Additional charges on the refund of advance payment due to the cancellation of shipbuilding contract for a ship falls under domestic source income, and the Plaintiff is liable to withhold taxes from the Plaintiff.

(1) Whether a foreign corporation’s domestic source income and withholding duty (2) the Plaintiff, a guarantor, bears withholding duty; (3) whether a foreign vessel owner is merely a nominal company established for convenience purposes, and thus, the tax treaty between the Republic of Korea and the Republic of Korea should be applied by denying the legal personality of the foreign vessel.

Article 73: Withholding of Corporate Tax and Withholding; Article 93 of the Corporate Tax Act; and Special Cases of Withholding or Collection for Foreign Corporations under Article 98 of the Corporate Tax Act

Seoul Administrative Court-2016-Gu Partnership-5248

A Corporation

AA Head of the Tax Office

July 20, 2017

September 7, 2017

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

On June 18, 2014, the Defendant revoked all of the disposition on corporate tax withholding (including the disposition on imposition of additional tax) of KRW 93,603,650 against the Plaintiff on June 18, 2014, KRW 294,538,650, KRW 1,915,684,360.

1. Details of the disposition;

(a) Conclusion of a shipbuilding contract;

1) AB CD Co., Ltd. (former trade name: IJKL Co., Ltd.) and EFGH (hereinafter referred to as “stock company” in each name, and, among those companies, hereinafter referred to as “domestic officers”) were awarded a contract for the construction of vessels from UTimed and BA Ltd (hereinafter referred to as “foreign vessel owners”), a foreign corporation, as described in Table 1 below (hereinafter referred to as “instant shipbuilding contract”).

2) According to each shipbuilding contract of this case, foreign vessel owners shall first pay part of the vessel price to domestic shipbuilding officers prior to the completion of shipbuilding, and where each shipbuilding contract of this case is terminated due to reasons such as termination or termination of shipbuilding, domestic shipbuilding officers shall refund to foreign vessel owners the vessel price already received (hereinafter referred to as the "advance payment") and additional dues (hereinafter referred to as the "additional dues") calculated by applying a certain interest rate until the date of refund of the aforementioned advance payment. Foreign vessel owners paid each advance payment (hereinafter referred to as the "Advance payment") to domestic shipbuilding officers in accordance with each shipbuilding contract of this case.

B. Issuance of an advance refund guarantee certificate by the Plaintiff

The Plaintiff, a corporation engaged in banking business, issued to foreign vessel owners a letter of advance refund guarantee (Refunuarante) as stated in the table 2, to pay advance payment received by domestic shipbuilding owners and the amount equivalent to additional dues on such advance payment (hereinafter referred to as “the refund guarantee contract of this case”) in the event domestic shipbuilding manufacturers violate each shipbuilding contract of this case due to failure to deliver the vessel on the fixed date.

C. Cancellation of each shipbuilding contract of this case and the plaintiff's implementation of the refund guarantee contract of this case

From around 2008, domestic shipbuilding companies have difficulties in implementing each shipbuilding contract of this case due to the management crisis of domestic shipbuilding companies due to increase in raw materials prices, decrease in number of orders, and urbanization at home and abroad, etc., and foreign vessel owners have cancelled each shipbuilding contract of this case by exercising the right of rescission under each shipbuilding contract of this case or by agreement with domestic shipbuilding companies. Based on the refund guarantee contract of this case, based on the refund guarantee contract of this case, the Plaintiff filed a claim with the Plaintiff for the payment of the amount equivalent to the advance payment of this case and the amount equivalent to the additional refund payment of this case (hereinafter referred to as the “additional refund of this case”). Accordingly, the Plaintiff paid the amount equivalent to the advance payment of this case and the amount equivalent to the additional refund payment of this case to foreign vessel owners as shown below.

D. Each disposition of this case and the procedure of the previous trial

In relation to the Plaintiff, the Defendant imposed additional taxes on the Plaintiff under Article 93 subparag. 11 (b) of the former Corporate Tax Act (wholly amended by Act No. 10423, Dec. 30, 2010); Article 132 subparag. 10 (b) of the former Enforcement Decree of the Corporate Tax Act (wholly amended by Presidential Decree No. 22577, Dec. 30, 2010); Article 93 subparag. 10 (b) of the former Corporate Tax Act (wholly amended by Act No. 11607, Jan. 1, 2013); Article 132 subparag. 10 (0) of the Enforcement Decree of the Corporate Tax Act (wholly amended by Act No. 11607, Jan. 1, 2013); Article 132 subparag. 10 (hereinafter referred to as the “former Corporate Tax Act and the Enforcement Decree of the Corporate Tax Act”) on other income provided for in Article 93 subparag. 30, 2010.

