Seoul High Court 2008Nu21999 (Law No. 9.17, 2009)

Violation of the principle of good faith for illegal gold bullion transactions is not only an exporter but also an entrepreneur who sells domestic zero-rate sales through a purchase certificate (Reversal and return).

If a gold bullion exporter knew that there was an illegal transaction at the entire stage or did not know of it due to gross negligence, the claim for deduction and refund of input tax amount cannot be paid in violation of the principle of good faith. Such legal principles are equally applicable to not only exporters but also to a business operator who sells the domestic zero-rate tax through a purchase confirmation (defensing and returning).

The revocation of revocation of imposition, including value-added tax, 209Du19304

-Appellant

○○ Co., Ltd.

-Appellee

○ Head of tax office

Seoul High Court Decision 2008Nu21999 Decided September 17, 2009

July 14, 2011

The part of the lower judgment against the Defendant pertaining to the imposition of value-added tax, excluding additional taxes, such as failure to submit a list of total tax invoices, shall be reversed, and that part of the case shall

The plaintiff's appeal and the defendant's remaining appeal are dismissed.

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

1. Plaintiff’s ground of appeal

Article 21(2) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter the same) provides that tax invoices, account books, and other documents may be estimated if there is no necessary tax invoices, account books, or other documents in calculating the tax base or if there is no essential part in calculating the tax base under subparagraph 1. Article 21(2) of the former Value-Added Tax Act provides that the details of tax invoices, account books, and other documents are obviously false in light of the size of facilities, employees, raw materials, goods, products, or all kinds of charges. Article 69(1)4(e) of the Enforcement Decree of the Value-Added Tax Act provides for a method of estimating under the Value-Added Tax Act; Article 69(1)4(1)4(e) of the former Enforcement Decree of the Value-Added Tax Act provides for a method of calculating the value-added ratio and value-added ratio for each type of business and region for a given period.

On the other hand, in order to impose estimated tax, the method and content of the estimation must be reasonable and reasonable to reflect the actual amount nearest to the truth (see, e.g., Supreme Court Decisions 94Nu15202, Jul. 30, 1996; 96Nu15756, Jun. 27, 1997).

According to the reasoning of the judgment below, after compiling the adopted evidence, the court below acknowledged the facts as stated in its reasoning. The court below determined that the defendant's estimation of the plaintiff's sales amount pursuant to Article 69 (1) 4 (e) of the Enforcement Decree of the Value-Added Tax Act cannot be deemed unlawful on the ground that the purchase account books of the plaintiff's height alone cannot be calculated based on the plaintiff's integrity, quality production, and silver sales. In light of the aforementioned legal provisions and legal principles, the above fact-finding and determination of the court below are just, and there were no errors by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules,

The remainder of the grounds of appeal by the plaintiff is merely an error of fact-finding that belongs to the exclusive authority of the court below, which is a fact-finding court, and thus cannot be a legitimate ground

2. As to the Defendant’s ground of appeal

A. As to the fact that the instant tax invoice was a false tax invoice

According to the reasoning of the judgment below, the court below determined that the tax invoice 832 (hereinafter referred to as the "tax invoice of this case") issued by the plaintiff in purchasing gold bullion equivalent to the total amount of KRW 595,747,170,486 (hereinafter referred to as the "gold bullion of this case") from 12 entrepreneurs, including ○○, etc., did not constitute a false tax invoice.

The ground of appeal on this part is that the above judgment of the court below is erroneous, but it is merely an error in the selection of evidence or fact-finding which belongs to the exclusive jurisdiction of the court below and thus cannot be a legitimate ground of appeal.

B. On the ground that unfair input tax deduction and refund claim violate the principle of good faith

(1) Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter “the Framework Act on National Taxes”) declares that the principle of trust and good faith should be a basic guiding ideology in the field of tax law by stipulating that “A taxpayer shall perform his/her duties in good faith. This shall also apply where a tax official performs his/her duties.” This principle of trust and good faith, which enables the specific validity of the law through the function of embodying or supplementing the existing law and supplementing it and supplementing the light of the law, serves as an amendment of the principle of no taxation without law in the field of tax law, and its scope is somewhat limited compared to that of the civil law area. However, if the provisions of tax law are applied to an individual case, it would result in an unreasonable consequence that would result in a failure to pay taxes in light of the universal justice and ethics, thereby leading to the sound performance of his/her duties, it shall be excluded from the application of the principle of no taxation without law (Article 13 of the Framework Act on National Taxes).

(2) Article 15 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010) provides that when an entrepreneur supplies goods or services, the value-added tax on the supply price shall be collected from the person who receives the supply price. Article 17(1) provides that the value-added tax to be paid by an entrepreneur shall be the amount obtained by deducting the input tax amount from the output tax amount, and that the input tax amount exceeding the output tax amount shall be refunded. This is based on the principle that the entrepreneur collects the output tax from the entrepreneur who receives the supply at each transaction stage before reaching the final consumer and pays the tax amount to the State. The tax amount collected is based on the principle that the entrepreneur bears the burden of the tax amount in the next phase through the process of deduction and refund as the input tax amount from the State, and ultimately imposes it on the final consumer (see, e.g., Supreme Court Decision 9Da3984, Nov. 12, 199).

