In a case where Gap corporation et al. prepared a lawsuit against Eul corporation for damages in the United States, entered into a delegation contract with Byung corporation which has no domestic place of business on legal services and legal advice for the settlement agreement, and Gap corporation et al. paid the legal services from Byung corporation, and the tax authority imposed value-added tax on Gap corporation on the ground that Gap did not pay the value-added tax on the ground that Eul corporation did not pay the value-added tax on its behalf pursuant to Article 34(1) of the former Value-Added Tax Act, the case holding that the above legal services were illegal on the ground that Byung corporation supplied overseas by Byung corporation as foreign corporation Byung did not bear the value-added tax liability for the supply of services

In preparation for a lawsuit seeking damages against Company A in the United States, Company C, a law firm of the United States without a domestic place of business, entered into a delegation contract with Company C to provide legal services and legal advice for the settlement agreement, etc. Accordingly, the tax authority imposed value-added tax on Company A on the ground that Company A did not pay value-added tax by proxy pursuant to Article 34(1) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013).

The case holding that the above disposition is unlawful on the ground that Gap company's appointment of Byung corporation as agent and purpose, and the contents and characteristics of Byung corporation's work were considered to have been conducted overseas, since it appears that both important and essential parts of the service were conducted overseas, the above service site should be seen overseas, and Byung corporation supplied overseas by Byung corporation, and Eul did not bear value-added tax liability related to the supply of service, and Gap corporation did not assume value-added tax agent liability.

Article 34(1) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013) (see current Article 52(1))

State Fire and Marine Insurance Co., Ltd. (LLC, Kim & Lee LLC, Attorneys Jeong-ho et al., Counsel for defendant-appellant)

Sejong District Court Decision 201Na11466 delivered on August 1, 201

October 5, 2018

1. The imposition of value-added tax (including additional tax) on the Plaintiff on January 4, 2016 shall be revoked in entirety.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On June 2007, the Plaintiff jointly invested USD 47,320,000 with the Madern-Linked Derivatives Timberwolf 1 Ltd. (hereinafter “instant derivatives”) sold by the Alley SO (hereinafter “instant derivatives”) ($ 16,900,000, USD 30,420,000, Plaintiff’s life insurance at interest country, USD 30,420,000, and KRW 207,000, the real estate value, which is the underlying asset, has decreased due to the Madern-based base situation that occurred around 2007, was ultimately treated as losses in full amount of investment in the instant derivatives.

B. On November 17, 2010, the Plaintiff and interesting life insurance concluded a delegation contract with the U.S. law firm Quinn Euuuuuum Pulm Puliv, LLP (hereinafter “ Quinn”), which had no domestic place of business, on the ground that the sales of the instant derivatives did not notify the product value and the risk of investment recovery, and entered into a delegation contract with the U.S. head office for legal advice, etc. for legal representation and settlement agreement (hereinafter “instant contract”).

C. According to the instant contract, the Plaintiff and the Heungn life insurance provided legal services from Qun (hereinafter “instant services”), and KRW 5,583,460,025, totaling about 20 times from November 22, 2010 to March 28, 2013, paid to Quinn KRW 1,94,092,86. Of these, the Plaintiff’s remuneration paid to the Plaintiff is KRW 1,94,092,866.

D. The Defendant imposed value-added tax (including additional tax) on January 4, 2016 on the Plaintiff on the ground that the Plaintiff did not pay the value-added tax on behalf of the Plaintiff pursuant to Article 34(1) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; hereinafter the same) when it paid KRW 1,94,092,86 in return for the provision of the instant service from a foreign corporation with no domestic place of business (hereinafter “instant disposition”).

E. On May 9, 2016, the Plaintiff filed a request for review to revoke the instant disposition with the Board of Audit and Inspection. However, on November 24, 2017, the Board of Audit and Inspection rendered a decision to dismiss the Plaintiff’s request, and that decision reached the Plaintiff on December 1, 2017.

[Ground of recognition] Unsatisfy, Gap evidence Nos. 1, 2, 5, and 6, the purport of the whole pleadings

2. Relevant statutes;

Attached Form 2 shall be as shown in attached Table 2.

3. Whether the instant disposition is lawful

A. Organization of issues

1) Article 34 of the former Value-Added Tax Act on the payment by proxy of value-added tax stipulates that a foreign corporation imposes a duty to collect and pay value-added tax on a person who receives services where the foreign corporation becomes liable to pay value-added tax when it supplies services in Korea and bears the duty to pay value-added tax. Thus, where a foreign corporation does not assume the duty to pay value-added tax by supplying services outside our territory, the person who receives services from the foreign corporation does not bear the duty to collect or pay value-added tax (see

2) The fact that the Plaintiff received the instant service from Quinn without a domestic place of business is as seen earlier. If the place of supply of the instant service is overseas, Quinn does not assume the liability to pay value-added tax, and the Plaintiff does not assume the liability to pay value-added tax on behalf of the Plaintiff. Therefore, we examine whether the place of supply of the instant service is domestic or foreign.

B. Facts of recognition

The following facts are acknowledged in full view of the purport of the entire pleadings in the statements in Gap evidence Nos. 1 through 4, 9 through 17:

1) According to the instant contract, Quinn’s legal advice, etc. pertaining to the legal representation of the first instance court in civil litigation, compromise agreement, etc. filed by the Plaintiff and the interesting country life insurance (hereinafter “Plaintiff, etc.”) against the Alley Mans in the United States, shall be conducted.

2) In addition to the instant contract on November 19, 2010, the Plaintiff, etc. and the public interest trust concluded an advisory agreement with the Plaintiff, etc. regarding the performance of the lawsuit with the law firm plaza and Quinn performing the lawsuit against Alley Mann, etc.; ② the participation in negotiations with Alley Mann, etc.; ③ the organization of facts related to the purchase of derivatives of the instant case; and the establishment of litigation strategies.

