[2] The case holding that in a case where Gap corporation established under the English law is an intermediary holding company which is a corporation Eul established under the French law and is engaged in business within the group Eul, which is a final parent company, and is in possession of 50% of the shares of domestic corporation, which is a domestic corporation, and when Gap paid dividends to Gap corporation, it withheld corporate tax calculated by applying the limited tax rate of 5% under Article 10 (2) (a) of the Convention between the Government of the Republic of Korea and the Government of the United Kingdom for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Transfer Income, and the tax authority imposed corporate tax, etc. on Eul on Eul as a beneficial owner, the case holding that it is sufficient to view Gap corporation as an intermediary holding company related to the business within the group Eul which has independent substance and business objective, and is a substantial beneficial owner of Article 10 (2)

[2] In a case where Gap corporation established under the English law, which is an intermediary holding company established under the French law, engaged in its business within a group Eul, which is a final parent company, and owns 50% of the shares of a domestic corporation, which is a domestic corporation, and upon paying dividends to Gap corporation, withhold corporate tax calculated by applying the limited tax rate of 5% under Article 10(2)(a) of the Convention between the Government of the Republic of Korea and the Government of the United Kingdom for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Transfer Income (hereinafter “Korea-U.K. Tax Treaty”), and the tax authority deemed Eul corporation as a final parent company as a beneficial owner, applied the limited tax rate of 15% under Article 10(2)(b) of the Convention between the Government of the Republic of Korea and the Government of the Republic of Korea for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, and subsequently imposed corporate tax and other taxes on Gap corporation, the court below erred by misapprehending the legal principles on Gap corporation’s or beneficial owner.

1. Article 10(1) of the Convention between the Government of the Republic of Korea and the Government of the United Kingdom for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Transfer Income (hereinafter “Korea-U.K. Tax Treaty”) provides that “The dividends paid by a corporation which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other Contracting State,” and Article 10(2) provides that “However, with respect to such dividends, the Contracting State in which the corporation paying the dividends is a resident may also be taxed in accordance with the laws of that Contracting State. However, if the payee is a beneficial owner of the dividends, the taxes so imposed shall not exceed 5% if the latter is a corporation (other than a partnership) directly or indirectly controlling at least 25% of the voting rights of the corporation paying the dividends.” Article 14(1) of the Framework Act on National Taxes provides that “If the ownership of income, profits, property, act or transaction, which is subject to taxation, and if any, belongs to a person to whom it actually belongs, the person liable for tax payment.”

The substance over form principle under Article 14(1) of the Framework Act on National Taxes refers to the person to whom the income, profit, property, transaction, etc. belongs if there is another person to whom the income, profit, etc. belongs, unlike the nominal person. Thus, the nominal person does not have the ability to control and manage the nominal person, and there is another person who substantially controls and manages the property through the control, etc. over the nominal person, and the disparity between the nominal person and the substance arises from the purpose of tax evasion, the income on the property shall be deemed to have been reverted to the person who actually controls and manages the property, and if there is no such disparity between the nominal person and the substance, the income on the property shall be deemed to have been reverted to the person who actually controls and manages the property, but the income shall be deemed to have been reverted to the person to whom the income belongs. This principle applies to the interpretation and application of a tax treaty having the same effect as the law, unless otherwise stipulated (see, e.g., Supreme Court Decisions 2010Du25466, Oct. 25, 2012).

2. A. The evidence duly admitted by the lower court reveals the following facts.

1) The “Total Group” is an enterprise engaged in petroleum gas-related business with the final parent company as the last parent company established in accordance with the French Act in 1924 (hereinafter “TSA”). The “THUK” is a corporation established in accordance with the English law in 1983, and has 30 or more subsidiaries as an intermediary holding company engaged in petroleum chemical-related business within the TMF group.

2) While THUK did not have a separate business department, most of its daily business affairs were required to be performed by its employees, it performed its role as a holding company by setting up a board of directors and receiving dividends from its subsidiaries and guaranteeing the payment of its subsidiaries. Accordingly, it paid corporate tax in the UK and received external audits from its accounting auditor company on financial statements, and issued annual annual reports, environmental and social liability reports, etc. specifying the details of its investment activities with respect to its related companies, and publicly announced its business details.

