AMEL Korea Ltd. (Law Firm LLC, Attorneys Jeon Young-young et al., Counsel for the plaintiff-appellant)

Head of Busan Customs Office

October 23, 2014

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of KRW 31,551,60 on June 22, 2013, the aggregate of KRW 149,601,940 on value-added tax, and KRW 226,081,570 on value-added tax, plus KRW 44,928,030 on value-added tax, shall be revoked.

1. Details of the disposition;

A. On March 29, 2005, the Plaintiff is a domestic corporation established by ASIA MINERL LIITD located in Hong Kong (hereinafter “AMF Hong Kong”).

B. The Plaintiff was supplied with the goods of this case from AML Hong Kong or from the Pulropoco net (hereinafter “instant goods”), and filed an import declaration on the import price stipulated in the sales contract between AML Hong Kong and AML Hong Kong as its dutiable value, and paid customs duties, etc. on the basis thereof to the Defendant. Since then, the Plaintiff supplied the instant goods to domestic lecturers (hereinafter “domestic buyers”) such as Hyundai Steel, the final purchaser of the instant goods, and the same international lecture.

C. On May 27, 2013 from May 27 to May 31, 2013, the Defendant conducted a planning and examination with respect to the Plaintiff. As to the transaction in which the Plaintiff imports the instant goods from a related party, “the Plaintiff is merely a sales agent of AMF Hong Kong, not an actual buyer. The actual transaction party to the instant goods import and export transaction is an exporter and a seller, and the Plaintiff is a domestic buyer, on June 22, 2013, the Plaintiff denied the import declaration price of the instant goods, and the purchase price (including the Plaintiff’s branch’s profits) that the domestic buyer paid to the Plaintiff for the purchase of the instant goods is considered as the actual payment amount under Article 30(1) of the Customs Act, and determined the amount obtained by subtracting domestic transportation expenses, etc. based thereon as the dutiable value, and disposed of the Plaintiff’s total of KRW 31,551,600, value-added tax 149, value-added tax 940,404,298.

D. On August 6, 2013, the Plaintiff filed an appeal with the Tax Tribunal on the instant disposition, but the Tax Tribunal dismissed the Plaintiff’s appeal on April 4, 2014.

【Ground of recognition】 The fact that there has been no dispute, Gap evidence 1-1, 2, 3, Gap evidence 2, Eul evidence 1, the purport of whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) As to the Plaintiff’s status (whether the Plaintiff is a de facto buyer or a sales agent of AMF Hong Kong)

① The Plaintiff imported the instant goods from AMF Hong Kong and independently negotiated the price and other terms and conditions of the contract with the domestic buyers, and entered into a sales contract for the instant goods. ② The Plaintiff directly bears the risk of inventory management and inventory by holding the instant goods from AMF Hong Kong to sell them to the domestic buyers; ③ the Plaintiff bears the risk of loss, etc. due to the cancellation of the sales contract for the instant goods with the domestic buyers; ④ the Plaintiff is not in the position of a sales agent for the instant goods, but in the case of the occurrence of defects in the instant goods or the delayed liability, the Plaintiff is not an independent buyer who performs its role and function as an independent party to the import transaction and domestic sales transaction of the instant goods, and thereby acquires profits therefrom.

Therefore, under different premise, the instant disposition taken on the premise that the Plaintiff is merely a sales agent of AMF Hong Kong is unlawful.

2) As to the taxpayer on the import of the instant goods

Although the Defendant deemed that the Plaintiff is not a party to actual import transaction of the instant goods, but a sales agent, the Plaintiff’s disposition of this case was made as a taxpayer of customs duties, etc. on the import of the instant goods. Therefore, the instant disposition was erroneous in selecting a taxpayer of customs duties, etc.

