Cho High Court Decision 2010Du0124 ( October 17, 2011)

The input tax amount of the tax invoice received to provide services to a foreign corporation is deducted.

An input tax amount of a tax invoice received by a domestic entrepreneur from another domestic entrepreneur to provide services, such as authorization, permission, design, and arrangement of business funds, in connection with the relevant cooking development project, to a foreign corporation which operates a cooking development project overseas, shall be deducted from the output tax amount.

Article 17 (Payable Tax Amount)

2011Revocation of disposition imposing value-added tax, 19093

XX Pacific Traffic Co., Ltd.

Samsung Head of Samsung Tax Office

October 21, 2011

December 23, 2011

1. The Defendant’s imposition of value-added tax of KRW 36,294,220 for the second term of December 10, 2006, KRW 86,778,30 for the first term of January 2007, KRW 61,852,580 for the second term of February 2007, KRW 43,793,090 for the first term of January 2008, and KRW 37,576,030 for the second term of February 2008, and KRW 266,294,220 for the second term of February 208.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On April 13, 2007, the Plaintiff was an enterprise engaged in real estate development, such as riart, and established a Phil. Deveop Management Corp. (hereinafter referred to as "Wolp") by investing 99.8% of the 99.8% of the shares in detail in the Philippines.

B. P. On April 2, 2007, the Republic of Korea issued a business permit with the authority of the Philippines, and the Republic of Korea (hereinafter “instant development project”), constructed condominiums, golf clubs, etc. at the time of the Republic of Korea (hereinafter “instant development project”). On June 1, 2007, the starting date of the project, the Plaintiff entered into a contract on behalf of the Republic of Korea (hereinafter “instant agency service contract”) on behalf of the Plaintiff for the execution of various projects, including the establishment, reporting, and progress of the project plan, the conclusion and management of various domestic and overseas service contracts such as legal advice, the execution of design services, etc. to obtain the building permit, the arrangement of the project fund, and the arrangement of the project fund.

C. From 2006 to 2009, the Plaintiff received legal advice, feasibility assessment, and basic design services for building permission from law firms, credit rating companies, appraisal corporations, construction offices, etc. (hereinafter “domestic service companies”), and paid them proceeds including value-added tax. Accordingly, in 2006, the Plaintiff reported the input tax amount of 478,000,000 won in January 2007, 2007, and 478,000,000,000 won in 2007, and 355,50,50,000 won in January 35, 2008, and 202,320,143,456 won in total, and 2,057,93,956 won in total, as value-added tax (hereinafter “value-added tax dispute”).

D. The Defendant: (a) based on the result of the on-site verification of value-added tax for the Plaintiff at the Seocho Tax Office in 2009, the head of Seocho Tax Office was only a nominal corporation that exists formally; and (b) the actual principal of the instant development project is the Plaintiff; (c) the issue amount of the input tax is the cost incurred by the Plaintiff in carrying out the instant development project that is not subject to the domestic Value-Added Tax Act as an overseas development project, and falls under the “tax amount on the supply of services used for one’s own business” under Article 17(1)1 of the Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter the same shall apply); (d) on the ground that the amount of input tax for the instant development project falls under the “amount of tax imposed on the supply of services not directly related to the projects” under Article 17(2)2 of the Value-Added Tax Act, 36,294, 2006, 208, 2078, 7, 207, 208.78.

E. The Plaintiff filed an appeal with the Tax Tribunal regarding the instant disposition on December 17, 2009, but the Tax Tribunal dismissed the Plaintiff’s claim on March 17, 201.

[Reasons for Recognition] Unsatisfy, Gap evidence 1 through 3 (including paper numbers; hereinafter the same shall apply), 4, Eul evidence 1, 3, and 4, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant disposition is unlawful for the following reasons.

1) The Plaintiff entered into the instant agency service contract with an independent legal entity Y, and received the service from the domestic service company as part of the contract performance, and received the tax invoice accordingly. Therefore, the key issue issue falls under the subject of the input tax deduction under the “tax amount for the supply of goods or services used or to be used for one’s own business” under Article 17(1)1 of the Value-Added Tax Act.

