Whether the substitute payments and cash subsidies are the discount of the sales of terminal installment payments.

The tax base of value-added tax shall be the price actually paid by the final consumer of the goods or services. Since the price actually paid by the customer who purchased the device from the Plaintiff to the Plaintiff is the amount calculated by subtracting the amount of the subsidy in this case from the original customer's ex-factory price of the device that the customer originally pays, it is reasonable to view the subsidy in this case as the amount of discount related to the supply of the device

Article 29 of the Added Tax Act

2018Guhap79841 Revocation of Disposition Rejecting Value-Added Tax

AA

BB Director of the Tax Office

on 18, 2019

on December 26, 2019

1. The Defendant’s refusal to rectify value-added tax (including additional tax) on the Plaintiff (attached Form 1) shall be revoked.

2. The costs of lawsuit are assessed against the defendant

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff is an agent that has entered into an agency contract with CCC (hereinafter referred to as “CCC”), which is a corporation for the purpose of telecommunications equipment wholesale and retail, with which CCC is entrusted with the subscription to mobile communications services and management thereof, and at the same time the CCC purchases mobile communications terminal devices (hereinafter referred to as “terminal”) and related goods and sells them to subscribers.

B. In selling a device according to the agency contract under the above paragraph (a) with CCC, the Plaintiff paid to CCC or paid to the customer the installment amount of the device to be borne by the buyer of the new device (including the installment amount for the existing high-speed device) in the taxable period of the value-added tax in 201 X No. 2, 1 through 201 X No. 1, 201 X, and 1, 201 X, and the telecommunications cost (including the unpaid telecommunications cost for the existing high-speed device), the USIM card cost, the number transfer fee, penalty, subscription fee, claims fee, etc. (hereinafter collectively referred to as “the subsidy in this case”), and filed a return and payment of value-added tax, including the value-added tax base.

C. The Plaintiff deemed the instant subsidy paid as indicated in the foregoing Paragraph (b) above as of January 6, 201 X, and excluded the amount from the value-added tax base and applied for the correction of value-added tax as follows. However, on February 13, 2010, the Defendant rejected the Plaintiff’s request for correction (hereinafter “instant disposition”).

D. On September 12, 2010, the Plaintiff filed an objection against the instant disposition, and filed an appeal with the Tax Tribunal on September 12, 201 X. However, the Tax Tribunal dismissed the Plaintiff’s claim on November 20, 201 X.

[Reasons for Recognition] Facts without dispute, entry in Gap evidence 1 through 8 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the parties' arguments

1) Plaintiff

The Plaintiff agreed to pay the instant subsidy by discounting the price of the device to the subscribers through consultation with the CCC, and the final consumer also recognized the amount obtained by subtracting the amount equivalent to the instant subsidy that the Plaintiff paid from the cost of the device delivery from the cost of the device delivery.

Therefore, the amount equivalent to the instant subsidy should be excluded from the value-added tax base because it is the amount deducted from the sales of the device, which is the amount deducted from the sales of the device. Nevertheless, the instant disposition rejecting the Plaintiff’s request for correction based on the questioning reply, etc. by the Ministry of Strategy and Finance which is not binding.

2) Defendant

The instant subsidy, having the nature of “sales incentive, other than an agreement that the Plaintiff paid out on behalf of the Plaintiff for the promotion of sales,” which is not the sales discount amount, does not in itself reduce the value of the instant subsidy, and thus, cannot be excluded from the value-added tax base. In order to fall under the discount amount, an agreement and direct deduction between the parties should be recognized. It is not known what is the terms and conditions of the instant subsidy payment, and there is no proof as to whether there was an agreement to directly deduct the subsidy from the value of supply. Moreover, since the instant subsidy was paid in a separate transaction separate from the mobile device supply transaction, the instant disposition rejecting the Plaintiff’s request for correction is lawful, deeming that it does not fall under the discount amount.

(b) Related statutes;

[Attachment 2] The entry is as follows.

