Cho High Court Decision 2010Du0547 ( October 14, 2010)

It is illegal that the advisory service fee is regarded as a tax-free business (investment) and an input tax amount not related to the business, and the input tax amount is not deducted.

In full view of the fact that it seems that the consulting service fee is an expenditure directly related to the research and development of pharmaceutical products, it is reasonable to view that the consulting service fee constitutes an expenditure that is directly related to the research and development of pharmaceutical products, and that the disposition that deducts input tax amount is illegal.

Article 17 (2) of the Value-Added Tax Act

Article 60 (3) of the Enforcement Decree of the Value-Added Tax Act

2010Guhap38967 Disposition to revoke the imposition of value-added tax

○ Stock Company

○ Head of tax office

4, 2011

April 8, 2011

1. The Defendant’s imposition of value-added tax of KRW 208,336,80 on December 24, 2009 against the Plaintiff on December 24, 2009 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

The following facts are either disputed between the parties, or acknowledged in full view of the purport of the whole pleadings in the items of evidence Nos. 1, 2, 3-1, 2, 1, 2, and 1 and 2:

A. On April 23, 2008, the Plaintiff’s business purpose of research, development, etc. of pharmaceutical products using biotechnology was to set a consulting fee of KRW 1,680,00,000 between ○○○○ and enter into an advisory service contract (hereinafter “instant service contract”). On May 14, 2008, the Plaintiff received a tax invoice of an amount equivalent to KRW 1,680,000 from ○○○○, Inc., for supply price after deducting the input tax amount from the output tax amount, and filed a value-added tax for the first period of 2008,847,540 on August 20, 2008, the Defendant refunded the Plaintiff KRW 200,847,540 on August 20, 2008.

B. After being notified by the director of the Seoul Regional Tax Office that the input tax amount under the tax invoice of this case is subject to the non-deduction of the input tax amount, and accordingly, on December 1, 2009, the defendant can be acknowledged by comprehensively taking account of the overall purport of the arguments in each entry in around 2, 2008, on the ground that the plaintiff was provided with advisory services to increase the capital by issuing the new shares and the bonds and receiving the stock price, and also constitutes the input tax amount related to the investment (tax-free business), and that the cost related to the acquisition of shares by shareholders, etc. falls under the input tax amount not directly related to the business.

(1) On April 23, 2008, the Plaintiff entered into the instant service contract with ○○○○ Company, and its main contents are as follows.

O The Plaintiff selects ○○○○ as a consultant for the enhancement of corporate value in order to grow global R&D; for the stable growth of enterprises, he/she designates ○○○ as the only advisory service provider related to the project in promoting the attraction of investment funds to the strategic investors introduced by Han Drug Co., Ltd. or ○○○○ Co., Ltd. and agrees as follows:

O Article 2 Details of the advice

○○○ Co., Ltd. shall make every effort to provide services and advice related to projects to the Plaintiff to the extent permitted by relevant laws and regulations, such as physical investment color of strategic investors, attraction of strategic investors, consultation on negotiation of strategic investment conditions, etc. to enhance corporate competitiveness in the implementation of the project.

Article 4. Advice Fees

① When this contract on strategic investment with the Plaintiff was concluded with the strategic investor following the implementation of the project, the Plaintiff shall pay 1,680,000,000 won to ○○○○ Company as advisory service fees.

(2) Where it is deemed necessary to implement an implementation plan for consultation as a consultant of the plaintiff, the ○○○○ Co., Ltd. may request professional services to the outside experts (accounting firms, attorneys-at-law, etc.) on the premise of prior consultation with the plaintiff. In such cases, the expenses incurred from the outside professional services

(2) On May 6, 2008, the Plaintiff issued 30 copies of the bonds with warrants (hereinafter referred to as the “instant disposition”) to Korea Pharmaceutical Co., Ltd. on May 6, 2008.

