2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

A. The Plaintiff was established on August 8, 1973 and operated businesses, such as the manufacture and sale of electronic, electrical, machinery, apparatus and their accessories, and received dividends (hereinafter referred to as “instant dividends”) from the People’s Republic of China (hereinafter referred to as “China”) from the subsidiary companies located in the 25% or more of the shares of the Plaintiff (hereinafter referred to as “the subsidiaries of this case”) in the 2011 through 2013, and filed a corporate tax on the Defendant by applying a foreign tax credit directly (the amount applying the withholding tax rate of 5% to the instant dividends).

B. According to Article 5(1)(hereinafter “instant provision”) of the Protocol B between the Republic of Korea and the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “the instant Convention”), the Plaintiff filed a claim for the correction of the tax amount by filing a claim with the Defendant for the correction of the tax amount of KRW 5,613,312,341 (=the total amount of the paid tax deemed to be paid to the Defendant on December 19, 2011, deemed to be paid to the Defendant for the business year of 2011 plus KRW 1,214,62,25 won + KRW 608,92,910 for the business year of 2013 + KRW 613,312,341 (hereinafter “instant correction”).

C. On March 17, 2015, the Defendant notified the Plaintiff of the refusal of the instant claim for correction (Evidence 5, hereinafter referred to as “instant disposition”) on the ground that the foreign tax amount deemed to be paid to the Plaintiff on the instant dividend received from the instant subsidiaries is not eligible for the foreign tax credit pursuant to Article 57(3) of the Corporate Tax Act due to the application of the limited tax rate pursuant to Article 10(2) of the Treaty.

D. The Plaintiff appealed and filed an appeal with the Tax Tribunal on October 23, 2015 on June 8, 2015, but the Tax Tribunal dismissed the claim on December 17, 2015.

Facts that there is no dispute for recognition, described in Gap evidence 2, 3, 5, 6, and 7, and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

In the interpretation of the latter part of the provision of this case, the tax amount deemed to have been paid to China shall be deemed to have been 10% of the dividend income. Accordingly, with respect to 10% of the dividend income of this case, the Plaintiff shall be deemed to have actually paid the tax amount to China. In addition, not only the tax amount directly paid to the Plaintiff but also the tax amount equivalent to 5% of the dividend amount, the tax amount deemed to have been paid to the Plaintiff as the tax amount paid to the Plaintiff. Accordingly, the disposition of this case made by

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) Article 57(3) of the Corporate Tax Act provides that "the amount equivalent to the amount of corporate tax reduced or exempted on the relevant foreign source income in the counterpart to a tax treaty by a domestic corporation having a foreign source income shall be deemed to be the amount of foreign corporate tax which is subject to the tax credit or inclusion in deductible expenses pursuant to paragraph (1) within the scope prescribed by the relevant tax treaty," and Article 23(1) of the instant treaty provides that "the double taxation shall be avoided as follows: Provided, That in the case of a Korean resident, it shall be governed by the provisions of the Korean tax law regarding the tax credit granted from the Korean tax that is granted to the tax paid in the country other than Korea, either directly or through mutual aid, the Korean tax payable in accordance with the Chinese law and this Agreement shall be allowed from the Korean tax payable on such income." However, the said tax credit amount shall not exceed the Korean tax credit amount equivalent to the ratio of the domestic source income in the total income subject to the Korean tax payment (Article 23(1)(a) of the instant treaty substituted by Article 4 of the

On the other hand, Article 10 (2) of the Treaty of this case provides that the company paying dividends may impose taxes on dividends in accordance with the law of the country in which the company is a resident: Provided, That if the recipient is a beneficial owner of dividends, the taxes so imposed shall not exceed the following, and item (a) provides that if the beneficial owner owns 25% or more of the company's capital which pays dividends, 5% of the total amount of dividends, and 10% of the total amount of dividends in all other cases. Article 5 (1) of the Protocol substituted by Article 23 (3) of the Treaty of this case (Article 5 (1) of the Protocol of this case) provides that "3. Tax paid by one Contracting Party referred to in paragraphs (1) and (2) of this Article shall be deemed to include taxes that should have been paid if there was no other relevant tax incentives for tax reduction, exemption, or economic development promotion. For purposes of this paragraph, the total amount of taxes to be paid shall be deemed to be 10% of the total amount of dividends and interest under paragraphs (2) and (12).

