2016Guhap57601. Revocation of revocation of revocation of corporate tax rectification

O0000000000

1. The superintendent of the regional tax office;

2. The director of the tax office of the water sources:

November 4, 2016

December 9, 2016

1. On May 21, 2015, the head of Yeongdeungpopo District Tax Office’s revocation of the rejection of the request for correction of each corporate tax made on May 20, 2015 by the head of Dongpo District Tax Office against the Plaintiff and on May 20, 2015 by the head of Dongpo Tax Office.

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

The order is as set forth in the text.

1. Details of the disposition;

A. The plaintiff is a corporation of the United States of America (hereinafter referred to as the "U.S.") and has a number of patent rights related to radio Internet technology registered in the United States.

B. On July 2010, the Plaintiff filed a patent infringement lawsuit against the Plaintiff’s patent right (patent number US No. 543600, 562500, 563100, 631700, 600, 60670 ○○, 581900, 581900, 5479000, 543800, hereinafter referred to as “the patent infringement lawsuit of this case”) against the U.S. court on the ground that the Plaintiff filed a patent infringement lawsuit of this case against the Plaintiff’s patent infringement (patent number No. 543600, 5490, 54380, hereinafter referred to as “the patent infringement lawsuit of this case”).

C. On May 2012, the Plaintiff and the instant enterprise concluded a patent license agreement and a reconciliation agreement (hereinafter “reconciliation agreement of this case”) with the main contents of the termination of the instant patent infringement lawsuit and the grant of a patent license to the instant enterprises. According to the said reconciliation agreement, the Plaintiff granted the instant enterprise a license for the use of the instant patent owned by the Plaintiff, and in return, Samsung Industries paid 7.5 million U.S. dollars (Korean won amounting to KRW 8,593,50,500,000) to the Plaintiff respectively (Korean won amounting to KRW 5,392,080,000) and 4.8 million U.S. dollars (Korean won amounting to KRW 5,392,080,000) to the Plaintiff.

D. On July 13, 2012, Samsung Industries paid the Plaintiff the total amount of 1,230,000 U.S. dollars 1 and 2,300,000 (hereinafter “the instant royalty”) to be paid under the instant settlement agreement, respectively, on July 10, 2012; Samsung Industries withheld 1,125,00 U.S. dollars 1,125,000 (Korean Won KRW 1,289,025,000) (Korean Won KRW 1,289,000; KRW 720,000 (Korean Won KRW 808,812,000) as corporate tax, and paid it to the competent tax office, respectively.

E. On January 23, 2015, the Plaintiff asserted that the instant royalty is income from a patent that was not registered in the Republic of Korea, and thus, did not constitute the Plaintiff’s domestic source income, and filed a request for correction to request the Defendants to correct and refund the total amount of corporate tax withheld on the instant private rent. Accordingly, the head of the tax office of the Dongwon District Tax Office notified each Plaintiff of his refusal to file a request for correction on May 20, 2015, on the ground that the instant royalty falls under the domestic source income (hereinafter collectively referred to as “the instant disposition”).

F. On August 11, 2015, the Plaintiff dissatisfied with the instant disposition, caused a request for a trial to the Tax Tribunal, and the Tax Tribunal dismissed the request on December 23, 2015.

【Ground of Recognition】 Facts without dispute, entries in Gap evidence 1 to 7 (including the relevant branch numbers), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The defendants' assertion

Article 6(3) and Article 14(4) of the Convention between the Republic of Korea and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and the Encouragement of International Trade and Investment (hereinafter referred to as the “Korea-U.S. Tax Convention”) adopt the principle of place of use concerning the criteria for determining the source of royalty income, but there is no explicit provision regarding the use of the “use of an overseas registered patent” that is not registered in the Republic of Korea, so the meaning of the “use” under the Corporate Tax Act of the Republic of Korea shall be interpreted in accordance with Article 2(2) of the Korea-U.S. Tax Convention. Meanwhile, since the Corporate Tax Act was amended on December 26, 200, the latter part of Article 93 subparag. 91 of the same Act (hereinafter referred to as the “instant provision”) provides that if a patent right was registered outside the Republic of Korea and is used for domestic trade and investment, it cannot be deemed that the Plaintiff is not a new domestic corporation that was used for domestic trade without being registered in Korea.

