Seoul High Court 2008Nu13370 ( October 10, 2008)

National High Court Decision 2007west3173 ( October 12, 2007)

Whether the value of a gift certificate shall be deducted in calculating the tax base of a game room.

Even if the game room's owner's payment of gift certificates as gift certificates is not subject to deduction of the input tax amount, this does not necessarily result in the owner's own choice due to the supply of goods for which no value-added tax is levied and thereby, the tax base, namely, the value of gift certificates, should be deducted from the value of supply.

The contents of the decision shall be the same as attached.

Article 1 (Taxable Objects)

Article 6 (Supply of Goods)

The appeal is dismissed.

The costs of appeal are assessed against the Plaintiff.

Although examining all of the records of this case and the judgment of the court below and the grounds of appeal, it is clear that the appellant’s grounds of appeal fall under Article 4 of the Act on Special Cases Concerning the Procedure of Appeal, and thus, the appeal is dismissed pursuant to Article 5 of the same Act. It is so decided as per Disposition by

[Seoul High Court Decision 2008Nu13370 ( October 10, 2008)]

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The decision of the first instance court shall be revoked. The imposition of value-added tax of KRW 141,832,00 for the first period of the gift tax year 2006 against the plaintiff on March 2, 2007 shall be revoked.

The court's reasoning stated in this case is the same as the stated reasoning of the judgment of the court of first instance. Thus, it shall accept it in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

Therefore, the judgment of the court of first instance is legitimate, and the plaintiff's appeal is dismissed, and it is decided as per Disposition.

[Seoul Administrative Court 2008Guhap402, 2008)]

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s imposition of value-added tax of KRW 141,832,00 for the first period of 2006 against the Plaintiff on March 2, 2007 shall be revoked.

A. From January 20, 2006 to 716-8, the Plaintiff installed an adult game machine and operated a general game room (hereinafter referred to as the “instant game room”) with the trade name called “○○○○○-dong 716-8 Ground Building,” and closed the business on June 20, 2006.

B. The Plaintiff determined that the total amount of cash inputs by the customers of the instant game room less the total amount of face value of gift certificates paid by the Plaintiff to the customers as tax base under the Value-Added Tax Act, and reported the total amount of KRW 56,659,092 as well as KRW 66,659,092 as the total amount of KRW 10,000,000, which is recognized on the tax invoice, as the value-added tax base for the first period of 2006.

C. The Defendant considers that the total amount of cash inputs in the game of this case is the value of supply which serves as the base for value added tax: Provided, That when the value-added tax of the game of this case cannot be calculated immediately because relevant evidential data such as sales in the game of this case or sales including purchase amount of merchandise coupons, and purchase-related books are not kept, the Defendant calculated the total amount of payment of merchandise coupons paid to the customers in the game of this case by multiplying the total amount of purchase of merchandise coupons per merchandise coupon by 5,000 won per merchandise coupon during the taxable period, and calculated the total amount of payment of merchandise coupons paid to the customers in the game of this case, and then calculated the total amount of money inputs in the game of this case (i.e., the total amount of merchandise coupon purchase x par value 5,00 ± 1.1 ± value-added tax base for value-added tax for the period of 1,270,871,98 won per merchandise coupon purchase x 2008 won ± 2008.1.20

[Ground of recognition] Unsatisfy, Gap evidence 1, 2, evidence 1, 2 and 3 (including additional numbers), the purport of the whole pleadings.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) The Plaintiff supplied customers with the services and merchandise coupons called game use and merchandise coupons in the instant game site. In other words, in the instant game site, the Plaintiff paid cash to the Plaintiff by the customer using cash in the game machine installed at that place, and is provided with the services and merchandise coupons called game use and merchandise coupons from the Plaintiff.

2) However, the supply of the gift certificates of this case is not subject to value-added tax, and only the supply of services such as game use is subject to value-added tax. Therefore, in calculating the tax base and amount of value-added tax on the game room business of this case, the total face value of gift certificates offered to the customer out of the total cash inputs

3) Nevertheless, in rendering the instant disposition, the Defendant recognized the total amount of cash inputs by the customer in the game room in the game room as the total value of nuclear supply and calculated the tax base of value-added tax and its tax amount. As such, among the Defendant’s disposition, the part equivalent to the total value of the gift certificates offered to the customer in the game room

4) Even if the total face value of the gift certificates of this case for household affairs is not deducted from the output tax amount, the input tax amount should be deducted.

