Whether the value of merchandise coupons paid in the game place can be deducted from the tax base.

The plaintiff's assertion that the value of merchandise coupons should be deducted from the value of supply to calculate the value of value-added tax on the premise that the merchandise coupon's face value should be deducted from the value of supply in addition to the service of use

Article 13 of the Value-Added Tax Act

1. The plaintiff's claims are all dismissed.

2. The plaintiff shall bear the litigation costs.

Cheong-gu Office

The Defendant’s imposition of value-added tax of KRW 172,278,610 on March 5, 2007 against the Plaintiff on March 5, 2007 is revoked.

1. Details of the disposition;

A. From January 24, 2006, the Plaintiff installed 56 game rooms in the name of “○○○○-dong ○○○○○○○○○○○○○○○○○○○○○○○” and operated a general game room (hereinafter “instant game room”).

B. The Plaintiff reported to the Defendant the tax base of value-added tax for the first term portion of January 2006 to KRW 84,076,00, and paid KRW 4,133,290 accordingly. On March 5, 2007, the Defendant calculated the tax base of value-added tax for the first term portion of January 2006 by deeming the total cash that customers invested in the game machine of the instant game room was the sales of the instant game room as KRW 1,560,454,545, and imposed value-added tax for the first term portion of January 2006 on the Plaintiff (hereinafter “instant disposition”).

[Ground of recognition] Facts without any dispute, Gap evidence No. 4, Eul evidence No. 1, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

For the following reasons, the instant disposition should be revoked in an unlawful manner.

(1) The game of this case is of the nature as a speculative entertainment, so it cannot be viewed that the amount invested in the game machine is the proceeds of supply for services under the Value-Added Tax Act, so this cannot be viewed as the tax base of value-added tax.

(2) Even if it is deemed as the consideration for the supply of a virtual service, the amount input in a game machine by the user is combined with the consideration for merchandise coupons and the consideration for the provision of a game machine use service, which is the provision of a merchandise coupon acquisition opportunity, so the consideration for merchandise coupons is not subject to value added tax. The merchandise coupons received by the user in a game machine are not subject to value added tax, but cannot be viewed as having the nature of a bounty or a prize which cannot be deducted from the tax base for value added tax under Article 13, Paragraph 3 of the Value-Added Tax Act. Thus, the tax base for value added tax on the business of the game of this case

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

(1) The game machine installed in the instant game room is a game which has been rated as being for use by the Korea Media Rating Board for over 18 years pursuant to the former Sound Records, Video Products and Game Software Act (amended by Act No. 7943 of Apr. 28, 2006).

(2) The game machine users using the instant game will put certain cash into the game machine and play the game. The game will be able to play the game by crediting the winning points in the game, and the winning points in the game process will be accumulated in the Gift account, and when the winning points are more than 5,000 points, the gift certificates will be withdrawn and the scores will be less than 5,000 points will be used only for continuing the game by transferring those points to the c credit account.

(3) In the case of the game machine installed in the game of this case, the rate of the amount of merchandise coupon payments (the rate of merchandise coupon payments) compared to the amount invested by the customer is 100%, and the plaintiff purchased merchandise coupon 5,000 per face value from the merchandise coupon supplier during the taxable period of value-added tax 1, 2006 and supplied it as free gifts to the game machine users of the game of this case.

(4) The Defendant calculated the value-added tax base by calculating the amount of merchandise coupon payments by multiplying the amount of merchandise coupon payments purchased by the Plaintiff by the face value of KRW 5,00 per merchandise coupon per merchandise coupon and by dividing that amount into the above rates and calculating the value of supply.

[Ground of recognition] Facts without any dispute, entry of Eul Nos. 1 and 2, purport of the whole pleading

D. Determination

(i)With respect to the assertion that it is not subject to value-added tax as a speculative entertainment;

In full view of the following circumstances, it cannot be deemed that money inputs in the above game machine was provided for gambling or gambling games, and it constitutes value-added tax-added tax-exempt because it was paid as consideration for the provision of services, such as the use of the game machine, and thus, the Plaintiff’s assertion on this part is without merit.

