[1] The standard for determining whether a corporation's expenses incurred for its business constitute "entertainment expenses" under the Corporate Tax Act

[2] The case holding that the portion of per-case expenditure of which per-case expenditure is not more than 30,000 won paid by reporters of a newspaper company does not constitute entertainment expenses, and even though per-case expenditure exceeds 30,000 won, it cannot be determined that all of them constitute entertainment expenses without individual and specific consideration of their spending circumstances, character, etc.

[3] Criteria for distinguishing "entertainment expenses" from "advertising expenses" under the Corporate Tax Act

[4] The case holding that gift expenses for visitors to a newspaper company (excluding production expenses for a plaque) are not entertainment expenses but advertising expenses, since they cannot be seen as specific persons having transaction relations with a newspaper company since they cannot identify who are visitors to the newspaper company

[5] Whether the depreciation costs of a car exclusively operated for a private house, such as a newspaper company's representative director, without being directly used for a newspaper company's business, are related to the business (negative)

[6] The case holding that condolence expenses paid to officers and employees of a newspaper company and the expenses for purchasing alcoholic beverages to the newspaper company employees constitute business-related welfare expenses

[1] Entertainment expenses are expenses necessary for facilitating corporate activities and promoting corporate growth in proportion to the size of business of the corporation, so they shall be strictly interpreted. If the other party is a business-related person and the purpose of spending is to promote friendship with business-related persons through entertainment activities, etc. and facilitate transactional relations, such expenses shall be deemed entertainment expenses under the Corporate Tax Act. However, if it is not so, they shall not be readily concluded as entertainment expenses.

[2] The case holding that the portion below 30,000 won per per-case expenses out of the per-case expenses paid by news reporters does not constitute entertainment expenses, and whether coverage expenses constitute entertainment expenses beyond the ordinary scope of expenses for news gathering activities shall be determined individually and specifically by comprehensively taking into account factors such as necessity of coverage, coverage source number and character, coverage time, coverage place and circumstance, etc., as well as the purpose and nature of coverage expenses, etc., although coverage expenses exceed 30,000 won per-case expenses, they cannot be determined as entertainment expenses without individual and specific consideration of the disbursement circumstance or nature, etc.

[3] If the other party is a business-related person and the purpose of expenditure is to promote friendship among the business-related persons through entertainment activities, etc., among the expenses paid by a corporation for the business, the entertainment expenses are deemed to be entertainment expenses if the purpose of expenditure is to facilitate the smooth progress of transaction relations. However, if the other party to expenditure is many and unspecified persons and the purpose of expenditure is to stimulate the desire for purchase by improving the corporate image, it shall be deemed to be advertising

[4] The case holding that since gift expenses (the production expenses of a plaque, which are paid for a specific person in light of its nature, are excluded from entertainment expenses) for visitors to a newspaper company cannot be viewed as a specific person having transaction relation with the newspaper company since there is no evidence to specify who visitors are within the newspaper company, it is reasonable to view that the gift expenses were for the purpose of improving images by publicizing the newspaper company externally rather than for smooth transaction relation with the newspaper company, and therefore, it is reasonable to view that the gift expenses were not entertainment expenses but advertisement expenses.

[5] Article 16 subparagraph 7 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), Article 30 subparagraph 1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998), Article 18-3 (1) 2 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), and Article 43-2 (2) 1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998), Article 18 (1) 2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15986 of May 24, 199), and Article 30 subparagraph 1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 1, 1998).

[6] The case holding that since a newspaper company's collective agreement provides for the amount of condolence expense payment, and the voluntary organization of executives and employees also provides a similar amount of condolence expenses, even if the portion paid to the executives and employees of the newspaper company among the above condolence expenses is excessive, it shall be deemed that the expenses paid for the promotion of the welfare of executives and employees and the maintenance of smooth labor-management relations, which are equivalent to the amount of condolence expense payment under the above collective agreement, constitutes business-related welfare expenses, and the expenses for the purchase of alcoholic beverages for the newspaper company employees shall also constitute business-related welfare expenses, as long as there is no evidence to deem that the amount exceeds the scope permitted by social norms.

