Seoul Administrative Court-2016-Gu Partnership-73672 (Law No. 19, 2017)

Whether claims collection services provided as part of asset-backed business by a credit information company are subject to value-added tax.

Since debt collection services provided as part of asset-backed securitization business by a credit information company are subject to value-added tax exemption, the rejection of correction of this case is unlawful.

Article 12 of the Value-Added Tax Act

2017Nu5237 Demanding revocation of a disposition rejecting rectification

AA and 3 others

Defendant, Appellant

BB Head of the tax office and two others

March 28, 2018

May 2, 2018

1. All appeals by the Defendants are dismissed.

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

1. Purport of claim

The disposition rejecting the correction of value-added tax in the attached Form 1, which the Defendants filed against the Plaintiffs, shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. All of the plaintiffs' claims are dismissed.

1. Details of the disposition;

The reasoning for this Court’s explanation is as follows, except for the following amendments, i.e., from 8 to 3 last deeds in the first instance court’s judgment: (a) the developments leading up to the disposition is as stated in Article 8(2) of the Administrative Litigation Act; and (b) the text of Article 420 of the Civil Procedure Act.

○ The term “asset management projects” under the 3st place below shall be the term “asset management projects”.

○ The last 3 pages of the “statements A to 4” shall be read as “written evidence A to 1 to 5 (including each number; hereinafter the same shall apply)”.

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

1) The primary argument

The claims collection services provided to the plaintiffs pursuant to the contract of this case (hereinafter referred to as "the services of this case") constitute tax exemption because they are provided as part of "asset securitization business or asset management business or asset management business conducted by special purpose companies and asset managers under the Asset Securitization Act" under Article 33 (1) 15 of the former Enforcement Decree of the Value-Added Tax Act.

2) Preliminary assertion

Even if the instant service does not fall under Article 33(1)15 of the former Enforcement Decree of the Value-Added Tax Act, the Plaintiffs provided the same or similar services as the financial and insurance services under Article 33(1) of the said Enforcement Decree, and thus, the instant service constitutes tax-free goods pursuant to Article 33(2) of the said Enforcement Decree.

B. Relevant statutes

Attached Form 2 shall be as listed in attached Table 2.

C. Determination

1) Relevant regulations and legal principles

Under the principle of no taxation without law, the interpretation of tax laws shall be interpreted in accordance with the text of the law, barring special circumstances, and shall not be extensively interpreted or analogically interpreted without reasonable grounds. However, if it is necessary to clarify the meaning through mutual interpretation between the laws and regulations, it is inevitable to make a combined interpretation in light of the purpose of legislation and purpose to the extent that it does not undermine the legal stability and predictability pursued by the principle of no taxation without law (see Supreme Court Decision 2016Da212722, Oct. 12, 2017).

Article 12 (1) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; hereinafter the same) provides for "supply of goods or services exempt from value-added tax" (Article 11). Article 33 (1) of the former Enforcement Decree of the Value-Added Tax Act provides that "financial and insurance services under Article 12 (1) 11 of the Act shall be those falling under any of the following subparagraphs." Article 12 (1) of the former Enforcement Decree provides that "financial and insurance services under Article 12 (1) 11 of the Act shall be those falling under financial and insurance services under subparagraph 11 of the same Article." Article 12 (1) provides that "property securitization services and asset management services conducted by special purpose companies and asset managers under the Asset Securitization Act (Article 15)" (Article 12 (1) 3). Meanwhile, Article 10 (1) of the Asset Securitization Act provides that "the asset securitization business shall be entrusted to asset managers falling under subparagraph 13 (2) of subparagraph 4).

2) Whether the instant service constitutes Article 33(1)15 of the former Enforcement Decree of the Value-Added Tax Act or Article 33(1)15 of the former Enforcement Decree of the Value-Added Tax Act is subject to value-added tax exemption, in light of the following circumstances that can be seen by comprehensively taking into account the facts acknowledged in the context of the disposition '1.' and the overall purport of the pleadings as stated in the evidence Nos. 2, 3, 6, and 8 as well as the following circumstances:

① According to the above provisions of the Value-Added Tax Act, the term "business of asset-backed securitization business and asset management business conducted by special purpose companies and asset managers under the Asset-Backed Securitization Act" is exempted from value-added tax. The legislative intent of the above provision is to support the liquidation of non-performing loans by financial institutions through asset-backed securitization business in terms of taxation.

② The term “asset-backed securitization” means a series of acts in which a special purpose company receives securitization assets from an asset holder to issue asset-backed securities based on the transfer of securitization assets and pays principal and interest or dividends on asset-backed securities with profits or borrowings, etc. from the management, operation, and disposal of the relevant securitization assets (Article 2(1)(a) of the Asset-Backed Securitization Act). The term “management of securitization assets” includes debt-backed claims, and the term “asset collection” must be premised on the collection of securitization assets constituting the underlying assets in order to ensure the successful implementation of the asset-backed securitization business. Such debt collection business constitutes a major part of the asset-backed securitization business and asset management business under the Asset-Backed Securitization Act, and the provisions of the Value-Added Tax Act and subordinate statutes do not stipulate that the special purpose company and asset manager must directly perform the pertinent business. Rather, it is difficult to conclude that the value-added tax should be exempted only when a special purpose company or asset manager directly performs the debt-backed business as an assistant to perform the debt-backed business as the Plaintiffs.

