The Supreme Court ruled that installing art in an apartment complex is not exempt from value-added taxes. According to the value-added tax law, services supplying artistic creations are exempt. However, since the business operator was responsible for passing the local government review for the installation of the artwork, it constitutes a comprehensive service supply, and value-added taxes must be paid.
The Supreme Court's 1st division (Chief Justice Noh Tae-ak) announced on the 13th that it has overturned the second trial that ruled against Mr. Jo in the lawsuit seeking to cancel the value-added tax assessment filed against the head of the Incheon Yeonsu Tax Office. The tax office's assessment of Mr. Jo for value-added taxes is justified, but the additional tax assessment should be canceled.
Mr. Jo has reportedly been active as an artist primarily creating sculptures. He entered into contracts to install sculptures in an apartment in Incheon in 2016 and in a newly constructed building in Yangsan, Gyeongsangnam-do, in 2018. The contract stated that Mr. Jo would be responsible for passing the review from the relevant authorities for the installation of the sculptures.
Mr. Jo believed that the sculptures he supplied were exempt from value-added taxes because they are artistic creations, so he did not issue a tax invoice to his clients. However, the tax office imposed value-added taxes and additional taxes, stating that Mr. Jo provided comprehensive services such as representing the local government review. The additional tax is imposed as a form of punitive measure.
Both the first and second trials ruled that Mr. Jo must pay value-added taxes. However, the judgments regarding the additional tax assessment were mixed. The first trial ruled to cancel the additional tax assessment, while the second trial determined that imposing the additional tax was appropriate. According to the Supreme Court's precedent, additional taxes cannot be imposed if the taxpayer had a legitimate reason for not paying the tax.
The first trial court stated, 'It could be understood that 73% or 86% of the contract amount corresponds to the supply price of artistic creations, thus (Mr. Jo) could have perceived that the main nature is the supply of artistic creations.' However, the second trial believed that Mr. Jo should have been able to thoroughly understand that he needed to pay value-added taxes with the assistance of a tax representative.
The Supreme Court agreed with the first trial's judgment. Consequently, it ordered a retrial regarding the imposition of the additional tax, annulling the prior decision.