The case holding that it is reasonable to view the expenses for the night-time meals or the expenses for meals paid to the partner company employees, who are the other party to the service contract for the joint performance of the receiving affairs, as ordinary expenses in relation to the business, and it cannot be viewed as entertainment expenses.

Article 25(5) of the Corporate Tax Act

S&C Co., Ltd. (Attorneys Son Ji-yol et al., Counsel for the defendant-appellant)

The director of the tax office

Seoul High Court Decision 2007Nu15287 decided Dec. 5, 2007

The judgment below is reversed and the case is remanded to Seoul High Court.

1. The judgment of the court below

The court below, based on the adopted evidence, found the facts as stated in its reasoning. 1) The plaintiff decided the final service contract amount after deducting some of the amount at the time of concluding the service contract with the cooperative company by predicting the expenditure of the key costs of this case. However, the plaintiff did not clearly state in the contract that the cooperative company is obligated to pay the part of the expenses of the meeting. 2) The decision whether to pay the expenses or the amount of the expenses is actually entrusted to the plaintiff, and even if the amount remains or falls short of the amount, the cooperative company did not settle the accounts after the cooperative company. 3) The issue of this case seems to be most cases where the plaintiff's employees and the cooperative company's employees are employed together, and it is almost impossible to separate the amount used by the plaintiff's employees and the cooperative company's employees. In light of the above, the court below determined that the issue of this case is the amount within the scope of the meeting expenses, which constitutes the amount of the total amount of the entertainment expenses and the amount of the corporate tax imposed on the plaintiff for smooth operation of the business of the foreign company.

2. The judgment of this Court

However, it is difficult to accept the lower court’s determination that the instant key expenses constituted entertainment expenses for the following reasons.

Since entertainment expenses are expenses necessary for facilitating corporate activities and promoting corporate growth in proportion to the business size of the enterprise, they shall be strictly interpreted. If the other party is a person related to the business among the expenses paid by the corporation for the business and the purpose of spending is to promote the smooth progress of transaction by promoting friendship with the business persons through entertainment activities, etc., such expenses shall be deemed entertainment expenses under Article 25(5) of the Corporate Tax Act. However, unless otherwise, they shall not be readily concluded as entertainment expenses (see Supreme Court Decisions 2003Du6559, Dec. 12, 2003; 2005Du8924, Oct. 25, 2007, etc.).

④ According to the facts established by the court below and the records, the Plaintiff’s sales contract was calculated by deducting a certain rate from the amount calculated by multiplying the number of employees dispatched by technology grade in the case of the conclusion of the service contract with the cooperation company. Here, the amount according to the standard determined by the Plaintiff (which is equivalent to KRW 80,000 to KRW 150,00 per capita) is determined as the final service contract cost or the cost of project conference. The deducted business expenses or project conference expenses were spent for the instant issues. 2 The issues of the instant case are that the Plaintiff’s sales contract were included in the daily expenses for the cooperation company to increase the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the number of employees and the employees and the number of employees and the employees to be considered as the number of employees and the employees.

Nevertheless, the court below determined that the disposition of this case was lawful on the premise that the key expenses of this case constitute entertainment expenses. This decision of the court below is erroneous in the misunderstanding of legal principles as to entertainment expenses, and such misunderstanding of legal principles has affected the judgment.

3. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Jeon Soo-ahn (Presiding Justice)