Seoul High Court 2010Nu21879 ( October 14, 2011)

early 208west2387 (209.09)

Violation of the principle of good faith for illegal gold bullion transactions is not only an exporter but also an entrepreneur who sells domestic zero-rate sales through a purchase certificate (Reversal and return).

If a gold bullion exporter knew that there was an illegal transaction at the entire stage or did not know of it due to gross negligence, the claim for deduction and refund of input tax amount cannot be paid in violation of the principle of good faith. Such legal principles are equally applicable to not only exporters but also to a business operator who sells the domestic zero-rate tax through a purchase confirmation (defensing and returning).

2011Du3975 Revocation, etc. of Disposition of Imposition of Value-Added Tax

○○ Co., Ltd.

○ Head of tax office

Seoul High Court Decision 2010Nu21879 Decided January 14, 2011

July 14, 2011

The judgment of the court below is reversed.

Of the judgment of the court of first instance, the imposition of value-added tax for the second term and the first term of 2002, among the imposition of value-added tax for the second term of 2003, the part of the trial transactions and the penalty tax for failure to submit a list of tax invoices for the second term of 2003, the part of the imposition of value-added tax for the first term of 2004, such as failure to submit a list of tax invoices for the first term of 204, and the part of the imposition of each corporate tax for 203 and 204

Of the instant cases, the part on gold bullion transactions among the imposition disposition of value-added tax on the second quarter of 2003 and the part on the imposition disposition of value-added tax on the first quarter of 2004 (excluding the portion on additional tax, such as failure to submit a list of total tax invoices)

1. We examine the grounds of appeal ex officio prior to determination.

According to the records, on July 7, 201, which was after the filing of the instant appeal, the Defendant: (a) revoked ex officio the imposition of the Plaintiff’s tax on the second term portion in 2002 and the first term portion in 2003; (b) the imposition of value-added tax on the second term portion in the imposition of value-added tax in 2003; (c) additional tax such as failure to submit a list of tax invoices on gold bullion transactions; (d) additional tax such as failure to submit a list of tax invoices in the imposition of value-added tax on the first term portion in 2004; and (e) each disposition of imposition of corporate tax in 203 and 204 on the first term portion in the imposition of value-added tax (hereinafter referred to as “the Defendant’s ex officio revocation portion”); and (e) thus, the Plaintiff’s instant lawsuit against the Plaintiff

2. We examine the grounds of appeal (to the extent of supplement in case of supplemental appellate briefs not timely filed) as to the remainder other than the Defendant’s ex officio revocation.

A. Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter “the Framework Act on National Taxes”) declares that the principle of good faith should be a basic guiding ideology in the field of tax law by stipulating that “A taxpayer shall perform his/her duties in good faith. This shall also apply to a tax official’s performance of his/her duties.” This principle of good faith, which enables the concrete feasibility of the operation of the law through the function of embodying or supplementing the existing law and supplementing it, and supplementing the criticism of the law, plays a role of revising the law in the field of tax law, and its scope of application is somewhat limited compared to that of the principle of no taxation without law. However, if the provisions of tax law are applied to an individual case, it would result in an unreasonable consequence that would result in a failure to pay taxes in light of the universal justice and ethics, thereby leading to the sound performance of his/her duties, it may be excluded from the application of the principle of good faith or legal order.

B. Article 15 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010) provides that when an entrepreneur supplies goods or services, the value-added tax on the value of the supply thereof shall be collected from the person who receives the supply thereof. 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 principle that the entrepreneur collects the output tax from the entrepreneur who receives the supply at each transaction stage prior to reaching the final consumer and pays the tax amount to the State, and the entrepreneur who collects the tax amount shall, through the process of receiving the deduction and refund as the input tax amount from the State, make it impossible to properly pay the input tax amount to the final consumer (see, e.g., Supreme Court Decision 9Da3984, Nov. 12, 199).

