Appellate Court 2014west 1495 (Law No. 15, 2014)

Housing site preparation services conducted in the national housing construction site shall not constitute national housing construction services exempt from value-added tax.

Although housing site preparation services in the construction site of national housing are services necessary for the construction of national housing, they cannot be deemed as services exempt from value-added tax pursuant to Article 106 (1) 4 of the former Restriction of Special Taxation Act because they cannot be seen as being included in the concept of construction services itself.

Article 106 of the Restriction of Special Taxation Act (Exemption of Value-Added Tax)

2014Guhap7404 Disposition of revocation of Value-Added Tax Imposition

AAAA Corporation

BB Director of the Tax Office

March 11, 2016

May 13, 2016

1. The Defendant’s imposition of penalty tax of KRW 19,245,510 out of the value-added tax of KRW 42,140,470 on July 1, 2013, and KRW 46,276,257 of the value-added tax of KRW 101,840,90 on December 2, 2013, and KRW 64,858,152 of the value-added tax of KRW 148,01,110 on KRW 1,209, respectively, shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. 6/10 of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

Cheong-gu Office

The Defendant’s imposition of value-added tax of KRW 42,140,470 (including additional tax), value-added tax of KRW 101,840,90 (including additional tax), value-added tax of KRW 208 on December 2, 2013, and value-added tax of KRW 148,01,110 (including additional tax) on KRW 148,01,110 (including additional tax) on KRW 208 on July 1, 2013.

1. Details of the disposition;

A. On March 30, 2007, the Plaintiff was awarded a contract (hereinafter referred to as the "contract of this case") with a new two district (hereinafter referred to as "project district") composed of the following two districts (hereinafter referred to as "project district of this case") for the construction of a housing site development project site (such as earth and sand, excellent public water, sewage, water supply, packing, etc.") at KRW 13,324,094,050 of the construction cost ** Construction Co., Ltd. (hereinafter referred to as "** Construction") (hereinafter referred to as "the plaintiff 49%, *51% of the construction) (hereinafter referred to as "the contract of this case").

Total supplied area 210,113 square meters

135,547 square meters of paid supply area;

74,566 square meters of free supply area

National Housing Construction Site

56,101 square meters

Other 79,446С

Roads, neighborhood parks, buffer green areas, rivers;

74,566§³, such as

B. The above construction cost is determined as tax exemption for the part of the construction work corresponding to the ratio of the total supply area of the national housing construction site to the total supply area of the entire construction work (hereinafter “the ratio of the construction work in this case”) as the national housing construction service under Article 106(1)4 of the former Restriction of Special Taxation Act (amended by Act No. 9921, Jan. 1, 2010; hereinafter “Special Taxation Act”). However, the Seoul Special Metropolitan City reviewed the actual condition of payment of value-added tax on the national housing construction service project implemented by the 00 Corporation and the improvement plan for the payment of value-added tax on the national housing in the national housing scale and the apartment housing in excess of the national housing scale together with the total supply area of the total supply area of the national housing construction site (hereinafter “the ratio of the construction site in this case”) and it is not equivalent to the value-added tax exemption for the construction work in this case’s total supply area (hereinafter “the ratio of the construction site in this case”).

C. On December 31, 2007, the Plaintiff entered into a modified contract (hereinafter “instant modified contract”) by reflecting the contents of the Seoul Special Metropolitan City’s guidelines. D. The Plaintiff provided construction services equivalent to KRW 3,710,556,889 (hereinafter “instant construction services”) for the first period from 2008 to 2009. Of them, the construction services amounting to KRW 3,710,556,889 (hereinafter “instant construction services”). Of them, the part of the instant construction services falling under the second ratio (hereinafter “instant service”) shall be deemed value-added tax exemption, and the account statement was issued by deeming that the remainder is subject to taxation.

E. The Defendant deemed that all of the instant construction services are subject to value-added tax, and accordingly, revised and notified the Plaintiff on July 1, 2013, as stated in the purport of the claim, the first value-added tax for July 1, 2008, the second and the first time value-added tax for December 2008, 2009, respectively (hereinafter “instant disposition”).

