The instant officetel is deemed to have been converted to tax exemption, and it cannot be deemed that there is a legitimate ground for additional tax exemption.

The second lessee's statement of the instant officetel appears to have been used as a permanent residence, and the third lessee appears to have used the instant officetel for non-business purposes in light of evidence, etc. submitted by the third lessee, and the sub-lessee was not using the instant officetel, and the disposition of this case was legitimate.

Article 6 (Supply of Goods)

2016Guhap85453 Revocation of Disposition of Imposition of Value-Added Tax

EA and one other

BB Director of the Tax Office

on December 22, 2017

October 27, 2017

1. Each plaintiff's claim shall be dismissed.

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

Cheong-gu Office

The Defendant’s imposition of value-added tax of KRW 00,00,000 for the first term of September 22, 2015 against the Plaintiffs, and the imposition of KRW 00,000 for the general underreporting and additional tax for unfaithful payment, as well as KRW 00,000 for the additional tax for unfaithful payment, shall be revoked.

1. Details of the disposition;

A. On October 25, 2009, the Plaintiffs purchased from the Yeongdeungpo-gu Seoul Metropolitan Government Green-dong No. 0000 of the 28-3, Yeongdeungpo-dong, Yeongdeungpo-gu, Seoul (hereinafter “instant building”). On May 20, 2010, the Plaintiffs completed the registration of ownership transfer of each of the 1/2 shares in the above buildings.

B. The Plaintiffs leased the instant building to DD as indicated below, and ordered EE and F to establish a right to lease on a deposit basis on the instant building (hereinafter referred to as “lease”).

Classification

A lessor

A lessee;

Period

Lease Deposit

or security deposit (won)

Monthly rent;

10

D Co., Ltd.

May 20, 2010

Above May 20, 2011

00 000 000

0,000,000

May 20, 2011

Above December 19, 2012

00,000,000

0,000,000

20

EE

June 20, 2012

Above October 20, 2014

00,000,000

-

3j.

F

October 10, 2014

Above October 9, 2016

00,000,000

-

September 19, 2016

Above September 18, 2018

00,000,000

-

C. On October 28, 2014, F made a sub-lease of the instant building to GG Co., Ltd. (hereinafter “GG”) holding 1,000 shares equivalent to 50% of the equity ratio by F, F, as the sub-lease period from October 28, 2014 to October 27, 2015, with 'the sub-lease deposit', '0 won in sub-lease deposit', and '0 won in rent', respectively.

D. Meanwhile, on November 10, 2009, the Plaintiffs reported the purchase price of the instant building as an input tax amount of KRW 00,000,000, which is a part of KRW 1000,000 (the removal; hereinafter the same shall apply) on the premise that the location of the instant building was the location of the instant building and the general taxable person who runs the real estate leasing business was registered as the location of the instant building. At the time of reporting the value-added tax for the second time, the Plaintiffs received KRW 00,000,000, which is the remainder of KRW 100,000,000 after deducting the purchase price of the instant building from KRW 10,000,000, which is the remainder of KRW 100,000,000 from the purchase price of the instant building at the time of reporting the value-added tax for the first time, and received the full refund of KRW 00,000 from the output tax amount.

E. As a result of the Defendant’s on-site investigation on the instant building around June 5, 2015, the lower court determined that the instant building from June 20, 2012 to June 12, 2012, unlike the original details of the Plaintiffs’ report, was used exclusively for the “lease of the instant building” under Article 12(1)12 of the former Value-Added Tax Act (wholly amended by Act No. 11873, Jun. 7, 2013; hereinafter “former Value-Added Tax Act”); Article 34(1) of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24638, Jun. 28, 2013; hereinafter “former Enforcement Decree of the Value-Added Tax Act”).

F. Accordingly, the Defendant: (a) calculated pursuant to Article 6(2) of the former Value-Added Tax Act; (b) and Articles 15(1)1 and 49(1)1 of the former Enforcement Decree of the Value-Added Tax Act: (c) [the acquisition value of the building of this case = KRW 000,000,000 x (1-5/100 x 4)] of the building of this case as the supply value of the building of this case; and (d) deducted the input tax amount of KRW 00,000,000 equivalent to 10% of the above supply value; and (c) on September 22, 2015, on September 2, 2015, the Defendant issued the Plaintiffs an additional tax for underreporting KRW 00,000 (one hundred,000,000,000,000 x 3% of the above supply value; (d) the unpaid additional tax for underreporting; and (e) the additional tax for unfaithful payment.

