The case holding that the calculation of the allotted amount based on the ratio of the total selling price of a store or the ratio of sales in the immediately preceding business year cannot be deemed as a reasonable allocation method, when calculating the allotted amount based on the ratio of the sales price of a store or the ratio of sales in the immediately preceding business year, among advertising

Article 48(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891 of Feb. 28, 2007)

Sung Chang-ho Co., Ltd., a lawsuit taking over the Piolelelele Co., Ltd. (Attorney Im Chang-soo, Counsel for the defendant-appellant)

Head of Central Tax Office

Seoul High Court Decision 2005Nu9677 decided March 28, 2007

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

The grounds of appeal are examined.

The court below accepted the judgment of the first instance and acknowledged the facts as indicated in its holding. If the plaintiff disbursed the advertisement expenses to enhance the image and awareness of the trademark "scenare" used jointly with Sungsung Flod Co., Ltd. (hereinafter "scenare"), which the plaintiff had a special relationship with him, it is similar to the case where the corporation operating the joint business actually incurred expenses, and thus, it is reasonable to not include the amount exceeding the plaintiff's share in the expenses out of the above advertisement expenses in the expenses as deductible expenses. In relation to the calculation method of the above advertisement expenses, the court below determined that the plaintiff's act of calculating the share amount of the advertisement expenses at issue was reasonable by distinguishing the above advertisement expenses at the time and place of the advertisement from the above advertisement expenses to the point where the plaintiff had a smuggling store, and thus, it is reasonable to regard the advertisement effect at the time and place of the advertisement expenses at the time of sale without any reasonable share in the advertisement expenses at each time and place.

In light of relevant laws and records, the judgment of the court below is just and it is not erroneous in the misapprehension of legal principles as to the interpretation of Article 48 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891 of Feb. 28, 2007) as otherwise alleged in the ground of appeal.

In addition, according to the facts and records duly established by the court below, in the case of this case, the ratio of the total amount of expenses for advertisement to the total amount of expenses for advertisement in the immediately preceding business year is changed according to Article 48 (1) 2 of the former Enforcement Decree of the Corporate Tax Act to the ratio of the total amount of expenses for advertisement in the immediately preceding business year to the amount of expenses to be apportioned, and thus the amount of expenses to be apportioned is greater than the initial amount of expenses to be apportioned. Accordingly, this part of the disposition of taxation is legitimate. However, as alleged by the defendant, the court below did not make an explicit judgment. However, even if the amount of expenses to be apportioned for advertisement in the preceding business year from 1999 to 2001 as alleged by the plaintiff is calculated based on the ratio of the total amount of expenses to be apportioned for advertisement in the preceding business year to the total amount of the plaintiff's sales in Sung Chang Chang Chang Chang Chang-si's immediately preceding business year, it is similar to the case of calculation based on the above ratio of expenses to be apportioned.

Therefore, as long as the judgment of the court below is justified in its conclusion, the above error of the court below did not affect the conclusion of the judgment, so the ground of appeal on this part is without merit.

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 Kim Hwang-sik (Presiding Justice)