Whether an exporter who knew or did not know due to gross negligence that there is a malicious entrepreneur with intent to evade the output tax amount in a series of continuous transactions, and thereby causes losses to other tax revenues, is in violation of the principle of good faith to seek deduction and refund of the input tax amount (affirmative)

[Majority Opinion] The structure of the so-called tax credit system adopted under Articles 15 and 17(1) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010) is the revenue source to deduct and refund the corresponding input tax amount at each trading stage. Therefore, it is impossible to maintain the system of value-added tax unless the output tax amount is paid to the State. Therefore, in a series of consecutive transactions where a malicious entrepreneur is willing to evade value-added tax, and only if he/she does not evade value-added tax by way of the method of evading value-added tax, such an abnormal transaction (illegal transaction) is deemed to have been carried out by the exporter, who did not know that there was an intention to exclude and refund the input tax amount without the burden of the input tax amount due to the application of zero-rate tax rate to the exporter, which would have been difficult for the exporter to obtain the deduction and refund of the input tax amount to the National Treasury, and thus, it is difficult for the exporter, who would have no choice but to implement such tax refund.

[Concurring Opinion by Justice Park Si-hwan and Justice Kim Ji-hyung] As to the fact that an exporter’s assertion on deduction and refund of the input tax amount can be subject to the principle of good faith, we agree with the Majority Opinion in principle, but we cannot agree with the requirement for the application of the principle of good faith as stated by the Majority Opinion. Since there is no burden on value-added tax, an exporter should receive a refund of the input tax amount from the State, which is the basic principle of the preceding phase tax credit system, and this is also the same even if the former phase entrepreneur, who collects the output tax on behalf of the State, did not pay it to the State. In order to limit this on the grounds of tax policy, an exporter’s assertion on deduction and refund of the input tax amount should be clearly stipulated in the law under the principle of good faith, and it cannot be limited to the mere reason that the exporter could abuse it. In light of this purport, in order to limit the exporter’s assertion on deduction and refund of the input tax amount under the principle of good faith, it is insufficient to actively participate in the criminal act

[Dissenting Opinion by Justice Jeon Soo-ahn] The application of the principle of good faith under tax law is more limited to legal relations formed by a party’s decision, and the application of the principle of trust and good faith under tax law should be carefully applied only when it is deemed necessary to protect trust even if a party’s legal nature is sacrificed. The provisions and institutional purport of Articles 17(1) and 17(2) of the former Value-Added Tax Act and Article 17(1) of the former Value-Added Tax Act, except as listed in Article 17(2) of the former Value-Added Tax Act, must be deducted. Even if a tax-free business entity may abuse the tax exemption system, it would be resolved by amending the former Act that denies the deduction of input tax amount without such special provisions, which would undermine the basis of the principle of no taxation without law. According to the consistent precedent of the Supreme Court declaring that the business entity received a tax invoice from the other party and that it does not constitute grounds for exclusion from the facts under Article 17(2) of the former Value-Added Tax Act, and thus, the input tax amount should be deducted.

Articles 15 and 17(1) and (2) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010); Article 15 of the former Framework Act on National Taxes (Amended by Act No. 9911, Jan. 1, 2010);

Supreme Court en banc Decision 94Nu1449 delivered on December 21, 1995 (Gong1996Sang, 283)

Plaintiff (Law Firm Rate, Attorneys So-young et al., Counsel for the plaintiff-appellant)

Sejong Head of Tax Office (Law Firm LLC et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2008Nu25779 decided July 7, 2009

The part of the lower judgment against the Plaintiff and the part against the Defendant pertaining to the imposition of value-added tax, excluding penalty taxes for failure to record tax invoices, are reversed, and this part of the case is remanded to the Seoul High Court. The Defendant’

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Plaintiff’s ground of appeal

Although it is not clear whether a party's claim contains a subject matter of lawsuit, it shall be deemed that the subject matter of lawsuit is included in the claim, if it is evident that the claim is asserted from the original cause of claim with regard to the subject matter of lawsuit, and later, the parties clearly stated the subject matter of lawsuit by arranging the claim in accordance with the cause of claim and clarifying the subject matter of lawsuit in accordance with the application for modification of the claim. Thus, whether the subject matter of lawsuit is complied with shall be determined at the time of submission of the complaint, not at the market price of modification of the claim (see Supreme Court Decision 88Nu10251, Aug. 8, 1989, etc.).

According to the reasoning of the lower judgment and the evidence duly admitted by the lower court, the Plaintiff reported KRW 494,652,38 on October 4, 2005 as the refund amount of the value-added tax for the second half-yearly period of 2004, but the Defendant deemed that most of the refund amounts reported by the Plaintiff fell under the input tax amount for which necessary entries in the tax invoice are entered differently from the facts, and thus, imposed a disposition rejecting refund of KRW 493,370,20 (hereinafter “instant disposition rejecting refund”) on the remaining 493,370,200 (hereinafter “instant disposition rejecting refund”), and the Plaintiff’s disposition rejecting refund of value-added tax for the second half-yearly period of 204, 335,640 (hereinafter “instant disposition imposing value-added tax”), and the Plaintiff’s disposition rejecting refund of KRW 208,400,000,000,0000 for the first half-yearly period of 30,000,0000 won.

