Early High Court Decision 2016J3277 ( November 11, 2016)

Greenhouse gas emissions reduction results constitute the supply of goods under the Value-Added Tax Act.

The results of reducing greenhouse gas emissions are "right with property value" and they constitute goods under the Value-Added Tax Act. It can be seen that the Corporation's payment of the instant payment to the Plaintiff, which reduces the Plaintiff's reduction performance and makes a report to the Government with the results added thereto, is the supply of goods under

Incheon District Court 2016Guhap5036 revocation of Disposition of Imposing Value-Added Tax

Co., Ltd.

OO Head of the tax office

oly 2017.15

2017.20

1. On February 15, 2016, the Defendant’s imposition of additional tax on value-added tax against the Plaintiff on February 15, 2011, each disposition of KRW 1,711,711, and KRW 2,126,872, and KRW 1,635,710 for the first period of January 2013, shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. Of the litigation costs, 60% is assessed against the Plaintiff, and the remainder is assessed against the Defendant, respectively.

Cheong-gu Office

The Defendant’s imposition of value-added tax against the Plaintiff on February 15, 2016 (including additional tax; hereinafter the same shall apply), KRW 4,052,95 (including additional tax; hereinafter the same shall apply), KRW 5,270,809 for the first term in 2012, and KRW 4,520,564 for the first term in 2013 shall be revoked.

1. Details of the disposition;

A. The Plaintiff received KRW 25,754,120 from the Corporation in February 2011, 201, KRW 34,583,30 in January 34, 2012, and KRW 31,73,390 in January 31, 2013 (hereinafter “the instant payment”). The foregoing Corporation received the instant payment from the Corporation through the form of purchasing the Plaintiff’s results of reducing carbon emissions (hereinafter “the Plaintiff’s results of reducing carbon emissions”). The government subsidies granted from the Corporation are not included in the instant tax base without filing a return on value-added tax pursuant to Article 13 of the Value-Added Tax Act.

B. On February 15, 2016, the Defendant: (a) deemed that the Plaintiff’s sales of the reduction performance constituted the supply of goods under the Value-Added Tax Act; and (b) revised and notified the Plaintiff of the value-added tax of KRW 4,052,95 (including KRW 1,71,711), KRW 5,270,809 (including additional tax 2,126,872); and (c) KRW 4,520,564 (including additional tax 1,635,710) for the first period of January 2013 (hereinafter “each disposition of this case”).

C. The Plaintiff filed a tax appeal on August 26, 2016 upon filing an objection on May 9, 2016, but was rendered a dismissal ruling on November 11, 2016.

[Ground of recognition] Unsatisfy, Gap 1-7 (including branch numbers for those with a tentative number), Eul 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the Plaintiff’s assertion

1) The result of the reduction cannot be granted property value because the carbon emission exchange was not established and operated at the time of the receipt of the instant payment, and is not managed as state property. Accordingly, the result of the reduction cannot be deemed as goods.

(ii) even if the reduction result becomes an object of transaction, it shall be non-taxable or exempt from value-added tax with financial instruments or securities that can be distributed only through the Exchange.

3) Although the term "government purchase" was used, in substance, it constitutes a national subsidy paid free of charge without a quid pro quo relationship, and thus, it is exempt from value-added tax.

4) Even if the instant payment is subject to value-added tax, the Plaintiff also becomes subject to value-added tax.

Since the payment was trusted without any cause attributable to the public opinion expressed by the Corporation that it is excluded from the tax base, the instant disposition is unlawful in violation of the principle of trust protection.

5) Preliminaryly, in light of the following circumstances: (a) there was no cause attributable to the Plaintiff in trust of the government’s guidance; and (b) there was no cause attributable to the Plaintiff to impose value-added tax on the said subsidies for eight years since 2007; and (c) there was no cause attributable to the Plaintiff that the Plaintiff was responsible for imposing value-added tax on the said subsidies; and

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) Whether the reduction results are "goods" under the Value-Added Tax Act.

㈎ 관련 법리

The former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; hereinafter referred to as "value-added Tax Act")

Article 1(1)1 of the Value-Added Tax Act provides for "supply of goods or services" as taxable object of value-added tax, and Article 1(2) of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24638, Jun. 28, 2013; hereinafter "Enforcement Decree of the Value-Added Tax Act") provides that "any tangible goods or services having property value" shall be subject to value-added tax, and Article 1(2) of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24638, Jun. 28, 2013; hereinafter "Enforcement Decree of the Value-Added Tax Act") provides that "any tangible goods or services have property value" as one of the intangible goods included in the goods. The existence of property value, which serves as the basis for determining whether goods are goods should be objectively determined by the economic utility value of the goods and should not be changed according to the subjective evaluation of the parties to the transaction.

