[1] In the case of ordinary supply of services, the time when the liability for the payment of value-added tax is established (=the time when the provision of services is completed) and whether the payment for the services actually affects the determination of whether the liability for the payment of value-added tax is established (negative)

[2] In a case where Company A agreed to pay a brokerage commission to Company B when entering into a yacht sales contract with Company B as the broker Company B entered into, and thereafter, Company B paid the brokerage commission to Company B after the settlement of the sales contract was completed, and Company B received part of the above amount from Company B, and the head of the competent tax office notified Company B of the correction and notification of the value-added tax and corporate tax for the pertinent business year during which the sales contract was concluded on the grounds that Company B was not the company but the party who supplied the sales agency service to Company B, the case held that the above disposition was lawful on the date of the conclusion of the sales contract, which was the time when the supply of the service was completed, as well as the payment of brokerage commission should be included in the gross income of Company B for the pertinent business year, and thereafter, it cannot be viewed otherwise solely on the grounds that the sales commission actually received by Company B was part of the brokerage commission

[1] Article 9(2) and (4) of the former Value-Added Tax Act (Amended by Act No. 915, Jan. 1, 2010; see current Article 16(1) and (2)); Article 22 subparag. 1 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010; see current Article 16(1) and (2) of the Value-Added Tax Act; Article 40(1) and (2) of the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 2010; see current Article 16(1) and (2) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22577, Dec. 30, 2010); Article 69(1) of the former Enforcement Decree of the Value-Added Tax Act / [2] Article 10(2) of the former Value-Added Tax Act (Amended by Act)

[1] Supreme Court Decision 94Nu11446 delivered on November 28, 1995 (Gong1996Sang, 272) Supreme Court Decision 2004Du3328 delivered on May 13, 2005 (Gong2005Sang, 979)

Yachina Co., Ltd. (Law Firm K&L, Attorneys Kim Yong-service et al., Counsel for the plaintiff-appellant)

Head of Ansan Tax Office

Seoul High Court Decision 2016Nu70644 decided May 16, 2017

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Case summary

A. In principle, on August 24, 2009, the Plaintiff purchased and sold yachts sold by the Plaintiff with an Amarin Co., Ltd. (hereinafter “Amarin”) but, on behalf of the Plaintiff, entered into a contract with the Plaintiff to receive brokerage commission from Amarin (hereinafter “instant service contract”).

B. On the same day, Amjun concluded a yacht sales contract for four yachts, including a film city development company (hereinafter “motion picture city development”) and a Ferretti592 (hereinafter “instant yachts”), by the Plaintiff’s brokerage, and among which the sales amount of the instant yachts was KRW 4.7 billion (hereinafter “former sales contract”).

C. The Plaintiff was paid KRW 660 million by December 20, 2009, and KRW 740 million by February 28, 2010, with the brokerage commission for the instant yachts on the same day and the instant yachts, and agreed that the Plaintiff shall immediately pay the said commission to the Plaintiff when he received the payment from the development of the film city at the large payment period.

D. By October 15, 2009, the film city development paid the down payment of KRW 1180 million and the first intermediate payment of KRW 900,000,000 to Amaman, and around that time, Amaman entered the instant yacht and transferred it to the development of a film city by entering into the State-U.S. Around that time. Since the development of a film city delayed the payment of the remainder of the sales price, Amaman made an agreement on June 25, 2010 that the subject matter of the sales contract before the development of a film city and the alteration shall be changed only by one of the instant yachts, and the remaining sales price of KRW 2.62 million shall be paid on July 23, 2010 (hereinafter “the subsequent sales contract”).

E. Since then, when the film and city development delays the payment of the purchase price and the reduction of the purchase price was discussed between the film and city development, the Plaintiff agreed on May 21, 2012 to reduce the brokerage commission to be paid by the Plaintiff when the purchase price of the yacht in the instant case is reduced to 4 billion won on May 21, 2012 and the amount of the sales price in the instant case is reduced to 600 million won, and to additionally reduce the commission to be paid by the Plaintiff as much as the reduced amount.

F. When a dispute arises as to the implementation of the sales contract after the alteration between Amarin and the development of a film city, the dispute was concluded between the Plaintiff and the Damarine Service (hereinafter referred to as “Amarine”). On October 5, 2012, the Plaintiff entered into an agreement with the purport that the Plaintiff shall confirm the existence of any claim against Amarine with respect to the said claim, on the grounds that the Plaintiff transferred to Amarine and accepted the claim for the brokerage commission to be paid from Amarine, and that Amarine may set up against the Plaintiff for the reason that Amarine could not set up against the Plaintiff.

G. On November 29, 2012, ASEAN agreed to complete the settlement of the sales contract after the alteration of the payment of KRW 2,567,903,619 as the settlement amount on December 5, 2012 (hereinafter “instant settlement agreement”), and ASEAN was fully paid from Samsung Heavy Industries on December 5, 2012.

