Appellate Court 2015west 1399 (Law No. 19, 2015)

The amount equivalent to the electronic tax invoice issued by a person who does not actually receive advertising services is subject to the exclusion of corporate tax and the non-deduction of the value added tax.

Advertisement service contracts concluded with a related corporation without expertise in advertising agency business are deemed to be a processing transaction, and expenses paid by the representative director and executives in relation to the place and place of business shall not be recognized as expenses related to the business.

Article 17 of the Value-Added Tax Act; Article 27 of the Corporate Tax Act; Article 50 of the Enforcement Decree

2015Guhap79406 Disposition of Disposition of Imposing Value-Added Tax, etc.

AAA, Inc.

O Head of tax office

August 23, 2016

September 22, 2016

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The Defendant’s imposition of KRW 1,00,00,00 for the first term portion of 201 against the Plaintiff on August 1, 2014, and the imposition of KRW 1,93,636 for the second term portion of 2011, and corporate tax of KRW 12,090,630 for the business year 201 is revoked.

1. Details of the disposition;

A. From November 1, 2009, the Plaintiff runs the medical wholesale business in the O building in Dongdaemun-gu Seoul OO from November 1, 2009.

B. From April 21, 2014 to May 26, 2014, the Defendant: (a) conducted a tax investigation with respect to the Plaintiff; (b) as to KRW 32,270,00,00 paid by the Plaintiff to the Plaintiff Company BB (hereinafter “BB”) in its special relationship, excluded the Plaintiff from deductible expenses in calculating the corporate tax for the business year 201, on the ground that the Plaintiff did not actually provide BB’s advertising services; and (c) deducted the amount from the input tax for the first and second years of January 201, 201; and (b) as to KRW 93,040,00,00 from the expenses paid by the Plaintiff for the actual business, not for the expenses paid by the Plaintiff’s representative director, but for private business-related expenses, excluded from deductible expenses in calculating the corporate tax for the business year 2011.

C. On October 30, 2014, the Plaintiff filed an objection against the Defendant regarding the disposition of KRW 33,179,308 of the above advertising expenses and KRW 32,270,000 of the above expenses and KRW 93,040,000 of the above expenses. On December 15, 2014, the Defendant recognized the relevance of the above expenses to business and dismissed the Plaintiff’s objection ex officio corrective measures (hereinafter “instant disposition”).

D. The Plaintiff appealed and filed an appeal with the Tax Tribunal on March 3, 2015, but on August 2015.

19. An appeal was dismissed.

[Ground of recognition] Facts without dispute, Gap evidence 1, Eul evidence 2, Eul evidence 2-1, Eul evidence 2-2, Eul evidence 3 and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

1) After concluding an advertising agency contract with BB, the Plaintiff paid KRW 32,270,000 to BB for advertising services after having actually received advertising services from BB. Therefore, KRW 32,270,000 for advertising services should be deducted as the input tax amount for the first and second years of 2011 when calculating the corporate tax attributed to the business year 201.

2) The Defendant’s remaining 25,621,00 won excluding KRW 7,58,00,000 as ex officio corrected in the Plaintiff’s objection procedure regarding KRW 33,179,308, which was non-deductible expenses, should be included in the calculation of corporate tax for the business year 201, since the Plaintiff’s officers and employees incurred in relation to the Plaintiff’s business, such as oil supply expenses, company’s revolving expenses, product development expenses, cosmetics of the shopping mall model, and purchase expenses, etc.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether the Plaintiff was actually provided with advertising services from BB

According to the evidence Nos. 1 through 6, the Plaintiff prepared an advertising agency contract with BB on January 29, 2010, and the Plaintiff paid KRW 32,700,000 to BB and received electronic tax invoices from BB.

However, comprehensively taking account of the evidence No. 1, No. 1, No. 4 of BB’s evidence and the overall purport of the argument, ① CB’s representative director, as the Plaintiff’s mother of DD and the Plaintiff’s largest shareholder (49%), BB’s special relation corporation, ② as the type of business is an advertising agency in business registration, the amount of sales by proxy (68,783,000 won) in 201 is merely about 6.5% of the total sales by proxy (1,051,367,000 won). ③ BB concluded an online sales contract for 30% of the total sales by proxy, 6.5% of the total sales by proxy, 207, 207, 207, 207, 207, 207, 30G sales by proxy, 30% of the total sales by proxy, and 207, 30G sales by proxy, 2019.

As seen above, as seen in the above facts, the Plaintiff asserted that ① (a) as at the time of the Defendant’s tax investigation, the Plaintiff was seeking to prepare the BB and the advertising agency contract in the year 201, but not having actually been provided with the advertising service by the BB; (b) there was no specific evidence to acknowledge that the BB provided the Plaintiff with the advertising service; (c) the Plaintiff was receiving the advertising agency service while paying a reasonable amount of advertising fees to the specialized advertising agency at the time; and (d) the Plaintiff was able to run only one account, so it was necessary to receive the advertising service through BB in order to display more self-employed advertisements. However, even in the Plaintiff’s assertion, it is reasonable to view that the Plaintiff was not a principal agent of the BB advertising service, since it is difficult to deem that the Plaintiff had received various types of advertising services as an advertiser, even if the domestic advertiser was able to use only one account on the portal site, and therefore, there was no need to provide the clothing service among the Plaintiff and the B agent service.

2) Whether the case constitutes an expense related to the business

In full view of the purport of evidence No. 1 and evidence No. 2, the Plaintiff’s corporate credit card is ① the Plaintiff’s representative director DD, directors HH (DD) and directors JD (DDD), ② the items excluded from the Defendant’s deductible expenses out of the Plaintiff’s expenses are vehicle maintenance expenses, welfare expenses and sampling expenses, ③ the heavy vehicle maintenance expenses for the executives including the Plaintiff’s representative director, and most of the expenses were spent in the off-site and the off-site areas, ④ the welfare expenses were used at the office of the executives and the off-site areas and the off-site areas during a time other than the Plaintiff’s business hours, ⑤ the sample expenses were used at the weekend or holidays, ⑤ the fact that the Plaintiff was used at the office of the executives and the off-site areas, ⑤ the fact that the Plaintiff was not related to the Plaintiff’s internal expenses, such as the expenses related to the above expenses, and thus, the Plaintiff’s assertion that there was no objective relevance to the Plaintiff’s non-deductible expenses.

D. Sub-committee

The instant disposition to the same purport is lawful.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.