In light of the above facts in light of the legal principles as seen earlier, the notice of KRW 106,485,820 against the Plaintiff is combined with the instant refund refusal disposition and the instant additional tax imposition disposition. The Plaintiff’s claim stated in the complaint that “the Plaintiff’s revocation of the instant disposition of imposition of value-added tax KRW 106,485,820 for the second period of 2004” is not merely seeking partial revocation of the instant additional tax imposition disposition, but also seeking revocation of the instant refund refusal disposition. Thus, it is reasonable to view that the Plaintiff’s amendment of the purport of the claim to seek revocation of the instant refund refusal disposition by clearly stating that the Plaintiff’s revocation of the instant refund refusal disposition is also sought. Accordingly, the Plaintiff’s claim for revocation of the instant refund refusal disposition cannot be deemed to have been newly added only when the Plaintiff revised the purport of the claim.

Nevertheless, the court below rejected the claim for revocation of the refund refusal disposition of this case on June 3, 2009, on the premise that the claim for revocation of the disposition of imposition of value-added tax of KRW 106,485,820 for the second quarter of 2004 by the original complaint shall be deemed to have been sought only for revocation of part of the disposition of imposition of additional tax of this case, and on June 3, 2009, the amendment of the purport of the claim of this case on June 3, 2009 shall be extended to KRW 107,335,640, and the new addition of the claim for revocation of the refund refusal disposition of this case shall be deemed to have been filed on June 3, 2009 after the filing period of the lawsuit. The court below erred by misapprehending the legal principles as to the amendment of the purport of the claim and the period for filing

2. As to the Defendant’s ground of appeal

A. As to the fact that the instant tax invoice was a false tax invoice

According to the reasoning of the judgment below, the court below determined that the tax invoice 35 (hereinafter "tax invoice of this case") issued when the plaintiff purchased gold bullion amounting to KRW 1202kg and KRW 17774 million from the business operators of non-party 1, etc. (hereinafter "the gold bullion of this case") does not constitute a false tax invoice, and rejected this case's tax invoice of this case where the plaintiff only paid the purchase price while he purchased the gold bullion of this case and there was no value-added tax collected, although the plaintiff did not collect value-added tax, the amount equivalent to KRW 10/11 of the purchase price was stated as the supply price, and the amount equivalent to value-added tax amount equivalent to KRW 1/11 as value-added tax, which constitutes a false tax invoice, on the ground that there is no evidence to prove that the plaintiff was not subject to value-added tax.

The ground of appeal on this part is that the court below erred in rejecting the defendant's assertion on the above ground, but it is merely erroneous in the selection of evidence or fact-finding which belongs to the exclusive jurisdiction of the court below, and it cannot be a legitimate ground of appeal.

B. Regarding the fact that unfair input tax deduction and refund claims violate the principle of good faith

(1) Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter “Framework Act on National Taxes”) declares that the principle of good faith should be a basic guiding ideology in the field of tax law by stipulating that “A taxpayer shall perform his/her duty in good faith and sincerity. This shall also apply in cases where a tax official performs his/her duty.” This principle of good faith, which enables the establishment of concrete feasibility through the function of embodying or supplementing the existing law and supplementing the criticism of the law, plays a role of revising the principle of good faith in the field of tax law, and its scope is somewhat limited compared to that of no taxation without law. However, if a tax law provision is applied to an individual case, it would result in an unreasonable consequence, which would result in a sound performance of his/her duty in light of the universal justice and ethics, and thus, it may be excluded from the application of the principle of good faith or legal order under Article 15(1) of the Framework Act on National Taxes (the main text).

(2) Article 15 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010) provides that when an entrepreneur supplies goods or services, the value-added tax on the value of the supply thereof shall be collected from the person who receives the supply thereof. Article 17(1) provides that the value-added tax to be paid by an entrepreneur shall be the amount obtained by deducting the input tax amount from the output tax amount, and that the input tax amount exceeding the output tax amount shall be refundable. This system adopts the so-called tax credit for all stages of transactions prior to reaching the final consumer. This is based on the fact that the entrepreneur, who receives the goods or services, pays the output tax amount to the State, collects it from the entrepreneur who receives the goods or services at each stage of transaction before reaching the final consumer, and ultimately imposes the burden on the final consumer in turn through the process of deducting and refunding it as the input tax amount from the State (see, e.g., Supreme Court Decision 9Da3984, Nov. 12, 1999>

Therefore, in a series of continuous transactions, where a malicious business operator in one phase has attempted to evade value-added tax from the beginning to the end, and does not pay the value-added tax collected by him/her only by attempting to make an abnormal transaction that only causes losses if he/she does not evade value-added tax (hereinafter “illegal transaction”), such as an exporter in the next transaction stage, if a business operator is entitled to deduct or refund the input tax without the burden of the output tax amount due to applying the zero-rate tax rate, such as the exporter, the country has no choice but to pay other tax revenues. As such, the result exceeds the passive gap of tax revenues and constitutes the outflow of the National Treasury, and thus, the burden exceeds the damage of the value-added tax system itself, thereby causing serious harm to the overall tax system.