H. Since then, Amarin has paid a brokerage fee of KRW 660,000 (including value-added tax) to a new yacht, and has been issued a tax invoice of KRW 660,000 from a new yacht. On December 24, 2012, a new yacht was issued a tax invoice of KRW 250,000,000 from the Plaintiff as the value of supply.

(i) On January 14, 2015, the Defendant issued a correction and notification of the value-added tax of KRW 110,634,00 (including additional tax) for the second term portion of the Value-Added Tax for the year 2009, on the ground that the supply price of the sales agency services provided by the Plaintiff to Amaman in accordance with the Value-Added Tax Act belongs to the second term of 2009, not to a new yacht, but to the Plaintiff. However, on the ground that the supply price was finally reduced to 600 million won, the Defendant issued a correction and notification of the value-added tax of KRW 110,634,00 (including additional tax) for the second term portion of the value-added tax for the year 209 (hereinafter “instant correction disposition of value-added tax”), and the amount of corporate tax of KRW 178,684,00 (including additional tax) for the business year

2. Regarding ground of appeal No. 2

For the reasons indicated in its reasoning, the lower court determined that the disposition to rectify the value-added tax of this case on the premise that the Plaintiff’s sales agency service in accordance with the instant service agreement included the Plaintiff’s content of sales agency service that the Plaintiff performed in accordance with the instant service agreement included in having the Plaintiff receive the sales price from the development of the film city, or that the ASEAN paid the sales commission on the condition that it would receive the sales price from the development of the film city. As such, the Plaintiff’s sales agency service was completed on August 24, 2009 on the ground that the sales agency service that the sales agency service in accordance with the instant service agreement was supplied on or around August 24, 2009 when the sales agency service was supplied.

The ground of appeal disputing such judgment of the court below is merely the purport of disputing the selection of evidence and fact-finding, which are the exclusive authority of the court below as a fact-finding court, and thus cannot be deemed legitimate grounds of appeal. Furthermore, even if the reasoning of the court below is examined in light of the records, the court below did not err by misapprehending the bounds of the principle of free evaluation

3. Regarding ground of appeal No. 3

Article 40(1) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010) provides that the business year to which the date on which the provision of gross income and deductible expenses is determined belongs shall be the business year of accrual of gross income and deductible expenses. Article 69(1) of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010) provides that the business year of accrual of gross income and deductible expenses due to the provision of services shall be the business year to which the date on which the provision of services is completed belongs.

The lower court determined that the disposition to rectify the corporate tax of this case on the ground that the provision of sales agency services under the instant service contract was completed by the conclusion of a sales contract on August 24, 2009 between the Plaintiff’s brokerage and the development of the film city, and thus, the Plaintiff’s claim for brokerage commission was conclusive at that time, and the amount of the claim should be included in the gross income in the business year of 2009.

Examining the reasoning of the lower judgment in light of the foregoing provisions and relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine on the period of attribution of earnings, as otherwise stated in the grounds of appeal.

4. Regarding ground of appeal No. 1

A. According to Article 9(2) and (4) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010); Article 22 subparag. 1 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010); in the case of ordinary supply of services, the liability to pay value-added taxes is established upon the arrival of the time of supply when the provision of services is completed; and as long as the services are supplied to others, whether the payment is actually paid is not affected in determining whether the liability to pay value-added taxes is established (see, e.g., Supreme Court Decision 94Nu146, Nov. 28, 1995).

In addition, when a claim under the Corporate Tax Act occurs, if there is no legal limitation on the exercise of the claim, the right shall be once determined and included in the gross income for the pertinent business year, and even if the possibility of recovery of the claim is lost due to the debtor's insolvency, etc., it is merely a ground for treating it as bad debts when it becomes final and conclusive as impossible to recover, and it does not affect the time of attribution of the income accrued from such claim (see Supreme Court Decision 2004Du3328, May 13, 2005).

B. Examining the aforementioned facts in light of the aforementioned legal principles, the Plaintiff’s liability to pay value-added tax due to the provision of sales agency services under the instant service contract was established on August 24, 2009, when the supply of the service was completed, and accordingly, the Plaintiff’s obligation to pay brokerage fees should also be included in the Plaintiff’s gross income for the business year 2009. Accordingly, each of the dispositions of this case premised on the premise that each of the dispositions of this case is legitimate. Since the assignment of claims thereafter, the Plaintiff’s actual payment of brokerage fees is merely KRW 250,000,000,000, or the taxation for KRW 350,000,000,000, out of the brokerage fees under the instant service contract for the new yacht

C. In the same purport, the lower court rejected the Plaintiff’s assertion on the grounds that even if the Plaintiff transferred a claim for brokerage commission to a new yacht on October 5, 2012 or the brokerage commission was reduced due to the occurrence after the supply of sales agency services was completed, it does not affect the Plaintiff’s duty to pay value-added tax already established. In so determining, the lower court did not err by misapprehending the legal doctrine as to the substance over form principle and the principle of prohibition of double taxation, etc. as otherwise stated in the grounds of appeal.

5. Conclusion

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

Justices Noh Jeong-hee (Presiding Justice)