In cases where an entrepreneur concurrently operates several taxable businesses and tax-free businesses, the method of calculating the amount of common input tax that cannot be divided into actual attribution / In cases where the amount of common input tax is related to a part of one taxable business or tax-free business, and the part is not deemed separate from the remaining parts, whether the input tax amount related to the tax-free business should be calculated based on the value of supply of the entire business

In full view of the language and legislative intent of Article 17(2)4 and (7) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010); Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010) (amended by Presidential Decree No. 22043, Feb. 18, 2010), where a business entity concurrently runs several taxable businesses and tax-free businesses, the input tax amount related to the tax-free business should be calculated by distinguishing the actual ownership in principle. When calculating the proportional distribution of the common input tax that cannot be separated from the actual ownership, the input tax amount related to the tax-free business should be calculated by the ratio of the value of the tax-free supply to the total value of the relevant taxable period. On the other hand, where the common purchase tax amount is related to a part of a single taxable business or tax-free business, if it cannot be deemed separate from the remainder of the business.

Article 17(2)4 of the former Value-Added Tax Act (Amended by Act No. 915, Jan. 1, 2010; see current Article 39(1)7); Article 39(7) (see current Article 39(2)); Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010; see current Article 40 of the Value-Added Tax Act; Article 81(1) of the current Enforcement Decree of the Value-Added Tax Act)

[Plaintiff-Appellant] Plaintiff 2007Du4896 decided May 14, 2009 (Gong2009Sang, 893)

Asan Social Welfare Foundation (Law Firm Chungcheong, Attorneys Bailment-young et al., Counsel for the defendant-appellant)

The head of Song District Tax Office (Law Firm Barun, Attorneys Kim Hong-do, Counsel for defendant-appellant)

Seoul High Court Decision 2013Nu3254 decided July 3, 2014

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. As to the grounds of appeal Nos. 1 and 2

A. Article 17(2)4 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter the same) provides that input tax, etc. related to the tax-free business shall not be deducted from the output tax amount. Article 61(1) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter the same) delegated by Article 61(7) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter the same) provides that where an entrepreneur concurrently runs a taxable business and a tax-free business, the calculation of input tax amount related to the tax-free business shall be based on actual attribution

In full view of the language and legislative intent of these regulations, when an entrepreneur concurrently operates a number of taxable businesses and tax-free businesses, the input tax amount related to the tax-free business should be calculated by dividing the actual ownership in principle, and when calculating the common input tax amount that cannot be divided into actual ownership, the input tax amount related to the tax-free business should be calculated by applying the ratio of the value of the tax-free supply to the total supply value of the relevant taxable period only that portion of the taxable business, by carrying out a taxable business related to the common input tax and a tax-free business related to the tax-free business among several businesses (Supreme Court Decision 2007Du4896 Decided May 14, 2009). Meanwhile, in cases where the common input tax amount is related to a part of a single taxable business or tax-free business, the input tax amount related to the tax-free business shall be calculated on the basis of

B. The lower court acknowledged the following facts in full view of the admitted evidence.

(1) The Plaintiff is a non-profit corporation operating ○○ Hospital, and is concurrently engaged in medical services, a tax-free business, a real estate rental business, a parking lot business, a funeral home business, etc.

(2) Until now, the Plaintiff started construction work on the new building at the entrance site at the hospital from May 25, 2005, and completed the instant new building on April 17, 2008 and on the 15th above ground.

(3) When the Plaintiff reported the value-added tax for the first and second years of 2007, the Plaintiff calculated the input tax amount related to the tax-free business in proportion to the ratio of the area to be used for the taxable business and the expected use area of the new building of this case as to the portion related to the construction of the new building of this case (hereinafter “common purchase tax amount related to the new building of this case”) based on the size of the exclusive use area for the new building of this case.

(4) On the other hand, in the above taxable period, the Defendant did not distinguish the actual use area of the instant new building from that of the instant new building, and deemed that the instant new building is operated as part of the entire hospital by expanding the existing hospital, and thus, deducted the input tax amount related to the instant new building, which is calculated proportionally according to the ratio of the value of supply of both the entire hospital’s taxable business and the

(5) Meanwhile, the Plaintiff directly operated the Seocho Building Underground Parking Lots, dong Building Underground Parking Lots, Education Research Officers Underground Parking Lots, Central Parking Lots, Reservoir Parking Lots, Disabled Parking Lots, Emergency Parking Lots, Dormitory Parking Lots, and Dormitory Parking Lots, etc. (hereinafter “instant parking lot”). Among them, the Plaintiff’s employees directly used the instant parking lot, and the remainder of the old parking lot was treated as profits by receiving parking fees from the visitors.

(6) The Plaintiff calculated the input tax amount of KRW 382,522,066 related to the management service cost of the instant parking lot directly operated by the Plaintiff during the second period from 2007 to 1, 2009 (hereinafter “common purchase tax amount of the instant parking lot directly operated”) in proportion to the ratio of the supply value of the paid parking lot to the conversion amount of the free parking lot.

