National Tax Service Review Division 2009-0049 ( November 04, 2009)

An exporter of illegal gold bullion transaction via a bombing company shall determine whether to refund in accordance with the principle of good faith.

In light of the fact that all of the gold bullions in this case were imported from a foreign country and distributed as tax-free gold, they were converted to a tax amount through a bomb coal company, and were purchased and exported to the Plaintiff at a price significantly lower than the domestic wholesale price, the Plaintiff gains profits from the illegal transaction despite the fact that the Plaintiff knew or could have known the fact that the illegal transaction occurred, and thus, the input tax amount

Article 15 of the Framework Act on National Taxes

2010Guhap4322 Disposition of revocation of Disposition of Imposition of Value-Added Tax

XX Co., Ltd

The director of the tax office.

June 24, 2011

July 15, 2011

1. All of the plaintiff's claims are dismissed.

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

The Defendant’s imposition disposition of KRW 1,137,50 for the second term portion of the value-added tax for the year 2003, KRW 1,610,030 for the first term portion of the value-added tax for the year 2004, KRW 1,610,030,50 for the first term portion of the value-added tax for the year 2003, and KRW 123,581,200 for the corporate tax for the business year 203, and KRW 190,954,220 for the corporate tax for the business year 204

1. Details of the disposition;

A. The Plaintiff is a corporate entity that has carried on gold bullion (referring to gold bullion; hereinafter in this case, referred to as "gold bullion, the net value of which is at least 995/100 in the state of raw materials, such as gold bullion, dud, etc.) wholesale, export and import leaves, etc. on October 21, 2002.

B. From October 6, 2003 to May 6, 2004, the Plaintiff purchased gold bullion from XXD Co., Ltd. (the later trade name was changed to 'OO', hereinafter collectively referred to as ' XX') and received gold bullion, the Plaintiff submitted the purchase tax invoice amounting to 15,726,71 won in total (hereinafter referred to as 'the instant tax invoice') to the Defendant, and the Defendant submitted the purchase tax invoice amounting to 15,726,71 won in total (hereinafter referred to as 'the instant tax invoice', and filed a revised tax return for the second period portion in 2003, the first period portion in 204, the amount was deducted as the input tax amount, and each value-added tax for the first period portion in 204, the Defendant deemed the instant tax invoice for the Plaintiff on February 9, 2010 as the tax invoice different from the fact, imposed the input tax amount deduction and the corporate tax amount not imposed on the Plaintiff for the pertinent business year 20030, 13050, 2013010,405 won.

D. The Plaintiff appealed against the instant disposition and filed an appeal with the National Tax Tribunal, but the National Tax Tribunal dismissed it on November 4, 2009, and thereafter, the Defendant revoked the additional tax for late payment out of the value-added tax for the second period of December 22, 2009 on the instant disposition on December 22, 2009, and revoked all the additional tax for late payment out of the value-added tax for the second period of February 24, 201, and eventually, the value-added tax for the second period of the instant disposition was 679,696,600 won, and the value-added tax for the first period of the year of 2004 was 1,514,53,3950 won.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1 and 2

Note 1, 2, 13 to 17, each entry of Note B 1, 2, 13 to

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) The Plaintiff asserts that the instant disposition, which is based on the premise that the instant tax invoice was not true, is unlawful, since all of the instant transactions were normal transactions actually conducted.

(2) In light of the fact that there was an illegal transaction prior to the instant transaction, and most gold bullion related to the instant tax invoice were exported by the Plaintiff on the day or following day on which the Plaintiff was imported through various stages on the date of import by the importer, and the Plaintiff’s export price was significantly lower than the domestic wholesale price, etc., the instant transaction is not an actual transaction, and even if not, it should be deemed that the Plaintiff was aware that there was an illegal transaction prior to the instant transaction. Accordingly, the Defendant asserts that the Plaintiff may not apply the input tax deduction against the Plaintiff since it was in violation of the principle of good faith, by participating in the illegal transaction with the Plaintiff’s intent to promote its own interest and by receiving the refund of the input tax deduction from the illegal transaction.

(b) Related statutes;

The entries in the attached Table shall be as follows.

C. Determination

(1) Whether it is a false tax invoice or not

(A) Article 1(1)1 of the Value-Added Tax Act provides that "the supply of goods as taxable subject to value-added tax" and Article 6(1) provides that "the delivery or transfer of goods shall be a delivery or transfer of goods on all contractual or legal grounds." In light of the characteristics of value-added tax as multi-stage transaction tax, delivery or transfer under Article 6(1) of the Value-Added Tax Act includes all acts of causing the transfer of rights to use and consume goods, regardless of the existence of actual profits (see, e.g., Supreme Court Decisions 85Nu286, Sept. 24, 1985; 9Du9247, Mar. 13, 201; 9Du9247, Mar. 13, 2001). In such a case, the specific transaction constitutes the supply of goods as provided for in the Value-Added Tax Act; 200Nu9247, Sept. 26, 2002.

