The case holding that the tax base of value-added tax should be calculated by deducting the value-added tax from the total amount of cash input in a game machine and the value of merchandise coupons for free use paid by the user to the user according to the result of the game (=purchase price of the game room business operator) from the total amount of cash input in the game machine, in case where the game user can exchange money at any time at a nearby merchandise exchange center by receiving merchandise coupons according to the result of the game, the game room business itself constitutes subject to value-added tax, and the transaction of transaction in the game room is conducted together with the transaction of supplying goods such as merchandise coupons for free use of the game machine and the transaction of supplying services such as the provision of the use

The case holding that the tax base of value-added tax should be calculated by deducting the value-added tax from the total amount of cash inputs in a game machine the user paid to the user according to the result of the game (=purchase price of the game room business operator) from the total amount of cash inputs in the game machine, where the user can exchange for cash at any time at a nearby merchandise exchange center, the game room business itself constitutes subject to value-added tax, and the transaction in the game room is conducted together with the transaction of supplying goods such as gift certificates and the transaction of supplying services such as the use and provision of the game machine, and which is subject to value-added tax.

Articles 1, 7 and 13 of the Value-Added Tax Act

Plaintiff (Law Firm Barun Law, Seoul, Attorneys Credit Han-soo et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

December 12, 2007

1. The Defendant’s imposition of value-added tax on December 8, 2006 exceeds KRW 4,177,820 out of KRW 2,336,530,30 in 205, and the first term portion of KRW 2,047,179,120 in excess of KRW 3,913,240 in 206, and each disposition of KRW 135,253,350 in 205 shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. The costs of lawsuit shall be borne by the defendant.

Value-added tax imposed by the Defendant on December 8, 2006 on the Plaintiff on the first term portion 135,253,350 won in 2005, second term portion 2,336,530,300 won in 2005, and first term portion 2,047,179,120 won in 206 shall be revoked.

1. Details of the disposition;

A. From Jun. 3, 2005, the Plaintiff operated a general game room with 140 air-going game apparatus, which is an adult gate in Gangnam-gu, Seoul, the trade name, “brub Gameland” (hereinafter “instant game room”) from Jun. 3, 2005, and closed on Oct. 31, 2006.

B. The Plaintiff filed a value-added tax return as follows, on the basis of the value-added tax base, on the amount remaining after the user deducts the gift certificates paid to the user as gift from the amount invested in the game machine from the amount of money invested in the game machine during the period from No. 1 to No. 1

The amount of tax for each entry (Refund) between the 2005 1st 30,000,000 768,516,364-73,851,636 294,130,300 161,145,306 12,898,499 1st 2706 270,450,000 184,509,9118,594,008,00

C. The Defendant: (a) regarded the total amount of cash inputs in the instant game room as the sales amount serving as the base for value added tax; and (b) converted the total amount of inputs into 102%, which is the average prize rate of the game machine established in the instant game room (the concept of "e.g., value-added tax base") for each period, by dividing the total amount of cash inputs by 102%; and (c) calculated the value calculated by dividing it by 1.1.05, the sales amount by 1,222,94,652 won for the first period of 2005, 29,705,82,82,352 won for the second period of 2005, 18,248,63,101 won for the first period of 206, 2006, and then disposed of the amount of value-added tax for 135,253,305, 2005, 3636, 301.

[Reasons for Recognition] Unsatisfy, each entry in the Evidence Nos. 1, 2, 4, 5 (including a tentative number)

2. The parties' assertion

A. The plaintiff's assertion

(1) The assertion that the business itself in the game of this case is not subject to value-added tax

Article 14 of the Framework Act on National Taxes declares the principle of substantial taxation. Article 14 of the former Sound Records, Video Products and Game Software Act (amended by Act No. 7943 of Apr. 28, 2006; hereinafter the same shall apply) or the former standards for handling free gifts at a game establishment (amended by Act No. 2006-24 of Nov. 1, 2006; hereinafter the same shall apply), without distinction from the regulatory regulations such as the former standards for handling free gifts, gift certificates received by customers of a game establishment, such as the instant game establishment, can be exchanged at any time in cash only when a certain amount of discount is applied to a nearby money exchange, and in fact, customers input cash in the game machine as a means of complying with the said gift certificates. Ultimately, since cash input in the casino machine is not actually a revenue of the value-added tax from the game establishment or any other goods subject to the same taxation, it is not unlawful for customers to provide the same taxation as the instant goods or services.