(b) Related statutes;

Article 1 (Taxable Objects)

Article 6 (Supply of Goods)

(c) Fact of recognition;

1) The game machine installed in the instant game room is an entertainment game which was classified as a “use price” of 18 years of age or older at the Video Rating Board pursuant to Article 20 of the former Sound Records, Video Products and Game Software Act (amended by Act No. 7943, Apr. 28, 2006; hereinafter referred to as the “former Act”).

2) The game machine users using the instant game room put a certain amount of cash into the game machine and play a game. As such, the game continued to play a game using the WIN's original scores or winning points that amount of money invested to the extent that does not reach a certain limitation point in the game process, the game can continue to play a game by using the WIN's original scores. Thus, the game can continue to play a game regardless of time or frequency until all of the WIN's original scores or WIN's original scores are extinguished.

3) The game of this case requires approximately 4-5 seconds in one game, among the points of "CREDIT" creativity, where a user betting a certain score and operates the game, the game will automatically indicate the situation and marks on the screen of the game machine, and "WIN" score means the quantity of merchandise coupons that a user can obtain according to the situation or marks shown on the screen of the game machine.

4) The cash inputs by a game machine user belongs to the Plaintiff as a full business owner, but the user who attached the game conditions is entitled to receive gift certificates of KRW 5,000 at par value according to the Plaintiff’s "WIN Chang" scores.

5) A game user may withdraw merchandise coupons provided according to accumulated “WIN” scores upon the termination of the game and exchange it in cash at a merchandise coupon exchange office in the vicinity of the game site. In the event of the exchange of merchandise coupons, it is paid in cash after deducting an amount equivalent to about 10% of the ordinary face value, and there is no need for special price interest or identification procedures in exchanging merchandise coupons.

6) The Plaintiff purchased merchandise coupons from the issuer or merchandise coupon wholesaler and input them in the game machine. Since merchandise coupons used once again are not used, when paid for merchandise coupons, he purchased new merchandise coupons and put them in the game machine. The purchase price of merchandise coupons of KRW 5,000 at par was KRW 4,820.

6) The Plaintiff purchased merchandise coupons from the issuer or merchandise coupon wholesaler and input them in the game machine. Since merchandise coupons used once again are not used, when paid for merchandise coupons, he purchased new merchandise coupons and put them in the game machine. The purchase price of merchandise coupons of KRW 5,000 at par was KRW 4,820.

7) Although the game machine of the instant game room is set to discharge gift certificates equivalent to the face value of 98%, which is a certain percentage set in advance, compared to the input amount, the said rate is only an average winning rate, and the amount of gift certificates which users can obtain for each game is set differently by chance.

[Ground of recognition] Facts without dispute, Gap evidence 2, Eul evidence 2-1 to 3, the purport of the whole pleadings

D. Determination

1) Interpretation of relevant laws and regulations and issues thereof

According to the Value-Added Tax Act and subordinate statutes, the tax base of value-added tax on the supply of goods or services shall be the total amount of discount, the value of returned goods after deducting certain amounts, such as the value of the goods or services, (hereinafter referred to as "value of the goods supplied"), and the value of supply shall include all monetary values in relation to payment, regardless of the pretext of the payment, charge, commission, and any other form of money received from the trader.

In this case, the issue is whether the value of merchandise coupons provided in the total amount of cash input in the game machine should be deducted, and whether the total amount of the face value of merchandise coupons purchased by the plaintiff should be deducted as the input tax amount. As a premise of discussion, the issue is whether both taxable transaction, which is subject to value-added tax, includes only the supply of services, such as the use of game machine, and the supply of merchandise coupons, and the issue will be examined thereafter.