Therefore, in a series of continuous transactions, where a malicious entrepreneur has attempted to evade value-added tax from the beginning to the end, and 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 value-added tax (hereinafter referred to as "illegal transaction"), as in the next transaction stage, if an exporter is entitled to deduct and refund the input tax without the burden of the output tax amount as in the zero-rate tax rate as in the next transaction stage, the country has no choice but to make a refund with other tax revenues. This result exceeds the passive gap in tax revenues and constitutes the leakage of the National Treasury. Accordingly, 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 not known at all, he/she may not, in principle, deny that the exporter is entitled to deduct or refund an 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 input tax deduction and refund system which is a premise, it shall be deemed an act of pursuing unjust profits by abusing the input tax deduction and refund system which is a premise, and thus, it would be an act of guaranteeing the exporter's deduction and refund of the input tax amount with another tax revenue as a revenue from an illegal transaction to the National Treasury, and it may not prevent any serious harm to the overall tax system as seen above.

Therefore, it is difficult for an exporter to seek the deduction and refund of an input tax in such a case, 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 in Article 15 of the Framework Act on National Taxes.This legal principle is equally applicable to a case where an exporter was unaware of such illegal transaction due to gross negligence in light of the perspective of fairness, the gravity of the result, and the universal sense of justice, in other words, the relationship with a malicious business operator where the exporter was unaware of such illegal transaction due to gross negligence, and if the exporter was aware of such illegal transaction, it is reasonable to deem that the same applies to a case where the exporter was unaware of such illegal transaction due to gross negligence, and even if he could have sufficiently known of such fact, he did not clearly violate the duty of due care to the extent close to

In addition, in such cases, since exporters in a mutual relationship with malicious business entities receive deduction and refund of input tax from the State, and thus, denying the deduction and refund of input tax to such exporters cannot be deemed to transfer to exporters without reasonable grounds the responsibility for the evasion of value-added tax by malicious business entities (see Supreme Court en banc Decision 2009Du13474, Jan. 20, 201).

C. Examining in light of the aforementioned legal principles, if the Plaintiff, an exporter, purchased and exported the gold bullion of this case as a taxation, was 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 purchase and export, and accordingly, sought the deduction and refund of the input tax amount even though he knew of, or did not know by gross negligence, that the Plaintiff’s deduction and refund of the input tax amount would cause a decrease in other tax revenues, this would not only take part of the output tax amount evaded by a malicious entrepreneur by abusing the input tax deduction and refund system, but also would also undermine the foundation of the VAT system and the overall tax justice under Article 15 of the Framework Act on National Taxes.

D. Therefore, the court below should have determined whether the plaintiff knew or was unaware of the above circumstances in purchasing and exporting gold bullion as taxation, and should have determined whether the plaintiff's assertion on deduction and refund of the plaintiff's input tax amount violates the principle of good faith for the reasons stated in its holding, but should be rejected and the plaintiff's assertion on deduction and refund of the plaintiff's input tax amount should be allowed. Thus, the defendant's imposition disposition of gold bullion transaction portion and the first half of 2004 value-added tax for the second half of 2003 of this case (including penalty taxes for failure to report and penalty taxes for failure to pay taxes, but excluding penalty taxes for failure to submit a list of total tax invoices, etc. are irrelevant to the principle of good faith) was unlawful. The court below erred by misapprehending the legal principles on the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes, which affected the conclusion of the judgment

3. Conclusion

Therefore, the judgment of the court below shall be reversed. Since the defendant's ex officio revocation part of the case in this case is sufficient to be directly tried by the Supreme Court, the part concerning the defendant's ex officio revocation is revoked under Article 437 of the Civil Procedure Act, and this part of the lawsuit shall be dismissed. Among the case in this case, the part concerning gold bullion transaction among the imposition disposition of value-added tax for the second period of 2003 and the part concerning the imposition disposition of value-added tax for the first period of 2004 (excluding the portion concerning additional tax, such as the submission of a list of total tax invoices) shall be remanded to the court below for a new trial and determination.