(2) The assertion that the value of gift certificates should be deducted when calculating the value-added tax base.

Even if the business itself in the game of this case is subject to value-added tax, the game of this case is planned to return to the customer the gift certificates corresponding to the certain dividend rate which the customer has made out of the money input in the game of this case. Thus, the money inputs in the game of this case is combined with the cost of gift certificates and the cost of providing services for the use of the game instruments, such as the provision of opportunities for acquisition of gift certificates. However, the gift certificates provided by the plaintiff to the game of this case cannot be deemed to constitute the supply of goods subject to value-added tax even if they are delivered or transferred as cash certificates. Ultimately, among the money input in the game of this case, the part subject to value-added tax among the money input in the game of this case shall be limited to the cost of the service for the use of the game of this case, and the amount shall be the amount obtained by deducting the total face value of the gift certificates provided from

If it is not so deemed that the total amount invested in the game machine is not considered as the tax base, it results in the Plaintiff’s payment of more amount than the total amount of revenue of the game room in this case as value-added tax, which is not consistent with the substance of transaction, but is against the constitutional guarantee of property rights and the principle of no taxation

B. Defendant’s assertion

For the following reasons, the instant disposition is lawful.

(1) As to the plaintiff's first argument

(A) The Plaintiff registered the “general game room business” in accordance with the procedures prescribed in the former Act and legally carried on the instant game room business. The Plaintiff’s use of the game machine by customers in the aforementioned legitimate game room cannot be deemed as gambling or speculative acts within the scope of statutes.

(B) The instant game room is classified into a general game room under the former Food and Drug Act, and the game machine installed in the said game room is designed to play a game by using data processing technology or devices, such as a computer program, and is installed mainly for entertainment, although the principle of speculation is partially included.

(C) The amount invested by a user in a game machine shall be attributed to the owner of the game machine in full and the cash shall not be returned to the user, and the user shall be paid merchandise coupons only when the user satisfies certain game conditions. Therefore, the amount shall be paid in advance for the use of entertainment for a certain period of time.

(D) There is no particular ground to conclude that the instant game room business does not create added value unlike the provision of other services in the general game room.

(2) As to the second argument by the Plaintiff

(A) The game user paid cash to the Plaintiff and received a certain gift from the game using the game machine in return for that payment. The cash that the game user pays to the Plaintiff is the price for the entire service of using the game machine and the goods of merchandise coupons, and the provision of goods such as the provision of merchandise coupons and the use of the game machine, and it is not a separate payment for each part. The Plaintiff does not receive a separate payment for each part.

(B) The former standards for dealing with free gifts strictly limits the payment of cash in lieu of free gifts or the cashization of free gifts. Therefore, given that a game machine user’s payment of free gifts from a game room proprietor is not a cash, it cannot be deemed as a kind of goods, and thus, it cannot be deducted from the value of supply of the game room business owner’s business owner’s price on the ground that the game room proprietor paid free gifts, but only the input tax amount paid in the course of purchasing the goods can be deducted.

(C) Gift certificates are goods securities or money substitute securities representing the claim for delivery of goods, and are different in nature from bills or checks representing the claim for payment of money. As such, even if monetary exchange is guaranteed, they are merely goods until they are exchanged, and they cannot be viewed as cash. In other words, in a game room, goods such as phrases and sys, which are not merchandise coupons, are easily exchanged in cash at the nearby exchange station, and thus, they cannot be viewed as cash because they can not be seen as cash.