㈏ 앞서 든 증거들에 을 2~4의 각 기재, 이 법원에 현저한 사실 및 변론 전체의 취지에 의하여 인정할 수 있는 다음과 같은 사정들에 비추어 보면, 감축실적은 '재산적 가치가 있는 권리'로서 부가가치세법상 재화에 해당한다고 봄이 상당하다.

1. KVVA (KOrea Vola) Project:

On June 192, 192, the United Nations Framework Convention on Climate Change, the Kyoto Protocol on the Climate Change, etc. on December 11, 1997, Korea, which was not a mandatory greenhouse gas reduction country, has been introduced to enhance industrial response to the emissions trading system in the future. On the basis of Article 14-2 of the Energy Use Rationalization Act (Article 29 of the current Energy Use Rationalization Act), the government, which was enacted on October 20, 2005, has introduced the provision on the registration and implementation of the reduction project, and the government, as well as the provision on the registration and management of the greenhouse gas emissions reduction business (Article 205-8 of the Ministry of Commerce, Industry and Energy, the Ministry of Commerce, Industry and Energy enacted on July 11, 2007, has introduced the provision on the reduction of greenhouse gas emissions from 30 years to 10 years to 20 years to 30 years to 20 years to 200.

② Some EU countries, which are greenhouse gas reduction countries under the Kyoto Protocol, are exempt from tax on the premise that the supply of services subject to value-added tax (the "rights" shall not be included in the "goods" under the Value-Added Tax Act of the EU countries) subject to the imposition of emission permits, and that the supply of emission permits under the Act on the Allocation and Trading of Greenhouse Gas Emission Permits constitutes the supply of goods under the Value-Added Tax Act. Under the domestic law, business operators can freely emission greenhouse gases, so it is difficult for them to recognize the economic value of greenhouse gas emission permits. However, if greenhouse gas emissions are regulated under the statutes, the economic value of greenhouse gas emission permits can be recognized as the right to escape from the regulation, and therefore, the economic value of greenhouse gas emission permits is created in accordance with statutes and government policies.

(3) On December 19, 2008, the Minister of Knowledge Economy established the criteria for government purchase and trading of greenhouse gas emissions (hereinafter “instant criteria”) under Article 208-361 of the Ministry of Knowledge Economy. Articles 4 and 6 of the instant criteria provide that the Government may purchase the results of reduction of greenhouse gas emissions certified by a business operator. Article 7 provides that the government purchase price shall be calculated based on the formula that takes into account the international market price fluctuation rate, the amount of reduction of greenhouse gas emissions, and the budget size of the relevant year, and Article 9 provides that the Government shall vest in the government. Article 11 provides that the Government may promote the sale or export of the results of reduction of greenhouse gas emissions from overseas carbon markets and greenhouse gas reduction programs, and Article 14 below provides that the government may sell the results of reduction of greenhouse gas emissions from overseas markets until the date of such increase or decrease of the actual amount of emission permits from the Government (see Article 14, at least the 3rd anniversary of the increase or decrease of the purchase price in overseas markets).

④ Although the instant standard was amended by the Ministry of Trade, Industry and Energy No. 2015-412 on July 29, 2015, the term “former Government Purchase” was changed to “government incentives” and several provisions were deleted regarding private transactions, it is deemed that it was made under a policy decision that it is difficult to treat “performance of reduction” as the same as the right to permit emission when introducing the greenhouse gas emissions trading scheme (the provision on the registration and management of greenhouse gas emissions reduction business was repealed on December 30, 2016), and it is difficult to view that the outcome of reduction is not goods, and it is difficult to view that the pertinent provision as seen earlier retroactively becomes invalid due to such amendment.

(2) Whether the result of the reduction is a financial product or securities subject to non-taxation or exemption;

The following circumstances can be acknowledged in full view of the purport of the entire evidence duly admitted.

In other words, the unit price of the reduction result is determined in consideration of the size of the budget for the year concerned, international market price, amount of reduction performance, etc. The amount finally paid by a registered company for the reduction result is determined by multiplying the unit price of the relevant company by its unit price; ② there is no clear evidence to deem the reduction result as falling under any of the financial and insurance services provided by Article 33 of the Enforcement Decree of the Value-Added Tax Act; ③ it is difficult to see that the reduction result of each year’s change of value has the character as a securities 2) indicating a fixed value similar to the currency, such as bills and checks, such reduction result is insufficient to recognize that it is a financial product or securities subject to non-taxation or tax exemption; and there is no other clear evidence to acknowledge it otherwise.

