Sok SND Co., Ltd.

Gangwon-gu Director of the District Office

July 11, 2014

Seoul Administrative Court Decision 2012Guhap23242 decided November 1, 2013

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The imposition of value-added tax of KRW 5,449,141,280 (including additional tax) imposed on the Plaintiff on November 10, 2011 shall be revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

(a) Conclusion, etc. of a contract for guarantee for sale and trust;

(1) On December 29, 2005, the Plaintiff obtained approval of the business plan for the construction of three main multi-family apartment units with the building area of 8,479.66 square meters (113,882.58 square meters in total floor area of a building) and the ancillary and welfare facilities (hereinafter “instant business”).

(2) On July 2007, the Plaintiff entered into a standard housing sale trust agreement (hereinafter “trust agreement”) with the Korea Housing Guarantee Co., Ltd. (hereinafter “Korea Housing Guarantee”) on the instant project site as follows.

(2) Where the Plaintiff seeks to operate a housing construction project with the approval of the project plan under the provisions of Article 16 of the Housing Act, the amount of the real estate indicated in the attached Table 1 (including access roads and land subject to donation; hereinafter referred to as “land”) and the buildings under construction or construction on the land. The purpose of this Article is to construct housing units and incidental welfare facilities (hereinafter referred to as “housing”) and to manage the real estate for the purpose of sale in lots and for the purpose of sale in lots and for the purpose of sale in lots (including sale in lots or repayment; hereinafter the same shall apply) of which the value of the real estate for the first and second real estate for the purpose of sale in lots belongs to the purchaser of the real estate.

On July 16, 2007, the Plaintiff delivered a letter of transfer to the Korea Housing Guarantee as follows, and on July 23, 2007, the Plaintiff made a trust registration in the name of the Korea Housing Guarantee.

1. Table transfer 1. Where the plaintiff is no longer able to continue his business due to inevitable reasons, such as dishonor and bankruptcy, etc., the right related to the business shall be transferred to the house guarantee under the condition that the house guarantee (including the person designated by the Korea Housing Guarantee and the joint guarantor of the same business; hereinafter the same shall apply) is responsible for the guarantee against the buyer under the conditions that the house guarantee (including the person designated by the Korea Housing Guarantee and the joint guarantor of the same business; hereinafter the same shall apply) is responsible for the guarantee against the buyer.

(3) On July 25, 2007, the Plaintiff entered into a housing unit sales guarantee agreement (hereinafter “sale guarantee agreement”) and a housing unit sales guarantee agreement (hereinafter “sale guarantee agreement”) stating that “(i) where the Plaintiff is deemed unable to carry out the housing unit sales agreement due to dishonor, bankruptcy, etc., the Plaintiff may not carry out the housing unit sales agreement; (ii) where the performance rate verified by the supervisor falls short of at least 25 per cent of the expected progress rate; and (iii) where the guarantee creditor is requested to discharge the guarantee creditor, the housing unit sales guarantee agreement shall be liable for the performance of the housing unit sales or the payment of the down payment.”

The definitions of terms used in this Clause are as follows: 4. The term "guarantee accident" means the case where a guarantee company notifies a guarantee creditor of the suspension of the payment of the occupancy deposit or the change of the account for the payment of the occupancy deposit due to any of the following causes: (a) the case where the guarantee company recognizes that the principal debtor is unable to perform the housing sale contract due to bankruptcy, etc.; (b) the case where the execution rate verified by the supervisor falls short of at least 25 percent of the scheduled progress rate (the scheduled progress rate to be submitted to the supervisor by the principal debtor) and the request for the performance of the guarantee creditor is made; (c) the guarantee company is liable for the performance of the sale of the relevant house or the refund of the down payment and the intermediate payment which has been paid by the principal debtor pursuant to Article 106(1)1 (a) of the Enforcement Decree of the Housing Act, if the principal debtor becomes unable to perform the sale contract due to a guarantee accident:

(b) Execution, etc. of the sale guarantee;

(1) On January 11, 2010, the instant project was discontinued at the rate of 22% due to the default on construction of Sungwon, a contractor.

