In a case where Company A purchased golf membership from Company B for the purpose of using it in contact with its customer, and the taxing authority imposed value-added tax on Company A on the grounds that the said input tax amount constitutes an object of non-deduction of input tax under Article 17(2)3-2 of the former Value-Added Tax Act, the case affirming the judgment below that the said input tax amount constitutes an object of non-deduction of input tax amount.

Articles 17(1) and 38(2)3-2 (see current Article 39(1)6) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010); Article 60(5) (see current Article 79); Article 25(5) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010); Article 25(5) of the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 2010)

Daeil system, Inc.

port of origin

Seoul High Court Decision 2012Nu40249 decided July 5, 2013

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

The grounds of appeal are examined.

1. Article 17(1) of the former Value-Added Tax Act (amended by Act No. 915, Jan. 1, 2010; hereinafter “Value-Added Tax Act”) provides that “The amount of value-added tax to be paid by an entrepreneur shall be the amount obtained by deducting the input tax amount from the output tax amount.” Paragraph (2) 3-2 of the same Article provides that “the input tax amount related to the disbursement of the entertainment expenses and other similar expenses prescribed by Presidential Decree” shall be one of the input tax amount not deducted from the output tax amount. Article 60(5) of the Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010) provides that “The expenditure of the entertainment expenses and similar expenses prescribed by Presidential Decree shall be the entertainment expenses and similar expenses under Article 35 of the Income Tax Act and Article 25 of the Corporate Tax Act shall be the entertainment expenses and similar expenses under Article 25(1) of the former Corporate Tax Act (amended by Act No. 25303 of the same Act)”.

2. A. citing the reasoning of the judgment of the court of first instance, the court below acknowledged the following facts: (a) On January 29, 2009, the Plaintiff, a corporation operating the business of manufacturing semiconductor equipment, etc., purchased golf membership from the UNCC Network on January 29, 2009 to 270,000,000 won (the supply price of KRW 245,45,545,545, value-added tax 24,545,455), and subsequently granted a preliminary return of value-added tax for the first period of 2009 by deducting the input tax amount (hereinafter “the instant input tax amount”) from the output tax amount; and (b) on the ground that the instant input tax amount constitutes an object of non-deduction of the input tax amount stipulated in Article 17(2)3-2 of the Value-Added Tax Act, the Defendant issued the instant disposition to the Plaintiff on July 11, 2011.

Furthermore, the court below held that the disposition of this case is legitimate on the ground that the acquisition cost of golf membership as long as the plaintiff purchased golf membership membership solely for the purpose of contact with the business partner should be deemed entertainment expenses subject to the non-deduction of the input tax amount, regardless of the name of the business, and it is clear that the corporation classified it as entertainment expenses subject to the non-deduction of the input tax amount, and even if it was acquired solely for the purpose of contact with the company, it constitutes entertainment expenses subject to the non-deduction of the input tax amount.

B. Article 17(2)2 of the Value-Added Tax Act provides that input tax amount for expenditures not directly related to the business shall not be deducted from input tax amount. Article 17(2)3 and 3-2 appears to be concrete. The acquisition cost of assets in connection with the business cannot be deemed to fall under the expenditures directly related to the business like entertainment expenses. Article 17(2)3-2 of the Value-Added Tax Act provides that input tax amount required for the disbursement of entertainment expenses shall be borne by the business operator, thereby preventing the disbursement of entertainment expenses, which is one of the consumption expenses, and its language is not limited to accounting expenses. In light of the above, the judgment of the court below that the input tax amount in this case constitutes an object of the non-taxation of input tax amount. In addition, it did not err by misapprehending the legal principles on the non-taxation of input tax amount under Article 17(2)3-2 of the Value-Added Tax Act.

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 on the bench.

Justices Park Poe-young (Presiding Justice)