A corporation that produces products in the form of consignment of an overseas local corporation shall be a small or medium enterprise.

If a product is produced in the form of discretionary processing by entrusting the manufacture, it is reasonable to interpret that the trustee shall be limited to a company with the place of business in Korea. Therefore, the plaintiff cannot be deemed to be a small and medium enterprise under the

Article 7 of the Restriction of Special Taxation Act: Special Tax Abatement or Exemption for Small or Medium Enterprises

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

Each disposition of the Defendant imposed corporate tax of KRW 243,395,80 for the Plaintiff in 2003, corporate tax of KRW 44,380,200 for the year 2004, corporate tax of KRW 155,228,460 for the year 205 shall be revoked.

1. Details of the disposition;

The following facts may be acknowledged in the entirety of all the arguments, or the statements in Gap evidence 1 and No. 2-1 and No. 2.

A. The Plaintiff produced and exported sports supplies to a local foreign corporation located in Vietnam, which was established by the Plaintiff by investing 100% of shares in the company engaged in manufacturing and exporting sports supplies. The Plaintiff filed a report on the tax base and its tax amount of corporate tax belonging to each business year of 2003, 2004, and 2005, and the Plaintiff filed a report on the tax base and its tax amount of corporate tax prior to the amendment by Act No. 7003, Dec. 30, 2003; hereinafter the same shall apply), Article 7 of the former Restriction of Special Taxation Act (amended by Act No. 7322, Dec. 31, 2004; hereinafter the same shall apply), Article 2(1) of the Enforcement Decree of the Restriction of Special Taxation Act, Article 2(1) of the former Enforcement Rule of the Restriction of Special Taxation Act (amended by Ordinance of the Ministry of Finance and Economy No. 504, Apr. 17, 2006; hereinafter referred to as the “instant reduction provision”).

B. Since the purport of the provision of this case is to support domestic small and medium manufacturers, the plaintiff who manufactures products in the form of discretionary processing by entrusting manufacturing to an overseas local corporation does not fall under the small and medium enterprises that engage in manufacturing business under the provision of this case. On January 10, 2007, the defendant issued a disposition to impose corporate tax of KRW 44,380,200 for the business year 2004, corporate tax of KRW 243,395,800 for the business year 2003 for the reason that the plaintiff does not fall under the category of wholesale business, and imposed corporate tax of KRW 15,228,460 for the business year 205 for the business year 204 (hereinafter "the disposition of this case").

C. The plaintiff filed an appeal with the National Tax Tribunal on April 5, 2007, but was dismissed on July 11, 2007.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The provision of this case, which applies to corporate tax for each business year of this case, does not limit the scope of manufacturers requested to manufacture products in relation to ‘business similar to the manufacturing business' under Article 2 (1) of the Enforcement Decree of the Restriction of Special Taxation Act to ‘business located in Korea'. Thus, although the plaintiff directly plans the products to be manufactured in the name of the plaintiff and directly sells the products under the plaintiff's responsibility, it is not permissible under the principle of no taxation without law to interpret that the products are excluded from those subject to special tax reduction or exemption under Article 7 of the former Restriction of Special Taxation Act just because the business place requests the manufacturing of the products to be manufactured in Korea. In particular, the provision of this case was legislated as it is, compared to the basic rules of the Restriction of Special Taxation Act, the provision of this case is limited to 0-2, 4, and 4 (hereinafter referred to as ‘the basic rules of this case' of this case, and only is deleted, and it is not clear that the new provision of this case will be added to 20-6, domestic business or 20-6, domestic business.

Therefore, even though the provision on special tax reduction and exemption should apply to the plaintiff's less than 10 employees as a small enterprise based on the manufacturing industry, the disposition of this case excluding the application of the provision on special tax reduction and exemption by deeming the plaintiff's business as a wholesale business is unlawful.

