[1] In a case where a truster, who is a debtor, entrusted the trustee with the property to guarantee the performance of the existing obligation and designates the creditor as a beneficiary, whether there exists a separate supply of goods to the truster’s beneficiary, distinct from the transfer of the trust property (negative)

[2] In the case where a tax liability is not established because there is no legal relationship or factual basis subject to taxation at all, whether the defect is significant and apparent in the case where there is no objective legal basis and rationality (affirmative)

[1] Article 6 (1) (see current Article 9 (1)) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013); Article 2 of the Trust Act / [2] Article 1 of the Administrative Litigation Act / [1] Articles 1 and 19 of the Administrative Litigation Act

[1] [2] Supreme Court Decision 2014Du47099 Decided November 14, 2017 (Gong2017Ha, 2357) / [1] Supreme Court en banc Decision 2012Du22485 Decided May 18, 2017 (Gong2017Sang, 1321), Supreme Court Decision 2014Du6111 Decided June 15, 2017 (Gong2017Ha, 1489)

Republic of Korea Veterans Association (Law Firm Leesan, Attorneys No Young-chul, Counsel for defendant-appellant)

Korea

Seoul High Court Decision 2014Nu45521 decided December 17, 2014

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

The grounds of appeal are examined.

1. Article 6(1) of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; hereinafter the same) provides that “The supply of goods shall be a delivery or transfer of goods on all contractual or legal grounds.”

A trust under the Trust Act requires a trustee to manage and dispose of a property right for the purpose of trust by transferring a specific property right to a trustee or disposing of it. As such, the trustee takes over the property right from the truster and manages and disposes of the trust property on the premise that the trustee manages and disposes of it. Therefore, even if the truster, who is a debtor, entrusted the trustee with the property in order to secure the performance of an existing obligation, designates the creditor as the beneficiary, such right to benefit belongs to the creditor under the trust agreement, and thus, cannot be deemed to have accrued a separate supply of goods to the beneficiary of the truster, distinct from the transfer of the trust property to the initial trustee due to such designation (see Supreme Court Decision 2014Du611, Jun. 15, 2017). The same applies to cases where a beneficiary requests the disposal of the trust

On the other hand, if there is no legal relationship or factual basis that is subject to taxation, and if there is no objective legal basis or rationality, such as the case where the tax liability is not established, the defect is significant and apparent and invalid.

2. The reasoning of the lower judgment and the evidence duly admitted by the lower court reveal the following facts.

A. On June 29, 2009, in order to secure the Plaintiff’s obligation for the loan, the Plaintiff was the first beneficiary and the land trust trust for the corporation, and entered into the instant trust agreement with the purport that in the event of nonperformance, the Plaintiff would dispose of the trust real estate in the event of nonperformance, appropriate the trust property to the repayment of the first beneficiary’s claim, etc., and return the remainder to the truster and the beneficiary. Accordingly, the trust registration was completed in the future on the ground of trust on the instant warranty building.

B. On April 23, 2010, the Oral Life Stypy Co., Ltd. (hereinafter “the Oral Life Stypy”) concluded an asset acquisition agreement with the Oral Life Stypy Art, etc. to acquire the right to benefit, etc. under the instant trust agreement, and agreed that the said right to benefit and all the rights incidental thereto shall belong to the Oral Life Stypy on the date of conclusion of the said agreement.

C. On July 21, 2010, at the time of filing a final return of the value-added tax for the first period, the Defendant filed a return of the refund tax amount on the grounds that the input tax amount exceeds the output tax amount. The Plaintiff notified the Defendant of the transfer of the claim while transferring the claim for refund to the Plaintiff, and submitted a written request for the transfer of national tax refund to the head of the Suwon Tax Office.

D. On September 1, 2010, the Plaintiff sent a peremptory notice to the effect that “a request for the cancellation of attachment, provisional attachment, or provisional disposition on a business site based on a loan agreement, but failed to comply with it, constitutes a loss of benefit due to its failure to comply therewith.” As to the instant trust agreement, the Plaintiff entered into a trust change and a ledger change contract with the beneficiary and debtor as an Oral Art, and a trust change contract with the debtor as a Oral Art, as well as a trust change contract with the debtor.

E. On January 4, 2011, the Plaintiff requested the trustee to dispose of the instant trust property due to the beneficiary and the debtor’s nonperformance, etc. Accordingly, on January 12, 2011, the Plaintiff filed a request for the transfer registration of ownership with respect to the instant sofack in the East Leisure Co., Ltd.

F. On September 1, 2010, the head of the Suwon District Tax Office issued a peremptory notice to the effect that the Plaintiff lost the benefit of the deadline for the Oralone’s well-being, and on the ground that the Oralone’s well-being was supplied to the Plaintiff, the trust property, the instant disposition was rendered on March 3, 2011, imposing the value-added tax (including the additional tax) for a period of two years (2010), which was the person liable for duty payment for the payment of Oralone’s well-being. Based on this, the value-added tax refund for the last two years (2010) was appropriated for the part of the value-added tax for the second years (2010).

3. Examining these facts in light of the aforementioned legal principles and records, the first truster transferred the instant trusted real estate to the trustee in order to secure the payment of the Plaintiff’s obligations to the Plaintiff through the instant trust agreement, designating the Plaintiff as the priority beneficiary, and even if the Plaintiff requested the disposal of the trusted real estate due to the occurrence of nonperformance stipulated in the said trust agreement, the mere fact that there was transaction, etc. based on the said trust agreement does not necessarily lead to the supply of goods, which are the cause of the imposition of value-added tax, solely on the ground that the transaction, etc. was conducted pursuant to the said trust agreement. Thus, the instant disposition is related to the case where the tax liability is not established on the ground that there is no legal relationship or factual basis subject to

Although there are some inappropriate points in the reasoning of the court below, it is just to conclude that the appropriation of national tax refund based on the premise that the disposition in this case is null and void is not valid, and contrary to what is alleged in the grounds of appeal, the court below did not err by misapprehending the legal principles on the “supply of goods” under Article 6(1) of the former Value-Added Tax Act or invalidation

4. 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 Ko Young-han (Presiding Justice)