Cho High Court Decision 201Do1803 ( November 09, 2011)

An investment holding company established by a limited German limited partnership company in the same country is an independent holder of rights and obligations under law.

In light of the fact that the German limited limited partnership company invests or lends funds to the Plaintiff in its name, that the investment holding company established by the German limited limited partnership company does legal act such as entering into an investment management contract and paying fees on the acquisition, etc. of the Plaintiff’s shares under its name, and that the taxpayer of corporate tax on the dividend income of this case under the German Corporate Tax Act is an investment holding company and directly re-invested part of the dividend income

2011Guhap40035 Revocation of Disposition of Corporate Tax Imposition

XX Limited Liability Company

XX Head of tax office

June 27, 2012

August 17, 2012

1. The Defendant’s disposition of collecting corporate tax withheld for the business year 2006, corporate tax withheld for the Plaintiff, corporate tax withheld for the business year 2006, corporate tax withheld for the business year 2007, corporate tax withheld for the business year 2000, corporate tax withheld for the business year 2000, corporate tax withheld for the business year 2008, corporate tax withheld for 000, corporate tax withheld for the business year 2008, corporate tax withheld for the business year 200

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

The same shall apply to the order.

1. Details of the disposition;

(a) Investment structure, etc.;

“(1) The GATT 1 GG & Co., Ltd. (hereinafter referred to as “GG Gun”) is a limited partnership established under the German Commercial Code. From May 2003 to October 2009, Japan, China, India, Singapore, Malaysia, Hong Kong, Thailand, and other Asian countries have 34 German limited companies and 24 local subsidiaries for each investment case, including holding real estate through established investment holding companies, and the final investors have 00 % of its assets as of December 31, 2010, including Germany, Luxembourg, Luxembourg, Austria 200, and AO 200, and 00, 000, 200, 200, 200, 200, 200, 200, 200, 20, 200, 20, 20, 20, 20, 20, 20, 20, 20, 20, 00.

(4) XX Gun was approved by the Investment Committee on March 2003, and decided to acquire O buildings in Gangnam-gu Seoul Metropolitan Government 000-0 O buildings (hereinafter referred to as “O buildings”). Accordingly, the Plaintiff purchased O buildings from S real estate trust companies on April 18, 2003, and completed the registration of ownership transfer on May 16, 2003. XXO paid KRW 00 of the incidental cost for the acquisition of O buildings on behalf of the Plaintiff.

(5) Around April 2008, GATT 2008, the Plaintiff decided to sell O buildings with the approval of the Investment Committee. Accordingly, on July 1, 2008, the Plaintiff sold O buildings to Han Bank Co., Ltd. and completed the registration of ownership transfer on July 31, 2008.

B. The flow of the instant dividend income, details of tax payment, etc.

(1) From 2006 to 2008, the Plaintiff distributed the total amount of KRW 000,000 (hereinafter “instant dividend income”) of the income from the lease of O building and the transfer of profit, etc. to XXO as listed in the following table. The instant dividend income was directly re-investmented in Japanese “MM Btiling.” The Plaintiff applied the limited tax rate of 5% (including resident tax rates) of the Agreement between the Republic of Korea and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital between the Republic of Korea and the Federal Republic of Germany, and paid KRW 00,000 as listed in the following table.

(The following table omitted):

(2) XXO was imposed a corporate tax of 000 % for the business year of 2008 with respect to the instant dividend income, etc. by the German tax authority. The XXO made a resolution of dividend at a general meeting of shareholders and paid a total of 000 % of the dividends to the meeting of shareholders. The German tax authority withheld and reported a total of 000 % of the capital gains tax to the German tax authority.

(3) GATT 23, 2008: (a) the payment of investment and profit-making profit was made to the end investors on December 23, 2008; (b) the human resources company is not subject to corporate tax under the German Corporate Tax Act; and (c) the income from the Gun is reverted to investors and directly taxed. However, inasmuch as the human resources company is also liable to pay business tax under the German Business Tax Act, the Gun was imposed by the German tax authority on the aggregate of the business years from 2005 to 2007.

C. Disposition of this case and the procedure of the previous trial

(1) On March 2, 2011, the Defendant, on the ground that “the beneficial owner of the instant dividend income was a beneficial owner of the instant dividend income, and established XXO for the purpose of obtaining the limited tax rate under the Korea- Germany Tax Treaty,” took each disposition of collection, such as the written intent, by excluding the application of the limited tax rate under the Korea- Germany Tax Treaty and by applying 25% of the Corporate Tax Act (hereinafter “instant disposition”).

(2) On April 29, 2011, the Plaintiff filed an appeal seeking the revocation of the instant disposition, but was dismissed by the Tax Tribunal on November 9, 201.

