[1] The meaning of Article 2 (1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 2010, Jan. 1, 2011) as the requirement that a person shall be deemed to have an address in Korea and the meaning of "family living together in Korea"

[2] The method of determining whether an individual is deemed a resident of any country, where the individual is deemed a resident of any foreign country under the Income Tax Act and is deemed a resident of any foreign country

[3] The meaning of “port-based residence” under Article 4(2)(a) of the Convention between the Republic of Korea and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, and where such permanent residence exists in both Contracting States, the meaning of “serious interest center” which is the following standard for determining the resident state of double resident under the said Convention

[4] The case holding that in case where Party A, a professional stable player, was a resident of Japan under the Convention between the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, since both Korea and Japan have a permanent residence in light of the overall circumstances, although Party A had a human and economic relationship more closely related to Party A, the case holding that Party A is a resident of Japan under the Convention between the Republic of Korea and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income

[1] Article 2(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26067, Feb. 3, 2015) provides that “a family living together in Korea” refers to a close relative who lives together with a living fund or a place of residence in Korea; and “when a resident is deemed to reside in Korea for at least one year in view of his/her occupation and property status” refers to cases closely related to a place of business in Korea, such as when the resident appears to maintain a work relationship or a work relationship to the extent that he/she needs to reside in Korea for at least one year in light of the purport that he/she becomes a person liable for income tax, or when he/she appears to have an asset management and disposal in Korea for at least one year.

[2] If a certain individual is both a domestic resident and a foreign resident under the Income Tax Act and thus falls under a person liable to pay income tax, etc. under the foreign law, it may be imposed twice on the same income. Therefore, in order to prevent such double resident, a tax treaty between countries is concluded and a separate provision is established. If a taxpayer is recognized as a dual resident, the determination of which country shall be deemed a resident of the overlapping country as prescribed

[3] Article 4(1) main text of the Convention between the Republic of Korea and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea-Japan Tax Treaty”) provides that “a resident of a Contracting State for the purposes of this Convention” shall mean a person liable to pay taxes in the Contracting State in accordance with the laws of that Contracting State in accordance with the address, residence, the location of the head office or principal office or any other standards of a similar nature.” In addition, Article 4(2) provides that “where an individual becomes a resident of any Contracting State under the provisions of paragraph (1) of this Article, his status shall be determined as follows.” (a) provides that “where he has a permanent residence available in both Contracting States, his personal and economic relationship shall be deemed a resident of the Contracting State which has a permanent residence available to him.” In addition, Article 4(2) provides that “Where he has a permanent residence, he shall be deemed a resident of the Contracting State which is more closely related to his personal and economic relationship.”

Here, permanent residence refers to all types of residence that can be continuously used at any time as a place of residence for purposes other than short-term stay, such as travel or business trip. As such, circumstances such as the ownership or lease of a residence do not need to be considered in determining the permanent residence. In the event such permanent residence exists in both Contracting States, whether the following criteria for determining the resident state of a double resident under the Korea-Japan Tax Treaty is the center of important interest, namely, where the Contracting States are more closely related to the individual’s personal and economic aspects in both Contracting States, and the degree of the relationship between the individual is greater when comprehensively considering the family relationship, social relationship, occupation, political and cultural activities, place of business, place of property management, etc.

[4] The case holding that in case where Gap, a professional stable player of Japan, made a final tax return on global income tax on the annual salary that Eul, while working in the axis operated by Eul corporation, and the tax authorities increased and notified comprehensive income tax, the case held that Gap had a permanent residence in Korea and Japan, but Gap concluded a contract with Eul for three years immediately after the high school's graduation and entered into the contract with Eul, and then Gap had been working as a professional stable player in Japan, and Eul continued to stay in Japan for the contract period, not for Gap's short-term stay but for Eul company's long-term stay, and Gap continued to use Gap and his family for a long-term period; the period of his stay in Korea is merely a temporary visit after Eul was selected as a representative of the country, and there is no other data to view that Gap had a social or economic relationship between Korea and Japan, and thus, the court below erred in the misapprehension of legal principles as to the above domestic income tax treaty between the Republic of Korea and Japan, and thus, it is unlawful.