1) For BA Ltd payment in the year 2012

On March 7, 2014, the plaintiff filed a request for a trial with the Tax Tribunal on March 7, 2014, but was dismissed on October 27, 2015.

2) In the business year 2010 UTimed payment Plaintiff filed an appeal with the Tax Tribunal on the same day on June 18, 2014 on the same day. On December 16, 2015, the Tax Tribunal rendered a decision that the Plaintiff’s amount to be subject to withholding of penalty paid to UTimed amount as KRW 8,707,656,215, and the remainder of the appeal is dismissed. Accordingly, the Defendant issued a disposition to reduce or rectify the amount of penalty to KRW 540,321,230 on December 29, 2015.

3) Under the aforesaid circumstances, “each disposition of imposing corporate tax (including additional tax) for each of the tax amounting to KRW 93,603,650,294,538,650,294,538,650, 1,915,684,360 as of June 18, 2014 after the correction or reduction was made.”

(e) the addition of the reasons for the disposition;

During the instant lawsuit pending, the Defendant added the preliminary disposition grounds to the effect that the instant additional payment on refund constitutes “other income under Article 93 subparag. 10 (a) and (j) of the former Corporate Tax Act or “interest income under Article 93 subparag. 1 (a) of the former Corporate Tax Act” and constitutes foreign corporation’s domestic source income.

[Ground of recognition] Facts without dispute, Gap evidence 1 through 5, Eul evidence 1 (including each number), the purport of the whole pleadings

2. The plaintiff's assertion

Each disposition of this case shall be revoked on the grounds that it is unlawful for the following reasons.

A. The instant refund does not constitute domestic source income.

1) The refund of this case is the return of unjust enrichment that is paid for restitution following the cancellation of each shipbuilding contract of this case. Accordingly, the refund of this case is the compensation for damages paid due to the breach or termination of a contract regarding property rights, which is other income stipulated in Article 93 subparag. 10 (b) of the former Corporate Tax Act and Article 132(10) of the Enforcement Decree of the Corporate Tax Act, and does not constitute “money paid in excess of compensation for payment under the original contract.”

Even if the refund of this case falls under the damages, the refund of this case is the damages paid to the foreign vessel owners in order to compensate for the actual damages, and thus does not fall under the "money paid in excess of the damages due to the payment itself under the original contract."

2) Since foreign vessel owners do not operate a business in the Republic of Korea and provide human services in the Republic of Korea and do not hold assets in the Republic of Korea, it cannot be viewed that the instant additional refund falls under other income under Article 93 subparag. 10 (a) or (j) of the former Corporate Tax Act.

3) Since foreign vessel owners did not lend the instant advance payment to domestic vessel owners or receive interest thereon, the instant additional payment on refund cannot be deemed as falling under interest income stipulated in subparagraph 1 (a) of Article 93 of the former Corporate Tax Act. If the instant additional payment on refund constitutes interest income, the portion exceeding 15%, which is the interest income rate rate under the tax treaty with Hoju, is unlawful with respect to the contract mentioned in the No. 1 attached Table 3 and No. 4.

B. The Plaintiff is merely a guarantor that guarantees the payment of the instant advance payment and the obligation to refund additional dues to the Plaintiff under each shipbuilding contract of each of the instant shipbuilding companies, and thus, is not a “person who pays income that is liable for withholding.”

C. The part concerning the No. 1 and No. 2 contracts under the table 1 and No. 2 in the refund of this case can not be imposed on other income pursuant to a tax treaty between the Republic of Korea and the South Africa, if it is not a formal foreign vessel pursuant to the substance over form principle and substance over form principle.

3. Relevant statutes;

It is as shown in the attached Form.

