Seoul High Court 2009Nu18020 ( November 26, 2009)

An exporter of the gold bullion transaction via a bombing company shall determine whether to refund the gold bullion transaction in accordance with the principle of trust and good faith (Reversal and return).

If a malicious business operator’s fraudulent transaction for the purpose of evading the output tax amount in the course of a series of gold bullion transactions exists, and the exporter knew of, or was unaware of, the fact that the deduction and refund of input tax amounts would lead to the reduction of other tax revenues by gross negligence, the exporter’s assertion of input tax deduction and refund cannot be permitted in violation of the good faith principle (def

209Du23723 Disposition of revocation of Disposition of Value-Added Tax, etc.

○○ Co., Ltd.

○ Head of tax office

Supreme Court Decision 2008Du13446 Decided June 23, 2009

Seoul High Court Decision 2009Nu18020 Decided November 26, 2009

February 24, 2011

The part of the judgment of the court below pertaining to the imposition of value-added tax, excluding additional tax, such as failure to record tax invoices and failure to submit a list of total tax invoices, shall be reversed, and this part

The remaining appeals are dismissed.

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 court below, after compiling the adopted evidence, found facts as stated in its reasoning, and determined that the tax invoice 9 (hereinafter referred to as "tax invoice of this case") issued by the plaintiff while purchasing gold bullion equivalent to KRW 366 g, supply price of KRW 5.340 million (hereinafter referred to as "gold bullion of this case") on nine occasions from September 30, 200 to May 14, 2004, did not constitute a false tax invoice.

The ground of appeal on this part is that the above judgment of the court below is erroneous, but it is merely an error in the selection of evidence or fact-finding which belongs to the exclusive jurisdiction of the court below and thus cannot be a legitimate ground of appeal.

2. As to the fact that unfair input tax deduction and refund claim are contrary to the principle of good faith, Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter “Framework Act on National Taxes”) declares that the principle of good faith is also applicable to the tax law field by stipulating that “A taxpayer who performs his/her duty shall drive away in good faith when he/she performs his/her duty. The same shall apply to a tax official in performing his/her duty.” This principle is natural (Article 1 and Article 3(1) main text of the Framework Act on National Taxes).

B. 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-added tax shall be collected from the person who receives the supply thereof. Article 17(1) 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 exceeding the output tax amount shall be refundable. This is based on the prior development tax deduction system, where the entrepreneur who receives the goods or services, pays the output tax amount to the State through each transaction process 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, 199).

Therefore, in a series of continuous transactions, in a case where a malicious business operator in one phase has attempted to evade value-added tax from the beginning, and only to make an abnormal transaction that is likely to cause damage if he/she fails to evade value-added tax (hereinafter “illegal transaction”), and where he/she does not pay a fixed amount of value-added tax, such as an exporter at the next transaction stage, if a business operator is able to deduct or refund the input tax without containing an additional input tax amount, such as an exporter at the zero-rate tax rate, the State is bound to make a refund with other tax revenues. However, such a result is more passive tax revenue gap than a passive tax revenue gap, and thus constitutes an active outflow to the National Treasury, thereby causing serious harm to the general tax system.

Of course, even if there are the above reasons, if an exporter is in a situation where the existence of an illegal transaction is unknown, it should not be denied that the exporter would be entitled to deduct or refund the input tax amount as prescribed by the Value-Added Tax Act. However, even if the exporter knew that there was an illegal transaction at the pre-stage stage, he would have made transactions with the intent to promote his own interest without vagasing the opportunity. Moreover, his transaction profit would be attributable to the pre-illegal transaction, and his participation in the transaction would ultimately be a critical factor that makes it possible to make an illegal transaction ultimately by taking advantage of the input tax deduction and refund system, which is the premise thereof. Accordingly, it would be the act of pursuing unjust profits by abusing the input tax deduction and refund system. Accordingly, the refund of the input tax amount to such exporter by taking other tax revenue as a revenue would result in guaranteeing the national treasury’s benefits derived from an illegal transaction, as well as in preventing the serious harm that the overall tax system as seen above.

Therefore, in such a case, an exporter’s seeking input tax deduction and refund cannot be accepted as it goes against the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes. Furthermore, in light of the perspective of fairness, the importance of the outcome, and the universal sense of justice, in a case where an exporter was unaware of such illegal transaction due to gross negligence, it is reasonable to deem that the same applies to a case where the exporter was unaware of such illegal transaction due to gross negligence, i.e., the relationship with a malicious business operator, and the exporter did not know of such illegal transaction, even though he could have sufficiently known of such fact, if he did not know of such fact, it would be considerably difficult to apply to a case where he did not know of such fact due to gross negligence, and it is not limited to a case where

In addition, in such cases, the exporter, who is in a mutual relationship with a malicious business entity, is entitled to deduct and refund input tax from the country to the National Treasury, and thus, the exporter denies the deduction and refund of input tax amount as a sanction for such exporter. Therefore, it cannot be said that the exporter transfers it to the exporter without reasonable grounds for the responsibility for the evasion of value-added tax.