Of course, even if there are the above reasons, if an exporter is in a situation where the existence of an illegal transaction is unknown at all, he/she may not, in principle, deny that the exporter is entitled to deduct or refund an input tax amount, as prescribed by the Value-Added Tax Act. However, if the exporter was aware that there was an illegal transaction at the pre-stage stage, and he/she had engaged in a transaction with an opportunity to promote his/her own interest without vagasing it, and his/her transaction profit is attributable to the aforementioned illegal transaction, and his/her participation in the transaction would ultimately be a critical factor that makes it possible to make an illegal transaction ultimately by taking advantage of the input tax deduction and refund system, which is a premise, it shall be deemed an act of pursuing unjust profits by abusing the input tax deduction and refund system, and thus, such exporter’s deduction and refund of an input tax amount with another tax revenue may not only guarantee the profits accrued from an illegal transaction through the National Treasury, but also may not prevent serious harm to the overall tax system as seen above.

Therefore, in such a case, an exporter’s seeking the deduction and refund of an input tax amount cannot be easily paid in light of the universal sense of justice and ethics, which is contrary to the principle of trust and good faith as stipulated in Article 15 of the Framework Act on National Taxes, and thus, it shall not be permitted. Such a legal doctrine is reasonable to deem that the same applies to a case where an exporter was unaware of the existence of such an illegal transaction due to gross negligence in light of the perspective of fairness, the gravity of the outcome, and the universal sense of justice, namely, in a case where the exporter was unaware of the existence of such an illegal transaction due to gross negligence, in view of the relationship with a malicious business entity, if the exporter was aware of the fact that he was fully aware of it, and even if he did not know of it, it would have significantly violated the duty of due care to be close

In addition, in such cases, since an exporter who is in a mutual relationship with a malicious business entity is entitled to deduct and refund input tax from the State, and thus, the exporter denies the deduction and refund of input tax to such exporter, it cannot be said that he/she transfers his/her liability for the evasion of value-added tax to the exporter without reasonable grounds.

Meanwhile, Supreme Court en banc Decision 94Nu1449 Decided December 21, 1995 ruled that since Article 17(2) of the former Value-Added Tax Act (amended by Act No. 4663 of Dec. 31, 1993) provides that the deduction of the input tax amount cannot be denied without such special provision, the deduction of the input tax amount pursuant to Article 17(1) of the same Act cannot be denied without such special provision. However, the purport of such provision is not to prevent the denial of the deduction and refund of the input tax amount by exceptionally amending Article 17(1) of the same Act based on the principle of good faith.

(3) According to the reasoning of the first instance judgment cited by the court below, the plaintiff was established for the purpose of manufacturing and retail business of gold bullion, etc. on February 12, 2004, with capital of 100 million won or more, and the representative director of the company was not engaged in the previous gold bullion business or trade business. ② Nevertheless, the plaintiff purchased large amount of gold bullion over several times in the first year of its establishment and processed it in the form of the same day or short period, and then exported most of them in the form of gold bullion. ③ The malicious business operators such as the non-party 3 corporation, non-party 4 corporation, and non-party 5 corporation, etc., who were the whole phase of the plaintiff, were exempted from the output tax and supplied it at low price to the non-party 2 who did not intentionally receive the recommendation of tax exemption, and the plaintiff purchased the gold bullion export price and the refund price of the gold bullion in the first half year to the non-party 20-party 4 corporation that did not purchase the gold bullion at the export price of this case.

According to the above facts, the Plaintiff could have purchased or exported the gold bullion of this case in a short time with profit margin is due to the malicious business operator in the middle stage supplied the gold bullion of this case at a low price. In light of the structure of the transaction, it is almost impossible for the Plaintiff to engage in an illegal transaction without securing the market by exporting a large amount of gold bullion of this case. Accordingly, the Plaintiff and malicious business operator are in an inevitable mutual dependence relationship with each other. In addition, if the Plaintiff cannot obtain a deduction or refund of the input tax amount, it is deemed that the burden of the tax amount would exceed the profit margin, and thus it is impossible for the Plaintiff to obtain a deduction or refund of the input tax amount from the State through the application of zero-rate tax rate. Such mutual dependence is necessarily premised on the Plaintiff’s deduction or refund of the input tax amount by applying zero-rate tax rate. Moreover, since such a series of transactions are made within a short period of time, it is difficult for the State to block it in advance.

