[Defendant-Appellant] Korea Leisure Co., Ltd. (Law Firm LLC, Attorneys Shin Jae- Line et al., Counsel for defendant-appellant)

Samsung Head of Samsung Tax Office

April 15, 2015

Seoul Administrative Court Decision 2013Guhap3399 decided July 3, 2014

1. Of the portion against the defendant in the judgment of the court of first instance for the business year 2007, the portion of additional tax of KRW 100,000,000 among the corporate tax reverted for the business year 2008, the portion of additional tax of KRW 100,00,000 among the corporate tax reverted for the business year 208, and the amount of additional tax of KRW 86,279,545 among the corporate tax reverted for the business year 20

2. The plaintiff's appeal is dismissed.

3. Of the total litigation costs, 90% is borne by the Plaintiff, and 10% is borne by the Defendant, respectively.

1. Purport of claim

The following dispositions taken by the Defendant against the Plaintiff on March 2, 2011 shall be revoked:

A. The portion exceeding KRW 4,677,556 out of the corporate tax for the business year 2006 145,812,131

B. Of the corporate tax attributed to the business year 2007 827,764,946, the portion exceeding 103,635,804 won

C. A portion exceeding KRW 268,880,823,721 of the corporate tax attributed to the business year 2008, which exceeds KRW 268,80,770

(d) The portion exceeding KRW 299,299,451 out of the corporate tax of KRW 1,652,987,080 for the business year 2009;

2. Purport of appeal

A. The plaintiff

The judgment of the first instance court shall be modified in the same manner as the purport of the claim(s).

B. Defendant

The decision of the court of first instance is as follows. (The plaintiff's assertion was accepted regarding the fee for the recruitment of dispute, but the defendant did not appeal).

1. The part citing the judgment of the court of first instance

The reasoning of the judgment of this court is that the pertinent part of the judgment of the court of first instance (Articles 8(2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act) is the same with the corresponding part of the judgment of the court of first instance (Articles 12 through 13, 9) except for the following addition. Thus, this part is cited in accordance with Article 8(2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act.

In light of the provisions of Section 18 of the first instance judgment, the actual substance of the transaction shall include the following in advance of the “in light of” of the 10th written judgment:

The plaintiff argues that the overseas sales promotion expenses incurred by the plaintiff were recognized as losses by the tax authority for the existing customer, and therefore the overseas sales promotion expenses incurred by the plaintiff are also deductible expenses. However, according to the result of the fact-finding on the Pakistan of this court, it is recognized that Pakistan was recognized as deductible expenses by proving that it was entered into and managed by each customer in the company's ERP system, while there is no evidence suggesting that the plaintiff was engaged in such strict management as to the overseas sales promotion expenses; 6) there is no evidence suggesting that the overseas sales promotion expenses have the effect of promoting normal game participation, such as providing the operator's chips that can be used only within the casino or directly convenience in casino games.

2. Determination on the issue additional tax

(a) Facts of recognition;

1) The contract and implementation of the contract with the Plaintiff

A) The term “mania’s leisure set-up Anmbrid professionalization” (hereinafter “mania”) is a casino customer specializing in casino solicitation, and is a Memerasia-based company located in Hong Kong (Jimei) group’s Republic of Korea.

B) On June 30, 2007, the Plaintiff entered into a contract (Junet A; hereinafter “instant contract”) with a customer to pay some (70%) of the amount of the customer’s casino usage (70%) as a solicitation fee, instead of soliciting and arranging casino customers, and the main contents thereof are as follows.

Article 2 (Game Operation) (5) of the Table contained in the main text of this Act provides that the Plaintiff shall deposit an amount equivalent to 30% of the total sum of 1,000 won before the game. In other words, when the Aloneone deposits 300 won, the Plaintiff shall provide rolling chips equivalent to 70%. The Aloneone shall be issued by the Plaintiff as a credit from the Plaintiff. Article 3 (Calculation and Payment of Good Offices) ① The payment of taxes in the Philippines shall be confirmed in accordance with the matters related to the withholding provision of Chapter IV of the Corporate Tax Act of the Republic of Korea and the tax agreement countries publicly notified by the Ministry of Finance and Economy (the chips are the Convention in 1986) and the method of calculating the sales of the chips shall be 1,000 won after consultation between the Plaintiff and the Plaintiff.

C) In China, the Lao recruited a customer and arranged the Plaintiff, and the Plaintiff provided the relevant customer with a space and human resources for conducting the game.

D) From July 2007, the Plaintiff provided three-story offices (hereinafter “instant office”) located in Gangnam-gu Seoul ( Address omitted), Seoul (hereinafter “instant office”) as the Plaintiff’s business site without compensation. This is a general reason to use customer recruitment business entity’s office free of charge in the casino industry, such as Makao, etc. In general, it is based on the Plaintiff’s level of convenience for attracting customers as much as possible, as the Mada casino industry is located in the second place.

