Cho Jae-2015-west-4528 (24 December 2016)

The Act on the Measures for Tax Inducement in the Korea-China Tax Treaty refers to the Chinese domestic law provision, and it does not constitute a part exceeding the scope of limited tax rates.

The law related to the measures to attract tax in the Korea-China Tax Treaty refers to the Chinese domestic law provision and does not fall under the scope of the limited tax rate. In addition, the differential limited tax rate provision itself means that the source country only concludes a tax treaty with the condition that it will accept the restriction of the right to impose tax, and there is no reason to provide the benefit to the corporation invested in the source country along with the foreign tax credit provision.

Article 57 (Foreign Tax Credit)

2016Guhap63491 Revocation of Disposition of Corporate Tax Imposition

HHHH Co.

DD Head of the tax office

October 19, 2016

November 11, 2016

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 000 of corporate tax for the business year 2011 against the Plaintiff on May 18, 2015 is revoked.

1. Details of the disposition;

A. On July 1, 199, the Plaintiff is a divided company established by physical division of the petroleum chemical processing business sector from HCC Co., Ltd., and is engaged in the production and sale of petroleum chemical processing products as its main business.

B. The Plaintiff invested 100% of the shares in the People's Republic of China (hereinafter referred to as "China"), thereby establishing the HH Sejong Limited Corporation (hereinafter referred to as "China"), in 2003, HH Sejong (Bodily Injury Corporation (hereinafter referred to as "Bodily Injury Corporation"), and in 2005, 'the subsidiaries of this case' in combination with the above North Korean Racing Corporation.

C. In the year 2011, the Plaintiff reported corporate tax to the Defendant by applying foreign tax credit to the dividends received from the instant subsidiaries (hereinafter “instant dividends”).

(unit: won)

Projects

Year

Distribution

A corporation

Distribution

Date of Resolution

Distribution Amount

(Inteanization, A)

Exchange Rate

(B)

Direct Foreign Tax Amount

(C =A x B 5%)

deemed a foreign country

Tax amount payable

2011

North Korean Racing Corporation

November 1

Ple 000

181.83

Won 000

-

Injury Corporation

Ple 000

181.51

Won 000

Total

-

Ple 000

-

Won 000

D. On January 21, 2015, the Plaintiff filed a claim on January 21, 2015 to rectify the tax amount by deducting a total of KRW 000,000,000,000,000,000, which is deemed as a foreign tax amount, from the surplus accrued after January 1, 2008, on the ground that the amount of foreign tax would increase when applying 5% of the deemed foreign tax credit

E. On March 24, 2015, the Defendant accepted the Plaintiff’s claim and paid a total of KRW 000 won to the Plaintiff. However, on May 18, 2015, the Defendant decided and notified the Plaintiff of KRW 000 of the corporate tax on the ground that, under the Agreement between the Government of the Republic of Korea and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea-China Tax Treaty”), 5% limited tax rates are not applied to the dividend income paid with earned surplus after 2008 (hereinafter “instant disposition”).

F. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on August 11, 2015, but was dismissed on February 24, 2016.

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 to 11, purport of the whole pleadings

2. Related Acts and subordinate statutes and treaties;

Attached Acts and subordinate statutes and treaties shall be as the same.

3. Whether the instant disposition is lawful

A. As to whether foreign tax credit is deemed foreign tax credit

1) The plaintiff's assertion

Article 3 and Article 4 of the Income Tax Act of the People's Republic of China (hereinafter "China Corporate Income Tax Act") amended on January 1, 2008 provide that the Plaintiff shall impose income tax at a 20% rate on the income acquired in the Chinese airspace. Article 27 of the Chinese Corporate Income Tax Act located below Chapter IV (Tax Benefits) may be exempted or reduced. Article 91 of the Chinese Corporate Income Tax Act provides that the tax rate shall be 10%. Accordingly, Article 27 of the Chinese Corporate Income Tax Act and Article 91 of the Enforcement Ordinance of the Chinese Corporate Income Tax Act provide that "Article 27 of the Chinese Corporate Income Tax Act and Article 91 of the Enforcement Ordinance of the People's Republic of China shall be included in the tax credit for 10% of the amount of tax to be reduced or exempted under the first sentence of Article 5 (1) of the Protocol for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Income between the Republic of Korea and the People's Republic of China (hereinafter "the second Protocol").

The tax amount equivalent to 5% remaining after deducting the tax amount equivalent to 5% of the limited tax rate stipulated in Article 10 (2) (a) of the Korea-China Tax Treaty paid to the country shall be deducted as the foreign tax amount.