Examining these circumstances in light of the legal principles as seen earlier, if the Plaintiff, an exporter, has a malicious entrepreneur who makes an illegal transaction for the purpose of evading the output tax amount in the course of a series of transactions previously conducted prior to the transaction, and thus, seeks the deduction and refund of the input tax amount even though he knew of or was unable to know the fact that the Plaintiff’s deduction and refund of the input tax amount would result in a decrease in other tax revenues by gross negligence, it is not only intended for the Plaintiff, who was involved in an illegal transaction by a malicious entrepreneur, to take part of the output tax amount evaded by a malicious entrepreneur by abusing the input tax deduction and refund system, but also would undermine the foundation of the VAT system and the overall tax justice under Article 15 of the Framework Act on National Taxes.

(4) If so, the court below should have sufficiently deliberated on whether the plaintiff knew or was unaware of the above circumstances in the transaction of the gold bullion in this case by gross negligence, and judged whether the plaintiff's claim for deduction and refund of the plaintiff's input tax amount was against the principle of good faith. However, without such deliberation and determination, the plaintiff's claim for deduction and refund of the plaintiff's input tax amount should be allowed solely on the ground that the tax invoice in this case does not constitute a false tax invoice, and thus, the defendant's imposition of value-added tax (including penalty taxes for insincerely reported and penalty taxes for unfaithfully paid, but excluding penalty taxes for insincerely paid, because they are irrelevant to the principle of good faith) on October 4, 2005. In this part, the court below erred by misapprehending the legal principles on the principle of

The ground of appeal pointing this out is with merit.

C. As to the imposition disposition of corporate tax

The defendant also stated this part of the petition of appeal as subject to appeal, but there is no legitimate ground of appeal in the petition of appeal or appellate brief.

3. Conclusion

Therefore, among the part against the plaintiff and the part against the defendant, the part on the imposition of value-added tax, excluding the additional tax for failure to make entries in the tax invoice, shall be reversed, and this part of the case shall be remanded to the court below for a new trial and determination, and the defendant's remaining appeal shall be dismissed. It

In this decision, the Plaintiff’s assertion on deduction and refund of input tax amount violates the principle of good faith, except there is a separate opinion by Justice Park Si-hwan and Justice Kim Ji-hyung and a dissenting opinion by Justice Jeon Soo-ahn.

4. Separate opinion by Justice Park Si-hwan and Justice Kim Ji-hyung

A. The majority opinion argues that if the plaintiff knew or was unable to know the circumstances that there was a malicious business operator's malicious transaction aimed at evading the output tax amount in the series of trade processes until the gold bullion was imported and exported, and that the deduction and refund of the input tax amount against the plaintiff would cause a decrease in other tax revenues, the plaintiff's assertion of input tax deduction and refund cannot be permitted against the principle of good faith. As such, in principle, the plaintiff's assertion of input tax deduction and refund can also be subject to the principle of good faith, we cannot agree with the majority opinion on the following grounds.

B. Value-added tax is a consumption tax that recognizes the capacity to pay taxes on the consumption of goods. The Value-Added Tax Act provides that a final consumer, who is a tax payer, is not a tax payer, but a business owner is liable to pay the value-added tax and is subject to tax collection to eliminate the burden of the business owner and transfer the burden to the final consumer. The business owner who receives goods or services through such devices is free from the burden of value-added tax by receiving the input tax deduction and refund from the State. Therefore, because there is no burden on value-added tax, the input tax amount collected from the former business operator should be refunded to the State. This is the basic principle of the tax credit system in the preceding phase, and the same applies to cases where the former business operator, who collects the output tax on behalf of the State, did not pay it to the State. To limit this on the grounds of tax policy, it can not be readily limited solely on the grounds that the law explicitly provided

In light of this purpose, in order to limit the Plaintiff’s claim for deduction and refund of input tax amount as an exporter of gold bullion under the principle of good faith, the Plaintiff’s failure to know or gross negligence on the part of the malicious business operator’s wrongful trade, etc. is insufficient. In addition, the Plaintiff actively participated in the criminal act of malicious business operator evading output tax amount through illegal trade, and in return, part of output tax amount evaded by malicious business operator should reach

C. In addition, even if there was an illegal transaction by a malicious business operator with the intent to evade tax only during a series of transactions, if the exporter participated after converting the illegal transaction of the malicious business operator into the normal transaction that had no intent to evade tax at the subsequent transaction stage, it is unreasonable to specially treat the deduction and refund of the input tax recognized as the normal transaction by the Value-Added Tax Act on the grounds that the exporter knew of or was unable to know of the malicious business operator's illegal transaction at the previous transaction stage. On the other hand, even if a defective declaration of intent was made, it cannot be asserted against a bona fide third party, and on the other hand, it cannot be asserted against a person who had a new interest with a bona fide third party after the intervention of a bona fide third party, even if he/she had a bad faith about the defective declaration of intent. In light of the general legal principles, it is reasonable to interpret that the exporter involved in the transaction after the illegal transaction was converted into the normal transaction, to the extent that he/she actively participated in the illegal transaction by the malicious business operator.

