The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Case summary and key issue

A. (1) On May 31, 201, the Plaintiff entered into a license agreement with F companies located in the Hungary State (hereinafter “F”) belonging to the global entertainment content group B, a film producer C and music channel D, with respect to the domestic distribution of C film, etc., and paid a total of approximately KRW 13.5 billion to F (hereinafter “instant royalty”) from around that time to December 2013.

(2) In accordance with Article 12(1) of the Convention between the Government of the Republic of Korea and the Government of the Republic of Hungary for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea-Hungary Tax Treaty”), the Plaintiff did not withhold corporate tax on the pertinent royalty.

(3) However, the Defendant: (a) deemed that F is merely a so-called conduit company established for the purpose of tax avoidance; and (b) deemed that the actual beneficial owner of the pertinent royalty income is a company that is the parent company of F with the Netherlands (hereinafter “G”); and (c) applied the Korea-Hungary Tax Treaty on May 2, 2014 and July 1, 2014, instead of applying the Convention between the Government of the Republic of Korea and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea Netherlands Tax Treaty”), imposed KRW 2.39 billion (including penalty tax) on the Plaintiff as total corporate tax withheld at source.

(hereinafter “instant disposition”). (b)

The key issue of the instant case is whether Article 12(1) of the Korea-Hungary Tax Treaty applies with respect to the pertinent royalty.

2. Regarding ground of appeal No. 1

(a) (1) Article 12(1) of the Korea-Hungary Tax Treaty provides that “if the resident is a beneficial owner of the royalty, with respect to the royalty incurred in a Contracting State and paid to a resident of the other Contracting State, the fee shall be imposed only in that other Contracting State.”