[2] In a case where Gap corporation operating a casino exclusive for foreigners entered into a contract with Eul corporation, a company specializing in casino solicitation, which is a company specializing in the solicitation of customers of Hong Kong, to recruit and arrange for customers, and provide Byung corporation with a part of its office located in Seoul, which is a casino business site, free of charge; Gap corporation did not receive qualified documentary evidence, but Byung did not report and pay taxes in the Republic of Korea; the tax authority imposed additional tax on Gap corporation on the non-receiving of the regular receipt on Byung because the office constitutes a domestic permanent establishment in which Byung corporation engaged in activities such as soliciting customers, the case holding that Gap corporation is obligated to receive documentary evidence from Byung corporation with a permanent establishment in the Republic of Korea, since the office constitutes a permanent establishment in the Republic of Korea of Korea of Byung corporation, and thus Gap corporation is obligated to receive documentary evidence from Byung corporation with a permanent establishment in Korea

[2] In a case where Gap corporation operating a casino exclusive for foreigners entered into a contract with Eul corporation, a company specializing in casino solicitation company located in Hong Kong, which is a company specializing in casino solicitation, to recruit and arrange its customers, and provide Byung corporation with some of its offices in Seoul, which is located in the casino business site, free of charge; Gap corporation did not receive qualified supporting documents, such as cash receipts, but Byung did not report and pay taxes in the Republic of Korea; and the tax authority imposed additional tax on Gap corporation on Gap corporation on the non-receiving amount of regular receipts on Byung because Byung corporation's office constitutes a domestic permanent establishment that conducts activities such as soliciting customers, the case affirming the judgment below that Byung provided Byung corporation with the above office free of charge and continued to use Byung corporation until the date of closure of Byung corporation's business; Byung corporation's business operation, such as hotel, casino chips, and exchange chips, and settlement of accounts of Gap's business operation, etc. on the ground that Byung corporation's domestic office's service was provided with supporting documents.

1. Regarding ground of appeal No. 1

A. Article 25(1) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter the same) provides that entertainment expenses paid by a domestic corporation for each business year in excess of the sum of the following amounts shall not be included in the calculation of losses in calculating the income amount for the pertinent business year. Article 25(5) provides that entertainment expenses refer to entertainment expenses, school expenses, recompense, and other expenses of a similar nature, regardless of the pretext thereof, which are disbursed by the corporation in connection with its business. In light of the language and purport of the provision, if a corporation’s expenses are disbursed for its business and the other party is a person related to its business and the purpose of its disbursement is to promote smooth progress of transaction relations with the business persons through entertainment, etc., such expenses shall be deemed entertainment expenses (see Supreme Court Decision 2008Du12320, Jan. 27, 201).

B. citing the reasoning of the judgment of the court of first instance, the court below acknowledged the following facts: ① the Plaintiff was a corporation established by investing 100% of the Korea Tourism Promotion Corporation established on September 6, 2005 with permission for casino business under the Tourism Promotion Act; ② the Plaintiff is running a casino exclusively for foreigners (hereinafter “instant casino”); ② the Plaintiff paid expenses for providing gifts, alcoholic beverages, light survey expenses, etc. to existing foreign customers (hereinafter “foreign promotion expenses”) to customers through the local office of Japan and China from 2006 to 2009, the marketing strategy office of the head office and the Mater affiliated with the new market development team (hereinafter “the instant foreign promotion expenses”); ③ the Plaintiff inside the scope of “comp”, namely, the “comp” at a discount or at a discounted price to customers, and ③ the Plaintiff paid the expenses for transportation, food, service, and other goods at a discount or at a discounted price.

Then, the lower court rejected the Plaintiff’s assertion that the Plaintiff’s overseas sales promotional expenses are for the purpose of facilitating the following reasons: (a) the Plaintiff’s overseas sales promotional expenses are not included in the scope of compact payment set out in the business rules and the Plaintiff’s internal compact payment criteria; (b) the Plaintiff’s overseas sales promotional expenses are not externally included in the scope of compact payment; and (c) the Plaintiff’s overseas sales promotional expenses are also considered to be converted into the compact payment expenses under the premise that the foreign sales promotional expenses of this case do not constitute the compact payment expenses; (d) the expenses paid by the Plaintiff in the course of contact to induce its customers to participate in the existing game; (e) it is difficult to recognize direct causal relations between the Plaintiff’s primary food and alcoholic beverage provision and the customer’s entry into the casino in Korea; and (e) the Plaintiff’s overseas sales promotional expenses are included in the deductible expenses for the purpose of facilitating the Plaintiff’s overseas sales promotional expenses.