D. Meanwhile, in light of the fact that the subject matter of the principle of good faith is limited to the exporter’s claim for deduction and refund of the input tax amount in this case, the Majority Opinion is understood to have taken the position that even if there exists such bad faith or gross negligence, the exporter’s assertion of deduction of the input tax amount does not go against the principle of good faith on the ground that there is no reduction of other tax revenues. However, there is no difference between the taxable entrepreneur’s deduction of the input tax amount from the output tax amount, but the exporter’s exemption from the obligation to pay the input tax amount due to the absence of the output tax amount, and there is no difference in that the malicious entrepreneur’s exemption from the obligation to pay the input tax amount is not different from the fact that the malicious entrepreneur’s contribution to the completion of the variable’s trade, and thus, it is difficult to understand that the Majority Opinion treats a taxable entrepreneur differently from the exporter in the application of the principle of good faith. Rather, such attitude appears to have come from the intent of limiting the application of the principle of good faith to the exporter’s active participation in the case.

E. Furthermore, the State’s loss in a series of variable gold bullion transactions in which a malicious business operator was opened is a result of evading the output amount from a malicious business operator’s maliciously malicious business operator’s failure to collect the output amount properly. As such, the State’s failure to collect the output amount from a malicious business operator’s malicious business operator’s relation is a major cause. Thus, the Majority’s position that the exporter’s failure to actively participate in the malicious business operator’s illegal transactions may be restricted solely on the ground that he/she knew of, or was unaware of, such illegal transactions due to gross negligence, etc., the fact that the exporter was not involved in the malicious business operator’s illegal transactions, can be subject to limitations on his/her assertion for

F. For the foregoing reasons, I agree with the conclusion of the majority opinion that reversed the judgment of the court below on the grounds that the Plaintiff’s assertion on deduction and refund of input tax amount violates the principle of good faith, but I agree with the separate opinion on the requirements for applying the principle of good faith.

5. Dissenting Opinion by Justice Jeon Soo-ahn

The majority opinion argues that if the plaintiff, an exporter, knew or did not know by gross negligence that there was a malicious business operator with the intent to evade the output tax amount in the course of a series of transactions previously conducted prior to the transaction, and that his input tax deduction and refund would cause losses to other tax revenues, seeking the deduction and refund of the input tax amount may be deemed as violating the principle of good faith, but the court below's decision on this part is reversed by misapprehending the legal principles and incomplete deliberation on the ground that the plaintiff allowed the deduction and refund of the input tax amount without sufficient deliberation. The majority opinion is without merit for the following reasons.

A. We examine the application of the good faith principle under tax law.

There is no doubt that the principle of trust and good faith can be applied to legal relations concerning value-added tax, because taxpayers should faithfully perform their obligations.

However, the substance of tax law relations is that the state or local government, which is a tax obligor, seeks the performance of a tax obligation to a national who is a tax obligor, and the tax obligation is different from a legal obligation under the private autonomy in that both its existence, size, and performance are determined by law. In addition, there is a need for fair and prompt confirmation and efficient collection due to the public interest, and for this purpose, the tax obligor is granted the superior authority and status over the tax obligor compared to the tax obligor. There is a reason why the principle of legality is strongly demanded in the field of tax law, and there is an important action to protect the property rights of the people and secure due process as long as the discovery and securing of tax source is not possible in the interpretation and application of tax law.

However, as long as the application of the principle of trust and good faith in the area of tax law especially its substantive law results in a change of the existence and scope of tax claims and obligations as prescribed by law, its application is more limited to the legal relations formed by the decision-making of the parties, and more careful application should be made only when it is deemed necessary to protect trust, even if there is a sacrifice of legality.

In the context of the procedural law, the tax authority exercises its superior authority, such as the right to a field investigation. On the other hand, when a taxpayer commits an act contrary to his past speech and behavior against the tax authority, the tax authority would be subject to disadvantages such as deprivation of benefits, such as tax reduction or exemption, sanctions by various additional taxes, such as a failure to report, a failure to make a false entry, a failure to submit data, and penal provisions. Therefore, the application of the principle of good faith on the ground of a taxpayer’s good faith is not allowed unless the degree of such act is extremely severe (see Supreme Court en banc Decision 95Nu18383, Mar. 20, 1997, etc.)

