Whether the service provided by a person who is not a massage under the Medical Service Act by hiring a massage under the Medical Service Act constitutes an exemption from value-added tax under Article 12(1)4 of the former Value-Added Tax Act, Article 29 subparag. 2 of the former Enforcement Decree of the Value-Added Tax Act (negative), and whether the service provided by a person who is not a massage under the Medical Service Act and a massage jointly establishing a massage place under the Medical Service Act, and whether the service provided by a massage employed by a massage under the Medical Service Act constitutes an exemption from value-added tax under the above Act (negative)

Article 12(1)4 of the former Value-Added Tax Act (amended by Act No. 915, Jan. 1, 2010; hereinafter “the Value-Added Tax Act”); Article 29 subparag. 1, 2, and 5 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 21304, Feb. 4, 2009; hereinafter “Enforcement Decree of the Value-Added Tax Act”) provides that medical and health services exempt from value-added tax pursuant to Article 12 subparag. 1, 2, and 3 of the former Enforcement Decree of the Value-Added Tax Act shall not be provided to doctors or massages prescribed by the Medical Service Act or the Veterinarians Act (including those who have established a medical institution or veterinary hospital under the Medical Service Act) as the subject of supply; Article 12(1)4 of the Value-Added Tax Act; Article 29 subparag. 1, 2002>

Article 12(1)4 of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010; see current Article 12(1)5); Article 29 subparag. 1, 2, and 5 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 21304, Feb. 4, 2009); Article 33(2)1, and Article 82(3) of the former Medical Service Act (Amended by Act No. 9386, Jan. 30, 209);

Plaintiff 1 and one other (Attorney Ahn Byung-soo, Counsel for the plaintiff-appellant)

Head of the District Tax Office

Seoul High Court Decision 2010Nu18668 decided January 27, 2011

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Article 12(1)4 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter “Value-Added Tax Act”) provides that “medical and health services prescribed by Presidential Decree as one of the items eligible for value-added tax exemption.” Article 29 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 21304, Feb. 4, 2009; hereinafter “Enforcement Decree of the Value-Added Tax Act”) provides that “medical and health services prescribed in Article 12(1)4 of the Act shall be as follows (including those provided by a medical institution or a person who has established a veterinary hospital under the Medical Service Act or the Veterinarians Act); subparagraph 1 provides “services provided by a doctor, etc. prescribed in the Medical Service Act;” subparagraph 2 provides “services, etc. prescribed in the Medical Service Act;” and subparagraph 5 provides “ veterinarians prescribed in the Veterinarians Act”:

In light of the language and purport, system, etc., it is reasonable to view that the medical and health services exempt from value-added tax pursuant to Article 12(1)4 of the Value-Added Tax Act, and subparagraphs 1, 2, and 5 of Article 29 of the Enforcement Decree of the Value-Added Tax Act refer to the medical and health services provided by doctors, massages, veterinarians, etc. (including those who have established a medical institution or a veterinary hospital under the Medical Service Act or the Veterinarians Act) pursuant to the provisions of the Medical Service Act or the Veterinarians Act as the subject of supply. Therefore, the services provided by a person who is not a massage under the Medical Service Act by employing a massage under the Medical Service Act do not constitute “services provided by a massage under the Medical Service Act” under Article 12(1)4 of the Value-Added Tax Act, Article 29 subparag. 2 of the Value-Added Tax Act, and Article 29 subparag. 36 of the Enforcement Decree of the Value-Added Tax Act provides that no one may jointly establish a massage treatment or massage under the Medical Service Act.

2. Review of the reasoning of the lower judgment and the evidence duly admitted by the lower court reveals the following facts.

(1) Plaintiff 1, who is not a massage club under the Medical Service Act, agreed with Plaintiff 2, a massage club under the Medical Service Act, to open a massage clinic jointly with the Plaintiff 2. On November 2004, Plaintiff 1 invested approximately KRW 1.4 billion, approximately KRW 150 million by Plaintiff 2, and Plaintiff 2 invested KRW 150 million, and established a mutual massage clinic under the name of Plaintiff 2 on the 6, 7, and 8th, Gangnam-gu Seoul Metropolitan Government ( Address omitted) building.

(2) Plaintiff 2 handled the management of the Marine and affairs related to the Marine Association, who works for the Marine Medical Center, and Plaintiff 1 paid part of the revenues of KRW 5 million and the Marine Medical Center every month to Plaintiff 2 while managing the revenue and expenditure of the Marine Medical Center.

(3) On March 2007, the Plaintiffs closed the place of the said place of the massage (hereinafter referred to as “△△△△”) and subsequently opened and operated a separate place of the said place in the name of Nonparty in the same place, and closed the said place on May 2008.

3. Examining these facts in light of the legal principles as seen earlier, insofar as Plaintiff 1 is not a massage club under the Medical Service Act, even if the Plaintiffs jointly opened and provided massage parlors employed and provided by the Plaintiffs, it cannot be deemed as eligible for value-added tax exemption under Article 12(1)4 of the Value-Added Tax Act and Article 29 subparag. 2 of the Enforcement Decree of the Value-Added Tax Act.

Nevertheless, in light of the purport of the value-added tax exemption system and the language and text of the relevant statutes, etc., the lower court premised on the premise that the massage services performed by a massage club under the Medical Service Act are subject to value-added tax exemption, regardless of who is the supplier. In so doing, the lower court determined that the part of the massage services provided by the Plaintiffs, among the massage services provided by each massage clinic, employed and provided by the said Plaintiffs, constitutes subject to value-added tax exemption. In so doing, the lower court erred by misapprehending the legal doctrine on the scope of massage services exempt from value-added tax

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim So-young (Presiding Justice)