Carrier Subsidies as 'Discount'?… Supreme Court Rules "Included in Value-Added Tax Scope"

SK Telecom Faces Lawsuit to Return 294.3 Billion KRW VAT on 'Device Subsidies'
Court: "Subsidies Do Not Constitute Discounts on Mobile Communication Services"

[Asia Economy Reporter Heo Kyung-jun] The Supreme Court has ruled that subsidies for devices provided by mobile carriers are included in the scope of value-added tax (VAT) taxation. This is the first case explicitly determining that mobile carriers' device subsidies are not subject to VAT deduction.

The Supreme Court's 3rd Division (Presiding Justice Noh Jeong-hee) announced on the 9th that it upheld the lower court's ruling, which dismissed SK Telecom's appeal against the Namdaemun Tax Office's refusal to amend VAT assessments.

From the second half of 2008 to the second half of 2010, SK Telecom reported approximately 2.9439 trillion KRW in subsidies paid to customers as part of its taxable base to the National Tax Service. SK Telecom filed a claim for correction, requesting a refund of about 294.3 billion KRW in VAT (10%), arguing that these subsidies should be excluded from the taxable base as "discount amounts" under the VAT Act. However, the tax authorities rejected the refund, leading to the lawsuit.

The key issue in the trial was whether the device subsidies correspond to discount amounts on the supply value of mobile communication services, which are excluded from the VAT taxable base.

The first and second instance courts ruled that device subsidies could not be considered discount amounts. The courts stated, "Device subsidies do not correspond to discount amounts on the supply value of mobile communication services, and users only bear VAT on the supply value of mobile communication service transactions."

The Supreme Court also agreed with the lower courts' judgment.

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