E) The Plaintiff paid a total of KRW 41,299,432,723 as commission in the year 2007 through 2009, but did not receive adequate documentary evidence, such as Cash Receipts. The Plaintiff did not report and pay taxes within the Republic of Korea.

(ii) audit results and lawsuits relating to negligence;

A) As a result of the tax investigation, the director of the Seoul Regional Tax Office: (a) deemed that the office of this case was engaged in activities such as solicitation of casino customers, support for games, and joint settlement of game expenses at the office of this case; and (b) determined that the office of this case was a domestic permanent establishment of the Academy; and (c) notified the Defendant of the amount equivalent to the amount of the regular receipt received to the domestic permanent establishment of the

B) On December 20, 201, the Defendant registered the name on December 20, 201 as “Jimei Group Domestic Permanent Establishment,” “Jimei business opening date, July 1, 2007,” and the location of the place of business as the instant office, on the ground that the Defendant had not registered its business even though he/she had operated its business with a permanent establishment in the Republic of Korea. On April 11, 201, the Defendant made ex officio registration of business closure (the closing date: December 31, 2010).

C) In accordance with the result of the tax investigation, the Defendant decided and notified the annual corporate tax and value-added tax for each business year of 2007 to 2010 on March 2, 2011.

D) On December 28, 2012, the Commissioner of the National Tax Service rendered a request for review against it. On December 28, 2012, he/she received a decision from the Commissioner of the National Tax Service that “the amount of income related to the domestic business performance activities is re-audited, the tax base and tax amount related to the corporation tax for each business year, and the remainder of the claims are corrected, and dismissed.” Although the head of the Seoul Regional Tax Office re-audits, he/she concluded the investigation as appropriate, and notified it on March 22, 2013.

E) On March 7, 2014, the Seoul Administrative Court rendered a judgment that “each additional tax shall be revoked and the remaining claims shall be dismissed,” and the appeal court (Seoul High Court 2014Nu51052) is still pending.”

3) Details of the instant office’s operation

A) From July 2007, 2007, 15 employees, including employees on dispatch of the head office and employees employed in Korea, were assigned to 3 bridges per day (average 4 to 5 of a day) from the instant office.

B) In receiving the money from the customers recruited in China and other countries, it provided chips to the customers through the field competition team working in the instant office, and settled it with the Plaintiff’s field competition team every day, and the settlement of fees was completed on the last day of each month.

C) At the time of the tax investigation, the office of this case had seven books, seven computer units, one credit cooperative for cash storage, one credit cooperative for chips for chips, three cashnets, one work card size, etc. At the time of the tax investigation. At the office of this case, the office of this case prepared and managed a customer game settlement card for each customer, stating the customer’s name, chip amount, chip amount, chip chip DNA, balance, signature-value, loan details, etc. at the office of this case.

[Ground of recognition] Evidence Nos. 14, 16, Eul Nos. 3 through 5, the purport of the whole pleadings

B. Determination

1) Whether the elderly has a permanent establishment in Korea

Article 116(2) of the Corporate Tax Act provides that a corporation shall receive and keep documentary evidence, such as credit card sales slip and Cash Receipt, when it receives goods or services from an entrepreneur prescribed by the Presidential Decree, and recognizes the exception of the obligation to receive goods or services where it receives goods or services from a foreign corporation with no domestic place of business under Article 158(1)1(d) of the Enforcement Decree of the same Act.

Meanwhile, “The Convention between the Republic of Korea and the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income” (hereinafter “the instant tax treaty”) provides that an enterprise’s profits shall be taxed only in that other Contracting State unless the enterprise runs a business in the other Contracting State through a permanent establishment located in the other Contracting State (Article 7(1) first sentence). The term “permanent establishment for the purpose of this Convention” is defined as the fixed place of business in which the business of the enterprise is wholly or partially carried on (Article 5(1)). In addition, the instant tax treaty provides services, including the advisory services, provided by the enterprise through its employees or other employees, for a single or several period exceeding 183 days in total within the Contracting State (Article 5(3)(b)), and “the maintenance of a fixed place of business for the purpose of carrying on any activity in the ancillary or auxiliary nature of the enterprise” is deemed not to include “the maintenance of a permanent establishment.”

In light of the provisions of the instant tax treaty, in order to establish a permanent establishment in the Republic of Korea, an employee of, or a person under instructions from, a corporation of the Philippines should perform essential and important business activities, not preliminary or auxiliary business activities, through the “fixed place of business” such as domestic buildings, facilities, or equipment, etc., for which a corporation of the Philippines has “the right to dispose of or use” in the Republic of Korea. Whether such business activities are essential and important should be determined by comprehensively taking into account the nature and scale of the business activities and the importance and role of the entire business activities (see Supreme Court Decision 2009Du19229, Apr. 28, 201).

