KT Co., Ltd. (PP Law Firm, Attorneys Lee Jae-in et al., Counsel for the defendant-appellant)

The director of the Song District Tax Office and 12 others (Attorney Park Jae-young, Counsel for the defendant-appellant)

July 5, 2012

1. The “the date of refusal disposition” in the separate sheet of the Defendants as indicated in the corresponding date is revoked the refusal disposition as to each of the correction requests stated in the separate sheet “a total of the amounts of reduction claims (amount of refund claims)” against the Plaintiff.

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

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff is a company that operates an information and communications business using wired and wireless phones, etc., and the KTFel is a company that operates a mobile phone business, mobile communications service business, and mobile mobile phone sales business. The Plaintiff runs a mobile phone service business and mobile phone sales business in the form of resale of mobile phone services by having a sales center in each regional headquarters, such as Seoul, Busan, Daegu, and Gwangju, with a distribution support division. On June 2, 2009, the Plaintiff merged the KTFel with a mobile phone sales business (hereinafter “Plaintiff”) on the following occasions: (a) the Plaintiff was running the mobile phone sales business and mobile phone sales business (hereinafter “the Plaintiff”).

B. During the taxable period from the first half to the first half of 2006, the Plaintiff entered into a contract on entrustment of business with each agency for mobile phone business, supplied mobile phone devices to the agency, and provided the agency with value-added tax related to the mobile phone transaction. However, in calculating the value of the mobile phone device sold to the agency, the Plaintiff did not deduct the subsidy for purchase of a device (hereinafter “instant subsidy”) from the value-added tax base. Considering that the instant subsidy falls under the discount under Article 13(2)1 of the Value-Added Tax Act, the date for filing a request for correction is deemed to fall under the discount under Article 13(2)1 of the Value-Added Tax Act, the Plaintiff claimed for the reduction and refund of value-added tax for each amount indicated in the column for “the amount for filing a request for correction (amount of claim for refund)” in the attached

C. On January 30, 2009, the Defendants issued a disposition rejecting the above reduction request on the pertinent date (hereinafter “instant rejection disposition”). As to a claim for correction filed by the Plaintiff against the Defendant to the head of the Songpa District Tax Office on March 19, 2010 after the date on which a national tax appeal was filed, the head of the Songpa District Tax Office notified the Defendant of the rejection disposition on March 19, 2010, and on December 15, 2009, the Defendant’s Jeju District Tax Office rejected the claim for correction by failing to give any notice on the request for correction filed by the Defendant to the head of the Jeju District Tax Office on December 15, 2009.

D. The plaintiff's appeal against the rejection disposition of this case was filed with the Tax Tribunal, and the decision of dismissal was made by the Tax Tribunal on the remaining rejection disposition other than the rejection disposition of the attached Nos. 2, 12, 14, and 16, but the decision of the Tax Tribunal was not made until 90 days have passed from the date the appeal was filed with respect to the rejection disposition of this case.

【Ground of recognition】 The fact that there has been no dispute, entry of Gap's 1 through 4 (if there are additional numbers, including each number; hereinafter the same shall apply) and the purport of whole pleadings

2. Determination on the legitimacy of the instant refusal disposition

A. The parties' assertion

1) The plaintiff's assertion

On March 2006, the Plaintiff sold a mobile phone at the arm’s length price to the agency from March 2006 to March 2006 in accordance with the amendment of the provisions related to the Telecommunications Business Act so that it may subsidize the purchase cost of a mobile phone to the consumers who meet specific requirements. After allowing the consumers who use the mobile phone service to sell a mobile phone at a discount below the arm’s length price, only the remainder after deducting the discount from the sales price of the relevant device. The Plaintiff and the agency entered into a contract on the entrustment of business concerning the sale of a mobile device and directly deducted the discounted amount from the sales price of the device to the consumers who subscribed to the Plaintiff’s mobile network for a certain period of time. Such transaction type between the Plaintiff, the agent, and the consumer constitutes “effort amount” that is not included in the tax base of value-added tax. Such transaction type between the Plaintiff and the agent and the consumer is the same as the type of transaction, etc. of the instant case (hereinafter referred to as the “new Telecommunications Case”).

