[1] Whether the amount of discount under Article 13 (2) 1 of the former Value-Added Tax Act may be refunded to the supplier after the supplier receives the total amount of supply when the goods or services are supplied (affirmative)

[2] Where Gap corporation, a mobile communications business operator, reported and paid value-added tax on the basis of the total amount of the ex-factory price as the supply price while selling a device to an agent, but filed a claim for correction claiming the reduction and refund of value-added tax by asserting that the subsidy for purchasing a device falls under the discount amount under Article 13 (2) 1 of the former Value-Added Tax Act, but the tax authority rejected the claim, the case holding that the amount equivalent to the subsidy falls under

[1] In relation to the supply of goods or services, the amount of discount, which is directly deducted or reduced from the ordinary supply value due to the conditions of supply, such as quality, quantity, and payment of the cost of delivery and supply, is not limited to the time of the occurrence of the goods or services, and there is no special limitation on the method of deduction and reduction. Therefore, as well as the method of receiving not only the remainder after deducting or deducting a specified amount from the ordinary supply value when the supplier supplies the goods or services, but also the specified amount may be refunded or any other similar method after receiving the total value of supply.

[2] In a case where Gap corporation, a mobile communications business operator, filed a claim for correction of value-added tax reduction and refund on the ground that the subsidy for purchase of the mobile communications service provided to the subscribers to the mobile communications service agreed to use the mobile communications service for a certain period of time (hereinafter “subscriber”) constitutes the discount amount under Article 13(2)1 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013), but the tax authority refused it, the case holding that, in a case where Gap corporation and its agent agreed to pay the amount of the subsidy by reducing the amount of the subsidy from the value of the supply of the mobile communications service on condition that the agent would sell the amount equivalent to the subsidy to the amount of the subsidy to the subscribers who meet the requirements for the subsidy, and the amount equivalent to the subsidy was directly deducted from the value of the supply of the mobile communications service, the tax authority rejected the claim for correction.

[1] Article 13(2)1 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; see current Article 29(5)1); Article 48(1) and Article 52(2) of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24638, Jun. 28, 2013; see current Article 29(5)1); Article 52(2)1 of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; see current Article 29(5)1); Article 52(2)1 of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24638, Jun. 28, 2013);

[1] Supreme Court Decision 2001Du6586, 6593, 6609, 6616, 6623, 6630, 6647, 6654 and 6661 decided Apr. 25, 2003 (Gong2003Sang, 1347)

KT Co., Ltd. (Bae, Kim & Lee LLC et al., Counsel for the defendant-appellant)

The head of the Song-Pacific District Tax Office and 12 others (Attorneys Kim Su-soo et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2012Nu31030 decided September 4, 2013

The judgment below is reversed and the case is remanded to Seoul High Court.

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

1. Article 13(1) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; hereinafter the same) provides that “The tax base of value-added tax on the supply of goods or services shall be the aggregate of the values under each of the following subparagraphs (hereinafter referred to as “value of supply”).” Each of the aforementioned provisions provides that “where a payment is made in money, the payment shall be made (Article 1); and “where a payment is made in money other than money, the market price of the goods or services supplied by the person himself/herself (Article 24638, Jun. 28, 2013; hereinafter the same shall apply).” Article 48(1) of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24638, Jun. 28, 2013) provides that “The tax base stipulated under Article 13(1) of the former Value-Added Tax Act includes any monetary value having a quid of consideration, regardless of the pretext:

Meanwhile, each subparagraph of Article 13(2) of the former Value-Added Tax Act provides for “the amount that is not included in the tax base.” Of them, Article 52(2) of the former Enforcement Decree of the Value-Added Tax Act provides that “The overcharge amount prescribed in Article 13(2)1 of the Act refers to the amount that is directly deducted from the ordinary supply value at the time of the supply of goods or services in accordance with the payment of quality, quantity, and the cost of delivery and supply and other terms and conditions of supply.”

As can be seen, in relation to the supply of goods or services, the amount of discount directly deducted or reduced from the ordinary supply value due to the conditions of supply, such as quality, quantity, or settlement of payments for delivery and supply, etc., is not limited to the time of the supply for the goods or services, and there is no special restriction on the method of deduction or reduction (see Supreme Court Decision 2001Du6586, 6593, 6609, 6616, 6623, 66230, 6630, 6647, 6654, 66661, etc.). Accordingly, in the supply of goods or services, the supplier may only receive a certain amount from the ordinary supply value after receiving the entire supply value, as well as only receive the remaining amount after deducting or deducting a certain amount from the ordinary supply value.

In addition, in a case where the interpretation of an expression of intent between the parties is at issue, it shall be reasonably interpreted in accordance with logical and empirical rules by comprehensively taking into account the contents of the expression of intent, the motive and background leading up to such expression of intent, the purpose to be achieved by such expression of intent, the genuine intent of the parties, etc. (see Supreme Court Decisions 2004Da6065, May 27, 2005; 2006Da15816, Sept. 20, 2007, etc.).

