It is subject to value-added tax unless the place of the relevant product is provided and the contractor is provided separately from the act of receiving without permission.

Even if a multi-level marketing-related receiving act becomes null and void, it is subject to value-added tax for providing services to receive rents and to introduce a contractor by providing a place where the goods related thereto are installed.

Article 26 of the Value-Added Tax Act: Scope of financial and insurance services exempt under Article 40 of the Enforcement Decree of the Value-Added Tax Act.

2018Guhap63037 Disposition rejecting the rectification of value-added tax

Park ○-hee et al.

○ Head of tax office et al.

September 14, 2018

November 9, 2018

1. The plaintiffs' claims against the defendants are all dismissed.

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

[Attachment 1] The date of disposition of rejection by the Defendants shall be revoked in entirety as to the total value-added tax amount of KRW 17,460,245 as stated in the "tax amount for correction claim" of the same list against the Plaintiffs on each date mentioned above.

1. Basic facts

A. Status of the parties

1) On May 7, 2013, Co., Ltd. OOO global (hereinafter referred to as “OOOO global”) is a company established for the purpose of selling sound vibration exercise equipment and chain recruitment business. From June 3, 2013 to June 2, 2015, Non-Party Company established 86 total plates and 401 agencies nationwide, such as Seoul, Gyeonggi, Busan, Gyeongnam, and Ulsan, with the trade name of “Neawn 10 minutes sports shop” from June 3 to June 2, 2015.

2) As the president of the Seoul Seongbuk-gu area, Plaintiff KimO is an individual entrepreneur who manages the sales of medical devices, etc. as the president of the Seoul Seongbuk-gu area, and the Plaintiff KimO is an individual entrepreneur who manages the sales of medical devices, etc.

B. Plaintiffs’ return and payment of value-added tax

1) The non-party company sold to investors sports equipment and medical devices, such as sound vibration and home cameras (hereinafter “instant devices”), and entrusted the sale thereof to operate them by leasing them. The non-party company: (a) installed the instant devices in the company’s general sales board or agency; and sold the voucher (the card using sports equipment) to the general consumers; and (b) sold the voucher thereof to the general consumers. The non-party company paid 80-90% of the purchase amount to the investors an equal profit over 12 months at the time of the conclusion of the above sales and consignment management contract; and (c) paid the pertinent devices to the investors a redemption cycle at 40-50% of the purchase amount after the expiration of the period.

2) In order to sell the instant devices, the Nonparty Company: (a) placed a sales salesperson belonging to the sales team or agency and paid sales allowances to the sales salesperson according to the sales performance; (b) operated in the multi-level sales organization with the position of the sales salesperson at the time of achievement of sales performance beyond a certain standard; and (c) operated in the form of a multi-level sales organization that sells the instant devices entrusted or leased to general consumers and allows them to use the instant devices. In addition, the sales team or agency operated the instant devices in the form of a “member system that sells the right to use the instant devices installed on consignment or leased (

3) The Plaintiffs, during the VAT period from the first to the first half of the year 2014, as the sales salesperson of the non-party company, issued a tax invoice after receiving the fees from the non-party company, and filed and paid the value-added tax.

C. The defendants' rejection of correction

1) The non-party company and its officers established and operated a multi-level marketing organization without being registered as a multi-level marketing business, and agreed to pay all or more investments from investors without obtaining authorization or permission under the Act and subordinate statutes in the future, and received each conviction on September 24, 2015 on violation of the Door-to-Door Sales, etc. Act, violation of the Act on the Regulation on Door-to-Door Sales, etc., and violation of the Act on the Regulation of Temporary Collection of Contributions, and the crime of fraud (the Jeonju District Court 20OO), and the judgment was finalized on May 12, 2016 through the appellate court (the Jeonju District Court 20OO), the Supreme Court (the Supreme Court 200OOOO) and the Supreme Court 20OOOOOO (the final judgment of this case).