3) As to the method of determining dutiable value

Even if the Plaintiff’s import of the instant goods constitutes a sales agent of AMF Hong Kong, the advice on recommendation of the WTO Customs Valuation Agreement 1.1, Ⅲ provides that “The sales agent for the purpose of distribution, which was made between the supplier and the end buyer (any time between the nominal agent and the end buyer), shall constitute a transaction that can be assessed in accordance with Article 1 of the Agreement (i.e., the transaction price based on the transaction price).” According to the above provision, in the case of the sales agent’s import transaction, not the transaction based on the sales price (i.e. the transaction between the Plaintiff and the domestic buyer), but on the sales agent for the purpose of distribution (the transaction between the Plaintiff and the domestic buyer). Thus, it is clear that the transaction amount (the import price) between the Plaintiff and the AMF Hong Kong should be determined as the actual payment amount provided for in Article 30(1) of the Customs Act.

Therefore, on different premise, the import price of the instant goods stipulated in the sales contract between the Plaintiff and AMF Hong Kong is not deemed the dutiable value, and the instant disposition that determines the dutiable value by deeming the purchase price that the domestic buyer paid to the Plaintiff as the actual payment amount under Article 30(1) of the Customs Act is unlawful.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

(c) Fact of recognition;

1) Status and relationship between AMF Hong Kong and the Plaintiff’s Company

A) AML Hong Kong is currently under development by obtaining the right to develop a mine between the net Republic of South Africa, and is currently under development, a company that exports Gohap iron, the raw and subsidiary materials of steel, to the world, there are 10 branches, including the Plaintiff, in the world.

B) The Plaintiff’s major imported goods are protein additives or combined ingredients additives for the removal of anti-nets in the process of steel process by electricity, i.e., Pluco net and Pluco net. Since 2009, the Plaintiff imported the above goods only through AML Hong Kong and supplied them to domestic steel manufacturers, such as modern steel, East International steel, and YKethyl.

C) As of August 2013, AMF Hong Kong owns 100% of the Plaintiff’s shares as of August 2013, and the Plaintiff and AMF Hong Kong’s representative are the same person as “overboard person.”

D) The Plaintiff’s summary of the Plaintiff’s business is indicated as follows: “The Plaintiff is mainly involved in the distribution of related products among the networks in Korea market and provides sales support services to AML Hong Kong. Major customers in Korea of AML groups are Hyundai Steel, East International River, YHHs, Steel, etc. by May 31, 2012. The AML Hong Kong has three employees in Korea, and these employees are responsible for the sales, promotion, management support, etc. of the instant goods; the operation, finance, laws and regulations, personnel management items of the Plaintiff are described as “the Plaintiff is in general charge of regional management, human resources management, and involvement in the employment of the Plaintiff.”

E) In addition, according to the above T/P review data, a total of three types of transactions are scheduled between the Plaintiff and AMF Hong Kong. Specifically, “(1) sales support services for the Plaintiff: (2) sales of AMF Hong Kong; (3) purchase support services for the Plaintiff.” In particular, the above data provide that “the Plaintiff sells products to customers (i) or (ii) by way of 2, depending on various factual relations, such as financing, timing and method of sales contract,” and that “the Plaintiff sells products by means of 1 or 2,” and that indirect sales (i.e., export through the Plaintiff) to the Korean market (or (ii) indirect sales (i.e., export through the Plaintiff) are not applied to the settlement of foreign currency, or it is merely a type of sales from the service level to reduce the efforts of Korean customers for import clearance. In fact, transactions between the Plaintiff and AMF Hong Kong are conducted in most ways.

2) The process of determining the import declaration price of the Plaintiff’s instant goods and sales price for domestic buyers

A) Domestic buyers, including modern steel, East International steel, and YK ethyl, send a bidding invitation for participation in competitive bidding to various domestic and foreign suppliers, including the Plaintiff, in connection with the supply of the instant goods.