[1] Article 25 of the Corporate Tax Act / [2] Article 25 of the Corporate Tax Act / [3] Article 25 of the Corporate Tax Act / [4] Article 25 of the Corporate Tax Act / [5] Article 16 subparagraph 7 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) (Article 27 subparagraph 2 of the current Corporate Tax Act), Article 30 subparagraph 1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) (Article 50 (1) of the current Corporate Tax Act), Article 18-3 (1) 2 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), Article 25 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 155970 of Dec. 31, 1998) [2 subparagraph 4 of the current Enforcement Decree of the Corporate Tax Act]

[1] Supreme Court Decision 2003Du6559 Decided December 12, 2003 (Gong2004Sang, 183) Supreme Court Decision 2007Du26650 Decided July 10, 2008 / [3] Supreme Court Decision 2000Du2990 Decided April 12, 2002 (Gong2002Sang, 1143)

Seoul High Court Decision 200Na14488 delivered on August 1, 200

The director of the tax office

Seoul High Court Decision 2005Nu24966 decided July 25, 2007

The part of the lower judgment against the Plaintiff regarding the imposition of corporate tax for the business year 196, the business year 1997, the business year 1998, and the business year 199 shall be reversed, and this part of the case shall be remanded to the Seoul High Court. The Defendant’s remaining appeal shall be dismissed.

The grounds of appeal are examined.

1. As to whether entertainment expenses constitute entertainment expenses

A. Whether coverage expenses constitute entertainment expenses

(1) Entertainment expenses are expenses necessary for facilitating corporate activities and promoting corporate growth in proportion to the size of business of the enterprise, so they shall be strictly interpreted. If the other party is a business-related person and the purpose of spending is to promote the smooth progress of transaction by promoting friendship with business-related persons through entertainment activities, etc. among the expenses paid by the corporation for business, the expenses shall be deemed entertainment expenses under the Corporate Tax Act. However, unless otherwise, they shall not be readily concluded as entertainment expenses (see, e.g., Supreme Court Decisions 2003Du6559, Dec. 12, 2003; 2007Du2650, Jul. 10, 2008).

The court below acknowledged the facts as stated in its reasoning after comprehensively taking account of the evidence of its adopted evidence, on the premise that the coverage expenses of the plaintiff's reporters have the character of expenses for news gathering activities, but also have the character of entertainment expenses, and on the ground that the number of expenses for news gathering activities in this case's case's ordinary expenses for news gathering activities is in fact impossible to distinguish both as daily because the number of expenses for news gathering activities is falling short of one, and the exceeding part is deemed as all entertainment expenses, and that the defendant's inclusion of the coverage expenses in excess of the entertainment expense limit under the Corporate Tax Act is deemed as entertainment expenses, and thus, the court below determined that the expense per case's exclusion of the exceeding part of entertainment expense limit under the Corporate Tax Act is illegal.

(2) First of all, the court below's decision that the portion of per-case expenses of this case less than 30,000 won, which is the maximum limit of daily coverage expenses and actual coverage expenses under the Plaintiff's coverage expense payment standard, does not constitute entertainment expenses is just in light of the relevant laws and records in light of the above legal principles, and there is no error in the misapprehension of legal principles as to entertainment expenses as otherwise alleged in the Defendant's ground of appeal.

However, it is difficult to accept the lower court’s determination that the portion of per-case expenditure exceeding 30,000 won among the per-case expenditure of this case constitutes entertainment expenses for the following reasons.

In other words, expenses incurred in relation to news gathering activities shall vary depending on all the factors such as necessity of coverage, the number and nature of coverage source, coverage time, coverage place and circumstance, etc. Therefore, whether coverage expenses fall under entertainment expenses beyond the scope of ordinary expenses required for news gathering activities shall be determined individually and specifically by comprehensively considering the aforementioned factors, the purpose and nature of coverage, etc.

According to the facts duly established by the court below and the records, there are many cases where expenses required for news gathering activities exceed 30,000 won per case for reasons such as majority of news gathering personnel or located in a foreign country. In light of the legal principles as seen earlier, even if per-case expenses exceed 30,000 won, it cannot be concluded that all of them constitute entertainment expenses without individual and specific consideration of their spending circumstances, nature, etc.

Nevertheless, in calculating each corporate tax for the business year of 196 through 1999, the lower court determined that per-case coverage costs exceeding 30,000 won constitute entertainment expenses. In so determining, it erred by misapprehending the legal doctrine on entertainment expenses, which affected the conclusion of the judgment. The Plaintiff’s assertion pointing this out is with merit.