③ The National Tax Service also authoritative interpretation that a credit information company is exempt from value-added tax pursuant to Article 33(1)15 of the former Enforcement Decree of the Value-Added Tax Act (value-added Tax-265, Mar. 22, 2013; Value-Added Tax-1058, Nov. 8, 2013) regarding claims collection services performed by a credit information company as an caretaker under the direction and control of a caretaker under the Asset-Backed Securitization Act or caretaker (value-added tax-265, Mar. 22, 2013; Value-Added Tax

④ According to the above relevant statutes, a special purpose company, etc. shall entrust the management of securitization assets to a caretaker pursuant to a asset management entrustment agreement. The caretaker is limited to an originator, a credit information company permitted to engage in the business referred to in Article 4 (1) 1 through 3 of the Credit Information Act, a professional person engaged in asset management business, and a person meeting the requirements prescribed by Presidential Decree. Article 4 (1) 1 through 3 of the Credit Information Act defines the business as "credit inquiry business, credit investigation business, and claims collection business." Thus, for a credit information company to become a caretaker, a credit information company must obtain permission for credit inquiry business, credit investigation business, and claims collection business as provided in Article 4 (1) of the Credit Information Act. However, there is no dispute between the parties that the plaintiffs obtained permission for credit inquiry business as a credit information company and did not become a caretaker under the Asset-Backed Securitization Act. However, in this case, it is difficult for the Plaintiffs to view that the Plaintiffs did not constitute "property management business, and asset management business," under the Asset-Backed Securitization Act merely because they were entrusted with claims collection assistance business of the caretaker.

⑤ The Korea Asset Management Corporation, a caretaker, appointed the Plaintiffs as a subsidiary caretaker, and the Plaintiffs concluded this case’s agreement withCC, a special purpose company, and carried out the business of collecting securitized assets accordingly. According to the instant agreement and the Asset Management consignment agreement (Article 2(1)5 and Article 2(2)), the Korea Asset Management Corporation, a caretaker, shall be responsible for the management and supervision of the Plaintiffs’ claims collection business and the Plaintiffs’ claims collection business. In light of these circumstances, the instant service appears to have been performed as an assistant to perform part of the Plaintiff’s assets securitization business. Even if the Korea Asset Management Corporation was not in the position to actually direct or supervise the Plaintiffs, the performance assistant is sufficient if the obligor was a person performing the obligation under the obligor’s involvement in the obligor’s order and supervision, and thus, it is not problematic whether the obligor was subordinate or independent from the obligor (see, e.g., Supreme Court Decisions 201Da130, May 26, 2011; 2013Da4757, Apr. 27, 2017, 2018).

(6) Meanwhile, the former Enforcement Decree of the Value-Added Tax Act provides support for the liquidation of non-performing loans by financial institutions through asset-backed securitization business in terms of taxation, and the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 24359, Feb. 15, 2013) provides support for financial institutions to settle non-performing loans in terms of taxation, and the former Enforcement Decree of the Value-Added Tax Act still maintains tax exemption for assets-backed securitization business even though it excludes claims collection business from tax exemption, it can be seen that the former Enforcement Decree of the Value-Added Tax Act provides different services for assets-backed securitization business and claims collection business such as general financial institutions under the Value-Added Tax Act. If value-added tax is imposed on claims-backed securitization business, which is part of the assets-backed business, on the ground that the

3) Even if the instant service falls under Article 33(2)2 of the former Enforcement Decree of the Value-Added Tax Act, even if the instant service does not fall under Article 33(1)15 of the former Enforcement Decree of the Value-Added Tax Act, the instant service constitutes subject to value-added tax exemption under Article 33(2) of the former Enforcement Decree of the Value-Added Tax Act for

① Article 33(1) of the former Enforcement Decree of the Value-Added Tax Act lists financial and insurance services exempt from value-added tax, and Article 33(2) of the same Act provides, “If a person who runs a business other than the business referred to in any subparagraph of paragraph (1) provides services identical or similar to the financial and insurance services specified in Article 12(1)11 of the Act, such services shall be deemed included in the financial and insurance services specified in Article 12(1)11 of the Act.” This provision, unlike other services, provides for the expansion of tax exemption by exempting the value-added tax, even where a business operator who does not fall under Article 33(1)

2) The Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24638, Jun. 28, 2013; Presidential Decree No. 24638, Jul. 1, 2013; Article 2 of the Addenda provides that "from the division of goods or services supplied or supplied after enforcement, or the return on importation of such goods or services after enforcement, it shall apply." Of the instant disposition, Article 40(2) of the Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 2010, Jun. 28, 2013); however, Article 33(2) of the Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 2010

② In light of the legislative intent of Article 33(2) of the former Enforcement Decree of the Value-Added Tax Act and the fact that “Do” is being used for the investigation of “Do” by stipulating “Do” (in the case of providing services identical or similar to the financing and insurance services specified in the same paragraph as incidental to the main business). In addition, “case of providing services incidental to the main business” and “case of providing services in parallel with the main business” are also subject to the exemption of value-added tax. However, considering the overall arguments in each statement of evidence Nos. 2, 3, 5, 9 through 12, the instant service is likely to be deemed to have been provided along with the general debt collection business, which is the main business of the Plaintiffs, and thus, it constitutes value-added tax under Article 33(2) of the former Enforcement Decree of the Value-Added Tax Act.

4) Sub-committee

Therefore, the instant disposition that the Defendants deemed the instant service to be subject to value-added tax is unlawful.

3. Conclusion

Thus, the plaintiffs' claims shall be accepted in its entirety due to the reasons. The judgment of the court of first instance is just in conclusion, and the appeal by the defendants is dismissed in its entirety due to the lack of reason.