(b) Relevant statutes;

As shown in the attached Form.

C. Determination

1) Article 2(1)2 of the former Corporate Tax Act (amended by Act No. 12555, Dec. 15, 2015; hereinafter “former Corporate Tax Act”) provides that a foreign corporation is liable to pay corporate tax only when it has income generated from domestic sources, and Articles 2(5) and 98(1) provide that a person who pays a certain amount of income generated from domestic sources to a foreign corporation, such as Article 93 subparag. 9, shall withhold corporate tax for the year.

However, Article 93 of the former Corporate Tax Act provides that "domestic source income of a foreign corporation shall be divided into the following categories: "If a foreign corporation uses any of the following rights, assets, or beams (hereafter referred to as "rights, etc." in this subparagraph) in the Republic of Korea or pays the price therefor in the Republic of Korea, the relevant consideration and the income accruing from the transfer of such rights, etc.: Provided, That where a contract for the avoidance of double taxation on income provides for whether the relevant income falls under domestic source income on the basis of the place of use in the contract for the avoidance of double taxation on income, the consideration for the rights, etc. used overseas shall not be deemed domestic source income regardless of the date of domestic payment (hereafter referred to as "patent, etc." in this subparagraph). In such cases, the relevant patent right, etc. is registered overseas and used for manufacturing, selling, etc. in the Republic of Korea, regardless of whether it is registered in the Republic of Korea.

On the other hand, Article 14(4) of the Korea-U.S. Tax Convention provides that "user fees used in this Article" shall mean the following. "At the same time, subparagraph (a) shall provide that "the copyright of literary, artistic, or scientific works or the right to use or use the films or tapes for television broadcast, patents, designs, designs, drawings, drawings, confidential or confidential public formula, trademarks or any other similar property or rights, knowledge, experience, skills, vessels, or aircraft as consideration for the use or rights of aircraft, and Article 6 shall provide that "the source of income for the purposes of this Convention" shall be treated as follows: "the right to use or use the property provided for in paragraph (4) of Article 14 shall be paid only in respect of the right to use or use the property within a Contracting State, and the usage fees provided for in paragraph (3) of the same Article shall be treated as income within that Contracting State:

2) It is true that the key provision, as argued by the Defendants, only registered a patent right, etc. in a foreign country, but is not registered in the Republic of Korea, it is determined that the income received in return for use should be seen as domestic source income when the patent right, etc. was used in manufacturing, selling, etc. in the Republic of Korea.

However, since Article 93 subparagraph 9 (a) and (b) of the former Corporate Tax Act provides for the scope of intangible assets subject to domestic source use fees income, it is difficult to interpret the key issue clause as expanding the scope of intangible assets on the basis of user fee income and household income or adding unregistered assets to domestic unregistered assets subject to taxation. Even if the key issue clause expandss the scope of intangible assets subject to user fee income into “the manufacturing method, technology, information, etc. included in the registered patent right actually used for domestic manufacture and sale,” the term “other similar property or rights” under Article 14 (4) subparagraph 5 of the Korea-U.S. Tax Convention shall be limited to intangible assets that can be exclusively used and disposed of by the right holder in light of the nature of the copyright patent, design, new design, trademark, etc. listed above. Thus, it is difficult to regard the term “property or right similar to the patent under the Korea-U.S. Tax Convention” as the term “property or right similar to the patent under the Korea-U.S. Tax Convention.”