2) The defendants' assertion

A) The Plaintiff’s subsidization for the purchase cost of mobile phone devices to consumers does not constitute “the discount amount” for the following reasons.

1) The Value-Added Tax Act should respect the legal form chosen by the parties and be formed on their basis. In this case, the Plaintiff’s application for joining is merely a payment made by the Plaintiff to attract consumers under an agreement between the Plaintiff and the consumer, which is the amount that the Plaintiff paid to attract consumers, and does not arise from the mobile supply transaction between the Plaintiff and the agency. The Plaintiff issued a tax invoice after determining the value of supply at the stage of supplying the mobile communication network service to the agency, and then issued the tax invoice, and accordingly, the agent reflects all the purchase amount in the inventory assets in the book. After concluding a contract for the mobile communication network service supply between the Plaintiff and the Plaintiff, the agent transfers the subsidy claim received from the Plaintiff to the agent as part of the purchase price of the mobile communication network, and the transferred agent processes set off against the price of the mobile communication company. Ultimately, since the Plaintiff received the subsidy from the Plaintiff in return for the use of the service during the mandatory use period, it cannot be deemed a change in the price of the goods that were supplied by the agent, not the value-added tax subsidy.

2) As alleged by the Plaintiff, when interpreting subsidies for purchasing a device in discount, an agent cannot receive penalty directly from the consumer, and there is no fact that the agent returned the penalty to the Plaintiff. Thus, the Plaintiff, who received penalty, also supplied the device to the consumer, is unable to include the value-added tax base on the ground that there is no fact that the agent did not receive the penalty directly from the consumer, and the Plaintiff, who received the penalty, supplied the device to the consumer.

3) In the case of the new century, under the prior agreement with the agency, an agency is engaged in a transaction by recommending the agency to sell at a discount to consumers on condition that the agency will use the discounted amount from the supply price. On the other hand, the instant case was engaged in a transaction by providing subsidies for purchase of a device to consumers pursuant to an agreement between the Plaintiff and the consumer, and there was no agreement between the Plaintiff and the agency to provide the discounted price of the device. In addition, in the case of the new century, the penalty is calculated on the basis of an annual basic fee, while the instant case was based on the number of subsidies paid to the Plaintiff. In light of the foregoing, the instant case was based on the formation of a direct subsidy relationship between the Plaintiff and the consumer. In addition, in the case of the new century, the agreement to return the amount is deemed to have been reached on the ground that the period of permission for sale of the device was long-term sales, and its nature is different from the continuous discount sale and inventory disposal, but the instant case was not applied to all new type of subsidies that were not directly paid to the new type of telecommunication.

B) If a household mobile device purchase subsidy is excluded from the tax base by deeming it as sales discount, this would result in a violation of the government policy, such as enhancing competition in subsidies between mobile communication companies, resulting in the expansion of subsidy payment, which may cause damage to the mobile communication fare. Accordingly, the fair taxation would be impeded by viewing only the subsidy of the specified mobile communication company as sales discount, and the same mobile device product would result in contradictions in which the amount of the value-added tax would vary depending on the company for the same mobile device product. Furthermore, the instant rejection disposition is justifiable on the grounds that a national agency, a small business operator, might cause large-scale arrears and civil petitions by deducting an input tax amount equivalent to the discount amount.

B. Relevant statutes

The entries in the attached statutes are as follows.

(c) Fact of recognition;

1) The Plaintiff and the agency enter into an entrustment contract with the mobile communications business (purchase, receipt, and after-sales service), and the Plaintiff shall pay the agency the commission (5.5% of the service commission, 1.1% to 2.2% of the service commission for receipt, 1,650 won per case of transfer recruitment fee, 7.7% of the subscription management fee, and 7.15% of the monetary receipt amount of the subscription management fee). Furthermore, the supply price of the device supplied to the agency by the Plaintiff shall be determined through consultation with the Plaintiff and the agency on the basis of the ex-factory price notified by the Plaintiff, and the price of the device supplied to the agency shall be determined through mutual consultation where it is necessary to change the supply price, credit date, transaction quantity, quality, delivery method, and other terms and conditions of transaction. The agent shall pay the price of the goods in full at the same time with the acceptance of the goods, but the Plaintiff may suspend the payment of the price of the goods by a certain date (day) for the agency's smooth business activities.

