Review Division 2014-0139 ( November 18, 2014)

Where the local government establishes a comprehensive workers' welfare center and operates it free of charge, the relevant input tax amount shall not be deducted.

If the local government establishes and operates a comprehensive workers' welfare center without compensation, it shall not be allowed to deduct the relevant input tax amount because it is for the local government's own duties such as promotion of workers' welfare, not for the daily refund of real estate rental business.

Article 12 of the Value-Added Tax Act

Article 38 of the Enforcement Decree of the Value-Added Tax Act: Tax exemption scope for goods or services provided by the State, local governments or local governments association.

2015Guhap1626 Disposition of revocation of Disposition of Imposition of Value-Added Tax

AA City

BB Director of the Tax Office

December 17, 2015

January 4, 2016

1. The Defendant’s imposition of the value-added tax on June 2, 2014 (attached Form 1) that the Plaintiff rendered on June 2, 2014, each excess refund additional tax and additional tax for arrears, shall be revoked

2. The plaintiff's remaining claims are dismissed.

3. Of the costs of lawsuit, 3/4 shall be borne by the Plaintiff, and the remainder by the Defendant.

Cheong-gu Office

The imposition of value-added tax by the Defendant against the Plaintiff on June 2, 2014 (attached Form 1) shall be revoked.

1. Details of the instant disposition

A. On March 10, 2010, the Plaintiff started the new construction of the General Welfare Center for Workers at AAsi (hereinafter “instant welfare center”) and completed the construction process on May 30, 201, and entered into a contract with the Korea Labor-General CCAA Branch (hereinafter “Korea Labor-General Branch”) on September 5, 201 to entrust the management without compensation for three years from October 1, 201 to September 30, 2014 (hereinafter “instant contract”). The Korea Labor-General Branch reports and pays value-added tax on the sales of the real estate rental business and the sports facility operation business arising from the operation of the facility of the instant welfare center.

B. On December 20, 201, the Plaintiff reported and paid the value-added tax without deducting the value-added tax borne by the Plaintiff in relation to the facility investment of the instant welfare center and the AAAA sports center as the input tax amount. On December 20, 201, the Plaintiff filed an application for rectification of value-added tax from the first to second to 2011 on the grounds that the instant welfare center and the AAA sports center constitute a real estate rental business, and it is deemed that the pertinent input tax amount should be deducted.

C. On February 22, 2012, the Defendant decided to refund KRW 1,300,625,563 in total upon accepting the above request for correction, and refunded it to the Plaintiff. However, on January 2014, the vice president of the Central District Tax Office determined that the Plaintiff’s entrustment of the instant welfare center to the Korea Labor-General Branch does not constitute an object of value-added tax if the Plaintiff’s entrustment of the instant welfare center to the Korea Labor-General Branch constitutes a gratuitous provision of services, and that the Defendant demanded the Defendant to deduct the value-added input tax borne by the Plaintiff in relation to the facility investment

D. Accordingly, on June 2, 2014, the Defendant issued a notice of correction and notification of each of the value-added taxes as stated in the disposition list (hereinafter “instant disposition”) by adding the excess refund return tax and the additional tax for arrears to the facility investment-related input tax amount of the instant welfare center among the aforementioned refundable tax amount.

E. On September 5, 2014, the Plaintiff appealed and filed a request with the Commissioner of the National Tax Service for the examination. However, on November 18, 2014, the said request was dismissed.

[Ground of recognition] Unsatisfy, Gap evidence 1 to 7, Eul evidence 1 (including additional number), the purport of whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) According to the instant contract, since the Korea Labor-General Branch bears the cost of maintaining and managing the instant welfare center on behalf of the Plaintiff, the instant contract does not constitute a free lease, since it is substantially the Plaintiff. Even if the instant contract is a free lease, the actual operating entity of the instant welfare center should be deemed not the Korea Labor-General Branch, the trustee, but the Plaintiff, the truster, and thus, under the substance-over principle, the Plaintiff should be deemed to operate a real estate rental business for the instant welfare center, and the relevant input tax amount should be deducted. Therefore, the instant disposition is unlawful.

(2) The instant disposition is against the principle of equality by discriminating against the case where the transferor is entitled to deduct the input tax amount for the pertinent business prior to the transfer from the comprehensive transfer and acquisition of the business.

(3) Since the excess refund in this case and the delay in payment of the pertinent value-added tax were derived from the defendant's decision of refund, it is unlawful to impose penalty tax as a sanction against the plaintiff.

(b) Related statutes;

[Attachment 2] The entry of relevant Acts and subordinate statutes shall be as follows.

(c) Fact of recognition;

(1) On August 5, 201, the Plaintiff enacted the “Ordinance on the Operation of the General Welfare Center for Workers” (hereinafter referred to as the “Ordinance”) in relation to the operation of the instant welfare center, and the main contents thereof are as follows.

