The case holding that the expropriation of the above building does not constitute the supply of goods under the Value-Added Tax Act in case where the building was expropriated because an agreement on the removal compensation for the building on the land subject to expropriation pursuant to the urban planning project is not reached.

The case holding that the expropriation of the above building does not constitute the supply of goods under the Value-Added Tax Act in case where the building is expropriated because an agreement on the removal compensation for the building on the land subject to expropriation pursuant to the urban planning project is not reached.

Articles 1(1)1 and 6(1) of the former Value-Added Tax Act (amended by Act No. 5585 of Dec. 28, 1998); Article 1(1) of the Enforcement Decree of the Value-Added Tax Act; Article 14 subparag. 4 of the Enforcement Decree of the Value-Added Tax Act; Article 29(1) and Article 30(1) of the former Urban Planning Act (amended by Act No. 6243 of Jan. 28, 200); Article 25 of the former Land Expropriation Act (repealed by Act No. 6656 of Feb. 4, 2002)

Supreme Court Decision 85Nu747 delivered on February 25, 1986 (Gong1986, 554) Supreme Court Decision 88Nu4713 delivered on January 17, 1989 (Gong1989Sang, 310)

Lee & Lee (Attorney Lee Jae-hoon, Counsel for the defendant-appellant)

Head of Sungbuk Tax Office

July 15, 2004

1. The imposition of value-added tax of KRW 51,360,010 against the Plaintiff on July 12, 2003 shall be revoked.

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

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff owned 60-178 square meters and 96 square meters, which are divided into the land of Seongbuk-gu, Seongbuk-gu, Seoul, and 60-8 square meters and 1,65.71 square meters and 163.64 square meters and 201.96 square meters and 196.92 square meters and 181.98 square meters and 165.78 square meters and 1,041.81 square meters and 165.78 square meters and 1,041.8 square meters and 22.64 square meters and 201.64 square meters and 201.96 square meters and 3 stories retail offices, and 181.98 square meters and 1,041.81 square meters and hereinafter referred to as the “building of this case”).

B. On March 25, 1997, the head of Seongbuk-gu Seoul Metropolitan Government (Seoul Metropolitan Government) authorized the implementation plan for the urban planning project for the whole region where the building in this case was a public project operator, and announced it under Article 1997-13 of the Seongbuk-gu Seoul Metropolitan Government Public Notice. The head of Seongbuk-gu Seoul Metropolitan Government (repealed by Act No. 6655 of Feb. 4, 2002) tried to consult with the Plaintiff on the compensation for losses of the building in this case pursuant to Article 6 of the Urban Planning Act (repealed by Act No. 6655 of Feb. 4, 2002), but as a result, applied for a ruling to the local Land Tribunal of Seoul Metropolitan City (Local Land Tribunal of Seoul Metropolitan City) on March 30, 1998, on April 30, 1998, the date of expropriation was 630,254,450 won in total.

C. Although the head of Seongbuk-gu reserved and received compensation for losses deposited at that time, the Plaintiff did not report and pay the amount of value-added tax. Accordingly, the Defendant’s payment of compensation for losses also constitutes payment of the price for the supply of goods under the Value-Added Tax Act. On July 12, 2003, the Plaintiff issued a disposition of imposition of value-added tax and additional tax 56,496,100 won for the first period of 1998 (51,360,099 + 5,136,099 + 5,136,099 won) after calculating compensation for losses for the part of the building of the building of the building of the case as 513,60,695 won and value-added tax 46,690,995 won and value-added tax 46,690,999 won. The Plaintiff’s tax base for value-added tax was reduced by 106,950 won and 306,1505 won as above.

D. The head of Seongbuk-gu Office did not deposit the compensation for the instant building separately by including the value-added tax on the compensation for losses.

[Evidence] In the absence of dispute, Gap 1 to 5 evidence, Eul 1 to 1-2, Eul 2 to 8, Eul 9-1 and 2, fact inquiry result (Songbuk-gu Office)

2. Whether the disposition is lawful;

A. The plaintiff's assertion

① The Plaintiff’s compensation for losses of the building of this case is merely compensation for the loss of ownership of the building of this case, not compensation for the supply of goods, and thus the expropriation of the building of this case cannot be subject to value-added tax.

② Since no value-added tax was included in the compensation for losses for the instant building, it is unreasonable for the Plaintiff to bear value-added tax on the expropriation of the instant building.

③ The imposition of this case is also in violation of the principle of trust in the event that the statute of limitations on the right to collect national tax is extinguished and the imposition of this case remains 15 days.

④ The tax authorities did not know whether to impose the value-added tax in this case and did not impose the tax in this case. In light of the legal nature of and requirements for imposing the penalty tax in the process of such disposition, the Plaintiff’s failure to report the value-added tax in this case is justified. Thus, the imposition of penalty tax in this case is unlawful.

B. Relevant statutes

former Value-Added Tax Act (amended by Act No. 5585 of Dec. 28, 1998)

Article 1 (Objects of Taxation)

(1) Value-added tax shall be imposed on the following transactions:

1. Supply of goods or services; and

Article 6 (Supply of Goods)

(1) The supply of goods shall be a delivery or transfer of goods pursuant to all contractual and legal grounds.

Article 19 (Final Tax Return and Payment)

(1) A business operator shall report to the head of the competent tax office having jurisdiction over the place of business within 25 days (50 days in cases of foreign corporations) after the tax base, payable or refundable amount for each taxable period expires.

