CONTENTS
- 1. The Client Who Requested Assistance From a Corporate Law Attorney
- - Detailed Background of the Case
- 2. The Corporate Law Attorney's Assistance
- - Clarifying the Grounds for Recognizing Deductibility
- - Responding to the Duplicate Imposition of Additional Tax on Payment Statements
- - Evidence and Written Submissions to Establish the Facts
- 3. Deductible Expense Recognition Obtained Through the Assistance of a Corporate Attorney
- 4. Deductible Expense Recognition Explained by a Corporate Attorney
- - Deductible Expenses and Non-Deductible Items
- 5. Corporate Attorney FAQ
- - If You Require Assistance
1. The Client Who Requested Assistance From a Corporate Law Attorney
The client who came to a corporate law attorney requested assistance after corporate income tax and additional tax were imposed because support funds paid to a business partner in the course of promoting the distribution of a new product were determined to be improper expenses.
Detailed Background of the Case
The client in this case is a domestic manufacturing company that paid support funds to a business partner in the course of distribution promotion activities for the launch of a new product.
The tax authority determined that these were improper expenses in the nature of a rebate and, together with a decision disallowing the deduction, imposed corporate income tax and additional tax on the grounds of omissions in the payment statements and the like.
Although the expenses were part of the client's actual business activities, the client received a decision disallowing them, and accordingly came to a corporate law attorney to request assistance.
2. The Corporate Law Attorney's Assistance
The issues in this case were as follows.
② Whether the transaction support funds conformed to ordinary commercial practice
③ The possibility of duplicate imposition of additional tax due to omissions in the entries of the payment statements
From the early stage of the case, the corporate law attorney precisely analyzed the logical structure of the tax authority's position and the basis for the assessment, and focused on clearly establishing for what purpose and through what procedures the company had actually spent the expenses.
Clarifying the Grounds for Recognizing Deductibility
The corporate law attorney established that the transaction support funds were, in substance, business-related expenses for the purpose of promoting sales and maintaining the business relationship.
In addition, by systematically organizing the circumstances of the payment of the expenses, the internal approval procedures, and the accounting records, the attorney argued that they were part of ordinary business activities.
The attorney also comprehensively reviewed tax law and related precedents, emphasizing that deductibility under tax law must be assessed separately, regardless of any possible illegality of the payment.
Responding to the Duplicate Imposition of Additional Tax on Payment Statements
The corporate law attorney took note of the fact that the tax authority had imposed multiple additional taxes for the same matter.
By examining from multiple angles the purpose of imposing additional tax and fairness in taxation, the attorney raised an objection to the validity of the duplicate imposition.
Through this, the attorney systematically organized the legal principles and evidence and presented the points at issue so that the court could assess the appropriateness of the assessment.
Evidence and Written Submissions to Establish the Facts
The corporate attorney worked closely with accountants and tax advisors to carefully review the supporting documentation and accounting records relating to the expenses.
The attorney submitted, in stages, written materials that specifically set out the nature of the expenses, the circumstances of payment, and the internal approval process.
Through this approach, the attorney clearly established that the subsidy in question was an ordinary transaction expense directly related to actual business operations.
3. Deductible Expense Recognition Obtained Through the Assistance of a Corporate Attorney
The court found that the expense was directly related to the company's business operations and that it had been paid within the ordinary scope of commercial practice.
Accordingly, the expense was recognized as a deductible expense under the tax law, and the tax authority's assessment of corporate tax and additional tax was revoked in full.
As a result, the client was able to avoid an unnecessary tax burden and to minimize tax risk on similar transactions in the future.
4. Deductible Expense Recognition Explained by a Corporate Attorney
One of the most important concepts in calculating corporate tax is the recognition of deductible expenses. The recognition of a deductible expense means more than simply having incurred a cost; it refers to a lawful expense that can be recognized under the tax law.
Depending on which expenses are recognized as deductible, a company's taxable income and final tax liability can vary significantly.
The Corporate Tax Act defines the income for each business year as the total amount of gross income (revenue) less the total amount of deductible expenses (costs).
In other words, the more expenses that are recognized as deductible, the lower the taxable income, which in turn reduces the corporate tax to be paid.
Reviewing whether expense items are appropriate is therefore at the core of tax management.
Deductible Expenses and Non-Deductible Items
A deductible expense refers to a cost that is directly related to the business and is an ordinary expenditure for generating revenue, which the tax law recognizes as deductible.
Even if an item is treated as an expense for accounting purposes, it must satisfy the requirements of the tax law in order to be treated as a deductible expense.
▶ Principal Deductible Expense Items
ㆍ Salaries, bonuses, and retirement benefits of executives and employees (except amounts exceeding the applicable limits)
ㆍ Office rent, management fees, and depreciation
ㆍ Advertising and promotional expenses, sales promotion expenses, and financing costs (except those relating to assets unrelated to the business)
ㆍ Taxes and public charges (except corporate tax and fines)
ㆍ Entertainment expenses and donations (within the statutory limits)
Conversely, the denial of a deductible expense refers to an expenditure that the tax law does not recognize as an expense, even if it was treated as an expense for accounting purposes.
Because these items are added back when calculating taxable income, the tax burden increases.
▶ Principal Non-Deductible Items
ㆍ Punitive expenditures, such as fines and administrative fines
ㆍ Expenses unrelated to the business (such as personal use by the representative)
ㆍ Amounts of entertainment expenses and donations exceeding the limits
ㆍ Amounts of executive bonuses and retirement benefits exceeding the limits
ㆍ Interest paid in relation to assets unrelated to the business
ㆍ Corporate tax and local income tax
5. Corporate Attorney FAQ
Every expense requires qualifying documentation. Without a tax invoice or a contract, it is difficult to have an expense recognized as deductible.Q. What must a company keep in mind in order to have expenses recognized as deductible?
In addition, personal use of corporate funds not only results in the denial of the deductible expense but may also lead to legal liability in certain cases.
Annual expenditures should therefore be managed systematically so that the limits on entertainment expenses and donations are not exceeded.
No. Treating an item as an expense for accounting purposes reflects an internal management judgment, but recognition as a deductible expense under the tax law is granted only when the legal requirements are satisfied.Q. Is every expense recognized for accounting purposes also recognized as a deductible expense?
For example, personal expenditures by the representative director, entertainment expenses exceeding the limits, and fines and administrative fines are treated as non-deductible items under the tax law, even if they are recorded as expenses for accounting purposes.
A company should therefore review the requirements of business relevance, ordinariness, and documentation in advance in order to prevent tax risk.
If You Require Assistance
A dispute over deductible expenses is not merely a procedure for contesting whether a cost is recognized.
It is an issue in which the interpretation of the requirements for deductible expenses under the tax law, the adequacy of the documentation, and the procedural validity of the tax assessment all operate together.
This firm accurately understands the structure of the tax authority's reasoning and its evidentiary standards, and, through close cooperation with tax advisors and accountants, develops a comprehensive defense strategy ranging from organizing the facts to constructing legal arguments and preparing written submissions.
Through this approach, the firm assists clients in preventing unreasonable taxation and in substantially reducing their tax risk.
If you require legal assistance in a situation similar to the case above, please 🔗schedule a legal consultation to request assistance.
This content is based on actual case studies of Daeryun Law LLC with some adaptations, and the copyright belongs to our firm.
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