2) On the grounds that the Plaintiffs’ transaction reported and paid value-added tax is merely a monetary transaction that is not a supply of goods or services, and thus is not subject to value-added tax, the Plaintiffs filed an application for rectification with the Defendants for refund of KRW 171,460,245 (Plaintiff GabO 99,543,841, Plaintiff KimO 71,916,404) during the taxable period from the first period to the first period from 2014 to the first period from 2015.

3) On September 6, 2017, the head of Sungbuk District Tax Office rejected the Plaintiff’s request for correction by the Plaintiff ParkO and the head of the Defendant Won District Tax Office on August 21, 2017 (hereinafter collectively referred to as the Defendants’ request for correction against the Plaintiffs).

2. Related statutes;

Attached Form 2 shall be as shown in attached Table 2.

3. Whether the instant disposition is lawful

A. Summary of the plaintiffs' assertion

The fees that the plaintiffs received as a broker for concluding contracts between the non-party company and investors are not subject to value-added tax or are subject to exemption for the following reasons.

1) The transaction between the Nonparty Company and the investors is an act of receiving goods without any movement. The Plaintiffs’ fees that the Plaintiffs received are merely an act of receiving goods without any movement. It cannot be said that there was a supply of goods or services subject to value-added tax.

2) The transaction between the non-party company and investors is null and void as it violates Article 3 of the Act on the Regulation of Conducting Fund-Raising Business without Permission. The fees that the Plaintiffs received from the non-party company are the same as the fees that the investors received by dividing the investment amount paid to the non-party company into the part of the non-party company. Accordingly, the services provided to the non-party company or the company in the total board shall not be deemed as being subject to value-added tax, and thus, they shall not

3) Even if services offered by the Plaintiffs are subject to value-added tax, such services constitute financial services exempt from value-added tax.

B. Determination

1) In light of the aforementioned facts and the circumstances acknowledged by comprehensively considering the overall purport of the pleadings, the fees that the plaintiffs received from the non-party company are subject to value-added tax on the following grounds.

A) The Plaintiffs do not themselves engage in transactions recognized by the final judgment of the instant case with the Nonparty Company. The Plaintiffs supplied services mediating the conclusion of contracts to the Nonparty Company and received compensation from the Nonparty Company. Article 2 of the Value-Added Tax Act provides that “services” refers to all services and other acts having property value other than goods, other than goods, and Articles 4 subparag. 1 and 11(1) provide that the supply of services based on all contractual or legal grounds conducted by the business entity is subject to value-added tax. Therefore, regardless of whether the actual transfer of goods was made between investors and the Nonparty Company, the services provided by the Plaintiffs to the Nonparty Company, as a business entity, constitutes value-added tax-

B) In light of the economic aspect, taxable income is deemed to have a taxable capacity to control and manage the profit in reality, and thus, it is sufficient to deem that there is a taxable capacity to pay the income, and the legal assessment of the underlying relationship with which the income was derived does not necessarily necessarily have to be lawful and effective. Therefore, even if the transaction between the non-party company and the investors is deemed null and void as a matter of course, even if the transaction between the non-party company and the investors is deemed null and void under private law, if the Plaintiffs were to receive the service of mediating the conclusion of the contract and manage the profits accrued therefrom, it is not reasonable

C) As seen above, the Value-Added Tax Act stipulates that the supply of services for all causes conducted by a business entity is subject to value-added tax, while Article 26(1)11 of the Value-Added Tax Act provides that “the supply of financial and insurance services prescribed by Presidential Decree” is subject to value-added tax exemption. However, Article 40(1) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 26071, Feb. 3, 2015) provides that the supply of services related to the receipt of similar payments is subject to value-added tax exemption, such as banking services and incidental services under the Banking Act, and does not stipulate that the supply of services by a business entity legally authorized pursuant to the relevant Act and subordinate statutes is subject to value-added tax exemption. Therefore, even if the services supplied by the Plaintiffs to the non-party company constitute financial services as part of the act

2) Therefore, the plaintiffs' claims seeking the revocation of the instant disposition cannot be accepted on the premise that the fees received from the non-party company are not subject to value-added tax or are subject to exemption.

4. Conclusion

Therefore, the plaintiffs' claims are without merit, and all of them are dismissed. It is so decided as per Disposition.