[1] The validity of a disposition imposing a national tax after the expiration of the exclusion period of the imposition of national tax

[2] The exclusion period for imposition of additional tax on the registration of the nominal place under Article 22 (1) 2 of the former Value-Added Tax Act (=5 years)

[3] In a case where the registration number of the person who received the supply can be seen as the registration number of the person who actually received the supply, whether the name or title of the person who received the supply can be readily concluded as a tax invoice different from the fact that the actual supplier is different from that of the actual supplier (negative)

[1] According to Article 26-2(1) of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014; hereinafter the same), national taxes may not be imposed after five years from the date on which they are assessable (Article 3); Provided, That where a taxpayer evades, is refunded, or deducted from national taxes by fraud or other unlawful means, ten years (Article 10); where a taxpayer fails to file a tax base return within the statutory due date of return, seven years (Article 26-2(5) of the former Framework Act on National Taxes and Article 12-3(1)1 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 29534, Feb. 12, 2019); and where a taxpayer files a tax base return and tax amount, the period of imposition of national taxes shall begin from the date following the tax base return or the due date of return on the relevant national tax amount; and the entire period of imposition of national taxes shall be deemed invalid after the expiration of the deadline for submission.

[2] Article 22(1)2 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013) provides that “where it is confirmed that a business entity has registered under Article 5 in the name of another person and actually conducts a business, as prescribed by Presidential Decree, an amount equivalent to 1/100 of the value of supply shall be added to the payable tax amount or deducted from the refundable tax amount, with respect to the value of supply up to the day immediately before the date it is confirmed that the business entity actually conducts a business from the date of commencing the business (hereinafter referred to as “additional tax on the registration

The additional tax is a separate penalty tax imposed for the registration of business under another person's name regardless of the principal tax liability of value-added tax and for the actual business. In case where the taxpayer's improper act is subject to imposition pursuant to Article 26-2 (1) 1-2 of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014), the 10-year exclusion period of imposition is not included in the additional tax to which the exclusion period of imposition applies, and there is no separate provision for the duty to report, it is reasonable to view that the exclusion period of imposition is five years

[3] Article 17(2)2 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; hereinafter the same) provides that the input tax amount shall not be deducted from the output tax amount in cases where all or part of the matters to be entered under Article 16(1)1 through 4 are entered differently from the fact in the tax invoice issued. Such matters are abbreviated as “necessary entry items”. In relation to the necessary entry items to be used as the basis for determining the input tax amount, the requisite entry items are limited to the “registration number and name or title” (Article 16(1)1 of the former Value-Added Tax Act) in relation to the “provider” (Article 16(2)2 of the former Value-Added Tax Act). Meanwhile, the phrase “mutual name and name, etc. of the supplier” under Article 16(1)1 through 4 of the former Enforcement Decree of the Value-Added Tax Act, which restricts the input tax amount under Article 16 subparag. 15(1). 6(1) of the former Value-Added Tax Act.

In light of the language and structure of the aforementioned relevant provisions and the purport of stating only the registration number, unlike the person who actually receives the supply, in the case of the “person who receives the supply” as stated in the tax invoice, if the registration number of the person who actually receives the supply can be seen as the registration number, it cannot be readily concluded that the “name or title of the recipient of the supply” is a tax invoice different from the actual business operator solely on the ground that the “name or title of the actual recipient of the supply” is different from that of the actual business operator. Therefore, it cannot be concluded that the business operator who borrows another’s name, who does not engage in his/her own account and responsibility, is registered as a business operator under another’s name and operates his/her own account and responsibility, and even in the case of reporting and paying value-added tax, the registration number of the holder of the title can be specified as the actual business operator’s registration number, and such registration number cannot be said to be a tax invoice different from the fact.

[1] Article 26-2(1)1, 2, 3, and (5) (see current Article 26-2(6) of the former Framework Act on National Taxes (Amended by Act No. 12848, Dec. 23, 2014); Article 12-3(1)1 of the former Enforcement Decree of the Framework Act on National Taxes (Amended by Presidential Decree No. 29534, Feb. 12, 2019); Article 19(1) (see current Article 49(1)) of the former Value-Added Tax Act (Amended by Act No. 11873, Jun. 7, 2013); Article 5(1)2, 3, and (5) (see current Article 26(1) of the former Value-Added Tax Act (Amended by Act No. 11873, Jun. 7, 2013); Article 27 subparag. 13, 2014>

[1] Supreme Court Decision 2003Du1752 Decided June 10, 2004 (Gong2004Ha, 1177), Supreme Court Decision 2018Du128 Decided December 13, 2018 (Gong2019Sang, 311) / [3] Supreme Court Decision 2014Du35706 Decided February 18, 2016 (Gong2016Sang, 450)

KN Co., Ltd. (Law Firm LLC, Attorneys Jeon Young-young et al., Counsel for the defendant-appellant)

The Director of the National Tax Service (Attorney Park Byung-chul et al., Counsel for the defendant-appellant)

Daejeon High Court Decision 2016Nu12170 decided November 17, 2016

Of the lower judgment on March 10, 2014, the part on imposition of penalty tax for the first and second term portion in 2008 and the part on imposition of penalty tax for the second term portion in 208 and the value-added tax (including penalty tax) on August 19, 2014 are reversed, and this part of the case is remanded to the Daejeon High Court. The remaining appeal is dismissed.