(B) In light of the above legal principles, according to the evidence Nos. 3, 5, and 11 as to the instant case, ① the gold bullion related to the instant tax invoice had been exported by the Plaintiff over several stages, and there was a wholesaler (hereinafter referred to as a “explosion business”) converted the tax-free gold in the process of the instant tax invoice into the tax-free gold. ② The fact that the price exported by the Plaintiff was remarkably lower than the domestic market price is acknowledged, but it is insufficient to deem that the instant tax invoice was prepared without a real transaction, and there is no other evidence to prove that there was a considerable degree of proof by the tax authority, and rather, according to the evidence No. 5 through 31, the Plaintiff actually purchased gold bullion as stated in the instant tax invoice and settled the price.

(2) Whether the good faith principle is violated

(A) In 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), since the output tax amount collected at each transaction stage is a financial resource for deducting and refunding the corresponding input tax amount, it is impossible to maintain the value-added tax system unless the output tax amount is paid to the country properly.

Therefore, in a series of continuous transactions, where a malicious entrepreneur in one phase has attempted to evade the value-added tax from the beginning to the end, and solely attempt to make an abnormal transaction (illegal transaction) that only causes losses if he/she does not evade the value-added tax, and does not pay the value-added tax collected by him/her, such as the exporter at 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 the application of the zero-rate tax rate, such as the exporter at the next transaction stage, the country has no choice but to make a refund by using the input tax amount as other tax revenue. As such, such result, it constitutes an active outflow to the National Treasury beyond the passive gap in tax revenue, and the burden exceeds the damage of the value-added tax system itself, and it causes serious harm to

If an exporter was aware that there was an illegal transaction at the pre-stage stage and tried to promote his/her own interest without having a creshing opportunity, and his/her transaction profit is attributable to the preceding illegal transaction, and his/her participation in the transaction becomes a critical factor that makes it possible to make an illegal transaction ultimately by securing the market for the illegal transaction, it is an act of pursuing unjust profits by abusing the input tax deduction and refund system, which is a premise, and thus, it is an act of pursuing other tax revenues to such exporter with other tax revenues as well as preventing 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, and it is not permissible as it goes against the principle of good faith as stipulated in Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010). Such a legal doctrine is not limited to cases where a malicious accomplice who committed an illegal transaction with the exporter, was unaware of the existence of such an illegal transaction due to gross negligence in light of the perspective of fairness, importance of the outcome, and universal sense of justice. If the exporter was aware of the existence of such an illegal transaction due to gross negligence, deeming it as the relationship with the malicious business, and the exporter was paid a full attention, if the exporter was sufficiently aware of such fact, it should be deemed that the same applies to cases where he did not know of it to the extent close to the intention.

In addition, in such cases, since an exporter who is in a mutual relationship with a malicious business entity receives an input tax deduction from the State, and the leakage of the National Treasury is realized, it cannot be deemed that a malicious business entity is responsible for the evasion of value-added tax without reasonable grounds (see, e.g., Supreme Court en banc Decision 2009Du13474, Jan. 20, 201); and

(B) According to the statements in Eul evidence Nos. 3 and 5 through 11, all gold bullion subject to the transaction of this case were imported from a foreign country and distributed as tax-free gold, and were exported by the plaintiff after being converted and distributed from the importer to the tax-free gold, and all of the gold bullion were exported by the plaintiff. There are wholesalers who converted the gold bullion of this case, which is the tax-free gold bullion from the importer to the plaintiff, into the tax-free gold bullion of this case (hereinafter referred to as "exploitors"). Since there were wholesalers who known or could have known the fact that the gold bullion of this case, which is the tax-free gold bullion of this case, was converted into the tax-free gold bullion of this case to the tax-free gold bullion of this case (the value added to the value-added tax amount, i.e., the value added to the purchase price, the value higher than the purchase price), the purchase price of the gold bullion of this case, and thus, the plaintiff could have known or could have known that there was no new tax-free profits in this case.

(3) Therefore, the Plaintiff’s assertion is without merit.

3. Conclusion

All of the plaintiff's claims are dismissed as without merit, and the costs of lawsuit shall be borne by the plaintiff who has lost.