The Supreme Court ruled that amounts customers pay with credit card points at online shopping malls are also subject to value-added taxes that the malls must bear. However, the court said value-added taxes can be imposed only from Jan. 2018, when the Value‑Added Tax Act was revised and a basis for the enforcement decree was established. The ruling said taxes cannot be collected by enforcement decree alone without revising the law.
The Supreme Court en banc panel, presided over by Justice Shin Suk-hee, on the 22nd partly overturned an appellate ruling that had found for the plaintiff in GS Retail's suit to cancel the denial of a correction of value-added tax against the head of the Yeongdeungpo Tax Office, and sent the case back to the Seoul High Court.
GS Retail partnered with credit card companies to run a points accrual program. When a customer bought goods with an affiliated card, GS Retail granted credit card points, and the customer could use these points to pay for goods in the next transaction. GS Retail then settled the amount paid with credit card points with the card company.
If credit card points equal 1% of the payment, when a customer buys a 10,000-won item in the first transaction, the shopping mall accrues 100 won with the card company. In the second transaction, the customer can buy a 10,000-won item by paying 9,900 won and using 100 won in points. In this case, the credit card company pays the shopping mall the price of 10,000 won minus the credit card fee.
The issue was whether value-added taxes can be levied on amounts paid with credit card points. Under the Value‑Added Tax Act, if a seller discounts a product, the discounted amount is excluded from taxation. If a 10,000-won item is sold for 9,000 won, the tax is imposed only on 9,000 won.
But in 2016, the Supreme Court en banc held that amounts paid with points fall under a "rebate amount" and are not subject to value-added taxes. The government then revised the enforcement decree of the value-added tax statute, which took effect in Apr. 2017. It said that "self-accrued mileage" directly granted by a shopping mall counts as a rebate amount, but "third-party accrued mileage" does not and is therefore subject to value-added taxes. Because credit card points accrue when paying at various partner merchants, the amounts paid with points accrued at other merchants are not rebate amounts.
On that basis, the tax office imposed value-added taxes on GS Retail for amounts paid with credit card points. GS Retail argued this was improper, and when that was rejected, it filed suit.
The court of first instance found that credit card company points are "third-party accrued mileage" and dismissed GS Retail's claim. The appellate court, however, ruled that the tax authorities must refund the value-added taxes GS Retail claimed. The appellate panel found that even if multiple businesses operate a credit card points system and engage in mutual settlement, it still constitutes a rebate amount, and viewing it this way prevents value-added taxes from being imposed twice overall.
The Supreme Court based its decision on the timing of the revisions to the value-added tax law and enforcement decree that provide the basis for taxing "third-party accrued mileage." Although the enforcement decree took effect in Apr. 2017, the Value‑Added Tax Act containing the underlying provision was not revised until Dec. 2017, taking effect in Jan. 2018. At that time, "transactions paid with mileage, etc." were included in the supply price serving as the tax base under the Value‑Added Tax Act.
GS Retail requested a correction from the Yeongdeungpo Tax Office to refund value-added taxes imposed on credit card point payments from Apr. 2017 to Jun. 2019. The Supreme Court, using the effective date of the revised value-added tax law as the standard, held that taxes from Apr.–Dec. 2017 must be refunded, and that amounts from Jan. 2018 are not subject to refund.
Regarding the collection of taxes by enforcement decree, the Supreme Court said, "Because the scope of taxation was expanded by presidential decree alone, it violates the Principle of Legal Taxation and is void." As for the subsequent revision of the value-added tax law, it said, "The scope of transactions or supply prices subject to value-added taxes falls within the realm of legislative policy," adding, "Statutory interpretation should, as far as possible, respect that."
The Supreme Court en banc panel, presided over by Justice Lee Heung-gu, on the same day also overturned a ruling against the plaintiff and remanded to the Suwon High Court in a suit by Auto& Incorporation seeking cancellation of value-added taxes on point payments for 2017, prior to the revision of the Value‑Added Tax Act.
Auto& Incorporation began as an in-house venture of Hyundai Motor and is listed on KOSDAQ. When a customer who purchased a new vehicle from its partner Kia accrues points for a certain percentage of the purchase price, the customer can buy goods using the points at the shopping mall operated by Auto& Incorporation. Auto& Incorporation then settled the equivalent amount of points with Kia.
The suit filed by Auto& Incorporation sought a refund of value-added taxes paid in 2017. The Supreme Court determined that, because the Value‑Added Tax Act enabling taxation of points had not yet taken effect, the amounts were not subject to taxation.