In the instant case, the following circumstances revealed by the facts as seen earlier, namely, ① the Plaintiff provided the office of this case free of charge, so the right to use the office of this case was deemed to continue from July 2007 to December 31, 2010. ② The instant contract is the primary business activities of soliciting overseas customers and arranging them to offer the Plaintiff’s games in Asia, excluding Korea. According to the instant contract, it is reasonable to view that the Plaintiff’s customer recruitment and arrangement was 70% of the sales from the Plaintiff’s game to the Plaintiff by providing it with free of charge. From around 7, 2007, the use of the office of this case appears to have been continued from July 31, 2007 to the point that the customer’s office of this case’s casino business constituted an important business activity, such as providing the Plaintiff with information on the instant casino’s business activities, and thus, it is reasonable to view that the customer’s office of this case’s service would be an important business activity without any inconvenience in the Plaintiff’s business activities.

2) Whether there is a justifiable reason that cannot be caused by the Plaintiff’s neglect of duty

Under the tax law, in order to facilitate the exercise of taxation rights and the realization of tax claims, where a taxpayer violates various obligations, such as a return and tax payment, as prescribed by the tax law without justifiable grounds, it may be deemed that the taxpayer was not aware of such obligations, and where there is a circumstance that the taxpayer can reasonably present it, or where there is a reason that it is unreasonable for the taxpayer to expect the fulfillment of the obligations to do so, and there is a justifiable reason that it is unreasonable for the taxpayer to do so, the imposition may be exempted (see Supreme Court Decision 2003Du4089, Apr. 15, 2005, etc.). However, under the tax law, the penalty tax shall not be considered as taxpayer's intentional or negligent acts, but does not constitute a justifiable reason that does not constitute a violation of the tax law (see Supreme Court Decision 2005Du10545, Apr. 26, 2007, etc.).

In light of the above facts and the purport of the entire arguments, the following circumstances are revealed, i.e., the right to use the place of business, i.e., the actual right to use the office of this case. Since the provider of the office of this case is the plaintiff, the plaintiff was naturally aware of the right to use the office of this case. ii) The duties of the office of this case are essential and important business activities. As seen above, the plaintiff is a company operating the exclusive casino business for foreigners, and paid a considerable amount of fees to the elderly for not less than three years after concluding the contract of this case with the elderly, and during the above period, it seems that the plaintiff was aware of the work of this case at the office of this case, and it is difficult to issue documentary evidence, such as cash receipts, or it is difficult for the plaintiff to do so even if it was not registered as a business operator, i.e., the plaintiff's right to use the permanent establishment within the Republic of Korea, or the plaintiff did not have any justifiable reason to interpret it as an essential part of the contract of this case.

3) Judgment on the plaintiff's conjunctive assertion

The plaintiff asserts that, even if there is no justifiable reason to exempt additional tax, the part of rolling fees out of the fees paid by the plaintiff is not the cost of providing services to the plaintiff, but it merely requires the plaintiff to deliver the amount to be reverted to the customer through the negligence, so this part does not have any obligation to receive the proper documentary evidence, and therefore, it should be excluded from the calculation of additional tax.

In light of the following circumstances that can be seen by the facts and the purport of the entire argument as seen earlier, namely, ① Article 3 of the instant contract includes the calculation and payment of the brokerage commission under Paragraph (2) in addition to the “Win/Ls” charges, and the Plaintiff is obligated to pay the rolling fee to the elderly. ② Rawls’s normally pay to the customer in order to attract customers; ② it can be deemed that a casino proprietor’s payment of part of the rolling fee is included in the consideration for the client’s good offices; ③ the part of the rolling fee out of the fee paid to the elderly; ③ the Plaintiff’s payment of part of the rolling fee is long, and there is no material to verify whether the above rolling fee actually belongs to the customer. Accordingly, it cannot be readily concluded that the Plaintiff is not obligated to receive any documentary evidence regarding the part of the sprinklering fee. Therefore, the Plaintiff’s assertion on this premise is without merit.

3. Conclusion

Ultimately, among the plaintiff's assertion, the argument on the issue of overseas sales promotion expenses, the issue non-real-name compact, and the penalty tax part is without merit, and thus, the legitimate corporate tax amount of the disposition of this case is calculated as

The tax amount (including the first-class penalty tax), (including the first-class penalty tax), the amount of penalty tax on the issue of the tax for the business year (including the first-class penalty tax), 2006 145,812,812, 1312, 207 827,764,946,94,1520,920 786,610,62626 208 1,480,823,7210,000,000,459,321,364,364,364,389,389,389, 209, 200, 200, 145,364, 387, 974, 197, 1987, 2084, 197, 197, 1987, 1984, 7587,4797,487

4. Conclusion

Therefore, the plaintiff's claim shall be accepted within the scope of the above recognition and the remaining claims shall be dismissed as it is without merit. Since the judgment of the court of first instance is partially unfair with different conclusions, the defendant's appeal is accepted and the judgment of the court of first instance is revoked, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.

Judges Sung Pung-tae (Presiding Judge)