Seoul High Court 2009Nu33937 (Law No. 26, 2010)

It is necessary to determine whether to refund gold bullion to an exporter of gold bullion transaction via a bombing company by applying the good faith principle.

In a series of gold bullion transactions, if a malicious business operator knew, or was unable to know, the circumstances that there was an illegal transaction for the purpose of evading the output tax amount, and that the deduction and refund of the input tax amount would lead to the reduction of other tax revenues by gross negligence, the exporter’s assertion of input tax deduction and refund cannot be permitted against the good faith principle.

2010Du3985 Revocation of Disposition of Imposing Value-Added Tax

○○ Co., Ltd.

○ Head of tax office

Supreme Court Decision 2008Du16858 Decided October 29, 2009

Seoul High Court Decision 2009Nu33937 Decided January 26, 2010

February 24, 2011

The judgment below is reversed and the case is remanded to Seoul High Court.

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

1. Regarding ground of appeal No. 1

The court, which received the case from the court of final appeal, shall be bound so long as the court of final appeal submitted new arguments or evidence during the course of a trial after remanding the case, and there is no change in the facts underlying the binding judgment (see, e.g., Supreme Court Decisions 97Da14934, Jul. 11, 1997; 2002Du5504, Jan. 10, 2003).

Based on its employment evidence, the court below found that the plaintiff purchased gold bullion equivalent to 5,325 km (hereinafter "the gold bullion of this case") from 11 companies, including △△△, etc. (hereinafter "the supplier of this case") on credit between April 2003 and December 2004, and received the transfer of the gold bullion of this case (hereinafter "the transaction of this case") and then received tax invoice 186 (hereinafter "tax invoice of this case") from the supplier of this case from the supplier of this case. The plaintiff recognized the fact that most of the series of entire transactions from a series of whole transactions from the date of the purchase and export of the gold bullion of this case until the date of import of this case (hereinafter "the whole transactions of this case"), and it was difficult for the business operator of this case to conclude that the gold bullion of this case was not subject to value-added tax since it purchased the gold bullion of this case at the intermediate stage, and supplied the gold bullion tax invoice of this case as value-added tax to those who did not receive the recommendation of exemption from value-added tax.

In light of the above legal principles and the records, the judgment of the court below is just, and there is no error of law such as misunderstanding of legal principles as to "tax invoices different from the facts" as alleged in the grounds

2. Regarding ground of appeal No. 2

The defendant asserted that the amount equivalent to 10/11 of the purchase price is the supply price in the tax invoice of this case where the plaintiff only paid the purchase price while purchasing the gold bullion of this case and did not have any value-added tax collected, and that the amount equivalent to 1/11 of the purchase price is the value-added tax, and it constitutes a false tax invoice. However, there is no evidence that the plaintiff did not have any value-added tax collected on the record.

The court below is just in holding that the tax invoice of this case does not constitute a false tax invoice, and there is no error in the misapprehension of legal principles as to input tax deduction or other tax invoice different from the facts as alleged in the ground of appeal.

3. As to the third ground for appeal

A. Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter referred to as the “Framework Act on National Taxes”) declares that the principle of good faith should be the basic guiding ideology in the field of tax law by stipulating that “A taxpayer shall perform his/her duty in good faith and sincerity.” This shall also apply in cases where a tax official performs his/her duty.” Accordingly, if a tax law provision is applied as it is to an individual case, it would result in an unreasonable consequence which would result in a lack of tolerance in light of the universal justice and ethics, so that it may be exceptionally restricted or excluded from the application of the provision pursuant to the principle of good faith, and such principle may also be applied to legal relations concerning value-added tax (Article 1 and Article 3(1) main text of the Framework Act on National Taxes).

Article 15 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010) provides that the value-added tax on the value of supply shall be collected from the person who receives the supply of goods or services when an entrepreneur supplies the goods or services. Article 17(1) provides that the value-added tax payable by an entrepreneur shall be the amount obtained by deducting the input tax amount from the output tax amount, and that the input tax amount exceeding the output tax amount shall be refundable. This is based on the so-called tax credit system where the entrepreneur collects the output tax from the entrepreneur who receives the goods or services at each transaction stage before reaching the final consumer and pays the tax amount to the State through the process of receiving the deduction and refund as the input tax amount from the State, and ultimately imposes the burden on the final consumer (see, e.g., Supreme Court Decision 9Da3984, Nov. 12, 199).

If a malicious business operator in a series of continuous transactions does not pay the value-added tax collected by him by attempting to make an abnormal transaction that only causes losses if he/she does not evade or evade value-added tax (hereinafter referred to as "illegal transaction") from the beginning with intent to evade value-added tax from the beginning, the country has no choice but to make a refund with other tax revenue if he/she can deduct or refund the input tax without bearing the input tax amount due to applying the zero-rate tax rate, such as the exporter in the next transaction stage. As such, the result exceeds the passive gap of tax revenue and falls under the outflow of the National Treasury, and thus, the burden exceeds the damage of the value-added tax system itself, thereby causing serious harm to the overall tax system.

