[1] Where an entrepreneur is deemed to have diverted a small passenger vehicle for non-business purposes: / In a case where an entrepreneur manufactures and acquires a small passenger vehicle for his/her own business with respect to his/her own business and uses it for non-business purposes, whether it is deemed as a supply of goods when used for non-business purposes (affirmative); and whether it constitutes a transaction subject to value-added tax in case where an entrepreneur is deemed to have been taxed by the supply of goods through a contract or legal grounds and then transfers or transfers the goods again (affirmative in principle)

[2] In cases where deeming that goods are supplied pursuant to Article 6(2) of the former Value-Added Tax Act, the standard for calculating “market price of goods” which is the value of supply / In cases where a small passenger car which is a inventory asset for sale is converted for non-business purposes, and where goods which are not used for a taxable business of an entrepreneur are deemed supplied through supply, whether the value of supply can be calculated in accordance with Article 49(1) of the former Enforcement Decree of the Value-Added Tax

[1] Where an entrepreneur uses a small passenger vehicle for business use (hereinafter “small passenger vehicle”) for a considerable period of time and reduces its value to a considerable level of non-business use, it shall be deemed that it is used exclusively for non-business use, and it shall not be deemed as a temporary or provisional use.

In addition, Article 17(2)3 of the former Value-Added Tax Act (Amended by Act No. 8826, Dec. 31, 2007; Act No. 9915, Jan. 1, 2010); Articles 6(2) and 17(2)4 of the former Value-Added Tax Act (Amended by Act No. 11129, Dec. 31, 201); Articles 15(1)2 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010; Presidential Decree No. 23595, Feb. 2, 2012) provides that an entrepreneur is exempt from an input tax if he/she again uses a non-taxable or non-taxable product for a non-taxable purpose or a non-taxable purpose for the use of a non-taxable product, and that an entrepreneur does not acquire such a non-taxable product or non-taxable product for its use.

[2] Under Article 6(2) of the former Value-Added Tax Act (amended by Act No. 11129, Dec. 31, 2011); “market price of goods”, the supply value of which is the supply value of goods, ought to be calculated at an objective exchange price formed through a normal transaction at the time of supply agenda in principle. Meanwhile, Article 49(1) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 23595, Feb. 2, 2012) (amended by Presidential Decree No. 23595, Feb. 2, 2012) provides that where such goods are depreciable assets used for a taxable business of a business entity, the market price shall be calculated at a certain rate in proportion to the progress of the taxable period of the value-added tax based on the lower circulation volume of the goods, taking into account that it is difficult to calculate the market price based on the market price. However, where a small passenger vehicle, which is a sale inventory, becomes a supply for a taxable business purpose, it cannot be calculated.

[1] Article 17 (2) 3 (see current Article 39 (1) 5) of the former Value-Added Tax Act (Amended by Act No. 8826, Dec. 31, 2007); Article 17 (2) 3 (see current Article 39 (1) 5) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 201); Article 6 (2) (see current Article 10); Article 17 (2) 4 (see current Article 39 (1) 5) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Act No. 8826, Dec. 31, 2007); Article 17 (2) 1 of the former Value-Added Tax Act (Amended by Presidential Decree No. 2043, Feb. 18, 2010); Article 17 (2) 19 (2) of the former Enforcement Decree of the Value-Added Tax Act (see current Article 219 (15) of the Value-Added Tax Act)

[Defendant-Appellee] Korea Co., Ltd. (Attorney Jeong Byung-chul et al., Counsel for defendant-appellee)

The director of the Nam-gu Tax Office (Law Firm Song, Attorneys Choi Jong-man et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2013Nu14582 decided December 13, 2013

All appeals are dismissed. The costs of appeal are assessed against each party.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Judgment on the Plaintiff’s grounds of appeal

A. As to the grounds of appeal Nos. 1, 2, and 4

Article 17(2)3 of the former Value-Added Tax Act (amended by Act No. 8826, Dec. 31, 2007; Act No. 9915, Jan. 1, 2010); Article 17(2)4 of the former Value-Added Tax Act (amended by Act No. 11129, Dec. 31, 201; hereinafter the same) provides for “the input tax amount on the purchase and maintenance of a non-business small passenger vehicle” (hereinafter “small passenger vehicle”) as one of the input tax amounts not deducted from the output tax amount of the value-added tax. Further, Article 6(2) of the former Value-Added Tax Act and Article 17(2)3 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter the same) provides that “the person who directly uses or supplies goods or supplies goods for his/her own consumption.”

Where a business operator uses a small-sized motor vehicle for business for a considerable period of time and reduces its value to a considerable level, it shall be deemed that it is converted for non-business purposes, and it shall not be deemed temporary or temporary use.

In addition, the language and text of the above provisions and structure, and the legal fiction as the supply of goods is as follows: (a) in addition to the fact that an entrepreneur acquires such goods for a non-business purpose and fails to deduct the input tax amount for a non-business purpose; and (b) in a case where an entrepreneur produces and acquires goods for a non-business purpose or for a maintenance thereof in connection with his/her own business, the input tax amount is not deducted; (c) but is not deemed as the supply of goods; (d) however, in a case where an entrepreneur produces and acquires a small-sized passenger car or goods for its maintenance, or goods for its maintenance are used for a non-business purpose, the input tax amount is deducted; and (e) the said goods are deemed as the supply of goods only when they are used for a non-business purpose, and even if taxes are imposed by the supply of goods, if an entrepreneur delivers or transfers them again due to a contractual or legal reason, it constitutes a taxable object, unless otherwise expressly provided for in a non-taxation or value-added tax exemption.