The precedent limits the application of the principle of good faith to taxpayers in the principle of prohibition of inconsistency or the principle of no-competence, and does not extend to the principle of prohibition of abuse of rights (see, e.g., Supreme Court en banc Decision 95Nu18383, Mar. 20, 1997; Supreme Court Decision 2006Du14865, Apr. 23, 2009).

B. It is deemed from the perspective of the input tax deduction requirement.

(1) According to Article 17(1) of the Value-Added Tax Act, an entrepreneur is entitled to receive lawful tax invoices accompanying the supply of goods or services, and is not asked whether the other party to the transaction has reported a value-added tax to the State, and whether the reported amount of the input tax has been paid. Therefore, whether an entrepreneur is entitled to receive the input tax deduction is irrelevant to whether the amount equivalent to the amount of the input tax collected through the transaction is actually attributed to the National Treasury or not. This is also revealed through such example as the State allows an entrepreneur, who is not subject to the collection of the value-added tax, to deduct the input tax amount under certain conditions (see Article 17(3) of the Value-Added Tax Act).

As such, it is naturally premised on the possibility that the government will take the risk of the national treasury loss in the event that the output tax amount, which is a part of the revenue, is not paid to the country, is not paid to the country, by encouraging the number of tax invoices, thereby facilitating the detection of taxation transactions by encouraging the government to collect tax invoices, and by rewarding the business operator who received the tax invoice, reduces the amount of the input tax amount in an early manner.

Meanwhile, Article 17(2) of the Value-Added Tax Act provides for a specific provision on the input tax amount not deducted. The Supreme Court en banc Decision 94Nu1449 Decided December 21, 1995 also ruled that Article 17(2) of the Value-Added Tax Act provides for the input tax amount not deducted and provides for the convenience of taxation procedures or the tax policy deduction, as well as the case where it is natural in light of the principle of value-added tax as well as for the convenience of taxation procedures and the case where the deduction of the input tax amount is determined. Since the issue of whether to deduct the input tax amount is one of the most important factors for the determination of the amount of the value-added tax, it shall not be left to the interpretation of whether to deduct it, and it shall be deducted in accordance with Article 17(1) of the Value-Added Tax Act except as listed in the above provision, even if a tax-exempt business operator may abuse the tax exemption system, this is an exception to denying the deduction of the input tax amount without such special provision after amendment.

According to such regulations and the purport of the institution and consistent Supreme Court precedents, insofar as an entrepreneur receives a tax invoice from the opposite contractual party and such tax invoice does not constitute a ground for exclusion of “illegal tax invoice” under Article 17(2) of the Value-Added Tax Act, his input tax amount must be deducted and refunded.

The Majority Opinion argues that the principle of good faith should be applied to this case, even if it sacrifices the principle of legality, not to mention the grounds listed in Article 17(2) of the Value-Added Tax Act. However, it is not only an interpretation beyond the provisions of the positive law, but also it is difficult to accept it as a disposition standard by the tax authority because the standard is ambiguous.

(2) In the instant case, there is no doubt as to whether the Plaintiff satisfied the requirements for input tax deduction of value-added tax. Nevertheless, the Defendant’s defense, which asserts that the tax deduction and refund of the Plaintiff’s input tax amount, is lawful, is contrary to the principle of good faith, since the Plaintiff’s permission to deduct and refund the input tax amount could not prevent unjust exploitation of the national funds, thereby endanger the existence of the value-added tax system and harming the foundation of the tax system. In such case

However, the Plaintiff’s input tax deduction and refund are arising from the taxation transaction and transaction collection with the other party, and the receipt of the tax invoice. This is also necessary and adequate as a requirement for the deduction and refund of the input tax under the Value-Added Tax Act. Therefore, it is difficult to view that seeking the deduction and refund of such input tax is contrary

C. We examine the reasoning of the Majority Opinion.

(1) The Majority Opinion argues that inasmuch as our value-added tax takes the structure of the pre-stage tax deduction, it is difficult to maintain the system of value-added tax where the input tax amount is deducted and refunded, even if the output tax amount was not paid properly, it is difficult to maintain the system of value-added tax where the input tax amount is deducted and refunded by using another tax revenue as a revenue source. This constitutes an active outflow to the National Treasury beyond the gap of tax revenue, and thus, constitutes a serious harm to the overall tax system.

The separate opinion that such argument is inappropriate is already properly pointed out (see e.g., 13 pages). However, as long as the defendant regards transactions between the plaintiff and the other party as a real transaction and thus subject to the imposition of the output tax, the defendant should deduct and refund the corresponding input tax amount, and the defendant's refusal is contrary to the principle of no-competence, as it is contrary to the principle of no-competence (see, e.g., Supreme Court Decision 2008Du12665, Feb. 26, 2009).