(2) The subsequent house guarantee was refunded to the buyer the down payment and the intermediate payment that was paid to the buyer, and then notified the Plaintiff to the effect that the Plaintiff would pay the indemnity amount following the fulfillment of the guarantee obligation to sell the house, but the Plaintiff failed to perform the obligation to pay the indemnity amount.

(3) On December 27, 2010, the Korea Housing Guarantee received refund of KRW 540,904,910 of the school site charges for the 258 generation that the Plaintiff paid from Yong-si.

(4) Meanwhile, the Plaintiff received a refund from the State in the purport of deducting the input tax amount for the expenses incurred in relation to the instant business since 2006.

(5) In addition, the Plaintiff applied for the refund of value-added tax to the Defendant as the sales of the seller was revoked.

(6) On May 9, 2012, the Plaintiff filed an application for refund of KRW 1,366,528,000 of the charges for metropolitan transportation facilities paid at Chicago-si for the implementation of the instant project. However, on May 24, 2012, the Plaintiff respondeded that “the project operator is performing the instant project due to a change in the project operator, so it does not constitute grounds for refund.” Moreover, on May 21, 2012, the Plaintiff filed an application for refund of KRW 696,779,000 with the charges for water supply borne by the water supply supplier paid at Chicago-si for the implementation of the instant project, but on May 24, 2012, the Plaintiff responded that “the target and authority for refund may not be refunded to the Plaintiff in the Housing Guarantee Company.”

(c) Disposition, etc.;

(1) On September 201, the Board of Audit and Inspection requested the Commissioner of the National Tax Service to demand that the seller refund of the down payment and intermediate payment paid from the seller by causing a guarantee accident under the terms and conditions of the house sale guarantee, and the buyer’s real control over the trusted real estate is transferred to the buyer’s house guarantee in accordance with the trust contract and the transfer note on the date of the guarantee accident, and thus, the value-added tax is imposed and collected under Article 6(1) of the Value-Added Tax Act.

(2) Accordingly, on November 10, 2011, the Defendant issued a correction and notification of KRW 5,449,141,280 (including additional tax) on the basis of the amount equivalent to the value of the building subject to taxation refunded, on the ground that “the right to de facto control over the trusted real estate has been transferred with Korea Housing Guarantee and constitutes the supply of goods pursuant to Article 6(1) of the Value-Added Tax Act (amended by Act No. 11873, Jun. 7, 2013; hereinafter the same)” (hereinafter “instant disposition”).

(3) On February 27, 2012, the Plaintiff filed a request for review on February 27, 2012, and received a decision of dismissal from the Commissioner of the National Tax Service on April 16, 2012.

(d) Public auction, etc.

(1) On December 28, 201, the instant project site and the instant unregistered buildings were sold to AELS Co., Ltd. (hereinafter “L”) via a public auction notification as follows.

On the 5th anniversary of the attached Table 201 in the main text, the real estate owned by the guarantee of the public auction of real estate shall be publicly announced as follows: 1. In the case of the indication of the property for public sale and the sale conditions of the land at the place of business, 22% of apartment units 14,008.304, 14,008.304 of apartment units - the amount of subcontract bonds and the approval of the project plan (the site, etc. for donations), lien, taxes and public charges, restrictions on rights, etc. are the conditions that the successful bidder purchases in the current state (hereinafter omitted). (1) The administrative regulations, structure, size, quality, quantity, subcontract bond, conditions of the project plan, lien, etc. of buildings, machinery, equipment, etc. are different from the details of the bid, and the housing guarantee for the place of business shall be purchased in accordance with the current state (hereinafter omitted).

(2) On April 27, 2012, LEL completed the registration of transfer of ownership on the instant project site due to sale and purchase, and completed the registration of trust to Hanol Trust Co., Ltd. (hereinafter “Daol Trust”).

(3) On May 3, 2012, the Multilateral Trust obtained a modified approval for the housing construction project plan from the Young-si on the following grounds: (a) “The project proprietor changes from the Plaintiff to the Multilateral Trust.”

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 10 (including each number, if any; hereinafter the same shall apply), Eul evidence Nos. 1, 2 and 3, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

(a) Relevant statutes;

Attached Form "Related Acts and subordinate statutes" shall be as stated.

