2. The costs of lawsuit shall be borne by the Plaintiff.

A. The Plaintiff was established in August 1970, and is engaged in LED business, luminous solution business, luminous materials business, and electric field parts business. The Plaintiff invested 100% equity in the People's Republic of China (hereinafter "China"), thereby establishing LG Innoteuu Co., Ltd. (hereinafter "beneficiary corporation") in around 1994, and LG Innotes Yanta Co., Ltd. (hereinafter "Ltd") in 2004, and the two companies together were incorporated as the subsidiaries of this case (hereinafter "the subsidiaries of this case").

B. In the year 2010, the Plaintiff reported corporate tax to the Defendant by applying foreign tax credit to the dividend income received from the instant subsidiary as follows.

A person shall be appointed.

C. On March 26, 2014, the Plaintiff rejected the Plaintiff’s claim on the ground that, in applying 5% of the dividend amount received from the Defendant from the instant subsidiary in 2010, the amount of dividends distributed as the source of surplus funds after 2008 would increase in the amount of foreign tax payable, the Plaintiff additionally filed a claim for rectification of the tax amount to be subject to the foreign tax credit amounting to KRW 2,706,059,530 in relation to the return of corporate tax for the business year 2010. On April 3, 2014, the Defendant rejected the Plaintiff’s claim on the ground that “if tax was imposed by applying the limited tax rate of 5% with respect to the dividend income paid as the source of earned surplus funds after 2008 under the Korea-China Tax Treaty, the said foreign tax credit may not be deemed to have been applied”

D. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on June 27, 2014, but the said claim was dismissed on May 22, 2015.

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 to 7, purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the parties' assertion

1) The plaintiff's assertion

A) Articles 3 and 4 of the Income Tax Act of the People's Republic of China amended on January 1, 2008 (hereinafter "China Corporate Income Tax Act") provides that the Plaintiff shall impose income tax at 20% on the income acquired in the Chinese calendar. Article 27 of the Income Tax Act located below Chapter IV (tax benefits) may be exempted or reduced. Article 91 of the Chinese Corporate Income Tax Act provides that the tax rate shall be 10%. Accordingly, Article 27 of the Chinese Corporate Income Tax Act and Article 91 of the aforementioned Enforcement Ordinance provide that the tax amount shall be deemed as 10% of the total tax amount payable in the Chinese Tax Treaty for the purpose of 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 (hereinafter "Protocol 2") shall be deemed as 10% of the tax amount payable in the Chinese Tax Treaty, which shall be deemed as 10% of the total tax amount payable in the Chinese Tax Treaty without the difference between the Plaintiff and the Chinese Tax Republic of China's Special Tax Treaty.

B) The National Tax Service, through the book "Tax Guidance for Enterprises entering China in 2008", expressed a public opinion that the domestic corporation may apply foreign tax credit in cases where the domestic corporation receives dividends from the Chinese subsidiary on or after January 1, 2008 as the source of earned surplus funds. On August 23, 2011, the National Tax Service’s authoritative interpretation explicitly expressed that the amount of tax reduced or exempted pursuant to Article 27 of the Income Tax Act and Article 91 of the Enforcement Ordinance of the same Act is eligible for foreign tax credit in cases where the amount of tax reduced or exempted pursuant to Article 27 of the Chinese Corporate Income Tax Act and Article 91 of the same Ordinance, unlike the above public opinion, the disposition of refusing the Plaintiff’s request

2) The defendant's assertion

A) The source income tax to be paid by the Plaintiff to China is the amount of 5%, which is the limited tax rate under Article 10(2)(a) of the Korea-China Tax Treaty. Thus, to be paid to Korea pursuant to the instant provision, the Chinese law should have a provision that reduces the tax amount to be paid to Korea more than the limited tax rate of 5%. The latter part of the instant provision only sets the limit of deduction as 10%, and cannot be seen as a provision that considers deduction of 10%. The latter part of the instant provision sets the scope of tax credit on the basis of “limited tax rate” within the said limit. In addition, the latter part of the instant provision should be interpreted in harmony with the Plaintiff. The said provision is merely a provision related to tax incentives under the Chinese domestic law, and the latter part of Article 10(2) of the said Tax Treaty applies only to the case where the tax reduction or exemption is made under such Chinese domestic law, and thus, the said provision does not constitute the limited tax rate of 10%, which is the subject of the tax reduction or exemption under the said tax treaty.

