209du19236 (Joint) revocation of disposition of imposing value-added tax;

The Seoul High Court Decision 2007Nu27747, 27754 decided Oct. 9, 2009

The costs of appeal are assessed against the defendant.

Article 8(1) of the Convention between the Republic of Korea and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and the Encouragement of International Trade and Investment (hereinafter referred to as the “Korea-U.S. Tax Convention”) provides that “The industrial or commercial profits of a resident of a Contracting State shall be exempted from taxes by that other Contracting State unless the resident is engaged in industrial or commercial activities within that other Contracting State through a permanent establishment located in the other Contracting State,” and Article 9(1) of the Korea-U.S. Tax Convention provides that “permanent establishment for the purpose of this Convention” means a fixed place of business used by a resident of any Contracting State for industrial or commercial activities. Meanwhile, Article 9(3) of the Korea-U.S. Tax Convention provides that “The permanent establishment does not include a fixed place of business used only for any of the following or more purposes.”

In light of the language and purport of the above provisions, in order for a permanent establishment of a U.S. corporation to exist in the Republic of Korea, an employee of the U.S. corporation or a person who is instructed by the U.S. corporation to carry out an "essential and important business activities, other than preliminary or auxiliary business activities," should be determined by comprehensively taking into account the nature and scale of the business activities, the importance and role of the entire business activities, etc.

According to the reasoning of the judgment below, the court below acknowledged facts as stated in its reasoning after citing the judgment of the court of first instance. If information collection personnel of all countries around the world collect financial information, etc. from each country and send it to the U.S. head office of ○○○○○○, the court below determined that the most essential part of the office is the collection of information and the processing and analysis of the information to enter the U.S. head office into a sales contract for the information, and the delivery of the information to customers through ○○○○○, etc., on the premise that it is the most essential part of the office’s sales to maximize the added value by collecting and analyzing the information, and that the office’s main function of ○○○○, etc. is not merely the delivery of the information processed and analyzed by the U.S. government computers to customers, and that the office’s main function of ○○○, etc. cannot be deemed to exist through △△, which is an essential part of the business activities of △△, and thus, it cannot be deemed that the office’s main part exists.

In light of the above legal principles and records, the above judgment of the court below is just, and there is no error of law by misapprehending the legal principles on permanent establishment under the Korea-U.S. Tax Convention, as otherwise alleged in the ground of appeal.

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.