[1] Where an entrepreneur concurrently operates a taxable business and a tax-free business, the calculation of the input tax amount related to the taxable business and the tax-free business, and whether the input tax amount can be deducted from the output tax amount (negative)

[2] In a case where Gap corporation reported the amount divided in proportion to the supply value of bus purchase costs, oil costs, parts for repair, etc. as the input tax amount deducted from the output tax amount of the advertising business, but the tax authority imposed a disposition imposing value-added tax on Gap corporation by deducting the input tax amount from the output tax amount of the advertising business, the case holding that the above input tax amount constitutes the input tax amount related to passenger transport business, and thus, it should not be deducted from the output tax amount, even if the above input tax amount constitutes the input tax amount related to passenger transport business

[1] Where an entrepreneur concurrently operates a taxable business and a tax-free business, the input tax amount related to the taxable business and the tax-free business shall, in principle, be calculated according to the actual attribution, and where the input tax amount is only related to the tax-free business, it shall not

[2] In a case where Gap corporation concurrently operates a business of transporting urban buses and a business of providing advertising media, which is exempt from taxes, filed a tax return on the amount divided in proportion to the supply value of buses, oil, parts for repairs, etc. as the input tax amount deducted from the output tax amount of the advertising business, but the tax authority deemed that both the input tax amount constituted the input tax amount related to passenger transport business, and thus imposed value-added tax on Gap corporation, the case held that the judgment below erred by misapprehending legal principles as to the input tax amount, etc., on the grounds that the cost of design, production, installation, and management of advertisements, etc., is naturally required even if Gap corporation inevitably incurred for passenger transport business, which is a tax-free passenger transport business, does not run the above advertising business, and that the cost of design, production, installation, and management of advertisements, etc., as well as the cost of installing, installing, and managing advertisements, etc., is entirely borne by newspaper corporation Eul, and thus, it cannot be deemed that the above input tax amount constitutes a tax-free passenger transport business related only to the input tax amount.

[1] Article 17(1) and Article 17(2)4 of the former Value-Added Tax Act (Amended by Act No. 915, Jan. 1, 2010; see current Article 39(1)7); Article 17(1) (see current Article 38(1)) and Article 38(2)6 (see current Article 39(1)7); Article 61(1) (see current Article 63) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 9915, Jan. 1, 2010; see current Article 17(1) and (2)4 of the Value-Added Tax Act (Amended by Act No. 11129, Dec. 31, 2011; see current Article 38(1) and (3)14 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Act No. 9915, Feb. 15, 20193) / [2]

[1] Supreme Court Decision 2007Du10389 decided July 9, 2009 (Gong2009Ha, 1347)

New Village Traffic Co., Ltd. (Attorney Obong-soo, Counsel for defendant-appellee)

The head of Seodaemun District Tax Office (Law Firm Gawon, Attorney Choi Jin-soo, Counsel for the plaintiff-appellant)

Seoul High Court Decision 2012Nu38208 decided July 17, 2013

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

The grounds of appeal are examined.

1. Article 17(1) and (2)4 of the former Value-Added Tax Act (Amended by Act No. 915, Jan. 1, 2010) and Article 17(1) and (2)6 of the former Value-Added Tax Act (Amended by Act No. 11129, Dec. 31, 201); and Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 24359, Feb. 15, 2013) provide that “in cases where an entrepreneur concurrently operates a taxable business and a tax-free business, an input tax amount related to the tax-free business shall be calculated according to the actual reversion, but a common purchase tax amount, which is commonly used for a taxable business and a tax-free business and cannot be divided into actual amounts, shall be calculated in proportion to the ratio of the supply price to the total supply price.”

2. citing the reasoning of the judgment of the court of first instance, the court below acknowledged the following facts: ① between the Seoul Metropolitan Government Transport Business Association (hereinafter “Seoul newspaper company”) and the Seoul newspaper company (hereinafter “Seoul newspaper company”) to vicariously design, manufacture, install, and manage advertisements, attract sponsors, etc. at its own expense; and the Plaintiff’s bus company in Seoul (hereinafter “Seoul”) to operate the bus without attaching the advertising materials inside and outside the bus, thereby making it possible for the Plaintiff to receive the payment from the Seoul newspaper company to concurrently run the urban bus advertising business; ② the Plaintiff, as well as the urban bus passenger transport business that is a tax-free business, concurrently operates the advertising media industry (hereinafter “instant advertising business”); ② the Plaintiff’s sales tax exemption amount for the bus purchase cost, oil cost, parts cost, etc. from February 2, 2006 to January 1, 201, based on the premise that the sales tax amount for the instant passenger transport business constituted the sales tax exemption amount for 491, 722, and 318 won (hereinafter “the instant input tax exemption amount”).

Furthermore, the lower court determined that the instant disposition that did not deduct the input tax amount divided in proportion to the tax-free supply price for the total supply price from the output tax amount, on the grounds that the instant advertising business provided service to bus passengers or drivers and provided the service for advertising, which is premised on bus operation, such as bus purchase cost, oil cost, parts for repair, etc., constitutes a common input tax amount for the instant advertising business as well as the passenger transport business, which is a tax-free business, and also for the instant advertising business, which is a taxable business.

3. However, it is difficult to accept such a determination by the lower court for the following reasons.

Where an entrepreneur concurrently operates a taxable business and a tax-free business, the input tax amount related to the taxable business and the tax-free business shall, in principle, be calculated according to the actual reversion (see Supreme Court Decision 2007Du10389, Jul. 9, 2009). If the input tax amount is solely related to the tax-free business, it shall not be deducted from the output tax amount.

Even if the advertising business of this case is premised on the operation of buses, it is naturally necessary to cover expenses incurred in relation to passenger transport business, which is a duty-free business, for passenger transport business, such as bus purchase cost, oil cost, parts for repair, etc., even if the Plaintiff does not run the advertising business of this case. Since the Seoul newspaper company fully bears the expenses incurred in the design, manufacture, installation, and management of advertisements, it is not required for the Plaintiff to additionally cover expenses for bus purchase, oil cost, and parts for repair, etc., depending on the attachment of advertisements. Thus, all of the input tax amount of this case constitutes an input tax amount related only to passenger transport business, which

Nevertheless, the lower court determined otherwise, that the instant disposition was unlawful on the ground that the instant input tax amount constituted an input tax amount common to passenger transport business and the instant advertising business, which is a tax-free business. In so doing, the lower court erred by misapprehending the legal doctrine on the method of distinguishing the input tax amount related to the taxable business and the tax-free business, thereby adversely affecting the conclusion of the judgment.

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-dae (Presiding Justice)