(2) An entrepreneur shall pay the tax amount payable for the taxable period after filing a return referred to in paragraph (1) (hereinafter referred to as "final return") to the head of tax office having jurisdiction over the place of business as prescribed by the Presidential Decree

Article 22 (Additional Tax)

(5) Where an entrepreneur falls under any of the following subparagraphs, the amount equivalent to 10/100 of the unreported amount of tax payable (where he/she has declared short of the amount of tax payable), the refunded amount declared in excess or the amount of tax not paid in excess (where he/she has paid short of the amount, the deficient amount) shall either be added to the amount of tax payable or deducted from the amount of tax refundable: Provided, That where subparagraphs 1 and 2 are simultaneously applicable, this shall apply to the larger amount, and where subparagraphs 1 and 2

1. Where the declared tax amount fails to be declared under Article 18 (1) and (2) (proviso) or 19 (1), or the declared tax amount falls short of the payable tax amount to be declared, or the declared tax amount exceeds the refundable amount to be declared; and

2. Where the tax amount not paid under Article 18 (4) or 19 (2) or paid falls short of the payable tax amount;

Enforcement Decree

Article 14 (Scope of Supply of Goods) The supply of goods referred to in Article 6 (1) of the Act shall be as follows:

4. Delivery or transfer of goods by public auction, auction, expropriation, investment in kind, or other contractual or legal grounds;

(c) Markets:

According to the Value-Added Tax Act and subordinate statutes, where an entrepreneur delivers or transfers goods due to contractual or legal grounds, the value-added tax is imposed on all unless there is a special provision that the entrepreneur is exempted from or exempt from value-added tax (see Supreme Court Decision 97Nu6100, Apr. 13, 199); Article 14 of the Enforcement Decree of the Value-Added Tax Act provides that the supply of goods under Article 6(1) of the Enforcement Decree of the Value-Added Tax Act shall be stipulated as follows; and subparagraph 4 thereof provides that "the delivery or transfer of goods due to public sale, auction, expropriation, investment in kind, or other contractual or legal grounds," and therefore, it is interpreted that the supply of goods under the Value-Added Tax Act

However, it is difficult to accept such interpretation in all cases of expropriation because it results in unreasonable results in the following point.

The urban planning (road) project constitutes a public project prescribed by the former Act on the Compensation for Public Loss (amended by Act No. 6656 of Feb. 4, 2002) and Article 30(1) and Article 29(1) (the same shall apply to Articles 68(1) and 67(1) of the former Urban Planning Act (amended by Act No. 6243 of Jan. 28, 200). The same shall apply to Article 68(1) and Article 67(1) of the former Land Expropriation Act (repealed by Act No. 6656 of Feb. 4, 2002). The project operator who has obtained the authorization of the urban planning project shall consult with the land owner in order to acquire the right to land, etc. necessary for the urban planning project pursuant to Article 25 of the former Land Expropriation Act, and if the consultation is not concluded or is impossible, he/she may file an application for adjudication with the competent Land Tribunal.

However, as in this case, in a case where there is a building on the land necessary for an urban planning project, since the goods necessary for an urban planning project are not land, the building is not a building, so the building is a obstacles that can be removed regardless of leakage, and in a case where the land to be incorporated into an urban planning project is acquired through consultation, the project operator and the landowner may enter into an agreement on the removal of the building except for the land subject to acquisition through consultation. In this case, since the nature of money paid by the project operator to the owner of the building is compensation for the removal of the building, the building owner is merely a compensation for the removal of the building, so it cannot be seen as the supply of the goods under the Value-Added Tax Act and the project operator is not deemed the supply of the goods (see Supreme Court Decision 85Nu747 delivered on February 25, 1986). This legal principle is evaluated as the legal nature of compensation for the removal of the building from the project operator (see Article 67 (1) of the former Land Expropriation Act and Article 187 of the Civil Act).

Furthermore, as in this case, the purport of Article 15 of the Value-Added Tax Act, which provides that where an urban planning project implementer pays or deposits compensation for losses due to the expropriation ruling by the Land Tribunal, it does not voluntarily pay or deposit the value-added tax for the compensation for losses, and that Article 15 of the Value-Added Tax Act, which provides that "if a project implementer supplies goods or services, it shall collect an amount equivalent to the value-added tax from the person who receives the supply of the value-added tax collected by the project implementer, it shall ultimately be borne by the final consumer in sequence, and thus, it cannot be deemed that the person who receives the supply does not have the obligation to pay or pay value-added tax for the other party to the transaction or the State (see Supreme Court Decisions 96Da40677, 40684, Apr. 25, 1997; 2003Da49153, Feb. 13, 2004).

In this situation, the owner of a building, who is a business operator, is dissatisfied with the amount of compensation for the loss of the building proposed by the business operator, brought about the result of the transfer of the building due to expropriation without choosing the legal form to avoid the burden of value-added tax through consultation with the business operator, and therefore, the liability to pay value-added tax is extremely unfair because it would compel the owner of the building, who is a business operator, to comply with the consultation

Therefore, in the event that an entrepreneur does not reach an agreement on compensation for the removal of the building on the land necessary for an urban planning project between the operator of the urban planning project and the operator of the urban planning project, it is reasonable to interpret that it does not fall under the supply of goods under the Value-Added Tax Act, unlike the case where the purchase agreement on the building itself is not reached and the expropriation procedure is not reached. Accordingly, the instant disposition imposing value-added tax on the instant building compensation rather than

3. Conclusion

Therefore, the plaintiff's claim of this case shall be accepted on the grounds of its reasoning, and it is so decided as per Disposition.

Judges Kwon Soon-il (Presiding Judge)