G. The Plaintiffs were dissatisfied with the instant disposition and filed a request for review with the Board of Audit and Inspection on December 9, 2015, but the Board of Audit and Inspection dismissed the said request on September 22, 2016.

[Reasons for Recognition] Facts without dispute, Gap evidence 1 through 6, 10, 11, Eul evidence 1 through 3, 8, 11, 14, 15 (including branch numbers; hereinafter the same shall apply)

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

The instant disposition should be revoked on the grounds that it is unlawful for the following reasons.

1) Imposition of value-added tax

A) From May 20, 2010 to May 19, 2012, the Plaintiffs leased the instant building for business purposes, not only from May 20, 2010, but also from June 20, 2012 thereafter, to June 20, 2012. The lessees use the instant building for business purposes, not for permanent residence.

B) Even if it is assumed that the lessee EE used the instant building as a permanent residence from June 20, 2012 to October 20, 2014, even if it is assumed that the lessee used the instant building as a permanent residence, it goes against the principle of proportionality to deduct the input tax amount on the instant building by deeming that the instant building was used as an exclusive use for the duty-free business solely on the basis of the temporary period from June 20, 2012 to October 20, 2014.

2) Regarding the imposition of each additional tax

Even if the lessee EE and F used the instant building as a permanent residence, the Plaintiffs did not recognize that EE and F used the instant building as a permanent residence, unlike the initial agreement, and could not be recognized. Therefore, the Plaintiffs did not perform their duty to report and pay value-added tax due to the diversion of the instant building.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Whether imposition of value-added tax is lawful

1) Relevant legal principles

Whether it constitutes a lease of a house subject to value-added tax exemption should be determined depending on whether a lessee uses it as a permanent residence on the basis of objective usage in which the lessee actually uses the relevant building. If the use of an object indicated in the usage classification or lease agreement in the public record and the lessee actually uses it, it should be determined on the basis of the latter.

2) Lessee E-Related

A witness EE used the instant building as a permanent residence along with his spouse and children in this Court, and did not have any business operation in the instant building. The Plaintiffs testified to the effect that they did not make a move-in report to the instant building by requesting the Plaintiffs not to make a move-in report to the instant building.

In addition, comprehensively taking account of the evidence No. 11 and evidence No. 3 as well as the overall purport of the pleadings, EE may recognize the fact that he/she works for HH Co., Ltd. from July 9, 2012 to December 31, 2012, from January 1, 2013 to February 22, 2013, from February 22, 2013, from February 25, 2013, from February 25, 2013 to December 31, 2014, and earned income.

In full view of the testimony of the witness EE and the above facts of recognition, it is reasonable to view that EE used the building of this case for a permanent residence, not for business. Therefore, the plaintiffs' assertion that EE used the building of this case for business purpose is without merit.

3) Lessee F-related relationship

A) The specification of the person who actually used the instant building after October 28, 2014

(1) In a case where a lessee of a house does not directly use the leased house and leases it again to a final consumer, whether the service provided by the lessee constitutes an object of value-added tax exemption should be determined on the basis of the usage actually used by the consumer of the final lease service.

(2) On October 28, 2014, the fact that F determined the instant building to GG as “the period from October 28, 2014 to October 27, 2015,” “0 won,” and “0 won,” respectively, is as seen earlier.

(6) Comprehensively taking account of the overall purport of arguments as to Gap 10, Eul 12, Eul 4, 8 through 10, 15, 19 through 21, Eul 2 and Eul 0G 10G 20G 20G 10, 20G 20G 10, 10G 20G 20, 10G 10, 3G 10 and 4G 20, 2G 10 and 1 other than the two computers 3G 2G 3G 20, 4G 10, and 5G 20, and 10, 10G 10 and 4G 20, and 10G 3G 20, the tax authorities were trying to give up the above 0G 2G 10 and 10,000,000 National Assembly 2G 3G 10,000.

