Korea Railroad Corporation (Law Firm LLC et al., Counsel for the defendant-appellant)

Head of Yeongdeungpo District Tax Office and fourteen others (Attorney Kim Jung-il, Counsel for the plaintiff-appellant)

May 30, 2017

Seoul Administrative Court Decision 2015Guhap54209 decided January 11, 2017

1. The plaintiff's appeal is all dismissed.

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

The judgment of the first instance court is revoked. On January 22, 2014, each disposition of value-added tax (including additional tax) for the second period of 2008 as stated by the Defendants against the Plaintiff shall be revoked.

1. Quotation of judgment of the first instance;

The court's explanation on this case is as stated in the reasoning of the judgment of the court of first instance, except for the addition of the following matters to the judgment of the court of first instance. Thus, it is cited in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure

2. The addition;

○ The last page of the 9th judgment of the first instance court is followed by the following addition:

(Plaintiff asserts that the other party to the provision of the service is not specified in the case where the service is operated on the routes of remote areas but the user is not specified. However, the supply of the service cannot be deemed to be possible only to a specific other party, and the supply of the service may be conducted on the potential beneficiary and on the general and Rule basis, so the above argument is without merit).

○ The following shall be added to the last page of the 9th decision of the first instance court:

(ii)-1 The compensation amount for the instant public services and the compensation amount between the Plaintiff’s public services.

As examined earlier in the relevant legal principles, if the amount of compensation for the instant public service cannot be considered as consideration for the provision of public service, such as reduction of and exemption from freight, operation of remote areas lines, and operation of special roads (hereinafter “instant public service”), it constitutes a case where there is no value of supply for the said non-taxation business, and thus, the provision of Article 61(1) of the Enforcement Decree, which stipulates that the amount of compensation for the instant public service shall be calculated proportionally according to the ratio of the value of supply

Article 3 subparag. 11 of the Framework Act defines railroad services provided by a railroad operator for policies or public purposes of the State or a local government, regardless of business activities for profit-making purposes, as “public services,” and Article 32(1) of the Framework Act provides that expenses incurred in the provision of public services by a railroad operator shall be borne by the State or a cause provider directly requesting the relevant railroad services. In addition, Article 33(1) of the Framework Act provides that a cause provider shall enter into a contract on the compensation of public service costs with a railroad operator and provides that matters to be included in a compensation contract shall be included in a compensation contract.

Pursuant to the above provisions, the Plaintiff has concluded the instant compensation contract with the Minister of Land, Transport and Maritime Affairs and provided the instant public service. According to the instant compensation agreement, compensation for the reduction and exemption of freight is reduced and exempted (Article 5), compensation for the operation of remote routes is an amount calculated by multiplying the operating cost by a certain compensation rate, and the difference between the operating cost of remote routes (Article 6) and the profits from operation of remote routes (Article 7), and compensation for the operation of special Dongs (Article 7).

According to the above provisions and the instant compensation contract, etc., the Plaintiff concluded and provided the instant compensation contract at the request of the State that is the cause provider of the instant public service as stipulated under the Framework Act, and received the amount of compensation for the instant public service classified by each public service provided. In addition, the amount of compensation for the instant public service is not for the general financial assistance of the Plaintiff, but for the public service provided by the cause provider at the request of the cause provider, and was paid in proportion to the amount of the service actually provided and the cost and expenses incurred. As such, the instant public service was provided on the premise of reasonable compensation at the request of the cause provider. As such, the Plaintiff may take measures, such as suspension of the provision of service, etc. in accordance with certain procedures, if there is no appropriate compensation or the cause provider does not bear the cost of public service (Article 34(1)2 and 3 of the Framework Act).

Meanwhile, Article 13(2)4 and (5) of the Act and Article 48(10) of the Enforcement Decree of the Act provide that national subsidies and public subsidies not directly related to the supply of goods or services shall not be included in the tax base of value-added tax. As such, national subsidies and public subsidies directly related to the supply of goods or services may be included in the tax base as consideration for the supply of goods or services. Inasmuch as the amount of compensation for public services in this case is closely and specifically related to freight reduction and exemption, remote route operation, special bus operation, and individual and specificly, each item of the instant public service, it can be said that they are directly related to the instant public service. In full view of the aforementioned various circumstances, it is reasonable to determine the quid pro quo between the amount of compensation for

On the other hand, the plaintiff asserts that the beneficiary of this case's public service and the beneficiary of this case's public service compensation amount are different, and that the compensation amount of this case's public service compensation amount is not a full compensation amount for the costs incurred in providing public service in this case's public service, and that a quid pro quo relationship between the compensation

However, the payment for the provision of services is not necessarily to be borne by the beneficiary, and even if it is borne by a third party, the payment relationship can be recognized. In addition, even if the amount corresponding to the whole cost of the provision of services is paid, it is not possible to recognize the payment, but it is also possible to receive only a part of the payment (in the case of the supply of services on the last day, it is difficult to deny the payment). Therefore, the Plaintiff’s above assertion is without merit.

○ On the 11th judgment of the first instance court, the following shall be added:

(A) The Plaintiff asserts that the amount of compensation for public services in this case cannot be considered as compensation for the supply of the Plaintiff’s services, since it is difficult to secure a balance between revenues and expenditures due to the lack of feasibility in the operation of remote routes. However, the public services in this case are non-taxable projects provided by the Plaintiff without profit-making purposes, and only for the reason that the business feasibility of the operation of remote routes falls short of the level of compensation for public services in this case and the operation of remote routes cannot be denied.

3. Conclusion

Therefore, the judgment of the first instance court is justifiable, and the plaintiff's appeal is dismissed as it is without merit.

[Attachment]

Judges highest (Presiding Judge)