C. Examining the records in light of the aforementioned provisions and legal principles, the above determination by the court below is just, and contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal principles as to deductible expenses and entertainment expenses under

2. Regarding ground of appeal No. 2

For reasons indicated in its holding, the lower court rejected the Plaintiff’s assertion that the Plaintiff’s payment of compact cards to a customer who made a game in a secret name is contrary to business rules or the Plaintiff’s payment standards, and cannot be deemed as ordinary expenses.

Examining the records in light of relevant provisions and legal principles, the above determination by the court below is just, and contrary to what is alleged in the grounds of appeal, there is no error of law by misapprehending the legal principles on deductible expenses

3. As to the third ground for appeal

A. Article 76(5) of the former Corporate Tax Act provides that an amount equivalent to 2/100 of the amount not received by the head of the district tax office having jurisdiction over the place of tax payment or of the amount received differently from the fact shall be collected as additional tax, except for the case where the proviso of Article 116(2) is applied where a corporation receives goods or services from a business operator prescribed by the Presidential Decree in connection with its business and fails to obtain evidentiary documents or receives false evidentiary documents, and Articles 120(3) and 158(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22951, Jun. 3, 201) provide that upon delegation, a foreign corporation that has no domestic place of business among the "business operators prescribed by the Presidential Decree" under Article 76(5) of the former Corporate Tax Act shall be excluded.

In order to constitute a domestic place of business of a foreign corporation as prescribed in the above provisions, it should be the case where a foreign corporation’s employee or a person under its instruction performs essential and important business activities, not preliminary or auxiliary business activities, through a fixed place of business, such as domestic buildings, facilities, equipment, etc. with the authority to dispose of or use the foreign corporation’s domestic place of business. Whether it is an essential and important business activities should be determined by comprehensively taking into account the nature and scale of

B. In full view of the adopted evidence, the lower court: (a) concluded a contract on June 30, 2007 with the purport that the Plaintiff, as a professional casino solicitation company on the part of Hong Kong, provides the Plaintiff with space and human resources for games within the instant casino coverage on June 30, 2007; and (b) the Plaintiff provided the Plaintiff with an annual game coverage fee of 30% of the total amount of money that the Plaintiff would have lost its customers as solicitation fees (hereinafter “instant contract”); and (c) the Plaintiff provided the Plaintiff with an annual game coverage fee of 20 years from July 2007, 2007, regarding the fact that the Plaintiff did not receive 30% of the total amount of money that the Plaintiff would have lost its customers as solicitation fees (hereinafter “the instant contract”); and (d) the Defendant provided the Plaintiff with the instant casino solicitation fee of 20 years from 207 to 30 years from 207 to 40 years from 30,007.

Then, the lower court determined that: (a) the Plaintiff’s use of the instant office was continued from July 2007 to December 31, 2010, since the Plaintiff provided the instant office to the Aloneone without compensation; (b) the use of the office continued from around July 2007 to around December 31, 2010; (c) performed business activities such as hotel, airport, casino business guidance, and exchange (chip exchange) with customers through approximately 15 employees employed in the instant office; and (d) performed settlement with the Plaintiff; and (c) under the instant contract, the Plaintiff paid the instant casino in order to obtain profits from Aloneone, the customers abroad should be engaged in the instant casino in order to attract customers abroad; and (d) as long as such, it appears that the Plaintiff’s domestic service was not an essential or essential duty to receive any preparatory or supporting activity of a permanent establishment in the Republic of Korea without any inconvenience; and (e) the Plaintiff’s domestic service was deemed to have been provided with domestic service.

Furthermore, the lower court determined, on the grounds indicated in its reasoning, that the Plaintiff could not be deemed to have justifiable grounds for failing to receive the relevant documentary evidence while paying the fee to the Lao.

C. Examining the records in light of the above provisions and legal principles, the above determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors in the misapprehension of legal principles as to the legitimate grounds for exempting foreign corporations from permanent establishment or additional tax

4. Conclusion

The appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee In-bok (Presiding Justice)