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

Cheong-gu Office

The same shall apply to the order.

A. The Plaintiff filed a patent infringement lawsuit in the United States, Germany, and the United Kingdom against AAE and its subsidiaries (hereinafter referred to as “AAE”).

(B) On April 12, 2013, when the above patent infringement lawsuit is pending, the plaintiff and Japanese corporation A○○○○○○○○, and LTD (hereinafter referred to as “A○○○○○○○”) reached an agreement with the plaintiff or A○○○○○○, etc. to grant AAAB the right to permanent, non-exclusive, and global use of the patent (hereinafter referred to as “the patent of this case”) to the plaintiff or A○○○○, etc., and to receive USD 8,425,00 (hereinafter referred to as “the patent of this case”) from AA electronic in return for the payment of USD 45,00 (hereinafter referred to as “the contract of this case”) with the plaintiff and the 19,363,54,99,959, and 15,505,000 (hereinafter referred to as “the tax return and payment of the tax of this case”) under the international trade contract of this case and the 15,013.

D. The Plaintiff filed a claim for correction to the effect that “The price for the use of the patent right that was not registered in the Republic of Korea is not a domestic source income, and thus only KRW 43,350,157, which is divided in proportion to two patent applications filed in the Republic of Korea for the instant patent 432 patent, is a domestic source income, and only KRW 6,502,523, and the legitimate tax amount applying the limited tax rate of 15% is merely KRW 6,502,523, and thus, KRW 1,398,029,226 shall be refunded.” However, the Defendant rejected the claim for correction on February 9, 2019 (hereinafter “instant disposition”).

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on April 28, 2017, but the Tax Tribunal dismissed the said appeal on August 31, 2017.

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 to 12 (including additional number), the purport of the whole pleadings

2. The parties' assertion

A. The plaintiff

According to the Korea-U.S. Tax Convention, user fees received by the Plaintiff, a U.S. corporation, for the use of patent rights not registered in the Republic of Korea among the patents in this case, do not constitute domestic source income subject to withholding tax. Nevertheless, the instant disposition rejecting the Plaintiff’s request for correction is unlawful.

B. Defendant

1) Article 6(3) of the Korea-U.S. Tax Convention provides for the determination of the source income of royalties, such as patent rights, under Article 14(4), as a principle, and does not specifically stipulate the meaning of "use". Therefore, the meaning of "use" under Article 2(2) of the Korea-U.S. Tax Convention should be interpreted in accordance with the domestic law in which taxes on royalty income are determined.

However, the latter part of the proviso of Article 93 subparag. 8 of the former Corporate Tax Act provides that where patent rights are used to manufacture, sell, etc. in Korea, it shall be deemed used in Korea regardless of whether a patent is registered in Korea and the amount equivalent to the royalty shall be deemed domestic source income of a foreign corporation.

2) Of the instant royalty, there is room to regard the portion relating to a patent owned by a Japanese corporation, a Japanese corporation, as a beneficial owner, the part related to a patent owned by a foreign corporation, the Plaintiff, rather than the Plaintiff. In such a case, the portion related to a patent owned by a foreign corporation, which is subject to taxation, may be subject to the application of the Korea-Japan Tax Treaty. Furthermore, the relevant royalty may be imposed on a patent not yet registered, unlike the registered patent, on the ground that it is different from the

3) Preliminaryly, the instant user fee constitutes other income as stipulated in Article 93 subparag. 10 of the former Corporate Tax Act, which is a reward for damages or for preventing the occurrence of disputes, and thus constitutes subject to taxation as Plaintiff’s domestic source income.

3. Related statutes;

It is as shown in the attached Form.

4. Determination

A. Determination as to whether the pertinent royalty constitutes a domestic source income under Article 93 subparag. 8 of the former Corporate Tax Act

1) The latter part of the proviso of Article 93 subparag. 8 of the former Corporate Tax Act stipulates that income received as consideration for use shall be deemed domestic source income when a foreign corporation registers a patent right outside the Republic of Korea and does not register the patent right in the Republic of Korea. However, Article 28 of the former Adjustment of International Taxes Act (amended by Act No. 16099, Dec. 31, 2018) provides that "the classification of domestic source income of a nonresident or a foreign corporation shall take precedence over the tax treaty, 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 non-resident or foreign corporation," so it cannot be determined in accordance with the Korea-U.S. Tax Convention as to whether income received as consideration for use can be deemed domestic source income if the patent right of the U.S. corporation is used for manufacturing, selling, etc. in the Republic of Korea and abroad. However, considering the normal meaning of the context and language of the Korea-U.S. Tax Convention, only the registered patent right cannot be deemed domestic source income generated.