B. Relevant statutes

former Restriction of Special Taxation Act (amended by Act No. 7003 of Dec. 30, 2003)

Article 7 (Special Tax Abatement or Exemption for Small or Medium Enterprises)

(1) With respect to an enterprise operating any of the following types of business eligible for reduction or exemption among small and medium enterprises, an amount equivalent to the tax amount calculated by applying the reduction or exemption rate under subparagraph 2 to the income tax or corporate tax on the income accrued from such business not later than the taxable year ending on or before December 3

1. Types of reduction or exemption;

(a) Manufacturing business;

(g) Wholesale business;

2.Reduction and Exemption Ratio

(a) Small enterprises as prescribed by the Presidential Decree (hereafter in this Article, referred to as the “small enterprises”) from among the nationals operating small or medium enterprises within the Seoul Metropolitan area under subparagraph 1 of Article 2 of the Seoul Metropolitan Area Readjustment Planning Act (hereinafter referred to as the “Seoul Metropolitan area”), and small or medium enterprises operating the knowledge-based industry as prescribed by the Presidential Decree: 20/100 (10/100 for the small enterprises operating the wholesale, retail, medical

former Restriction of Special Taxation Act (amended by Act No. 7322 of Dec. 31, 2004)

Article 7 Special Tax Reduction or Exemption for Small or Medium Enterprises

(1) With respect to an enterprise operating any of the following types of business eligible for reduction or exemption among small and medium enterprises, an amount equivalent to the tax amount calculated by applying the reduction or exemption rate under subparagraph 2 to the income tax or corporate tax on the income accrued from such business not later than the taxable year ending on or before December 3

1. Types of reduction or exemption;

(a) Manufacturing business;

(g) Wholesale business;

2. Reduction rate;

(a) Small enterprises as prescribed by the Presidential Decree (hereafter in this Article, referred to as the “small enterprises”) from among the nationals operating small or medium enterprises within the Seoul Metropolitan area under subparagraph 1 of Article 2 of the Seoul Metropolitan Area Readjustment Planning Act (hereinafter referred to as the “Seoul Metropolitan area”), and small or medium enterprises operating the knowledge-based industry as prescribed by the Presidential Decree: 10/100 (5/100 for the small enterprises operating the wholesale, retail, medical

Enforcement Decree of the Restriction of Special Taxation

Article 2 (Scope of Small and Medium Enterprises)

(1) For the purpose of Article 4 (1) of the Restriction of Special Taxation Act (hereinafter referred to as the "Act"), the term "small and medium enterprises prescribed by Presidential Decree" means manufacturing businesses (including businesses similar to manufacturing businesses, which are prescribed by the Ordinance of the Ministry of Finance and Economy; hereafter the same shall apply in this Article), and ... B:

1. The number, capital, or sales of the full-time employees by type of business shall not exceed the size standards under attached Table 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises (hereafter referred to as "small and medium enterprise standards" in this

2. Deleted;

3. He shall accept the products concerned and sell them directly under his responsibility.

Enforcement Regulations of the Restriction of Special Taxation Act (amended by Ordinance of the Ministry of Finance and Economy No. 504 April 17, 2006)

Article 2 (Scope of Small and Medium Enterprises)

(1) For the purpose of the main sentence of Article 2 (1) of the Enforcement Decree of the Restriction of Special Taxation Act (hereinafter referred to as the "Decree"), the term "business determined by the Ordinance of the Ministry of Finance and Economy" means a business which entrusts a manufacturer (limited to an enterprise in which the place of business is located in the Republic of Korea) with the manufacturing of products not directly, and which meets the following requirements:

1. If he/she personally plans (referring to the idea, design, sample making, etc.) the product to be manufactured;

2. If he manufactures the product under his own name; and

3. He shall accept the products concerned and sell them directly under his responsibility.

General Provisions of the Restriction of Special Taxation

4-2.4 Occupations of the manufacturing industry

In the application of the provisions of Article 2 (1) of the Decree, where entrusting other manufacturers (limited to domestic enterprises) to do the manufacturing instead of directly manufacturing the products, and the following requirements are met, it shall be deemed that the manufacturing business is operated:

1. If he/she personally plans (referring to the idea, design, sample making, etc.) the product to be manufactured;

2. If he manufactures the product under his own name; and

3. He shall accept the products and sell them directly under his responsibility.

Enforcement Decree of the Income Tax

Article 31 (Scope of Manufacturing Businesses)

In applying the provisions concerning business income pursuant to the provisions of Article 19 of the Act, it shall be deemed the manufacturing industry pursuant to the provisions of Article 19 (1) 4 of the Act in the following cases:

1. Deleted;

2. Where entrusting other manufacturers to do the manufacturing instead of directly manufacturing by himself, and where the following requisites are satisfied:

(a) If he personally plans (including the idea design, sample making, etc.) the product to be manufactured;

(b) If he manufactures the product under his own name; and

(c) If he accepts the products, and directly sells them under his own responsibility.