B) Even if the main sentence of Article 10(2) of the instant Tax Treaty cannot be applied, it is merely a provision that confirms the concept of general foreign tax credit. The latter part of Article 10(2) of the instant Tax Treaty, in itself, is deemed to have paid the dividend tax of 10% in China for the purpose of foreign tax credit, regardless of the existence or absence of the provisions on tax credit. The latter part of the said Article does not premised on the provisions on tax credit. As such, the tax amount paid in China, regardless of the limited tax rate stipulated in Article 10(2)(a) of the Korea-China Tax Treaty, shall be deemed to be 10%. Accordingly, the latter part of the instant provision, which is directly subject to foreign tax credit from 10% as prescribed in the latter part of Article 10(2) of the Korea-China Tax Treaty, should be deemed to have been deducted from the amount of tax paid in China by 5% remaining after deducting the amount of tax under the limited tax rate stipulated in

2) Determination

(A) Article 57(3) of the Corporate Tax Act provides that "the amount equivalent to the tax amount reduced or exempted by a domestic corporation which has income from a foreign source shall be deemed the amount of foreign corporate tax subject to the tax credit or inclusion in deductible expenses pursuant to paragraph (1) within the scope prescribed by the relevant tax treaty." Article 2(1) of the Protocol substituting Article 23(1) of the Korea-China Tax Treaty shall be avoided as follows. With respect to taxes paid in countries other than Korea, double taxation shall be avoided. Subject to the provisions of the Korea-China Tax Act on the permission of the tax credit from Korean tax on income in China (’s tax), Chinese tax which would have been paid in accordance with the Chinese law and agreement shall be allowed from the Korean tax which would have been paid for that income. However, the amount of such tax credit shall not exceed 10% of the total amount of income of Korea which would be subject to the tax credit, and Article 2(2) of the Protocol provides that "the amount of dividends paid in China shall not exceed 20% of the total amount of dividends paid in Korea-China tax treaty."

B) In full view of the circumstances described in paragraphs (1) and (2) above and the contents, purport, and history of the relevant laws and regulations of the Korea-China Tax Treaty, etc., it is reasonable to view that the amount of the dividend of this case does not apply to the corporate tax amount of 5% remaining excluding 5% of the limited tax rate already paid by the Plaintiff to China from 10% as stipulated in the latter part of the provisions of this case and the remaining 5% of the limited tax rate already paid by the Plaintiff to China.

(1) Whether the main sentence of the instant provision is applied

In light of the following points, there is no tax considered by the first sentence of the instant provision with respect to the dividend income of this case.

① Article 4(1)(a) of the Protocol provides that, in the case of a Korean resident, a Korean resident shall be subject to the provisions of Korean tax law on the permission of tax credit from Korean tax to Korean tax. The provisions of foreign tax credit under the Korea-China Tax Treaty and the Protocol are effective only within the scope of the provisions of the Corporate Tax Act. However, Article 57(3) of the Corporate Tax Act provides that "the amount of foreign tax to be considered as subject to tax credit shall be determined as the amount of foreign tax reduced or exempted from corporate tax on the relevant foreign source income in the country of the other country of the tax treaty" and "to the extent prescribed by the relevant tax treaty" shall be eligible for tax credit. In other words, the amount of foreign tax to be considered as subject to tax credit shall be the amount of foreign tax reduced or exempted from the other country of the tax treaty.

② Article 4(1)(a) of the Protocol provides that the Chinese tax payable by a Korean resident in accordance with the Chinese law and agreement on income derived from sources in China may be deducted from Korean tax. The main sentence of Article 4(1)(a) of the Act provides that the tax paid by a Contracting Party referred to in paragraph (1)(a) of the same Article shall be deemed to include the tax that would have had been paid if there had been no "the other tax reduction, exemption, or other tax inducement regulations for the promotion of economic development" (hereinafter referred to as "the other tax inducement regulations"). The main sentence of Article 4(1) of the Act provides that the tax of this case shall be deemed to have been paid if there was no "the other tax inducement regulations for the reduction, exemption, or other tax inducement regulations for the promotion of economic development" (hereinafter referred to as "the other provisions of the Act on the Measures for Tax Inducement.

(3) In light of the general purpose of the foreign tax credit system which provides that the tax amount reduced or exempted by one Contracting Party’s domestic reduction or exemption measures shall be deemed to have been paid to that country, it is reasonable to deem that the provisions of the former part of the tax incentive measures in this case refer to the domestic legal provisions prescribed by the Contracting Party as the tax incentive measures to attract foreign capital. In other words, the scope of each country’s taxation authority is limited pursuant to the tax treaty, and the provisions of the tax incentive measures refer to the active measures taken by either Contracting Party to attract foreign capital by voluntarily reducing the scope of the taxation authority. Accordingly, the relevant provisions of the tax incentive measures in this case refer to the Chinese domestic legal provisions as the tax incentive measures by one Contracting Party, the scope of the limited tax rate from the beginning, i.e., the provisions of the Chinese tax reduction or exemption for part