4. Determination

(a) Whether it constitutes domestic source income;

1) Domestic source income and withholding obligation of a foreign corporation

법인세법 제98조 제1항 본문 제3호, 제93조 제1호 가목, 제10호 가목, 나목, 차목, 법인세법 시행령 제132조 제10항에 따르면, 외국법인에 대하여 ① ��국내에서지급하는 위약금 또는 배상금으로서 대통령령이 정하는 소득, 즉 재산권에 관한 계약의 위약 또는 해약으로 인하여 지급받는 손해배상으로서 그 명목여하에 불구하고 본래의 계약내용이 되는 지급자체에 대한 손해를 넘어 배상받는 금전 또는기타 물품의 가액��, ② 「국내에 있는 부동산 및 그 밖의 자산이나 국내에서 경영하는 사업과 관련하여 받은 보험금・보상금 또는 손해배상금」, ③ ��국내에서 행하는 사업이나 국내에서 제공하는 인적 용역 또는 국내에 있는 자산과 관련하여 제공받은 경제적 이익으로 인한 소득(…) 또는 이와 유사한 소득으로서 대통령령이정하는 소득��, ④ ��내국법인으로부터 지급받는 소득으로서 구 소득세법(2014. 12.23. 법률 제12852호로 일부개정되기 전의 것, 이하 같다) 제16조 제1항에 규정하는 이자소득(국외에서 받는 예금의 이자 소득을 제외한다) 및 기타의 대금(貸金)의 이자와 신탁의 이익��에 해당하는 국내원천소득으로서 국내사업장과 실질적으로 관련되지 아니하거나 그 국내사업장에 귀속되지 아니하는 소득의 금액(국내사업장이없는 외국법인에 지급하는 금액을 포함한다)을 지급하는 자(…)는 제97조에도 불구하고 그 지급을 할 때에 그 지급액의 100분의 20을 당해 법인의 각 사업연도의 소득에 대한 법인세로서 원천징수하여 그 원천징수한 날이 속하는 달의 다음 달 10일까지 대통령령으로 정하는 바에 따라 납세지 관할 세무서등에 납부하여야 한다.

Each of the instant dispositions is premised on the assumption that the Plaintiff is liable to withhold part of the amount paid, as a person who pays domestic source income under the Corporate Tax Act to foreign vessel owners who are foreign corporations with no domestic place of business. On the other hand, first of all, whether the instant additional dues constitute income under Article 93 subparag. 10 (b) of the Corporate Tax

(ii) the facts of recognition

A) The main contents of each shipbuilding agreement between AB CD and UTimed (ar Nos. 1 and 2) are as follows:

1. In cases where AB CDs delay the delivery of a ship for more than 210 days other than those of war, insurrection, natural disaster, etc. under Article 8 of this Agreement, the UTSed may cancel this Agreement within 14 days after the expiration of the said period. When a court issues a clearing order or passes a resolution on the liquidation of AB CDs, a person in charge of the whole or any part of the assets of AB CDs, a person in a similar relationship with property protection is appointed, or a person dissolved or liquidated a AB CD, etc. shall be deemed the default of the obligation of AB CDs, and the UTPPed may cancel this Agreement immediately pursuant to Article 10.

2. When UTimed cancels this contract in accordance with the provisions of this contract allowing the rescission of this contract, AB CDs shall refund interest calculated at the rate of 8% per annum from the date of receipt to the date of refund for advance payment and interest on interest: Provided, That if the rescission of this contract is in accordance with the provisions of Article 8 (Act of God), an amount calculated at the rate of 4% per annum shall be paid.

3. When AB CD pays advance payment and additional dues on refund to UTLed, each party’s obligations and obligations under this Agreement shall be immediately exempted.

④ On the contrary, if UTimed fails to perform the obligation to pay the price, the delivery deadline of the ship shall be automatically extended for that period, and 8% interest per annum shall be paid to AB CD by the date on which the payment is actually made, and if the nonperformance continues for 20 days or more, AB CD shall have the right to cancel this contract and to hold the amount already received.

(5) English law shall govern the governing law of the contract.

B) The main contents of the shipbuilding agreement between EFGH and BITS Pty Ltd (S Nos. 3 through 5) are as follows.

(1) In cases where the EFGH fails to perform works related to the shipbuilding of a ship for seven (7) days, except for delay permitted by the ship, or where the delivery of the ship is delayed in excess of 300 (Article 39(a)), BITS Pty Ltd may rescind the shipbuilding contract (Article 39(a)), and where liquidation, workout, bankruptcy, suspension of payment, or similar procedures are commenced against the party or guarantor providing a refund guarantee, it shall be deemed impossible to pay. In such cases, the other party or guarantor shall have the right to rescind this contract immediately (Article 39(d)).

