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

Cheong-gu Office

The same shall apply to the order.

A. The Plaintiff owned 50% of the shares of DD, a Chinese corporation, and 30% of the shares of HH in the year 2013 and 2014 (hereinafter referred to as “instant Chinese corporation’s subsidiaries”).

B. In the year 2013 and 2014, the Plaintiff received dividends from the instant Chinese subsidiaries (hereinafter “instant dividends”) as indicated below, and filed a corporate tax with the Defendant by applying the provisions of direct foreign tax credit under Article 57 of the former Corporate Tax Act (wholly amended by Act No. 12850, Dec. 23, 2014; hereinafter the same).

C. In accordance with Article 10(2) of 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 (hereinafter referred to as the "Tax Treaty between Korea and China"), the Plaintiff applied Article 57(3) of the former Corporate Tax Act and Article 23(3) of 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 (hereinafter referred to as the "Protocol 2"), and applied the latter part of Article 23(3) of the Korea-China Tax Treaty to the case replaced pursuant to Article 5(1) of the former Protocol 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 the return of corporate tax on January 28, 2015, made a reduction of the amount of foreign tax credit to the Plaintiff.

D. On September 9, 2016, the Defendant rejected each of the above requests for reduction or correction (hereinafter “instant disposition”).

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal, but the appeal was dismissed on April 4, 2017.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 3, Eul evidence 1 to 3 (including each number in case of additional evidence) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

(a) Relevant statutes and treaties;

It is as shown in the attached Form.

B. Determination

1) Article 57(3) of the former Corporate Tax Act provides that "the amount equivalent to the tax amount reduced or exempted for the relevant foreign source income in the counterpart to a tax treaty shall be deemed the amount of foreign corporate tax subject to the tax credit or inclusion in deductible expenses pursuant to paragraph (1) to the extent prescribed by the relevant tax treaty." Article 23(1) of the Korea-U.S. Tax Treaty provides that "for Korean residents, double taxation shall be avoided as follows." Subject to the provisions of Korean tax law on the tax credit from Korean tax permitted for taxes paid in any country other than Korea, China's law and tax payable in accordance with this Agreement shall be allowed from Korean tax to be paid for that income, if the foreign source income in China would not exceed the portion of the amount of tax credit of Korea equivalent to the ratio of the total income subject to the Korean tax payment, and Article 10(2) provides that "the amount of tax credit shall not exceed 10% of the total amount of dividends paid in accordance with the laws of the Contracting State which is a resident and the amount of tax credit of paragraph 2(b) of this case.3)."

2) Article 57(3) of the former Corporate Tax Act, Article 23(1) of the Korea-China Tax Treaty, and Article 5(1) of the Protocol No. 2 are deemed to provide for foreign tax credit for the language and structure thereof. Such deemed foreign tax credit is intended to ensure that, even if taxes are not actually paid or exempted in a foreign country but are actually paid or exempted, the said amount of reduction or exemption can be deducted as the taxes actually paid in accordance with the requirements under the tax treaty and the domestic law of the country of residence. The purpose of this provision is to preserve the effects of the tax reduction or exemption benefits granted by the country of residence in the country of residence so that

Meanwhile, Articles 3 and 4 of the Income Tax Act provide that the income tax shall be imposed at 20% on the income acquired by non-residents within the territory of China, as the Plaintiff. Article 91 of the Chinese Corporate Income Tax Law provides that the tax rate shall be 10%. However, as seen earlier, Article 10(2) of the Korea-China Tax Treaty provides that the interests of the beneficial owners of dividends conducted by subsidiaries of the source countries (in this case, hereinafter referred to as China) shall be 25% or less, 5% if the interests of the beneficial owners are 25% or less, and 10% if the interests are 25% or less, it is difficult to determine the maximum tax rate, i.e., the applicable tax rate at which one Contracting Party’s residents or corporations are more likely to be imposed on the source countries pursuant to the relevant tax treaty. This would be difficult to view that the provisions of Article 10(2) of the Korea-China Tax Treaty provide for the more reasonable tax rate between the source countries and the source countries to be imposed on the dividend income of the other Contracting Party.

Then, this paper examines the history of Article 5 (1) of the Protocol 2 and the relationship between the specialized company and the latter. Prior to January 1, 2008, in the situation where foreign capital investment companies are exempted from the total amount of taxes on dividend income under Chinese domestic law, and where only specialized provisions apply without any differential limited tax rate, a large amount of capital investment can be deemed as 5% foreign tax credit, while a company which has less capital investment can be allowed to receive 10% foreign tax credit, and more unfavorable than one company which has more than 10% of its capital investment, the latter part of Article 5 (1) of the Protocol 2 provides for the tax rate of 10% as well as the tax rate of 10% for the company which has more than 10% of its capital investment in China. However, since January 1, 2008, the above provision of tax exemption for foreign capital investment companies still applies to the company which has more than 10% of its capital investment credit than that of this case.