[Grounds for Recognition] Unsatisfy, Gap evidence Nos. 1 through 13 (if available, numbered)

set forth in section 1 to 4 of this title, and the purport of the whole pleadings.

2. Related statutes;

It is as shown in the attached Table related statutes.

3. Whether the instant disposition is lawful

A. Principal tax portion

1) Whether the instant construction service constitutes a national housing construction service

A) Article 106(1)4 of the Restriction of Special Taxation Act provides that the value-added tax shall be exempted for the national housing prescribed by Presidential Decree and the construction services of such housing. Article 106(4) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22037, Feb. 18, 2010; hereinafter “Enforcement Decree”) provides that "national housing and construction services for such housing" means "housing below the scale of national housing under the Housing Act", "Framework Act, the Framework Act on the Construction Industry, the Electrical Construction Business Act, the Fire-Fighting Business Act, the Housing Act, the Housing Act, the Sewerage Act, the Sewerage Act, and the Act on the Management and Use of Livestock Excreta," and the exemption of value-added tax under the above provision is the supply of construction services, such as construction services, electrical construction services, and fire-fighting services, which are essential for the supply of national housing itself and the construction of the national housing (see, e.g., Supreme Court Decision 91Nu7040, Feb. 111, 192).

B) In light of the following circumstances revealed by adding the aforementioned facts and the purport of the entire argument as seen earlier, the part of the construction site for national housing among the instant construction services (hereinafter “instant construction services”) cannot be deemed as constituting a national housing construction service exempt from value-added tax pursuant to Article 106(1)4 of the former Restriction of Special Taxation Act. This also applies to the part corresponding to the instant percentage 2 out of the free supply site. The written evidence Nos. 14 through 19 alone is insufficient to reverse it.

① Construction works of this case include construction works of housing site development projects, removal and removal of obstacles, such as existing buildings, etc. on the whole project district of this case; construction works of infrastructure, such as water supply and drainage in the land; construction works of soil and water supply and drainage facilities outside housing construction complexes; construction works of soil and water supply and water supply systems; water supply and packing, structure construction works; river construction works; incidental construction works; bridge construction works; permanent storage site works outside the district; implied house construction works outside the district; cutting and banking of housing construction complexes. In other words, after completion of housing site construction works for housing site construction sites such as removal and removal of obstacles to housing complex (hereinafter referred to as the “land construction works”). The construction works of this case are necessary and premised for the construction of national housing, but it is difficult to see that construction works themselves are included in the concept of housing construction works.

② Since the instant construction project district was implemented as a unit of the entire project district, it is only one part of the said series of construction projects, and it is natural spam to separately remove and evaluate the construction cost for the site for national housing among the construction works for the said series of complex construction projects (it cannot be deemed an amount equivalent to the ratio of the area of the site for national housing to the total construction cost, without distinguishing the construction cost incurred in the said site from the construction cost, in calculating the construction cost for the site for national housing among the construction works for the said series of complex construction projects). In addition, since the instant land construction project is not necessarily premised on the construction of national housing, it is difficult to view that the instant land construction project, which is a specific part of the entire housing site development project, was included into the complex of national housing, ex post facto as an essential construction project

③ The interpretation of tax laws and regulations shall be interpreted in accordance with the text of the law, and shall not be interpreted extensively or analogically without any reasonable reason, barring any special circumstance. In particular, it is in line with the principle of equity in taxation to strictly interpret the provisions that clearly stipulate preferential provisions in the requirements for reduction and exemption (see, e.g., Supreme Court Decisions 97Nu20090, Mar. 27, 1998; 201Du14524, Mar. 15, 2012). Article 106(4)2 of the Enforcement Decree of the Restriction of Special Taxation Act provides that “services eligible for the exemption of value-added tax shall be “services for national housing construction” or “construction services for national housing construction” other than “services related to national housing construction”, such provision shall be deemed as only the construction services of national housing itself, and it shall not be deemed that the construction works are included in the whole infrastructure that were independently undertaken prior to the construction of national housing, etc., as in the instant construction project.