Of course, even if there are the above reasons, if an exporter is in a situation where the existence of an illegal transaction is unknown at all, he/she may not, in principle, deny that the exporter is entitled to deduction and refund of the input tax amount as prescribed by the Value-Added Tax Act. However, if the exporter was aware that there was an illegal transaction at the pre-stage stage, and he/she had engaged in a transaction with an opportunity to promote his/her own interest without vagasing it, and his/her transaction profit is attributable to the aforementioned illegal transaction, and his/her participation in the transaction is ultimately a critical factor that makes it possible to make an illegal transaction ultimately by taking advantage of the deduction and refund system of the input tax amount, which is a premise, it shall be deemed an act of pursuing unjust profits by abusing the input tax amount deduction and refund system which is a premise, and thus, such exporter’s deduction and refund of the input tax amount with another tax revenue may not guarantee the profits accrued from the illegal transaction through the National Treasury, nor may it prevent any serious harm to the overall tax system as seen above.

In such a case, seeking input tax deduction and refund cannot be made remarkably in light of the universal sense of justice and ethics, and thus, it cannot be permitted as it goes against the principle of good faith as stipulated under Article 15 of the Framework Act on National Taxes. Such a legal doctrine is reasonable to deem that the same applies to a case where an exporter was unaware of such an illegal transaction due to gross negligence in light of the perspective of fairness, the gravity of the outcome, and the universal sense of justice, in other words, if the exporter was aware of the existence of such illegal transaction due to gross negligence, it is reasonable to deem that the same applies to a case where the exporter was unaware of the fact that he was aware of the fact that he could sufficiently have known of the fact, and even if he did not know of the fact, he did not clearly breach the duty of due care to the degree close to the intention of the exporter, and it is not limited to a case where there was a specific conspiracy or accomplice relationship with a malicious enterpriser who made an illegal transaction with the exporter (see Supreme Court en banc Decision

B. According to the facts found by the court below, (1) the Plaintiff was established on April 8, 203, 1, 200, 200, 3, and 4, and (2) the export price of the relevant gold bullion was 10,000,000 if the export price of the relevant gold bullion was 1,000,000,000,000,000 won and 3,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,00,000,000,000,00,000,00,00,00,00,00,00,00,00.

If the facts are the same, the Plaintiff could have purchased and exported the gold bullion of this case in a short time with profit margin. The fact that malicious business operators in the middle stage supplied the gold bullion of this case at low prices and evaded the output tax amount. In light of the structure of the transaction, it is almost impossible for the Plaintiff to export a large amount of gold bullion of this case without securing the markets, and thus, the Plaintiff and malicious business operators are in the inevitable mutual dependence relationship. In addition, if the Plaintiff cannot obtain the deduction and refund of input tax amount, the burden of the tax amount would exceed the profit margin, and thus, the mutual dependence relationship is premised on the Plaintiff’s receipt of deduction and refund of input tax amount from the State through the application of zero-rate tax rate. In addition, since such a series of transactions are made within a short period of time, it is difficult for the State to block it in advance.

Examining these circumstances in light of the legal principles as seen earlier, if the Plaintiff, an exporter, has a malicious entrepreneur who makes an illegal transaction for the purpose of evading the output tax amount in the course of a series of transactions prior to the transaction, and accordingly, seeks the deduction and refund of the input tax amount even though he knew of the fact that the Plaintiff’s deduction and refund of the input tax amount would result in a decrease in other tax revenues by gross negligence, this is not only an intentional entrepreneur’s illegal transaction but also a malicious entrepreneur’s gain profit by abusing the input tax deduction and refund system, but also a malicious entrepreneur’s gain profit from part of the output tax amount evaded by abusing the input tax deduction and refund system, and thus, it is not permissible in violation of the good faith principle as stipulated in Article 15 of the Framework Act on National Taxes.

C. Therefore, the lower court should have sufficiently deliberated on whether the Plaintiff knew or was unaware of the aforementioned circumstances in trading the gold bullion in this case due to gross negligence, and should have determined whether the Plaintiff’s assertion on the deduction and refund of the Plaintiff’s input tax amount violates the good faith principle. Without such deliberation and determination, the Plaintiff’s assertion on the deduction and refund of the Plaintiff’s input tax amount should be allowed solely on the ground that the instant tax invoice does not constitute a false tax invoice. In so doing, the lower court erred by misapprehending the legal doctrine on the good faith principle under Article 15 of the Framework Act on National Taxes, thereby failing to exhaust all necessary deliberations

4. Conclusion

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices.