Fees paid to subscribers shall be excluded from the value-added tax base in consideration of the amount of discount;

Even in cases where the tax authority’s erroneous taxation disposition is unlawful as a result of the calculation and determination of the tax base and amount of tax, if the tax amount imposed and collected does not exceed the scope of the legitimate calculation amount, and the wrong method does not vary in the scope of the tax unit and the reason for the disposition, it does not constitute unlawful disposition of imposition and collection within the scope of the justifiable

Articles 29, 37 and 38 of the Value-Added Tax Act

Daejeon District Court-2016-Gu Partnership-103896 ( April 19, 2017)

AA

Daejeon Head of the District Tax Office

2017.03.29

2017.19

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

On August 1, 2016, the Defendant revoked each imposition of value-added tax of KRW 58,615,370, value-added tax of KRW 102,482,580, value-added tax of KRW 102,482,580, value-added tax of KRW 2, 2014, value-added tax of KRW 61,767,420, and value-added tax of KRW 13,825,30 (including additional tax) of KRW 2015 for the Plaintiff on August 1, 2016.

1. Details of the disposition;

A. From September 1, 2013, the Plaintiff entered into a consignment contract with the CCC (hereinafter “CCC”), which is called “B agency”, with the content that the Plaintiff is entrusted with the attraction and management of mobile communications service subscribers and the sales of mobile communications terminal devices (hereinafter “terminal”).

B. The Plaintiff reported and paid value-added tax from February 2, 2013 to January 2015, and deducted the fees paid to subscribers upon receipt of the CCC (hereinafter “instant fees”) from sales amount (i.e., KRW 424,503,00 in 2013 + KRW 1,258,439,185 + KRW 113,601,809 in 2015).

C. From February 15, 2016 to May 6, 2016, the Defendant conducted a tax investigation with respect to the Plaintiff, and confirmed that the Plaintiff failed to report on the instant fee, which corresponds to the difference between the amount that the Plaintiff transferred to the CCC the claim to be sold and acquired by the Plaintiff to the subscriber to the mobile communications service (hereinafter referred to as “subscriber”), and the amount that the Plaintiff reported as sales, and notified the Plaintiff of the result of the tax investigation to impose value-added tax 234,103,696 won on the Plaintiff on May 23, 2016.

D. On June 22, 2016, the Plaintiff filed a request for pre-assessment review with the Defendant regarding the above notification. However, on July 14, 2016, the Defendant rendered a decision that the Plaintiff would not accept the request for re-determination and notified the Plaintiff thereof.

E. On August 1, 2016, the Defendant issued a disposition of imposition of value-added tax of KRW 58,615,370 for the Plaintiff, KRW 102,482,580 for the first term value-added tax of KRW 102,482,580 for the second term in 2014, KRW 61,767,420 for the second term value-added tax of KRW 61,767,420 for the second term in 2014, and KRW 13,825,30 for the first term in 2015 (including each additional tax; hereinafter “instant disposition”).

F. On August 24, 2016, the Plaintiff seek a revocation of the instant disposition from the Commissioner of the National Tax Service.

However, the Commissioner of the National Tax Service dismissed the request for examination on October 28, 2016.

[Ground of recognition] Unsatisfy, Gap evidence 1 to 6, Eul evidence 1 to 3

statement of each chapter, including branch numbers, hereinafter the same shall apply) and the purport of the whole pleading

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant disposition shall be revoked on the grounds as follows.

1) The instant fee is the so-called discount amount that should be deducted from the value-added tax base, since it was directly reduced from the price of the device under an agreement with the subscriber while selling the device by installment to the subscriber. The Defendant should not include it as the tax base.

2) If the instant fee does not fall under the discount amount, it shall be included in the CCC’s incentives, which the Plaintiff received from the CCC and delivered to the subscriber as is, and shall not be included in the Plaintiff’s tax base.

3) The instant disposition is not an substance of the instant commission, but is tangled with name or form, and is in violation of the principle of substantial taxation or the essence of value-added tax.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether the instant fee falls under the discount amount

In full view of the following circumstances where the contents of relevant Acts and subordinate statutes, the evidence mentioned above, and the evidence stated in Gap evidence No. 7 revealing the overall purport of the pleadings, the instant fee paid to the Plaintiff to the Plaintiff constitutes a discount amount that is not included in the supply value of the device or that is directly related to the supply of the device, and thus, it should be excluded from the value-added tax base for the mobile device supply transaction. Accordingly, the instant disposition that calculated and determined the amount of tax by including the instant fee in the value-added tax base without regard it as a discount amount is unlawful.