2) In light of the following circumstances revealed in full view of the facts of the above recognition and the relevant laws and regulations, the Plaintiff is deemed to have actually paid 10% of the dividends of this case to China according to the latter part of Article 10(2) of the Treaty, but the Plaintiff was only entitled to a tax credit equivalent to 5% of the dividends of this case actually paid to China according to the limited tax rate stipulated in Article 10(2)(a) of the Treaty. It is reasonable to view that the Plaintiff may additionally be entitled to a tax credit equivalent to 5% of the dividends of this case, the difference, pursuant to Article 57(3) of the Corporate Tax Act. Accordingly, the Defendant’s disposition rejecting the instant claim for correction on a different premise is unlawful.

A) Purport of deemed foreign tax credit

Article 57(3) of the Corporate Tax Act, Article 23(1)(a) of the Treaty, and Article 23(1)(a) of the same Treaty appears to be providing for foreign tax credit for ‘foreign tax credit' under the language and structure thereof. This is intended to treat the amount of tax reduced or exempted in a foreign country so that it can be deducted as the amount of tax actually paid according to the requirements of the tax treaty and the domestic law of the resident state, and to ensure that the effect of the tax reduction or exemption benefits granted by the source state is recognized in the resident state and that the tax reduction or exemption benefits should not

B) Functions, etc. of the differential limited tax rate under Article 10(2) of the Treaty

Articles 3 and 4 of the Chinese Corporate Income Tax Act provide that the income tax shall be imposed at a rate of 20% on the income acquired by non-residents in the Chinese airspace as the plaintiff. Article 91 of the Chinese Corporate Income Tax Act provides that the tax rate shall be 10%, and Article 10 (2) of the Treaty applies to the beneficial owner of dividends paid by the Chinese subsidiary, a source country, if the shares are 25% or more, 5%, and 10% if the shares are 25% or less.

This is, on the premise of the taxation of the source country, setting the maximum tax rate that can be imposed on the residents of the other contracting state under the tax treaty, and it has the function of preventing double taxation through the adjustment of the taxation right between the source country and the resident country.

However, it is difficult to deny that the intent of the beneficial owner of dividend without setting the limited tax rate of the source country as a single tax rate and setting the limited tax rate at differential tax rate based on the degree of investment in the source country to the source country is to give more tax benefits to the source country to attract capital investment for the purpose of promoting economic development. It is also difficult for the source country to deny that the source country aims to achieve more tax benefits to attract capital investment for the purpose of promoting economic development. Such intent should be taken into account in determining

C) The purport and interpretation of the latter part of the instant provision

"(1) 이에 이 사건 조항 후문은 '이 항의 목적상(For the purpose of this paragraph)' 이 사건 조약 제10조 제2항의 배당의 경우 세액은 총 배당의 10퍼센트인 것으로 본다고 규정하고 있는바, ① '이 항의 목적상'은 그 원문을 고려하면 '이 사건 조항 전문이 규정하는 간주외국세액납부공제의 취지를 살리기 위하여'로 해석하는 것이 합리적이고, 이를 '이 사건 조항 전문의 요건을 갖춘 경우'로 해석하는 것은 문언의 가능한 해석 범위를 벗어나는 것으로 보이는 점, ② 이 사건 조항 전문 소정의 '법률규정'은 그 원문이 "legal provisions"라고 되어 있고, 이 사건 조약 제23조 제1항 가목은 중국 국내법을 "the laws of China"로, 조약을 "Agreegent"로 위 '법률규정'과 달리 표현하고 있는 점을 아울러 고려하면, 위 '법률규정(legal provisions)'은 중국의 국내법만을 한정하는 것이 아닌 '조약'도 포함하는 보다 포괄적인 개념으로 해석되어야 할 것인 점 등에 비추어 볼 때, 이 사건 조항이 전문 외에 후문을 별도로 규정한 것은 결국 이 사건 조약 제10조 제2항의 자본투자 촉진이라는 '차등적' 제한세율을 둔 취지의 실효성을 담보하기 위하여 중국은 스스로 과세권을 축소하고 대한민국은 그 부분에 대한 보충적 과세권을 포기하여 간주외국납부세액공제의 효과를 부여하기 위한 것으로 봄이 타당하다.",(2) 만약 이 사건 조항 후문을 중국 국내법이 제한세율보다 더 감면해주는 경우에만 적용되는 것으로 해석한다면, 25% 이상의 중국 자회사 지분을 소유한 외국투자기업에 대하여 제한세율 5%보다 낮은 세율로 감면하는 중국 국내법이 없는 경우에는 5%의 직접외국납부세액공제를 적용받을 뿐인데, 제한세율 5%보다 조금이라도 낮은 세율로 감면하는 중국 국내법이 존재할 경우, 예를 들어 제한세율인 5%보다 1% 낮은 4%의 세율을 적용하는 조세감면규정을 둘 경우 엉뚱하게도 10%의 간주외국납부세액공제의 적용을 받게 되는 매우 부당한 결과를 초래하게 된다.