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

1. Case summary

A. From October 2, 2002, the Plaintiff was a corporate entrepreneur engaged in the daily advertising agency business for small-scale business operators, and had 32 member stores and 6 non-permanent member stores under the national direct control, among which, the store directly operated by the Plaintiff (hereinafter “instant business establishment”) is a member store that the Plaintiff dispatchs its employees to make an individual business registration under the name of its employee. As to the instant business establishment, the Plaintiff filed an individual business registration under the name of its employee, and filed a return and payment of value-added tax after receiving a tax invoice according to its business registration.

B. From November 29, 2012 to April 6, 2013, the Defendant conducted a consolidated corporate tax investigation with the Plaintiff, and recognized each of the sales and purchase at the instant workplace as the Plaintiff’s transaction premised on the premise that the actual business operator of the instant workplace is the Plaintiff, and recognized the purchase transaction at the instant workplace as the Plaintiff’s input tax deduction for the purchase transaction at the instant workplace, and notified the Plaintiff of the correction and notification of each corporate tax and value-added tax (hereinafter “the initial

C. On December 2013, the commissioner of the Daejeon Regional Tax Office: (a) conducted an audit of the business affairs with respect to the Defendant; and (b) additionally imposed an additional tax on the registration of title under Article 22(1)2 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; hereinafter the same shall apply) on the instant place of business; and (b) imposed the value-added tax by deducting the input tax amount under a tax invoice issued by other business operators to receive goods or services from the instant place of business during the taxable period of value-added tax from 1 to 1, 2013 (hereinafter “instant tax invoice”); (c) on the other hand, the head of the Daejeon Regional Tax Office issued a tax invoice after deducting the input tax amount under Article 47-3(2) of the former Framework Act on National Taxes (Amended by Act No. 12848, Dec. 23, 2014; hereinafter the same shall apply).

D. Accordingly, in addition to the initial disposition on March 10, 2014, the Defendant imposed KRW 411,880,610 on the instant business establishment from the first quarter of 2008 to the first quarter of 2013 (hereinafter “instant first disposition”). In addition to the initial disposition on August 19, 2014 and the first disposition on the instant tax invoice from the first quarter of 2008 to the first quarter of 2013, the Defendant imposed KRW 1,893,737,030 (hereinafter “instant second disposition”).

2. Determination ex officio as to whether the exclusion period of imposition for the first and second half years of 2008 among the dispositions No. 1 of this case has expired

According to Article 26-2(1) of the former Framework Act on National Taxes, national taxes may not be imposed after five years from the date on which the national taxes are assessable (Article 26-2(1)3). However, in cases where a taxpayer evades national taxes, obtains refund or deduction by deceit or other unlawful means, ten years (Article 10); and where a taxpayer fails to file a tax base return within the statutory due date of return, seven years (Article 26-2(5) of the former Framework Act on National Taxes and Article 12-3(1)1 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 29534, Feb. 12, 2019), the exclusion period for imposition of national taxes shall be calculated from the date following the deadline for filing the tax base and tax amount of the relevant national tax or the deadline for filing the tax return, and Article 19(1) of the former Value-Added Tax Act shall be reported to the head of the competent tax office within 25 days after the expiration of the taxable period.

Meanwhile, Article 22(1)2 of the former Value-Added Tax Act provides that “where a business operator registers under Article 5 in the name of another person prescribed by Presidential Decree and confirms that he/she actually runs a business, an amount equivalent to 1/100 of the value of supply shall be added to the amount of tax payable or deducted from the amount of tax refundable, with respect to the value of supply from the date of commencing the business to the date immediately preceding the date it is confirmed that the actual business is operated (hereinafter “additional Tax on Registration of Name

The additional tax is a separate penalty tax imposed for the registration of business under another person's name regardless of the principal tax liability for value-added tax, and for the actual business operation. If the taxpayer's wrongful act is subject to imposition pursuant to Article 26-2 (1) 1-2 of the former Framework Act on National Taxes, the exclusion period for imposition of ten years is not included in the additional tax to which the exclusion period for imposition applies, and there is no separate provision for the duty to report thereon, it is reasonable to view the exclusion period for imposition