2. In the event that the BITS Pty Ltd cancels this contract, the EFGH shall pay the amount calculated at the annual interest rate of 8% for all and all the amounts paid by the BITS As Pty Ltd to EFGH and up to the date of payment.

(3) Where a contract is rescinded pursuant to Article 39, the parties shall not specify the reasons therefor and shall not have any legal obligation to the other party (Article 37 (e)) except as expressly provided for in the said paragraph.

④ On the contrary, in the event of the failure to perform the obligation to pay the payment, the delivery deadline is extended as much as the default period, and the interest rate of 8% per annum shall be paid to EFGH by the date of payment. If the default continues for at least 21 days, EFGH has the right to cancel this Agreement and to hold the amount already received.

(5) English law shall govern the governing law of the contract.

[Ground of recognition] Unsatisfy, Gap evidence Nos. 4 and 5 (including each number), the whole purport of the pleading

3) The legal nature of the instant additional dues on refund

In light of the following circumstances revealed in addition to the purport of the entire pleadings, additional dues on the instant refund paid by the Plaintiff following the exercise of the right of rescission by foreign vessel owners shall be deemed not to be restitution, but to be damages paid due to the termination of a contract on property rights.

① Each shipbuilding contract of this case clearly states that when a foreign vessel owner cancels a contract, the domestic shipbuilding owner is exempted from all of the obligations and responsibilities of both parties related to the shipbuilding contract if he/she refunds advance payment and additional dues on refund to a foreign vessel owner. Thus, a foreign vessel owner may not claim additional damages to the domestic shipbuilding owner in cases where he/she is refunded advance payment and additional dues on refund from a domestic shipbuilding owner or the Plaintiff. If the legal nature of the additional dues on refund of this case is deemed to be restitution, it would be very exceptional that the contracting party agreed not to claim damages already occurred or expected damages in addition to restitution.

② Each shipbuilding contract of this case provides for payment of additional dues in cases where the contract is terminated due to a cause attributable to domestic shipbuilding officers. The cancellation of each shipbuilding contract of this case is caused by a cause attributable to domestic shipbuilding officers. On the other hand, in cases where there are causes attributable to the foreign vessel owners, domestic shipbuilding officers are not obliged to pay additional dues, and rather foreign vessel owners are obliged to pay the corresponding amount of money according to the pertinent ratio, and in cases where a domestic shipbuilding owner cancels a contract due to a cause attributable to the nonperformance of a domestic shipbuilding company due to force majeure, there are clauses that exempt from additional dues or reduce additional dues. Accordingly, the additional dues of this case are paid within the meaning of compensating damages suffered by foreign vessel owners due to a cause attributable to domestic shipbuilding officers, so it cannot be viewed as return of unjust enrichment for restitution, regardless of the cause attributable to the domestic shipbuilding officers.

③ Interpretation of a juristic act is clearly confirming the objective meaning that the parties have granted to the act of indicating the juristic act. When the interpretation of the parties’ intent expressed in the contract document is at issue, it shall be reasonably interpreted in accordance with logical and empirical rules by comprehensively taking into account the contents of the language and text, motive and background of the agreement, the objective to be achieved by the agreement, the parties’ genuine intent, etc. (see, e.g., Supreme Court en banc Decision 2014Da225809, Jun. 22, 2017). In order to ensure predictability in disputes that may arise in the course of concluding the shipbuilding contract and to solve difficult difficulties in proving, it is necessary to specify the amount of compensation for damage in order to secure predictability in disputes that may arise in the course of signing the shipbuilding contract and to cancel the shipbuilding contract.

4) Whether the payment constitutes money paid in excess of the damages to the payment itself under the original terms of the contract

A) If a penalty or compensation received due to a breach or termination of a contract on property rights is merely a compensation for damages equivalent to the original payment or actual property damages, it shall not be deemed that it constitutes a new income or income. However, if a penalty or compensation has been paid in excess of this, it shall be subject to income tax as other income (see Supreme Court Decision 2002Du3942, Apr. 9, 2004). Such legal principle also applies to the interpretation of Article 93(10) of the former Corporate Tax Act and Article 132(10) of the former Enforcement Decree of the Corporate Tax Act and Article 132(10) of the Enforcement Decree of the Corporate Tax Act, or Article 132(10) of the Enforcement Decree of the Corporate Tax Act and Article 132(10) of the Enforcement Decree of the Corporate Tax Act. Therefore, it shall not be deemed that the “loss or loss occurred to the other party due to nonperformance of the contract, which goes beyond the “loss on the other party’s profit” as mentioned above.