2. Whether the disposition is lawful;

A. The parties' assertion

(1) The plaintiff's assertion

The Plaintiff entered into the instant service contract with ○○○○○ Company in order to efficiently raise funds necessary for research and development of pharmaceutical products. Since the funds raised have been used for research and development projects, advisory service fees paid by the Plaintiff to ○○○ Company constitutes expenditure directly related to the business.

(2) The defendant's assertion

(가) 이 사건 용역계약에 따른 자문용역수수료는 원고가 신주 내지 신주인수권 부사채를 발행하여 주식대금 내지 투자자금을 조달하는 등의 주권(妹췄). 사채권(社價卷)의 발행업무와 직접 관련된 금액으로, 이와 같은 지출은 의약품 연구 ・ 개발 등 원고의 사업과 직접 관련이 없는 지출에 해당되어 매출세액에서 공제될 수 없다.

(B) Article 1(2) of the Value-Added Tax Act provides that "all tangibles and intangibles having property value" shall be subject to taxation, and Article 1(2) of the Enforcement Decree of the same Act provides that "goods, products, raw materials, machinery, buildings and all other tangibles" shall be subject to value-added tax. Since stocks which are securities shall not be subject to value-added tax, stocks which are securities shall not be subject to the taxation of value-added tax. Therefore, the amount of money paid with advisory or intermediary services related to attracting investors while issuing shares through capital increase with consideration shall be an expenditure that is not directly related to

(b) Fact of recognition;

The following facts were issued in KRW 15,00,000, or KRW 15,400,000, or KRW 15,800,000, or KRW 15,000 by either party to a dispute between the parties, or by issuing KRW 1,40,00 on the 15th of the same month new shares in KRW 16,80,00,000, or by issuing KRW 31,800,000 on the 15th of the same month:

(3) Accordingly, on May 14, 2008, the Plaintiff paid 1,680,000 won for advisory service fees under the instant service contract to ○○○○○ Company.

(4) Meanwhile, the Plaintiff used 11,216,918,889 won (management expenses + KRW 2,330,446,229 + development expenses + KRW 5,730,142,01 + development expenses + KRW 3,156,30,659 in 209, KRW 10,94,911,756 (management expenses + KRW 5,330,105,235 + development expenses + KRW 2,426,864,404 + development expenses + KRW 3,237,942,1177) in 208.

C. Determination

According to the relevant provisions of the Value-Added Tax Act and the Enforcement Decree of the Value-Added Tax Act, the supply of services subject to input tax deduction of value-added tax means the use of goods, facilities or rights by all contractual or legal causes, and the tax amount for the services shall be deducted as the input tax amount in case where a business operator receives contingent or temporary supply of services in connection with the business rather than continuously and repeatedly receives services in connection with the business. In addition, even if the services supplied are used for the acquisition of non-taxable goods or non-taxable goods, the services supplied should be deemed to be related to the business of the business operator.

As to the instant case, the following circumstances revealed in full view of the aforementioned facts and the purport of the argument, namely, that the Plaintiff was a corporation established on July 7, 200 with the purpose of research and development of pharmaceutical products using biotechnology as its business purpose. The instant service contract was concluded to raise funds necessary for accomplishing its business purpose, such as research and development of pharmaceutical products. Accordingly, the Plaintiff appears to have been provided with services such as physical investment color of strategic investors, attraction of strategic investors, negotiation of strategic investment conditions, etc. 31,80,000,000 won from the Korea Pharmaceutical Products Co., Ltd. through the instant service contract, and most of the invested funds were used for 00 research and development expenses for pharmaceutical products, which are actually subject to the Plaintiff’s taxation; 200,000,000 won under the former Enforcement Decree of the Value-Added Tax Act, which are not directly related to the Plaintiff’s business and its legal status of shareholder or creditor; 30,000,000 won, which are not directly related to the Plaintiff’s business and are subject to taxation.

3. Conclusion

Therefore, the plaintiff's claim of this case is justified and it is so decided as per Disposition.