Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 10981 of Dec. 31, 1982) which is the subject of zero-rate tax, meaning of “goods or services supplied to nonresidents or foreign corporations having no domestic place of business in Korea

Article 26 (1) 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 10981, Dec. 31, 1982) provides that "goods or services supplied to a nonresident or foreign corporation having no domestic place of business in the Republic of Korea without any intrusion upon a domestic place of business under a direct contract with a nonresident or foreign corporation." Therefore, even a nonresident or foreign corporation having a domestic place of business has a domestic place of business, the zero-rate tax rate shall apply to goods or services supplied without any invasion upon a domestic place of business under a direct contract with the nonresident or foreign corporation, and thus, the zero-rate tax rate shall apply to those goods or services

Article 11(1)4 of the Value-Added Tax Act, Article 26(1)1 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 10981, Dec. 31, 1982)

Supreme Court Decision 84Nu571 Delivered on February 26, 1985

United States Corporate Corporation

Head of the tax office;

Seoul High Court Decision 84Gu669 delivered on March 5, 1985

The appeal is dismissed.

The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Article 11(1)4 of the Value-Added Tax Act provides that goods or services for earning foreign currency other than those provided for in subparagraphs 1 through 3 shall be subject to the zero-rate tax rate prescribed by the Presidential Decree. Accordingly, inclusion of foreign exchange goods or services traded in Korea under Article 26 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 10981 of Dec. 31, 1982) in the zero-rate tax rate subject to the application of zero-rate tax rate is recognized as an exception to the principle of consumption taxation for the policy purpose of encouraging foreign exchange earnings. Thus, Article 26(1)1 of the Enforcement Decree of the same Act provides that "goods or services supplied to non-residents or foreign corporations having no domestic place of business in Korea" means goods or services supplied in Korean by a direct contract with non-residents or foreign corporations and thus, it is difficult to view the supply of goods or services to be subject to zero-rate tax rate under Article 26(1)4 of the same Decree as that of a foreign corporation which has no previous domestic place of business under a foreign exchange contract with non-residents or foreign corporations.

2. According to the reasoning of the judgment below, the court below acknowledged the fact that the plaintiff supplied service without going through a domestic business place under a direct contract with a foreign corporation having a domestic business place and acquired foreign currency directly from the foreign corporation, and interpreted Article 26 (1) 1 of the Enforcement Decree of the Value-Added Tax Act to the above purport, and judged that the plaintiff's direct transaction is subject to zero-rate tax. In comparison with records, the above fact-finding and determination of the court below are justified, and there is no error of law by misunderstanding the legal principles of the Enforcement Decree of the Value-Added Tax Act, or by interpreting or applying

3. Therefore, 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.

Justices Kim Young-ju (Presiding Justice)