B. The plaintiff's assertion

The transfer of trusted real estate cannot be deemed as “supply of goods” under Article 6(1) of the Value-Added Tax Act, and in light of the following circumstances, the Plaintiff merely transferred the trusted real estate to the Korea Housing Guarantee as part of the instant business transfer. ① The Korea Housing Guarantee comprehensively succeeded to all rights and obligations concerning the instant project from the Plaintiff in accordance with the terms and conditions of the sale guarantee agreement and the transfer memorandum. ② Under this premise, the Korea Housing Guarantee was awarded a successful bid of the trusted real estate in the public sale process, and the trust’s multilateral trust was changed from the Korea Housing Corporation to the Korea Housing Corporation. ③ As the subject of the instant project was changed, the Plaintiff was unable to receive the refund of the amount borne by the water supply burden and the metropolitan transportation facility charges paid at the Korea Housing Corporation for the implementation of the instant project. On the other hand, the Korea Housing Guarantee did not succeed to the human facilities, but the human facilities did not constitute the core element of the instant project. Moreover, even if the Korea Housing Guarantee did not succeed to the rights and obligations concerning the construction contract between the Plaintiff and the Korea Housing Corporation, it does not recognize the amount payable.

Therefore, the Defendant’s deeming the transfer of real estate held in trust as the supply of goods, not the transfer of business, is unlawful.

C. Determination

(1) Whether the supply of goods constitutes the supply of goods

According to the provisions of the Enforcement Decree of the Value-Added Tax Act and the Value-Added Tax Act, the supply of goods subject to value-added tax refers to the delivery or transfer of goods under all contractual or legal grounds, and the taxpayer is a person who independently supplies goods or services, regardless of whether it is for profit-making purposes, so if the entrepreneur delivers or transfers goods due to contractual or legal grounds, all transactions are subject to value-added tax unless there is a special provision that the value-added tax is exempted or not. As long as the entrepreneur supplies the goods due to legal or contractual grounds, whether the purpose of the supply of the goods is to maintain and expand the business, or to liquidate and adjust the business, is for the purpose of maintaining and expanding the business (see Supreme Court Decision 2006Du14773, Jun. 12, 2008).

On the other hand, as recognized earlier, the right to manage, sell, and dispose of trust real estate was transferred from the Plaintiff to the Housing Guarantee against the Plaintiff pursuant to the terms of the sale guarantee contract and the transfer note by the Korea Housing Guarantee Co., Ltd., when the execution process ratio compared to the scheduled progress ratio of the instant project is less than 25%, refund the down payment, etc. to the seller and notify the Plaintiff of the payment of the indemnity amount. Therefore, barring any special circumstances, this constitutes “supply of goods” as stipulated in Article 6(1) of the Value-Added Tax Act, and thus

(2) Whether business transfer constitutes business transfer

Furthermore, it is examined whether the transfer of trust real estate was made as the "transfer of business" under Article 6 (6) 2 of the Value-Added Tax Act.

The term "transfer of business" means a comprehensive transfer of physical and human facilities, including business property, and rights and obligations, to replace only the management body while maintaining the identity of the business. As such, the business must be separated from the management body as an organic combination of human and physical facilities so that social independence can be recognized. The fact that the object of transfer is not a simple physical facility, but such organic combination is not a value-added tax, and the burden of proof for such transfer is the taxpayer (see Supreme Court Decision 97Nu12778 delivered on July 10, 1998).

However, as alleged by the Plaintiff, the trust real estate, which is a physical facility, was transferred from the Plaintiff as a guarantee for housing, and all rights to the instant project were transferred in accordance with the sale guarantee contract and the transfer note, and the fact that the housing construction business entity is recognized as being changed from the Plaintiff to the Daol Trust. However, the Plaintiff itself recognizes that the Plaintiff did not transfer his/her human facilities to the Daol Trust, and there is no evidence to acknowledge that the obligation to the project was transferred.

Therefore, in light of the following circumstances, it is difficult to see that the Plaintiff transferred the instant business to the Korea Housing Guarantee Co., Ltd., and the written evidence of No. 4-2 and No. 8, which seem to correspond thereto, are difficult to recognize the transfer of business solely on the basis of the transfer of the right to the trust real estate and business, which are physical facilities, and the transfer of the business. There is no other evidence to acknowledge the transfer of business.