D) The amendment of Chinese domestic law to the dividend income of foreign capital investment companies

(1) On or before January 1, 2008, under the Chinese domestic law, foreign capital investment companies were exempted from the total amount of taxes on dividend income, and where there exists a differential limited tax rate as above, where only specialized provisions are applied without the latter part of the instant provision, a company which has made a large amount of capital investment can only be allowed to receive 5% foreign tax credit, while a company which has less capital investment can be allowed to receive 10% foreign tax credit, and a company which has made a large amount of capital investment, has a problem that is more unfavorable than a large amount of capital investment, so the latter part of the instant provision of this case has a role in preventing disadvantages in tax benefits by uniformly treating the tax rate subject to tax credit as 10% for a large amount of capital investment.

(2) Although the provision on tax exemption on the dividend income of a foreign-capital invested company was repealed after January 1, 2008, the latter part of the instant provision was not deleted and remains intact. As seen earlier, in interpreting the latter part of the instant provision, a company which has a large amount of capital investment was taxed at 5%, which is a limited tax rate in China, and thus, a company which has more than 5% of the total amount of domestic corporate tax was additionally applied to the tax credit deemed as 5% in addition to the tax credit directly and additionally applied to the tax credit for 5% in calculating the total amount of

However, the purport of the latter part of the provisions of this case seems to be limited to equity in tax exemption for complete tax exemption, since it appears that the source country can abolish or reduce tax exemption measures to promote capital investment in the original source country after taking measures for tax exemption in the tax treaty is sufficiently foreseeable at the time of the conclusion of the treaty. The purpose of the latter part of the provisions of this case is to grant to a foreign company in the source country a large amount of capital investment in the source country the benefits of tax exemption through the application of differential limited tax rate of 5% and the deduction for deemed foreign tax payment equivalent to 10%, thereby promoting capital investment in the source country. Thus, this is rather consistent with the original purpose or intent of the provisions of this case.

E) Comparison with tax treaties with countries other than China

(1) double taxation on income between the Government of the Republic of Korea and the Government of the Republic of the Philippines;

Article 23(3) of the Convention for the Avoidance of Fiscal Evasion and the Prevention of Fiscal Evasion (hereinafter referred to as the "Convention") provides that "for the purpose of tax credit under paragraph (1) of this Article, twenty percent in the case of dividends to which the provisions of paragraphs (2) (a) and (3) of Article 10 apply, fifteen percent in the case of interest to which the provisions of paragraph (3) of Article 11 apply, twenty-five percent in the case of royalties to which the provisions of paragraph (2) of Article 12 are applied, and fifteen percent in the case of royalties to which the provisions of paragraph (3) of Article 12 are applied, the taxes of the Philippines shall be

(2) In addition, Article 23(4) of the Agreement between the Government of the Republic of Korea and the Government of the Socialist Republic of Viet Nam for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter referred to as the "Korea- Vietnam Treaty") provides that "the taxes to be paid in Vietnam for the purpose of the mutual aid of Korean taxes as provided in paragraph (1) shall, notwithstanding the actual amount of tax payable, be deemed to be: 10 percent of the total amount of dividends and interest accrued from sources in Vietnam; 15 percent of the total amount of the dividends and interest accrued from sources in Vietnam; and 15 percent of the user fees in the case of item (b)."

(3) Although Article 23(3) of the Treaty and Article 23(4) of the Treaty of the Republic of Korea and the Republic of Vietnam, regardless of whether there is a provision on tax reduction or exemption under the Republic of Korea and the Republic of Vietnam or the Republic of Vietnam, it is interpreted that the payment of dividend, interest, and royalty income shall be deemed to have been made for the amount corresponding to a certain rate of tax stipulated in each of the above treaties. While Article 23(3) of the Treaty and Article 23(4) of the Treaty of the Republic of Korea and the Republic of Vietnam are different from the latter part of the instant provision, there is a difference between the latter part of the said provision and some difference

3. Conclusion

Therefore, the plaintiff's claim is justified, and it is so decided as per Disposition.

