The appeal is dismissed.

The costs of appeal are assessed against the defendant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Article 14(3) of the Framework Act on National Taxes provides, “In cases where it is recognized that the benefit of this Act or other tax-related Acts is obtained unfairly by indirect or more acts or transactions through a third party, it shall be deemed that the party directly engaged in the transaction or that the party has engaged in an act or transaction consecutively, according to the economic substance thereof, and thus, this Act or other tax-related Acts shall apply.”

The purpose of Article 14(3) of the Framework Act on National Taxes is to deny the various stages of transactions in order to cope with the act of tax evasion which unfairly reduces taxes bypassing or transforming the act or transaction subject to taxation, and to allow taxation by deeming the same as a single act or transaction subject to taxation depending on the substance. As such, the purpose of Article 14(3) of the Framework Act on National Taxes is to promote tax equity by prescribing one of the forms of application of the substance over form principle.

However, a taxpayer may choose one of the several legal relations to achieve the same economic purpose in conducting economic activities, and the tax authority shall respect the legal relations chosen by the parties, barring any special circumstance (see, e.g., Supreme Court Decision 2000Du963, Aug. 21, 2001). Moreover, the result after multiple stages of transactions may involve not only the liability for risk, such as loss, but also the external factor or act. Thus, it shall not be subject to taxation by readily concluding that only the result after the various stages of transactions is one act or transaction and its substance is not a single act or transaction.

In addition, the court shall consider the whole arguments and the results of examination of evidence.