④ With respect to the project district of this case, the housing site development project contract was entered into with the Plaintiff and * Construction, and the housing development project contract was entered into with the x construction company and the stock company. The housing development project contract was entered into with the cc, thereby separately entering into a contract with the other companies.

⑤ Article 106(4) of the Enforcement Decree provides that construction services of national housing shall be “construction services of housing below the scale of national housing supplied by a person registered under the Framework Act on the Construction Industry, Electrical Construction Business, Fire-Fighting Business Act, Fire-Fighting Act, Information and Communications Construction Business Act, Housing Act, Sewerage Act, and Livestock Excreta Management and Utilization Act.” In light of the text of the above Enforcement Decree, the above construction services shall be extended to include general civil engineering works as well as construction of housing itself and installation of facilities, etc. directly necessary for housing itself.

(6) Even if the legislative intent of Article 106(1)4 of the former Restriction of Special Taxation provides support for the general people who are the consumers of national housing to be supplied with housing at a lower price, it is difficult to deem that the said provision itself may achieve a considerable part of the national housing construction services, and it is difficult to deem that the said provision goes beyond the said scope to exempt the value-added tax on all services related to the construction of national housing. Even if the construction cost for the instant construction services is reflected in the calculation of the sale price of national housing in the instant project district as the housing cost, and the housing buyers, including the national housing purchaser, paid the said cost, it cannot be deemed that the instant construction services should be included in the national housing construction services and thus exempted from value-added tax.

2) As to whether the instant construction services are incidental to the national housing construction services

A) Article 1(4) of the former Value-Added Tax Act provides that the supply of goods or services naturally annexed to the supply of services, which is the main transaction, shall be included in the supply of services, and Article 12(3) of the same Act provides that “the supply of goods or services, which are inevitably annexed to the supply of goods or services exempt from value-added tax, shall be deemed to be included in the supply of goods or services, and Article 3 subparag. 1 and 2 of the Enforcement Decree of the same Act provides that “the supply of goods or services, which is the main transaction, shall be deemed to be included in the supply of goods or services,” and “the supply of goods or services, the price of which is ordinarily included in the supply of goods or services, the supply of which is the main transaction, shall be deemed to be included in the supply of goods or services.

B) The scope of deeming that the supply of goods or services necessarily annexed to the supply of goods or services exempt from value-added tax pursuant to Article 12(3) of the former Value-Added Tax Act is included in the supply of goods or services exempt from value-added tax shall be limited to only the supply of the main goods or services exempt from value-added tax and that of the supplier of such goods or services essentially annexed thereto (see, e.g., Supreme Court en banc Decision 2000Du7131, Mar. 15, 2001; Supreme Court Decision 2001Du4849, Nov. 8, 2002). The same applies to the goods or services exempt from the former Restriction of Special Taxation Act.

C) According to the above facts, the Plaintiff performed the construction work of national housing only in the instant project district but did not perform the construction work of national housing that can be the main service, and other construction companies performed the said construction work. As such, insofar as the supplier of the service is different from the supplier of the service, it cannot be deemed that the instant construction work that the Plaintiff independently provided to 00 construction companies without any further review as to whether it includes the consideration for supply as alleged on the ground of ordinary incidentalness and transaction practices, and that the instant construction work that the Plaintiff independently provided to 00 construction companies cannot be deemed as the incidental service of national housing that is exempt from value-added tax under Article 106(1)4 of the former Restriction of Special Taxation Act (Supreme Court Decision 2013Du932 Decided June 28, 2013 cited by the Plaintiff, the Seoul High Court Decision 2011Nu24820 Decided December 7, 2012, which is the Seoul High Court Decision 2011Du24820 Decided the Value-Added Tax Act and Enforcement Decree does not apply to the above goods or services.

B. Additional tax portion

1) In order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under tax law is an administrative sanction imposed as prescribed by the Act in cases where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, and the taxpayer’s intentional or negligent negligence is not considered. However, such a sanction may not be imposed in cases where a taxpayer has justifiable grounds, such as where there is a circumstance that the taxpayer could reasonably present his/her duty when he/she was unaware of his/her duty, or where it is unreasonable to expect the taxpayer to fulfill his/her duty, etc. (see, e.g., Supreme Court Decision 2006Du11750, Oct. 23, 2008).