As such, the establishment of the key provision may not affect the scope of intangible assets subject to royalty income under the Korea-U.S. Tax Convention, and Article 28 of the Adjustment of International Taxes Act provides that "the classification of domestic source income of non-residents or foreign corporations shall take precedence over the provisions of the tax treaty notwithstanding Article 119 of the Income Tax Act and Article 93 of the Corporate Tax Act." As such, in a case where patent rights, etc. of non-residents or foreign corporations registered in a foreign country are used for domestic manufacture, sale, etc. in the Republic of Korea, whether the income paid by the U.S. corporation in return for use shall not be determined as domestic source income pursuant to the Korea-U.S. Tax Convention

However, under Articles 6(3) and 14(4) of the Korea-U.S. Tax Convention, a patent holder’s right to exclusively produce, use, transfer, lend, import, or exhibit patent goods shall take effect only within the territory of the country where the patent right is registered, and if a U.S. corporation has a patent license in Korea after registering a patent right in the Republic of Korea, only the income paid for the use of the patent license shall be determined as domestic source income. Under the interpretation of the Korea-U.S. Tax Convention, the interpretation of the Korea-U.S. Tax Convention does not mean that a patent infringement may not occur outside the country where the patent right is registered, and if the U.S. corporation registers a special permit right outside the country and fails to register it in the Republic of Korea, the income received by the U.S. corporation in relation thereto cannot be considered as domestic source income (see, e.g., Supreme Court Decision 2012Du18356, Nov. 27, 2014).

3) In light of the above legal principles, since the patent right in this case appears to have not been registered in the Republic of Korea, the pertinent royalty income cannot be deemed as domestic source income, and the prior disposition in this case on a different premise should be revoked as it is unlawful.

3. Conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is decided as per Disposition by admitting it.

Judges Kim Jong-young

Judges Roster

Judges Kim Jae- Jae

1) At the time of establishment on December 26, 2008, subparagraph 9 was changed to subparagraph 8 after partial amendment on December 30, 2010.

2) On March 6, 2009, after the entry into force of the key clause, the key clause is a precedent as to whether the royalty paid to a foreign corporation is domestic source income.

It is confirmed that the establishment of a new case does not affect the previous precedents.

Site of separate sheet

Relevant statutes

▣ 국제조세조정에 관한 법률

Article 28 (Preferential Application of Income Classification under Tax Treaty)

Notwithstanding Article 119 of the Income Tax Act and Article 93 of the Corporate Tax Act, the provisions of tax treaties shall preferentially apply to the classification of domestic source income of non-residents or foreign corporations.

▣ 대한민국과 미합중국간의 소득에 관한 조세의 이중과세 회피와 탈세방지 및 국제무역과 투자의 증진 을 위한 협약

Article 1. Subjected Taxation

(1) The taxes which are subject to this Convention are:

(a) for Korea, income tax and corporate tax (Korean tax)

(b) In the case of the United States, the Federal Income Tax (U.S. tax) imposed by the internal tax law.

Article II General Definitions

(2) Other terms used in this Convention and not defined in this Convention have the meaning, unless the context otherwise requires, in accordance with the laws of the Contracting State in which the tax is determined. Notwithstanding the above provisions, if the meaning of such terms under the laws of a Contracting State is different from that of the other Contracting State, or if it is not possible to easily determine in accordance with the laws of either Contracting State, the competent authorities of the Contracting State may determine the common meaning of such terms for the purposes of this Convention in order to prevent double taxation or to facilitate other purposes of this Convention.

Article 3 Address of Taxation

(1) In this Convention, the following terms shall have the meanings respectively set forth:

(b) The term "resident of the United States" means:

(1) A U.S. corporation

Article 4 General Rules of Taxation

(1)A resident of a Contracting State shall be subject to the restrictions laid down in this Convention and may be taxed by that other Contracting State only on such income as well as on such income. For this purpose, the rules (income source) set forth in Article 6 shall apply to the determination of the source of income.

(4) Notwithstanding any provision of this Convention, other than paragraph (5) of this Article, a Contracting State may impose tax on a citizen or resident of that Contracting State as if the Convention had not become effective.

Article 6 Source of Income

For the purposes of this Convention, the source of income shall be treated as follows:

(3) With respect to the right to use or use the property (other than that provided for in paragraph (5) of this Article in respect of a vessel or aircraft) provided for in paragraph (4) of Article 14, only if the right to use or use the property is paid for within a Contracting State, the fees provided for in paragraph (5) of this Article shall be treated as the income derived from the source in that Contracting State only.

(7) Income derived from the sale and purchase of intangible or tangible personal property (including movable property) (other than the benefits set forth in section 14(4)(4)(b)) shall be treated as income derived from the sale in a Contracting State only if such property is sold in a Contracting State.

