[1] Whether Article 61(1) and (4) of the former Enforcement Decree of the Value-Added Tax Act stipulating the method of calculating common input tax in order to determine the scope of input tax amount not deducted from the output tax amount pursuant to delegation under Article 17(7) of the former Value-Added Tax Act constitutes this example (negative)

[2] In a case where Company A, who operates a taxable business and a tax-free business, calculated input tax amount related to the taxable business and reported the refund of value-added tax, and the tax authority imposed additional tax on excess refund on the ground that there is no input tax amount related to the taxable business as a result of the on-site verification, the case affirming the judgment below that the purchase price related to the land related to the taxable business is not included in the "purchase price related to the tax-free

[1] Article 61(1) and (4) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter “Enforcement Decree”) provides for the method of calculating the common input tax amount in order to determine the scope of the input tax amount not deducted from the output tax amount pursuant to delegation of Article 17(7) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010); Article 61(1) and (4) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter “Enforcement Decree”) provides for the method of calculating the common input tax amount; and Article 61(1) and (4) of the Enforcement Decree provides for the legislative intent of Article 75 of the Constitution with regard to the delegated matters. In light of the methods and order of calculating the common input tax amount, it cannot be deemed as merely unreasonable.

[2] In a case where Gap corporation concurrently operating a taxable business and a tax-free business: (a) calculated the input tax amount related to the taxable business and filed a return of value-added tax; (b) imposed the excess refund tax on Gap corporation on the grounds that there was no input tax amount related to the taxable business as a result of the on-site verification of Gap corporation; and (c) the tax authority filed a lawsuit seeking revocation; and (d) the purchase price related to land related to the taxable business is included in the “purchase related to the tax-free business” under Article 61(4)1 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter “Enforcement Decree”), the case affirming the lower court’s determination that the purchase price related to land related to Article 17(2)4 of the former Enforcement Decree of the Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter “the Act”) did not constitute a tax-free tax-related purchase price tax exemption under Article 17(3).4).

[1] Article 17(7) of the former Value-Added Tax Act (Amended by Act No. 915, Jan. 1, 2010); Article 61(1) and (4) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010) / [2] Article 17(2)4 (see current Article 17(2)6) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010); Articles 60(6) and 61(4)1 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010)

[1] Supreme Court Decision 2007Du18017 decided Mar. 25, 2010 (Gong2010Sang, 836)

Hyundai Urban Development Co., Ltd. (Law Firm LLC, Attorneys O Tae-hwan et al., Counsel for the plaintiff-appellant)

Head of Busan District Tax Office

Daejeon High Court Decision 2009Nu2588 decided January 28, 2010

All appeals are dismissed. The costs of appeal are assessed against each appellant.

The grounds of appeal are examined.

1. Plaintiff’s ground of appeal

A. Ground of appeal No.1

(1) Article 61 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter “Enforcement Decree”) upon delegation under Article 17(7) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter “the Act”) provides for the method of calculating the input tax amount; and Article 61 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter “Enforcement Decree”) provides, “in cases where an entrepreneur concurrently runs a taxable business and a tax-free business, the input tax amount related to the tax-free business shall be calculated based on the actual attribution of the input tax amount; however, the input tax amount related to the tax-free business shall be calculated based on the ratio of the total supply amount to the total tax-free business to the total supply value, and subparagraph 1 and subparagraph 2 of the expected supply value shall be provided as follows:

Article 61(1) and (4) of the Enforcement Decree, which provides for the method of calculating common input tax amount in order to determine the scope of input tax amount not deducted from the output tax amount upon delegation under Article 17(7) of the Act, shall be subject to an order of statutory regulations issued by the President pursuant to Article 75 of the Constitution with respect to the matters delegated specifically by the Act. Meanwhile, in light of the contents and legislative intent of Article 61(1) and (4) of the Enforcement Decree, each of the above provisions cannot be deemed to be merely an example provision that makes it possible to divide common input tax amount in any other way at any time without harming the method of calculating the calculated tax amount and the order of the calculated tax amount under each of the above provisions, unless there are special circumstances to deem that the common input tax amount that cannot be separated from the actual input tax amount is clearly unreasonable (see, e.g., Supreme Court Decision 2007Du18017, Mar. 25, 2010).

(2) Examining the reasoning of the judgment below in light of the above legal principles and records, the court below held that it constitutes an order of this Act under Article 61 (4) 1 of the Enforcement Decree, and applied Article 61 (1) 1 of the same Act to calculate the amount of input tax related to the tax-free business among the amount of common input tax in the taxable period of this case is just and there is no error in the misapprehension of legal principles as

B. Ground of appeal No. 2

(1) In order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under the tax law is an administrative sanction imposed as prescribed by the Act in cases where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, and the taxpayer’s intention or negligence does not constitute a justifiable reason that does not constitute a breach of duty (see, e.g., Supreme Court Decisions 2002Du10780, Jun. 24, 2004; 2005Du10545, Apr. 26, 2007).

(2) Examining the reasoning of the judgment below in light of the above legal principles and records, the court below is just in holding that there is no justifiable reason to believe that there is no violation of duty in the excess refund return of this case, and there is no error in the misapprehension of legal principles as to the requirements for imposing additional tax on excess refund, as otherwise alleged in the ground of appeal.

2. As to the Defendant’s ground of appeal

A. Violation of the legal principles as to the interpretation and application of Article 61(4)1 of the Enforcement Decree

(1) In light of the principle of no taxation without law, or the requirements for non-taxation or tax exemption, the interpretation of tax laws shall be interpreted in accordance with the text of the law, barring special circumstances, and it shall not be permitted to expand or analogically interpret without reasonable grounds (see, e.g., Supreme Court Decisions 82Nu142, Jun. 28, 1983; 2010Do1191, Jan. 27, 201).

(2) The lower court determined that it is reasonable to interpret that the purchase price related to the land of this case related to a taxable business is not included in the “purchase price related to the tax-free business” under Article 61(4)1 of the Enforcement Decree, in light of the literal construction of Article 17(2)4 of the Act, as well as the “the input tax amount related to the business that supplies the goods or services exempt from the value-added tax” under the former part, which is distinguishable from the “the input tax amount related to the business that supplies the goods or services exempt from the value-added tax” under Article 17(2)4 of the Act, which is not deducted from the output tax amount (amended by Act No. 4663 of Dec. 31, 1993).

Examining the reasoning of the judgment below in light of the relevant Acts and subordinate statutes and the legal principles as seen earlier, the above judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the interpretation and application of Article 61 (4) 1 of the Enforcement Decree

B. Meritorious legal principles as to the scope of purchase price related to tax-free business

Examining the reasoning of the judgment below in light of the relevant statutes and the records, the court below is just in holding that the purchase price related to the golf course of this case does not constitute the purchase price related to the golf course of this case, and there is no error of law such as misunderstanding of legal principles as

C. Meritorious legal principles as to the scope of common purchase price

The assertion that the cost related to the development of enterprise cities and other management expenses fall under the purchase price related to the land for the creation of reclaimed land is subject to the deduction of input tax amount, is a new argument that the Defendant would only pay for the first time in the final appeal, and thus, cannot be a legitimate

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against each appellant. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Shin (Presiding Justice)