2) In light of the following facts and circumstances, it is reasonable to view that the Plaintiff’s failure to report and pay value-added tax in relation to the instant construction service is not a justifiable ground for failing to do so, in light of the aforementioned facts and the purport of the entire argument as seen earlier.

① As a result of reviewing the current status of payment of value-added tax on national housing and construction service projects implemented by 00 Corporation and the improvement measures thereof, the Seoul Special Metropolitan City concluded that the value-added tax corresponding to the instant ratio of value-added tax on the total construction services should be exempted, among value-added tax on the construction services, if the national housing scale and multi-family housing exceeding the scale of national housing are constructed together within one project district, and around September 3, 2007, 00 Corporation reviewed the appropriateness of the existing contract in accordance with the said standard and ordered the conclusion of the contract in accordance with the said standard. On December 31, 2007, the 00 Corporation under the Seoul Special Metropolitan City’s instruction entered into the instant modified contract with the Plaintiff in accordance with the said standard. The Plaintiff appears to have trusted and complied with the adequate interpretation of statutes through a review by the relevant agencies including the tax authorities, which is a local public enterprise, and there is room to view it differently from mere statutory construction sites and mistakes.

② Moreover, other urban development districts promoted by Seoul Special Metropolitan City prior to the conclusion of the instant construction contract, the contract was modified to reduce the value-added tax amount of the construction cost for the same reason, and some construction companies were entitled to refund the value-added tax accordingly from the tax authorities.

③ In light of the report materials on the calculation method of additional taxes on construction services for national housing attached to the Seoul Special Metropolitan City’s 00 Guidelines (Evidence A9), it is true that the National Tax Service has expressed a somewhat reserved position that the scope of national housing construction services includes housing site creation and construction services for auxiliary facilities attached to national housing. However, it is difficult to view that the Plaintiff was aware of the details of the above review by the National Tax Service at the time of entering into the instant modified contract and reporting and payment of the relevant value-added tax, as the internal document sent by Seoul Special Metropolitan City to 00 Corporation.

④ The instant construction service appears to include the construction of housing sites except the soil construction work, such as cutting and banking, with regard to the part corresponding to the site for national housing construction, and its cost was also included in the supply price of national housing, and not only in the instant modified contract but also in the instant contract, on the premise that the amount calculated by multiplying the direct construction cost by the first ratio was exempted from value-added tax as the supply price for national housing construction service, there is room to view that there was objective circumstances that make it possible to believe that the service portion of this case was a national housing construction service or an incidental service.

⑤ The Plaintiff is in a position to collect an amount equivalent to value-added tax from 00 corporations and pay it to the tax authority as it is, and it is difficult to deem that the Plaintiff had an intention to neglect to report and pay value-added tax, as it does not obtain any separate benefit depending on whether the value-added tax was paid for the instant construction services. It is difficult to expect that the Plaintiff would pay it at its own judgment and cost in the circumstance that the Plaintiff did not object to the terms and conditions of the contract

(6) On March 30, 2007, after entering into the instant contract, the Plaintiff provided the instant construction service and filed a value-added tax return by dividing the tax portion and the tax exemption portion by taxable period in line with the beginning height of the instant construction service from the first to the first period of 2008, and the tax authority initially reviewed the payment status of value-added tax on the national housing construction service project implemented by the Seoul Special Metropolitan City 00 Corporation, and then delivered guidelines to 00 Corporation, while the tax authority had never pointed out any error in the Plaintiff’s return of value-added tax as to 00 corporation on the basis of the outcome of the tax investigation on the Plaintiff around May 2013, 2013. As can be seen, it is nothing more than imposing additional tax on the whole period for which value-added tax has not been paid after a long period of time.

3) Therefore, the Plaintiff’s assertion pointing this out is with merit, and the imposition of penalty tax among the instant disposition is unlawful.

4. Conclusion

The plaintiff's claim is accepted within the scope of the above recognition, and the remainder is dismissed as there is no ground.