A) The tax base of value-added tax, which is a consumption tax imposed on the consumption of goods or services, shall be the price actually paid by the final consumer of the goods or services. The price actually paid by the policyholder to the Plaintiff in the terminal supply contract between the Plaintiff and the subscriber is the amount calculated by subtracting the contract subsidy from the cost of delivery of the device (if the mobile communications company satisfies the requirements for the provision of the contract subsidy, from the cost of delivery, after deducting the contract subsidy;

B) The final consumer of the device is generally aware of the amount calculated by subtracting the amount equivalent to the instant fee deducted from the ex-factory price from the Plaintiff in return for the supply of the device.

C) Comparing with the Plaintiff’s agreement at the same time to pay the instant fee to the Plaintiff at the time of concluding the contract for the supply of a device and the sales of a device by setting the value of supply at the ex-factory price less the instant fee when concluding the contract for the supply of a device, the economic substance of both parties is the same. Therefore, deeming the amount obtained by deducting the instant fee from the ex-factory price as the price for the supply of the device accords with the principle

D) Pursuant to Article 12 of the agency agreement entered into with the Plaintiff, the Plaintiff could not actually receive the instant fee due to offsetting the Plaintiff’s obligation to pay the instant fee against the CCC pursuant to Article 12 of the agency agreement.

E) Determination as to whether a discount amount under the Value-Added Tax Act is determined depending on whether the substance is the reduction of the consideration for supply. It is not determined depending on whether the form of reduction of the consideration for supply was taken or the supplier took the form of paying money, etc. to the other party. It is difficult to view that the legal nature of the instant commission differs solely on the fact that the Plaintiff sold the device at the ex-factory price to the subscriber and paid the instant fee ex post

F) The so-called sales incentive under the Value-Added Tax Act is money and valuables paid to the other party to the transaction for the promotion of business without being linked to individual transactions or the price thereof, and is generally paid to intermediate distributors not to the final consumer. It is difficult to view the instant commission as constituting sales incentive not deducted from the tax base in light of the time of payment, the purpose of payment, the object of payment, the relationship with the terminal sales.

2) Whether the instant disposition was revoked

A) In a lawsuit seeking the revocation of a taxation disposition, the determination of illegality should be made by whether the tax amount recognized by the said taxation disposition exceeds a reasonable tax amount. As such, even if the tax authority erred in the process of calculating and determining the tax base and tax amount, and the tax amount imposed and collected by the assessment disposition is illegal, it would be the extent that the erroneous method does not exceed the reasonable amount of tax calculated, but differs from the scope of the tax unit and the grounds for the

In doing so, the imposition and collection disposition within the scope of a justifiable tax amount is unlawful and thus cannot be revoked (see, e.g., Supreme Court Decision 2004Du3823, Jun. 15, 2006).

B) The Value-Added Tax Act adopts a system that deducts the input tax amount at all stages. In other words, the amount of the value-added tax payable is the amount obtained by deducting the input tax amount from the output tax amount (Article 37 of the Value-Added Tax Act), and the input tax amount is the value-added tax amount on the goods and services used or supplied by the entrepreneur for

C) As seen earlier, the Plaintiff received the instant fee from the CCC and paid it again to the subscriber. As such, the instant fee cannot be deemed as goods or services that the Plaintiff used or provided for the purpose of its own business, and thus, it cannot be deemed as the Plaintiff’s input tax amount. However, in light of the overall purport of the oral argument in the statement No. 4, the Plaintiff can be acknowledged as having received input tax deduction based on the device ex-factory price that is not deducted from the instant fee. As such, the instant fee is ultimately deducted from the supply price, which is the tax base for value-added tax, and the input tax amount also should be deducted equally from the input tax amount. As a result, the reasonable amount of value-added tax to be imposed on the Plaintiff does not differ from the tax amount imposed and notified in accordance with the instant disposition. In light of the aforementioned legal principles, even if there exists any defect as seen earlier, the amount of tax imposed and notified cannot be revoked on the basis of this, as long as the tax amount imposed

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.