Cho High Court Decision 2009No4151 ( October 12, 2010)

A disposition imposing value-added tax by deeming that membership fees have been paid in return for the provision of services is legitimate.

Comprehensively taking account of the fact that the Plaintiff is a legal entity separate from the operators of the youth hostel, the Plaintiff constitutes a business entity, and the Plaintiff is in a position to arrange travel or receive various discounts, and it is insufficient to recognize that the Plaintiff supplied services at actual expenses. Therefore, it is not exempt from tax.

2011Revocation of disposition of imposing value-added tax;

Dogsung (hereinafter referred to as an incorporated association)

O Head of tax office

May 6, 2011

May 27, 2011

1. The plaintiff's claim is dismissed.

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

The defendant's value-added tax on April 23, 2009 34,161,620 won (including additional tax), value-added tax on the second half year of 2004, value-added tax on the second year of 2004 27,597,870 won (including additional tax), value-added tax on the first year of 2005 24,878,370 won (including additional tax), value-added tax on the second year of 2005 23,259,540 won (including additional tax), value-added tax on the first year of 2006 17,817,900 won (including additional tax), value-added tax on the second year of 206 2,22,249,470 won (including additional tax), value-added tax on the second year of 207 207 1,207 207, 371, 2071, 2071(including additional tax on the tax on the second year 207

1. Details of the disposition;

The following facts are not disputed between the parties, or can be acknowledged in full view of the purport of the entire pleadings in the entries in Gap evidence 2 and Eul evidence 1-10.

A. At the same time, the Plaintiff received membership fees from individuals and organizations that wish to run their family business, and registered them as members and issued membership cards.

B. On April 23, 2009, the Defendant deemed that the above membership fee constitutes a taxable object of value-added tax, and revised and notified the Plaintiff of each value-added tax from January 2004 to February 2, 2008 as stated in the purport of the claim (hereinafter “each disposition of this case”).

2. Whether the disposition is lawful;

A. The plaintiff's assertion

The plaintiff asserts that each disposition of this case is unlawful for the following reasons.

1) The Plaintiff merely proceeds from the public activities called the youth hostel movement and does not supply goods or services through membership registration. Benefits such as discount of fees for the youth hostel, preferential reservation, etc. offered by members are merely offered from the youth hostel in the course of individual use of the youth hostel, and only are incidental to the use of the youth hostel, which is the main service, in the case of the issuance of membership certificates, the issuance of membership certificates cannot be deemed as an independent supply of goods. Accordingly, the Plaintiff does not constitute a person who independently supplies goods or services, a taxpayer under the

2) Even if the Plaintiff is an entrepreneur under the Value-Added Tax Act, the Plaintiff’s membership fee is not a quid pro quo relation to the provision of goods or services to its members, in light of the fact that the Plaintiff is not essential to become a member for the use of the youth hostel, that there is no limit to the number of its use or any addition to the number of its members depending on the number of its use, that most of its membership fee was paid as project expenses for a public interest project, and that

3) Even if the Plaintiff received membership fees in return for the provision of goods and services to the members, the Plaintiff is exempt from value-added tax pursuant to Article 12(1)16 of the Value-Added Tax Act (amended by Act No. 9268, Dec. 26, 2008; hereinafter the same) and Article 37 subparag. 1 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter the same) comprehensively taking into account the following: (a) a nonprofit incorporated association permitted by the competent authority, which is a non-profit incorporated association whose proper purpose of business is education, culture, etc. for fostering the qualities of healthy juveniles beneficial to society; and (b) the economic benefits that the Plaintiff may receive, given that the Plaintiff’s membership fees are merely the actual cost of the goods and services provided by the Plaintiff,

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

The following facts are not disputed between the parties, or can be acknowledged in full view of the purport of the whole pleadings in the statements in Gap evidence 1-1, 2, 3, 4, 5, 7, 1-2, 8-2, 2-2, 4-4, 5-5, 5-2, 6-1, 6-2, 3, 7 and 8.

1) The Plaintiff is a non-profit legal entity established with the permission of the Minister of Home Affairs, who is the competent authority at the time of April 27, 1967. The purpose of the Plaintiff is to establish and operate a youth hostel as cultural seal for the purpose of enabling juveniles to obtain wide knowledge of various areas, such as booms, history, culture, wind, industry, etc. in Korea and abroad, through outdoor travel activities at its own expense, based on the rules and spirit of the International Youth Host Association, and the rules and spirit of the International Youth Host Association, and to contribute to the fostering of the quality of juveniles beneficial to society and sound quality by allowing them to offer and use it. The Plaintiff’s competent authority is the Ministry of Gender Equality and Family.