B) The tax guidance for companies entering China in 2008 or the interpretation of the National Tax Service’s right to retention cannot be deemed as having expressed public opinions to taxpayers. Since the Plaintiff is not an investment in China by trusting the above book or the interpretation of the right to retention, the principle of trust protection does not apply.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(i)whether foreign tax credit is deemed to apply to the difference between the limited tax rate and the tax rate;

A) Article 57(3) of the Corporate Tax Act provides that “The amount equivalent to the tax amount reduced or exempted on the relevant foreign source income in a foreign country in the other country to a tax treaty shall be deemed the amount equivalent to the foreign corporate tax amount subject to the tax credit or inclusion in deductible expenses pursuant to paragraph (1) within the scope prescribed by the relevant tax treaty.” Article 23(1) of the Korea-China Tax Treaty provides that “in the case of a Korean resident, the double taxation shall be avoided as follows. In the case of a Korean resident, the provisions of the Korea-China Tax Act (it shall not affect the general principles of this paragraph) regarding the tax credit granted from the Korean tax that is granted to a Korean resident in a country other than Korea, either directly or indirectly by the mutual aid of the source income in China, or by the Chinese tax paid in accordance with the Chinese law and this Agreement (in the case of a dividend, the tax payable on the profit paid by the dividend) shall be allowed from the Korean tax credit to which the income is paid for that income. However, the amount of the tax credit shall not exceed the Korean tax amount equivalent to the ratio of the total income paid in Korea’s.”

본문내 포함된 표 제5조 1. 협정 제23조 제3항은 삭제되고 다음에 의하여 대체되며 2005년 1월 1일 이후 추가로 10년간 적용된다. “3. 이 조 제1항 가목 및 제2항에서 언급하고 있는 일방 체약당사국에서 납부하는 조세는 조세경감, 면제 또는 경제발전 촉진을 위한 그 밖의 조세유인조치 관련 법률규정이 없었더라면 납부하였어야 할 조세를 포함하는 것으로 간주한다. 이 항의 목적상 제10조 제2항, 제11조 제2항과 제12조 제2항의 경우에는 세액은 각각 배당, 이자 및 사용료 총액의 10퍼센트인 것으로 간주한다.” 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.

As such, the purpose of the foreign tax credit is to preserve the effects of tax benefits paid by capital revenue countries, it is premised on the other party's country, i.e., the source country, within the scope of the specified taxation right, to voluntarily reduce the scope of the taxation right stipulated by the tax incentives regulations.

However, as stipulated in Article 10(2)(a) of the Korea-China Tax Treaty, the said limited tax rate refers to the maximum tax rate that can be imposed on residents or corporations of the Contracting State pursuant to the tax treaty (Article 2 subparag. 12 of the Adjustment of International Taxes Act). As regards dividend income received by the residents of one Contracting State from corporations, etc. of the other Contracting State, the scope of the tax rate is limited to the tax rate that can be imposed in the other Contracting State, which is the source country of the dividend income, and thus functions to prevent double taxation through the adjustment of the tax imposition authority between the source country and the resident country. Such limited tax rate is set at the source country of the dividend income. As such, in this case, when China, which is the source country, reduces the scope of the tax imposing authority on the dividend income, the difference is deemed as foreign tax credit, and the treaty itself, which provides for the limited tax rate, cannot be deemed as China’s tax reduction or exemption provisions (in this case, the Plaintiff did not benefit from the tax reduction or exemption under Chinese domestic law and the limited tax rate under the above Article 10(a).

B) Next, before January 1, 2008, China exempted foreign-invested enterprises in China from the total amount of taxes on dividend income to foreign-invested enterprises under Article 19(1) of the former Income Tax Act (hereinafter “Foreign-Invested Enterprises Act”) and its foreign-invested enterprises separately from its domestic and foreign-invested enterprises. However, since January 1, 2008, it became subject to a single tax rate of 25% under the Income Tax Act by uniformly regulating foreign-invested enterprises with internal and foreign-invested businesses (Article 4 of the Chinese Income Tax Act): Provided, That since a non-resident enterprise has no place of business (organization and place) or a place of business has no substantial relationship with its place of business, China provided that the withholding tax rate of the corporate income tax on income in China was 20% (Article 4 and Article 3(3) of the Chinese Income Tax Act), and again, the limited tax rate of 10% was 10% lower than that of the Chinese Income Tax Act (Article 25(1) of the Chinese Income Tax Act).

A person shall be appointed.

The latter part of the instant provision needs to be applied at the time of exemption from taxation (20% ? 0%) on dividends related to non-resident enterprises prior to the amendment of the Chinese Income Tax Act. If there is no tax in China on dividends, regardless of the equity investment ratio, in the absence of the said provision, a large number of equity investments may be eligible for a foreign tax credit of 5%, while a company which has less equity investments may be eligible for a foreign tax credit of 10%, on the other hand, a company which has more than 10% equity investments would be able to receive a foreign tax credit of 10%, which would rather be disadvantageous to a company which has more than 10% equity investments. Accordingly, the said provision is applied so that it would be able to receive a foreign tax credit of 10% regardless of the equity investment ratio, and thus,