2) In selling a device to a consumer, when the agency satisfies certain conditions (the number of days of agreement ? the number of days of use) that the consumer receives from the Plaintiff, the agency sells the device at a discount of the amount equivalent to the subsidy. The “application for service use” under the Plaintiff’s terms and conditions of use is concluded between the Plaintiff and the consumer, and the Plaintiff pays the consumer through the agency the subsidy purchase. However, when the consumer violates the mandatory use period, the penalty 】 [the number of days of agreement ? the number of days of use] 】 (the number of days of agreement ? the number of days of agreement) 】 (the

3) The Plaintiff received the device from the manufacturer to sell it at the arm’s length price to the agency (Account sales). The agency sells most of the devices supplied from the Plaintiff to the subscribers within the extension date. In such cases, if the agency sells the device at a discount price obtained by subtracting the subsidies from the subscribers meeting the requirements presented by the Plaintiff, the agency shall pay to the Plaintiff the amount received from the consumer, i.e., the amount of discount sales on the extension date. For a part of the device that is not sold by the extension date, the agency shall first pay the Plaintiff the normal price on the extension date, and if the agent sells the device at the price discounted to the subscribers, the agent shall return the discount amount out of the price received by the agency to the agency and settle the amount.

4) According to Article 36-4 of the Telecommunications Business Act (amended by Act No. 7916, Mar. 24, 2006; hereinafter “former Telecommunications Business Act”), it was possible for a mobile network operator to support the purchase cost of a communications terminal device (including the sale at a price lower than the purchase price, cash payment, subscription fee, and provision of other economic benefits) to a user who has a certain condition.

5) The Plaintiff set the subsidy granted to each agency by contract period at a certain amount, and additionally granted a subsidy of 30,000 won in the case of a part-time type, and posted a sales policy of cash discount. The Plaintiff’s shocking phone application form is a system that provides new and compensation base consumers with the benefit of cost discount depending on the contract period. Of them, the Plaintiff’s service use agreement provides that the Plaintiff may be granted a subsidy to the consumers, and that the Plaintiff applied for a subsidy in accordance with the standard and content of the terms and conditions of use.

6) The Minister of Strategy and Finance, the tax authorities, etc. sent by the mobile communications company to the agency that the mobile communications company does not fall under discount.

7) Meanwhile, on the other hand, the new century communications issued a revised tax invoice after appropriating the difference between the original supply price and the sales price of the mobile phone (017 services) to the agency on the condition that the mobile phone (017 services) operated by the new century is subscribed to the network for a discount sale period from November 1996 to January 197 after the purchase price of the mobile phone purchased to the agency. Article 11 of the New century provides that the new century communications and the agency may conclude an individual agreement separately between the new century communications and the agency where the special supply conditions are necessary for the goods supplied by the new century. In addition, Article 1 of the above Agreement provides that "the company shall notify the subscriber of the new century and the agency of the purchase price of the goods at the new price in accordance with the new Article 21 of the Agreement, which is a party to the new century and the digital agreement providing the consumer with the terms and conditions of the purchase of the goods at the price of the mobile phone during the sale period, and the company shall notify the subscriber of the purchase price at the new Article 217."

In the new century communications case, the Supreme Court determined that the amount of discount for the new century communications falls under the discount amount not included in the tax base, which is the amount calculated by deducting a certain amount from the ordinary supply value at the time of supply of the instant device, in accordance with the supply condition that the new century communications provides a device to the agency and gives a discount to the consumer by using the device in 017 service network.

