It is exclusively used for a duty-free business in the event that the officetel is used as a residence.

Where an officetel for business use is used as a residence, the input tax deduction shall be paid as the exclusive use for the tax-free business.

Article 12 of the Value-Added Tax Act

Suwon District Court 2015Guhap71274 Disposition revoking Value-Added Tax Imposition

AA

00. Head of tax office

October 20, 2016

November 24, 2016

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposing value-added tax of KRW 15,326,750 (including additional tax of KRW 5.846.151) on the Plaintiff on August 7, 2015 shall be revoked.

1. Details of the disposition;

A. The plaintiff on September 16, 2009 00 Do 00-10 Do 00 Do Do 00 Do Do 20 Do 20

No. 00 (hereinafter referred to as "officetel of this case") was sold in lots, and the registration of ownership transfer was completed on June 16, 201, and the above officetel was leased to Kim 00 in succession from May 4, 201 to May 3, 2012, and from May 31, 2012 to May 31, 2014.

B. Meanwhile, during the value-added tax period from the second to the first half of 2009, the Plaintiff reported the amount equivalent to 10% of the sales price of the instant officetel as an input tax amount and received a refund of KRW 11,013,850 in total on six occasions.

C. Since then, the Defendant: (a) determined on August 7, 2015, that “the Plaintiff reported the instant officetel as its business purpose and received a refund of value-added tax, but actually used it for a residential purpose; (b) imposed value-added tax of KRW 15,326,750 (including additional tax of KRW 5,846,151) on the Plaintiff (hereinafter “instant disposition”).

D. The Plaintiff appealed and filed a request for review on August 21, 2015, but the Board of Audit and Inspection rendered a decision to dismiss the Plaintiff’s request on November 4, 2015.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 3, 4, 5, 8, 9, Eul evidence Nos. 1, 2, 5, and 6, the purport of the whole pleadings

1) The Plaintiff stated the part seeking revocation of KRW 5,846,151 as the conjunctive claim on October 10, 2016 in the application form for the modification of the claim and the cause of the claim as stated in the preliminary claim. However, this cannot be deemed a legal preliminary claim because it is not compatible with the prior claim. Therefore, it is not treated as a separate preliminary claim.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) In light of the following, the instant disposition is unlawful as it did not satisfy the statutory requirements.

① The Plaintiff cannot be deemed to have diverted to a duty-free business unless he/she directly uses or consumes the instant officetel.

② Former 00, Kim 00 did not use the instant officetel for residential purposes.

③ In addition, the supply of goods or services under the Value-Added Tax Act ought to be determined depending on the lessor’s intent to supply them, so so long as the Plaintiff leased it for business purposes, it cannot be deemed that the above officetels has been diverted for tax-free business.

(2) On the other hand, the defendant did not properly reflect the "number of taxable periods" in calculating the tax base.

(3) Even if not, it is unreasonable to impose penalty tax on the Plaintiff on the Plaintiff, since it was unaware of the fact that the Plaintiff had used the instant officetel for residential purpose.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) As to the first argument

According to Articles 12(1)12 and 17(2)6 of the former Value-Added Tax Act (amended by Act No. 11129, Dec. 31, 2011; hereinafter “former Value-Added Tax Act”), and Article 34(1) of the former Enforcement Decree of the Value-Added Tax Act (amended by Act No. 23162, Sep. 29, 201; hereinafter “former Enforcement Decree of the Value-Added Tax Act”), the lease of a building used as a house or a permanent residence is exempted from value-added tax, and accordingly, the input tax amount related to the building does not be deducted from the output tax amount related to the lease of the building. The determination of whether a lessee constitutes a lease of a house or a building used as a permanent residence should be made based on the objective usage of the building in question, depending on whether the lessee uses the building as a permanent residence, and if the lessee actually uses the building or the object stated in the lease agreement and the lessee actually uses it (see, e.g., Supreme Court Decision 2007Nu7.

In light of the above legal principles, in light of the following circumstances, the instant disposition is lawful, since the evidence mentioned above and evidence Nos. 3 and 4 (including the number of pages) are deemed legitimate, since the Plaintiff’s allegation in this part is without merit.

