Monaco Co., Ltd. (Law Firm Rate, Attorneys Lee Jong-soo et al., Counsel for the plaintiff-appellant)

Head of the tax office (Attorney Lee Jae-soo et al., Counsel for the plaintiff-appellant)

October 6, 2009

Seoul Administrative Court Decision 2003Guhap11704 decided Oct. 20, 2005

Seoul High Court Decision 2005Nu26337 Decided August 31, 2007

Supreme Court Decision 2007Du20379 Decided December 24, 2008

1.The judgment of the first instance shall be modified as follows:

The Defendant’s disposition of imposition of value-added tax of KRW 4,804,141,70 in 200 against the Plaintiff on December 1, 2001, which exceeds KRW 139,847,325, shall be revoked.

2. All costs of the lawsuit shall be seven minutes, and one of which shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

1. Claim: It is identical to the Disposition No. 1 (the plaintiff sought revocation of the original disposition, but reduced the claim in the first instance after remanding the case, and on the other hand, sought revocation of the imposition of value-added tax in 2000, other than the above claim, which became final and conclusive by the Supreme Court prior to remand).

2. Purport of appeal

A. The plaintiff shall revoke the part of the judgment of the court of first instance against the plaintiff. The defendant shall revoke on December 1, 2001 the part of KRW 4,538,559,350 of the disposition of imposition of KRW 4,804,141,70 of value-added tax of KRW 200 against the plaintiff.

B. Defendant: The part against the Defendant in the judgment of the first instance is revoked, and the Plaintiff’s claim corresponding to the revoked part is dismissed.

1. Details of the disposition;

A. The Plaintiff is a corporation established on July 5, 199 for the purpose of wholesale, retail, and export and import of precious metals and gold bullion.

B. The Plaintiff’s declaration of value-added tax for the second period of 2000

(1) From October 27, 200 to November 7, 2000, when the Plaintiff sold the gold bullion amounting to KRW 961,150,000 (hereinafter “instant transaction”), the Plaintiff reported that Nonparty 2 did not collect the pertinent value-added tax from Nonparty 2 by deeming the instant transaction as a transaction subject to zero-rate tax under the Value-Added Tax Act, on the ground that Nonparty 2 presented a purchase approval issued by the head of foreign exchange bank.

(2) From July 18, 200 to October 19, 2000, the Plaintiff directly exported the total amount of KRW 2,385,870,133 kilograms to Nonparty 8 companies located in Hong Kong, and filed a report by applying the zero-rate tax rate to the pertinent sales amount.

(3) From October 23, 200 to December 28, 2000, the Plaintiff reported that the Plaintiff purchased gold bullion amounting to KRW 29,263,195,00 in total from Nonparty 1 Co., Ltd. and received a tax invoice of Chapter 34 (hereinafter “instant tax invoice”) in total, and received KRW 2,926,319,50 in total.

C. The defendant's corrective disposition

On the other hand, the Defendant: (a) determined that: (b) Non-Party 2 Company denied the application of zero tax rate under the Value-Added Tax Act to KRW 2,961,150,00, the supply price of the instant transaction, which is the value of the gold bullion in the process of evading the value-added tax (hereinafter “the part related to purchase approval”); (c) Plaintiff’s direct export of gold processed products, without exporting the actual processed products; and (d) sold domestically the amount equivalent to the export goods declared by the Plaintiff; (b) the total inventory quantity [the basic stock purchase + the sale + the sale + the closing stock] 381.465 kilograms (3,836,561,732 won); and (c) Plaintiff 200, the sales amount of KRW 2939,2939,299,390,399,294, and the sales amount of KRW 29,39,299,29,299,39,294,29,394, etc.

[Ground of Recognition] Facts without dispute, Gap evidence 1, Eul evidence 2-1, Eul evidence 8-1 through 13, Eul evidence 1, 2-2, Eul evidence 4-2, Eul evidence 5-1, Eul evidence 6-1, and the purport of the whole pleadings

2. Relevant statutes;

It is as shown in the attached Table related statutes.