However, since the 10% reduction rate (20% ? 10%) is applied to dividends related to non-resident enterprises after the enforcement of the Chinese Corporate Income Tax Act on January 1, 2008, if the above provision is applied, the enterprise which has less equity investment is taxed from China to 10% and is subject to 10% direct foreign tax credit. However, a company which has a large amount of equity investment is subject to 5% direct foreign tax credit and 5% foreign tax credit which is taxed from China to 5% according to the limited tax rate under the tax treaty, and 5% foreign tax credit which is less favorable than one company which has less equity investment. The purpose of the differential limited tax rate on dividends is to allocate a lower tax rate to the country of residence by applying the limited tax rate to the company which has a large amount of equity investment, and thus, it is difficult to view that the effect of the tax reduction and exemption is not related to the foreign investor tax credit system to substantially belong to the country of residence. Accordingly, it is difficult to view that the latter part of the provision of this case is uniformly paid 10% tax without the differential tax reduction rate.

다) 또한, 이 사건 조항의 후문은 문언상 ‘이 항의 목적상(For the purpose of this paragraph)’이라고 규정하고 있으므로 전문과 후문을 별개로 해석할 수 없고, ㉮ 전문에서 규정하는 중국 국내법상 조세감면규정이 존재하고, ㉯ 그러한 중국 국내법에 의하여 세액감면이 이루어진 경우에 비로소 적용할 수 있다고 보아야 한다. 전문과 후문을 함께 해석하여야만 후문의 ‘세액’의 의미가 명확해진다. 즉, 위 ㉮, ㉯의 요건이 충족될 경우에 감면의 범위가 문제될 것인데, 후문은 이러한 감면의 범위로 ‘세액’을 10%로 간주하겠다는 의미로 해석된다. 이 사건 조항 후문의 적용범위와 관련하여 그 모두에 ‘이 항의 목적상’이라고 한정함으로써 후문에 따른 세액공제가 전문과 동일한 목적으로 적용되어야 하며 전문의 가장 기본적 전제가 되는 경제발전 촉진을 위한 조세유인조치의 존재가 후문에도 그대로 적용된다고 해석하는 것이 타당하다.

On the other hand, according to the Convention between the Government of the Republic of Korea and the Government of the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (hereinafter “Korea- Philippines Tax Treaty”), the limited tax rate on dividend income is divided into 10% and 25% (Article 10). In the case of dividend income in relation to the avoidance of double taxation (Article 23(3)), a tax rate of 20% is deemed to have been paid (Article 23(3)

본문내 포함된 표 제23조【이중과세방지】 [1986.11.09] 1. 한국 이외의 국가에서 납부하여야 할 조세의 한국의 조세에 대한 세액 공제에 관한 한국의 법에 따를 것을 조건으로 필리핀에서 발생한 소득에 대하여 납부하여야 할 필리핀의 조세는 그 소득에 대하여 납부하여야 할 한국의 조세로부터 공제된다. 그러나 동 공제는 필리핀내의 원천으로부터 발생한 소득이 한국의 조세가 부과되는 전체 소득에 대하여 차지하는 한국의 조세의 비율을 초과할 수 없다. 3. 본조 제1항의 세액공제의 목적상, 제10조 제2항 가. 및 제3항의 규정이 적용되는 배당의 경우에는 20퍼센트, 제11조 제3항의 규정이 적용되는 이자의 경우에는 15퍼센트, 제12조 제2항의 규정이 적용되는 사용료의 경우에는 25퍼센트 그리고 제12조 제3항의 규정이 적용되는 사용료의 경우에는 15퍼센트의 비율로 필리핀의 조세가 납부된 것으로 항상 간주된다. 3. For the purposes of the credit referred to in paragraph 1 hereof, the Philippine tax shall always be considered as having been paid at the rate of 20 percent in the case of dividends to which the provisions of paragraphs 2 (a) and 3 of Article 10 apply; 15 percent in the case of interest to which the provisions of paragraph 3 of Article 11 apply; 25 percent in the case of royalties to which the provisions of paragraph 2 of Article 12 apply; and 15 percent in the case of royalties to which the provisions of paragraph 3 of Article 12 apply.

The latter part of Article 23(3) of the Korea-Luxembourg Tax Treaty provides that “for the purpose of tax credit under paragraph (1) of this Article” and “for the purpose of tax credit under paragraph (1) of this Article,” but “paragraph (1) of this Article does not correspond to the former part of the Article, but refers to only the provision of general foreign tax credit. Therefore, for the provisions of the Korea-Turkey Tax Treaty, it may be interpreted in a way that allows foreign tax credit to the tax rate established in advance under the treaty regardless of the source country’s tax incentives. However, as the latter part of the provisions of this case provide different terms from those of Article 23(3) of the Korea-Turkey Tax Treaty, the latter part of the provisions of this case cannot be interpreted as the provision of deemed tax credit under the Korea-Luxembourg Tax Treaty.