Article 1 (Purpose) The purpose of this Ordinance is to prescribe matters necessary for the operation of the General Welfare Center for Workers in AA City (hereinafter referred to as the "Welfare Center") established to promote the promotion of public welfare of workers and to improve the quality of life.

Article 3 (Function) Welfare Officers shall perform the following functions:

1. Matters concerning the promotion of workers' living convenience, such as culture, culture, and sports;

2. Matters concerning promotion of employment of workers, such as free vocational counseling, job placement services, and provision of employment information;

3. Provision of facilities for various education, meetings, etc. conducted jointly by civic groups, labor unions or labor unions and workers;

4. Other various projects, etc. for improving the welfare of citizens and workers.

Article 4 (Scope, etc. of Users)

(1) The facilities of a welfare center shall be workers, ordinary citizens (priority to low-income residents), and other persons recognized by the head of a Si AA (hereinafter referred to as the "Mayor").

(2) If persons who intend to use simultaneously compete, they shall be permitted in the order of workers, low-income residents, and ordinary citizens who have their addresses within the jurisdiction, and if they are the same conditions, the order of receipt

Article 5 (Permission for Use)

(1) A person who intends to use a welfare center facility shall obtain permission from the Mayor, and the same shall also apply where he/she intends to modify any permitted matter or install a special facility.

(2) When the head of a Si permits the use of facilities, etc., he/she may attach conditions or instruct them necessary for proper maintenance.

Article 6 (Rent)

(1) Rental fees for welfare center facilities shall be in accordance with the standards prescribed in attached Table: Provided, That where the Mayor deems it necessary for public interest or there is a special reason,

(2) Where a trustee entrusts the operation of all or part of a welfare center facility pursuant to Article 9, he/she may separately determine user fees with approval from the Mayor within the extent prescribed by municipal ordinance.

Article 9 (Operation and Entrusted Management)

(1) For the efficient management and operation of a welfare center, the head of a Si may entrust or lease all or part of facilities to a non-profit corporation or organization to manage such facilities.

(2) A person who entrusts or leases and operates a welfare center facility (hereinafter referred to as a "trustee") shall operate the center in accordance with the purpose of its establishment and the terms and conditions of its contract.

(3) The contract period of entrustment or lease under paragraph (1) shall be three years: Provided, That when the Mayor deems it necessary, the period may be shortened or extended.

(4) If deemed necessary for the entrusted operation, the head of a Si may partially subsidize expenses incurred in the management, operation, etc. within budgetary limits.

Article 10 (Duties of Trustees)

(1) A trustee of a welfare center shall perform his/her duties as a good manager during the period of entrustment.

(2) A trustee shall manage and operate a welfare center during the period of entrustment in accordance with the purpose of its establishment and terms and conditions.

(3) A trustee shall assume civil and criminal responsibility for the operation of a welfare center.

(4) A trustee shall not change the original form of a facility without approval from the Mayor and shall obtain approval from the Mayor in advance when a ground for changing the facility arises.

(5) A trustee shall manage, maintain, and repair the facilities, etc. at least once a year and purchase various disaster insurance, etc.

Article 14 (Supervision)

(1) The head of a Si may have the relevant public officials investigate the current status of operation of a welfare center or inspect relevant documents, and order the trustee to make a necessary report.

(2) The head of a Si shall take measures in accordance with the relevant provisions for matters to be corrected after receiving a report or conducting an investigation or inspection pursuant to paragraph (1).

Article 15 (Application Mutatis Mutandis) The AA City Ordinance on the Management of Public Property shall apply mutatis mutandis to matters not prescribed in this Ordinance.

(2) The main contents of the instant contract for the entrusted management and operation of the instant welfare center between the Plaintiff and the Korea Labor-General Center are as follows.

Article 2 (Entrusted Operation)

(1) The AA Mayor shall entrust the management and operation of the Korea Labor-General Branch without compensation during the contract period.

(2) The Korea Labor-Management Agency shall not grant subsidies only to projects aiming at profit-making in managing and operating facilities, and the profits accruing from the operation of facilities shall be used only for the improvement and maintenance expenses of the facilities.

Article 3 (Observance of Municipal Ordinances and Rules) The Korea Labor-Management Group shall comply with the Municipal Ordinance of this case, the Enforcement Rules of this Ordinance of this case, and all the regulations and guidelines necessary for the management of property.

In managing facilities under Article 5 (Prior Approval of User Fees), user fees shall be determined in accordance with the standards prescribed by municipal ordinances, but fees shall be the fees for which prior approval has been obtained from the AA market, and user fees and notice boards shall be posted at a place easily visible.

Article 14 (Preferential Use of Welfare Centers) When the City Mayor intends to use part of the facilities, the Korea Labor-Management Center shall take measures so as not to cause inconvenience to the use thereof.

Article 17 (Report, etc. on Operational Performance) The Korea Labor-Management Group shall report the performance of the welfare center operation to the AA Mayor semi-annually, and shall report the budget operation status within two months after the end of each fiscal year.

