National High Court Decision 2007Du4099 ( December 31, 2007)

Whether the use of a game room constitutes speculative acts and is excluded from the supply of services subject to surtax;

Game room business is not the same as a gambling prohibited by law as a business which has gone through legitimate registration procedures under the Sound Act, and merchandise coupons are the nature of a subsidy, and thus they are not deducted in calculating the tax base.

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

Article 7 of the Value-Added Tax Act

Article 13 of the Value-Added Tax Act

1. All of the plaintiffs' claims are dismissed.

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

On April 1, 2007, the Defendant imposed value-added tax of KRW 491,712,010, value-added tax of KRW 728,572,290, and value-added tax of KRW 728,572, and 290 for the first period of 2006 against Plaintiff ○○○○○○○ Co., Ltd., and imposed value-added tax of KRW 52,294,550 for the first period of 2006 against Plaintiff ○○ on April 10, 207, respectively.

1. Details of the disposition;

The following facts do not conflict between the parties, or can be acknowledged by comprehensively taking into account the whole purport of arguments in the entries in Gap evidence Nos. 1, 2, 3-1, 2, 4, 5-1, 2, 1-2, 1-2, 2-2, and 3, 2-2, and 3.

A. From September 26, 2005, the Plaintiff ○○○○○-198 operated a general game room in the name of “○○○○○-dong,” which was “○○○○○-198,” and on May 12, 2006, the Plaintiff ○○ operated the general game room (hereinafter “instant game room in combination with the general game room operated by Plaintiff ○○○-Hmere Limited Company”).

B. The game software installed in the game machine of the game of this case is for the purpose of recreation which was rated as a price for use by the Korea Media Rating Board over 18 years of age. If a game user's game by inserting a certain amount of cash into the game machine and won a prize, he/she will continue the game or receive merchandise coupons as free gifts.

C. The Defendant reported value-added tax on February 2, 2005 and January 1, 2006 by the Plaintiff ○○○○ MHmer Co., Ltd., and the Plaintiff Kim ○ reported value-added tax on January 2006 by respectively, and on the remaining amount after deducting the value of gift certificates paid by the game users to the game users as gift from the amount invested in the game machine as its tax base.

D. After conducting on-site verification, etc., the Defendant confirmed that Plaintiff ○○○○○○ MHmers Ltd. purchased gift certificates 928,000 gift certificates during the taxable period of value-added tax for the second half-yearly value-added tax year of 2005, gift certificates 1,746,000 gift certificates during the taxable period of value-added tax for the first half-yearly value-added tax year of 2006, and calculated the purchase amount of KRW 143,00 during the taxable period of value-added tax for the first half of the value-added tax year of 2006 by dividing the purchase amount of gift certificates by 10% (the purchase amount of gift certificates during the pertinent taxable period x face value 5,00 won ± dividend rate ± 1.1) and then calculated the value-added tax base of value-added tax for the second half-yearly value-added tax period of value-added tax for the second half-yearly value-added tax period of value-added tax, Plaintiff 2006, 207.

E. On October 16, 2007, the plaintiffs were dissatisfied with the imposition of the above value-added tax and filed an appeal with the National Tax Tribunal on October 16, 2007. However, the plaintiff ○○○○ Morse Limited Company's appeal was dismissed on December 31, 2007, respectively.

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

(1) Value-added tax is imposed on the added value created by the transaction, and the money input by the user of the game of this case in the game machine does not create added value as for gambling or speculative acts.

(2) The price for the service provided by the plaintiffs to the game users is the total market value or par value of merchandise coupons offered to the game users from the money input by the game users in the game machine. Therefore, the value-added tax base shall also be the remainder after deducting the above-mentioned amount.

(b) Related statutes;

Article 1 (Taxable Objects)

Article 7 (Supply of Value-Added Tax Act)

Article 13 (Tax Base of Value-Added Tax Act)

Article 13 (Tax Base of the former Value-Added Tax Act)

C. Determination

(1) Determination on the first argument

The revenue of casino business can be classified into admission fees received from customers in return for their entry into casino facilities and gambling revenue, excluding money received by customers, for gambling. However, gambling revenue, excluding admission fees, does not constitute value added tax, and thus does not constitute a taxable object of value added tax (see Supreme Court Decision 2004Du13288, Oct. 27, 2006).

However, even if the service provided in the game of this case has a nature as a speculative act, the plaintiffs registered the "game room business" in accordance with the procedures provided in the former Sound Records, Video Products and Game Software Act (repealed by Act No. 7943 of Apr. 28, 2006) and operated the game of this case legally. The game machine installed in the game of this case is designed to meet the standard for dealing with gift certificates of the former game room (which was not contrary to the Ministry of Culture and Tourism No. 2006-24 of Nov. 1, 2006, hereinafter referred to as "former standard for dealing with gift certificates") and received a rating classification in accordance with the standard for dealing with gift certificates of the game of this case. Considering that the game machine of this case is a game machine, it cannot be evaluated as gambling in the above legitimate game room, ② the amount input in the game room belongs to the total amount of the game room business operators, and the game of this case can not be seen as being subject to regulation in the order of providing gift certificates of this case.

(2) Judgment on the second argument

Article 1 (1) 1 of the Value-Added Tax Act provides that "the supply of goods or services" shall be subject to value-added tax, and Article 1 (3) provides that "any service other than goods and any other service with property value" shall be subject to value-added tax, and Article 13 (1) of the Value-Added Tax Act provides that "the tax base of value-added tax for the supply of goods or services shall be the total value falling under each of the following subparagraphs," while Article 13 (3) of the former Value-Added Tax Act provides that "the value-added tax shall be the total value of the goods or services provided" if the payment is made in money, but the amount of discount, loss, bounty, and other similar amount shall not be deducted from the tax base after the supply of the goods

Considering the contents and purport of each provision, unlike income tax and corporate tax, Korea's value-added tax that adopts the pre-stage tax credit system has the form of transaction tax imposed on the external appearance of transaction, which is not real income, and thus does not constitute a concept of deduction of expenses. It is imposed regardless of profit or loss of the game operator. It is only the use of the game machine to provide merchandise coupons to the game users in the game site where merchandise coupons are offered as gift gifts. It is reasonable to view that merchandise coupons are offered incidentally in accordance with the incidental outcome of each game after the use of the game machine and there is room to view that there is a nature of incentives under Article 13 (3) of the former Value-Added Tax Act. The former standard for dealing with merchandise coupons is strictly limited to the degree that the merchandise coupon cannot be presented as cash even if realization is guaranteed, and the game enterpriser can not be deducted as a result of the purchase of merchandise coupons without value-added tax by itself, in calculating the tax base of merchandise coupons in the game site where value-added tax is offered to the game users.

3. Conclusion

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