B) Accordingly, in order to purchase the instant goods, domestic buyers, including the Plaintiff, received a bid price by a competitive bidding method from several suppliers including the Plaintiff, and concluded a contract with a supplier who presented the lowest bidding price. If the Plaintiff participated in the said competitive bidding and received the lowest bid price, the Plaintiff would import the instant goods from AMF Hong Kong and supply them to domestic buyers.

C) The terms and conditions of delivery under the sales contract with domestic buyers are set at 1) DP designated places (domestic buyers’ storages of raw materials for factories). The selling price is determined by adding the price at which a certain discount rate is applied to the international mineral trade price of the instant goods, and the expenses for import, such as customs duties, and transportation, to the price at which the goods are sold. Thus, in order to be awarded a successful bid at a competitive bidding, the discount rate shall be set higher than the competitors.

D) On the other hand, in the course of participating in a competitive bidding with domestic buyers, the Plaintiff is instructed by AMF Hong Kong in determining the specific price, and the e-mail related to the determination of the price of domestic steel products sent to the Plaintiff by the Defendant, as well as the following information, is written:

From 1,180,00 won per ton, to 1,180 won per ton, at 00 o.0 o. o. o. o. o. o. o. o. o. o. o. o. o. o. o. o. o. o. o. o. o. o. o., to enter into negotiations with the Korean Steel in one way from 1.5% to 2.0% later. o. o. o.

E) If the successful bid price (the purchase price between the Plaintiff and the domestic buyer) is determined through the above process, the price determined at the successful bid price by excluding the Plaintiff’s branch price (1-2%) and the cost, etc. after arrival of import port such as customs duties, shall be determined at the import price of the Plaintiff and AMF Hong Kong (CIF).

3) Terms and conditions of a trading (import) agreement between the Plaintiff and AMF Hong Kong

A) According to Articles 11 and 12 of the Trade (Import) Agreement entered into between the Plaintiff and AML Hong Kong, quality inspections at the port of arrival are to be conducted by an end-user rather than the Plaintiff. In the event that the result of export conducted at the port of shipment differs from the result of the end-user’s inspection conducted at the port of registry, an end-user’s inspection conducted at the port of registry shall be accepted. However, if the exporter objects to the result of the end-user’s inspection, the exporter’s inspection conducted by a third party and the cost should be borne by the exporter, the exporter’s independent supervisor of the place of import, and the weight in the weight inspection subject matter shall be borne by the exporter, the exporter, and related

B) In addition, according to paragraph (13) of the above contract, where the AMF Hong Kong fails to deliver it on the designated payment date, the rate of liquidated damages (the contract volume entered into between the buyer and the final consumer x 1/100 of the contract price between the buyer and the final consumer x 1/100 of the contract price between the buyer and the final consumer) shall be paid to the Plaintiff in cash for each week. This is completely identical to the sales contract clause entered

[Ground of recognition] without any dispute, Gap evidence 3, Eul evidence 4, Eul evidence 1, Eul evidence 3, Eul evidence 6, Eul evidence 8, Eul evidence 9, Eul evidence 12, the purport of the whole pleadings

D. Determination

1) As to the Plaintiff’s status (whether the Plaintiff is a de facto buyer or a sales agent of AMF Hong Kong)

A) Article 30(1) of the Customs Act provides that the dutiable value of imported goods shall be determined on the basis of the price actually paid or payable by the buyer for the goods sold for export to Korea. In determining the dutiable value, the definition of the buyer and the seller, who are the core subject thereof, is not stipulated in the Customs Act. However, in general, in import transactions, the seller and the buyer refer to a person who actually engages in import transactions under their own account and risk burden. In other words, a buyer means a person who, in an import transaction, determines the quality, quantity, price, etc. of the imported goods and bears the risk of defects, quantity, accident, bad amount of claims, etc. In other words, a buyer shall be free to sell the goods at the desired price, and he shall be free to choose a customer, and even without consultation with the exporter, a buyer shall negotiate price and other sales terms and conditions, etc., and thus, the buyer shall not be entitled to the above determination or risk of loss in stock, etc. Accordingly, in case of typical import transactions, the buyer shall not be entitled to any order or sales agent for the goods transaction.