Therefore, in a series of continuous transactions, where a malicious entrepreneur has attempted to evade value-added tax from the beginning to the end, and does not pay the value-added tax collected by him by attempting to make an abnormal transaction that only causes losses if he/she does not evade value-added tax (hereinafter referred to as "illegal transaction"), as in the next transaction stage, if an exporter is entitled to deduct and refund the input tax without the burden of the output tax amount as in the zero-rate tax rate as in the next transaction stage, the country has no choice but to make a refund with other tax revenues. This result exceeds the passive gap in tax revenues and constitutes the leakage of the National Treasury. Accordingly, the burden exceeds the damage of the value-added tax system itself, thereby causing serious harm to the overall tax system.

Of course, even if there are the above reasons, if an exporter is in a situation where the existence of an illegal transaction is not known at all, he/she may not, in principle, deny that the exporter is entitled to deduct or refund an input tax amount as prescribed by the Value-Added Tax Act.However, if the exporter was aware that there was an illegal transaction at the pre-stage stage, and he/she had engaged in a transaction with an opportunity to promote his/her own interest without vagasing it, and his/her transaction profit is attributable to the aforementioned illegal transaction, and his/her participation in the transaction is ultimately a critical factor that makes it possible to make an illegal transaction ultimately by taking advantage of the input tax deduction and refund system which is a premise, it shall be deemed an act of pursuing unjust profits by abusing the input tax deduction and refund system which is a premise, and thus, it would be an act of guaranteeing the exporter's deduction and refund of the input tax amount with another tax revenue as a revenue from an illegal transaction to the National Treasury, and it may not prevent any serious harm to the overall tax system as seen above.

Therefore, it is difficult for an exporter to seek the deduction and refund of an input tax in such a case, in light of the universal sense of justice and ethics, and thus, it cannot be permitted as it goes against the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes.This legal principle is equally applicable to a case where an exporter was unaware of such illegal transaction due to gross negligence in light of the perspective of fairness, the gravity of the result, and the universal sense of justice, in other words, the relationship with a malicious business operator where the exporter was unaware of such illegal transaction due to gross negligence, and if the exporter was aware of such illegal transaction, it is reasonable to deem that the same applies to a case where the exporter was unaware of such illegal transaction due to gross negligence, and even if he could have sufficiently known of such fact, he did not clearly violate the duty of due care to the extent close to

In addition, in such cases, since exporters in a mutual relationship with malicious business entities receive deduction and refund of input tax from the State, and thus, denying the deduction and refund of input tax to such exporters cannot be deemed to transfer to exporters without reasonable grounds the responsibility for the evasion of value-added tax by malicious business entities (see Supreme Court en banc Decision 2009Du13474, Jan. 20, 201).

The above legal principle applies likewise to an entrepreneur who receives input tax deduction and refund without a burden of output tax by selling the domestic zero-rate tax through a purchase confirmation as well as an exporter.

(3) Examining in light of the legal principles as seen earlier, if a person who runs gold and retail business or export-import business is a malicious business that makes illegal transactions for the purpose of evading the output tax amount in the course of a series of transactions prior to the transaction of gold bullion, and thus, the Plaintiff seeks the deduction and refund of the input tax amount even though he knew of, or was not aware of, the fact that the deduction and refund of the input tax amount would result in a decrease in other tax revenues, then the Plaintiff’s input tax amount would not be allowed in violation of the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes, since the Plaintiff, who was involved in an illegal transaction by a malicious business operator, abused the deduction and refund system of the input tax amount, thereby gaining part of the output tax amount evaded by a malicious business operator, as well as impairing the basis of the system of value-added tax and the overall tax justice.

(4) Thus, the court below should have sufficiently examined whether the plaintiff knew or was unaware of the above circumstances in the transaction of the gold bullion in this case by gross negligence, and judged whether the plaintiff's assertion on deduction and refund of the plaintiff's input tax amount violates the principle of good faith. However, without such deliberation and determination, the plaintiff's assertion on deduction and refund of the plaintiff's input tax amount should be allowed solely on the ground that the tax invoice in this case does not constitute a false tax invoice, and thus, the defendant's imposition of value-added tax (including the additional tax for failure to report and the additional tax for failure to pay taxes, but excluding the additional tax for failure to submit a list of tax invoices, etc. which are irrelevant to the principle of good faith) was unlawful. The court below erred by misapprehending the legal principles on the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes, which affected the conclusion of the judgment. The ground of

On the other hand, the above principle of good faith applies to cases where input tax is deducted and refunded through the application of zero-rate tax rates to domestic sales through export or purchase certificates, and it cannot be applied to deduction and refund of input tax related to domestic sales. Thus, the court below first classified input tax deduction and refund as a result of applying zero-rate tax rates to domestic sales through export or purchase certificates, and then pointed out that the court below need to review and determine whether the claim for deduction and refund of input tax amount is contrary to the principle of good faith as seen above with respect to the input tax deduction and refund related to domestic sales through export or purchase certificates.

C. As to the imposition disposition of corporate tax

The defendant also stated this part of the petition of appeal as subject to appeal, but there is no legitimate ground of appeal in the petition of appeal or appellate brief.

3. Conclusion

Therefore, the part of the judgment of the court below against the defendant excluding additional taxes such as failure to submit a list of total tax invoices, is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The plaintiff's appeal and the defendant's remaining appeal are dismissed. It is so decided as per Disposition by the assent of all participating Justices.