(D) A game room business may provide merchandise coupons as gift from the result of a game in accordance with the old standard for dealing with gift certificates at will, other than merchandise coupons, and even where goods such as the pets are offered as gift gifts, the purchase amount of the goods can only be deducted as the input tax amount, and the purchase amount of the goods cannot be deducted from the supply value, which is the base for value-added tax. Thus, the face value of the merchandise coupon cannot be viewed as having been deducted from the supply value solely on the ground that the game room business operator selected and

(E) Gift certificates are not definitely scheduled at the time of game use, but merely are likely to be paid at a certain expected rate. Accordingly, the value of supply per se is not changed. Thus, it may be deemed that the gift certificates are incidental to the above services for the promotion of the sale of services such as the use of a game machine, and have the nature of the grant.

(F) Although a game room business operator cannot deduct the input tax amount due to the payment of gift certificates as gift certificates, this does not change the supply value due to the result of the supply of goods on which no value-added tax is levied, and the Value-Added Tax Act exceptionally specifies items to be deducted from the tax base, but does not stipulate that the payment of gift certificates should be deducted from the supply value.

3. Whether the instant disposition is lawful

(a) Relevant statutes;

It is as shown in the attached Form.

B. Facts of recognition

The following facts may be acknowledged as either in dispute between the parties or in the entry of the above acknowledged evidence No. 6 and the whole purport of the pleadings.

(1) The game machine installed in the instant game room is a game for recreation, which was rated as a 18 years of age or older at the Video Rating Review Committee pursuant to Article 20 of the former Music Act.

(2) The game machine users using the instant game hall put a certain amount of cash into the game machine and play a game. As such, a game continued to play a game by using WIN creative scores with a certain amount of money invested, unless it does not reach a certain limit point in the game process, and thus, a game continued to play a game regardless of time or frequency until CREIT creative scores or WIN original scores cease to exist.

(3) The game of this case requires approximately 4-5 seconds in one game, and if a user betting a certain point out of the scores of CRED IT and operates the game, the game will automatically indicate the situation or marks on the screen of the game machine, and the points that refer to the quantity of merchandise coupons the user can obtain according to the situation or marks shown on the screen of the game machine are stored in WIN shop.

(4) The cash inputs by a game machine user belongs to the Plaintiff as a full business owner, but the user who used the game conditions is entitled to receive gift certificates of KRW 5,000 at par value according to WIN creative scores.

(5) A game user may withdraw merchandise coupons provided according to accumulated WIN scores upon the termination of the game and exchange it in cash at a merchandise coupon exchange office in the vicinity of the game site. In the event of merchandise coupons exchange, the amount equivalent to 10% of the ordinary face value is deducted and paid in cash after deducting the amount equivalent to 10% of the normal face value. Such procedures do not require special price promotion or identification in exchanging merchandise coupons.

(6) The Plaintiff purchased merchandise coupons from the issuer or merchandise coupon wholesaler and input them in the game machine. Since merchandise coupons used once again are not used, when paid for merchandise coupons, he purchased new merchandise coupons and put them in the game machine. The purchase price of merchandise coupons of KRW 5,000 at par was KRW 4,820.

(7) Although the game machine of the instant game room is set to discharge gift certificates equivalent to the face value of 102%, which is a certain rate set in advance (hereinafter “losting rate”), compared to the input amount, the said rate is limited to an average winning rate, and the amount of gift certificates which the users can obtain at the time of each game is set differently by chance.

(c) Markets:

(1) The nature of the business in the game of this case

(A) Nature of gift certificates for free in the game of this case

A merchandise coupon refers to securities in which the issuer issues and sells a bearer certificate stating a certain amount of money or a certain quantity of goods, etc. and the holder may receive goods or services according to the contents indicated in the certificate by presenting or delivering it to the issuer or to the person designated by the issuer, or using it by other means. This cannot be deemed as identical to a bill or check, which is a monetary claim, representing monetary claims, as alleged earlier by the defendant.