(3) Comprehensively taking account of the respective statements in the evidence Nos. 7 and 13 as well as the following circumstances revealed by the purport of the entire pleadings, GG is reasonable to deem that the instant building was not actually used as a formal lessee and that FF, a lessee, used the instant building. Therefore, whether the instant building was used as a permanent residence ought to be determined based on FF, not by GG.

(A) Around June 5, 2015, there was no staff member of GG or GG-related documents, tools, equipment, etc. in the instant building by a public official belonging to BB, who conducted a field investigation.

(B) On June 30, 2017, F prepared a confirmation document stating that “F brought about three monitors in the instant building, a complex equipped with a printer and a copy machine, a sn beam project, and a screen, etc.,” and even until June 5, 2015, a public official belonging to BB tax secretary conducted a field investigation, as well as June 30, 2017, there was no office organization other than one computer, three monitors, one book, and one composite machine. However, according to the aforementioned confirmation document, it appears that the foregoing computer, three monitors, and one composite GG are owned by an individual, not an individual, FG.

(C) On October 28, 2014, GG transferred the location of its headquarters to the instant building on its corporate register, and did not report it to the tax authority.

(D) On August 25, 2015, F drafted a confirmation document stating that “F is using the instant building for business purposes by establishing GG branches in the instant building.” Even based on the said confirmation document, it is evident that GG did not use the instant building as its head office.

(E) In light of the following: (a) GG had a branch office in the instant building on June 23, 2015, after a public official affiliated with BB tax secretary conducted a field investigation; (b) GG did not file an application for business registration for the said branch office with the tax authority; and (c) there is no reason to separately establish and operate a branch office, barring special circumstances, such as the lack of space to accommodate employees due to the characteristics of the software development business; (b) GG did not have any reason to separately establish and operate a branch office other than the head office of the instant building as of June 23, 2015. In light of the fact that the annual sales as of 200,000,000 as of 205 and the employees did not seem to have any reason to separately establish and operate a branch office other than the head office of the instant building.

(F) In light of the following: (a) when a public official belonging to BB tax secretary asked FF whether he/she used the instant building for business purposes around June 5, 2015, FF attempted to engage in the instant building with the branch, and only gave up his/her father, K, and did not answer that he/she is engaged in the GG-related business; (b) while GG works as a professional investor in NN investment securities and OO investment futures companies, while GG is carrying out software development business, etc. which is not related thereto, it cannot be deemed that FF engaged in GG-related business.

B) Whether F used the instant building as a permanent residence

(1) Comprehensively taking account of the respective descriptions and arguments set forth in Gap evidence 8, Eul evidence 9, and Eul evidence 13, FF made a move-in report with the International Finance of Yeongdeungpo-gu Seoul Metropolitan Government, the father K on September 30, 2013, about 00,00 Dong 00 (YP apartment, hereinafter referred to as "PP apartment"), ② NN investment securities held by PP apartment and FF are located at a base rate of about 1 km, ③ the fact that the electricity charge system of the building of this case was converted from the housing unit on September 25, 2014.

(2) However, comprehensively taking account of the overall purport of Gap evidence Nos. 6, 11, Eul evidence Nos. 3, 13, 19, and 21 and arguments, the following facts: (i) F's earned income is KRW 00,000,000,000 for 20,0000 for 200,000,0000 for 200,0000 for 200,0000 for 300,0000 for 200,0000 for 30,0000 for 20,0000 for 4,000,000 for 3,00,000 for 4,000,000 for 3,0,000,000 for 4,000,000 for 2,00,000 for 3,00,000 for 3,01,000.

(3) In full view of the following circumstances revealed by the facts of recognition under Paragraph (2) above and the purport of the entire pleadings, it is reasonable to deem that FF used the instant building as a permanent residence, and the facts of recognition under Paragraph (1) above do not interfere with the above recognition. Accordingly, the plaintiffs' assertion that FF used the instant building for business purposes is without merit.

(A) It appears that the FF, a wage source, sent most of the hours to work. Nevertheless, from October 2014 to July 2015, F, who leased the instant building, the average monthly electric consumption of the instant building, from October 2014 to July 2015, 363.6kw, and F, after the retirement from work, appears to have been mostly residing in the instant building.

