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

Cheong-gu Office

The same shall apply to the order.

A. On January 17, 2017, the Plaintiff was a limited liability company established under the laws of the United States of America (hereinafter referred to as the “U.S.”), and entered into a contract with BB Co., Ltd. (hereinafter referred to as the “BE”), under which the Plaintiff granted BB prior to the instant patent (hereinafter referred to as the “instant patent”) a right to use MIMF-related patent, and as a result, the Plaintiff would receive US$2,600,000 (hereinafter referred to as the “instant royalty”).

B. At the time of the conclusion of the instant contract between the Plaintiff and BB, the patent use agreement (hereinafter referred to as the “instant contract”) states that the instant patent refers to all patents and patent applications owned, owned, or controlled in the present or future by the Plaintiff, including the patents specified in AppendixA and the rights related thereto. However, the patents described in Appendix A are 12 patents registered in the world countries, including the United States, and they are not registered in the Republic of Korea.

C. On January 31, 2017, BBE: (a) deemed that the instant royalty constitutes a domestic source income subject to withholding; and (b) applied 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 “Korea-U.S. Tax Convention”), 15% of the limited tax rate under Article 14(1) of the “Convention between the Republic of Korea and the United States of America” (hereinafter “Korea-U.S. Tax Convention”); (c) withheld corporate

D. On April 11, 2017, the Plaintiff filed a claim for correction with the purport that the royalty of this case shall be the consideration for patent use which was not registered in Korea and not the domestic source income, and that the amount of tax withheld at source in relation to the royalty of this case shall be refunded to the Plaintiff. However, on June 7, 2017, Article 93 subparag. 8 of the Corporate Tax Act provides that the Defendant shall be deemed to have been used in Korea without relation to domestic registration, since Article 93 subparag. 8 of the Corporate Tax Act provides that “if the relevant patent is registered in a foreign country and is used for manufacturing, selling, etc. in Korea, the details of the Plaintiff’s claim for correction shall not be accepted (hereinafter referred to as

E. The Plaintiff appealed to the instant disposition and filed an appeal with the Tax Tribunal, but the Tax Tribunal dismissed the Plaintiff’s appeal on November 3, 2017.

[Reasons for Recognition] Unsatisfy, Gap evidence 2 to 6, and 8 (if available, the number shall be included)

each entry, the purport of the whole pleading

2. Relevant statutes;

The entries in the attached statutes are as follows.

3. Summary of the parties' arguments;

A. The plaintiff

According to Article 6 (3) of the Korea-U.S. Tax Convention, payments received by a U.S. resident for the use of a patent right registered in the Republic of Korea from a domestic resident does not constitute a domestic source income subject to withholding. Therefore, the disposition of this case which rejected the Plaintiff’s request for correction on the ground that the royalty, which is the consideration for the use of a patent right not registered in the Republic of Korea, constitutes a domestic source income

B. Defendant

In the Korea-U.S. Tax Convention, while taking the so-called "use-based principle, which determines the place of use" as the source of royalty income, the meaning of "use-based" should be determined in accordance with domestic law. However, even if the latter part of Article 93 subparagraph 8 of the former Corporate Tax Act (amended by Act No. 16008, Dec. 24, 2018; hereinafter the same shall apply) stipulates that "use-based income of a patent that has not been registered in the Republic of Korea constitutes the cost used for the manufacture, sale, etc. in the Republic of Korea, such income shall be deemed domestic source income." Accordingly, the payment for the use of the patent in the Republic of Korea shall be deemed income subject to withholding, which is the income subject to withholding. Therefore, the disposition in this case is legitimate.

Even if the payment received by the Plaintiff as consideration for the use of a patent that was not registered in the Republic of Korea does not constitute domestic source income, the part (three) of the patent in this case is not effective as a patent after the lapse of the patent term at the time the contract in this case was concluded, and thus, it constitutes a patent usage fee, not a patent usage fee, but a general technology usage fee, which is merely a domestic source income. Therefore, the part corresponding to the above three of the disposition in this case is legitimate.