However, as gift certificates paid as gift in the instant game, gift certificates (for gift certificates for gift purposes, they can be used only for those designated under strict conditions from the Korea Game Industry Development Institute in accordance with the old standard for dealing with gift certificates) are generally so-called "amount merchandise coupons". The issuer, etc. of gift certificates shall be obligated to respond to a request made by the holder to purchase goods or receive services equivalent to or more than a certain percentage of the face value of the face value, and when the holder requests the refund of the balance, and the payment guarantee contract is concluded with the financial institution to secure the payment of the issuer, etc., it shall not be deemed as a kind of money merchandise certificate representing the delivery bond such as a simple bill of lading, bill of lading, bill of lading, bill of lading, bill of lading, etc., and even if the bill or check falls short of the bill or check, it shall be deemed as a kind of money merchandise certificate, which has a certain degree of realization (the taxable administration is treated as a money substitute certificate and its transaction itself shall be treated as not subject

However, as recognized earlier, in the vicinity of the instant game room, there is almost always a money exchange for free gifts such as the instant game room, and in general, in the currency exchange for free gifts in the above environment, the gift certificates in the instant game room do not comply with the procedures such as interest in prices and identification of the status. As such, since the gift certificates in the above environment do not comply with the above procedures, the gift certificates in the instant game room shall have a much more strong realization than the general gift certificates. Accordingly, although the Defendant asserts that the exchange of free gifts is strictly limited according to the former standards for dealing with free gifts, the restriction of the former standards for dealing with free gifts is merely a business share or a brokerage for exchange of free gifts, apart from the punishment for the act of arranging free gifts, it cannot be denied the status that can be easily exchanged in cash as above, and it cannot be viewed as illegal.

(B) The nature of the speculative act

However, as recognized earlier, ① the situation or marks shown on the screen of the game of this case are commonly recognized in the game of this case, not their own meaningful meaning, but only the quantity of merchandise coupons for free gifts which can be acquired with their situation or marks scam are the result of the game. ② Any manipulation other than the determination of the amount to be used for good results of the game of the users, as well as the determination of the amount to be used until the result of the game, is not required. ③ Although the rate of the game of this case is set in advance (On the other hand, such rate of the game of this case is set more than 95% as in the game of this case). Considering that the above rate of the game of this case is 10% higher than that of the game of this case, it is the average rate of the game of this case, and that the amount of merchandise coupons acquired by users at each time is less than 70% higher than that of the previous game of this case, and that it is very less than 100 days less than that of the previous game of this case’s money sale.

(2) Whether the business itself in the game of this case constitutes a taxable object of value-added tax

Although it is not explicitly stipulated that gambling income is not subject to value-added tax, it is reasonable to view that gambling income from casino, etc. is not subject to value-added tax because it does not create value added tax because the gambling income except the money received by the customer from the money for gambling in casino, etc. (Supreme Court Decision 2004Du13288 Decided October 27, 2006). This is also the consistent opinion of tax authorities.

However, as seen earlier, even if the transaction in the game room, such as the game room in this case, has a nature of speculative act to a certain extent, as acknowledged earlier, ① the game machine installed in the game room in this case is designed to meet the former standards for dealing with free gifts, and there are certain limitations on the face value of the game time or the merchandise coupon released once, ② the amount invested in the game machine can be attributed to the whole owner of the game, and the merchandise coupon can be discharged as merchandise coupons depending on the result of the game, but the merchandise coupon is not returned to the user without the game (as it was in the form of the CRED IT shop), ③ the user is entitled to enjoy the game in which order and pay the price for the game business operator. Thus, considering the fact that there is no added value created in this process, the casino business in this case cannot be deemed to be entirely identical with the casino business in this case.

Therefore, the plaintiff's first argument is not accepted.