[Ground of recognition] The entry of Gap evidence No. 3 and the purport of the whole argument

D. Determination of principal tax among the instant disposition

(1) As a matter of principle, the method of imposing value-added tax adopts the basic structure that allows an input tax amount to be deducted from the output tax amount to be collected, which is the sum of self-production added and purchased added value, in order to ensure that only an entrepreneur’s self-production added value can be imposed. As regards the input tax amount to be deducted from the output tax amount, Article 17(1) of the former Value-Added Tax Act (amended by Act No. 11129, Dec. 31, 201; hereinafter the same) provides that the relevant standard is related to a business, as long as it falls under the tax amount on the supply or import of goods or services used or used for his own business, or for his own business, (i) one of the goods or services exempted from the input tax amount deduction under Article 17(2)6 of the same Act, not the tax exemption amount per se, but the tax exemption amount for the pertinent goods or services should be determined based on 194 tax exemption amount per se.

On the other hand, Article 9 (2) 5 of the Local Autonomy Act is an example of local government affairs.

Article 12 (1) 18 of the former Value-Added Tax Act provides that the supply of goods or services supplied by the State, local governments, or local government associations, which are prescribed by Presidential Decree, shall be exempted from the value-added tax, and Article 38 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 2441, Mar. 23, 2013) provides that real estate rental business shall be excluded from the scope of goods or services exempt from the value-added tax.

In addition, since real estate transactions are conducted as part of business activities, the transfer of a building constitutes the supply of goods subject to taxation under the Value-Added Tax Act. Whether the income therefrom belongs to the business income shall be determined according to the ordinary social norms, taking into account whether the transaction is conducted for the purpose of profit-making, and whether the transaction is made with continuity and repetition to the extent that it can be seen as the business activity in light of its size, frequency, mode, etc. (see Supreme Court Decision 93Nu17522, Sept. 9, 1994). This legal principle relates to the criteria for determining whether the income from the transfer of real estate constitutes capital gains under the Transfer Income Tax Act which constitutes the business income of real estate sales under the Value-Added Tax Act, but it can be applied to the judgment of whether the Plaintiff entrusted the management of the instant welfare center to the Korea Labor-General Branch as part of the

(2) The following facts revealed through the above facts: (i) the Plaintiff provided the instant welfare center to the Korea Labor-General Branch after the construction of the instant welfare center to promote the promotion of public welfare of workers and improve the quality of life; (ii) after the construction of the instant welfare center, the Plaintiff entered into the instant contract with the Korea Labor-General Branch and entrusted the management of the instant welfare center; (iii) the Plaintiff did not receive rent, etc. from the Korea Labor-General Branch; and (iv) the Korea Labor-General Branch cannot perform any act against the purpose of the establishment prescribed by the instant Municipal Ordinance regarding the entrusted management work; and (v) the Plaintiff cannot perform any act against the purpose of the establishment of the instant Municipal Ordinance regarding the entrusted management work; and (v) the Plaintiff could instruct and supervise the instant welfare center by issuing necessary reports to the Korea Labor-General Branch; and (6) the Plaintiff’s right to use the instant value-added tax was granted to the Plaintiff as part of the instant real estate management work, and it does not appear to fall under the Plaintiff’s inherent purpose of the instant public welfare center.

(3) The Plaintiff’s assertion, including the part on violation of the principle of equality, is premised on the premise that the Plaintiff’s entrustment of the management of the instant welfare center to the Korea Labor-General Branch was conducted as part of the Plaintiff’s real estate rental business. Therefore, without examining

E. Determination on the imposition of additional tax among the instant disposition

(1) In order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under tax law is an administrative sanction imposed under the conditions as prescribed by individual tax law in cases where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, and such a sanction cannot be imposed in cases where there are justifiable grounds that make it unreasonable for the taxpayer to be unaware of his/her obligations to the extent that it is unreasonable for him/her to be deemed that the taxpayer was not aware of his/her obligations, or that it is unreasonable to expect the party to fulfill his/her obligations, etc. (see Supreme Court Decision 95Nu3596, Feb. 9, 196).

(2) According to the facts acknowledged earlier, an excessive deduction of the input tax amount or an excessive refund of the amount equivalent to the value-added tax of the instant disposition is mainly the fact that the Defendant decided to deduct the relevant input tax amount by ascertaining the nature of the welfare center’s operation or the relevant entrusted management contract after the Plaintiff reported and paid the relevant value-added tax amount at the time. Therefore, it is reasonable to deem that the Plaintiff’s excessive return of the value-added tax of the instant disposition or payment delay cannot be subject to administrative sanctions imposing additional tax for the Plaintiff’s excessive return of refund or payment delay

Therefore, this part of the plaintiff's assertion is justified.

3. Conclusion

Therefore, the claim for the main portion of the disposition list of this case (attached Form 1) is dismissed as it is without merit, and the claim for the main portion of the penalty tax shall be accepted as reasonable, and it is so decided as per Disposition.