C. Determination

In light of the principle of no taxation without law, or the requirements for tax exemption or tax exemption, the interpretation of tax laws shall be interpreted as the text of the law unless there are special circumstances. It shall not be allowed to expand or analogically interpret without reasonable grounds. However, it shall not be allowed to do so within the extent that it does not undermine the legal stability and predictability pursued by the principle of no taxation without law.

In this case, if the plaintiff establishes an overseas local corporation and produces products, it can be seen as a small or medium enterprise under the provision on reduction or exemption in this case and engaged in manufacturing business under Article 2 (1) of the former Enforcement Decree of the Restriction of Special Taxation Act. However, the purpose of Article 7 of the former Restriction of Special Taxation Act is to maintain and develop the production basis of domestic small or medium manufacturing business and promote balanced growth and stability of the national economy by creating jobs through the protection and fostering of the small or medium manufacturing business with weak competitiveness. However, if the plaintiff performs manufacturing process abroad through the entrustment of overseas local corporation, it does not conform to the purport of Article 7 of the former Restriction of Special Taxation Act that maintains and develops the production foundation of domestic manufacturing business, and granting benefits from tax reduction or exemption in this case does not only harm the fairness among taxpayers, but also may result in a conflict with the above purpose by acquiring the favorable status in competition with the same manufacturing company with the same manufacturing foundation in Korea. Thus, the entrusted company in this case can be interpreted as a small or medium enterprise under the provision on reduction or exemption in this case.

Furthermore, the General Rule of this case does not abolish even after the establishment of the provision on reduction and exemption in this case, and continues to exist as the criteria for interpretation and enforcement of the tax law until now. The Minister of Finance and Economy or the National Tax Service, who is the authority to enact the provision on reduction and exemption in this case, has consistently interpreted and applied the provision on reduction and exemption in this case as not including the case of manufacturing products by entrusting the business located in a foreign country, even after the establishment of the provision on reduction and exemption in this case, and includes the "type of business deemed as manufacturing business under Article 31 of the Enforcement Decree of the Restriction of Special Taxation Act" as to the "small and medium enterprise as prescribed by the Presidential Decree" before the amendment of Article 2(1) of the Enforcement Decree of the Restriction of Special Taxation Act, but it delegated the scope of business similar to the manufacturing business included in the scope of the manufacturing business after the amendment of the Enforcement Decree of the Restriction of Special Taxation Act, and Article 22 of the Enforcement Rule of the Restriction of Special Taxation Act provides for the same as the previous provision on reduction and exemption in this case, as alleged by the Plaintiff.

Moreover, it is more so in light of the fact that the amendment of the provision of this case under the Ordinance of the Ministry of Finance and Economy No. 504 on April 17, 2006 to the scope of manufacturers requested to manufacture products is made clear by adding the phrase limiting the scope of manufacturers to those located in Korea.

Therefore, the defendant's disposition of this case that the plaintiff did not belong to the manufacturing company under the provision of the exemption of this case is legitimate, and the plaintiff's assertion on the different premise is without merit.

3. Conclusion

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

public official law, order of law,

Value-Added Tax Act

Article 11 (Application of Zero Tax Rate)

(1) zero tax rates shall apply to the supply of goods or services falling under any of the following subparagraphs:

1. Exported goods;

Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 17827, Dec. 30, 2002)

Article 24 (Scope of Export)

(1) Exports provided for in Article 11 (1) 1 of the Act shall be as follows:

1. Shipping domestic goods (including marine products arrested by Korean vessels) out of Korea;

2. Where transactions, such as contract and receipt of consideration, are conducted at a domestic place of business, which falls under any of the following items:

(a) Export by means of brokerage trade under the Foreign Trade Act;

(2) The exported goods under Article 11 (1) 1 of the Act shall be deemed to include the following goods:

1. Goods supplied by a businessman by means of a local letter of credit or a written confirmation of purchase;

Enforcement Rule of the Value-Added Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 299 on January 25, 2003

Article 9-2 (Scope of Local Letters of Credit, etc.)

(2) The term "purchase confirmations under Article 24 (2) 1 of the Decree and Article 26 (1) 2-2 of the Decree" means confirmations which the head of a foreign exchange bank issues under Articles 38-2 and 116 (14) of the Enforcement Decree of the Foreign Trade Act within 20 days after the end of the taxable period to which the time of supply for goods or services belongs, corresponding to a local letter of credit under paragraph (1), and on which the documents, such as the export letters of credit, etc., the number thereof, effective date, shipment date, etc.

