In a case where a taxpayer prepares a false contract and receives a deduction or refund of an input tax amount by a false tax invoice received as a result of such false contract, the requirements for the exclusion period for imposition of ten years is applicable because such an act constitutes “a case where a taxpayer evades national taxes or obtains a refund or deduction by fraudulent or other unlawful means” as prescribed in Article 26-2(1)1 of the former Framework Act on National Taxes.

In a case where a taxpayer prepares a false contract and receives a deduction or refund of an input tax amount by a false tax invoice received as a result, it should be recognized that such an act constitutes “a case where a taxpayer evades, receives a refund or deduction of a national tax by fraudulent or other unlawful means” as prescribed by Article 26-2(1)1 of the former Framework Act on National Taxes (amended by Act No. 8830 of Dec. 31, 2007) and thus, the exclusion period for imposition of ten years shall apply to the taxpayer, in addition to the awareness that the taxpayer is entitled to receive a deduction or refund of an input tax amount by a false tax invoice, the taxpayer should be aware that the taxpayer would receive a deduction of an input tax amount by evading the liability for payment of the value-added tax under the tax invoice by either filing a return or payment of the tax base and the amount of the value-added tax except for the amount of output tax on the tax invoice, or filing a request for correction after filing a refund in whole on the tax invoice

Article 26-2(1)1 and 3 of the former Framework Act on National Taxes (amended by Act No. 8830 of Dec. 31, 2007)

Plaintiff (Attorney Or-Support et al., Counsel for the plaintiff-appellant)

The superintendent of the tax office

Seoul High Court Decision 2012Nu32637 decided August 23, 2013

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

The grounds of appeal are examined.

1. Article 26-2(1)3 of the former Framework Act on National Taxes (amended by Act No. 8830, Dec. 31, 2007; hereinafter the same) provides that, in principle, the exclusion period of imposition of national taxes other than inheritance tax and gift tax shall be prescribed as “five years from the date on which the relevant national tax may be assessed,” and subparagraph 1 provides that, “where the taxpayer evades national taxes, or is refunded or deducted by fraudulent or other unlawful means, the taxpayer shall be for ten years from the date on which the relevant national tax may be assessed.”

2. Based on the reasoning of the judgment of the court of first instance, the court below determined that the imposition disposition of value-added tax by the Defendant denying the deduction of the input tax amount is subject to the ten-year exclusion period as stipulated in Article 26-2(1)1 of the former Framework Act on National Taxes, on the ground that the Plaintiff’s act constitutes “the case where value-added tax is refunded or deducted by fraudulent or other unlawful means,” and that the imposition disposition of value-added tax by denying the deduction of the input tax amount is subject to the imposition disposition of value-added tax.

3. However, we cannot agree with the judgment of the court below for the following reasons.

A. In a case where a taxpayer prepared a false tax invoice and received a deduction or refund of an input tax amount by a false tax invoice received as a result of the false tax invoice, the exclusion period for ten years should be applied in order to ensure that such an act constitutes “a case where a taxpayer evades, obtains a refund or deduction of a national tax by fraudulent or other unlawful means” as stipulated in Article 26-2(1)1 of the former Framework Act on National Taxes. In addition to the perception that a taxpayer is entitled to a deduction or refund of an input tax amount by a false tax invoice, the taxpayer must be aware that the taxpayer would cause a decrease in the national tax revenue by evading the liability to pay value-added tax by filing a return or payment of the tax base and tax amount of value-added tax, excluding the output tax on the relevant tax invoice, or by filing a request for correction after filing a return or payment of the entire amount of output tax on the relevant tax invoice.

B. Examining the reasoning and records of the first instance judgment as cited by the lower court, the Plaintiff asserted that, for the purpose of borrowing a comprehensive construction business license, the Plaintiff prepared a false contract form with the Erails Construction, and did not have any intent to evade value-added tax, and that, in fact, remitted the amount equivalent to the input tax amount deducted under the instant tax invoice to Erails Construction. Therefore, the lower court should have determined that the period for exclusion of imposition of value-added tax is applicable to the instant disposition of the value-added tax, upon the Plaintiff’s filing of a return and payment of the tax base and tax amount of value-added tax except for the output tax under the instant tax invoice, or upon filing a request for correction after filing a return and payment of the entire output tax amount under the instant tax invoice, or upon receiving a request for correction, it would result in the reduction of national tax revenue.

Nevertheless, without further proceeding to examine this point, the lower court determined that the imposition of the value-added tax in this case shall be subject to the ten-year exclusion period as stipulated in Article 26-2(1)1 of the former Framework Act on National Taxes on the grounds of the reasons stated in its reasoning. In so doing, the lower court erred by misapprehending the legal doctrine on the exclusion period for the national tax under Article 26-2(1)1 of the former Framework Act on National Taxes, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning

4. Therefore, without examining the remaining grounds of appeal, 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 on the bench

Justices Kim Shin (Presiding Justice)