Seoul High Court 2015Nu54195 (27 April 2016)

Specialized store operation contracts fall under management entrustment contracts, and the key amount is a kind of penalty, not rent, which is not subject to value added tax.

The key amount is a kind of penalty paid for the compensation for the damage suffered by the plaintiff, the truster, in the event that the management consignment agreement evaluates the result of the trustee's entrusted affairs based on monthly sales and the standard is less than the minimum sales.

Article 7 (Supply of Services)

2016Du39900 Revocation of Disposition of Imposition of Value-Added Tax

AAA Corporation

BB Director of the Tax Office

Seoul High Court Decision 2015Nu54195 Decided April 27, 2016

All appeals are dismissed.

The costs of appeal are assessed against the Defendants.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

The court below, citing the reasoning of the judgment of the court of first instance, found facts as stated in its holding, and found it in light of the developments leading up to the introduction of the contract for the operation of the specialized store of this case, the current status of the operation of the specialized store of this case, and the process of incorporation of the monthly minimum sales system into the contract, etc., the court below held that each of the disposition of this case was unlawful on the ground that each of the disposition of this case based on the premise that the plaintiff received a certain percentage of money from the sales of the business in return for the entrustment of management and payment of the sales in return for the handling of delegated affairs by the plaintiff to a specialized business operator who has a certain know-how while engaging in the business necessary for a certain amount of know-how, etc., and that the contract for the operation of the specialized store of this case constitutes a management entrustment agreement where the plaintiff entrusted the management of the specialized business operator who has a know-how and paid a certain amount of money out of the sales in return for the handling of entrusted affairs.

Examining the records in light of the relevant legal principles, the above determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles on the supply of services under the Value-Added Tax Act, or by failing to exhaust all necessary deliberations on the legal nature

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.