Busan High Court 2009Nu6261 (Law No. 23, 2010)

National High Court Decision 2007Da1109 ( November 08, 2007)

It is necessary to determine whether to refund gold bullion to an exporter of gold bullion transaction via a bombing company by applying the good faith principle.

In a series of gold bullion transactions, if a malicious business operator knew, or was unable to know, the circumstances that there was an illegal transaction for the purpose of evading the output tax amount, and that the deduction and refund of the input tax amount would lead to the reduction of other tax revenues by gross negligence, the exporter’s assertion of input tax deduction and refund cannot be permitted against the good faith principle.

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

The grounds of appeal are examined.

1. As to the fact that the instant tax invoice is a false tax invoice

The lower court determined that the instant tax invoice does not constitute a false tax invoice after comprehensively taking account of the employment evidence, and determined that the instant tax invoice does not constitute a false tax invoice.

The ground of appeal on this part is that the above judgment of the court below is erroneous, but it is merely an error in the selection of evidence or fact-finding which belongs to the exclusive jurisdiction of the court below and thus cannot be a legitimate ground of appeal.

2. Regarding the fact that unfair input tax deduction and refund claim are contrary to the principle of good faith

A. Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter “Framework Act on National Taxes”) provides that “A taxpayer shall drive away decently and faithfully in performing his/her duties. The same shall apply where a tax official performs his/her duties,” thereby declaring that the principle of good faith should be the basic guiding ideology in the field of tax law.

The principle of good faith, which enables the concrete feasibility of the operation of the law through the function of embodying or supplementing the existing law and supplementing the light nature of the sexual law, is also a role of revising the substance of the principle of no taxation without the law in the field of tax law, and thus, its scope of application is somewhat limited compared to the area of civil law. However, if there are special circumstances to deem that the provisions of tax law are applied to individual cases as they would result in unreasonable consequences which would be significantly unreasonable in light of the universal sense of justice and ethics, so it may be exceptionally restricted or excluded from the application of the provisions in good faith (Article 1 and Article 3(1) main text of the Framework Act on National Taxes). This principle can also be applied to legal relations concerning value-added tax (Article 1 and Article 3(1) main text of the Framework Act on National Taxes).

B. 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) of the same Act provides that the value-added tax payable 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 is based on the process that an entrepreneur who receives the goods or services at each transaction stage prior to reaching the final consumer, pays the input tax amount to the State after deducting the input tax amount from the output tax amount, and then pays the tax amount to the final consumer, and ultimately imposes the burden on the final consumer (see, e.g., Supreme Court Decision 9Da33984, Nov. 12, 199).

Therefore, in a series of continuous transactions, where a malicious entrepreneur has attempted to evade value-added tax from the beginning to the end, and does not pay the value-added tax collected by him by attempting to make an abnormal transaction that only causes losses if he/she does not evade value-added tax (hereinafter referred to as "illegal transaction"), as in the next transaction stage, if an exporter 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 as in the next transaction stage, as in the next transaction stage, the country has no choice but to make a refund with other tax revenues. Such a result is more than the passive gap of tax revenues, and thus, it constitutes an active outflow to the National Treasury, and thus, the burden exceeds the damage of the value-added tax system itself and is transferred to the general public, and it would cause serious harm to the overall tax system.

Of course, even if there are the above reasons, if an exporter does not know the existence of an illegal transaction at all, he/she may not, in principle, deny that the exporter can deduct or refund the input tax amount as prescribed by the Value-Added Tax Act. However, if the exporter was aware of the existence of an illegal transaction at that pre-stage stage, he/she had engaged in the transaction with an opportunity to promote his/her own interest without vagabonds, and his/her transaction profit is attributable to the aforementioned illegal transaction, and his/her participation in the transaction becomes a critical factor that ultimately makes it possible to make an illegal transaction by securing an illegal market, it shall be deemed an act of pursuing unjust profits by abusing the system of deduction and refund of the input tax amount, which is a premise, and thus, it cannot be said that the exporter’s deduction and refund of the input tax amount with another tax revenue with another tax revenue would guarantee the benefits derived from the illegal transaction by the National Treasury, as well as to prevent the serious harm caused by 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 principle is equally applicable to a case where an exporter was unaware of such 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 illegal transaction due to gross negligence, in view of the relationship with a malicious business operator, it is reasonable to deem that the same applies to a case where the exporter was unaware of the fact that he was fully aware of the fact that he did not have been aware of the fact that he did not have been aware of the fact that he

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 the input tax amount from the country to the National Treasury, the exporter denies the deduction and refund of the input tax amount as a sanction against such exporter, it cannot be said that the exporter transfers it to the exporter without reasonable grounds (see Supreme Court en banc Decision 2009Du13474, Jan. 20, 201).

C. Examining 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 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, the Plaintiff’s taking advantage of the deduction and refund system of the input tax amount, thereby seeking the deduction and refund of part of the output tax amount evaded by a malicious entrepreneur by abusing the system of input tax deduction and refund, and thus, would not be allowed in violation of the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes.

D. Therefore, the lower court should have sufficiently deliberated on whether the Plaintiff knew or was unaware of the aforementioned circumstances in trading the gold bullion in this case by gross negligence, and determined whether the Plaintiff’s assertion on deduction and refund of the Plaintiff’s input tax amount violates the principle of good faith, but without such deliberation and determination, determined that the Plaintiff’s assertion on deduction and refund of the Plaintiff’s input tax amount should be allowed solely on the ground that the instant tax invoice does not constitute a false tax invoice. In so doing, the lower court erred by misapprehending the legal doctrine on the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal

Meanwhile, the principle of trust and good faith is applicable only to cases where the input tax amount is deducted and refunded through the application of zero-rate tax rates on exports, and it cannot be applied to cases where the input tax amount is deducted and refunded in domestic tax transactions. According to the reasoning of the judgment below, the additional disposition of the value-added tax in this case includes not only the deduction and refund of the input tax amount but also the deduction and refund of the input tax amount related to domestic tax transactions as a result of the Plaintiff’s application of zero-rate tax rates on exports, and thus, it is sufficient that the difference between the input tax amount and the input tax amount is paid to the National Treasury, and it does not directly incur any loss to the National Treasury. In addition, it is sufficient to limit the exporter’s input tax amount deduction and refund in the final stage to maintain the foundation of the whole-stage input tax deduction system, but also the rejection of the refund and refund of the input tax amount as well as the input tax amount deduction and refund related to domestic tax transactions.

3. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.