Korea Electric Power Corporation and Pyeongtaek in Gyeonggi fought in court over who should bear the value-added taxes when sharing the cost of undergrounding power lines. The Supreme Court sided with Pyeongtaek, which did not pay VAT to KEPCO.
The Supreme Court's Second Division (Presiding Justice Park Young-jae) said on Aug. 2 that on June 5 it finalized the appellate ruling in KEPCO's suit against Pyeongtaek for construction payments, holding that the shared construction cost is not subject to VAT and that Pyeongtaek does not have to pay VAT to KEPCO.
In Aug. 2015, Pyeongtaek asked KEPCO to carry out an undergrounding project to bury overhead lines and utility poles in the Seojeong-dong area. Under the Electric Utility Act, KEPCO is responsible for undergrounding power lines, but local governments typically share the expense. In Mar. 2017, Pyeongtaek and KEPCO signed a performance agreement under which Pyeongtaek would bear 50% of the undergrounding construction cost and 100% of the road restoration cost.
In Feb. 2020, after the work was completed, KEPCO billed Pyeongtaek 98.79 million won for the unpaid construction cost plus value-added taxes. Pyeongtaek responded that "the shared construction cost is not subject to VAT," and demanded a recalculation of the shared cost. With both sides at an impasse, KEPCO filed this suit.
In the first trial, the court ordered Pyeongtaek to pay only 89.81 million won, excluding VAT, from the amount KEPCO claimed. The court found that the cost of relocating power lines borne by KEPCO is a cause-based contribution and does not constitute a supply of services subject to VAT.
On appeal, the amount Pyeongtaek had to pay KEPCO increased by 3.83 million won to 93.64 million won. Although undergrounding power lines is not subject to VAT, the court deemed the amount equivalent to VAT that KEPCO paid to subcontractors and others to be part of the actual construction cost, increasing the payment.
The Supreme Court dismissed KEPCO's appeal, saying the appellate ruling did not misunderstand the legal principles regarding cause-based contributions or what is taxable under the Value‑Added Tax Act.