Cho High Court Decision 2010Du2933 ( October 30, 2011)

It is reasonable to deduct bad debt tax amount as the extinctive prescription is completed under the Civil Act.

In light of the fact that the sales office has discontinued its own business due to the aggravation of its financial standing, and the unpaid amount to the suppliers at the time of the closure of its business has reached KRW 1 billion, national taxes in arrears have been KRW 00,000, and is deemed dissolved without going through separate liquidation and dissolution procedures after its closure, it is reasonable to deduct the Plaintiff’s sales claims from the bad debt tax amount under the Civil Act

Article 17-2 (Deduction of Bad Debt Tax Amount)

2011Guhap28615 Revocation of Disposition of Imposition of Value-Added Tax

XX Kim

Head of Yeongdeungpo Tax Office

November 1, 2011

November 30, 2011

1. The Defendant’s imposition of value-added tax for the first period of January 2006 against the Plaintiff on June 8, 2010 (5,276,950 won, and value-added tax for the second period of February 2006 (6,314,960) is revoked.

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

As set forth in the text.

1. Details of the disposition;

A. From July 1, 2001, the Plaintiff is an individual entrepreneur who runs the wholesale and retail business of civil engineering materials and parts with the trade name of " XX machinery".

B. On January 28, 2010, the Plaintiff deducted the relevant input tax amount of KRW 14,660,00 (the input tax amount of KRW 10,620,000, the two-year input tax amount of KRW 2006, and the two-year input tax amount of KRW 4,040,000) on the ground that the purchase tax invoice received by 2006 from ○○○○ Company was false. The Plaintiff additionally deducted the input tax amount of KRW 14,660,00 (the two-year input tax amount of KRW 10,620,00, and the two-year input tax amount of KRW 4,00,000 from the date of the supply of materials for civil works to ○○○ Company (hereinafter “non-party Company”) and additionally deducted the remaining 8,930,000,0000 from the sales tax amount of KRW 20,000,000 for 208,000.

C. However, the Defendant denied the deduction of bad debt tax for the reason that the sales claim of this case did not meet the requirements for deduction of bad debt tax amount under the Value-Added Tax Act, and on June 8, 2010, the Defendant issued a correction and notification of KRW 5,276,950 for the first term portion of value-added tax, and KRW 6,314,960 for the second term portion of value-added tax for 206 to the Plaintiff (hereinafter “instant disposition”).

D. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on September 1, 2010, but the Tax Tribunal dismissed the decision on June 30, 201.

[Ground of recognition] Unsatisfy, Gap evidence 1, 2, 12, Eul evidence 1 (including additional number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The sales claim of this case was accrued when the non-party company supplied civil engineering materials at the scene of the civil engineering works conducted by subway 9, which was subcontracted to the non-party company, and met the requirements for bad debt tax deduction under the Value-Added Tax Act, and thus, the extinctive prescription in March 2006 has expired, and the output tax amount already reported and paid should be deducted from bad debt tax amount. However, the defendant's disposition of this case on different premise should be revoked illegally.

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

1) Details of the construction progress and closure of the non-party company

A) The non-party company received necessary materials from many small and medium enterprises while carrying out the 903 tools and the 914 tools civil engineering work from △ Construction among the Seoul subway 9 lines, which were performed by △△ Construction Co., Ltd. (hereinafter “△△△ Construction”). The Plaintiff received civil engineering materials from February 2003 to April 2004.

B) However, around April 2003, the supply companies, including the Plaintiff, etc., were unable to pay the price of supply due to the aggravation of the financial condition while the non-party company is running the above construction, and requested the payment of the price of supply to the non-party company.

C) From the end of April 2003, the non-party company made a request for the payment of the unpaid price to the suppliers, including the plaintiff, etc. for the construction of △△△, the original office building, and requested the suppliers, etc. to prepare and distribute the 903 tools work, which have not been paid most of the supplied price, to confirm the balance of the payable amount. Some suppliers, such as the plaintiff, etc. did not sign the 903 tools work in the 1,135,050,94, and the amount of the unpaid price is confirmed to be KRW 79,09,658, 2004, 2004, 209, 2004, 2004, 2006, 2006, 208, 2005, 2006, 2005, 2006, 2004, 2006, 2005, 2005.

D) However, on April 30, 2004, the non-party company was declared bankrupt by reporting the closure of its business, and on December 1, 2009, the non-party company was dissolved pursuant to Article 520-2(1) of the Commercial Act without going through a separate procedure for liquidation and dissolution. Meanwhile, at the time of closure of its business, the non-party company also came to KRW 50 million.