B. Whether gift expenses, etc. for visitors constitute entertainment expenses

After compiling the adopted evidence, the court below acknowledged the facts as stated in its holding, and determined that the gift expenses for customer employees and the plaintiff's visitors, meal expenses for various events promotion personnel and review members, encouragement funds for service companies' employees, and expenses borne by the director of newspaper site bureau who is not affiliated with the plaintiff, etc. are all expenses paid to promote the smooth progress of transaction relations with those who are related to the plaintiff's business, and they constitute entertainment expenses. However, the court below determined that the tea and drink expenses for various events promotion personnel and review members did not constitute entertainment expenses as ordinary expenses acceptable by social norms.

Examining the legal principles as seen earlier in light of the records, the part of the judgment that held that gift expenses for business partners employees, meal expenses for various events and examiners, encouragement funds for service company employees, promotional competition expenses for newspaper branch offices' employees constituted entertainment expenses, and multiple and beverage expenses for various events and examiners do not constitute entertainment expenses is justifiable. However, the part of the judgment that gift expenses for the plaintiff's visitors constituted entertainment expenses is difficult to accept for the following reasons.

As seen earlier, if the other party is a person related to a business among the expenses paid by a corporation for the business and the purpose of expenditure is to promote friendship among business partners through entertainment activities, etc. and facilitate the smooth progress of transaction relations, it shall be entertainment expenses. However, if the other party to the expenditure is many and unspecified persons and the purpose of expenditure is to stimulate purchase intent by improving the corporate image, it shall be advertising expenses (see Supreme Court Decision 2000Du2990 delivered on April 12, 2002). According to the records, the plaintiff paid various gifts to multiple visitors, etc., and it is difficult to view that there is no evidence to specify who is the visitors, etc., and therefore, the gift payment to them was to improve the plaintiff's image by promoting the plaintiff externally rather than to facilitate transaction relations with them. Thus, it is reasonable to view that the gift expenses are not entertainment expenses, but entertainment expenses (see Supreme Court Decision 2000Du2990 delivered on April 12, 2002).

Nevertheless, the court below erred by misapprehending the legal principles as to the scope of entertainment expenses and advertising expenses for visitors, etc., which affected the conclusion of the judgment. The plaintiff's assertion pointing this out is with merit.

2. As to whether expenses unrelated to the business constitute expenses not related to the business

(a) Expenses, etc. for security guards, automobiles and drivers of private houses;

(1) After compiling the adopted evidence, the court below found the facts as stated in its reasoning. The court below held that the defendant's non-deductible expenses were legitimate on the ground that the personnel expenses for security guards working at the individual house of the plaintiff representative director, etc., the expenses for management and maintenance of automobile tax for each of the automobiles of this case operated exclusively at the same time, the personnel expenses for drivers of the above automobiles of this case, and the expenses for each of the above automobiles of 1999 business year were paid for the private use of the plaintiff's representative director, etc., but the expenses were not paid in connection with the plaintiff's business. However, the court below held that the defendant's disposition of non-deductible expenses of the fixed assets not used for the corporation's business cannot be included in the corporation's deductible expenses, since Article 23 (2) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) and Article 24 (2) 1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998, 198) cannot be included in deductible expenses.

(2) First of all, the lower court’s determination that personnel expenses for security guards of individual housing of the Plaintiff’s representative director, etc., management and maintenance expenses for each of the instant automobiles operated in the relevant individual housing, personnel expenses for the pertinent driver, and the portion attributable to the business year 199 out of the depreciation expenses for each of the said automobiles constituted expenses unrelated to the Plaintiff’s business is justifiable in light of the relevant statutes and the records. In so doing, the lower court did not err by misapprehending the legal doctrine

However, the court below's decision that the depreciation costs of each passenger car of this case can be included in deductible expenses for the business year of 1996 through 1998 is difficult to accept for the following reasons.

Article 16 subparag. 7 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998; hereafter the same shall apply in this paragraph) and Article 30 subparag. 1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998; hereafter the same shall apply in this paragraph) upon delegation from the former Corporate Tax Act provide that expenses incurred by acquiring and managing assets falling under Article 18-3(1)2 of the former Corporate Tax Act shall not be included in deductible expenses for calculating the income amount of the corporation as losses not directly related to the business of the corporation. Article 18-3(1)2 of the former Enforcement Decree of the Corporate Tax Act and Article 43-2(2)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of May 24, 199); Article 18(1)2 of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of the Ministry of Finance and Economy) shall not directly related to the business of the corporation.