[Ground of recognition] Evidence Nos. 1 through 24, Evidence Nos. 26 through 33, Evidence No. 1 (including paper numbers), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) Plaintiff

(A) Since the beneficial owner of the instant dividend income in XXO 01, 5% of the limited tax rate under the Korea- Germany Tax Treaty ought to be applied. Although the domestic tax law treats the domestic specific purpose company as the nominal owner of income under the Korea- Germany Tax Treaty, if the XXO denies the beneficial owner on the ground that it is merely a type-based company, it violates the principle of non-discrimination under the Korea- Germany Tax Treaty.

(B) Considering the fact that: (a) the beneficiary of the instant dividend income may be a taxable entity under the domestic tax law; (b) is a “corporation subject to the application of the Korea- Germany Tax Treaty; and (c) the payment of the business tax in Germany with respect to the instant dividend income was made in Germany; and (d) is a resident subject to the Korea- Germany Tax Treaty; and (e) can be deemed as holding 10% of the Plaintiff’s issued stocks directly, the limited tax rate of 5% ought to be applied.

(C) If the beneficial owner of the instant dividend income, even if the investors in XX Gun are the beneficial owner of the instant dividend income, the limited tax rate of 15% should be applied to the Korea-Luxembourg Tax Treaty and the Convention between the Government of the Republic of Korea and the Government of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital (hereinafter “Luxembourg Tax Treaty”).

(2) Defendant

(A) Taking into account the following: (a) the GATT Gun is not the beneficial owner of the instant dividend income; (b) is not a resident under the German tax law; (c) is not a corporation or person subject to the Korea- Germany Tax Treaty; (d) the Plaintiff did not directly hold the Plaintiff’s issued stocks; and (e) establishing XXO to benefit from the limited tax rate under the Korea- Germany Tax Treaty and taking an indirect investment transaction structure for the Plaintiff, 25% of the Corporate Tax Act, rather than the limited tax rate under the Korea- Germany Tax Treaty, should be applied.

(B) Even if the beneficial owner of the instant dividend income is a nominal owner, in light of the fact that: (a) a nominal company only established an office in Germany only formally; (b) a resident is not a resident subject to the Korea- Germany Tax Treaty; and (c) a transaction structure that establishes XXO and makes indirect investments to the Plaintiff in order to benefit from the limited tax rate under the Korea- Germany Tax Treaty, the Corporate Tax Act ought to apply 25%.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) As to beneficial owners

(A) Definition

Since the limited tax rates are applied on the basis of "beneficial owners" in Article 10 of the Korea-Japan Tax Treaty, they should be regarded as beneficial owners in order to apply the limited tax rates.However, since the concept of "beneficial owners" is not defined in the Korea-Japan Tax Treaty or the domestic tax law, it is inevitable to discuss which conditions are met.

The concept of "beneficial owner" is derived from the Trust Act of the United Kingdom. Under the English Trust Act, a beneficiary has a legal right to enjoy profits from trust property although he/she does not have external ownership of trust property. Such concept of beneficial owner is extended to a person who has the right to enjoy the negligence of trust property or dispose of such negligence for his/her own interest, as it was introduced under the English tax law in order to realize taxation consistent with its substance. Such concept of "beneficial owner" is not a person who has the right to acquire, modify and extinguish the right to dispose of the income that is derived from the concept compared to the formal owner of the Convention, but is not a person who actually bears the risk related thereto, i.e., an economic owner whose income belongs to, the concept of "beneficial owner" in Article 10 of the OECD Convention, but is not a person who has the right to obtain, amend and extinguish the concept of "beneficial tax treaty" and Article 101 of the OECD Convention, and thus, the concept of "beneficial owner" should be interpreted as a "beneficial owner" in Article 10 of the OECD Convention.2.

(B) Determination criteria

The OECD Model Tax Treaty provides for the prevention of abuse of the treaty at the time of the amendment of the OECD Model Tax Treaty (1921). ① The State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the State of the United Nations.

(C) A beneficial owner of the instant dividend income

1) The XX Gun owns 100% of the shares of XXO, its location, contact details, and the same human composition of directors, etc., and the head of XXO is a special purpose company established by XXF Gun. In determining who is a beneficial owner among XX O, the instant dividend income via XXO ought to be determined whether the instant dividend income falls under “a treaty abuse” (tty hopping).

2) ① The legal status of the Luxembourg, which is legally established under the tax treaty of the Republic of Korea and its limited liability company; and, in light of the fact that the Plaintiff’s corporate tax liability company and its head office were either invested or loaned under its own name; the taxpayer of the instant dividend income under the German Corporate Tax Act directly re-investment in part of the instant dividend income; and (2) the subject of dividend payment can not exercise the right to claim dividends against the Plaintiff; and (3) the method of payment of dividends; and (4) the Plaintiff’s establishment of a specific investment-related company and its head office for the same purpose as that of its investment-related company under the Korea-UF Tax Treaty, which is not subject to the Korea-UF Tax Treaty; and (5) the establishment of a specific investment-related company under the Korea-UF-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U-U.