C. Determination

1) Article 29(5)1 of the former Value-Added Tax Act (amended by Act No. 15223, Dec. 19, 2017; hereinafter the same) provides that an amount of direct reduction of a certain amount from an ordinary price shall be excluded from the value of supply in accordance with the quality, quantity, conditions of delivery, payment method of proceeds from supply, and other terms and conditions of supply when the goods or services are supplied. As such, in relation to the supply of goods or services, the amount of discount, which is directly deducted from the ordinary price of supply due to the conditions of supply, such as quality, quantity, or settlement of the cost of delivery or delivery, is not limited to the time of the supply of the goods or services, and there is no special limitation on the deduction or reduction method. Accordingly, a supplier may only receive the remainder after deducting or deducting a certain amount from the ordinary price of supply when the goods or services are supplied, and return a certain amount, or may occur by any other similar method after receiving the entire value of supply (see, e.g., Supreme Court Decision 2013Du1636313.

2) In full view of the following circumstances recognized in light of the aforementioned legal principles, it is reasonable to view the instant subsidy as either included in the supply price of a device or an overcharge amount directly related to the supply of a device, and thus, it should be excluded from the value-added tax base for the device supply transaction. Accordingly, the instant disposition rejecting the Plaintiff’s request for correction on a different premise is unlawful.

A) The tax base of value-added 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 customer who purchased the device from the Plaintiff to the Plaintiff is the amount calculated by subtracting the amount of the instant subsidy from the original customer’s ex-factory price of the device (if the customer satisfies the requirements for the provision of the agreed subsidy as determined byCC, from the ex-factory price after deducting the agreed subsidy; hereinafter

B) Generally, customers, who are end-consumers of a device, have a major interest in the total price to be paid at the time of purchase of a device and subscription to a mobile communications service, regardless of whether to conclude a separate contract for the purchase of a core card. Therefore, the Plaintiff’s customers would have been aware that the price for actual purchase of a device was reduced by receiving the instant subsidy.

C) As in the instant case, the Plaintiff agreed to pay subsidies equivalent to the amount of the instant subsidy when concluding a terminal supply contract with customers, and the Plaintiff’s sales of the device at the time of concluding a terminal supply contract with customers by setting the amount calculated by subtracting the value of supply from the ex-factory price the amount of the instant subsidy from the ex-factory price is the economic substance.

D) Although the instant subsidy appears to be related not only to the sale of a device, but also to the subscription to the mobile communications service, the Plaintiff’s sales to the end-consumers are generated in connection with the sales of the mobile communications service, and the sales of commission for the provision of the mobile communications agency service occurs with the CCC, which is a mobile communications business operator. Unless there are special circumstances, the instant subsidy that the Plaintiff pays to the customers is not deemed a subsidy for the purpose of sales promotion related to the mobile communications service provided by CCC, which is a third party, and the Plaintiff’s direct deduction from the Plaintiff’s sales of the mobile communications service, accords with the genuine intent between the Plaintiff and the customers.

E) Since the amount of discount stipulated to be excluded from the value of supply under Article 29(5)1 of the former Value-Added Tax Act is determined based on whether the substance thereof is the reduction of the value of supply, the legal nature of the subsidy in this case differs solely on the ground that the Plaintiff sold the device to the customer at the cost of delivery and later paid the amount of the subsidy in a separate contract, such as purchase of a conviction card, etc.

F) In addition, whether the amount of the instant subsidy should be excluded from the Plaintiff’s price of supply arising from the Plaintiff’s mobile device supply transaction is determined based on whether the amount of the instant subsidy was actually reduced in the transaction between the Plaintiff and the Plaintiff and CCC, and whether there was an agreement between the Plaintiff and CCC regarding the amount equivalent to the instant subsidy, or whether the instant subsidy was based on whether the amount of the subsidy was funded with the commission or sales incentive that the Plaintiff pays to the Plaintiff.

G) The amount of incentives under Article 29(6) of the former Value-Added Tax Act is generally paid to an intermediate distributor, who is not a final consumer, regardless of whether the performance of the obligation under the supply agreement was terminated and is not connected with the individual transaction or the price thereof. The instant subsidy is difficult to be deemed to constitute the said incentive in light of the purpose and object of the payment, relationship with the terminal sales.

H) Although some of the instant subsidies are paid on a monthly basis, unlike the purchase price of a device or fees, etc., it appears that the instant subsidies were paid to a new policyholder at the time of, or immediately after, the purchase of a device. However, the Defendant’s assertion that the instant subsidies were paid in accordance with the terms and conditions of the supply of a device cannot be accepted.

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.