In light of the aforementioned legal principles, the imposition of additional tax on registration in the name of each of the first and second parts of the first and second parts of the Disposition No. 1 in the instant case was conducted on March 10, 2014, which is apparent from the calendar, and five years have passed since the date on which the imposition thereof was possible. Thus, the imposition of additional tax on registration in the name of each of the second parts of the Disposition No. 1 in the instant case

Nevertheless, the lower court, based on its stated reasoning, determined that the imposition of additional tax on registration in the first and second names among the dispositions in the instant case No. 1 was lawful. In so determining, the lower court erred by misapprehending the legal doctrine on the exclusion period of imposition of additional tax on registration in the name of a person, thereby adversely affecting the conclusion of the judgment.

3. Determination as to the illegality of the first term portion in 2009 or the first term portion in 2013 among the Disposition No. 1 of this case (Ground of appeal No. 3)

The lower court acknowledged that the Plaintiff had registered the business under the name of the Plaintiff with respect to the head office of this case while the Plaintiff had registered the business under the name of the employee, and determined that the Defendant’s imposition of the penalty tax on registration of the name of the Plaintiff was lawful on the ground that such case constitutes “an act of registered the business under the name of a third party” under Article 22(1)2 of the former Value-Added Tax Act.

Examining the record in accordance with the aforementioned provisions and relevant legal principles, the lower court’s determination as to the imposition of additional tax on the first term of 2009 or the first term of 2013, in which the exclusion period of imposition was not excessive, is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the requirements for imposing additional tax on the registration of the nominal title, thereby affecting the conclusion

4. Determination as to whether the disposition No. 2 of this case was unlawful (Ground of appeal Nos. 1, 2, and 4)

A. Article 17 (2) 2 of the former Value-Added Tax Act provides that an input tax amount shall not be deducted from the output tax amount in cases where all or some of the matters to be entered under Article 16 (1) 1 through 4 are entered differently from the fact in the tax invoice issued, and the said stated matters are abbreviated as “necessary entry”. The requisite entry items which form the basis for determining whether to purchase the input tax amount are included in the said tax invoice are “registration number and name or title” (Article 16 (1) 1 of the former Value-Added Tax Act) with regard to the “supplier” (Article 16 (2) 2 of the former Value-Added Tax Act). Meanwhile, the phrase “mutual name and name,” etc. of the supplier is limited to the “registration number” in relation to the “resident” (Article 16 (1) 2 of the former Value-Added Tax Act). Meanwhile, it does not constitute a requisite input tax amount deduction under Article 53 (1) 2 of the former Enforcement Decree (wholly amended by Presidential Decree No. 24638, Jun. 28, 2019, 201).

In light of the language and structure of the aforementioned relevant provisions and the purport of stating only the registration number, unlike the person who actually receives the supply, in the case of the “person who receives the supply” as stated in the tax invoice, if the registration number of the person who actually receives the supply can be seen as the registration number, it cannot be readily concluded that the “name or title of the person who receives the supply” is a tax invoice different from that of the actual supplier. Therefore, a tax invoice cannot be deemed as a tax invoice different from the fact that the actual supplier is not recognized merely because the “name or title of the person who receives the supply” is different from that of the actual supplier. Therefore, in a case where a business operator borrows another person’s name, who does not engage in his/her own account and responsibility, operates his/her business in his/her name and is responsible for his/her own account and pays value-added tax, regardless of the name or trade name, if the relevant business is specified as the actual business operator’s registration number, and thus, the registration number of the nominal person’s name can function as the actual business operator’s registration number

B. In light of the above legal principles, since the Plaintiff only registered the business in the name of its employees, and reported and paid the value-added tax in direct operation of its account and responsibility, the registration number of the Plaintiff’s “provider” as stated in the instant tax invoice issued in relation to the purchase of the instant business place shall be deemed the Plaintiff’s registration number. In the instant case where there is no assertion that other necessary entries are different from the facts, the instant tax invoice cannot be deemed as a false tax invoice, and thus, the relevant input tax amount may be deducted from the output tax amount. Accordingly, the instant tax invoice was unlawful, based on the premise that the input tax amount cannot be deducted from the output tax amount.

Nevertheless, solely based on its stated reasoning, the lower court determined that the instant disposition was lawful. In so determining, the lower court erred by misapprehending the legal doctrine on tax invoices different from the fact, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal

5. Conclusion

Therefore, among the disposition No. 1 of this case, the part concerning the additional tax on the registration of the name of the first and second term part among the disposition No. 1 of this case and the second term part of the disposition No. 2 of this case are reversed, and this part of the case is remanded to the court below for a new trial and determination, and the remaining appeal is dismissed. It is so decided as per Disposition by the assent

Justices Kwon Soon-il (Presiding Justice)