[1] Articles 1-2(1) and 2(1)1 of the former Income Tax Act (Amended by Act No. 12852, Dec. 23, 2014); Articles 2(1) and 2(3)2 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 26067, Feb. 3, 2015); / [2] Article 1-2(1)1 of the former Income Tax Act (Amended by Act No. 12852, Dec. 23, 2014); Article 2(1) and (3) of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 26067, Feb. 3, 2015); Article 4(1) and (2) of the Convention between the Republic of Korea and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Income / [3] Article 2(1) and (2) of the former Enforcement Decree of the Income Tax Act between the Republic of Korea and Japan;

[1] Supreme Court Decision 2013Du16876 Decided November 27, 2014 (Gong2015Sang, 77) / [2] Supreme Court Decision 2006Du3964 Decided December 11, 2008 (Gong2009Sang, 38) Supreme Court Decision 2014Du13959 Decided February 26, 2015

Plaintiff (Law Firm Jin Law, Attorneys Kang Han-hun et al., Counsel for the plaintiff-appellant)

Head of Donggsan Tax Office

Busan High Court Decision 2018Nu21545 decided October 5, 2018

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

The grounds of appeal are examined.

1. Case summary and the judgment of the court below

A. Case summary

(1) The Plaintiff entered into a contract with the Japanese NT Sports Museum Co., Ltd. (hereinafter “instant company”) and worked as a professional stable player from 2012 to 2014 at the ○○○○○○○○○, operated by the instant company. The Plaintiff paid KRW 34,264,181, total amount of income on June 1, 2015, for the annual salary of KRW 614,579,841, total income of KRW 444,167,541, and foreign tax credit of KRW 120,839,936, while filing a final tax return on global income tax for global income in 2014.

(2) On December 1, 2016, the Defendant: (a) increased the amount of income to KRW 112,472,691 by means of estimation by simple expense rate; and (b) deducted KRW 34,264,181 which was already paid; and (c) corrected and notified the global income tax of KRW 78,208,510 for the year 2014.

(3) On August 24, 2017, the Defendant: (a) calculated the total final tax amount of KRW 78,700,306 by applying the respective tax amount of KRW 757,813,329; (b) income amount of KRW 622,543,649; and (c) foreign tax credit of KRW 152,778,48,486; and (b) corrected the amount to deduct the already paid tax amount of KRW 34,264,181 (hereinafter “instant disposition”).

B. The judgment of the court below

The Plaintiff may be a resident of both Korea and Japan under the Income Tax Act, and Japan only had a residence provided by the instant company during the contract period. However, the Republic of Korea had an apartment owned by the Plaintiff as the resident of the Plaintiff, and thus, determined to the effect that it should be deemed a resident of Korea who has a permanent residence pursuant to Article 4(2) of the Convention between the Republic of Korea and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea-Japan Tax Treaty”).

2. Regarding ground of appeal No. 1

Article 1-2(1)1 of the former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014; hereinafter the same) defines a resident as “an individual who has a domicile in the Republic of Korea or has a domicile in the Republic of Korea for not less than one year,” and Article 2(1)1 of the former Income Tax Act imposes an obligation to pay income tax on a resident. Article 2(1)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26067, Feb. 3, 2015; hereinafter the same shall apply) delegated by Article 1-2(2) of the former Income Tax Act provides that “The address under Article 1-2 of the Income Tax Act shall be determined based on the objective facts of his/her living relationship, such as the existence of a family living together in the Republic of Korea and of assets located in the Republic of Korea,” and Article 1-2(3) of the same Act provides that “when a person residing in the Republic of Korea falls under any of Korea falls under any of the following subparagraphs, he/she shall have a domicile in Korea.”

“A family living together in Korea” under Article 2(1) of the former Enforcement Decree of the Income Tax Act refers to a close relative who lives together with a living fund or a place of residence in Korea, and “when a resident is deemed to reside in Korea for at least one year in view of his/her occupation and property status” means cases closely related to a place of business, such as when he/she appears to have a workplace or work relationship to be maintained to the extent that he/she needs to reside in Korea for at least one year, or when he/she appears to have an asset management and disposal in Korea for at least one year (see Supreme Court Decision 2013Du16876, Nov. 27, 2014).

In the same purport, the lower court is justifiable to have determined that the Plaintiff constituted a resident under the former Income Tax Act in 2014, and contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on resident determination standards under

3. Regarding ground of appeal No. 2

A. (1) Inasmuch as an individual is both a domestic resident under the Income Tax Act and a foreign resident under the relevant foreign law, if the individual is deemed to be both a domestic resident and a foreign resident, a separate provision is established by concluding a tax treaty among countries to prevent such double taxation. If a taxpayer is deemed to be a dual resident, the determination shall be made as to which country’s resident is deemed to be a resident under the provisions of the tax treaty concluded with the relevant country (see, e.g., Supreme Court Decision 2014Du13959, Feb. 26, 2015).