3. Whether the instant disposition is lawful

A. The part concerning the purchase approval

(1) The parties' assertion

(A) The plaintiff

The letter of approval for purchase presented to the Plaintiff by Nonparty 2 was issued by the foreign exchange president, who is a reliable agency, and only provided gold bullion in trust to the Plaintiff, and there was no public contest with Nonparty 2 regarding the illegal issuance of the letter of approval for purchase, and it was not known that the instant transaction was related to the evasion of value-added tax. As such, gold bullion supplied to Nonparty 2, based on the letter of approval for purchase, is subject to zero-rate tax.

(B) Defendant

The Plaintiff, knowing that the purchase approval was issued unlawfully, conspired with Nonparty 2 Co., Ltd. to evade taxes, or made the instant transaction while knowing the fact that Nonparty 2 would not export gold bullion purchased from the Plaintiff, and thus, the instant transaction is not subject to zero tax rate.

(2) Facts of recognition

(A) The Plaintiff’s representative director’s experience and Plaintiff’s transaction behavior

After the Plaintiff’s representative director at the time of the instant transaction, Nonparty 3, the Plaintiff’s representative director at Busan in 193, operated Nonparty 4 Co., Ltd., Plaintiff Company (Establishment on July 5, 199), and Nonparty 5 Co., Ltd. (hereinafter “Nonindicted 5 Co., Ltd.”), and operated gold bullion wholesale and export-import business. Nonparty 3, while engaging in gold bullion trade for a long period of time, purchased zero-rate tax in the form of gold bullion trading and traded gold bullion through a designated coal company, and was aware of the act of evading zero-rate tax transaction in the manner of closing its business without paying value-added tax. Nonparty 3 was aware of the act of purchasing gold bullion in the name of Nonparty 4 Co., Ltd. before and after the instant taxable period, Nonparty 3 purchased gold bullion in the name of Nonparty 1, 199, and Nonparty 5 Co., Ltd., Ltd. (hereinafter “Nonindicted 3”) and selling gold bullion again in the name of Nonparty 2, 2001.

(B) Transaction with Nonparty 2 Company and distribution process after the date

1) The Plaintiff sold gold bullion to Nonparty 2 Co., Ltd., and Nonparty 2 Co., Ltd. sold gold bullion to secondary wholesalers at zero tax rate.

(unit: kg, thousand won)

본문내 포함된 표 일자 수량 소외 7 주식회사 → 원고 원고 → 소외 2 주식회사 소외 2 주식회사 → 2차도매업자 금액 금액 매출처 금액 2000. 10. 27. 45 457,396 457,200 소외 1 주식회사 458,415 2000. 11. 7. 50 501,966 503,950 소외 1 주식회사 505,350 합계 95 959,362 961,150 ？ 963,765

The non-party 2 corporation purchased the above gold bullion at zero tax rate on the basis of the letter of approval for purchase illegally issued through a false export contract, etc., and sold it to the second wholesaler immediately as it is at zero tax rate, and the second wholesaler sold the entire gold bullion at zero tax rate in Korea.

2) Gold bullion sold at zero tax rate as the instant transaction was transported directly by Nonparty 1 Company without going through Nonparty 2 Company, and all of the transaction was conducted on the same day. The transaction amount was first transferred by the purchaser company, which was made by the sales company in advance.

3) Nonparty 1 Co., Ltd. was accused of evading the value-added tax on the above taxable sales.

(c)the omission of issuance of a certificate of partition for the refund of customs duties;

1) The importer of gold bullion for export shall pay 3% of customs duties at the time of import, and the exporter shall be entitled to refund customs duties at the time of the final export of the gold bullion. Therefore, in cases where gold bullion importer sells gold bullion without directly exporting it, it is common to obtain a certificate of subdivision from the customs office so that the purchaser may obtain a refund of customs duties, separately from the value of the gold bullion, and then deliver it to the purchaser.

2) However, while the Plaintiff purchased gold bullion from Nonparty 7 Co., Ltd., paid an amount equivalent to KRW 247,917,445, which is KRW 3% of the purchase amount, and received a certificate of subdivision, the Plaintiff did not receive an amount equivalent to the customs duties from Nonparty 2, but did not issue a certificate of subdivision.