2) A business objective on the Plaintiff’s corporate register is ① the development of the youth hostel movement, ② the establishment and operation of the youth hostel, ③ the selection of the youth hostel courses and the intermediation of travel, recommendation, ④ the publication of machinery and books, ⑤ the improvement and mediation of equipment necessary for the youth hostel movement, ⑤ the partnership with an organization with an objective of unification, 6 the practice of the youth hostel movement and 7 the practice of the Charter, 8 the study of juvenile guidance problems, 9 the training and guidance of the youth hostel, 10 the establishment and award of the youth hostel, and 200 others.

3) The provisions of the Plaintiff’s articles of incorporation, membership management regulations, and operating rules for youth hostel are the corresponding provisions of the relevant Acts and subordinate statutes.

4) A person wishing to become a member of the Plaintiff must pay the membership fee, depending on the type of the member, as follows. 10% discount shall be made where 20 or more organizations or agencies are members, and 20% discount shall be made where they are renewed within 3 months after the expiration of the term of validity.

5) 회원증 소지자는 유스호스텔 이용료의 할인이나 예약의 우선 외에도 RR은행 환전수수료 50% 할인, QQQQ렌터카 40% 할인, PP극장 30% 할인, XXXXXX 철도 유레일패스 할인 등 국내외 2,500여 개 업체에서 할인혜택을 받으며, 원고는 홈페이지에 위와 같은 할인혜택을 홍보하고 있다.

6) The details of classes and withdrawals from the business year 2004 to the business year 2008, which the Plaintiff reported to competent authorities, are as follows.

7) The Plaintiff, in alliance with the Korean Juvenile Organization Council, the AIG non-life insurance, etc., was engaged in profit-making business, such as insurance for students abroad from the AIG and the contract for the distribution of profits to the subscribers.

D. Determination

1) Whether a business entity is a business entity

In full view of the following circumstances revealed in the above facts, i.e., a legal entity separate from the youth hostel operator, the Plaintiff’s provision of an opportunity to arrange a trip or various discounts to its members, which is separate from the lodging service provided by the youth hostel operator, and the membership fee belongs directly to the Plaintiff rather than the youth hostel operator, the Plaintiff constitutes a business operator under the Value-Added Tax Act. Accordingly, the Plaintiff’s assertion on this part is without merit.

2) Whether there exists a quid pro quo relationship

In light of the following circumstances revealed in the above facts, i.e., that only the person who joins the membership becomes eligible to arrange for travel or receive various discounts provided by the Plaintiff, the Plaintiff is deemed to have paid membership fees for the economic and practical consideration of the Plaintiff’s supply of such services to the members. There are circumstances such as the Plaintiff’s payment of membership fees for the economic and practical consideration of the number of times of use, the fact that the membership fees are not proportional to the number of times of use, or there is no limit to the number of times of use, and the Plaintiff’

3) Whether it constitutes tax exemption pursuant to Article 112(1)16 of the Value-Added Tax Act

If the plaintiff, who is a business operator, received the membership fee in return for the service provided by the plaintiff, it shall be subject to value-added tax unless there are special circumstances, and it shall be proved by the taxpayer that the above membership fee is not subject to taxation and is subject to tax exemption under Article 12 (1) 16 of the Value-Added Tax Act.

First, an organization with the purpose of public interest exempt from the value-added tax under Article 12(1)16 of the Value-Added Tax Act refers to an organization with its own direct purpose of promoting the general welfare of society (see, e.g., Supreme Court Decision 95Nu14428, Jun. 14, 1996). In light of the Plaintiff’s legal personality register and the purpose of its establishment, business contents, etc. stated in the Plaintiff’s articles of incorporation, the Plaintiff is an organization with the purpose of public interest, and the Plaintiff’s services provided in relation to membership constitute services supplied for its own purpose of business.

Next, it is examined as to whether the service supplied by the Plaintiff constitutes a service that temporarily supplies or supplies facilities or supplies free of charge. As seen earlier, the service supplied by the Plaintiff is not supplied as temporary or free of charge because the Plaintiff has continuously joined the membership fee. In addition, the "actual cost" under Article 37 (1) of the Enforcement Decree of the Value-Added Tax Act refers to the amount equivalent to the actual cost as a result of the provision of the service. The following circumstances revealed in the above recognition. In other words, the Plaintiff’s membership fee that the Plaintiff received from 2004 to 2008 from 2004 reaches 28.5%-62.4% (average 34.5%) of the annual income for each business year; the Plaintiff receives 25% of the initial membership fee at the time of re-issuance of the membership fee; the Plaintiff is also a profit-making business; the Plaintiff’s expenditure is not clearly divided into members; and the Plaintiff’s actual cost of the service is not sufficient to recognize that the Plaintiff actually supplied the service.

Therefore, this part of the plaintiff's assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.