2) If the cost XX, a foreign corporation, provided services from the domestic service companies in implementing the instant development project, the domestic service companies would be subject to the zero-rate tax rate under Article 11(1)1 of the Value-Added Tax Act, and the tax authorities would not be subject to the transaction of value-added tax from the domestic service companies. While the tax authorities are walking the value-added tax actually borne by the Plaintiff from the domestic service companies, it goes against the principle of fairness to recognize the Plaintiff as subject to the deduction of the input tax amount.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) On April 13, 2007, the Plaintiff (i) invested KRW 745,665,80 in a local corporation in a development project plan, such as a golf course, in a specific region of the Philippines, and (ii) established Y (in 2,632,525,800, the amount invested by the Plaintiff up to several times of capital increase is KRW 2,632,525,80, considering that the Plaintiff was favorable to the authorization and permission of the local corporation. Meanwhile, there are approximately 13 employees employed and paid benefits at the local level).

2) On April 3, 2008, LW has agreed to lease approximately KRW 600,000 square meters from a local corporation of the Philippines for 50 years, in order to construct condominiums, golf courses, etc. (title "OOland") on the ground. On July 18, 2008, the Republic of Korea obtained a construction permit for condominiums from the administrative authority of the Philippines for a golf course on December 23, 2009, and completed construction works by granting a construction permit for golf courses on December 15, 201 and January 8, 201.

3) On June 1, 2007, the Plaintiff entered into a project implementation agency agreement with the relevant development project, provided specialized services and services for the progress of the project to XX. Within one month after acquiring construction authorization and permission from the su, the Plaintiff agreed to receive compensation for direct and indirect expenses incurred in the Republic of Korea and abroad and to receive 2% of the total amount of loans handled when project financing has become a sexuality.

4) On March 5, 2008, the Plaintiff entered into a sales agency contract with us and concluded a sales agency contract with AO to vicariously carry out the sales and sales business for the whole buildings and ancillary facilities of OOland, and to receive 7% of the total sales price from su, and 5% of the sales commission for ancillary facilities.

5) On May 31, 2010, the Plaintiff agreed to extend the service period of the above project implementation agency service contract to the date of the completion of permission for the third change of form and quality and the extension of the first change of the permitted form and quality until the date of approval for the extension of the first change of the original form and quality. At the time of completion of the Plaintiff’s service, the Plaintiff was paid the agreed service

6) On September 30, 2010, the Plaintiff filed a claim for the payment of US$2,602,604.5 (2,972,174,218) (2), and on October 6, 2010, pursuant to Article 11(1)2 and Article 9(2) and (4) of the Value-Added Tax Act, Article 22 subparag. 1 of the Enforcement Decree of the Value-Added Tax Act, upon filing a preliminary return of value-added tax for the second half-year value-added tax, the Plaintiff filed a return on the sales amount of the service cost 2,972,174, zero-rate tax rate 218 won as its tax base.

[Reasons for Recognition] Unsatisfy, entry of Gap evidence 2, 4 through 17, the purport of the whole pleadings

D. Determination

1) Determination of the person implementing the instant development project

A) As to how to allocate the international tax revenue for value-added tax which is consumption tax, the ‘principle of taxation for consumption country' has been generally established among the world’s total consumption tax for each country to allocate the consumption tax on the basis of the quantity consumed by each country among the consumption tax. Accordingly, a country exclusively produces goods or services and does not consume such goods or services, i.e., an exporting country, both its taxes imposed on such goods or services until they are exported by the zero-rate system, are refunded to the country that imports and consumes them. Article 11(1)2 of the Value-Added Tax Act applies the zero-rate tax rate to the services provided overseas by an entrepreneur.