[Ground of recognition] Facts without dispute, Eul's entries, Eul's evidence of Nos. 5, 17, 19, 20, 23 through 25, 31, 38, 39, 41 (including each number), and the purport of the whole pleadings

(3) Determination

According to Article 11(1)1 of the Value-Added Tax Act and Article 24(2)1 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 17827, Dec. 30, 2002), the zero-rate tax rate shall apply to the supply of exported goods. A business operator shall also include the exported goods in a local letter of credit or a purchase confirmation as prescribed by the Ordinance of the Ministry of Finance and Economy and shall apply the zero-rate tax rate. On the other hand, the application of the zero-rate tax under the Value-Added Tax Act shall be allowed only for exports to prevent double taxation. In the case of domestic consumption, it is recognized as exceptional and limited only for exports to the extent that it conforms to the national policy purpose of foreign exchange management and collection order of the value-added tax (see Supreme Court Decision 83Nu409, Dec. 27, 1983). In light of the purport of applying the zero-rate tax rate and the relevant statutes, where a supplier of goods is aware of a false purchase or sale order without being issued a defect within 200.

In light of the above legal principles, the following circumstances revealed in light of the above facts. ① The non-party 2 corporation purchased gold bullion for export from the plaintiff on a short-term basis using a defective purchase approval form based on a false export contract, etc.; ③ the non-party 3, the representative director of the plaintiff, purchased gold bullion for a short-term period of time, and illegally distributed it in Korea without export; ② the transaction between the non-party 2 corporation and the taxable seller of gold bullion is conducted on the same day; ② the transaction between the factory owner of gold bullion and the taxable seller of gold bullion was conducted on the same day; the transaction price was transferred in advance; and the gold bullion was transported to the factory owner. The transaction was conducted in a rare form without prior public offering or awareness; ③ the non-party 2 corporation was aware of the fact that the non-party 2 was entitled to the non-party 2 corporation's purchase approval form, and thus, the non-party 2 corporation did not receive the tax evasion certificate from the non-party 2 corporation and the non-party 2 corporation were entitled to the tax evasion approval form.

B. Direct export portion

(1) The parties' assertion

(A) The plaintiff

The direct export portion of this case is a normal export that was exported to Nonparty 8 after the Plaintiff filed an export declaration with the head of the competent customs office and received the export payment, and thus is subject to zero tax rate.

(B) Defendant

Since it is unclear whether Nonparty 8, the other party to the direct export portion of this case, actually exists and whether the exported goods of the Plaintiff are processed products, the direct export portion of this case shall be deemed not exported and shall be excluded from the subject of zero-rate tax application.

(2) Facts of recognition

(A) From July 18, 200 to October 19, 2000, the Plaintiff filed an export declaration with Nonparty 8 on the fact that the gold-processed products amounting to KRW 2,385,870,133 kilograms are exported to Nonparty 8, and the goods marked as gold processed products are exported to air services through Pexpex or Bring Korea, which is a transport company, and the said goods were cleared through customs in Hong Kong, and the Plaintiff received the amount similar to the above product export declaration price in foreign currency.

(B) During the period from July 2001 to August 2002, the head of Seoul Customs Office conducted a tax investigation on the Plaintiff’s direct export portion, but failed to secure evidence that goods exported by the Plaintiff were not processed gold products. As long as certain goods were exported from Hong Kong and cleared down into Hong Kong, Nonparty 8 issued a disposition of false export suspicion against the Plaintiff on the ground that the fact of export by the Defendant is not denied even if the Defendant is a floating company.

(C) Meanwhile, in relation to the direct export portion of this case on September 2004, the prosecution charged Nonparty 3 with the charge of “non-party 8, etc. with false declaration as if the processed gold metal products imported as raw materials for foreign exchange earnings were exported to the non-party 8 company, etc., and the fact that they were evaded value-added tax by internal sales and received unfair refund,” but the Seoul Western District Court acquitted the non-party 3 on the ground that there was no proof of crime on December 15, 2005, and the appeal and appeal against the above judgment were all dismissed, and the judgment of innocence became final and conclusive.