According to the reasoning of the judgment below and the evidence duly admitted by the court below, ① the Plaintiff is an automobile seller who imported Mesceds-Benz vehicles (hereinafter “benz vehicles”) and sells them to domestic retailers who entered into an agency contract with the Plaintiff (hereinafter “dilers”). ② The Plaintiff used 295 small automobiles from among those imported from No. 1 to No. 2007 for the taxable period of value-added tax, for the purpose of the officer’s business trip or visiting agents, etc., 224 vehicles were not subject to the deduction of the input tax amount from the beginning, and the Plaintiff reported and paid the value-added tax on the ground of its own supply to 9 vehicles for the remaining 62 vehicles (hereinafter “vehicles for executives and employees”), which were subject to the deduction of the input tax amount for 27 vehicles, and on the ground that the Plaintiff did not report the use of 139,456,300 vehicles for new supply for 30 months after the date of the first 20th 7th 10th 1.

Examining these facts in light of the aforementioned provisions and legal principles, it is reasonable to deem that the Plaintiff’s use of the instant vehicle for employees and executives for a considerable period of time falls into a case where the value of the instant vehicle was reduced to a considerable level for non-business purposes. (2) Since the Plaintiff’s import of the instant vehicle without specifying its use and without specifying its use, it should be deemed that it was exclusively used for non-business purposes, it is deemed that the Plaintiff’s use of the said vehicle is deemed to be the supply of goods at the exclusive time, and thereafter, the transaction that the Plaintiff, a motor vehicle dealer, re-transfer the instant vehicle to a non-business entity, constitutes a separate

The reasoning of the judgment of the court of first instance cited by the court below is partly insufficient, but the decision of the court below that the disposition of this case was lawful by applying Article 6 (2) of the former Value-Added Tax Act to the automobile for employees and employees is based on the legal principles as seen earlier. In so doing, contrary to what is alleged in the grounds of appeal, the court below did not err by misapprehending the legal principles as to the non-deduction of input tax amount for non-business small automobiles, constructive supplies, and the scope of self

In addition, Supreme Court Decision 83Nu30 Decided January 24, 1984 cited in the ground of appeal has different cases and it is not appropriate to be invoked in this case.

B. Regarding ground of appeal No. 3

Article 13 (1) of the former Value-Added Tax Act provides that “The tax base of value-added tax on the supply of goods or services shall be the aggregate amount of values under each of the following subparagraphs (hereinafter referred to as “value of goods”).” Article 13 (1) of the former Value-Added Tax Act provides that “if payments are made in money, other than money, the market price of goods or services supplied by the person himself/herself ( subparagraph 2)”, “if payments are made in return for the price other than money or without payment, the market price of goods or services supplied by the person himself/herself ( subparagraph 3)”, “if payments are made in an unreasonably low price or without payment for the supply of services, the market price of services supplied by the person himself/herself ( subparagraph 4)”, and Article 50 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act provides that “The market price of the goods or services supplied by the person concerned” shall be deemed the market price of the goods or buildings calculated under Article 50 (2) 2 of the former Enforcement Decree of the Value-Added Tax Act:

Therefore, “market price of goods”, which is the value of supply where the supply of goods is deemed to be the supply of goods pursuant to Article 6(2) of the former Value-Added Tax Act, should, in principle, be calculated at the objective exchange price formed through normal transactions at the time of supply agenda. Meanwhile, Article 49(1) of the former Enforcement Decree of the Value-Added Tax Act provides that, in consideration of the fact that, where such goods are depreciable assets used for a taxable business of an entrepreneur, the market price is difficult to be calculated based on the transaction price due to low circulation, the amount reduced at a certain rate in proportion to the lapse of the taxable period of the value-added tax based on the acquisition price of the goods should be calculated on the basis of the value of the goods at the market price. However, in cases where a small vehicle, which is a sale inventory asset, is deemed as a supply

Although some of the reasoning of the judgment of the court of first instance cited by the court below is insufficient, since the plaintiff's possession of the vehicle for employees and employees of this case as a sale inventory asset and used it for non-business purpose, the supply price under the supply agenda cannot be calculated based on the acquisition price pursuant to Article 49 (1) of the former Enforcement Decree of the Value-Added Tax Act, and should be calculated based on the transaction price of the vehicle, the conclusion that the disposition of this case, which the plaintiff considers the price of the vehicle for employees and employees of this case as the supply price, as the supply price, is lawful, is based on the legal principles as seen earlier, and contrary to what is alleged in the grounds of appeal, there is no error of law that affected the conclusion of the judgment by misunderstanding the legal principles

2. Judgment on the Defendant’s grounds of appeal

Based on adopted evidence, the court below acknowledged that the plaintiff used 19 small-sized vehicles among 1st through 1st, 2007 small-sized vehicles imported by the plaintiff in the value-added tax taxable period from the first to 201 for the purpose of consumer's transit, etc., and determined that since a large number of consumers who intend to purchase high-priced bent vehicles request their bid for the purpose of quality verification to enhance their will of purchase and contribute to the promotion of sale by strengthening their will of purchase, part of the vehicles for sale is provided to the consumers at the plaintiff's customer's request, it is only the vehicle for business use directly used for the plaintiff's car sales business, and it does not constitute a non-business small-sized vehicle subject to the supply agenda under Article 6 (2) of the former Value-Added Tax Act.

In light of the relevant legal principles and records, such determination by the court below is just, and contrary to the allegations in the grounds of appeal, there is no error of law by misapprehending the legal principles on small commercial automobiles.

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against each party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Yong-deok (Presiding Justice)