In full view of the language and purport of the above provisions, the depreciation costs of each passenger car in this case, which was operated exclusively to the individual house of the plaintiff representative director, is not directly used for the plaintiff's business and operated exclusively to the individual house of the plaintiff representative director, and thus, it cannot be included in the calculation of losses for the business year ending before December 31, 1998.

Unlike the above, the court below's determination that each car's depreciation costs may be included in the calculation of losses for the business year ending before December 31, 1998, which ends. In so doing, the court below erred by misapprehending the legal principles on expenses related to business-related assets, which affected the conclusion of the judgment, and the defendant's allegation pointing

On the other hand, the defendant's appellate brief against the judgment below that the disposal loss amount of the car of the Kadiia can be included in deductible expenses is not only the defendant did not state the grounds for appeal in the petition of appeal but also did not submit the appellate brief within the statutory period.

(b) Funeral expenses, expenses for commemorative associations for publication, etc.;

(1) After compiling the evidence of its employment, the court below acknowledged the facts as stated in its decision. ① The part of the ordinary expenses of this case paid to the officers and employees of the plaintiff's customer constitutes entertainment expenses for the purpose of promoting smooth transactional relations with them, and the part paid to retired officers and employees is likely to be related to the plaintiff's business. The part paid to the plaintiff's employee is welfare expenses for the purpose of securing and improving the employee's labor force through the promotion of employee's welfare and smooth labor-management relations. However, the part in this case is much more than 1 million won than 5 million won, which is stipulated in the plaintiff's collective agreement, etc., and it cannot be included in deductible expenses as it goes beyond the generally accepted scope of social norms. ② The purchase expenses of goods such as the plaintiff's employee's disposable liquor, etc., the expenses for the chairperson's commemorative meeting, the expenses for appointment of attorney-at-law for the plaintiff's representative director, credit rating service and consultation fees for the non-party 2, etc., and the part paid to the plaintiff's employee's employee's retirement expenses and treatment expenses cannot be included in deductible expenses.

(2) In light of relevant statutes and records, the above determination by the court below is just except for the following parts that are hard to accept, and there is no error in the misapprehension of legal principles as to expenses and entertainment expenses, as alleged by the plaintiff and the defendant.

However, it is difficult to accept the part of the judgment that all the expenses paid to executives and employees and the expenses for purchasing alcoholic beverages for the plaintiff employees are not related to their business for the following reasons.

According to the facts acknowledged by the court below, the plaintiff's collective agreement provides the amount of condolence expense payment, and ○○○, which is a voluntary organization of executives and employees, provides a level of condolence expense similar to that of the plaintiff's executives and employees. Thus, even if the amount of condolence expense payment is excessive, it shall be deemed that the expenses paid for the promotion of the welfare of executives and employees and the smooth labor-management relationship and the promotion of the employees' labor force and the maintenance of the smooth labor-management relationship, which are equivalent to the amount of condolence expense payment under the above collective agreement, constitute business-related welfare expenses. Furthermore, insofar as there is no evidence to deem that the purchase cost of the plaintiff's employee's disposable alcoholic beverage constitutes business-related welfare expenses, it shall be deemed that the amount exceeds the scope permitted by social norms. Nevertheless, the court below erred by misapprehending the legal principles on the scope of welfare expenses, which affected the conclusion of the judgment.

3. As to inclusion of false debt repayment in the calculation of earnings

(1) The tax authority shall prove the existence of taxable income and the fact that the income is attributed to the pertinent business year in a case where the legality of a taxation disposition on income for a certain business year is disputed, and it is difficult for the tax authority to determine which business year the income belongs to. Thus, it cannot be deemed that the income was attributed to the business year in which the tax authority investigated and verified the relevant taxable income (see, e.g., Supreme Court Decisions 98Du1826, Feb. 25, 2000; 2005Du11234, Jun. 28, 2007).