(3) Whether the value of gift certificates is deducted when calculating the value-added tax base

(A) Principle of substantial transactions

Article 14(2) of the Framework Act on National Taxes provides that “The provisions on the calculation of tax base in tax-related Acts shall apply according to the substance and substance of the transaction, notwithstanding the name or form of the income, profit, property, act or transaction.” Under the principle of substantial taxation, any transaction under the tax law shall not be subject to the name of the act, the administrative law, or the handling of penal laws, etc., and shall be determined according to the nature of the transaction itself or the purpose of the transaction, the legal effect formed by the transaction, etc.

(B) The substance of transaction

However, in full view of the foregoing livingin, the act of users in the game room is practically for the purpose of "property interest", and the plaintiff, a game room business operator, is additionally paid for the purpose of providing "for an opportunity to give such property interest". As such, the plaintiff, a game room business operator, receives cash in return for the provision of goods such as merchandise coupons for free use and the provision of services such as the provision of use of a game machine. In this case, merchandise coupons for free use received by the game machine users are not simply paid for the payment of the cost of services in order to encourage the use of the game machine (as seen above, the winning rate is set at more than 95% in most the game room and the amount exceeds 100% in the case of the game room in this case). In other words, the actual transaction in the game room in this case is conducted together with the supply of goods such as merchandise coupons for free use and the supply of a service for the use of a game machine.

(C) Deduction of gift certificates value

As seen earlier, the supply transaction of gift certificates itself is not subject to value-added tax. Therefore, the taxable transaction that is subject to value-added tax among the goods that the Plaintiff supplied to the game user in the game of this case and the services that offer the use of the game machine should be limited to the provision of services that provide the use of the game machine. The second argument of the Plaintiff is with merit.

Such point is that (i) the Plaintiff received money from customers without distinction between taxable and non-taxable transactions at the time of entry in the game machine; and (ii) it is money substitute securities with strong gift certificates as seen earlier; and (iii) it is different from the substance of the transaction in which gift certificates are provided in the instant game room, such as string, not gift certificates, (e.g., acquisition of gift certificates with strong cashness, and acquisition of gift certificates, for instance, the substance of the transaction in question is different from the acquisition of gift certificates, and thus, it is not possible for the Plaintiff to obtain a certain amount of profit in the process of acquisition; and (ii) it is also prohibited that the former Act without permission changes the game machine that the operator of the game machine to operate without permission, even though it is not possible to deduct the total amount of sales in the instant game machine from the total amount of sales in which it can not be seen that the amount of sales in the instant game machine can be deducted from the total amount of sales in accordance with the substance of the transaction in question, i.e., payment of value-added taxes., and the total amount of gift certificates.

Ultimately, the consideration for the provision of service among cash paid by a game machine user is limited to the remaining part except for the value of merchandise coupons discharged from total cash.

(d)Calculation of the tax base;

The operational form of the game of this case is the possibility that a person who inputs cash in a game machine due to the speculative nature as seen earlier may be supplied with merchandise coupons due to the winning of games from time to time. Accordingly, the rate of the cost of providing services, which is the remaining part of the game excluding the value of the merchandise coupon, does not change from time to time. However, as a result of adding each transaction to the relationship with which the average winning rate is set at 102%, the merchandise coupon amounting to 102% of the total input amount of the game machine itself is paid to the game user. As such, the plaintiff, a game room business operator, receives the remaining cash after deducting the value of the merchandise coupon equivalent to 102% of the total input amount from the total input amount, as the sum of the cost of providing services, which is the use and provision of the game machine, from the total input amount.

Meanwhile, as seen above, the price for the service provided by the Plaintiff is calculated indirectly by reducing the price of the gift certificates paid out of cash input due to the characteristics of the transaction in the game in this case. The Value-Added Tax Act provides that the price for the tax base of value-added tax shall be the price in a case where the price for the supply of the gift certificates is paid in money, and in this case, there is no express provision as to what criteria the price for the supply of the gift certificates is determined. However, since the Plaintiff’s business operator purchases the gift certificates at a price below the face value and the rate of the gift is above 10% in this case, it is the substance of the transaction. Thus, in calculating the market price for the indirect calculation of the price for the service provided by the Plaintiff, it is reasonable to calculate the market price of the gift certificates in accordance with the market price which is not its face value in order to calculate the price for the service provided by the Plaintiff, it cannot be considered that the Plaintiff’s purchase of the gift certificates at the face value of KRW 500,500,00.

