Feb 21, 2007

Rules to Change for Entertainment Spending

Chosun Ilbo Feb. 21, 2007

The existing government regulation that requires a receipt for corporate entertainment spending exceeding 50,000 won will be tightened. Entertainment spending which will require a receipt will be lowered to 30,000 won in 2008 and 10,000 won in 2009. In response, businesses are expressing their anger against the government’s measure, saying it will increase the tax burden and add more work for them. They also argued that the government’s excessive intervention may lead to contraction of business activities.

The government which held a Cabinet meeting on Tuesday at the Central Government Complex passed the revised corporate tax laws to tighten existing regulations on entertainment spending.

At the moment, companies only have to submit receipts for entertainment expenses exceeding 50,000 won to the tax authorities to make them recognized as business expenses. Tax authorities treat entertainment expenses of 50,000 won or less as business expenses without requiring a receipt.

However, businesses will have to submit receipts for entertainment spending of more than 30,000 won from 2008 and 10,000 won from 2009 to get tax benefits.
The revised regulations are separate from the “entertainment spending real-name system,” which enforces corporations to submit the personal details of the entertained when more than 500,000 won was spent for an entertainment purpose.

“It will enhance the transparency of tax revenues on businesses and the self-employed. Since the use of credit cards has become a common practice and the cash-payment receipt system has been settled, they will not have a problem in receiving receipts,” one official of the Ministry of Finance and Economy said.

However, many companies believe that it will bring more harm than good in the end considering the actual situation.

“The measure virtually indicates that all entertainment spending will require receipts. However, there are still many places which do not issue receipts, such as traditional markets and small restaurants. Therefore, it will eventually add a tax burden to businesses,” an official working for the accounting team of a conglomerate said.

Experts are also expressing their concerns, saying that the government’s intervention in all these little details of corporate activities is likely to hamper the autonomy of the market economy.

“If businesses have to submit all the receipts, even for a small amount of money they spent for entertainment, they will not be able to offset their increased administrative costs and efforts by actual benefits. Small and medium sized companies which are already in difficulties will be the ones to suffer most by the change,” Hyun Jin-kwon, professor at Ajou University, said.

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SeanHayes@ipglegal.com