B) The foreign vessel owners suffered positive damages in themselves, which were not returned to the domestic shipbuilding owner due to the cancellation of each shipbuilding contract of this case, and ② passive damages equivalent to interest accrued due to the failure to use the instant advance payment in other locations. The foreign vessel owners were compensated for the amount equivalent to the instant advance payment, which was not returned to the domestic shipbuilding owner, out of the damages incurred due to the cancellation of each shipbuilding contract of this case. Accordingly, the additional payment on refund of this case can be deemed to have been paid to the foreign vessel owners to compensate for the damages equivalent to the interest accrued due to the failure to use the instant advance payment paid to the domestic shipbuilding owner in other locations. Accordingly, the additional payment on refund of this case constitutes money received in excess of compensation for payment itself in excess of the original payment itself under Article 132(10) of the former Enforcement Decree of the Corporate Tax Act.

C) The Plaintiff asserts that a foreign vessel owner bears financial expenses by borrowing the amount of the instant advance payment from a financial institution, etc. for the payment of the instant advance payment to the domestic vessel owner, etc., and that in the process of concluding and implementing each shipbuilding contract, all of the financial expenses in addition to the above financial expenses have been disbursed, and that the interest rate for the instant additional payment is within reasonable scope, so the instant additional payment on refund is also deemed as the amount of damages paid to the foreign vessel owner in order to compensate for damages actually suffered by the foreign vessel owner. However, even if the foreign vessel owner paid financial expenses, such financial expenses cannot be deemed as included in the damages on the payment itself, which forms the content of each shipbuilding contract, regardless of whether the financial expenses fall under the necessary expenses. The Plaintiff’s above assertion is without merit.

5) Sub-committee

Therefore, the refund of this case constitutes other income stipulated in Article 93 subparag. 10 (b) of the former Corporate Tax Act, which constitutes a foreign corporation’s domestic source income, and this part of the Plaintiff’s assertion is without merit.

B. Whether the Plaintiff, a guarantor, bears withholding obligations

Article 98(1) of the former Corporate Tax Act provides that the withholding obligation for domestic source income shall be borne at the time of payment by the person who pays the income to a foreign corporation; in full view of the nature of the withholding tax system that enables convenient taxation and securing tax revenue by withholding at the time of payment from the source of income to the source of income; and the content and structure of other provisions related to withholding tax on domestic source income, “person who pays income under Article 98(1) of the same Act who is liable for withholding tax on domestic source income paid to a foreign corporation” means a person who actually pays the amount of domestic source income as his/her performance under a contract, etc. (see Supreme Court Decision 2006Du7904, Mar. 12, 2009).

The Plaintiff paid the instant additional dues to perform its obligations, not other than the other party’s obligations under the instant refund guarantee contract. Therefore, if the instant additional dues were paid to a foreign corporation, the Plaintiff is not a withholding agent solely on the ground that the cause of the instant additional dues were based on the guarantee contract. The Plaintiff’s assertion on this part is without merit.

C. Whether the beneficial owner of the refund of this case and the duty to withhold accordingly exists

1) Relevant regulations and legal principles

As seen earlier, pursuant to the main sentence of Article 98(1)3 of the former Corporate Tax Act, a person who pays a foreign corporation an amount of income not substantially related to the domestic place of business, or not attributed to the domestic place of business, as domestic source income, is liable to withhold and pay 20/100 of the amount of income paid as corporate tax on the income for each business year of the relevant corporation.

In order to impose corporate tax on the domestic source income of a foreign corporation, it is sufficient to prove that it is a foreign corporation, that is, a corporation that does not have its head office or principal office in the Republic of Korea, and furthermore, it is not necessary to determine the specific place of its principal office (see Supreme Court Decision 93Nu13162, Apr. 15, 1994). The burden of proof on the requirements for non-taxation and tax exemption lies on the part of the taxpayer (see Supreme Court Decision 98Du16095, Jul. 7, 200).

