Lee & Ko Secures Supreme Court Ruling that Value-Added Tax Refund Agency Services Provided by a Refund Counter Operator Do Not Constitute “Services Similar to a Money-Lending Business”

Lee & Ko secured a Supreme Court ruling reversing and remanding the lower court’s decision, which had treated the services at issue as exempt from value-added tax, by systematically advancing the legal argument that value-added tax refund agency services provided by a refund counter operator to foreign tourists do not constitute exempt “services similar to a money-lending business.”

The issue in this case was whether services under which a refund counter operator, acting on behalf of a tax-exempted seller, refunds value-added tax to foreign tourists and is reimbursed by the tax-exempted seller in the following month constitute “services similar to a money-lending business” under the Value-Added Tax Act and are therefore exempt from value-added tax.

The lower court held that the services constituted “services similar to a money-lending business,” reasoning, among other things, that the fees received by the refund counter operator could be regarded as interest on the amounts advanced, and accordingly upheld the tax assessment.

Before the Supreme Court, Lee & Ko presented detailed and rigorous arguments that: (i) the provisions of the Value-Added Tax Act providing exemptions for money-lending businesses and other specified services must be strictly construed to cover only money-lending businesses in their ordinary sense, incorporating the essential elements of money lending; (ii) a “money-lending business” necessarily involves the extension of credit through the provision of money on the premise that a specified amount will be repaid after a certain period, whereas a refund counter operator merely advances the necessary expenses incurred in carrying out entrusted matters in its capacity as a mandatary under a merchant agreement with a tax-exempted seller and is subsequently reimbursed, which does not constitute the lending of money; and (iii) the intent of the parties to the transactions was likewise inconsistent with a loan of money. The Supreme Court accepted Lee & Ko’s arguments, held that the lower court had erred by misapprehending the governing legal principles in a manner that affected the outcome of the judgment, and reversed and remanded the case.

This ruling is significant because it clarifies that the substance of a refund counter operator’s business is not money lending, but rather the handling of administrative matters on behalf of another party. The ruling is expected to serve as an important precedent not only for refund counter operators, but also for the value-added tax treatment of various other agency service providers that receive fees under similar arrangements.