Where the owner of a utility model right has leased the utility model right and received user fees equivalent to a certain ratio of annual sales from the user, the case holding that the owner of the utility model right is the taxpayer of value-added tax and the above user fees

The case holding that the owner of the utility model right is the entrepreneur who is the taxpayer of the value-added tax and the above user fee is the business income in light of the nature of the transaction for using the utility model right, the period of transaction, the method and timing of payment, the number of times of payment, etc. where the owner of the right has leased the utility model right and

Article 2 (1) of the Value-Added Tax Act and Article 19 (1) 15 of the Income Tax Act

Head of the Military Service (Law Firm Dao, Attorney Kim Jong-sung, Counsel for defendant-appellant)

head of Sung Dong Tax Office

June 2, 2005

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s imposition of global income tax of KRW 8,72,040 for the year 200, global income tax of KRW 2,250,830 for the year 201, global income tax of KRW 2,250,830 for the year 200, global income tax of KRW 23,363,80 for the second year 200, value-added tax of KRW 11,08,070 for the second year 201, and value-added tax of KRW 6,892,60 for the second year 202 is revoked.

1. Details of the disposition;

A. On January 10, 200, the Plaintiff agreed to lease 7 utility model rights, such as utility model rights, etc. on the actual supply device owned by the Plaintiff to the non-party continental machine company (hereinafter referred to as the "non-party continental machine company") for the purpose of manufacturing the 'mail period', etc. and to receive an amount equivalent to 10% of the sales of the non-party continental company at the time of settlement of accounts, the Plaintiff received 149,419,681, around the end of 2000, around 79,329,317, around the end of 2001, around 79,329,317, around the end of 2001, and 55,95,206 won around the end of 202 (hereinafter referred to as the "the use transaction of the utility model right of this case"), and the non-party company withheld the Plaintiff's above income as other income and reported and paid it to the Defendant.

B. The Defendant identified the Plaintiff’s above royalty income as business income according to the National Tax Service’s audit officer’s point of view, and deemed that the Plaintiff provided service as a business operator under the Value-Added Tax Act, and imposed each global income tax and each value-added tax on December 1, 2003 against the Plaintiff (hereinafter “each taxation disposition”).

[Grounds for Recognition of Facts: No dispute between the parties, or the whole entries and arguments of Gap 1 through 6, Eul 3 and 6]

2. Whether each taxation of this case is legitimate

A. The plaintiff's assertion

In order to constitute an independent supplier of goods and services under the Value-Added Tax Act, i.e., a person who supplies goods and services independently in the business, the Plaintiff shall be a person who supplies goods or services with a business form sufficient to create added value and with continuous and repeated intent. The Plaintiff did not have a business form sufficient to create added value in the use transaction of the utility model right of this case, and only received user fees once a year, and it is difficult to regard the Plaintiff as a “person who provides services continuously or repeatedly,” because the said transaction can continue until the time due to the dispute over the utility model right of this case. Therefore, it is difficult to regard as a “person who provides services” rather than the Plaintiff as a business income.

Nevertheless, the Defendant reported otherwise, and the disposition of this case has been completed, and the above disposition should be revoked as unlawful.

B. Relevant statutes

Value-Added Tax Act

Article 1 (Objects of Taxation)

(1) Value-added tax shall be imposed on the following transactions:

1. Supply of goods or services; and

(3) The term "services" in paragraph (1) means all services and activities other than goods, which have property value.

Article 2 (Taxpayer)

(1) A person who independently supplies goods (referring to goods prescribed in Article 1; hereinafter the same shall apply) or services (referring to services prescribed in Article 1; hereinafter the same shall apply) on a business basis, regardless of whether it is for profit making or not (hereinafter referred to as "business operator") shall be liable to pay value-added taxes pursuant to this Act.

Article 7 (Supply of Services)

(1) The supply of services shall be either the supply of services or having others use the goods, facilities or rights, pursuant to all contractual and legal grounds.

former Income Tax Act (amended by Act No. 7006 of Dec. 30, 2003)

Article 1 (Liability for Tax Payment)

(1) Any individual who falls under any of the following subparagraphs shall be liable to pay income tax on his/her income under this Act:

1. Any individual who has a domicile in Korea or has a domicile in Korea for not less than one year (hereinafter referred to as "resident");

Article 4 (Classification of Income)

(1) Income of a resident shall be classified as follows:

1. Global income:

The sum of interest income, dividend income, real estate rental income, business income, labor income, temporary property income, pension income and other income generated in the year concerned.

Article 19 (Business Income)

(1) Business income shall be the following income, generated in the relevant year:

15. Incomes accruing from the social and private service business; and

Article 20-2 (Temporary Property Income)

(1) The temporary property income shall be the following incomes which accrue in the corresponding year:

2. Income accruing from the transfer of mining rights, fishing rights, industrial property rights, industrial information, industrial secrets, trademark rights, business rights (including the right to lease a store prescribed by Presidential Decree), rights incidental to permission to collect earth, sand, and rock, rights to develop and use underground water, and other similar assets or rights;

Article 21 (Other Incomes)

(1) Other income shall be any of the following incomes, other than interest income, dividend income, real estate rental income, business income, labor income, temporary property income, annuity income, retirement income, transfer income, and forest income:

7. Money and other valuables received in consideration of a lease of the assets or rights under Article 20-2 (1) 2;

(c) Markets:

(1) Article 2(1) of the Value-Added Tax Act provides that a person who independently supplies goods or services for a business purpose is a person liable for value-added tax, regardless of whether it is for profit-making purpose. Here, a person who independently supplies goods or services for a business purpose refers to a person who provides goods or services for a continuous and repeated intention, meeting the business form to create a value-added (see Supreme Court Decision 98Du16705 delivered on September 17, 199, etc.).

In addition, in order to be "a type of business that can create added values", human-based and physical facilities are ordinarily required. Accordingly, an assistant of a commercial employee, etc. is generally equipped with a physical place where business such as a factory or a sales place is conducted. However, if there are circumstances that can create added value without such commercial employee or a physical facility due to the nature of an individual or a business, if there are circumstances that can create added value without such a commercial employee or a physical facility, such a type of business is satisfied without such equipment (see Supreme Court Decisions 90Nu7388, Apr. 9, 191; 92Nu14526, Feb. 23, 1993; 94Nu1712, Dec. 23, 1994, etc.).

In addition, whether goods or services are supplied with continuous and repeated intent shall be determined in light of social norms, considering whether the transaction is for profit-making purposes and the scale, frequency, mode, etc. of the transaction can be seen as business activities in light of social norms.

(2) In light of the nature of transaction, transaction period, method of payment decision, timing and frequency, etc., it is reasonable to see the Plaintiff as a taxpayer under the Value-Added Tax Act, and the user fee acquired from the transaction shall be deemed as the business income (the Plaintiff was paid once a year without receiving the user fee, and cannot be deemed as having no continuity or repetition of business, and the dispute over the utility model right shall not be extinguished on the business feasibility on the ground that the dispute over the utility model right is not extinguished).

Therefore, it is legitimate that the defendant reached each taxation disposition of this case on the same premise, and the plaintiff's above assertion is without merit.

3. Conclusion

Thus, the plaintiff's claim seeking revocation of each taxation disposition of this case is dismissed as it is without merit.

Judges Shin Dong-dong (Presiding Judge)