Supreme Court: Paying commissions to rival insurance agents violates law

South Korea's Supreme Court has ruled that paying commissions to insurance agents affiliated with other companies for sales activities is a violation of the Insurance Business Act. This landmark decision means such payments cannot be recognized as deductible business expenses when calculating corporate taxes.

The case involved GA Korea, an insurance agency, which was found to have paid a portion of its sales commissions to agents who were registered with different insurance companies or agencies. Tax authorities identified this practice and subsequently increased GA Korea's corporate tax assessment, deeming the expenditure unlawful.

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The content and system of the Insurance Business Act, along with its legislative intent, clearly indicate that allowing insurance agents belonging to other insurance companies to solicit sales and paying commissions for it is a direct violation of the fundamental order of insurance sales.

Both lower courts and the Supreme Court agreed that while these payments were intended as costs for insurance sales, they were made in violation of the social order related to the insurance business. Therefore, they could not be considered legitimate business expenses under the Corporate Tax Act.

The Supreme Court emphasized that such practices directly contravene the fundamental order of insurance sales. "The content and system of the Insurance Business Act, along with its legislative intent, clearly indicate that allowing insurance agents belonging to other insurance companies to solicit sales and paying commissions for it is a direct violation of the fundamental order of insurance sales," the court stated. It further noted that these actions run counter to promoting sound management for insurance business operators and protecting the interests of policyholders.

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These actions run counter to promoting sound management for insurance business operators and protecting the interests of policyholders.