutions), education (training, specialized education, and special education for workers in the gas industry). The income from inspection, technical consulting is taxable income, and the income from research and development, and education is exempt from taxation.

5) Meanwhile, the Plaintiff’s technical guidance (on-site inspection and technical guidance and confirmation for private inspection institutions), safety inspection (gas safety management and accident investigation and prevention activities of vulnerable groups), information computerization (website, various statisticalDB and computer network maintenance and repair), publicity (TV-radio and radio advertisement for inspiring people’s gas safety), and the details of the expenditure are as follows: (a) the technical guidance, safety inspection items are most general operating expenses; (b) the information computer-computer items consist of facility maintenance expenses and information network operation expenses; and (c) publicity items are most advertising and publicity expenses.

[Reasons for Recognition] Gap evidence Nos. 5, 6, and 7 Eul Nos. 1 and 5, the fact-finding results to the Minister of Trade, Industry and Energy, and the purport of the whole pleadings

D. Determination

1) Relevant legal principles

A) Methods for calculating common input tax under the Value-Added Tax Act

Article 17(1) and (2) of the former Value-Added Tax Act (amended by Act No. 11129, Dec. 31, 2011; hereinafter the same) provides that an input tax amount for the goods or services used or to be used for a taxable business shall be deducted from the output tax amount, but the input tax amount for the goods or services used or to be used for a taxable business shall not be deducted from the output tax amount. Therefore, where the same entrepreneur concurrently operates a taxable business and a tax-free business, only the input tax amount for the goods or services used or to be used for a taxable business shall be deducted from the output tax amount for a taxable business

Meanwhile, Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 23162, Sep. 29, 2011; hereinafter the same) provides for an input tax amount related to a taxable business, among input tax amounts (common input tax) related to a taxable business, which may be deducted from the output tax amount of the taxable business, and for which the tax amount which cannot be deducted from the output tax amount of the taxable business, is the input tax amount related to the taxable business, among input tax amounts (common input tax amount) where the same entrepreneur concurrently operates the taxable business and the tax-free business.

B) Method of calculating common input tax amount for non-taxable businesses under the Value-Added Tax Act

(1) The Value-Added Tax Act provides that "the supply of goods or services" is subject to taxation and imposes value-added tax on a business operator where the goods or services are supplied (Article 1(1) of the former Value-Added Tax Act); however, the supply of goods or services is subject to tax exemption under the Value-Added Tax Act, but the value-added tax is exempted (Article 12(1) of the former Value

(2) Meanwhile, although the Value-Added Tax Act does not directly provide for the non-taxable business, it is reasonable to view that the non-taxable business under the Value-Added Tax Act is a business that does not fall under the supply of goods or services under the Value-Added Tax Act, that is, that is, the business that does not fall under the supply of goods or services under the Value-Added Tax Act. Therefore, Article 7(3) of the former Value-Added Tax Act explicitly provides that the supply of services to others without receiving any consideration by a business operator does not constitute the supply of services (Article 7(3) of the former Value-Added Tax Act provides that the supply of services to others without receiving any consideration by a business operator is not a free supply of services provided by a business operator) or a value added tax in the concept of value-added tax, so it does not constitute a taxable object of value-added tax (e.g

(3) In the case of an entrepreneur concurrently operating the value-added tax taxable and the non-taxable business, the input tax amount for the goods and services used or to be used for the non-taxable business shall not be deducted from the output tax amount for the taxable business, and there is no dispute over it with the input tax amount related to the tax-free business, and it is reasonable to view that Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act on the method of calculating common input tax amount applies to the case where the same entrepreneur concurrently operates the value-added tax taxable and the non-taxable business (see, e.g.

2) In light of the aforementioned legal principles, comprehensively taking account of the following circumstances acknowledged by comprehensively taking account of the health team, the evidence as seen earlier, and the overall purport of the pleadings, the instant disposition that applied Article 61(1) of the Enforcement Decree of the Value-Added Tax Act with respect to the method of calculating common input tax amount on the premise that the instant contributions constitute the Plaintiff’s supply value

A) The Defendants asserted that only expenses incurred in the instant lawsuit did not accrue, i.e., technical guidance, safety inspection, information computerization, and promotional items are the provision of services to users free of charge, and there is no proof as to how to provide services to all the users. Rather, examining the detailed details of expenditure on the above items, technical guidance, safety inspection items are most general operating expenses, and information computerized items are composed of facility maintenance expenses, information network operation expenses, and promotion items are most of the advertisement expenses, and it is difficult to view them as separate projects. In addition, there is no data to objectively verify specific transaction details such as advertisement expenses, and there is no data to objectively verify the other party of the supply, supply contents, and time of supply. In particular, information computer items are related to the maintenance and repair of the website, various statisticsDB, and computer network, and promotion items are related to the advertisement of television, radio, radio, and newspapers, and thus merely are subject to input tax deduction under the Value-Added Tax Act as internal expenses, and it cannot be viewed as the supply of goods or services.

B) Even if the Plaintiff’s assertion, like the Defendants, runs non-taxable projects, such as technical instruction, safety inspection, information computerization, and public relations, the contributions of this case are ① contributions that are widely compensated for operating expenses throughout the Plaintiff’s overall operation in accordance with the method of securing revenues and expenditures, rather than contributions of a limited nature that can be used only for a specific project (the Plaintiff’s expenditure budget for the business year 2007, labor cost of the Plaintiff’s OOO, ordinary operating cost, retirement benefits reserve OO, bonus, etc.). The contributions of this case seems to have been paid mainly to compensate for labor cost. ② Accordingly, if the contributions of this case were not directly related to the above items’ non-taxable projects, the contributions of this case cannot be deemed to have been paid in proportion to the Plaintiff’s non-taxable project’s cost-free projects, ③ The contributions of this case cannot be deemed to have been paid in proportion to the Plaintiff’s non-taxable project’s cost-free project’s supply cost-free projects’s cost-free projects’s accounting cost-free projects’s funds.

3. Conclusion

The plaintiff's claim is justified and accepted.