In this case, it is problematic whether a foreign vessel owner, with respect to the contracts Nos. 1 and 2 Nos. 1 and 1 and 2, whose nationality is the United Kingdoman Ireland, differs from the nominal attribution of the transaction, etc. and the substantial attribution subject, and if based on the actual attribution subject, it is not possible to impose tax on other income in Korea in accordance with the tax treaty between the Republic of Korea and the Republic of South Africa. The plaintiff, who made such a assertion, bears the responsibility to prove the fact that the foreign vessel owner was denied the legal personality of the foreign vessel owner or that the real vessel owner, who established it, actually has income

(ii)whether a foreign vessel owner denies legal personality in sequence 1 and 2 as described in Table 1;

In general, a special purpose company is to be established without human and physical capital by meeting the minimum requirements for capital investment in order to achieve a temporary purpose. Therefore, the mere fact that a special purpose company has minimum property to the extent required by the law of the place of establishment in order to achieve the establishment purpose, or that an employee of a special purpose company who has established concurrently operates or controls a special purpose company by holding an officer or employee of the special purpose company, does not necessarily violate the justice and equity as an abuse of corporate personality in violation of the principle of trust and good faith. In order to recognize abuse of corporate personality, it should be deemed that the special purpose company is used as a means to avoid the application of the law to the person behind the behind the corporate personality of the special purpose company without permission, or where the subjective intent or purpose of the company is recognized such as abusing the corporate system in order to achieve unlawful purposes such as evading obligations, avoiding contractual obligations, and evading laws (see Supreme Court Decision 2007Da85980, Feb. 25,

The Plaintiff asserts that the foreign vessel owners of each of the above shipbuilding contracts should be denied their legal personality because they were merely a nominal company established for convenience. However, in light of the above legal principles, it cannot be deemed that the foreign vessel owners were denied their legal personality merely because they were established for convenience, and there is no evidence to acknowledge that the foreign vessel owners were established by abusing their legal system as a means to avoid the application of laws against the hinterland. The Plaintiff’s assertion on this part is without merit.

(iii) Whether a tax treaty between the Republic of Korea and the South Africa applies with respect to the sequence 1 and 2 contracts;

In accordance with the principle of substantial taxation declared under Article 14(1) of the Framework Act on National Taxes, where there is a separate person who substantially controls and manages the taxable subject to taxation, such as income, profit, property, act, transaction, etc., unlike the nominal owner, the nominal owner for the type and appearance should be the person who actually controls and manages the relevant taxable subject to taxation, not the nominal owner for the purpose of taxation. Furthermore, the determination of such a case should be made by comprehensively taking into account various circumstances, including the circumstances leading up to the use of the name, the content of the agreement between the parties concerned, the degree and scope of the nominal owner’s involvement, the relationship between internal responsibility and calculation, and the location of independent management and disposition authority over the taxable subject to taxation (see, e.g., Supreme Court Decision 20

Such substance over form principle shall be applied as it is, unless there are special provisions excluding the interpretation and application of a tax treaty having the same effect as the law (see, e.g., Supreme Court en banc Decision 2008Du8499, Jan. 19, 2012).

According to the evidence Nos. 4-1, 2, and 9, the parties to the shipbuilding contract mentioned in the table 1, 1, and 2 are indicated in the column for contracting parties to the shipbuilding contract, the address and telephone number of the US (Pty) Dozd in the Republic of South Africa under the trade name of the foreign vessel owner UTSD., and Article 18 of the above contract provides that the address and telephone number of the Republic of South Africa shall be the address of the Republic of South Africa (Pty) and Article 18 of the above contract provides that all notifications related to the above contract shall be given to the address of the Republic of South Africa Africa, and ② The auditor of US US (Pty) Ltd is the 100% subsidiary of the US (Pty) Ltd and the UTimed is the 100% subsidiary of the V Indi.

However, the following circumstances are revealed by the statements in the evidence Nos. 4, 5, and 10 as follows: ① The parties to each shipbuilding contract as a party to each of the above shipbuilding contract are likely to readily conclude that there is no substance of the above company; it is also possible for US (Pty) Ltd to deal with the receipt and related business affairs as the representative; ② The request for the payment of the refund deposit for each of the above shipbuilding contract was made by the UTTimed or the position of the above ship; ③ the US (Pty) Ltd also appears to be the 100% subsidiary company according to the evidence No. 10, and the statement No. 9 alone is insufficient to acknowledge that there is no evidence to acknowledge that the above contract belongs to the South African Republic.

Therefore, the Plaintiff’s assertion that the Plaintiff’s withholding obligation on the instant additional dues is exempt under a tax treaty between the Republic of Korea and the South Africa, which is paid following the cancellation of the shipbuilding contract set forth in Nos. 1 and 2.