(A) The game machine installed in the instant game room is a game machine which has been rated in conformity with the previous standards for dealing with free gifts at the game software establishment (amended by the Ministry of Culture and Tourism No. 2006-24, Nov. 1, 2006; hereinafter referred to as the “former standards for dealing with free gifts”) and has a certain limitation on the face value of the merchandise coupon discharged once.

(B) The amount invested by a customer in a game machine shall be attributed to all game operators, and the amount may be generated as merchandise coupons according to the result of the game, but it shall not be returned to the customer, and the merchandise coupons paid to the game users shall, in principle, be prohibited in accordance with the old standards for dealing with merchandise coupons, as seen earlier.

(c)The game users enjoy the game of how much the merchandise coupons will receive during the hours of using the game machine and pay the price to the game operators. Therefore, it cannot be deemed that there is no value added at all generated in this process.

(2) As to the assertion of deduction of the value of merchandise coupons

In full view of the following circumstances, the Plaintiff’s assertion that the amount corresponding to the face value of merchandise coupons, out of the amount input in the game machine, should be deducted from the value of supply cannot be accepted.

(a)The plaintiff's supply of the game of this case to the user of the game of this case is a short-term service of using the game machine indicating an unspecified result for the individual user, and the user also pays the game cost in return for the use of the game machine with an opportunity to obtain merchandise coupons more than their input costs. Thus, the amount paid by the user of the game of this case for the game of this case is not related to how the actual game result arises, how the amount actually acquired by the user of the game of this case actually acquired, and the amount of merchandise coupons paid by the user of the game of this case is not corresponding to the actual transaction or the intention of the transaction.

Therefore, the Plaintiff’s supply of gift certificates to the instant game room users is merely the use of the game machine (including the provision of gift certificates based on the incidental results to stimulate the interest of the game). Thus, the Plaintiff’s assertion that gift certificates should be calculated by deducting the face value of gift certificates from the value of supply can not be maintained, while the Plaintiff’s offer is included in goods such as gift certificates having equivalent value or status in addition to the use of the game machine.

(b)It is impossible to compute the price of merchandise coupons in relation to individual users because the game user is an incidental merchandise coupon only when the game is conducted, and the cost of merchandise coupons is not separately determined independently, and the quantity of merchandise coupons provided according to the incidental result of the game is different.

(c)The Korean Value-Added Tax Law, which takes the pre-stage tax credit system, has the nature of transaction tax imposed on the external appearance of transaction, not substantial income, unlike income tax and corporation tax, without the concept of cost deduction, and it is imposed regardless of whether or not the entrepreneur's interest or loss may be imposed even if the cost is more excessive than income.

(D)The gift certificates paid to the instant game site users are only premiums provided for the promotion of the sale of services such as the use of the game machine, and cannot be viewed as purchasing them by users, and thus, the Value-Added Tax Act has the characteristics of incentives or similar, which provide that no deduction shall be made

(e)The standard for providing free gifts is not only strictly limited to the types of premiums which a game provider may provide, but also at the same time, all matters recorded in the originals except for the user fees paid by the game provider are deleted, the results of the game shall not be kept, and no person shall sell or purchase them, and any person shall not buy or sell them, and the act of re-purchasing free gifts which are offered by the game provider shall not be allowed to exchange or exchange or arrange for exchange, or buy them in lieu of free gifts. Therefore, the aforementioned merchandise coupon shall not be deemed the same as cash until the money exchange is made, even if it is practically guaranteed.

(f)The plaintiff's failure to deduct the input tax amount for merchandise coupons is only the result of purchasing and supplying goods for which no value-added tax is levied (not being different from the supply of unprocessed foodstuffs such as rice) by itself.

(g) According to the Plaintiff’s assertion, although the amount of inputs in the game room is the same for the purpose of acquiring merchandise coupons, the value of supply, which is value-added tax base, may vary or even be zero or less, depending on the amount of merchandise coupons derived from the winning of the game room users.

3. Conclusion

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