General Rules 11-24-9 of the Value-Added Tax Act (goods supplied by local letters of credit or written confirmation of purchase)

The zero tax rate shall apply to goods supplied for the purpose of export after the supply, regardless of whether such goods are used for the purpose of export after the supply.

Article 4-2-7 of the Regulations on External Trade Management (Application, etc. for Issuance of Purchase Certificates)

(1) The head of a foreign exchange bank may issue written confirmation of purchase pursuant to one of the following subparagraphs:

1. The export letter of credit, the export contract, the certificate of foreign currency purchase (deposit), the local letter of credit; 4. The letter of credit, the certificate of purchase;

(2) An application for confirmation of purchase shall be filed with the head of a foreign exchange bank, along with the following documents:

1. One copy of a document falling under any subparagraph of paragraph (1);

2. A contract for supply of goods or a certificate for sale of goods for foreign exchange earnings;

Special Cases concerning the Refund of Customs Duties, etc. Levied on Raw Materials for Export

Article 9(1) The customs collector, when the goods are offered for export, shall refund the customs duties, etc. levied on raw materials for export of the imported goods within 2 years retroactively from the date prescribed by the Presidential Decree.

Article 13(1) The Commissioner of the Korea Customs Service may, when it is deemed necessary to simplify the refund procedure of customs duties, etc. on export goods with special production processes such as those produced simultaneously by two or more products from a single raw material for export and on export goods from small and medium enterprises, determine and publicly notify the fixed refund rate table for each export goods on the basis of the average refund amount of customs duties, etc. or average

(2) The amount set in the fixed refund rate table pursuant to paragraph (1) shall be refunded, considering the customs duties, etc. paid, when raw materials for export required for producing the relevant goods are imported.

Enforcement Decree of the Act on Special Cases concerning the Refund of Customs Duties, etc. Levied on Raw Materials for Export (amended by Presidential Decree No. 17791, Dec. 5, 2002)

Article 10 (Calculation of Period for Transactions by Local Letters of Credit, etc.

(1) "Period prescribed by Presidential Decree" in Article 9 (2) of the Act means one year.

(2) The head of a customs office may issue a document certifying the amount of customs duties, etc. on the goods transacted in an import (referring to purchase in the course of transactions under a local letter of credit, etc.)

(3) Any person who intends to have a document attesting the amount of customs duties, etc. payable under paragraph (2) issued shall file an application stating the following matters with the head of the competent customs office:

1. Transferor and transferee;

2. Transfer date;

3. The name and specification of the goods;

4. The quantity and tax amount to be transferred.

5. Other matters necessary to certify the amount of customs duties, as determined by the Commissioner of the Customs Service.

Notice of refund of customs duties, etc. on raw materials for export

ARTICLE 1-1-2 (Definition of Terms) The definitions of terms used in this Notice shall be as follows:

1. The term "amount of average tax amount" means a document proving the average amount of tax per unit for export (hereinafter referred to as "amount of average tax") by the item number (H or 10 unit) of raw materials for export imported each month, in quantity divided into the quantity;

2. The term "certificate of tax payment on basic raw materials" means a document attesting the payable amount of the raw materials for export supplied by the local letter of credit, etc. (hereinafter referred to as "certificate of tax payment");

3. The term "division certificate" means an import declaration certificate, ordinary certificate, or a certificate of payment in installments (hereinafter referred to as "certificate") in order to certify the amount of tax payable on the goods that have been supplied in the original condition of import or purchase;

Article 4-3-1 (Persons subject to Issuance of Subdivision) Cases where decentralization may be issued pursuant to Article 10 (2) of the Decree shall be as follows:

1. Where raw materials are transferred in the state of import or purchase of raw materials to an exporter or a producer of export goods or a person who produces interim raw materials to be used in producing export goods;

2. Where all or part of the goods, the Pyeongtaek certificate of which has been issued pursuant to the provisions of Article 4-1-2, are transferred as referred to in subparagraph 1 without manufacturing and processing them;

3. Where a transferee of raw materials referred to in paragraph 1 of Article 4-2-1 has transferred them in the same manner as subparagraph 1 has been purchased. The end;