【Evidences of Evidence, Evidence of Evidence of Gap, Evidence of Nos. 5 through 11, and Evidence Nos. 1 and 2

D. Determination

1) Whether the instant subsidy constitutes a discount amount

Article 13 (2) of the Value-Added Tax Act provides that "the amount falling under any of the following subparagraphs shall not be included in the tax base." Article 13 (2) of the Enforcement Decree of the Value-Added Tax Act provides that "the amount of discount under Article 13 (2) 1 of the Act refers to the amount which deducts a certain amount from the ordinary supply price at the time of the supply of goods or services in accordance with the payment for the quality, quantity, and the cost of delivery and supply, and other terms and conditions of supply in the supply of goods or services," and Article 52 (2) of the Enforcement Decree of the Value-Added Tax Act provides that "The amount of discount under the above provision is sufficient if it is determined in accordance with the quality, quantity, payment for delivery and supply prices, and other terms and conditions of supply, and the time of occurrence is not limited before the time of the supply of goods or services (see Supreme Court Decision 2001Du6586, Apr. 2

In full view of the evidence adopted earlier and the facts acknowledged earlier, it is reasonable to view the instant subsidy as falling under the discount amount that is not included in the tax base pursuant to Article 13(2)1 of the Value-Added Tax Act and Article 52(2) of the Enforcement Decree of the same Act, comprehensively taking account of the following circumstances revealed. Accordingly, the instant rejection disposition on a different premise is unlawful.

A) When supplying a device to an agency, the Plaintiff designated the price of the device purchased from the manufacturer as a usual sales price and supplied it to the agency. However, the Plaintiff’s sales policy that the Plaintiff notified in advance to allow the agent to sell the device at a discounted price. In such a case, the agent paid the Plaintiff the amount less the discounted price when the Plaintiff pays the device. The instant subsidy is deemed to be the discount amount under the Value-Added Tax Act because the Plaintiff directly deducted a certain amount from the price at the time of the supply under certain conditions when the Plaintiff supplied the device to the agency. However, the Plaintiff did not account the instant subsidy as a discount amount or re-issue the revised tax invoice, etc. with the amount obtained by subtracting the instant subsidy, but it merely stated that the tax office did not regard the instant subsidy as a discount.

B) The Defendants asserted that this case differs from that of the new century. However, the Plaintiff concluded a contract on the provision of a device with an agency for the entrustment of business affairs and a contract on the provision of a device to the agency for the attraction and receipt of applications by the Plaintiff, the opening of services, and the receipt of payments. The agent pays various fees to the agency in return for the contract. Under the contract on the supply of a device, the basic legal relationship between the new century communications case and the Plaintiff is similar. ② According to the contract on the consignment between the Plaintiff and the agency, the supply price of the device supplied to the agency can be determined through consultation between the Plaintiff and the agency. The Plaintiff only received a discount from the agency on the amount of the subsidy of this case, and only received the amount obtained by subtracting the amount of the subsidy of this case from the agency. The Plaintiff’s contract on the supply of a device is not related to the case on the part of the Plaintiff’s new communications contract, which is not related to the case on the basis of the contract on the provision of a device, but to the case on the discount of new communications terms and conditions.

C) Meanwhile, the Defendants asserted that the sale of the device discount through the instant subsidy does not consider the sale of the device discount, and that the consumers acquired the claim for subsidy against the Plaintiff and then transfer it to the agency, and the agency should be deemed to offset the Plaintiff’s claim for subsidy against the Plaintiff’s agency’s claim for subsidy. However, in the instant case, there is no conclusion of a contract for acquisition of the claim between the Plaintiff, the agent, and the consumer on the part of the Plaintiff, and there is no notification of the assignment of the claim, and the indication of offset intention. Moreover, the said assertion is too excessively deemed to be difficult to understand

2) Whether the instant refusal disposition is justifiable (related to the Defendant's assertion of Paragraph B)

On the other hand, when considering the instant subsidy as a discount amount, the agent’s base of value-added tax is the discount amount actually received from the consumer, and in that case, from the agent’s position, it is difficult to deem that large-scale arrears or civil petitions are likely to occur because the amount of value-added tax is reduced along with the amount of value-added tax refund. In addition, there is no ground to deem that the instant subsidy is regarded as a discount amount, and thus, it would give preferential treatment to a specific mobile communications company as alleged by the Defendants, thereby impairing fair taxation and causing a result contrary to government policies

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is decided as per Disposition.

[Attachment Omission of Related Acts]

Judges Kim Jong-sung (Presiding Judge)