Tax Evasion | Issuance of Tax Invoices by an MSO on Behalf of a Doctor Held Unlawful

The issue in this tax lawsuit was whether tax invoices not issued by the doctor were unlawful.

The Plaintiff, a doctor, operated a clinic and entered into contracts for hospital service management and payment processing services with two Management Service Organizations (hereinafter, "MSOs").

Based on those contracts, the two MSOs received medical fees directly from patients on the Plaintiff's behalf and then issued tax invoices or cash receipts.

From the medical fees they received directly, the MSOs deducted commissions for the hospital management and payment processing services they performed and paid the remainder to the Plaintiff, and the Plaintiff issued sales tax invoices based on that amount.

However, the Gangnam Tax Office concluded that, from May to September 2019, the two MSOs constituted the Plaintiff's disguised credit card affiliated merchants, and it issued a warning and notice disposition for value-added tax of approximately 420 million won and comprehensive income tax of approximately 300 million won.

The Plaintiff, who objected, filed an objection and then filed a request for adjudication (a request contesting an administrative action before an agency prior to court litigation, comparable to seeking administrative review) with the Tax Tribunal.

The Tax Tribunal found that the MSOs were business operators separate from the Plaintiff that provided hospital management support services, and that the Plaintiff should be regarded as the party that provided medical services directly to patients; accordingly, it decided that the tax authority should re-examine the matter in line with that determination.

Upon re-examination, the tax authority took the view that the portion of medical fees the two MSOs received directly from patients should be treated as the Plaintiff's sales.

In the course of pursuing the request for adjudication before the Tax Tribunal as described above, the Plaintiff ultimately obtained a reduction correction of approximately 200 million won, but, objecting again, the Plaintiff filed an administrative litigation with the court.

In this tax lawsuit, the Plaintiff argued that there was no problem because the Plaintiff had entered into contracts with the MSOs regarding hospital management services and payment processing and had carried out the corresponding tax and accounting treatment.

In this tax lawsuit, the court took the view that, although an MSO may provide services concerning the overall management of a hospital, such services do not mean the issuance of tax invoices.

In the tax lawsuit, the court determined: “The Plaintiff, as the party that provided the medical services, must directly receive the medical fees and issue the tax invoices. The MSOs' receipt of medical fees and issuance of tax invoices were acts exceeding their authority.”

The court further stated: “In light of the fact that this cannot be construed as meaning that issuing tax invoices with a hospital management support company as the supplier is permissible, among other considerations, the tax authority cannot be regarded as having made the disposition in this case in violation of the principle of good faith.”

That is, the court rendered a judgment against the Plaintiff on the claim for revocation of the disposition imposing comprehensive income tax and other taxes, resulting in the Plaintiff losing the case.

This was a case in which the party responsible for issuance was at issue.

Under Article 32 of the Value-Added Tax Act relating to tax matters, a business operator that supplies goods or services must issue the tax invoice directly.

A person who is not a medical professional cannot provide medical services or process the related payments, and the MSOs' receipt of medical fees on the Plaintiff's behalf and issuance of tax invoices should be regarded as the issuance of tax invoices that differ from the facts.

If you become involved in suspicions of tax evasion at a medical institution as described above, it is advisable to resolve the matter with the assistance of an attorney who has specialized knowledge of the relevant laws, such as the Medical Service Act and tax law.

At Daeryun Law Firm LLP, an 🔗attorney experienced in medical matters with knowledge of medical disputes and the Medical Service Act, together with the Tax Group, composed of 🔗attorneys experienced in tax matters with experience as tax accountants and at the tax authorities, collaborate to handle tax and taxation cases in the medical field.