Constitutional Court: "1% Additional Tax for Violation of Electronic Tax Invoice Issuance Duty is Constitutional"

On December 27 last year, Yoon Nam-seok, Chief Justice of the Constitutional Court, and the Constitutional Court justices were waiting for the start of the constitutional review ruling on the unconstitutionality confirmation constitutional complaint regarding the "Korea-Japan Comfort Women Issue Agreement Announcement" held at the Constitutional Court in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Choi Seok-jin] The Constitutional Court has ruled that the provision imposing an additional tax amounting to 1% of the supply value when a business obligated to issue electronic tax invoices issues paper tax invoices does not violate the Constitution.

This is because it is an appropriate measure to ensure compliance with the obligation to issue electronic tax invoices introduced to establish a transparent transaction order, and it is difficult to view it as an excessive restriction on fundamental rights since exceptions are recognized in cases of "justifiable reasons."

The Constitutional Court announced on the 4th that it unanimously upheld the constitutionality of the proviso of Article 60, Paragraph 2, Subparagraph 2 of the Value-Added Tax Act before its amendment in December 2016, which imposes additional tax when violating the obligation to issue electronic tax invoices, in a constitutional complaint case filed by Mr. A, who runs a real estate rental business in Haeundae-gu, Busan, claiming it infringes on property rights.

The Court stated, "The provision under review aims to ensure compliance with the obligation to issue electronic tax invoices introduced to reduce tax-related costs and establish a transparent transaction order, so its legislative purpose is legitimate, and the appropriateness of the means is also recognized."

It added, "Considering that the provision mitigates sanctions compared to non-issuance of tax invoices when an obligated person issues paper tax invoices, that the scope of electronic tax invoice issuance and the mandatory issuance period are limited, and that additional tax may not be imposed if there is justifiable reason, it does not violate the principle of minimizing harm."

Furthermore, the Court said, "The public interest achieved through the provision under review, such as reducing tax-related costs and enhancing transparency in tax transactions, is by no means insignificant compared to the property loss of a 1% additional tax on the supply value, so it does not violate the principle of balancing interests," concluding, "Therefore, the provision under review cannot be said to violate the principle of proportionality and infringe on the claimant's property rights."

The proviso of Article 60, Paragraph 2, Subparagraph 2 of the Value-Added Tax Act before the December 2016 amendment stipulated that if a person obligated to issue electronic tax invoices does not issue them and instead issues other tax invoices at the time of issuance, an amount equal to 1% of the supply value shall be added to the payable tax or deducted from the refundable tax.

In December 2016, Mr. A transferred real estate used for his rental business to a medical corporation for 1,044 million KRW, issued a paper tax invoice, and reported and paid value-added tax.

Subsequently, the Haeundae Tax Office, viewing Mr. A as violating the obligation to issue electronic tax invoices, imposed an additional tax of 10.44 million KRW, which is 1% of the supply value of 1,044 million KRW, on Mr. A in December 2017 under the proviso of Article 60, Paragraph 2, Subparagraph 2 of the Value-Added Tax Act before the amendment.

Mr. A filed a lawsuit seeking cancellation of the additional tax imposition and requested the court to refer the constitutional review of the relevant Value-Added Tax Act provision that formed the basis of the tax imposition. However, after the court dismissed the request and he lost the cancellation lawsuit, he filed a constitutional complaint with the Constitutional Court.

A Constitutional Court official stated, "This decision is significant as it is the first ruling on the constitutionality of imposing additional tax when an obligated person issues paper tax invoices instead of electronic tax invoices."

This content was produced with the assistance of AI translation services.