National High Court Decision 2007west1844 (2010.02.04)

The price paid after concluding a specific purchase transaction agreement with the supplier is not subject to the improvement tax credit for commercial paper systems.

A specific purchase transaction contract cannot be deemed as a "purchase price related to ordinary business activities" because its substance is not different from that of a consignment sales contract, and thus, it cannot be deemed as a "purchase price". However, the advisory service cost related to the acquisition of management rights for the expansion of business sector is subject to input tax deduction.

2010Guhap16240 revocation of the imposition of corporate tax and value-added tax

○○ Co., Ltd.

○ Head of tax office

June 14, 2011

August 11, 201

1. The Defendant’s imposition of KRW 6,58,140 of value-added tax on January 3, 2007 against the Plaintiff on KRW 18,850,560 of value-added tax on KRW 18,560 of 203, ② the imposition of KRW 18,290,987 of value-added tax on KRW 146,572,360 of 203, ③ the imposition of KRW 119,734,392 of value-added tax on KRW 1,510,66,850 of value-added tax on KRW 1,510 of 204, and ④ the imposition of KRW 5,949,080 of value-added tax on KRW 53,195,480 of value-added tax on KRW 204 is revoked.

2. The plaintiff's remaining claims are dismissed.

3. 3/10 of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

Paragraph 1 of the order and Paragraph 1 of the attached Form 1 that the defendant made against the plaintiff on January 3, 2007, which exceeds KRW 42,095,496 in total corporate tax amount stated in the same list among the corporate tax amount of KRW 671,63,017.

1. Details of the disposition;

A. The plaintiff's status

The plaintiff is a company that runs the business of manufacturing and selling clothes, food, visual and miscellaneous articles, and real estate sales and lease while operating the ○○ Dolet store established on February 16, 1982.

(b) Corporate tax return and payment;

In filing and paying corporate tax for each business year in 2001, 2002 and 2003, the Plaintiff filed a tax credit pursuant to Article 7-2 (1) of the Restriction of Special Taxation Act (amended by Act No. 7322, Dec. 31, 2004; hereinafter the same) with the method of "specific purchase price" as stated below.

(The following table omitted):

(c) Return and payment of value-added tax;

(1) From the end of 2003, the Plaintiff purchased the outstanding shares of △△△△ (hereinafter referred to as “△△△”) from the Gangwon-do administrator of △△△ Co., Ltd. (hereinafter referred to as “△△”) and came to hold 74.9% of the outstanding shares of △△△△ as of December 2005.

(2) The Plaintiff reported and paid each value-added tax for the period of January 2003, 2003, 2003, 1, 2004, and 2, 2004, as indicated below, deducted the cost for advisory services in the process of acquiring the management right of △△ Asia from the output tax amount as the input tax amount ("the advisory service cost of this case" paid by the Plaintiff).

(The following table omitted):

(d) Disposition of increase or decrease;

(1) a disposition of increased corporate tax;

(A) On January 3, 2007, the defendant issued a disposition to increase or decrease corporate tax for each business year in 2001, 2002, 202 and 2003, on the following grounds: (a) the amount stated in the table of "the purchase price" does not correspond to "purchase price stipulated in Article 7-2 (3) 1 of the Restriction of Special Taxation Act"; (b) the amount stated in the table of "the tax credit amount" should be excluded from the object of tax credit (in the case of corporate tax for each business year in 2001, 2002 and 2003), (in the case of corporate tax for each business year in 2003), and (c) the avoidance of special donations (in the case of corporate tax for the business year in 2003), as stated in [Attachment 3].

(The following table omitted):

(B) Since then, the Defendant corrected corporate tax for the business year 2003 to KRW 2,094,437,933, and refunded 572,883,587 (=2,667,321,520 - 2,094,437,933) to the Plaintiff.

(2) Increase or decrease of value-added tax;

On January 3, 2007, the Defendant issued a disposition to increase the value-added tax for the following reasons: (i) the consulting service cost of this case is not directly related to the Plaintiff’s business or subject to input tax deduction as an acquisition of tax-free stocks (in the case of value-added tax for January 1, 2003, February 2003, January 2004, and February 2004), (ii) the return of value-added tax was omitted with tax-free items as tax-free items (in the case of value-added tax for January 1, 2003, February 2003, 2003, January 2004, 2004, and February 2004), (iii) the contribution of business (in the case of 1, 2003, January 1, 2003, and January 204, 204), as indicated in [Attachment 4].

(The following table omitted):

(e) Request for adjudication;

(1) On April 13, 2007, the Plaintiff filed a petition with the Tax Tribunal for the revocation of a disposition of tax reduction and value-added tax reduction (the first instance court 2007No1844).

(2) On February 4, 2010, the Tax Tribunal accepted only the Plaintiff’s assertion on the grounds for the correction of the said Section, and rendered a decision of citing part of the Plaintiff’s appeal.