2) Details of data submitted by the Plaintiff

A) The Plaintiff filed a return and paid the value-added tax for the first and second term portion in 2003 by the due date, and the Plaintiff issued and delivered the tax invoice to the non-party company with the following content:

[The following table omitted]

B) The Plaintiff supplied Nonparty Company with civil engineering materials, and recorded and kept the details of transactions in detail in the original transaction ledger (Evidence A No. 7-1 to 21). Based on the detailed details indicated in the original transaction ledger, the Plaintiff re-preparationd the director of the customer sales ledger of the goods of Nonparty Company (hereinafter “the customer ledger of the goods of this case”) and the director of the customer’s account for the sales of the sales of the goods of this case (hereinafter “the customer ledger of the sales of the goods of this case”). The sales status of the Plaintiff’s non-party company as indicated in the above customer ledger is as follows.

[The following table omitted]

C) Also, the head of the sales office of the instant product classified each transaction into three parts: (a) the collection transaction of the credit account receivable (the collection transaction after the external sales), the stabilization product transaction (the cash sales transaction), and the application transaction for bad debt deduction (the transaction after the external sales). Among them, the details of the credit account collection transaction and the safety product transaction are examined as follows.

(1) Account receivable collection transaction [name omitted]

(2) Trading of safety articles

[Reasons for Recognition] Unsatisfy, each entry of Gap evidence 2 to 11 (including provisional number), and the purport of the body before oral argument

D. Determination

In full view of the following circumstances which are acknowledged by comprehensively taking account of the evidence and the purport of the entire pleadings as seen earlier, it is reasonable to deduct the output tax amount for the first and second period portion of the Value-Added Tax Act, which was already declared and paid in relation to the sales claim of this case, from the sales claim of this case, the Plaintiff met the requirements for bad debt under the Value-Added Tax Act upon the completion of the three-year extinctive prescription of 2006, as it was the unclaimed bond accrued during the supply process to the non-party company. Therefore, the Plaintiff’s above assertion is

1) First of all, while supplying civil engineering materials to the non-party company on 2003, the Plaintiff issued a tax invoice equivalent to 121,167,398 won including value-added tax, and reported the value-added tax for the first and second years in 2003. The above value-added tax amount is not only identical to the total sales amount of 110,152,180 won on the customer ledger of the product sales of this case prepared by the Plaintiff and the total sales amount of 11,015,218 won of value-added tax on 2003 and the total sales amount of 114,376,218 won on the customer ledger of the product sales of this case (including value-added tax) and the total sales amount of 203 won on the customer ledger of the product sales of this case. Considering that the Plaintiff’s sales amount of 203 total sales amount of 7,791,180 won (including value-added tax on 203 total sales amount of the product sales amount of this case, it seems to coincide with the other party president of the product sales amount of this case.

2) However, there is only a statement of accounts payable by Nonparty 2, the Plaintiff’s customer director and Nonparty 2, who is the other party to the transaction of this case. On the other hand, while the account balance of Nonparty 2 is indicated as KRW 88,937,398 on the other party’s account, it is difficult to see that the account balance of the accounts payable by Nonparty 3 is indicated as KRW 79,003,658 on the other party’s account statement, and that it is difficult for the Plaintiff to accurately understand the account balance of the accounts payable by Nonparty 2, the account balance of the accounts payable by Nonparty 3, which is 7,004, and the account balance of the accounts payable by Nonparty 2, which is 9,000, the account balance of the accounts payable by the Plaintiff on the other party’s account books, which is 7,000,000,000,000,000 won, based on the No. 7,000,000.

3) In addition, in light of the fact that the non-party company has discontinued its business on April 30, 2004 and closed its business on April 30, 2004, and that the price of supplied goods that had already been paid to the delivery company at the time of its closure was over KRW 1 billion, the national tax in arrears was over KRW 1 billion, and that there was no separate procedure for liquidation and dissolution after its closure, it is difficult to conclude that the non-party company was unable to recover the sales claim of this case from the non-party company after its closure without any special relationship with the non-party company. Accordingly, it is reasonable to view that the sales claim of this case is "claim against the construction work of the non-party who received the contract under Article 163 subparagraph 3 of the Civil Act" and the three-year prescription has expired after its closure.

4) On the other hand, the Plaintiff did not take any specific legal measures to recover the sales claim of this case against the non-party company after the closure of the non-party company. However, as long as the non-party company discontinued its business in a heavy debt excess situation as above, it appears that the Plaintiff had little benefits to take the legal measures at the time. Therefore, it is difficult to deem that the Plaintiff could have recovered the sales claim of this case from the non

3. Conclusion

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