Therefore, among the total inputs in this case, the part received by the Plaintiff in return for the provision of services shall be the total inputs less the value-added tax from the total inputs after deducting the value of the gift x the market value of the gift certificate / the gift certificate. Therefore, if such inputs are clearly indicated, the tax base = gross inputs 】 [1?(%)/100 】 market value of the gift certificate / the gift certificate) ±1.1.

(4) Conclusion

Therefore, the tax base is the total input amount 】 (1-102/100 x 4,820/5,00) x 1.67% (tacks less than four decimal places) ±1.10,005 (i.e., 20,424,010 (i.e., 22,94, 652 x 0.0167) x 29,08,235 x 19,705 x 82,82,352 x 20552 x 205 x 205 x

0.0167, Mountainous Districts below Won, 198, 304, 752,673 (i.e., 18, 248, 663, 101 x 0.0167), and the value-added tax to be paid by the Plaintiff accordingly is as follows (as for the first period of 2005, the tax base calculated by the above method falls short of the sales amount reported by the Plaintiff).

Value-Added Tax>

The amount of tax for correction of the amount of tax for the previous return contained in the main sentence 294,130,300 329,088,235,495,793 (Correction Table-Report Table) x the sum of additional tax for tax rates (10%) 682,028 ? due tax amount ? 4,177,8213,495,793 + 682,028 ? due tax amount ? 4,177,8213,495,793 + 682,028

(2) 3,495,793,332,449, and the deadline for voluntary payment from January 25, 2006 to December 8, 2006, the date of notification 317 days elapsed from January 25, 2006 to December 8, 2006.

(Unit) in 2006

The sum of the tax base of the previous return amount of tax 270,450,000 304,752,673,430,267 (Correction Table-Report Table) x tax rate (10%) ? 482,980 ? due tax amount ? 3,913, 247 3,430,267 + 482,980 ? due tax amount ? 3,913, 247 3, 430, 267 + 482,980

10% of the amount of tax calculated for the failure to file a return (2) of the amount of tax calculated for the failure to file a return; 10% of the amount of tax calculated for the failure to file a return; 2.430, 267 139, 954 due date from July 25, 2006 until July 25, 2006 to December 8, 2006; 3,430,267,026.

Ultimately, among the dispositions of this case rendered by the Defendant to the Plaintiff, the part exceeding KRW 4,177,820 out of KRW 2,36,530,30 in 205 (tackers less than KRW 10 pursuant to Article 47(1) of the Management of the National Funds Act; hereinafter the same shall apply) and the part exceeding KRW 3,913,240 out of KRW 2,047,179,120 in 206 and the part exceeding KRW 135,253,350 in 205 should be revoked, respectively.

4. Conclusion

Therefore, the plaintiff's claim is reasonable within the above scope of recognition, and the remaining claims are dismissed as it is without merit. It is so decided as per Disposition by the assent of all participating Justices, applying Article 8 (2) of the Administrative Litigation Act and the proviso of Article 101 of the Civil Procedure Act to the burden of litigation costs.

Judges Lee Young-young (Presiding Judge)

1) In addition, a user may freely choose whether he/she continues to play a game using WIN points, where he/she received it as it is, exchange it in cash after receiving it with a merchandise coupon, and transfer it to another machine (i.e., moving a machine, considering that the rate of the winning machine differs by each game), and as long as WIN points above a certain point are set to be automatically discharged into a merchandise coupon, it would be an unreasonable result that, at the user’s option, the user may be the tax base, if he/she disregards the substance of the transaction of high exchange of merchandise coupon and does not deducts the value of merchandise coupon.