(B) ① After F leased the instant building, F did not report business income to the tax authority; ② When F asked F on June 5, 2015 whether a public official affiliated with BB tax office used the instant building for business purposes, F was asked about whether he/she was using the instant building for business purposes, and F did not answer only that he/she gave up his/her husband who was his/her father, and did not answer that he/she currently operated the instant building; ③ there was no office equipment other than one, one computer, three monitors, one book, and one composite unit on the instant building. In light of the above, F cannot be deemed to have operated the instant building.

(C) The confirmation document prepared by the F on August 25, 2015 stating that the F used the instant building for business purposes by establishing GG branches in the instant building on June 23, 2015. The confirmation document prepared on June 30, 2017 states that “The instant building is using the instant building for multi-business purposes, such as personal investment space and family business space.” However, as seen earlier, the GG did not use the instant building. Moreover, an individual’s investment act in the residence is merely an individual’s leisure activity, not a business activity, and it merely serves as a flexible basis indicating that FF used the instant building for a permanent residence, not for business purposes.

(D) On March 14, 2013, the F leased an officetel 56-9 officetel as the National Assembly, and thereafter, on March 14, 2013, the F made a move-in report to the said officetel. The FF appears to have resided in the PP apartment even before the lease of the instant building in around 2013 without parents together with his/her parents.

(E) Since F leased the instant building, the fact that F did not move-in to the instant building is that it was agreed with the Plaintiffs that F would not move-in registration to the instant building.

4) Sub-committee

Therefore, the defendant's imposition of value-added tax amounting to KRW 00,000,00 on the first term portion of 2012 is legitimate, and the plaintiffs' assertion disputing this is without merit.

(d) Whether the imposition of additional tax is lawful

Under the tax law, where a taxpayer violates various obligations, such as a return and tax payment, as prescribed by the Act without justifiable grounds, in order to facilitate the exercise of a taxation right and the realization of a taxation right, a taxpayer’s intent or negligence is not considered as administrative sanctions imposed as prescribed by the individual tax law. Therefore, inasmuch as a taxpayer may be deemed not to have been aware of his/her obligation, it is unreasonable to deem that the taxpayer was not aware of his/her obligation, or that it is unreasonable for the taxpayer to expect the fulfillment of his/her obligation, and there is no justifiable reason to believe that it is unreasonable for him/her to do so, penalty taxes shall be imposed on nonperformance of obligation under the tax law unless there is a justifiable reason (see, e.g., Supreme Court Decisions 93Nu15939, Nov. 23, 1993; 201Du1622, Apr. 28, 2011). As a justifiable reason preventing the imposition of penalty taxes is deemed to constitute a reason for exemption of penalty taxes, a taxpayer is liable to prove that there exists a justifiable reason.

Comprehensively taking account of the following facts and circumstances revealed by the respective descriptions of subparagraphs 5 and 6 as well as the witness EE’s testimony and pleading, the evidence submitted by the Plaintiffs alone is insufficient to recognize that there was a justifiable reason for the Plaintiffs to neglect their duty to report and pay value-added tax due to the diversion of the instant building’s duty-free business, and there is no other evidence to acknowledge this otherwise. Accordingly, the Plaintiffs’ assertion on this part is without merit.

1) In negotiating a lease agreement on behalf of the EE, the mother of the EE notified that the EE is “to lease the instant building because the EE residing on the part of the Plaintiffs enters the Republic of Korea and enters the Republic of Korea.” Therefore, the Plaintiffs should be deemed to have perceived that the EE used the instant building for residential purpose.

2) The Plaintiffs concluded a lease agreement with FF, an individual, not a corporate GG, on the instant building, and thus, it seems that FF could have sufficiently known that the instant building equipped with residential facilities, such as phishing, cooling, and washing machines, could be used for non-commercial purposes.

3) The lease contract prepared by the plaintiffs and EE, and the lease contract prepared by the plaintiffs and F and F do not contain any phrase stating that the building of this case is specified for business purposes (other matters are in accordance with the Commercial Building Lease Protection Act, the Civil Act and the real estate practices), but it is nothing more than the phrase used customarily in the officetel lease contract.

3. Conclusion

Therefore, the plaintiffs' claim of this case is dismissed in entirety as it is without merit. It is so decided as per Disposition.