On March 21, 2013, the Supreme Court dismissed an appeal and partially confirmed the trial court’s decision regarding a claim brought against the Republic of Korea by taxpayer ○○○ Trust Company requesting payment on the accounts receivable it holds transferred by a third party. Here the Supreme Court held that “a claim for VAT refund is not a civil claim, and should be brought as a party litigation under Article 3(2) of the Administrative Litigation Act” (Supreme Court 2011Da95564, rendered March 21, 2013).
In its holding, the Supreme Court rendered that “according to the contents, format and legislative intent of the Value-Added Tax Act (“VAT Act”), the government’s obligation to pay VAT refunds to a taxpayer stems from the statutory language of the VAT Act regardless of whether the taxpayer actually overpaid taxes for a certain tax period, and the legal nature of such refund is an obligation under the public law, which existence and scope are determined under the VAT Act and is specially acknowledged from a tax policy perspective, rather than an obligation to disgorge unjust enrichment acknowledged for the adjustment of property held between parties in accordance with the notion of justice and fairness. Therefore, a claim made by a taxpayer to the government for a VAT refund, which corresponds to the obligation of the government to provide a VAT refund to a taxpayer, is not a civil claim, and should be brought as a party litigation in accordance with Article 3(2) of the Administrative Litigation Act.” As a result, previous decisions in conflict with 2011Da95564 that held (i) VAT refund claims as civil claims or (ii) refund of taxes under individual tax codes to be uniformly seen as disgorgement of unjust enrichment with regard to the interpretation of Article 51(1) of the Framework Act on National Taxes on tax refunds and as a result concluding VAT refunds also as disgorgement of unjust enrichment, were overturned.
Therefore, VAT tax refund claims should not be filed in accordance with the civil procedure, but should be filed as a party litigation in accordance to Article 3(2) of the Administrative Litigation Act to an administrative court with proper jurisdiction (i.e., the Seoul Administrative Court, the Chuncheon District Court Gangneung Support Division or the relevant District Court for jurisdictions where an administrative court does not exist).