[Attachment]

Relevant statutes

m. Corporate Tax Act

Article 57 (Foreign Tax Credit)

(1) Where the tax base of a domestic corporation for each business year includes any foreign source income, and the amount of the foreign corporate tax prescribed by the Presidential Decree on such foreign source income (hereafter in this Article, referred to as the "amount of the foreign corporate tax") is paid or payable, the domestic corporation may select one of the methods in the following subparagraphs and apply, notwithstanding

1. Method of deducting the amount of the foreign corporate tax up to the limit (hereafter in this Article referred to as the "credit limit") of the amount obtained by multiplying the corporate tax amount for the concerned business year (excluding the corporate tax amount on transfer income of land, etc.) calculated under the provisions of Article 55 by the percentage (where it is subject to exemption or reduction under the Restriction of Special Taxation Act or other Acts, the percentage as prescribed by the Presidential Decree) of foreign source income in

2. Including the amount of foreign corporate tax paid or payable on income generated from overseas sources in deductible expenses in calculating the amount of income for each business year.

(2) Where the amount of foreign corporate tax paid or to be paid to a foreign government exceeds the credit limit, such excess amount may be carried over to each business year that ends within five years from the commencement date of the business year following the relevant business year, and deducted within the credit limit for the relevant business

(3) The amount equivalent to the tax amount reduced or exempted on the foreign source income in the counterpart to a tax treaty by a domestic corporation which has income from overseas sources shall be deemed the amount equivalent to the foreign corporate tax amount subject to the tax credit or inclusion in deductible expenses under paragraph (1)

"The Agreement between the Government of the Republic of Korea and the Government of the People's Republic of China for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income between the Government of the People's Republic of Korea and the Government of the People's Republic of China for the Public of the Republic of Korea and the People's Republic of China", and Article 10 "the Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion to the Civil Aviation for the Ministry of Foreign Affairs", and Article 10 (Distribution).

1.The dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other Contracting State.

2.However, with respect to such dividends, the company paying the dividends may, in accordance with the laws of that country, be taxed by the Contracting State in which the person is a resident, provided that if the receiver is the beneficial owner of the dividends, the tax so levied shall not exceed:

(a) Where the beneficial owner is a company (excluding partnership) which directly owns not less than 25 percent of the capital of the company that pays dividends, 5 percent of the total amount of dividends;

(b) in all other cases 10 percent of the total amount of dividends;

The provisions of this paragraph shall not affect taxation on the Company in respect of the profit which is the cause of payment of the dividend.

Article 23 (Method of Evasion of Dual Taxation)

1.In the case of a Korean resident, double taxation shall be avoided as follows:

Subject to the provisions of the Korean Tax Act (it does not affect the general principles of this paragraph) regarding the tax credit granted from Korean tax payable in countries other than Korea, either directly or by mutual aid of source income in China, the Korean tax payable in accordance with the Chinese law and this Agreement (in the case of dividends, the tax payable for profits on which dividends are paid) shall be allowed to be granted from Korean tax payable on such income. However, the amount of the tax credit shall not exceed the portion of the Korean tax credit corresponding to the ratio of the income in China to the total income in which the source income in China accounts for the income in Korea subject to the Korean tax payment.

2.In the case of Chinese residents, double taxation shall be avoided as follows:

A. When a Chinese resident acquires income from Korea, the income tax amount payable under the Korean law and the provisions of this Agreement may be deducted from the Chinese tax imposed on that resident. However, the deductible tax amount shall not exceed the income tax amount of China calculated under the Chinese tax laws and regulations.

(b)if the income acquired from Korea is paid to a company that is a resident of China and owns not less than 10 percent of the shares of the dividend payment company, the amount payable by the dividend payment company in Korea in relation to its income should be taken into account in calculating the deductible amount of tax;

3.The taxes paid in a Contracting State referred to in paragraphs 1 and 2 of this Article shall be deemed to include the amounts of taxes that would have been payable if there had not been any provisions on other tax incentives for the reduction or exemption of taxes or for the promotion of economic development. For the purposes of this paragraph, the amounts of taxes in the case of dividends, interests and royalties of Articles X:2, XI:2 and XII:2 shall be deemed to be 10 per cent of the total amounts of dividends, interests and royalties, respectively.