"3) 또한 이 사건 제2의정서 제5조 제1항 후문의 문언 그 자체에 의하더라도, 이 사건 한중 조세조약 제10조 제2항의 경우 배당금에 대한 세액의 세율은 10%로 간주된다고 명확히 규정하고 있는 점에서도 위와 달리 해석하기는 어렵다. 이에 대하여 피고는 이 사건 제2의정서 제5조 제1항 후문은 문언상 이 항의 목적상 이라고 규정하고 있어 전문과 후문을 별개로 해석할 수 없다고 하면서, ① 전문에서 조세경감, 면제 또는 경제발전 촉진을 위한 그 밖의 조세유인조치 관련 법률규정이 없었더라면 납부했어야 할 세액 에 대해서 간주외국납부세액공제를 할 수 있는 것으로 규정하고 있고, ② 2008. 1. 1. 이후에는 더 이상 중국 국내법상 조세감면규정을 두고 있지 아니하며, ③ 가사 이 사건 한중 조세조약 제10조 제2항을 조세유인조치라고 본다고 하더라도 이는 '조약'일 뿐 '법률규정'에는 해당하지 아니하므로 원고에 대하여 전문과 별개로 후문을 독자적으로 적용할 수 없다는 취지로 주장한다. 그러나 이 사건 제2의정서 제5조 제1항 후문의 이 항의 목적상 의 영어 원문이 For the purpose of this paragraph 라고 되어 있는 것에 비추어 볼 때, 이는 '전문에 해당하는 경우에 한하여'라는 식으로 제한적 해석을 할 것이 아니라 '전문의 입법취지를 살리기 위하여'라고 해석하는 것이 합리적이고, 이 사건 제2의정서 제5조 제1항 전문 소정의 '법률규정'은 그 원문이 'legal provisions'라고 되어 있고, 이 사건 한중 조세조약 제23조 제1항 가목은 중국 국내법을 'the laws of China'로, 조약을 'Agreement'로 각 규정함으로써 위 '법률규정'과 달리 표현하고 있는바, 위 '법률규정(legal provisions)'은 중국의 국내법만을 한정하는 것이 아닌 '조약'도 포함하는 보다 포괄적인 개념으로 해석할 수 있으며, 따라서 이 사건 제2의정서 제5조 제1항이 전문 외에 후문을 추가로 규정한 것은 중국 국내법률보다 낮은 제한세율을 규정하여 조세감면혜택을 부여하고 있는 이 사건 한중 조세조약 제10조 제2항이 조세유인조치에는 해당하나 그 형식상 이 사건 제2의정서 제5조 제1항 전문의 '조세유인조치 관련 법률규정'에는 해당하지 아니하기 때문에 전문을 곧바로 적용할 수 없는 문제가 있어 이를 해소하기 위해 전문과 마찬가지의 간주외국납부세액공제 효과를 부여하기 위하여 특별의제규정으로 둔 것으로 해석할 수 있는 것이다.",또한 피고는 이 사건 제2의정서 제5조 제1항 전문과 후문의 관계에 관하여, 전문은 간주외국납부세액 공제제도의 적용요건에 해당하고, 후문은 전문의 요건을 충족하는 경우의 적용효과에 관한 규정이라는 취지로 주장한다. 그러나 위 조항을 위와 같이 해석하여야 할 별다른 근거를 찾아보기 어렵고, 이는 후문의 구절인 "이 항의 목적상"에 해당하는 영어 원문인 "For the purpose of this paragraph 부분에도 맞지 않는 주장이다. 따라서 피고의 위 주장은 받아들이기 어렵다.

4) If the latter part of Article 5(1) of the Protocol is interpreted to apply only when the Chinese domestic law rate is more reduced than the limited tax rate as alleged by the Defendant, it is interpreted that the latter part of Article 25(1) of the Protocol applies only to foreign-invested enterprises holding 25% or more of the Chinese domestic law rate is applied only to the foreign-invested enterprises holding 5% or more of the limited tax rate if there is no Chinese domestic law rate that reduces or lowers the reduced tax rate than 5%. However, if there is a Chinese domestic law rate that reduces or lowers the reduced tax rate than 5%, for example, if there is a provision that applies the reduced or exempted tax rate to 10% lower than 5% of the limited tax rate, the latter part of Article 5(1) of the Protocol becomes subject to the foreign-invested tax credit deemed to be applied to 10% of the reduced tax rate. This is not only very unfair result, but also the defendant's position to recognize the difference between the reduced tax rate and the reduced tax rate under the Chinese law provisions on the same.

5) Comparing the contents of the tax treaty established with the government of the Republic of Korea on similar matters other than the instant tax treaty, even if the latter part of Article 5(1) of the Protocol provides for a limited tax rate lower than that prescribed by the Internal Tax Act, it can be deemed that the said tax treaty is recognized as identical to the case where the said tax rate is prescribed by the Internal Tax Act. For example, 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 referred to as the “Convention”), Article 10 separates the limited tax rate of dividend income into 10% (paragraph 2(a) and 25% (paragraph 2(b)). Article 23(1) of the said Treaty provides that the said provisions shall be deemed to be applicable to the dividend income of the Republic of Korea that is payable in the Republic of Korea for the purposes of Article 23(3) of the said Treaty for the purposes of 20% or more of the said Treaty.

6) According to the latter part of Article 5(1) of the Protocol of this case, since the Plaintiff paid 10% of the total amount of dividend income that the Plaintiff should pay to China pursuant to the latter part of Article 5(1) of the Protocol of this case, or the Plaintiff paid to China the amount of tax to which Article 10(2)(a) of the Tax Treaty of Korea applies the limited tax rate of 5%, it is reasonable to deem that the difference is the amount of tax equivalent to 5%, which is the difference, to be

C. Sub-committee

The disposition of this case is unlawful, and the plaintiff's assertion disputing it is reasonable.

3. Conclusion

Therefore, the plaintiff's claim shall be accepted for the reasons and it is so decided as per Disposition.