D. Sub-committee

Therefore, the plaintiff's assertion is without merit, and each of the dispositions of this case is legitimate.

5. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

Relevant statutes

/ former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010)

Article 73 (Withholding)

(1) When a person who pays any of the following amounts (including the amount of income of a corporation operating a financial or insurance business, but excluding the amount prescribed by Presidential Decree, which is paid to a financial or other entity prescribed by Presidential Decree, and the amount prescribed by Presidential Decree, such as income on which no corporate tax has been imposed or exempted) to a domestic corporation (hereafter in this Article, a withholding agent shall withhold corporate tax equivalent to the amount calculated by applying the tax rate of 14/100 (25/100 in cases of profits from a non-business loan under Article 16 (1) 11 of the Income Tax Act) to the amount paid, and pay it to the head

1. Interest income amount under Article 127 (1) 1 of the Income Tax Act;

2. Dividend income amount under Article 127 (1) 2 of the Income Tax Act (limited to the profits from investment trust under the Financial Investment Services and Capital Markets Act among the profits from collective investment schemes under Article 17 (1) 5 of the same Act);

Article 93 (Domestic Source Income)

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

1. Income under the following items, interest income under the provisions of Article 16 (1) of the Income Tax Act (excluding income under subparagraph 8 of the same paragraph), other interest on loans and profits from trust: Provided, That interest on loans borrowed directly by an overseas business place of a resident or domestic corporation, on behalf of such overseas business place, shall be excluded:

(a) Income received from the domestic place of business of the State, local governments, residents, domestic corporations or foreign corporations, or the domestic place of business of a nonresident under Article 120 of the Income Tax Act;

11. Income falling under any of the following items, other than those provided for in the provisions of subparagraphs 1 through 10:

(a) Insurance related to real estate in Korea and other assets, or to the business run in Korea;

Money, compensation or damages;

(b) Penalty or indemnity paid in Korea as prescribed in the Presidential Decree;

(j) Other than those referred to in items (a) through (i), economic profits from a business operated in Korea, personal services provided in Korea, or assets located in Korea (in cases where the amount received by returning foreign currency bonds issued by the State or financial companies established by special Acts exceeds the issued value of the foreign currency bonds, the difference shall not be included) or other similar incomes as prescribed by the Presidential Decree.

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

(1) Notwithstanding Article 97, a person (excluding residents and nonresidents who pay income under subparagraph 7 of Article 93) who pays a foreign corporation the amount of income (including the amount paid to a foreign corporation having no domestic place of business) that is not substantially related to the domestic place of business or does not belong to such domestic place of business, which is domestic source income under subparagraphs 1, 2, and 4 through 10 of Article 93, shall withhold any of the following amounts as corporate tax on income for each business year of the relevant corporation and pay it at the tax office having jurisdiction over the place of tax payment, etc. by the 10th of the month following the month in which the date of withholding falls, as prescribed by Presidential Decree: Provided, That income on which it may be taxed as domestic source business income under the tax treaty

3. Income provided for in subparagraphs 1, 2, 8 and 10 of Article 93: 20/100 of the amount paid: Provided, That in cases of interest income generated from bonds issued by the State, local governments and domestic corporations among income provided for in subparagraph 1 of Article 93, 14/100 of the amount paid;

(4) If a withholding agent fails to withhold corporate tax on income for each business year of a foreign corporation under paragraphs (1) and (5) through (12) or fails to pay the withheld amount by the deadline under paragraph (1), the head of the tax office having jurisdiction over the place for tax payment shall, without delay, collect the corporate tax by adding the amount under Article 47-5 (1) of the Framework Act on National Taxes to the amount collected by the withholding agent

(1) The former Corporate Tax Act (amended by Act No. 11607, Jan. 1, 2013)

Article 73 (Withholding)

(1) Where a person who pays any of the following amounts (including the amount of income of a corporation operating a financial or insurance business, but excluding the amount prescribed by Presidential Decree, which is paid to a financial company, etc. prescribed by Presidential Decree, and the amount of income for which no corporate tax is imposed or exempted, etc. and which is prescribed by Presidential Decree) to a domestic corporation (hereafter in this Article, a withholding agent shall withhold corporate tax equivalent to an amount calculated by applying the tax rate of 14/100 (25/100 in cases of profits from a non-business loan under Article 16 (1) 11 of the Income Tax Act) to the amount paid, and pay it

