Tax Attorney Case Example | Issuance of False Tax Invoices Worth 3 Billion Won, Acquittal

The client was a businessman engaged in the manufacture of mobile phone components who initially operated a sole proprietorship and later established a corporation, operating both businesses together.

However, the prosecution took the view that the client had falsely issued 7 electronic tax invoices worth 3 billion won between the sole proprietorship and the corporation over a period of about 3 months, despite there having been no actual transactions.

The Prosecution's Argument

Accordingly, the client was charged with a violation of the Act on Aggravated Punishment of Specific Crimes, and if found guilty, he was at risk of receiving a heavy sentence.

The client, however, presented an entirely different position.

The Client's Rebuttal

To clear this injustice and prevent an unwarranted penalty, the client ultimately retained a tax law attorney to handle the case.

Article 10, Paragraph 3 of the Punishment of Tax Evaders Act clearly prohibits 'issuing or receiving a tax invoice, or submitting an aggregate table with false entries, even though no actual supply of goods or services has taken place.'

A violation may result in the following punishment.

The client, too, was suspected by the prosecution of having 'falsely exchanged tax invoices worth approximately 3 billion won between an individual business and a corporation despite the absence of any actual transactions,' and criminal punishment was accordingly anticipated.

In particular, because the total supply value of the tax invoices at issue exceeded 3 billion won, the "Act on Aggravated Punishment of Specific Crimes" applied to the client.

This Act provides that where false tax invoices are issued for profit, a custodial sentence of at least one year is to be imposed depending on the scale of the supply value, so the level of punishment is very severe.

In addition to such punishment, a fine of not less than twice and not more than five times the tax amount calculated by applying the value-added tax rate to the aggregate supply value, etc., is also imposed.

Accordingly, if the client failed to establish his innocence, he could face both a custodial sentence and a substantial fine.

The prosecution claimed that the two businesses had exchanged tax invoices in a merely formal manner, but the tax attorney presented as evidence the fact that employees had actually been hired, products had been manufactured, and a factory and equipment had been operated.

Furthermore, relying on the monthly transaction statements and shipment records, the attorney emphasized that the issuance of the tax invoices was the result of ordinary transactions.

Although the business premises of the two enterprises were located within the same building, it was established that they were operated as substantively separate spaces.

In addition, by establishing that the employees had been formally hired in accordance with the corporation's personnel and payroll systems, the attorney explained that the two businesses were not merely nominal organizations for tax avoidance.

The tax attorney analyzed the elements of the false tax invoice offense set out in the "Punishment of Tax Evaders Act" and the "Act on Aggravated Punishment of Specific Crimes" and pointed out that the premise of 'the absence of an actual transaction' was not satisfied.

In other words, contrary to the facts charged, the attorney argued persuasively, on legal grounds, that an actual supply of goods and services had taken place and that the conduct therefore did not constitute the issuance of a false tax invoice.

In cases such as the issuance and delivery of false tax invoices, securing materials that can prove the existence of the actual transactions is the key issue, and the defense argument must be systematically constructed by analyzing the case record.

It is also important to carefully examine whether there was any excessive application of the law or distortion of the facts during the prosecution's investigation.

Daeryun LLC brings together 🔗tax law specialist attorneys, certified public accountants, certified tax accountants, and various other professionals.

This makes it possible to pursue an active response aimed at preventing an unjust punishment, including proving the substance of the transactions, demonstrating the independence of the business operations through analysis of accounting records, and establishing a trial strategy.

If you are involved in a tax-related criminal case and require assistance, we invite you to entrust your case to us through a 🔗legal consultation booking.