3) Examining the above circumstances in applying the criteria set out in the note of the OECD Model Tax Treaty, there may be room to exclude benefits from the limited tax rate pursuant to the Exclusion Act or the Access Act of Germany, on the ground that 95% of the dividend income received from the Plaintiff is not added to the gross income under the German Corporate Tax Act. However, it is difficult to consider the fact that: (a) there is an economic reason to ensure the flexibility of the disposal of financial and investment assets; (b) prevent investors from being exposed to information; and (c) protect investors; and (d) make it difficult to view that the main purpose of the establishment of XXO is to apply the limited tax rate pursuant to Article 10(2) of the Korea-Pacific Tax Treaty; and (d) make it difficult to view that it is a bona fide owner to receive benefits from the Convention, i.e., a bona fide owner., to receive benefits from the Convention.

(2) As to residents:

(A) The need to determine

XXO's beneficial owner of the dividend income of this case is not "the person who is a German resident", even if they are the beneficial owner of the dividend income of this case, even if they are not "the person who is a German resident", XXO is not subject to the limited tax rate under the Korea- Germany Tax Treaty, so it should be determined whether they are "the person who is a German

(B) The identity of the person;

Article 3 (1) (d) and (e) of the Korea-Japan Tax Treaty classifys "person as an independent taxable unit" into individuals and corporations. Article 3 (1) (e) of the same Treaty provides that "a corporation is treated as a body corporate for tax purposes or an entity which is treated as a body corporate for tax purposes". However, Article 3 (2) of the Korea- Germany Tax Treaty provides that "where there is no definition provision, it shall be interpreted within the meaning prescribed by the domestic tax law unless the context otherwise prescribed by the treaty". Thus, in accordance with the domestic tax law, it is necessary to determine the existence of a foreign corporation xO in accordance with the domestic tax law. However, as to whether a foreign organization can be seen as a foreign corporation, the specific requirements of foreign corporation under the Corporate Tax Act can be determined independently from members of the organization under the Korean law in light of the contents and substance of the country's law established, and thus, it can be determined independently from the German limited liability company (see Supreme Court Decision 2010Du5950, Jan. 27, 2012).

(C) A person who is a resident;

한독 조세조약 제4조 제1항은 "이 협정의 목적상 '일방체약국의 거주자'라 함은 주소, 거소, 본점이나 주사무소의 소재지 또는 이와 유사한 성질의 다른 기준에 의하여 그 국가의 법에 따라 그 국가 안에서 납세의무가 있는 인을 말한다"고 규정한 점, 독일 유한회사법의 유한회사는 법인세 및 영업세 납세의무가 있는 점(독일 법인세법 제1조 제1항 제1호, 영업세법 제5조 제1항) 등을 고려할 때, XX OO은 독일 법에 따라 독일에서 납세의무가 있는 점, XX OO은 독일 바이에른주 뭔헨시에 영업소를 두고 독립적으로 투자활동을 영위한 점, 독일 과세당국은 2011. 11. 11. XX OO에게 "원고가 지급하는 배당소득과 관련하여 2006. 1. 1.부터 2009. 12. 31.까지 한독 조세조약의 독일 거주자이다"는 증명서를 발급한 점(갑 제5호증) 등을 고려할 때, XX OO은 한독 조세조약의 적용대상인 거주자에 해당한다.

(3) As to Article 27(2) of the Korea- Germany Tax Treaty

Article 27 (2) of the Korea-U.S. Tax Treaty provides that "the use of dividends, interest, usage fees, and other income by creation or grant of rights to the creation or grant of shares or other rights to the payment of dividends, or to the creation or grant of rights to the payment of interest, or to the payment of other income, shall not be applied in cases where it is the principal purpose of the interested person, without any appropriate economic reasons for the management of the relevant business." However, it is reasonable to view that the xa is established and the act of investing in the Plaintiff through such creation or grant of rights to the creation or grant of rights to the payment of dividends or other rights, or to the creation or grant of rights to the payment of other income." Thus, the application of limited tax rates under the above provision shall not be excluded.

(4) Sub-determination

XXO is a corporation that is a resident of Germany, and is the beneficial owner of the instant dividend income, and is directly holding 100% of the Plaintiff’s issued stocks. Therefore, the requirements for applying the limited tax rate of 5% under the Korea- Germany Tax Treaty have been satisfied. Accordingly, the instant disposition, unlike this premise, is unlawful.

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is decided as per Disposition.