Meanwhile, Supreme Court en banc Decision 94Nu1449 Decided December 21, 1995 ruled that since Article 17(2) of the former Value-Added Tax Act (amended by Act No. 4663, Dec. 31, 1993) provides for the case where the input tax amount is not deducted, the deduction of input tax amount under Article 17(1) cannot be denied without such special provision. However, without such special provision, the purport of the decision is not to prevent the denial of the deduction and refund of input tax amount by exceptionally amending the permissible points under Article 17(1) of the same Act in accordance with the principle of trust and good faith (see Supreme Court en banc Decision 2009Du13474, Jan. 20, 201).

C. Review of the reasoning and records of the first instance judgment cited by the lower court reveals the following facts.

(1) The instant gold bullion was both imported from a foreign country and distributed as tax-free gold by an importing company, and was converted from an importing company to a malicious business entity, and was in total 6-8 stages from the importing company to the Plaintiff. All stages of transactions were conducted around the date of import of the relevant gold bullion, and the Plaintiff exported all the instant gold bullion on the date of purchase. The export price was lower than the import price imported by the importing company, and was considerably low compared with the international market tax and domestic market tax.

(2) The instant gold bullion transaction was purchased on credit by the Plaintiff, and exported the instant gold bullion to the Hong Kong company located in Hong Kong, and received the price and returned it again to the purchaser around the next day of export. As such, there was no means of securing payment, etc. in relation to the fact that the settlement of the price was made in the reverse order of the transaction.

(3) The malicious business operator who converted the gold bullion of this case into the taxable gold in the course of its distribution, sold the gold bullion that he purchased at a price lower than the purchase price (However, the value-added tax added to the value-added tax amount, that is, the value-added tax added, is higher than the purchase price), and closed the gold bullion without paying the value-added tax or the representative thereof.

(4) When the Plaintiff reported the second term portion and the first term value-added tax in 2003 and the second term portion in 2004, the Plaintiff sought the deduction and refund of the input tax amount on the grounds of applying the zero-rate tax rate to the export of the gold bullion, but the Defendant issued a disposition of refusal to apply for refund and a disposition of imposition of the value-added tax for recovering the amount of refund with the purport of refusing it on October 1, 2005.

D. According to the above facts, the Plaintiff could have purchased and exported the instant gold bullion in a short time while enjoying profit margins is due to the fact that a malicious business operator in the middle stage supplied the instant gold bullion at a low price and made an illegal transaction of evading the output amount. In light of the structure of the transaction, it is almost impossible for the Plaintiff to trade in bad faith without securing the market by exporting a large amount of gold bullion in light of the transaction structure, and the Plaintiff and malicious business operator are ultimately dependent on mutual relations.

In addition, if the plaintiff cannot deduct or get refund of the input tax amount, the burden of the tax amount is considered to exceed the profit margin, and the transaction becomes impossible due to this, such mutual dependence relationship is premised on the plaintiff's deduction and refund of the input tax amount by applying the zero-rate tax rate for exports. Moreover, since such a series of transactions are conducted within a short period of time, it is difficult for the State to block it in advance.

Examining these circumstances in light of the legal principles as seen earlier, if the Plaintiff, an exporter, has a malicious business operator engaged in illegal transactions for the purpose of evading the output tax amount in the course of a series of transactions previously conducted, and accordingly, seeks the deduction and refund of the input tax amount even though he knew of the circumstances that the Plaintiff would cause the reduction of the input tax amount in other tax revenues or did not know it by gross negligence, it is not only intended for the Plaintiff, a malicious business operator, who took advantage of the input tax deduction and refund system, to take part of the output tax amount evaded by a malicious business operator by abusing the input tax deduction and refund system, but also would damage the basis of the overall tax justice, and thus, it is not permissible in violation of the good faith principle as stipulated in Article 15 of the Framework Act on National Taxes.

E. If so, the lower court should have sufficiently examined whether the Plaintiff knew or was unaware of the aforementioned circumstances in trading the gold bullion in this case, and should have determined whether the Plaintiff’s assertion to deduct and refund the input tax amount goes against the principle of good faith.

Nevertheless, the lower court, without deliberation and determination, deemed that the Plaintiff’s input tax deduction and refund claim should be allowed solely on the ground that the instant tax invoice does not constitute a false tax invoice, and determined that the Defendant’s disposition of imposition of the value-added tax (including the penalty tax for failure to file a return and the penalty tax for unfaithful payment, but excluding the penalty tax, such as the penalty tax for failure to submit a tax invoice and the total tax invoice list, is irrelevant to the principle of good faith) was unlawful. Therefore, the lower court erred by misapprehending the legal doctrine on the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes, which

3. Conclusion

Therefore, among the part against the defendant of the judgment below, the part on the imposition of value-added tax except for the additional taxes such as the failure to enter the tax invoice and the failure to submit a list of the total tax invoices is reversed, and this part of the case is remanded to the court below for further proceedings consistent with this Opinion, and the defendant's remaining appeal is dismissed. It is so decided as per Disposition