In short, a malicious entrepreneur’s tax evasion and an exporter’s tax deduction and refund at the pre-stage stage are entirely different from the elements of the elements thereof. The reduction of the tax revenue in this case is not attributable to the exporter’s refund of the input tax amount, but due to the malicious entrepreneur’s failure to pay taxes. The tax authority’s refund of the input tax amount is based on the national treasury, and its financial resources are required through various tax dispositions and collection dispositions corresponding thereto by the tax authority. The Defendant is the substantive assertion on the application of the principle of good faith that the Plaintiff’s application for the deduction and refund of the input tax amount irrelevant to the Plaintiff’s tax collection on the ground that the Plaintiff’s application for the deduction and refund of the input tax amount was not partially collected. Accordingly, it is consistent with the Plaintiff’s application for the deduction and refund of the input tax

The Majority Opinion argues that since there is no financial resources for deduction and refund of input tax amount, it is difficult to maintain the pre-stage tax credit system. However, in order to maintain the pre-stage tax credit system, it is essential to establish the order of receipt of tax invoices and trust in the input tax amount deduction. Therefore, the Majority Opinion seems to have a risk of undermining the foundation of the pre-stage tax credit system.

(2) The Majority Opinion states that “The Plaintiff could have purchased or exported gold bullion within a short period through profit margin is because malicious business operators in the middle stage supplied the gold bullion at low prices, thereby evading the output tax amount, or that “the Plaintiff who was taking advantage of an malicious business operator’s illegal transaction is seeking to receive part of the output tax evaded by a malicious business operator by abusing the input tax deduction and refund system,” but this conclusion is not based on the premise of the Majority Opinion, and thus, is inconsistent with the Majority Opinion.

First of all, even if there was a conspiracy between the Plaintiff and malicious business operators in the pre-stage stage of tax evasion, it is impossible to deny the input tax amount incurred in the transaction between the Plaintiff and the other party. This is because the grounds for the Defendant’s disposition that the instant tax invoice constitutes an “unlawful tax invoice” are unlawful, and the taxation of the output tax for the transaction between the other party or malicious business operator is justifiable.

In addition, the majority opinion argues that “the plaintiff's malicious business operator is almost unable to engage in illegal transactions without securing a market by exporting a large amount of gold bullion,” and therefore, the plaintiff and malicious business operator are bound to depend on each other. In conclusion, if the plaintiff cannot obtain the deduction and refund of the input tax amount, the burden of the tax amount would exceed the profit margin, and thereby the transaction becomes impossible, thereby making it impossible to do so, the mutual dependence relationship is premised on the plaintiff's receipt of the input tax amount from the State through the application of zero-rate tax rate to export.” In addition, the defendant's disposition refusal of the deduction and refund of the input tax amount does not refuse the application of zero-rate tax rate, and the majority opinion does not deny the application of zero-rate tax rate to the plaintiff, as long as it does not intend to deny the application of zero-rate tax rate to the plaintiff.

D. We examine this from the perspective of no taxation without law.

(1) The Majority Opinion argues that even if the Plaintiff did not have a competitive relationship with the other party or the pre-stage transaction, the input tax amount cannot be deducted and refunded in the event that the Plaintiff neglected to perform its duty to look at such doubtful circumstances.

However, the application of the principle of no taxation without law not only pertains to the tax items and tax rates that directly affect the existence and size of the tax obligation itself, but also to the various cooperation obligations incidental thereto, for example, the other party who pays income subject to withholding is obligated to collect and pay an amount equivalent to the tax amount at the time of paying the income, and to faithfully keep the account books. Rather, in cases where the tax obligation stipulated in the Constitution is imposed, but also imposes an obligation on the people with regard to the tax obligation of other taxpayers, other than its own tax obligation, it should have more explicit grounds under the tax law.

As one of such tax obligations, the Value-Added Tax Act requires not only the supplier to issue and issue a tax invoice but also the other party to the transaction to receive the tax invoice, which is a cooperation obligation between the tax authority and the state and a legal obligation based on the law, which is imposed to facilitate the identification of the tax transaction.

According to the Majority Opinion, in addition to receiving a tax invoice as an entrepreneur’s trade obligation, the Majority Opinion imposes a duty of care by examining whether an entrepreneur in the opposite contractual party or prior phase is a business operator who evades or is to evade taxes in a fraudulent way, and whether the deduction and refund of his own input tax amount may cause a decrease in the national treasury (the degree of the duty of care is not important) and makes it impossible to obtain input tax deduction and refund if he neglects such a duty, which is contrary to the principle of no taxation because it creates a new obligation under tax law without any legal basis

(2) Article 17(2) of the Value-Added Tax Act provides that, if the input tax deduction system is interpreted and operated as the majority opinion, it would result in an ambiguous provision, such as “where other input tax deductions are obviously unfair because they may be abused for other tax evasions.” This is also inappropriate as a legislative theory in light of the characteristics of value-added tax which is uniformly and repeatedly subject to taxation. It is clear that the Restriction of Special Taxation Act was amended on December 31, 2007 in order to prevent the decline in tax revenues or the harm of outflow of national treasury from the transactions of the type of gold bullion from July 1, 2008 to the designated person by the Commissioner of the National Tax Service, and the revised Act introduced the input tax payment system for the gold bullion transaction from July 1, 2008 to the effect that “if the relevant value-added tax amount is not paid, it shall not be deemed a input tax amount to be deducted from Article 17 of the Value-Added Tax Act, regardless of whether the newly established system and provision conforms with the nature of the value-added tax system.