Article 14 Fees

(1)The taxes imposed by a resident of the other Contracting State on any royalty accruing from sources in the other Contracting State shall not exceed 15 percent of the total amount of that royalty, except as provided in paragraphs (2) and (3) below.

(4) For the purpose of this section, the term "user fee" means:

(a) the copyright of literary, artistic or scientific works or the value of radio or television films or tapes for television broadcasts;

Right, patent, design, new design, drawings, confidential or secret public formula, trademark or other similar property or rights;

L, knowledge, experience, skills (technology), vessel or aircraft (the lessor may operate a vessel or aircraft for international traffic)

any kind of money received in consideration of the use or the right of use by a person who is not engaged in such business.

Amount of salary;

(b) Any action arising from the sale, exchange, or other disposition of such property or right (other than a vessel or aircraft)

production of such property or rights in an amount acquired by sale, exchange, or other disposition for value from among the

use fees for the portion corresponding to the use or disposition shall be related to the operation of mines, quarries or other natural resources.

usage fees, rents, or other amounts paid shall not be included.

▣ 구 법인세법 ( 2015 . 12 . 15 . 법률 제13555호로 개정되기 전의 것 )

Article 2 (Duty to Pay Taxes)

(1) The following corporations shall be liable to pay corporate tax on income under this Act:

1. Domestic corporations;

2. A foreign corporation which has income from sources in Korea.

Article 91 (Tax Base)

(2) In the case of a foreign corporation which does not fall under the provisions of paragraph (1), the tax base of corporate tax on the income of the concerned corporation for each business year under the classification of each subparagraph of Article 93.

Article 93 (Domestic Source Income)

Domestic source income of a foreign corporation shall be classified as follows:

9. Any of the following rights, assets, or information (hereafter referred to as "rights, etc." in this subparagraph):

(1) if the compensation is paid in Korea, such compensation and any right shall be

3. Income accruing from income: Provided, That a country of such income as is used in a double taxation avoidance agreement with respect to income; or

Where it stipulates whether it constitutes internal source income, the consideration for the rights, etc. used overseas shall be paid in Korea.

Notwithstanding whether it is a domestic source income, it shall not be deemed domestic source income. In such cases, a patent right, utility model right, trademark right, or designer.

Rights necessary to register the exercise of rights, such as human rights (hereafter referred to as "patent right, etc." in this subparagraph) shall be the relevant patent right, etc.

(2) If registered in a foreign country and used in manufacture, sale, etc. in Korea, regardless of whether it is registered in Korea;

such terms shall be deemed to have been used in such manner.

(a) The drawings or specifications of the copyright right, trademark right, trademark right, model or model of any scientific or artistic work (including films of motion pictures);

The official or process, radio, television films and tapes for television broadcast and other similar assets or rights;

(c) information or know-how on industrial, commercial or scientific knowledge and experience;

Article 98 (Special Cases of Withholding or Collection for Foreign Corporations)

(1) Notwithstanding the provisions of Article 97, any person who pays a foreign corporation the acquisition amount (including the amount paid to a foreign corporation having no domestic place of business) of the income under the provisions of subparagraphs 1, 2, 4 through 7, and 9 through 11 of Article 93 which is not in fact related to the domestic place of business, or which is not reverted to the said place of business (including the amount paid to the foreign corporation having no place of business), shall withhold the amount under each of the following subparagraphs as corporate tax on the income for each business year of the concerned corporation, and pay it to the head of the district tax office having jurisdiction over the place of tax payment, etc. under the conditions as prescribed by the Presidential Decree, by the 10th day of the month following the month in which the date on which the income is withheld falls: Provided, That among the income under the provisions of subparagraph 5 of Article 93, the income which may be taxed as domestic

3. For income under the provisions of subparagraphs 1, 2, 9, and 11 of Article 93, 20/100 of the amount paid.

only, interest arising from bonds issued by the State, local governments and domestic corporations among the income referred to in subparagraph 1 of Article 93;

at the end, it shall be 14/100 of the amount paid.