[1] The purpose and scope of applying the zero tax rate of value-added tax for international trade

[2] Whether Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act presents an example of the method of payment for the convenience of tax administration (negative)

[3] Whether legal nature of the General Provisions of the Value-Added Tax Act exists (negative) and whether the General Rule 11-26-4 of the Value-Added Tax Act can be a correct interpretation of Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act (negative)

[4] The case holding that the value-added tax rate under Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act is not applicable where the above foreign corporation supplied a service to a domestic corporation designated by the above foreign corporation under a supply contract concluded with a foreign corporation with no domestic place of business and received the price by deducting

[1] Under the value-added tax system, the application of zero-rate tax rate is recognized as a general rule only for exports in accordance with the consumption taxation principle under the General Agreement on Tariffs and Trade (GT) in order to levy and collect value-added tax at the stage of production and supply in international trade of goods or services, and to prevent double taxation in cases where value-added tax is levied again in the country of importation. In such cases, it is recognized as exceptional and limited only for exports in accordance with the national policy purpose of encouraging foreign exchange to the extent that it does not impair foreign exchange management and the order of collection of value-added tax.

[2] Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 17041 of Dec. 29, 2000 and Presidential Decree No. 17460 of Dec. 31, 2001) as a requirement for applying zero-rate tax shall be strictly interpreted since it does not simply indicate a method of payment for the convenience of tax administration, and thus, it shall be strictly interpreted.

[3] General Rule of the Value-Added Tax Act is merely an administrative rule issued by the tax authority to interpret and enforce the tax-related laws, and it is not an effective law to bind the court or citizens. It cannot be recognized that the legal effect has been long since it has been implemented. General Rule 11-26-4 of the Value-Added Tax Act provides that zero-rate tax shall apply to cases where the price for supplying goods or services to non-residents or foreign corporations is deducted from the amount to be paid to the relevant non-residents or foreign corporations. Furthermore, whether it can be a national tax practice of the tax authorities, it shall not be deemed that the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 17041 of Dec. 29, 200) provides that the procedures for payment through foreign exchange banks shall be applied to zero-rate tax rate.

[4] The case holding that the value-added tax rate under Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act is not applicable where the above foreign corporation supplied a service to a domestic corporation designated by the above foreign corporation under a supply contract concluded with a foreign corporation with no domestic place of business and received the payment from the foreign corporation

[1] Article 11 of the Value-Added Tax Act / [2] Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by the Presidential Decree No. 17041 of Dec. 29, 200), Article 11 (1) 4 of the Value-Added Tax Act, Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by the Presidential Decree No. 17460 of Dec. 31, 201) / [3] Article 11 (1) 4 of the Value-Added Tax Act, Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by the Presidential Decree No. 17041 of Dec. 29, 200), Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by the Presidential Decree No. 17040 of Dec. 14, 2001)

[1] [2] Supreme Court Decision 83Nu409 delivered on December 27, 1983 (Gong1984, 341) / [3] 90Nu8459 delivered on April 12, 1991 (Gong1991, 1398) Supreme Court Decision 92Nu7580 Delivered on December 22, 1992 (Gong1993Sang, 640)

Korea Lao Co., Ltd. (Attorneys Lee Im-soo et al., Counsel for the defendant-appellant)

Samsung Head of Samsung Tax Office

Seoul High Court Decision 2004Nu18940 delivered on September 9, 2005

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

The grounds of appeal are examined.

1. According to the first instance judgment as cited by the lower court, the Plaintiff and the U.S.C. 2 concluded a supply contract (Dributshipship A) granting the Plaintiff the right to sell, distribute, and re-rate 10 U.S. C.C. 6 U.S.C. 100 U.S.C. 16 U.S.C. 6 U.S.C. 100 U.S.C. 6 U.S.C. 16 U.S.C. 6 U.S.C. 203 U.S.C. 16 U.C. 6 U.S.C. 103 U.S.C. 6 U.C. 6 U.S.C. 103 U.S.C. 6 U.S.C. 10 U.S.C. 6 U.C. 10 U.S.C. 6 U.S.C. 103 U.C. 6 U.C.

2. However, the judgment of the court below is difficult to accept for the following reasons.

First of all, the application of zero-rate tax under the VAT system is recognized as a matter of principle only for exports under the General Agreement on Tariffs and Trade (GT) in order to levy and collect value-added tax in terms of production and supply in international trade of goods or services and prevent double taxation in the case of again imposing value-added tax in the importing country. In the case of domestic consumption, it is recognized as an exceptional and limited case in compliance with the national policy purpose of foreign exchange management and the collection order of value-added tax in order to prevent double taxation.

Therefore, Article 11(1)4 of the Value-Added Tax Act provides that goods or services for acquiring foreign currencies other than those under subparagraphs 1 through 3 shall be subject to zero tax rate as prescribed by the Presidential Decree. Accordingly, Article 26(1)1 of the former Enforcement Decree of the Value-Added Tax Act (amended by the Presidential Decree No. 17041 of Dec. 29, 2000) which applies to the taxable period of the Value-Added Tax Act shall be supplied to non-residents or foreign corporations having no domestic place of business in the Republic of Korea and shall be paid in Korean currency at a foreign exchange bank, and Article 26(1)1 of the former Enforcement Decree of the Value-Added Tax Act (amended by the Presidential Decree No. 17460 of Dec. 31, 201) provides that the payment shall be paid in Korean currency at a foreign exchange bank, and each of the above provisions provides that the payment shall be paid in Korean currency at a foreign exchange bank.

In addition, General Rule 11-26-3 of the Value-Added Tax Act provides that where goods or services are supplied in Korea to a person designated by a non-resident or foreign corporation having no domestic place of business and the price is paid in Korean currency through a foreign exchange bank from the relevant non-resident or foreign corporation, the zero tax rate shall apply in cases where the price is deducted from the amount to be paid to the relevant non-resident or foreign corporation. However, General Rule of the Value-Added Tax Act provides that the tax rate shall apply in cases where the price is deducted from the amount to be paid to the relevant non-resident or foreign corporation. However, General Rule of the Value-Added Tax Act is merely an administrative rule that issued the criteria for interpretation and enforcement of the tax law within the tax authority, and it is not an effective law that binds the court or the national (see, e.g., Supreme Court Decision 92Nu7580, Dec. 22, 1992). General Rule 11-26-4 of the Value-Added Tax Act provides that the above zero tax rate shall not be applied.

Therefore, in light of these legal principles, the judgment of the court below that the transaction in this case is subject to zero tax rate under Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act is erroneous in the misapprehension of legal principles as to the interpretation and application of the above provisions of the Enforcement Decree of the former Value-Added Tax Act concerning the subject of zero tax rate, and the defendant's ground of appeal disputing this point is justified (In addition, it points out that the former Enforcement Decree of the Value-Added Tax

3. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Young-ran (Presiding Justice)