3) From around 2001, Samsung General Chemical Co., Ltd. (hereinafter “TSA”) conducted negotiations on joint venture agreements with TSA, and entered into a memorandum of understanding on joint venture agreements with TSA on December 2, 2002. On May 27, 2003, the contracting party entered into a joint venture agreement with TSA (hereinafter “instant joint venture agreement”) at this time, and the contract became THUK, and the governing law was designated as Korea law under Article 14.1 of the contract. During this process, TRUK, at the time of the instant joint venture, performed a practical role, but the relevant legal and accounting expenses were ultimately borne by TRUK, and TRUK’s board of directors made decisions on the conclusion of the instant joint venture agreement and its investment therefrom.

4) On August 1, 2003, pursuant to the above joint venture agreement, the Plaintiff, a Korean corporation, was established in the Republic of Korea for synthetic resin and petroleum products-related business, and THUK owned 50% of the Plaintiff’s shares (hereinafter “instant shares”). An investor’s share was remitted from TSA’s financial subsidiary, TRA’s financial subsidiary, and this was TRUK’s funds transferred under the direction of THUK.

5) THUK held a board of directors to delegate the authority to attend the Plaintiff’s general meeting of shareholders, or discussed the Plaintiff’s dividend policy and director’s liability exemption, etc., and around August 2007, THUK exercised its authority as a shareholder based on the instant shares, such as exercising the authority to name directors under the instant joint venture agreement and appointing David Long as an officer in charge of finance.

6) The Plaintiff paid dividends (hereinafter “instant dividend income”) to THUK from 2006 to 2010, withheld and paid corporate tax calculated by applying the limited tax rate of 5% under Article 10(2)(a) of the Korea-U.S. Tax Treaty. Meanwhile, the remaining dividends withheld and paid were finally remitted to THUK through the TUK’s account in the name of the Seoul branch of the HSBC Seoul Bank, and the SOFXX QUE account at the London branch of the HSBC Bank, and THUK was finally transferred to THUK through the TUK’s account in the name of the HSBC Seoul branch, and THUK deposited and operated and managed them with TF U.K. FF. Finance Limited, a financial management company in the UK.

7) Under the premise that THUK is not a beneficial owner as prescribed in Article 10(2)(a) of the Korea-UK Tax Treaty, the Defendants deemed TSA, the final parent company, as the beneficial owner of the instant dividend income, and applied the 15% limited tax rate under Article 10(2)(b) of the Convention between the Government of the Republic of Korea and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, and subsequently imposed corporate tax and local income

B. In full view of the developments leading up to the establishment of THUK and the details of business activities, the process of decision-making related to the acquisition of the instant shares, the source of the acquisition funds, the progress of shareholder activities, and the details of the payment and use of the instant dividend income, which can be seen as an intermediary holding company of the TRUK with independent entity and business objectives, and it is sufficient to view that TRUK constitutes a substantial owner of the instant dividend income or a beneficial owner under Article 10(2) of the Korea-U.S. Tax Treaty with regard thereto, who is an intermediary holding company of the TRUK with independent entity and business objectives. Without considering such circumstances, it is insufficient to conclude that TRUK is not a beneficial owner of the instant dividend income by solely taking into account that TRUK’s own business department, etc. as a holding company, or TRA or other subsidiaries, which are the final parent company of TRUK’s subsidiary company of the TRUK, were involved in the process of concluding the instant joint venture agreement and shareholder activities, or other subsidiaries.

Nevertheless, solely based on its stated reasoning, the lower court determined that the instant disposition was lawful on the ground that THUK is not the beneficial owner or beneficial owner of the instant dividend income. In so determining, the lower court erred by misapprehending the legal doctrine on the substance over form doctrine under Article 14 of the Framework Act on National Taxes or the beneficial owner under Article 10(2) of the Korea-U.S. Tax Treaty, thereby adversely

3. Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Sang-ok (Presiding Justice)