B) In light of the above legal principles and provisions, we examine whether the Plaintiff is a real purchaser of the instant product or a sales agent of AMF Hong Kong.

(4) The Plaintiff appears to have been responsible for the domestic sales of the instant goods by way of the following circumstances, i.e., (i) the Plaintiff’s representative as its subsidiary company after the instant import declaration on the goods of Hong Kong; (ii) the Plaintiff’s overall contractual relationship between the Plaintiff and Hong Kong is involved in the distribution of the goods on the Korean market; and (iii) the Plaintiff’s domestic sales of the goods of Hong Kong, excluding the Plaintiff’s actual buyer’s domestic sales of the goods under the instant sales contract, as it appears to have been difficult for the Plaintiff to take account of the fact that the sales price of the goods of this case was determined within the scope of its domestic sales price under the instant sales contract; and (iv) the Plaintiff’s primary role is to support the Plaintiff’s domestic sales of the goods of this case to reduce its sales price under the instant sales contract, as it appears that the Plaintiff’s domestic sales price of the goods of this case was determined by its own instructions for domestic sales and sales from the seller of the goods of this case; and (iii) the Plaintiff’s new sales price adjustment between the Plaintiff and the seller’s domestic sales price.

C) Therefore, the Plaintiff’s above assertion on a different premise is without merit.

2) As to the taxpayer on the import of the instant goods

A) Article 19(1) of the Customs Act provides that a person who falls under any of the following subparagraphs shall be liable to pay customs duties. Article 19(1)1 provides that "in the case of goods on which an import declaration was made, the owner of the imported goods shall be liable to pay customs duties." However, only if the owner is not identified, "in the case of goods imported by an import firm on behalf of an import firm upon entrustment of import: the person entrusting the import of the goods: (a) in the case of goods imported by an import firm on behalf of an import firm: (b) in the case of goods imported by an import firm on behalf of an import firm upon entrustment of import: (c) in the case of goods not imported by an import firm on behalf of an import firm: (a) the consignee entered in the commercial document prescribed by Presidential Decree; and (c) in the case of goods transferred before an import declaration was made: The "owner of the goods" refers to the actual owner of the goods imported; and specifically, the determination of whether the goods are the owner shall be made by taking into account the following circumstances:

B) The following circumstances, i.e., the Plaintiff’s bill of lading and import-related documents on the instant goods, i.e., the Plaintiff’s shipment and import-related documents, i.e., the Plaintiff’s owner; ② the Plaintiff was directly involved in import procedures such as the opening of credit and the settlement of the price; ③ the Plaintiff, a sales agent of AML Hong Kong, voluntarily made an import declaration as the principal agent of independent import transactions; ③ the Plaintiff paid customs duties thereon; ④ the provision on taxpayers is different from the provision on the determination of dutiable value; ④ the domestic buyer purchases the instant goods cleared through a general purchase contract; ⑤ the domestic buyer is not the principal agent of import transaction stipulated in the Customs Act, etc.; ② the Plaintiff paid the price for the instant goods, including customs duties, to the Plaintiff; and ② no other data can be found to identify the owner in this case, the Plaintiff constitutes a duty payer for import-related goods.

C) Therefore, the Plaintiff’s above assertion is without merit.

3) As to the method of determining dutiable value

A) Article 30(1) of the Customs Act provides that the dutiable value of imported goods shall be the transaction price adjusted by adding up commission and brokerage fees (excluding purchase commissions) to the price actually paid or payable by the buyer to the “goods sold to be exported to Korea.” As above, Article 30(1) of the Customs Act applies to “goods sold to be exported to Korea” but Article 17 of the Enforcement Decree of the Customs Act provides that “goods imported to be sold to Korea on an exporter’s responsibility (Article 30(1) shall not be included in “goods sold to be exported to Korea for export to Korea”. Accordingly, in principle, the Plaintiff, a sales agent, does not fall under “goods sold to be exported to Korea” and thus, the dutiable value may not be determined based on the import price between the Plaintiff and AMF Hong Kong by applying Article 30(1) of the Customs Act. If it is deemed that the above dutiable value is based on the import price determined, the actual buyer’s dutiable value should be determined based on the price paid or payable by the buyer.