“The Regulation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income between the Republic of Korea and the People’s Republic of China (SECN PRD PCR PORL TOE AE REEE ESEN TWEN OL OL REPBE REE REGGE REE REGGE REGGE REMMNE REPPE TRAL”S REUBL REUBL CUE REF REF REGGE OLEE OLOE REFFF OL REGGE REGEMMMMMMMN OL, FIE REMMMMM RE REGGE REMMY RE REGE REMMY RE RE REGGE REF REM REGGGE REGGE REY REGGGE REMMMMM

Article 23 (1) of the Korean Languages of the Agreement and Article 23 (2) of the Chinese Languages shall be deleted and replaced by:

1.In the case of a Korean resident, double taxation shall be avoided as follows. Subject to the provisions of Korean tax law concerning the granting of tax credits from Korean tax on taxes paid in countries other than Korea (it shall not affect the general principles of this paragraph):

(a) With respect to source income in China, either directly or through mutual aid, the Chinese tax paid under the Chinese law and agreement (in the case of a dividend, the tax payable for the profit on which the dividend is paid) shall be granted from the Korean tax payable for that income. However, the deductible tax amount shall not exceed the Korean tax amount corresponding to the ratio of the source income in China to the total income subject to the Korean tax payment.

B. In the case of dividends paid by a Chinese resident company to a Korean resident and holding not less than 10 percent of the shares of that Chinese company, the Chinese tax payable by that Chinese company that paid dividends (in addition to Chinese tax that is allowed to be deducted pursuant to item (a) of this paragraph) should be taken into account in relation to the payment of such dividends.

Article 5

1.Paragraph 3 of Article 23 of the Agreement shall be deleted, replaced by: it shall be applied for further 10 years after January 1, 2005.

"The taxes to be paid by one Contracting Party referred to in paragraphs 1 (a) and 2 of this Article shall be deemed to include taxes which would have been paid if there had been no provisions relating to other tax incentives for the reduction or exemption of taxes or the promotion of economic development. For the purposes of this paragraph, in the cases of Articles 10(2), 11(2) and 12(2), the amount of taxes shall be deemed to have been 10 per cent of the total amount of dividends, interests, and royalties, respectively."

("3. The tax payable in a Contracting State mentioned in subparagraph (a) of paragraph 1 and paragraph 2 of this Article shall be deemed to include the tax which would have been payable but for the legal provisions concerning tax reduction, exemption or other tax incentives of the Contracting State for the promotion of economic development. For the purpose of this paragraph, the amount of tax shall be deemed to be 10 percent of the gross amount of the dividends, interest and royalties in the case of paragraph 2 of Article 10, paragraph 2 of Article 11 and paragraph 2 of Article 12, respectively.")

/ The business income tax of the People’s Republic of China

Article 3

(1) A resident company shall pay the corporate income tax on income from sources inside and outside the Chinese territory.

(2) A non-resident company shall pay the corporate income tax on the entity established in the territory of China, the source income in China in the hub, and income generated outside China, but has been established in China, and the entity established in China and the income having substantial relations with the hub.

(3) A non-resident enterprise has not established an organization or base in the territory of China or established an organization or base in China, but has no substantial connection with an organization or base where the source of its income was established, but has paid the corporate income tax on the income acquired in the territory of China.

Article 4

The rate of corporate income tax shall be 25%. The income prescribed in paragraph (3) of Article 3 of this Act among the income acquired by non-resident enterprises shall be subject to 20% tax rate.

[ Chapter 4 Tax Benefits]

Article 27

The corporate income tax may be exempted or reduced on the following income of the enterprise.

(5) Income provided for in Article 3 (3) of this Act.

/Ordinance on the Implementation of Chinese Corporate Income Tax

Chapter 4 Tax Credit Benefits

Article 91

If a non-resident enterprise acquires income prescribed in Article 27 (5) of the Income Tax Act, it shall collect the corporate income tax by applying the tax rate of 10%. The income to be paid may be exempted from the corporate income tax.

(1) Interest income acquired by foreign governments to provide loans to the Chinese government.

(2) Interest income acquired by an international financial organization by providing preferential loans to the Government of China and resident enterprises.

(3) Other incomes ratified by the Secretary of the State Council.