The court below found the facts as stated in its reasoning based on its adopted evidence. ① The obligation of KRW 179,830,862, and the obligation of KRW 75,766,560, which was included in the credit purchase account of the Plaintiff’s balance sheet, cannot be refunded or repaid, or the obligation to repay expires in the business year of 1998, and there is no evidence to prove that the extinction of the obligation is finalized in the business year concerned, and the cash was withdrawn in the business year of 1998 as the repayment of the above deposit and the credit purchase amount of KRW 179,830,862, and the obligation of KRW 75,766,560, which was already included in the credit purchase account of the Plaintiff’s balance sheet. The court below determined that the Defendant’s exclusion of the amount of the above deposit and the credit purchase amount from deductible expenses in the business year of 198, on the ground that there was no evidence that the Plaintiff paid the purchase amount to Nonparty 14,19050 or 197.

(2) First of all, the lower court’s determination that the Defendant’s disposition on this part was unlawful on the grounds that deposit amounting to KRW 179,830,862 and credit purchase income amounting to KRW 75,766,560 cannot be deemed to have accrued during the business year 1998 under the legal doctrine of the right and obligation confirmation principle was justifiable in light of the aforementioned legal doctrine and the record. In so doing, the lower court did not err by misapprehending the legal doctrine on the business year

However, the part of the court below's decision that the defendant's inclusion of the cash withdrawn as the repayment of the credit purchase amount of KRW 45,100,000 and the deposit amount of KRW 570,080,000 is legitimate in the calculation of the income amount of each of the withdrawn business years is not acceptable for the following reasons.

According to the facts acknowledged by the court below, the plaintiff has appropriated 45,10,000 won of credit purchase amount in the business year 1992 and 570,080,000 won of credit purchase amount in the business year 1995, and 570,080,000 won of credit purchase amount in the business year 195. Thus, unless the plaintiff was found to have appropriated false assets separately in the business year 1992 and 1995, the net assets of the 1992 business year and 1995 business year were insufficient, which can be seen as the result of the plaintiff's omission of earnings or excessive appropriation of losses in the business year 192 and 195. However, even if the plaintiff withdrawn cash under the pretext of repayment of false debts, the assets and liabilities in the account equivalent to the amount of double entry reduction at the same time, which could not affect the calculation of losses or losses in the business year concerned.

Nevertheless, the lower court determined that the Defendant’s exclusion of the amount of the withdrawn amount was lawful in the business year 1996 and the business year 1998, which the Plaintiff withdrawn cash as the repayment of the credit purchase amount and the deposit deposit. In so doing, it erred by misapprehending the legal doctrine on the year to which the taxable income was reverted, thereby adversely affecting the conclusion of the judgment. The Plaintiff’s assertion

4. As to whether it constitutes a provisional payment without office

(1) Article 18-3(1)3 of the former Corporate Tax Act (amended by Act No. 5581, Dec. 28, 1998; hereafter the same shall apply in this paragraph); Article 43-2(2)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970, Dec. 31, 1998; hereafter the same shall apply in this paragraph); Article 28(1)4(b) of the Corporate Tax Act; Article 53(1) of the Enforcement Decree of the Corporate Tax Act; and Article 53(1)4(b) of the Enforcement Decree of the Corporate Tax Act shall include not only pure meaning of loans, but also those corresponding to loans given the nature of claims. The existence of a relationship between the provisional payment and the business should be objectively determined on the basis of the purpose of business or business contents of the pertinent corporation (see, e.g., Supreme Court Decision 91Nu8302, Nov. 10, 1992);

(2) The court below acknowledged the facts as stated in its reasoning based on its adopted evidence. ① The plaintiff paid 500 million won to the non-party 5 corporation with a special relationship as advance payment for printing expenses and did not recover it for a long time, and considering the plaintiff’s purpose of business or business contents, etc., the above advance payment constitutes provisional payment without relation to the plaintiff’s business since it was substantially lent to the non-party 5 corporation without compensation for a long time, and it constitutes a lack of economic rationality in light of sound social norms and commercial practice, and it constitutes a lack of economic rationality, and thus constitutes “the case of lending money” under Article 20 of the former Corporate Tax Act, Article 46(2)7 of the Enforcement Decree of the Corporate Tax Act, Article 52(1) of the Corporate Tax Act, Article 8(1)6 of the Enforcement Decree of the Corporate Tax Act, and Article 88(1)6 of the Enforcement Decree of the Corporate Tax Act, and it is legitimate to exclude the interest paid to the non-party 6 corporation with a special relationship with the plaintiff from deductible expenses.