In addition, the Majority Opinion declares that the tax authority may refuse the deduction or refund of input tax on the grounds of good faith when certain requirements are met, and does not present the specific requirements and clear standards. Therefore, if the tax authority deems it contrary to universal justice and ethics, it would be likely that the tax authority in superior position may exercise the right to impose taxes differently from the provisions of law, and thereby, may cause a failure in the taxation procedure, tax resistance, and unnecessary litigation.

The principle of no taxation without law, which is declared under Articles 38 and 59 of the Constitution, shall be stipulated by the law enacted by the National Assembly, and it shall be strictly interpreted and applied in its enforcement. Although there is a need for taxation, it is not allowed to resolve it by the expanded interpretation or analogical application of the administrative convenience (see Supreme Court en banc Decision 98Du11731, Mar. 16, 200). If a tax authority aims to pursue the necessity of taxation, or the purpose of taxation through acting as a broker of justice and ethics, it cannot be avoided from undermining the principle of no taxation without law, which lives as legal stability and predictability.

E. We examine whether it conflicts with precedents.

In accordance with the Majority Opinion, the Supreme Court en banc Decision 94Nu1449 Decided December 21, 1995, etc., supra, ought to be carefully considered to have reached a conclusion that ought to be amended. The Supreme Court precedents held that “it is impossible to deny the input tax deduction unless a tax-exempt business operator amends the law, even if he/she is able to abuse the zero-rate system,” and the Majority Opinion states that “if a business operator is able to abuse the zero-rate system, the input tax deduction may be denied.”

In addition, the Supreme Court held that the above act of fraud and other unlawful acts referred to in Article 9 of the former Punishment of Tax Evaders Act (wholly amended by Act No. 9919, Jan. 1, 2010; hereinafter the same) is an act that enables the refund of taxes by social norms, i.e., deceptive scheme that enables the refund of taxes and other active acts (see, e.g., Supreme Court Decisions 2004Do5649, Jun. 23, 2005; 2005Do9789, Apr. 7, 2006). The Supreme Court held that the above act of exporting gold bullion constitutes an exporter’s intentional act of tax evasion under Article 9 of the former Punishment of Tax Evaders Act, and that the above act of exporting gold bullion constitutes an exporter’s intentional act of tax evasion under Article 70 of the former Punishment of Tax Evaders Act, and that the above act of exporting gold bullion constitutes an exporter’s actual act of reducing the national tax revenue by means of an excessive tax invoice.

In addition, the same type of case as this case is identical to this case’s judgment affirming the deduction and refund of input tax amounts (Supreme Court Decision 2009Du15869 Decided May 13, 2010, etc.) and its conclusion are consistent with the principle of equity.

F. We examine the consistency of the conclusion.

Along with the fact that a malicious entrepreneur’s malicious business with the intent to evade value-added tax has serious harm to the national treasury in a series of variable gold bullion transactions, it can be sufficiently clear that such harm has been caused to the national treasury. A malicious entrepreneur and his accomplices who evaded the output tax amount should be punished, and illegal benefits should be recovered through the imposition of fines, etc. However, as the majority opinion states, refusing to deduct and refund the input tax amount irrelevant to the output tax amount and its load, which is not paid by a malicious entrepreneur as stated in the majority opinion, is a violation of the principle of no taxation without the law, i.e., taking advantage of the foundation of the remaining phase-of-stage tax credit system, which focuses on a small interest that prevents the national treasury from incurring loss. Unlike the majority opinion, ensuring the deduction and refund of the input tax amount by guaranteeing the entrepreneur’s input tax deduction and refund would not cause a loss to the national treasury, but in the long term, by protecting the trust of the people in the tax invoice and

G. Ultimately, in the instant case, the Plaintiff’s input tax amount to be deducted and refunded satisfies the requirements for input tax deduction under Article 17(1) of the Value-Added Tax Act, and does not constitute the input tax amount not deducted under Article 17(2) of the said Act, and thus, cannot be limited on the ground that it violates the principle of good faith. Therefore, the lower court’s judgment recognizing the Plaintiff’s input tax deduction and refund on the ground that the instant tax invoice does not constitute a false tax invoice

For the foregoing reasons, I express my concurrence with the reasoning and conclusion of the Majority Opinion.

Justices Yang Sung-tae (Presiding Justice)