(3) Around February 2010, the Defendant corrected corporate tax for the business year 2003 to KRW 2,061,242,400 in accordance with the purport of the decision of the said Tax Tribunal [the remaining notified amount of corporate tax for the business year 2003, Jan. 3, 2007 = 265,405,27 [the remaining notified amount of corporate tax for the business year 2003 = 298,60,810 - 33,195,533];

[Ground of recognition] Facts without dispute, Gap 1-3 evidence (including branch numbers), Eul 1, 3, 4, and 7 evidence (including branch numbers), the purport of the whole pleadings

2. Whether a disposition to increase or correct the above corporate tax and value-added tax is legitimate;

A. The plaintiff's assertion

(1) As to the corporate tax portion

Article 7-2 (3) 1 of the Restriction of Special Taxation Act does not limit the nature of the transaction to which the goods are supplied, if the purchase price is the price for the "supply of the goods". Thus, the amount related to the specific purchase transaction between the plaintiff and the ○○let supplier falls under the above purchase price, and thus, the tax credit should be made pursuant to Article 7-2 (1) of the Restriction of

(2) Regarding value-added tax part

The advisory service cost of this case is used in the process of acquiring △△ Asia’s stocks and taking over the management right of △△ Asia. This is directly related to the Plaintiff’s business. Moreover, even if the shares acquired in the process of acquiring the management right are transferred after the next, it is because the shares are not the goods supplied by the company, not the door, but the goods supplied by the company when the shares fall under the tax-free goods prescribed in each subparagraph of Article 12(1) of the Value-Added Tax Act. As long as the Plaintiff’s advisory service cost of this case does not fall under any of the subparagraphs of Article 17(2) of the Value-Added Tax Act which provides for restrictive and listed matters, it shall be deducted from the output tax amount (the Plaintiff’s grounds for correction under the above

(b) Related statutes;

Attached Form 2 shall be as stated in the relevant statutes.

C. Determination

(1) As to the portion of corporate tax (as to whether the Plaintiff entered into a specific purchase transaction agreement with the supplier and paid to the supplier is subject to tax credit, and the reasons for the correction in the above clause)

Article 7-2 (3) of the Restriction of Special Taxation Act provides that "the term used in paragraphs (1) and (2) shall be defined as "the amount that a purchasing company supplies goods or receives services from a selling company in connection with its ordinary business activities consistent with its business objectives". Meanwhile, the main sentence of Article 6 (5) of the Value-Added Tax Act governing the value-added tax that directly requires "the supply of goods by contract or legal cause" provides that the truster or the principal shall be deemed to have supplied goods or been supplied with goods, and Article 2 (7) of the Specific Unfair Trade Practices and Criteria (Fair Trade Commission Notice No. 201-9) provided for "the specific purchase transaction" defined as "the type of transaction in which goods are sold by a large retail store operator and returned goods by being entrusted by the supplier".

In light of the following circumstances, with regard to the legal nature of a contract that the Plaintiff entered into with the supplier using the “specified Purchase Transaction Agreement (see evidence No. 7-4 of the evidence No. 7)”, the Plaintiff is obligated to dispatch the Plaintiff’s sales staff to the Plaintiff’s ○ Dolet store, and the sales staff are entirely in charge of sales business; when the Plaintiff sells the products received from the supplier to the consumer, the Plaintiff pays to the supplier the amount calculated by deducting the agreed fee from the sales amount received from the supplier, and then the Plaintiff is ultimately liable to the supplier if the Plaintiff is deemed to have suffered damage on the grounds that there is any defect in the products sold from the consumer. Accordingly, it is reasonable to view that the contract under the above Specific Purchase Transaction Agreement was not different from the sales amount, and thus, the Plaintiff is merely the trustee, and thus, it cannot be deemed that the supplier directly supplied the goods to the supplier.

Therefore, it is legitimate to revise the above corporate tax based on the grounds for correction under the above clause. This part of the plaintiff's assertion is without merit.

(2) Regarding the part of value-added tax (whether the advisory service cost of this case is subject to the non-deduction of input tax amount, and the grounds for rectification under the aforementioned paragraph

(A) The fact that the Plaintiff was established on February 16, 1982 and runs the business of manufacturing and selling clothes, food, visual, and miscellaneous articles, real estate sale and lease leaves, etc. As seen earlier, the Plaintiff’s acquisition of management rights by △△△△ for the expansion of the distribution business portion is related to the Plaintiff’s business. It is reasonable to view that the consulting service cost in this case is not an input tax amount that is not deducted from the output tax amount under Article 17(2)2 of the Value-Added Tax Act (amended by Act No. 9915 of Jan. 1, 2010). In addition, it does not include the scope of “in the case of an input tax amount for an expenditure not directly related to the business” under Article 60(3) of the Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043 of Feb. 18, 2010).

(B) Article 17(2) of the Value-Added Tax Act provides for the input tax amount (including the input tax amount related to investment) related to the business that supplies goods or services exempt from value-added tax and the land-related purchase tax amount as prescribed by the Presidential Decree, while stipulating that the following input tax amounts shall not be deducted from the output tax amount. However, the above △△△ shares acquired by the Plaintiff cannot be deemed as tax-free goods under each subparagraph of Article 12(1) of the Value-Added Tax Act, and it is not a company that supplies the Plaintiff’

(C) Therefore, the grounds for correction of the above Paragraph (1) are unlawful, and the plaintiff's assertion on this point is with merit.

(D) On the premise that the grounds for rectification under the foregoing Paragraph (1) are illegal, the calculation of the justifiable notice amount of each value-added tax for the period of 1, 2003, 2003, 1, 2004, and 2, 2004, as indicated in the attached Table 3, 4, 5, and 6, 19, 919, 955 won for value-added tax for the period of 2003, 2003, 203

2. The amount of value-added tax for the second period is less than 2.51,142 won, 1,862,043 won for the first period value-added tax in 2004, and 1,355,483 won for the second period value-added tax in 2004, and the amount of each political party notified by the Plaintiff as alleged by the Plaintiff. However, this court cannot order revocation in excess of the scope sought by the Plaintiff based on the disposition authority principle. Thus, it shall be revoked to

3. Conclusion

Therefore, among the plaintiff's claim of this case, the part of the plaintiff's claim of this case seeking the revocation of some of the disposition of increase in value-added tax on January 3, 2007, 2003, 2003, 1, 2004, and 2, 2004, is justified. Thus, the plaintiff's remaining claims are dismissed for lack of justifiable grounds. It is so decided as per Disposition.