According to the above legal doctrine, the portion of the royalty paid to the Plaintiff, a U.S. corporation, equivalent to the royalty not registered in the Republic of Korea, does not constitute domestic source income. This part of the Plaintiff’s assertion that only domestic use should be determined regardless of domestic registration.

(2) Comprehensively taking into account the aforementioned facts and the overall purport of the arguments, AC Periodical LLC (hereinafter “AC Periodical”) concluded that on July 31, 2009, the Plaintiff obtained an exclusive license for the patent owned by AAC ○○○○○○○○ on the basis of the agreement to pay an amount equivalent to a certain percentage of the income derived from the exercise of the patent right to A○○○○○○○○. On December 14, 2009, the Plaintiff acquired the contractual status of AC ○○○○○. On April 12, 2013, the Plaintiff entered into the instant contract on the patent of this case owned by AAE electronic, the Plaintiff, or A○○○○○○○○○○○○○○○○○. According to the instant agreement, it appears that there was a settlement relationship between the Plaintiff and the beneficial owner of the patent of this case, but the Defendant’s assertion that this part of the patent registration procedure should not be applied differently from the Defendant’s patent practice.

B. Determination as to whether the pertinent royalty constitutes other income under Article 93 subparag. 10 of the former Corporate Tax Act

The usage fee of this case is the amount paid by AAelectronic from the plaintiff for the consideration that the patent right is granted by the plaintiff, so its legal nature is clear that it constitutes usage fee income under Article 93 subparagraph 8 of the former Corporate Tax Act. However, as seen earlier, as the Korea-U.S. Tax Convention takes precedence over Article 93 of the former Corporate Tax Act pursuant to Article 28 of the former Adjustment of International Taxes Act, it cannot be taxed as domestic source income. In addition, in order to constitute other income under Article 93 subparagraph 10 of the former Corporate Tax Act, it shall fall under "compensation (a)" or "economic benefits (j) received in relation to real estate and other assets in Korea or the business operated in Korea", and there is no evidence to prove that the usage fee of this case satisfies the requirements set forth in each of the above items. Accordingly, the defendant's assertion on this part is without merit.

C. Sub-committee

Of the instant royalty, the portion corresponding to the cost of patent use not registered in the Republic of Korea does not constitute domestic source income, and thus, should be excluded from the tax base.

D. Scope of revocation

In a lawsuit seeking revocation of a tax disposition, the legality of the disposition is determined depending on whether it exceeds a legitimate tax amount. The parties concerned may submit objective tax bases and materials supporting the tax amount until the closing of argument in the fact-finding court. When calculating the legitimate tax amount to be imposed lawfully based on such materials, only the portion exceeding the legitimate amount should be revoked, but if not, the entire tax assessment should be revoked (see Supreme Court Decision 94Nu13527, Apr. 28, 1995). If there is no evidence to calculate the legitimate tax amount to be imposed lawfully in a lawsuit seeking revocation of a tax disposition, the court shall, in principle, revoke the entire tax assessment in accordance with the above legal doctrine, and any disadvantage therefrom shall not be returned to the defendant, the disposition authority, who is the defendant.

However, in light of ① the fact that the contract of this case does not state individual values by patent right, ② the use fees of this case are calculated by applying the rate of value of the entire patent of this case to the sales of products sold by AAE, and the fact that it appears that the evaluation of the value of the patent of this case would not be achieved at the time of negotiations on the use fees of this case, ③ the evaluation of the value of each patent of this case, as well as the fact that it would not be technically and practically easy, are difficult to specify the "amount equivalent to the cost of the patent of this case registered in Korea" among the use fees of this case. Thus, in principle, the whole disposition of this case should be revoked. However, under the premise that the plaintiff is two patents filed in Korea, the plaintiff's rejection of the disposition of this case must be revoked by itself as to the above 43,350,157 won, 6,502,523 won which corresponds to 15% of the total patent of this case.

5. Conclusion

The plaintiff's claim is reasonable, and it is so decided as per Disposition.