Dentons Lee Secures Full Appellate Victory in VAT Refund Assignment Dispute

Reinforcing Practical Standards that Prevent Double-Payment Risk for Tax Authorities

Dentons Lee has secured a complete victory in an appellate dispute concerning an assigned claim for a VAT refund. The Suwon High Court dismissed the plaintiff's appeal in full, thereby upholding the position of the Jungbu Regional Tax Office and confirming key practical principles on the assignment of VAT refund claims.

This case arose from a trust company's assertion that it was entitled to receive a VAT refund based on a claim assignment agreement executed in February 2016 with Company A and an earlier notice of assignment to the competent tax office. However, in practice, the tax office had only paid VAT refunds to the plaintiff when Company A submitted the statutorily required request for assignment of a national tax refund. Since Company A did not submit such a request for the 2022 second-half refund, the refund was instead paid to creditors with attachment or provisional attachment rights. The plaintiff disputed this and filed a lawsuit demanding payment of the assigned receivables.

This matter was handled by Heejun Choi, Chief Managing Attorney at Dentons Lee. The judgment focused on two key issues: (i) whether the receivable claimed by the plaintiff for the refund could be regarded, at the time of the assignment agreement, as a "receivable expected to arise in the near future," and (ii) whether, in circumstances where the trust period had been extended but such extension was not notified to the tax authority, the initial notice of assignment could be deemed to cover refund receivables arising thereafter. The case is a sophisticated dispute over the identifiability of refund receivables and the limits of blanket notification

The Suwon High Court noted that Company A failed to submit a request for transfer of national tax refunds to the tax office director within the prescribed period, did not notify the defendant of the extension of the trust period after its expiration, and, in the absence of any transfer request, relied solely on the initial blanket notice of assignment. The court held that recognizing the refund receivables as validly assigned under such circumstances would unfairly expose the debtor to prolonged risks of double payment. Accordingly, the court found it difficult to regard the refund receivables in this case as having been validly assigned and dismissed the plaintiff's appeal in its entirety.

This ruling is significant in that, against the backdrop of numerous similar cases pending before the National Tax Service, it clarified the standards concerning the "identifiability of receivables," "compliance with statutory procedures (submission of transfer requests)," and "limits of blanket notification" in the assignment of VAT refund receivables. It thus provides an important reference point for future practice and dispute resolution in similar matters.

Dentons Lee will continue providing solutions that are grounded in principle, built on meticulous legal reasoning, and advanced through strategic advocacy. In doing so, the firm aims to effectively safeguard clients' rights while establishing practical standards that prevent the risk of double payment by tax authorities.

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