In addition, unlike the examples of the OECD Model Tax Treaty, the provisions of the tax treaty on deemed tax credit in each country differ from the text and contents thereof. Therefore, the provisions of the Korea-China Tax Treaty and the provisions of this case should be judged individually according to the contents of the text and text, and it cannot be a logical interpretation of the tax treaty to view that only the latter part can be applied independently in the situation where China's law was changed in 2008 and it became impossible to make a mutual aid under the proviso of the provisions of this case

D) As seen earlier, Article 10(2) of the Korea-China Tax Treaty discriminates between 5% of the total dividend amount and 10% of the total dividend amount in all other cases where a beneficial owner owns 25% or more of the capital of a company paying dividends. However, the purport of applying the lower limited tax rate on dividends among corporations is to avoid double taxation and facilitate international investment, and it is irrelevant to the measures of tax inducement for the economic development of a less-developed country. In the case of foreign tax credit deemed to be foreign tax credit, the scope of the tax imposition right prescribed by the source country should be reduced by itself within the scope of the tax imposition right prescribed by the provisions on reduction and exemption for the measures of tax inducement for the less-developed country. Thus, the concept of the tax reduction and exemption of the source country cannot be presented as the tax reduction and exemption of the source country for the portion deviating from the scope of the limited tax rate from the beginning. Thus, it is difficult to view it as a low dividend tax inducement measure for economic development

E) Therefore, even if the Plaintiff paid the tax amount to China to which the limited tax rate of 5% under Article 10(2)(a) of the Korea-China Tax Treaty is applied, the tax amount equivalent to 5%, which is the difference between 10% and 10% of the latter part of the instant provision, cannot be deemed to be the tax amount subject to tax credit under Article 57(3) of the Corporate Tax Act, and the disposition of this case, which was made without deeming the tax amount equivalent to 5

2) Whether the principle of trust protection is applied or not

The principle of protecting trust may apply to a tax authority's act where a taxpayer's expression of opinion is merely a general theoretical expression of opinion (see, e.g., Supreme Court Decisions 2000Du5203, Apr. 24, 2001; 2007Du1947, Apr. 29, 201; 2007Du19454, Apr. 29, 201). However, where a tax authority's expression of opinion is merely a general theoretical expression of opinion, the principle of protecting trust is not applicable (see, e.g., Supreme Court Decisions 200Du5203, Apr. 24, 2001; 2007Du1947, 2007Du19454, Apr. 29, 2010).

In light of the above legal principles, as a whole, the tax guidance for companies entering China around September 2008 was issued by the National Tax Service around September 2008. The above booker explained the changes in the foreign tax credit system for companies entering China and China due to the enforcement of the Chinese Income Tax Act, 5% of the limited tax rate under the Korea-China Tax Treaty shall be applied to the dividend income that the Korean parent company holding 25% or more of the Chinese subsidiaries received from its subsidiaries within China, and the difference between 10% of the deemed tax credit and 5% of the actual withholding tax rate under the above provision of this case shall be deemed to have been paid to China, and the difference between 10% of the deemed tax credit and 10% of the tax credit under the above provision of this case shall be deemed to have been paid to China, and it is difficult to view that the above provision of this case is a foreign tax credit of 10% and 20% of the tax credit under the revised Chinese Income Tax Act (the above provision of this case shall be deemed to have been included in the foreign tax credit of 25% tax credit.7.).

Therefore, the plaintiff's assertion on this part is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.

[Attachment]

Judges Yoon Gyeong-do (Presiding Judge)

(1) Article 10(2) of the Korea-China Tax Treaty provides that “for dividends, a company paying dividends may impose a tax on the Contracting State, which is a resident, in accordance with the laws of that State. However, where the recipient is the beneficial owner of dividends, the tax so imposed shall not exceed the following: Provided, That where the beneficiary is the company (other than partnership) in which the beneficial owner directly owns not less than 25% of the capital of the company paying dividends, the total amount of dividends shall be 5%, and in all other cases, 10% of the total amount of dividends.”

2) Article 10 Section 2. However, such dividends may be taxed in the Contracting State in which the corporation paying the dividends is a resident in accordance with the laws of that Contracting State. However, if the recipient is a beneficial owner of the dividends, the taxes so levied shall not exceed: (a) 10% of the total amount of dividends if the beneficial owner is a corporation (other than partnership) which directly owns at least 25 percent of the capital of the corporation paying the dividends. In other cases, this paragraph does not affect the taxation of the corporation on the profits on which the dividends are paid.

Note 3) In addition, unlike the instant provision, the instant provision takes the form of “the payment deemed to be made”. The same applies to the Korea- Vietnam Tax Treaty, the Korea-China Tax Treaty, and the Korea-China Tax Treaty.