[Reasons for Recognition] Facts without dispute, Gap's entry, Gap's evidence Nos. 8, 9, 12, 13, 15, 17, 19, 23, 29, 30, 34, 42, 43, 45, 48, Eul's evidence No. 10 (including each number), and the purport of the whole pleadings

(3) Determination

In this regard, the plaintiff has the burden of proving that the direct export of this case was distributed in Korea without exporting the direct export of this case. Thus, even if the actual importer of the direct export of this case could be a third party who is not the nominal owner of the export contract, but the third party who is not the nominal owner of the export contract, and the actual export goods have not been verified, it cannot be readily concluded that the direct export of this case was distributed in Korea without immediately exporting the direct export portion. Rather, as seen earlier, the plaintiff filed an export declaration on the processed goods of the amount corresponding to the direct export portion and exported the goods, and the goods were cleared through customs in Hong Kong, and the amount equivalent to the price of the goods was deposited to the plaintiff, the plaintiff is more likely to actually export the direct export portion of this case. Accordingly, the part concerning the direct export portion of the disposition of this case is unlawful.

C. The processed tax invoice part

Article 1(1)1 of the Value-Added Tax Act provides that “the supply of goods” is subject to value-added tax, and Article 6(1) provides that “the supply of goods shall be a delivery or transfer of goods on all contractual or legal grounds.” In light of the characteristics of value-added tax as multi-stage transaction tax, delivery or transfer under Article 6(1) of the Value-Added Tax Act includes all acts causing the transfer of rights to use and consume goods, regardless of the existence of actual profits (see, e.g., Supreme Court Decisions 85Nu286, Sept. 24, 1985; 9Du9247, Mar. 13, 2001; 9Du9247, Mar. 16, 201). In this case, the issue of whether a specific transaction among a series of transactions constitutes the supply of goods under the Value-Added Tax Act shall be determined on the grounds that there is no specific transaction under Article 29(1)2 of the Value-Added Tax Act, including the purpose and attitude of each transaction party, the allocation, and the payment subject, and payment.

In full view of the purport of each of the evidence of this case, the plaintiff purchased gold bullion equivalent to KRW 29,263,195,000 from October 23, 200 to December 28, 200, and paid the price in full, and then received Chapter 34 of the tax invoice of this case from the non-party 1 corporation, and the plaintiff sold the gold bullion to the non-party 9 corporation, etc., and distributed certain profits in the process. Considering these facts and records in light of the legal principles as seen earlier, the non-party 1 corporation established with a nominal representative director, and closed its business after trading high gold bullion in a short period (three months) or the transportation route of gold bullion subject to the supply of the tax invoice of this case was stated as the plaintiff from the non-party 7 corporation to the non-party 2 corporation and the non-party 1 corporation through the non-party 1 corporation, but it is difficult to view that the gold bullion supplied from the non-party 27 corporation to the non-party 1 corporation was directly traded 1 corporation or the plaintiff.

(3) Since the defendant alleged that the above tax invoice was no more than 10 billion won since it was closed on November 30, 200, and thereafter no more than 200,000 won, it was determined by the substance of the pertinent fact regardless of registration or declaration under the Value-Added Tax Act (see Supreme Court Decision 97Nu20625 delivered on September 18, 1998), the head of the competent district tax office merely accepted the tax invoice as to the legitimate application for registration, and issued the business registration certificate or censorship thereof was merely 00,000,000,0000,0000,0000,00000,00000,0000,0000,0000,0000,0000,000,000,0000,000,000,000,000,000,000,000 won.

Therefore, the part relating to the disposition of this case, which was taken on the premise that the tax invoice of this case was prepared as a process without actual transaction, is unlawful.

(d) Calculation of the justifiable tax amount; and

Therefore, the zero-rate tax rate shall apply to the direct export portion, and the legitimate tax amount shall be calculated by deducting the input tax amount on the tax invoice of this case, and the second-year value-added tax in 2000 shall be either the entry of the “justifiable Tax Amount” in the attached Form 2 and 139,847,325 won.

4. Conclusion

Therefore, the part of the disposition of this case which exceeds the above amount of 139,847,325 won among the disposition of this case is unlawful. Thus, the plaintiff's claim of this case is justified, and the judgment of the court of first instance is unfair differently from this conclusion, and it is so decided as per Disposition by the decision of the court of first instance as above.

[Attachment]

Judges Yoon Jae-ho (Presiding Judge) (Presiding Judge)