Examining the above legal principles in light of relevant statutes and records, the above judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the provisional payment without duties under the Corporate Tax Act as alleged by the plaintiff.

5. As to the computation of market price of advertisement services provided without compensation to the non-party 6 corporation

The court below acknowledged the facts as stated in its decision after comprehensively taking account of the adopted evidence. The market price of protruding advertising services in this case offered to non-party 6 corporation without compensation is, in principle, an objective exchange price formed through normal transactions and under similar circumstances with many and unspecified persons other than specially related persons, and when there is a price generally traded between third parties who are not specially related persons. The court below held that the defendant's disposition was unlawful to calculate the amount subject to unfair calculation based on the average advertising price (201,294, 1998, 184, 184, 332 won) which the plaintiff provided advertising services to a third party who is not specially related persons and actually received, although it is reasonable to estimate the amount subject to unfair calculation based on the market price. In light of related legal principles and records, the judgment of the court below is just, and there is no error in the misapprehension of legal principles as to protruding advertising price as alleged by the defendant.

6. As to the inclusion of other items in the gross income or non-deductible expenses

The court below acknowledged the facts as stated in its decision after comprehensively taking account of the adopted evidence. The court below held that since the plaintiff's annual interest rate of Madice and annual special encouragement fund paid to executives in the year 1999 are additional remuneration paid periodically for a long time according to the class and continuous service year, the part exceeding the limit of remuneration for officers in the business year 199 as determined by the articles of incorporation or the resolution of the general meeting of shareholders cannot be included in the calculation of losses. In light of related Acts and subordinate statutes and the records, such judgment of the court below is just, and there is no error in the misapprehension

In addition, the part of the plaintiff's overseas travel expenses of this case which was proved by foreign exchange sales account, etc. and the part which was not appropriated as deductible expenses which was returned to the plaintiff again was excluded from deductible expenses, and since it cannot be concluded that the foreign travel expenses of this case were not appropriated as the plaintiff's extra capital, the interest income was all unlawful in the calculation of the plaintiff's extra capital. The defendant's inclusion of the above foreign travel expenses in deductible expenses is legitimate in the calculation of deductible expenses, and each of the plaintiff's grounds of appeal on the judgment of the court below that the defendant's inclusion in deductible expenses of the above foreign travel expenses was legitimate in the calculation of the value of the 20th vehicle donated by the non-party

7. As to whether the zero tax rate is applicable under the Value-Added Tax Act

Article 6(5) of the Value-Added Tax Act that provides that when goods are supplied or supplied through a commission agent or agent, the principal shall be deemed to have supplied or received the goods directly, except when the principal or the principal is unknown (see, e.g., Supreme Court Decisions 2004Du12117, Sept. 22, 2006; 2006Du1098, Jul. 10, 2008).

Considering the above legal principles and all the circumstances such as the contents of the advertising agency contract concluded between the plaintiff and the advertising agency, the reason why the advertising agency provides the advertising service in this case, the method of paying advertising fees and advertising agency fees in its own name constitutes quasi-Commission agents who provide the advertising service in accordance with the plaintiff's account. Since Article 6 (5) of the Value-Added Tax Act applies mutatis mutandis to the supply of services by quasi-Commission agents, the principal who provides the advertising service to the foreign agency is the plaintiff who is the principal, and therefore, it is reasonable to deem that the advertising agency is ultimately paid by the plaintiff to the foreign agency through the foreign exchange bank.

In the same purport, the court below is just in holding that the supply of the advertising services by the plaintiff through the exercise of advertising stand constitutes a transaction subject to zero tax rate under Article 11 (1) 4 of the former Value-Added Tax Act (amended by Act No. 8826 of Dec. 31, 2007) and Article 26 (1) 1 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 17041 of Dec. 29, 200), and there is no error in the misapprehension of legal principles as to the legal nature of the zero tax rate and the advertising agency contract under the Value-Added Tax Act as claimed by the defendant.

8. Conclusion

Therefore, among the judgment below, the part against the plaintiff regarding the imposition of corporate tax for the business year 196, the business year 1997, the business year 198, and the business year 1999, is reversed, and this part of the case is remanded to the court below for a new trial and determination. The defendant's remaining appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Hong-hoon (Presiding Justice)