2) Taxable transactions subject to the instant disposition

가) 살피건데, 이 사건 게임장과 같은 게임장 고객들은 이 사건 게임기에 현금을 투입하고 게임을 하여 일정한 확률로 당첨되는 상품권을 취득한 후 그 상품권을 환전소 등을 통하여 일정액으로 할인받음으로써'현금'을 취득하는 것을 주된 목적으로 하고 있고, 이 사건 상품권은 게임장 사업자인 원고가 스스로 설정한 일정한 승률 98%에 의하여 이 사건 게임장을 이용하는 고객들이 거의 매 게임시마다 지급되는 것으로서 이 사건 게임장에서 항시 제공되는 재화 또는 현금대용증권으로 보이는 점 등을 고려 할 때, 이 사건 처분의 과세대상인 과세거래를 게임기 이용이라는'용역의 공급'및 상품권이라는 '재화 또는 현금대용증권의 공급'으로 볼 여지가 없는 것은 아니다. 그러나 부가가치세법 제7조 및 같은 법 시행령 제2조 제11호에 의하면, 용역의 공급은 계약상 또는 법률상의 모든 원인에 의하여 역무를 제공하거나 재화, 시설물 또는 권리를 사용하게 하는 것을 의미하고, 위와 같은 용역의 범위에는 오락, 문화 및 운동관련 서비스업에 해당하는 모든 역무 및 그 밖의 모든 행위도 포함된다고 규정하고 있는바, 이 사건 게임장의 사업자인 원고로서는 게임이용자들로 하여금 상품권이 교부될 수 있도록 상품권이 내장되어 있는 게임기를 설치하여 이를 사용할 수 있게 하는 역무를 제공함으로ㅆ 고객에 대한 용역의 제공을 모두 마치게 된다는 것(부가가치세법 제9조상 용역이 공급되는 시기는 역무가 제공되거나 재화, 시설물 또는 권리가 사용되는 때로 본다)을 고려하면 상품권이라는 재화 또는 현금대용증권을 공급하는 것은 위와 같은 게임기 설치 및 이용의 역무의 일환으로 이우러지는 점(만약 고객이 게임기를 사용하던 도중 게임기의 오작동으로 상품권 등이 지급되지 않아 원고가 고객에게 미지급 상품권을 교부하는 것은 위와 같은 게임기 설치 및 이용 역무의 일환으로서, 즉 게임 오작동에 관한 보상'서비스(역무)'의 일환으로서 제공하는 것이라고 볼 것이지 게임기 이용과 별개의 새로운 재화의 공급이라고 볼 것은 아니다), 또한 이 사건 게임장의 사업자인 원고는 스스로 이 사건 게임기의 승률을 조절할 수 있어 고객으로서는 이 사건 게임장에서 게임을 하고도 상품권을 지급받지 못하는 경우 발생하는 등 이 사건 상품권이라는 점, 이 사건 게임장의 고객들도 게임기 이용이라는 '용역'과 상품권이라는 '재화 또는 현금대용증권'의 공급의 대가로 양자를 구분하여 게임기에 현금을 투입하는 것이 아니라 일정한 확률에 의하여 상품권을 우연히 취득할 수 있는 게임기를 이용하기 위하여 (즉 우연이라는 결과로 인해 얻게 되는 행운의 즐거움을 느끼기 위하여) 현금을 투입하는 점 등 이 사건 게임장의 영업형태 및 고객과의 실제거래 관계, 이 사건 게임기의 작동실태 등을 고려하여 보면, 원고가 이 사건 게임장을 통하여 고객들에게 제공하는 것은 게임기 이용이라는 '용역'과 이와 구분된 상품권이라는 '재화 또는 현금대용증권'의 공급이 아니라, 이 사건 게임기 등을 설치하여 고객들로 하여금 일정한 확률로 상품권을 취득할 수 있게 하는 '기회'를 제공하는 역무의 제공인'용역의 공급'이라고 할 것이다. 즉 게임이용자들은 원고로부터 게임이용을 통하여 단순히 게임기 이용이라는 역무를 제공받는 것뿐만 아니라 일정한 확률에 의한 취득되는 상품권의'취득기회'를 제공받고 있다고 할 것이다(게임기 이용자들이 게임결과에 따라 지급받는 경품용 상품권은 이 사건 게임기의 주된 이용 목적 등을 고려하면 단순

In order to attract and encourage the use of a game machine, even if it is not of the nature of the bounty paid for the payment of the price for the provision of the service, it shall not be deemed the supply of separate goods or cash substitute securities provided separately from the use of the game machine.

B) If the Plaintiff’s taxation transaction of the instant disposition is considered to be a provision of the game machine installation and the service for the use of the game machine that the Plaintiff provided to the customers, it is deemed to be the total amount of cash input in the instant game machine to use the game machine for which customers can acquire merchandise coupons under the statutory interpretation. In a case where there is no evidence related to the sales, such as the total amount of cash inputs or the purchase amount of merchandise coupons, such as the instant game machine, and the purchase-related books, such as the purchase-related books, the tax authority shall calculate the total amount of merchandise coupons paid to the customers during the taxable period by multiplying the total amount of merchandise coupon purchase by 5,00 won per merchandise coupon per face value per gift certificate, and calculate the value-added tax base by means of estimating the total amount of money input in the instant game machine divided into the winning rate.

3) Whether the total purchase amount of merchandise coupons is deducted

Although the Plaintiff asserts that the total amount of purchase of merchandise coupons should be deducted from the total amount of cash input in the instant game machine, in light of the following circumstances, the total amount of purchase of merchandise coupons shall not be deducted from the total amount of cash input in the instant game machine in calculating the value-added tax base in the same business as the instant game machine.

