Supreme Court: GS Home Shopping's 'Partnership Points' Are Discount Amounts... Not Subject to Taxation

Court: 'Welfare points provided to affiliate employees are subject to taxation'

GS Home Shopping, which filed a lawsuit arguing that purchases made using welfare points collected by partner company customers correspond to the 'discount amount' and should be excluded from value-added tax (VAT) taxation, will receive a refund of 3.3 billion KRW in taxes.

The Supreme Court's 3rd Division (Presiding Justice No Jeong-hee) announced on the 26th that it upheld the lower court's partial ruling in favor of GS Home Shopping in its VAT cancellation lawsuit against the Yeongdeungpo Tax Office.

GS Home Shopping established business partnerships with several companies to allow the conversion of corporate welfare points into GS Home Shopping points. When employees of partner companies accumulate welfare points according to their respective company policies, they can use those points at GS Home Shopping with a certain percentage deducted. Meanwhile, when employees of GS Group affiliates purchase products at GS Home Shopping using company welfare points, the purchase amount was discounted by 1 KRW per point.

GS Home Shopping initially considered the amounts deducted by welfare points as subject to VAT and paid related taxes from 2011 to 2016. Even if a buyer purchased a 100 KRW product by paying 10 KRW in points and only 90 KRW in cash, VAT was paid on the full 100 KRW amount.

However, GS Home Shopping later changed its stance, claiming that the use of partner points corresponds to the VAT-exempt 'discount amount' and requested a refund of approximately 5.28 billion KRW in taxes paid to the tax authorities. They argued that VAT should only be paid on the actual payment amount of 90 KRW, and the VAT already paid on the 10 KRW corresponding to points should be canceled. The tax authorities rejected this request, leading GS Home Shopping to file a lawsuit.

The first and second trials ruled that the use of partner company points corresponds to the discount amount. The Supreme Court also agreed with the lower courts' judgment. The Supreme Court stated, "Partner company points are accumulated only when employees of the partner companies first pay money and purchase goods at each company's franchise stores, not at GS Home Shopping, and at GS Home Shopping, the accumulated points are only used to receive discounts on payment amounts, so they correspond to the discount amount."

However, the court ruled that welfare points directly provided to employees of GS Group affiliates have monetary value from GS Home Shopping's perspective and are therefore subject to taxation.