(3) Whether the instant payment constitutes a national subsidy included in the VAT tax base

Article 13(1) of the Value-Added Tax Act provides that the tax base shall be the case where the price for the supply of goods or services is paid in money. Article 48(1)4 of the Enforcement Decree of the Value-Added Tax Act provides that national subsidies shall not be included in the tax base. Article 48(1) of the Enforcement Decree of the Value-Added Tax Act provides that “The tax base of value-added tax includes all monetary values related to consideration, regardless of the pretext thereof, such as payments, charges, fees, and any other things received from the transaction partner,” and Article 13(10) provides that national subsidies that are not included in the tax base shall be national subsidies that are not directly related to the supply of goods or services. Whether the instant payment is included in the value-added tax base shall be determined according to whether the instant payment is the price for the supply of goods or services, or whether it constitutes the creation of a reduction

However, as seen earlier, the reduction performance is anticipated to be a future demand.

In full view of the circumstances such as: (a) a certain amount of property value; (b) a business entity has sold reduction performance to the Government; (c) a business entity is no longer able to sell or use reduction performance; and (d) a Government’s payment rate is proportional to the amount of reduction performance purchased by the Government; and (c) a payment rate is determined according to the international market price fluctuation rate; (d) an amount of reduction performance; and (e) a budget scale for the relevant year pursuant to Article 7 of the instant standard; and (e) it is reasonable to deem that the instant payment is paid in return for the provision of reduction performance to the Government by the business entity; and (e) it is difficult to regard it as the creation of

(4) Whether the principle of trust protection is violated

Generally, the principle of trust protection for tax authorities' actions in tax law relations.

In order to apply this, the tax authority should name the public opinion that is the subject of taxpayer's trust, and there is no reason for the taxpayer to believe that the name of the tax authority's opinion is justifiable and not attributable to the taxpayer, and the taxpayer must trust the opinion name and act in accordance with it, and the tax authority should make a disposition contrary to the above opinion name, thereby infringing the taxpayer's interest (see Supreme Court Decision 2007Du7741, Oct. 29, 2009).

The Corporation’s statement that the payment of this case is not subject to value-added tax

The facts sent are as seen earlier, however, the Corporation is not an agency authorized to impose value-added tax, and it is difficult to recognize that there was a public opinion statement by the tax authority only based on the above official document, and there is no clear evidence to acknowledge otherwise. Accordingly, the Plaintiff’s assertion in this part is not acceptable.

(5) Whether the imposition of penalty tax is lawful

Article 48(1) of the Framework Act on National Taxes provides that “Where an additional tax is imposed pursuant to this Act or other tax-related Acts and subordinate statutes, if a taxpayer has justifiable grounds for non-performance of his/her obligation, the pertinent additional tax shall not be imposed.” Accordingly, when an issue is whether a taxpayer has justifiable grounds for exempting an additional tax, it shall be determined depending on whether the taxpayer is unable to cause the failure of the taxpayer to perform his/her obligation due to the lack of knowledge of the obligation or the lack of expectation of performance of the obligation (see Supreme Court Decision 2014Du39760, Oct. 13, 2016). In addition, it is unreasonable for the taxpayer to be aware of the obligation due to a conflict of opinions arising from the interpretation of the tax-related Acts beyond the scope of mere site or misunderstanding thereof, or in cases where there are circumstances where it is unreasonable for him/her to expect the party to present the obligation, or where it is unreasonable to expect him/her to perform the obligation, and thus, it cannot be determined that there are justifiable grounds for neglecting 1614.

At the time when the Plaintiff received the instant payment from the Corporation, it was time for the Plaintiff to introduce the government purchase system for the results of reduction in accordance with the instant standard. In reality, there was no private business entity who wants to purchase the results of reduction, and there was no way to use the results of reduction other than government purchase, and it seems difficult to determine that the sales of the results of reduction constitutes the supply of goods subject to value-added tax, solely based on the statutory provisions or the instant standards, etc. Furthermore, in light of the fact that the Plaintiff expressed the view that the sales of the results of reduction conducted by the Corporation entrusted by the competent government office is not subject to value-added tax, it appears that the competent government office failed to make a legitimate judgment as to whether the sales of the results of reduction was the supply of goods subject to value-added tax. In light of this, the Plaintiff’s failure to know of the obligation under the tax law on the sales of goods subject to value-added tax, and thus, the portion of the penalty tax in

3. Conclusion

Therefore, the plaintiff's claim of this case is justified within the scope of the above recognition, and the remaining claim is dismissed as it is without merit. It is so decided as per Disposition.