In cases where an entrepreneur receives national subsidies, etc. for the supply of services falling under a non-taxable business, not where he/she receives a separate consideration for supply, whether Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act can be inferredly applied (negative)

Article 61(1) (see current Article 81(1) and (4) (see current Article 81(4)) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 24359, Feb. 15, 2013)

Supreme Court Decision 2009Du16268 Decided September 8, 201, Supreme Court Decision 2013Du19875 Decided March 24, 2016 (Gong2016Sang, 625)

Korean Textiles Development Institute (Law Firm Hanro, Attorneys Kim Jong-pon et al., Counsel for the plaintiff-appellant)

The head of Seogu Tax Office (Law Firm Jungwon, Attorneys Gangseo-gu et al., Counsel for the plaintiff-appellant)

Daegu High Court Decision 2014Nu5935 Decided May 29, 2015

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. As to the second ground for appeal

A. In principle, an input tax amount related to a taxable business and a non-taxable business shall be calculated according to the actual attribution. If an input tax amount is related only to a non-taxable business, it shall not be deducted from the output tax amount. If an input tax amount cannot be separated from the actual attribution due to a common use for a taxable business and a non-taxable business, in principle, if an input tax amount cannot be separated from the common use for a taxable business and a non-taxable business, it shall be applied by analogy to the Enforcement Decree of the Value-Added Tax Act (see, e.g., Supreme Court Decision 2009Du16268, Sept. 8, 2011). However, if the pertinent entrepreneur receives a national subsidy, etc. from the State or a local government, and if it is not possible to view it as a consideration for the supply of a non-taxable business, it shall not be applied by analogy 165(1) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 24359, Feb. 15, 2013). 2013).

B. In full view of the adopted evidence, the lower court acknowledged the following facts: (i) the Plaintiff is a specialized industrial technology institute established pursuant to Article 42 of the Industrial Technology Innovation Promotion Act, and is concurrently engaged in the research and development of production technology, the support for textile informatization, the analysis of quality, performance, and certification business requested by a textile manufacturer through the development of production technology, the guidance, dissemination, and training of textile technology; (ii) the Plaintiff’s operational revenue consists of national subsidies, City/Do subsidies, and revenue generated from profit-making business; (iii) the subsidies are based on Article 42 of the Industrial Technology Innovation Promotion Act, Article 42 of the Urban Technology Innovation Promotion Act, the City/Do subsidies are classified into the Daegu Metropolitan City Ordinance on the Promotion and Management of Entrustment of Affairs to the Private Sector, and the ordinary operation subsidies are classified into the general operation subsidies and the specific tasks subsidies; and (iv) the specific tasks subsidies are the subsidies that the Plaintiff’s research and development subsidies are paid after the examination of the support institute upon the submission of the research and development plan to the support institution.

Based on such factual basis, the lower court determined that the Plaintiff concurrently operates a profit-making business that is a taxable business and a business that is a non-taxable business, and that the Plaintiff’s subsidy received cannot be deemed as the consideration for the implementation of the business with a proper purpose, and thus, the Plaintiff’s operation of the business with a proper purpose merely provides services and thus does not constitute a taxable object of value-added tax. The lower court determined that the Defendant’s imposition of the Plaintiff’s input tax, which is common to the Plaintiff’s profit-making business and the business with a proper purpose, cannot be inferred to apply Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act, which provides for the method of calculating common input tax in accordance with the ratio of supply value of the tax-free business and the taxable business, on the ground that the Plaintiff’s non-taxable business, cannot be deemed as the value of the non-taxable business, as long as the subsidy received cannot be deemed the value of the non

C. Examining the records in light of the aforementioned legal principles, such determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles on the method of distributing common input tax amount, or by failing to exhaust all necessary deliberations.

2. Regarding ground of appeal No. 1

After finding the facts as stated in its reasoning, the lower court determined that the Defendant’s failure to fully deduct the input tax amount on the first or second parts of the disposition of value-added tax in the instant case on the grounds that: (a) the Plaintiff’s establishment cost of the instant center in relation to the first or second parts of the disposition of each of the instant value-added tax was deemed unlawful on the grounds that the Plaintiff’s establishment cost of the instant center in relation to the instant disposition of each of the instant value-added tax was considered to be the total purchase cost related to the non-taxable business, and that the Plaintiff’s establishment cost of the instant center was not fully deducted, on the grounds that the instant center’s operation of the key business, such as manufacturing of Sbiber Products, provision of products and new technology, education, testing, analysis, and evaluation of the test

In light of relevant provisions, legal principles, and records, such determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles on the distinction between taxable and non-taxable businesses or by failing

3. Conclusion

The appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee In-bok (Presiding Justice)