(7) On the other hand, the Defendant, on the ground that it is difficult to deem that the Plaintiff’s parking lot business is operated separately from the medical service, etc., deducted the input tax amount related to the tax-free business, calculated proportionally according to the ratio of the value of the entire taxable business and

C. Next, in light of the fact that the new building of this case is structurally connected to the existing building that the Plaintiff had used in operating the ○○○ Hospital, etc., and that part of the specialized department that the Plaintiff provided patient treatment in the existing building of this case was re-consigned to the new building of this case, and that the Plaintiff provided patients with the blood collection room, film department, parking lot, etc. of the new building of this case to the existing building, it is difficult to view the new building of this case as a separate business completely separated from the medical services of the ○○○ Hospital operated by the Plaintiff in the existing building of this case. The new building of this case is reasonable to deem that the new building of this case aims to facilitate and efficiently operate the medical services, etc. conducted in the existing building by expanding the medical space, etc. to solve the shortage of the existing building due to the increase of the number of patients, and thus, it is legitimate to determine that the Defendant calculated the input tax amount in proportion to the supply price of the entire hospital and the tax exemption business in proportion to the supply price of the new building of this case.

D. Furthermore, based on the Plaintiff’s internal regulations, the lower court determined that the instant parking lot directly operated by the Plaintiff is lawful in view of the following: (a) in a case where it is confirmed that the instant parking lot is related to the medical business of ○○○ Hospital, the parking is permitted for a certain time free of charge for the convenience of patients, etc.; and (b) in a case where the instant parking lot is parked without any relevant connection, it cannot be determined that it is irrelevant to the medical business, such as, even if the Plaintiff received a parking fee at the instant parking lot, it can be said that it is irrelevant to the medical business; and (c) even if the Plaintiff does not receive a parking fee at the instant parking lot directly, it can not be determined that the instant parking lot directly operated by the Plaintiff constitutes a separate business unit clearly distinguishable from the medical business of ○○○ Hospital; and thus, (b) the amount of common purchase tax of the instant parking lot constitutes a case where it can not be used jointly for the medical business, a taxable business, and its actual attribution is calculated in proportion to the amount of input tax revenue of the Defendant’s business.

E. Examining the record in light of the aforementioned provisions and legal principles, the lower court’s aforementioned determination is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on the interpretation of Article 61(

2. Regarding ground of appeal No. 3

A. Article 17(6) of the former Value-Added Tax Act provides that “When an input tax amount is used or consumed for a taxable business for goods for which no input tax amount is deducted pursuant to paragraph (2) 4, the entrepreneur may deduct the amount calculated as prescribed by the Presidential Decree from the input tax amount for the taxable period to which the date of use or consumption for the taxable business belongs.” According to delegation, Article 63(2) of the former Enforcement Decree of the Value-Added Tax Act provides for the calculation of the input tax amount to be deducted when the depreciable assets for the taxable business are used or consumed for the taxable business and the tax-free business, and Article 17(6) of the former Enforcement Decree of the Value-Added Tax Act provides for the calculation of the tax amount to be deducted when the relevant depreciable assets for the taxable business are used or consumed in common

B. Based on its adopted evidence, the lower court acknowledged the following facts: (a) on January 1, 2009, the Plaintiff leased 32,347.42m2 (hereinafter “instant new parking lot”) out of 42,347m2 (hereinafter “instant new parking lot”) of the underground parking lot of the instant new parking lot on January 1, 2009, to the light industry development corporation (hereinafter “ordinary industry”); (b) on reporting the first value-added tax in 2009, the Plaintiff deemed the instant new parking lot as converted from a taxable business to a taxable business; and (c) applied for the refund of value-added tax by reflecting the input tax amount of KRW 3,085,814,165, deeming that the instant new parking lot was converted from a tax-free business; and (c) the Defendant, in substance, has leased the new parking lot of the instant new parking lot to a taxable business and a tax-free business; and (d) found that the Plaintiff refused the refund on the grounds that the taxable value accrued from the instant new parking lot was less than 5 percent.

Then, the lower court determined that: (a) the Plaintiff’s use of the instant new parking lot in the light of the following: (b) the Plaintiff’s use of the instant new parking lot in the light of the fact that: (c) the Plaintiff’s use of the instant new parking lot in the light of the following: (a) the Plaintiff’s use of the passenger parking lot for the purpose of concluding a lease agreement between the Plaintiff and the passenger industry is clearly required to consult with the Plaintiff regarding the parking fee to be collected from the users; (d) the Plaintiff’s use of the instant new parking lot in the light of the fact that: (a) the instant new parking lot in the light of the fact that no permission for free parking is granted for a certain period of time; and (b) the instant new parking lot is not sufficiently distinguishable from the existing building, etc.; and (e) the instant new parking lot in the light of the fact that the instant new parking lot in the light of the fact that the Plaintiff’s use of the leased parking lot in the light of the fact that the Plaintiff did not directly manage and operate the new parking lot in the instant industry is lawful.

C. Examining the records in light of the above provisions and related legal principles, the above determination by the court below is just, and contrary to what is alleged in the grounds of appeal, the court below did not err by misapprehending the legal principles on Articles 61(1) and (4), and 63 of the Enforcement Decree of the Value-Added Tax Act, and omitting

3. Conclusion

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

Justices Kim Chang-suk (Presiding Justice)