[1] Whether the provision of Article 4(1) of the former Enforcement Rule of Corporate Tax Act unreasonably limits the rights and obligations of the people without the basis of superior laws and regulations or becomes invalid beyond the limits of delegation (negative)

[2] The case holding that the amount equivalent to the market price of the fixed goods offered to a customer shall not be entertainment expenses, but shall constitute sales incidental expenses under Article 12 (2) 2 of the former Enforcement Decree of the Corporate Tax Act

If the other party is a person related to a business among the expenses paid by a corporation for business and the purpose of expenditure is to promote smooth progress in transaction relations by promoting friendship with business persons through entertainment, etc., such expenses shall be deemed entertainment expenses under Article 18-2 of the former Corporate Tax Act (amended by Act No. 4664 of Dec. 31, 1993). However, if the expenditure circumstance, nature, amount, etc. are recognized as ordinary expenses in direct connection with the sale of goods or products in light of sound social norms or commercial practices, it shall be deemed that it constitutes an unfair provision of Article 9(3) of the same Act and Article 12(2)2 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) and it shall not be deemed that it constitutes an unfair provision of Article 18-2 of the former Corporate Tax Act (amended by Ordinance of the Prime Minister No. 4664 of Mar. 30, 1995).

[2] The case holding that the amount equivalent to the market price of the fixed goods offered to the business partner is not entertainment expenses but sales incidental expenses under Article 12 (2) 2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998)

[1] Article 9(3) of the former Corporate Tax Act (Amended by Act No. 4664, Dec. 31, 1993; see current Article 25); Article 18-2 (see current Article 25); Article 12(2)2 (see current Article 19 subparag. 1) of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 15970, Dec. 31, 1998; see current Article 19 subparag. 1); Article 4(1)(2) of the former Enforcement Rule of the Corporate Tax Act (Amended by Act No. 492, Mar. 30, 1995; see current Article 9(3) (see current Article 19(1)) of the former Corporate Tax Act (Amended by Act No. 4664, Dec. 31, 1993); Article 18-2(2) of the former Enforcement Rule of the Corporate Tax Act (Amended by Act No. 159493, Dec. 13, 19, 19498)

Both Yong-gu Co., Ltd. (Attorneys Lee Im-soo et al., Counsel for the plaintiff-appellant)

Head of the District Tax Office

Seoul High Court Decision 2002Nu10904 delivered on May 22, 2003

The appeal is dismissed. The costs of appeal are assessed against the defendant.

1. According to the reasoning of the judgment below, the court below found that the plaintiff's business year of 193, as a company for the manufacture, sale, etc. of a sort of paper, delivered 800 million won, such as cremation, etc. without compensation to customers including agencies in the business year of 1993, and added the cost amount to deductible expenses, the defendant deemed that the amount equivalent to the price of the paper's goods is the entertainment expenses and imposed corporate tax (hereinafter "the disposition of this case") by deducting the amount from deductible expenses ("the disposition of this case"). After the plaintiff compiled the budget for sales promotion expenses in advance, the court below held that the part of this case's disposition of this case should be null and void since it did not go beyond the limit of the former Enforcement Rule of the Corporate Tax Act's prior disposition of this case since the plaintiff's average sales, sales target, sales target, sales problems, etc. of agents located in the area where competition is poor after the plaintiff compiled the budget for sales promotion expenses, and provided samples and samples for the use of events, etc.

2. If the other party to a business among the expenses paid by a corporation for its business is a person related to the business and the purpose of expenditure is to promote the smooth progress of transaction relations by promoting friendship with business partners through entertainment, etc., such expenses shall be deemed entertainment expenses under Article 18-2 of the former Corporate Tax Act (amended by Act No. 4664 of Dec. 31, 1993; hereinafter referred to as the "Act"). However, if the expenditure circumstances, character, and amount are recognized as normally required in relation to the sale of goods or products in light of sound social norms or commercial practices, it shall be deemed that it constitutes an example of sales incidental expenses recognized by the Enforcement Decree of the same Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998; hereinafter referred to as the "Enforcement Decree"), and it shall not be deemed that it constitutes an unfair provision or an agreement with respect to sales incidental expenses, which shall not be included in the sales incidental expenses under each subparagraph of Article 12-2 of the former Corporate Tax Act (amended by Act).

In light of the relevant laws and records, the court below erred in finding the provision of Article 4 (1) of the Enforcement Rule invalid. However, in light of the circumstances where the plaintiff provided the goods to the customer, the amount equivalent to the expenses is not entertainment expenses, but the expenses incurred in relation to the sales of the goods, etc., which constitutes sales incidental expenses under Article 12 (2) 2 of the Enforcement Decree. Therefore, the court below's conclusion that the disposition of this case was unlawful is just, and the above error of the court below did not affect the conclusion

Therefore, the judgment of the court below is not erroneous in the misapprehension of legal principles as to entertainment expenses and in the ground of appeal.

3. Therefore, 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.

Justices Yoon Jae-chul (Presiding Justice)