(1) Article 17 (5) of the former Value-Added Tax Act imposes a duty to report and pay to the head of the competent tax office in the case of a business that supplies goods or services for which the input tax amount is deducted, or uses or consumes them for other purposes.

Therefore, as long as the above requirements are met, regardless of who is the user or consumer, the relevant entrepreneur bears the duty to report and pay value-added tax, so even if the “self-supply” under Article 6(2) of the former Value-Added Tax Act is not a “self-supply” (if supplied to a third party), the taxation requirements can be satisfied.

② The written contract concerning the instant officetel between the Plaintiff and the former 00 states that “Lessees agree not to move their addresses,” and “facilities (observers) shall confirm whether defects exist at the time of their moving into the instant officetel, and the lessee shall restore to their original state and compensate for damages if they are lost or damaged.” In light of the written contract concluded between the Plaintiff and Kim 00, the said options item appears to be “claters, drums, drums, air conditioners, clothes, etc.,” and the said items do not appear to be those used at the ordinary office. Most of all, the previous 00,000 is not registered as business, and this is considerably exceptional when viewed from the ordinary business operator’s perspective. Moreover, the Plaintiff asserted that the instant officetel was used for business purposes by the former 00,000, while failing to obtain an explanation as to the circumstances in which the business operator did not make the business registration, how the options item was made, and how the office was kept.

③ If there are circumstances, it is reasonable to view that the instant officetel was used for residential purpose, and it does not change even if the Plaintiff completed business registration regarding the real estate business or entered the phrase “business use” in the column for the use of the instant contract.

④ Determination should be made on the basis of objective usage of the relevant building by the lessee. As long as the instant officetel was used for residential purpose by the previous 00 and Kim00, even if the Plaintiff leased the instant officetel to that person for the purpose of having him/her use for business purpose, the Plaintiff bears the duty under Article 17(5) of the former Value-Added Tax Act.

(2) As to the second argument

According to Article 17(5) of the former Value-Added Tax Act and Article 62-2(1), (2)1, (5), and Article 49(2)1, and (4) of the former Enforcement Decree of the Value-Added Tax Act, where the goods supplied fall under the category of depreciable assets, "(1-5/100 x number of taxable periods elapsed)" shall be reflected in the acquisition tax or input tax amount of the relevant goods regardless of whether the type of supply falls under the category of self-supply. However, in calculating the number of taxable periods elapsed, where the relevant goods are deemed to have been supplied after the commencement of the taxable period, the relevant goods shall be acquired or the relevant goods shall be deemed to have been supplied on the commencement date of the taxable period.

On May 4, 201, the Plaintiff’s lease date of the instant officetel to 00 was as seen earlier. As such, the Plaintiff appears to have supplied the instant officetel to 00 before January 1, 201 when the first imposition period of value-added tax for the year 201 to which the said date belongs. Therefore, the Plaintiff’s assertion on a different premise is without merit.

As of May 31, 2012, the Plaintiff asserted to the effect that the number of taxable periods elapsed as of May 31, 2012, when Kim 00 leased the instant officetel, should be applied. However, even if Kim 00 used the instant officetel for business purposes as alleged by the Plaintiff, it is separate from the Plaintiff’s assertion in the course of calculating the value-added tax belonging to the value-added tax taxable period (from May 31, 2012 to May 31, 2014) to which the said rental period belongs (from January 1, 2012 to May 31, 2014) belongs, the said assertion cannot be made.

(3) As to the third argument

Under the tax law, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, where a taxpayer violates various obligations, such as a return and tax payment, as prescribed by the Act without justifiable grounds, the taxpayer’s intention and negligence is not considered as administrative sanctions imposed as prescribed by the Act (see, e.g., Supreme Court Decision 2001Du4689, Nov. 13, 2002).

In light of the above legal principles, in light of the language and text of the contract (transfer report, options, etc.) entered into between the Plaintiff and the former 00 and Kim00, the instant officetel cannot be deemed to have been unaware of its use as a residential purpose as alleged by the Plaintiff, and even if not, it is difficult to deem that there exists a justifiable reason to exempt the Plaintiff from the penalty tax on the sole basis that the Plaintiff asserts.Therefore, the Plaintiff’s assertion on this part is without merit.

3. Conclusion

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