B) Meanwhile, the instant disposition is deemed to be a nominal corporation whose substance is denied, and is based on the premise that the Plaintiff actually performed the instant development project abroad. If such premise is satisfied, the issue supplied by the Plaintiff for the instant development project is related to the supply of services outside the country where the Republic of Korea is unable to impose value-added tax, and thus, there is no room to correspond to the “tax amount for the supply of services used for the instant development project” under Article 17(1)1 of the Value-Added Tax Act, which is premised on the domestic place of business. Accordingly, it is necessary to determine who is the actual subject of the instant development project.

C) Article 14(1) of the Framework Act on National Taxes (amended by Act No. 8830, Dec. 31, 2007; hereinafter the same) provides for the substantial provision for attribution of an act or transaction subject to taxation and where there is a person to whom such act or transaction belongs, the person to whom such act or transaction actually belongs shall be liable for tax payment. Paragraph 31 of the same Article provides for the substantial provision for attribution, and where it is recognized to receive unjust benefits under this Act or other tax-related Acts by indirect method via a third party or by undergoing two or more acts or transactions, it shall be deemed that the party has directly traded, or that a continuous single act or transaction has been conducted, according to the economic substance thereof. If any company does not have capital or any human organization and material facilities, and if the person behind it actually takes charge of the business, it shall be deemed that the person who behind the transaction, who is not the actor under the name under the above provision of the Framework Act on National Taxes, can be deemed as the actual subject of taxation (see, e.g., Supreme Court Decision 2014Du184.

(D) Examining the instant case’s return, in light of the following circumstances recognized by the fact of the instant recognition and the purport of the entire pleadings, it is difficult to evaluate the subject of the instant development project as the Plaintiff, which is merely a nominal corporation (sopapapapapapapapapapapa) and the actual executor of the instant development project. (i) Subdivision is a corporation with approximately KRW 2,632,525,800 invested by the Plaintiff from the Plaintiff, and entered into a contract for construction works related to the instant development project for the construction of OOland in its name, and the effect of various authorizations and permissions belongs to the owner of the building and its ancillary facilities are expected to be reverted to that name.

② They are managed by employing 13 local employees on their own.

③ The Defendant alleged that the actual developer of the instant development project is the Plaintiff on the ground of the statement “the Plaintiff or the actual developer of the instant development project” in the evidence No. 3-1 (written confirmation). However, even according to the above written confirmation, the Plaintiff appears to be premised on the premise that the Plaintiff is an independent developer of the instant development project, under the premise that the instant development project is transferred to XX as necessary.

④ As long as the Plaintiff bears value-added tax upon being provided with services from domestic service companies, at least the amount of value-added tax, it cannot be deemed that the tax burden has been reduced by establishing WW, which is a special purpose corporation (SPC), with respect to the value-added tax. As long as the Defendant did not assert and prove any legal purpose to the Plaintiff in relation to other items of tax, such as corporate tax, etc., and the Defendant does not appear to apply Article 14(3) of the Framework Act on National Taxes, deeming that the tax burden has been reduced unfairly by taking the form of transaction with domestic service companies via the intermediate agent of the Plaintiff, and thus, it does not appear that the application of Article

2) Violation of the principle of fair taxation

Even if the Plaintiff denies the legal form of the Plaintiff’s choice and assumes that the Plaintiff is the actual executor of the instant development project, the domestic service company that supplied the Plaintiff with the services such as design, etc. exports the services required for the instant development project abroad and is subject to the zero tax rate under Article 11(1)2 of the Value-Added Tax Act, and thus, it is unnecessary to pay the output tax accordingly. However, the receipt by the State is inconsistent with the instant disposition that does not allow the Plaintiff to deduct the input tax amount, and is contrary to the principle of tax fairness.

3) Sub-decisions

Therefore, the pertinent input tax amount is an input tax amount to be deducted from the output tax amount, as the tax amount on the supply of goods or services used or to be used for one’s own business under Article 17(1)1 of the Value-Added Tax Act. Therefore, the instant disposition on imposition prior to a different premise is unlawful.

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.