A) The Value-Added Tax Act of our country taking the pre-stage tax credit system, unlike income tax and corporate tax, has the nature of transaction tax imposed on the external appearance of transaction, which is not a substantial income, and there is no concept of expense deduction, and even if the cost is excessive than the revenue, the value-added tax may be imposed at all regardless of the business operator’s interest or loss. On this premise, the Value-Added Tax Act exceptionally specifies items to be deducted from the value of supply such as money, etc. received in return for the supply of goods or services. Accordingly, the merchandise coupon payments for the amount invested in the game of this case do not fall under the above items of deduction

B) As seen earlier, the Plaintiff’s provision of this case’s game software through the game of this case to customers is not a supply of goods or cash substitute securities, but a supply of services to provide customers with an opportunity to acquire merchandise coupons at a certain probability by installing the game of this case’s game machine, etc. Therefore, the cash paid to the Plaintiff by the game user is not a separate payment for each part of “the supply of merchandise coupons or cash substitute securities” and “the provision of services” for each part of “the supply of merchandise coupons or cash substitute securities” and “the provision of services for the use of the game machine. Accordingly, it cannot be deemed that the Plaintiff’s taxation transaction, which is subject to the disposition of this case, is a supply of merchandise coupons and the supply of merchandise coupons, which is a supply of services for the use of the service that is subject to the disposition of this case.

C) The former criteria for dealing with free gifts at a game providing establishment (amended by Ordinance of the Ministry of Culture and Tourism No. 20206-24, Nov. 1, 2006; hereinafter referred to as the “former criteria for dealing with free gifts”) strictly limits the types of free gifts that a game providing business entity may provide, at the same time, provide free gifts, the matters recorded in all windows except for user fees invested by users are deleted, no one shall sell, sell, or trade them, and no one shall sell, arrange for exchange or exchange free gifts, or repurchase free gifts which have been provided, so that a game business entity shall not make any person sell, sell, or trade them, nor make any person trade free gifts, and strictly limit the provision of free gifts in lieu of free gifts. Even if such free gifts are guaranteed in reality, such free gifts cannot be viewed as cash until they are exchanged.

D) Even if a game room business owner’s payment of gift certificates as gift certificates does not deduct the input tax amount for the game room business owner’s supply of goods for which no value-added tax is levied (which does not differ from the supply of non-processed foodstuffs such as rice), this does not necessarily require that the tax base, i.e., the value of gift certificates, should be deducted from the value of supply.

E) According to the Plaintiff’s assertion, in cases where premiums are paid as free gifts, such as other completes, phrases, characters, cultural products, tourist souvenirs, and liquid books that meet the standard for handling free gifts, rather than merchandise coupons, the amount of the value-added tax paid at the time of the purchase of the goods would be deducted as the input tax amount under the Value-Added Tax Act, and the price for the purchase of the goods would result in unreasonable consequences that would be deducted from the value for the purchase of the goods again (see, e.g., Supreme Court Decision 2006Da1540, Apr. 1, 2006)

F) According to the Plaintiff’s assertion that the total amount of purchase of merchandise coupons should be deducted from the total amount of cash input in the game machine, the game user’s use of the game machine of this case may result in a change in the value-added tax base, i.e., the cost of supply of the service, depending on the amount of face value of merchandise coupons awarded by the game user despite a certain amount of KRW 10,000 in the use of the game machine of this case for the purpose of acquiring merchandise coupons. This is contrary to the principle of tax burden, since value-added tax imposed on the game machine user may vary

G) In addition, according to the Plaintiff’s assertion, if a game user receives a higher amount of face value of gift certificates than the amount invested in a high-quality game machine, the value of supply, which is the value-added tax base, may be zero won or added. This goes against the express text of the Value-Added Tax Act, which takes the pre-stage tax credit method collected at each stage of transaction, regardless of whether a value added is created.

4) Whether the total purchase amount of merchandise coupons is deducted

Although the Plaintiff asserts that the total purchase amount of the gift certificates of this case should be deducted from the input tax amount, the gift certificates are similar cash substitute securities such as bills and checks, and they are not subject to value-added tax (the gift certificates are treated as cash substitute securities that are not subject to value-added tax). Even if the supply of the gift certificates is a taxable transaction subject to value-added tax, the Plaintiff should pay the value-added tax to the Defendant and submit the tax invoice received from the Defendant when purchasing the gift certificates of this case in order to obtain the deduction of the input tax amount for the total purchase amount of the gift certificates, and there is no evidence to prove that the Plaintiff had made such deduction. Thus, the Plaintiff’s above assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.