3) Around March 201, the Plaintiff et al. filed a civil suit against Alley Mann with Quinn as a legal representative. After the instant distribution, Quinn, via a law firm plaza, presented its opinion that it may be favorable for the Plaintiff et al. to receive a complaint again in the New York court, taking into account the tendency of the competent division and others. In light of the nature of the case, the Plaintiff et al., expressed its opinion that resolving the dispute through the arbitral proceedings may be favorable for the Plaintiff et al., if only the agreement on the terms and conditions of arbitration, such as the place of arbitration and applicable law, is properly reached. The Plaintiff et al. decided to receive a complaint again in the New York court in accordance with the opinion of Quinnnn, and Qunnnn re-receiving the complaint in the New York court in accordance with the content of the American commercial hearing on June 201.

4) The Plaintiff et al. tried to consult on the terms and conditions of arbitration through Quinn on or around October 201. Around December 201, the Plaintiff et al. decided to resolve the dispute through arbitration procedures. On or around December 2011, the Plaintiff et al., the Plaintiff et al. withdrawn the civil action filed in the New York State court after the New York State court entered into an arbitration agreement with the Arbitration Court (LCI), New York, governing law, etc., with the New York State law, and conducted the arbitral proceedings in New York as its representative from January 201 to Quinn and law firm plaza.

5) Around May 2012, Alley Mans submitted a draft agreement to the Plaintiff, etc., the Plaintiff, etc., agreed to negotiate with Alley Mans for a settlement agreement. Ultimately, around December 2012, there was a settlement agreement between the Plaintiff, etc. and Alley Mans on USD 18,750,00 in relation to the sale of the instant derivatives.

C. Whether the place of supply of the instant service is domestic

1) Article 10(2)1 of the former Value-Added Tax Act provides that the place where the service is supplied is “the place where the service is provided or the goods, facilities, or rights are used.” Thus, whether a transaction subject to the authority to impose taxes is determined on the basis of “the place where the service is provided”. In a case where the important and essential part of the service is made overseas, even if a part of the service is made domestically, the place where the service is supplied should be deemed overseas (see Supreme Court Decision 2014Du8766, Jan. 14, 2016, etc.

2) Considering the facts and evidence acknowledged earlier, the process and purpose of the Plaintiff’s appointment of Quinn as its agent, and the content and characteristics of the instant service, etc., it is determined that the important and essential parts of the instant service were both abroad. Thus, the place where the instant service was supplied ought to be considered overseas.

A) After entering into the instant contract, the Plaintiff et al. delegated duties to Quinn with respect to lawsuits filed against Alley Mans in the United States. After entering into a legal advisory agreement with a law firm plaza, the Plaintiff et al. had a law firm plaza perform the overall management and supervision of disputes with Alley Mans. In addition, upon the commencement of the arbitral procedure permitted as a proxy by a domestic law firm, the Plaintiff et al. started to participate in the arbitral procedure as a joint agent. In light of these circumstances, the Plaintiff appears to have entered into the instant contract with Quinn for the purpose of carrying out litigation representation in the U.S. local area where it is difficult for a domestic law firm to carry out, negotiation of reconciliation agreement, etc.

B) Quinn prepared legal documents, such as a complaint and draft arbitration agreement, in accordance with the instant contract, including the Plaintiff’s filing of a lawsuit seeking compensation for damages, on behalf of the Plaintiff, etc. in the litigation or arbitral proceedings, and was conducting negotiations on the agreement with Alley Mann, etc., and all of them were located in the office of Quinnn, and were conducted overseas, such as New York, where the litigation and arbitral proceedings were pending.

C) The law firm plaza examined documents prepared by Quinn and presented opinions on the issues of relevant internal laws, including the expiration of extinctive prescription. However, the instant service is represented by a lawsuit, etc. that is being conducted with foreign law as the governing law, and negotiations on reconciliation agreement with a foreign company were conducted. As such, it seems that the law firm plaza was difficult for the law firm plaza to substantially participate in the important and essential part of the instant service, i.e., written preparation, process, negotiation, and the establishment of strategies related thereto.

D) The instant services are merely to help the decision-making of the Plaintiff, etc., and to proceed with the procedures, etc. according to the Plaintiff’s instruction, and cannot be deemed to form a part of the instant services. Therefore, the fact that the decision-making of the Plaintiff, etc. was made in Korea cannot be considered in determining the place where the instant services were supplied.

E) Value-added tax is a consumption tax, and Article 10(2)1 of the former Value-Added Tax Act stipulates “the place where the service is provided” as the place where the service is to be used, and as such, the place where the service is used should be considered as an important standard in determining the place where the service is to be supplied. However, considering the content and characteristics of the service in this case, the place where the service in this case was used can also be seen as a foreign country where agreement was reached. This is difficult to view the place where the service in this case was provided solely on the grounds that the service in this case was a domestic corporation, including the Plaintiff, and the result was reported to Korea through electronic means, such as E-mail, etc.

3) Ultimately, the instant service is supplied overseas by Quinn, and Quinn does not assume value-added tax liability regarding the instant service supply. Therefore, the Plaintiff does not assume value-added tax liability on a different premise. As such, the instant disposition by the first Defendant is unlawful on a different premise.

4. Conclusion

Therefore, the plaintiff's claim is reasonable, and all of them are accepted, and it is so decided as per Disposition.

[Attachment 1] Details of the Disposition of this case: omitted

[Attachment 2] Relevant Statutes: omitted

Judges Cho Jin-hun (Presiding Judge)

Note 1) The interesting State Investment Trust was also a contracting party.