(2) Accordingly, Article 4(1) main text of the Korea-Japan Tax Treaty provides that "a resident of a Contracting State" shall be construed as "a person liable for tax payment in the Contracting State in accordance with the laws of that Contracting State in accordance with its domicile, residence, location of its head office or principal office, or any other criteria of a similar nature." In addition, Article 4(2) provides that "where a person becomes a resident of any Contracting State in accordance with the provisions of paragraph (1) of this Article, his/her status shall be determined as follows." In subparagraph (a) provides that "where he/she has a permanent residence available to him/her in both Contracting States, he/she shall be construed as a resident of the Contracting State having a permanent residence available to him/her. Where he/she has a permanent residence available to him/her in each Contracting State, he/she shall be construed as a resident of the Contracting State having more close relation with his/her human and economic relations (referring to the center of a heavy interest, and further, in cases where he/she cannot determine his/her status in order under subparagraphs (b) and (a).

(3) The permanent residence here refers to any type of residence that can be continuously used at any time as a place of residence for purposes other than short-term stay, such as travel or business trip. As such, circumstances, such as the ownership or lease of a residence, are not to be considered in determining the permanent residence. In the event such permanent residence exists in both Contracting States, whether the following criteria for determining the resident state of a double resident under the Korea-Japan Tax Treaty is the center of the significant interest, namely, where the individual and the Contracting State are more closely related to the individual’s personal and economic aspects in both Contracting States, and, in full view of the family relationship, social relations, occupation, political and cultural activities, place of business, place of property management, etc., the degree of the relationship between the two Contracting States is greater.

B. Examining the following circumstances revealed by the reasoning of the lower judgment and the record, in light of the aforementioned legal doctrine, the Plaintiff has a permanent residence in both Korea and Japan, but the Contracting State more closely related to the Plaintiff, human and economic relations is not Korea but Japan, and thus, it is reasonable to regard the Plaintiff as a resident in Japan under the Korea-Japan Tax Treaty.

(1) Since 2007, the Plaintiff had been employed by Japan’s △△△△△△△, △△△△△△△△△, and △△△△△△, and had been working in a Japanese professional club. The instant company entered into a three-year contract with the pertinent company from 2012 to 2014, and had been working as a professional stable player in Japan’s ○○○○○○○○○○○○○○○○○.

(2) According to a contract with the Plaintiff, the instant company provided the Plaintiff and its families with the housing in Japan (hereinafter “instant Japanese housing”), passenger cars, parking lots, and other goods necessary for living in Japan for the said three-year period. From 2012 to 2014, the Plaintiff sent most of the hours to the Plaintiff’s family members in Japan at the time of his/her activities as a stable player in Japan, and stayed in the instant Japanese housing. Furthermore, the instant company provided the Plaintiff’s family members with a right to return to and from Japan. From 2012 to 2014, the Plaintiff’s father was less than 53 days and less than 112 days, and the mother was less than 90 days to live in the instant Japanese housing. As seen, the instant Japanese housing continued to be used by the Plaintiff and his/her family members for the long term of the contract period, not for the Plaintiff’s short-term stay, but for the Plaintiff’s company and its family members.

(3) According to a contract with the instant company, the Plaintiff must comply with the schedule of the club’s games, training, and camp, and when visiting Korea for the club national representative games, etc., the Plaintiff obtained permission from the instant club. From 2012 to 2014, the Plaintiff was paid annual salary of KRW 00 million from the instant company, and appears to have participated in events organized by the club and various public events, etc. held at the seat of the club under a contract. This also shows that the number of days during which the Plaintiff’s stay in Korea was on average 337 days, while the number of days during which the Plaintiff was staying in Korea was on average 28 days.

(4) From 2012 to 2014, the Plaintiff had been staying in Korea for 11 days in 2012, 34 days in 2013, and 39 days in 2014, and most of them were selected as a Gu National Representative and temporarily visited Korea. There is no evidence to deem that the Plaintiff had engaged in social activities or business activities in Korea. The Plaintiff’s domestic property is only a domestic apartment and deposit, etc., and the Plaintiff’s domestic property is deemed to have been sufficiently managed in Japan. The Plaintiff’s domestic source income, which is only a deposit interest, etc., is deemed to have been able to be sufficiently managed in Japan. The Plaintiff’s parents and water were living in the said apartment, but this is merely for supporting the family without any particular income.

C. Nevertheless, solely on the grounds indicated in its reasoning, the lower court determined that the instant disposition was lawful since the Plaintiff ought to be treated as a domestic resident in 2014 pursuant to the Korea-Japan Tax Treaty. In so doing, the lower court erred by misapprehending the legal doctrine on the criteria for determining residents under the Korea-Japan Tax Treaty, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on

4. Conclusion

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Jung-hwa (Presiding Justice)