4. Whether the disposition is lawful.

A. Relevant legal principles

1) Article 2(1)2 of the former Corporate Tax Act provides that a foreign corporation is liable to pay corporate tax only when there is any domestic source income. Articles 2(5) and 98(1) provide that a person who pays a foreign corporation the amount of certain domestic source income, such as Article 93 subparag. 8, shall withhold the relevant corporate tax.

However, Article 93 of the former Corporate Tax Act provides that "domestic source income of a foreign corporation shall be classified as follows." Article 93 of the same Act provides that "if the relevant patent right, etc. is registered overseas and is used in the Republic of Korea for any of the following rights, assets, or information (hereafter referred to as "rights, etc." in this subparagraph) or the consideration therefor is paid in the Republic of Korea, the consideration therefor and income accruing from the transfer of such rights, etc.: Provided, That where a double taxation agreement on income provides for whether the relevant income falls under domestic source income based on the place of use, the consideration for the rights, etc. used overseas shall not be deemed domestic source income, regardless of whether the relevant income is paid in the Republic of Korea. In such cases, a right that is required to be registered in the Republic of Korea (hereafter referred to as "patent right, etc." in this subparagraph) shall be deemed used in the Republic of

On the other hand, Article 14 (4) of the Korea-U.S. Tax Convention provides that "the term "user fee used in this Article" means the following: (a) "the copyright of literary, artistic or scientific works or the copyright, patent, design, drawing, drawings, secret or confidential, trademark or other similar property or rights, knowledge, experience, function, vessel or aircraft in compensation for the use or right of use of the vessel or aircraft," and Article 6 (3) provides that "the source of income shall be treated as the following for the purposes of this Convention", while Article 14 (4) provides that "only if the right to use or use the property is paid for the use of such property in a Contracting State, the user fee provided for in that paragraph shall be treated as income which has sources in that Contracting State only if the right to use or use such property is paid for:

2) The latter part of the proviso of Article 93 subparag. 8 of the former Corporate Tax Act stipulates that a foreign corporation shall regard income received in return for use as domestic source income if the patent right, etc. was used in manufacturing, selling, etc. in Korea even though it was registered outside of Korea. However, Article 28 of the Adjustment of International Taxes Act provides that “in regard to the classification of domestic source income of a nonresident or foreign corporation, tax treaties shall prevail notwithstanding Article 119 of the Income Tax Act and Article 93 of the Corporate Tax Act, with regard to the classification of domestic source income of the nonresident or foreign corporation,” so whether the U.S. corporation’s income received in return for use should be determined pursuant to the Korea-U.S. Tax Convention if the patent right, etc. was used in manufacturing, selling, etc. in Korea and abroad. In light of the context of the Korea-U.S. Tax Convention and the ordinary meaning thereof, Articles 6(3) and 14(4) of the Korea-U.S. Tax Convention, insofar as the patent right is not registered within 2070 U. dollars’s.

B. Determination

Based on the above legal principles, the Plaintiff allowed BB prior to the use of the patent of this case under the condition that the Plaintiff received the instant royalty from BB electronics through the contract of this case, and it can be acknowledged that the Plaintiff agreed to exempt BB electronics from the issues of past, present, future damages, liabilities, expenses, etc. As such, the instant royalty has the meaning of compensation for damages arising from the present and future usage of the patent of this case, including the portion related to the patent of this case, which was registered overseas but has not been registered in Korea. Accordingly, it should be deemed that the instant royalty falls under the cost of using the patent of this case, regardless of whether it was actually used for manufacturing, selling, etc. in Korea. Accordingly, the instant disposition taken on the premise that the royalty of this case constitutes domestic source income should be revoked.

5. Conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is decided as per Disposition by the assent of all participating Justices.