B&L Co., Ltd. (Attorneys Kim Su-soo et al., Counsel for the defendant-appellant-appellee)

Head of the District Tax Office

April 9, 2014

Seoul Administrative Court Decision 2012Guhap21055 decided September 13, 2013

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The Defendant’s imposition of value-added tax of KRW 125,681,520 against the Plaintiff on December 1, 2010 is revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Quotation of the first instance judgment

The reasoning of the judgment of this court is as follows, except for the addition of the judgment of the defendant as to the argument that the defendant emphasizes in particular at the appellate court or re-convened, and thus, it is consistent with the reasoning of the judgment of the first instance.

2. Judgment on the defendant's assertion

A. The defendant's assertion

① The instant disposition imposing value-added tax on the same premise is legitimate, on the following premise: (a) the link recipient who provided the Plaintiff’s service is a domestic corporation with the actual management place located in Korea; (b) the core and important part of the service provided by the Plaintiff to the MPPL is the collection and recovery of CSR claims against domestic KOSDAQ companies; and (c) the service provided by the Plaintiff to the PEPL is not subject to zero tax rate for a period of several months. In the end, the service provided by the Plaintiff to the PEPL is not a domestic corporation’s domestic service provided to the domestic corporation, which is not subject to zero tax rate.

B. Determination

1) Whether the ELPL is a domestic corporation

Although the Corporate Tax Act provides that a corporation with its head office or principal office in the Republic of Korea shall be deemed a domestic corporation, in substance, a corporation with its head office or principal office in the tax evasion area should also be deemed a domestic corporation by amending Article 1 subparag. 1 of the Corporate Tax Act on December 31, 2005 in order to prevent the avoidance of tax liability by establishing its head office or principal office in the tax avoidance area while carrying out its main business activities in the Republic of Korea. However, considering the legislative intent or the necessity of distinguishing the simple domestic business place of a foreign corporation under the Corporate Tax Act, the term “actual business management place” in this context means a place where a corporation conducts its business in the Republic of Korea and is continuously fixed for a certain period, rather than a corporation’s business management or commercial decision-making. Furthermore, the elements of the determination can be considered to have taken into account the place where the board of directors or other similar organizations’ meeting is held, the highest manager or other executive officers are present, the place where ordinary activities such as decision-making are carried out, the place where books or accounting records, etc.

However, in light of the facts acknowledged by the first instance court, which cited the following circumstances, comprehensively taking into account the evidence duly adopted by the first instance court and evidence Nos. 60 through 66 (including paper numbers), and the purport of the entire pleadings, it is difficult to see that the place of actual management of the company was transferred to Korea solely on the ground that the ELPL performed the instant CSS-related business in Korea in 2009, and the said company still seems to be a foreign corporation based on Singapore.

In other words, as a corporation established in accordance with the Singapore Company Act in 2000, MPL has been practically engaged in information and communications services in Singapore until 2008, and as a result, it has been more difficult to conduct the existing business since 2008, several new projects have been sought, including energy, crops cultivation, hotel management and consultation in Kenya along with the instant CSS credit investment business, hotel management and consultation in the United States, and information and communications-related management support business.

② At the time of the provision of the instant service, the board of directors of the PEPL was composed of Nonparty 2, Nonparty 3, and Nonparty 4. However, Nonparty 2, the largest shareholder and the representative director, were residents of Singapore who are engaged in business activities with a base of living in Singapore since 2000. Nonparty 4, the second shareholder of the PEPL, and the director, were residing in the United States as a U.S. citizen, and Nonparty 3 was residing in Korea, but the board of directors, etc. had not been held in Korea.

③ Nonparty 5, an employee related to the finance, who was provided with some space in the 7th floor of the Plaintiff’s ○○ building in the ○○○○○ Building, had a business consultation with the Plaintiff on the collection of claims and reported the details thereof to the ELPL management. However, no circumstance was found to deem that other executives and employees of the OLPL were working at the above place or that the OLPL was made core management or decision-making related to the operation of the OLPL corporation in addition to the SS claims.

④ Nonparty 2, in addition to the MLL, also established and operated a “stock company-related link” in Korea. However, the instant CSS claims included a number of claims that Korean residents could not purchase, and since it was a sale condition to purchase from a Korean nonresident, it appears that the instant CS claims could not have been operated by a domestic corporation. Meanwhile, on the other hand, the Financial Supervisory Service recognized the MLL as a non-resident, and issued a foreign investment registration certificate to the MLPL.

2) Whether the instant service was provided domestically

In light of the following circumstances acknowledged by the first instance court’s duly adopted evidence. Of the instant services, the Plaintiff appears to have been engaged in the business of arranging and entering into a contract at a low price only 30% of the face value of the CS Hong Kong Branch, which is a large investment bank. The Plaintiff’s representative director, Nonparty 1, through Nonparty 6, etc., arranged CB/BW and obtained information that it would be able to obtain such information at low price. On the other hand, the Plaintiff’s 3rd Hong Kong Branch’s claim was sent out to the 3rd Hong Kong Branch’s 2nd 1st 208 Hong Kong Branch’s 3rd 2nd 2nd 3rd 3rd 2nd 3rd 3rd 3rd 3rd 3rd 3rd 2nd 3rd 3rd 3rd 3rd 3rd 3rd 2nd 3rd 2nd 3rd 3rd 3rd 2nd 3rd 3rd 3rd 2nd 3rd 3rd 3rd 3rd 2.

3) Ultimately, the Defendant’s assertion that the instant disposition is lawful is not acceptable on a different premise, since the instant service was mainly provided overseas to the ELL, a foreign corporation.

3. Conclusion

Therefore, the plaintiff's claim of this case is justified, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed. It is so decided as per Disposition.

Judges’ aid (Presiding Judge) Transfering of permanent equipment