① The Plaintiff takes the description of the transfer angle (Evidence A No. 4-2) as an important material for business transfer. However, even according to the phrase of the transfer angle, it is stated that the “all rights related to the business” is not transferred by the business itself, but rather the “all rights related to the business.” The term “all rights” in this context may have the meaning as a group of rights, but it is difficult to readily conclude that the business is systematically combined to support the identity of the business.

② Rather, in light of the nature of the performance of the guaranteed obligation, and the content of the trust agreement entered into between the Plaintiff and the Korea Housing Guarantee, the transfer of the above right appears to have been done in preparation for the occurrence of the guaranteed obligation, and in substance, to function as a security for future right to indemnity. In other words, the transfer of the right is merely a group of rights with property value, which can function as a security, and it does not seem to have comprehensively transferred the right organicly combined to maintain the consistency of the business.

③ In addition, if the Plaintiff transferred the instant business, barring any other special agreement, the Plaintiff would, in principle, belong to the assignee of the right to refund the charges paid for the implementation of the business prior to the transfer, and thus, the Plaintiff did not file an application for the refund. However, after the occurrence of a guarantee accident, the Plaintiff applied for the refund of the charges for water supply burden-bearing charges and the charges for metropolitan transportation facilities paid at the time he/she was allowed to implement the instant project. Likewise, there is room to deem that the right to refund value-added tax following the cancellation of the sales contract has also been transferred as a guarantee for house. Nevertheless, the Plaintiff exercised the right to refund value-added tax upon the cancellation of the sales contract for the seller. In light of this, it is difficult to view that the Plaintiff had the intent to transfer the business, and therefore

④ In addition, the change of the main body of a housing construction project is an act that actually approves the previous business plan identical to the previous business plan with the previous business plan to the transferee (Supreme Court Decision 9Du646 delivered on September 26, 2000) and practically is close to the new business plan. Even if there was a change of the business plan, the new business operator does not naturally succeed to the rights and obligations under private law that the previous business operator bears against a third party (Supreme Court Decision 86Meu2336 delivered on June 23, 1987). In light of this, it is not deemed that the transfer of the business was not a matter of course, on the ground that there was a business plan

⑤ Furthermore, the instant project is mainly for the sale of buildings in units or for the business purpose of the Korea Housing Guarantee Fund. In fact, the Korea Housing Guarantee Fund only cancelled the existing contract to satisfy the claim for reimbursement against the repayment performance, and does not seem to have been carried out by succession to the Plaintiff’s housing sales business, such as selling the Plaintiff’s property. Moreover, it is difficult to view that the Korea Housing Guarantee Fund had been selling the Plaintiff’s business for the period of two years after the occurrence of the guarantee accident, and it is difficult to view that the Korea Housing Guarantee Fund had been maintaining the identity of the business by transferring the Plaintiff’s business.

6) Meanwhile, the Plaintiff asserts that the transfer of business cannot be denied on the ground that the human resources of the instant business was not the core element of the instant business. However, the Korea Housing Guarantee not only did the Plaintiff acquire the human resources facilities, but also did not succeed to the rights and obligations under the contract with the Sungwon Construction, but also did not succeed to the rights and obligations arising from the contract with the Sungwon Construction, and it is difficult to view that the business with continuity is transferred as an organic combination.

7. The Plaintiff received a refund from the State to the effect that the input tax was deducted for the expenses incurred in relation to the instant business from 2006. Nevertheless, if the value-added tax is not imposed on the amount equivalent to the sales accrued from the transfer of real estate and rights in the instant trust during the process of liquidation of the relevant business, it would result in an unfair consequence contrary

3. Conclusion

Therefore, the plaintiff's claim of this case shall be dismissed as it is without merit, and since the judgment of the court of first instance is unfair with different conclusions, the judgment of the court of first instance shall be revoked and the plaintiff's claim shall be dismissed. It is so decided as per Disposition.

[Attachment]

Judges Cho Jong-tae (Presiding Judge)