[1] Criteria for determining whether public utility charges, such as electricity and gas charges, included in management expenses received from occupants, are included in the tax base of value-added tax

[2] The case holding that the portion of electricity and gas charges among the management fees received from the tenant is separate from the general management service charges and paid by proxy, and it is not included in the tax base of value-added tax because it cannot be viewed as being related to the supply of management services

[1] Article 13(1) main sentence of the Value-Added Tax Act provides that "the tax base of value-added tax on the supply of goods or services shall be the sum of the values in each of the following subparagraphs," and Article 48(1) of the Enforcement Decree of the Act provides that "the tax base stipulated in Article 13(1) of the Act includes all monetary values, such as the price, charge, fee, or any other fee, received from the transaction partner, regardless of the pretext thereof." Thus, even in the case of public utility charges, such as electricity and gas charges included in the management expenses received from the occupants, it shall be determined whether they are included in the tax base of value-added tax depending on whether they are related to the supply of goods or services, and if it is merely a payment on behalf of the transaction partner after receiving the public charges imposed by the supplier separately from the price for the supply of goods or services on behalf of the transaction partner, such public utility charges shall not be deemed to be in the relation of the supply of goods or services.

[2] The case holding that the portion of electricity and gas charges out of the management expenses received from the tenant is separate from the general management service expenses and thus, it cannot be deemed that the payment is made by proxy and it is not included in the tax base of value-added tax because it is not related to the supply of management services

[1] Article 13(1)1 of the Value-Added Tax Act, Article 48(1) of the Enforcement Decree of the Value-Added Tax Act / [2] Article 13(1)1 of the Value-Added Tax Act, Article 48(1)1 of the Enforcement Decree of the Value

Seoul Central Machinery Cooperative (Attorney Lee Han-hoon, Counsel for the defendant-appellant)

Head of Guro Tax Office

Seoul High Court Decision 2006Nu21339 decided April 20, 2007

The judgment below is reversed and the case is remanded to Seoul High Court.

We examine the grounds of appeal.

1. According to the reasoning of the judgment below, the court below acknowledged that, as a commercial manager in the central distribution complex of small and medium enterprises, the plaintiff is not only a real estate lease service, but also a business operator in charge of administrative and facility management, expenses, parking and cleaning management, etc., but also an exclusive measuring instrument installed by each enterprise and it notifies the enterprise that the enterprise should pay electricity and gas charges calculated by integrating the numbers of the exclusive measuring instrument and the use volume of all the enterprises in the exclusive measuring instrument and the use volume of the whole enterprise, which are calculated in proportion to the size of the area. In full view of these facts, the court below determined that it is reasonable to collect the value-added tax on the electricity and gas services provided by the plaintiff and report and pay them to each enterprise, since the plaintiff is not merely an agent for the payment of electricity and gas charges used by the enterprise, but also a commercial manager in addition to the lease service originally operated by the enterprise, and the total management fees paid to each enterprise to the plaintiff are related to the whole lease service including the electricity and gas supply service provided by the plaintiff.

2. However, it is difficult to accept the judgment of the court below for the following reasons.

The main text of Article 13(1) of the Value-Added Tax Act (hereinafter “the Act”) provides that “the tax base of value-added tax on the supply of goods or services shall be the sum of the values falling under each of the following subparagraphs,” and subparagraph 1 of Article 13 provides that “if the tax base of value-added tax is paid in money, the payment shall be made in exchange for money.” Article 48(1) of the Enforcement Decree of the Act provides that “The tax base stipulated under Article 13(1) of the Act includes payments, charges, fees, and all other monetary values, regardless of the pretext thereof, which are paid by the transaction partner.” Thus, even in the case of public utility charges, such as electricity and gas charges, it shall be determined whether it is included in the tax base of value-added tax depending on whether it is in a quid pro quo relationship with the supply of goods or services, and if it is merely a fact that a supplier of goods or services receives the public charges imposed on his/her behalf

However, according to the facts and records duly established by the court below, after concluding a contract for electricity and gas supply with Korea Electric Power Corporation and an urban gas business operator, the plaintiff paid electricity and gas rates including value-added tax to the above business operators, and supplied them to the enterprises after being supplied with electricity and urban gas, the total amount of the management fees including electricity and gas charges shall be deemed as the tax base under the Value-Added Tax Act, and the value-added tax shall be collected, reported and paid from the enterprises in the first half of 1997. In imposing and collecting management fees from the first half of 197, the plaintiff shall be divided into the management fees and the management fees provided to the enterprises (the plaintiff's execution services shall be deemed as the real estate rental services, and it shall be reasonable to view that the management fees and the value-added tax shall be collected only for the former, and in relation to the imposition and collection of electricity and gas charges for the enterprises, the amount of electricity and the gas charges under the actual usage fees and the amount of the entire usage fees and the amount of the fees paid to the enterprises in addition to the total usage fees and the amount.

Examining the above facts in light of the legal principles as seen earlier, it is reasonable to view that the Plaintiff collected the electricity and gas charges separately from the general management service charges in imposing and collecting management fees to the occupant enterprises, and paid them by proxy. Thus, the above electricity and gas charges cannot be deemed to be in a quid pro quo relationship with the Plaintiff’s supply of the above management services. Although the Plaintiff received the deduction of the value-added tax amount paid along with the electricity and gas charges from the electricity and gas supplier upon filing a value-added tax base return, it cannot be deemed that there exists a quid pro quo relationship between the supply of the above management services and the above electricity and gas

Nevertheless, on a different premise, the lower court erred by misapprehending the legal doctrine on the tax base of value-added tax, thereby adversely affecting the conclusion of the judgment, on the grounds that the Plaintiff’s ground of appeal pointing this out is with merit.

3. Therefore, without examining the remaining grounds of appeal, we reverse the judgment of the court below and remand the case to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Hong-hoon (Presiding Justice)