Meanwhile, Article 1.1 Ⅲ of the WTO Decision on Recommendation of the WTO Valuation provides that "goods imported by a broker who sells goods without purchasing them shall be careful to the effect that the sales for the purpose of distribution under a sales contract already concluded between a supplier and a customer company (any time between a nominal agent and a customer), shall constitute a transaction that can be used as the basis for the assessment provided for in Article 1 of the WTO Customs Valuation Agreement (the same as the content of Article 30.1 of the Korea Customs Act)."

B) On the other hand, as seen earlier, the Plaintiff is in the position of the Plaintiff’s sales agent, not the actual buyer of the transaction of export and import of the instant goods, and the instant goods fall under “goods imported by a broker who sells the goods after import without purchase.” Thus, the Plaintiff’s recommendation of the WTO Customs Valuation Agreement may apply the provisions of 1.13. Therefore, it is reasonable to deem that the transaction amount under the sales contract concluded between the Plaintiff and the domestic buyer, a sales agent, constitutes the basis for dutiable value under Article 30(1) of the Customs Act.

The Plaintiff asserts to the effect that the above provision should be interpreted based on the import price between the Plaintiff, an exporter and the seller, and the Plaintiff, a sales agent. However, if the import price between the Plaintiff, like the Plaintiff’s assertion, is deemed to be based on the dutiable value, it would be contrary to the basic legislative intent of the Customs Act concerning the determination of the dutiable value based on the price paid or to be paid by the actual buyer. ② The calculation of the dutiable value based on the transaction amount between the seller and the buyer is consistent with the legislative intent of Article 30(1) of the Customs Act. Accordingly, if the seller’s sales agent is an intermediary, the fee paid by the buyer to the seller shall be included in the above dutiable value. ③ If the Plaintiff’s request is made to the seller, it is difficult to directly apply Article 30(1) of the Customs Act to the Plaintiff’s sales agent’s sales agent for the purpose of compensating for the gap, it is also difficult to apply the above provision to the Plaintiff’s intermediate seller’s sales agent’s sales agent’s payment of the price.

C) Therefore, it is reasonable to determine the dutiable value of the goods of this case that the Defendant paid to the Plaintiff by the domestic buyer as the actual payment amount for the goods of this case under Article 30(1) of the Customs Act after deducting the elements of deduction, such as domestic transportation cost and customs duty, etc. from the arrival at the port of entry. The Plaintiff’s assertion is without merit.

4) Sub-committee

Therefore, the disposition of this case where the Plaintiff deemed the Plaintiff as the sales agent of AML Hong Kong, and the purchase price (including Plaintiff's profit) paid by domestic buyers to the Plaintiff is the actual payment amount for the goods of this case under Article 30 (1) of the Customs Act, and the amount calculated by deducting the deduction elements such as domestic transportation expenses, customs duties, etc. accrued after the goods arrive at the port of entry as the dutiable value is determined as the dutiable value, and the customs duties, value-added tax, additional tax

3. Conclusion

If so, the plaintiff's claim is without merit, and it is dismissed. It is so decided as per Disposition.

[Attachment]

Judges Jeon Young-chul (Presiding Judge)

1) The condition that the seller’s duty of delivery is deemed to have been fulfilled upon arrival at the place of designation designation and being placed in the controlled territory of the buyer.

2) As a consulting company that analyzes and provides market prices of mining, metal, fertilizers, etc., and generally, steel companies, etc. in each country shall determine the purchase price on the basis of market prices surveyed by the CRU when purchasing mining, metal, etc.