2. Review of the reasoning of the lower judgment and the evidence duly admitted by the lower court reveals the following facts.

A. The Plaintiff is a mobile communications business operator that provides the mobile communications service to the subscriber to the mobile communications service (hereinafter “subscriber”) and sells the mobile communications terminal device (hereinafter “terminal”). The Plaintiff, while selling a device to an agent (hereinafter “agency”) for the business related to the mobile communications service, reported and paid the value-added tax with the total amount of the ex-factory price as the value of supply.

B. However, according to Article 36-4(1) of the Telecommunications Business Act (amended by Act No. 7916, Mar. 24, 2006) of the Act on Telecommunications Business, where the use period of the mobile communications service is not less than 18 consecutive months, the Plaintiff granted subsidies for purchasing the mobile devices to subscribers who agreed to use the mobile communications service for a certain period of time according to the following methods (hereinafter “instant subsidies”). As for the devices supplied to such subscribers, the Plaintiff received only the remainder after deducting the instant subsidies from the ex-factory price of the device from the agency.

① The Plaintiff and the agent agreed to change the supply price of goods, including terminals that the Plaintiff supplies to agencies based on the ex-factory price determined by the Plaintiff, and the supply price was changed through mutual consultation according to market conditions (Article 21 of the consignment agency contract).

② The Plaintiff provided subsidies to a new device that does not have access to the mobile phone service on condition that the Plaintiff would use the mobile phone service for a certain period (Articles 34 and 35 of the terms and conditions of mobile phone service). The subsidies were provided by means of discounting the price of the device through the terms and conditions subsidy table, shocking phone application form, etc.

③ Accordingly, the Plaintiff received a device from the manufacturer and sold the device to the agency at the ex-factory price. However, with respect to subscribers meeting the requirements for subsidy support as publicly notified in advance to the agency, the agency sold the device at the price reduced by the subsidy from the above purchase price, and received the price. If the agency pays only the large amount received from the subscriber, it is treated that the purchase price for the Plaintiff was fully paid to the Plaintiff.

3. Examining these facts in light of the aforementioned provisions and legal principles, the following is determined.

A. The Plaintiff granted a right to discount the amount of the subsidy to the agency substantially by limiting the amount of the subsidy to be provided to the subscriber who meets the requirements for the subsidy, but to settle the price of the device. The subscriber also paid the remainder of the amount reduced by the amount of the subsidy to the agency, and the agent paid the Plaintiff the amount reduced by the amount equivalent to the subsidy and paid the purchase price of the device to the Plaintiff in full. As such, it can be seen that there was an agreement between the Plaintiff and the agency on the condition that the agency sells a discount equivalent to the amount of the subsidy to the amount of the subsidy to the subscriber who meets the requirements for the subsidy, on the condition that the agency sells the amount of the subsidy to the subscriber who meets the requirements for the subsidy, the amount equivalent to the subsidy shall be deemed as the amount of the subsidy which is directly deducted from

B. In addition, even if the instant subsidy was subsidized for the purpose of earning profit in the supply transaction of the mobile communications service, insofar as the mobile communications service was directly deducted from the supply value of the device on the condition that it would be supplied for a given period of time, it constitutes an overcharge amount related to the supply of the device, barring special circumstances.

C. In addition, in light of the circumstances that the settlement of the amount of the instant subsidy was scheduled from the time of the Plaintiff’s supply of a device to the Plaintiff’s agency, even if the Plaintiff appropriated the instant subsidy as sales incentive, etc. and did not issue a revised tax invoice following the reduction of the supply value of the device, and the agent settled accounts in the form of offsetting the Plaintiff’s agency’s claim for subsidy from the subscriber by acquiring the Plaintiff’s claim for subsidy from the subscriber and offsetting the Plaintiff’s agency, such accounting and tax processing can be deemed an inevitable measure taking into account the tax administration at the time when the instant subsidy was not considered as the discount amount, and it is difficult to say that the nature of the instant subsidy differs from that of the instant subsidy.

4. Nevertheless, the lower court erred by misapprehending that it is difficult to view that there was an agreement between the Plaintiff and the agency to sell the device at a discounted rate of the subsidy amount, and on that premise, determined that the instant subsidy was included in the value of supply because it was concluded that the instant subsidy does not fall under the accumulated amount of the Plaintiff’s price of supply of the device, on the grounds of contrary to the aforementioned recognized circumstances and its stated reasoning, such as the fact that the instant subsidy is related to the supply of mobile communications services between the Plaintiff and the Plaintiff, or that the instant agency would have settled in the form of offsetting the subsidy claim succeeded from the Plaintiff and the Plaintiff’s agency and the Plaintiff’

Therefore, in so determining, the lower court erred by misapprehending the requirements, criteria, and the legal principles on the interpretation of intent under the Value-Added Tax Act, thereby adversely affecting the conclusion of the judgment. The ground of appeal assigning this error is with merit

5. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Shin (Presiding Justice)