1. Interest income amount under Article 127 (1) 1 of the Income Tax Act;

2. Dividend income amount under Article 127 (1) 2 of the Income Tax Act [limited to the profits of an investment trust under the Financial Investment Services and Capital Markets Act (hereafter in paragraph (8), referred to as the "investment trust") among the profits from a collective investment scheme under Article 17 (1) 5 of the same Act];

Article 93 (Domestic Source Income)

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

1. The following income, which is interest income under Article 16 (1) of the Income Tax Act (excluding income under subparagraph 7 of the same paragraph), other interest on loans and profits from trust: Provided, That the same shall not apply to the interest on loans directly borrowed by the overseas place of business for the overseas place of business of a resident or domestic corporation:

(a) Income received from a domestic place of business of the State, local government, resident, domestic corporation or foreign corporation, or a domestic place of business of a nonresident under Article 120 of the Income Tax Act;

10. Income falling under any of the following items, other than those provided for in subparagraphs 1 through 9:

(a) Insurance proceeds, compensations, or damages received in connection with real estate in Korea and other assets, or business run in Korea;

(b) Penalty or indemnity paid in Korea as prescribed by Presidential Decree;

(j) Other than income under items (a) through (i), income generated from a business operated in Korea, a personal service provided in Korea, or an economic interest related to assets located in Korea (where the amount received by repaying foreign currency bonds issued by the State or a financial company established pursuant to special Acts exceeds the issued value of the foreign currency bonds, excluding the difference), or income prescribed by Presidential Decree similar thereto;

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

(1) Notwithstanding Article 97, a person (excluding residents and nonresidents who pay income under subparagraph 7 of Article 93) who pays a foreign corporation the amount of income (including the amount paid to a foreign corporation having no domestic place of business) that is not substantially related to the domestic place of business or does not belong to such domestic place of business, which is domestic source income under subparagraphs 1, 2, and 4 through 10 of Article 93, shall withhold any of the following amounts as corporate tax on income for each business year of the relevant corporation and pay it at the tax office having jurisdiction over the place of tax payment, etc. by the 10th of the month following the month in which the date of withholding falls, as prescribed by Presidential Decree: Provided, That income on which it may be taxed as domestic source business income under the tax treaty

3. Income under subparagraphs 1, 2, 8 and 10 of Article 93: 20/100 of the amount paid: Provided, That in cases of the interest income generated from bonds issued by the State, local governments and domestic corporations among the income under subparagraph 1 of Article 93, 14/100 of the amount paid;

(4) If a withholding agent fails to withhold corporate tax on income for each business year of a foreign corporation under paragraphs (1) and (5) through (12) or fails to pay the withheld amount by the deadline under paragraph (1), the head of the tax office having jurisdiction over the place for tax payment shall, without delay, collect the corporate tax by adding the amount under Article 47-5 (1) of the Framework Act on National Taxes to the amount collected by the withholding agent

(A) former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22577, Dec. 30, 2010)

Article 132 (Scope of Domestic Source Income)

(10) The term “income prescribed by the Presidential Decree” in subparagraph 11 (b) of Article 93 of the Act means the value of money or other goods paid or delivered in excess of compensation per se for payment under the original contract irrespective of its title or pretext among damages paid in penalty compensation for violation or cancellation of contracts on property rights.

【Enforcement Decree of the Corporate Tax Act

Article 132 (Scope of Domestic Source Income)

(10) The term "income prescribed by the Presidential Decree" in subparagraph 10 (b) of Article 93 of the Act means the value of money or other goods paid or delivered in excess of compensation per se for payment under the original contract irrespective of its title or pretext among damages paid in penalty compensation for violation of or termination of contracts on property rights.

(1) The former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014)

Article 16 (Interest Income)

(1) Interest income shall be the following income, generated in the relevant taxable period:

2. Interest and discount amount of bonds or securities issued by a domestic corporation;

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12. Income similar to those under subparagraphs 1 through 11, in the nature of the price following any use of money.

Article 21 (Other Incomes)

(1) Other income shall include interest income, dividend income, real estate rental income, business income, labor income, annuity income, retirement income, and capital gains as follows:

10. Overdue charge or indemnities caused by a breach or cancellation of a contract;

【Enforcement Decree of the Income Tax Act

Article 41 (Scope, etc. of Other Incomes)