④ In full view of Article 4(1)(a) of the Protocol and the main sentence of Article 2(1) of the instant provision, the purport of the former part of the instant provision is that if there was no relevant legal provision regarding the measures for attracting Chinese taxes paid in accordance with the Chinese law and agreement, it would be deemed that there would be taxes payable. Article 27 of the Chinese Corporate Income Tax Act and Article 91 of the said Enforcement Ordinance provide that Article 27 of the said Act shall reduce the tax rate of 20% to 10% to non-residents. However, even without the above provision, China’s tax paid in accordance with the Chinese law and agreement is 5% to China according to the limited tax rate under Article 10(2)(a) of the Korea-China Tax Treaty, there is no tax to be considered as

(2) Whether the latter part of the instant provision is applied

In light of the following points, since the latter part of the instant provision is based on the premise that there exists a legal provision related to the measures for tax incentives, it is reasonable to deem that the latter part of the instant provision does not apply unless there is a reduced or exempted tax amount subject to tax credits under the former part of the instant provision in this case, and otherwise, it is difficult to regard the latter part as a separate individual tax rate provision from a medical specialist.

① 이 사건 조항의 후문은 이 사건 조항의 전문과 함께 같은 항에서 규정되어 있고, 연결어로 '이 항의 목적상(For the purpose of this paragraph)'이라는 문언을 두고 있다. 이러한 조항의 규정 내용 및 체계에 비추어 보면, 전문과 후문을 서로 관련이 없는 별개의 규정으로 보는 것은 부자연스럽고, 후문에 따른 간주 세율은 전문과 동일한 목적으로만 한정적으로 적용되어야 한다고 해석함이 타당하다. 즉, 전문에 따라 중국 국내법상 조세감면규정이 존재하고, 그러한 중국 국내법에 의하여 세액감면이 실제 이루어지는 경우, 외국납부가 간주되는 세액의 범위와 관련하여 그 세액의 세율 자체를 간주하는 규정을 둔 것으로 해석할 수 있고, 체약상대국이 국내 조세를 과다하게 감면하여 줌으로써 간주외국납부세액공제 규정이 남용되는 상황 또는 체약상대국에서 조세유인조치에 따라 감면된 정확한 세금 액수의 산정이 곤란한 상황 등을 막기 위하여 그러한 규율의 필요성도 인정된다.

② The language and content of the provisions of the tax treaty regarding deemed tax credit in each country are not identical to the examples of the OECD Model Tax Treaty, and are diverse provisions in accordance with the tax treaty. Accordingly, the instant provisions ought to be individually interpreted in accordance with their language and text, and the same interpretation does not necessarily mean that there are similar provisions in the OECD Model Tax Treaty or the tax treaty provisions with other countries.

"The Convention between the Government of the Republic of Korea and the Government of the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (hereinafter referred to as the "Korea-Turkey Tax Treaty") provides that limited tax rates of 10% and 25% shall be set in relation to dividend income (Article 10), and that for the purpose of tax credit under paragraph (1) of this Article, in the case of dividends, taxes of the Philippines shall be deemed to have been paid at 20% and 10% (Article 23 (3)." In the Korea-Turkey Tax Treaty, "the purpose of tax credit under paragraph (1) of this Article is similar to the latter part of the provisions of this case," but "this provision is not the same as the former part of the provisions of this case, but shall not be deemed to be the same as the latter part of the provisions of the said Tax Treaty, and it shall be interpreted that the provisions of this case are different from the latter part of the provisions of the said Tax Treaty to be the latter part of the said Treaty.

③ Article 10(2) of the Korea-China Tax Treaty discriminates between 5% of the total amount of dividends and 10% of the total amount of dividends in all other cases, where a beneficial owner directly owns 25% or more of the equity capital of a company paying dividends. The purpose of such a limited tax rate is to prevent double taxation and distribute the right to taxation between the two countries, as well as the resident state of the dividend income under the tax treaty is to prevent double taxation.

As such, the limited tax rate is the result of the mutual agreement between the two countries, it can be deemed that the active tax incentive measure and purpose are the same to unilaterally change the limited tax rate to promote its economic development.

section 20.

Furthermore, there is an aspect of promoting international investment between the two countries by stipulating a differential lower tax rate on the business income of a corporation located in a source country. However, this is merely an effect that would be achieved indirectly and indirectly by relaxing double taxation, which is conducted on the dividend income of a corporation located in the source country and the dividend income of its shareholders, after the source country was imposed, after the source country was imposed tax, and the international investment which is promoted includes both the two Contracting Parties. Ultimately, the provisions of differential tax rate are concluded with the purport that the source country (the Contracting State) who enjoys the benefits of investment is subject to more restrictive restriction in relation to the country of residence. In addition, the provisions of differential tax rate are stipulated together with the provisions of foreign tax credit deemed to grant the benefits of taxation to the source country, and the provisions of differential tax rate are not logical and inevitable to include the contents of restricting the right of taxation in the treaty (in 2006, China and China concluded the provisional tax rate under Article 2 of the Protocol, and thus, the provisions of the tax treaty are not extended for 10 days to 214 days thereafter.

Therefore, just because the purpose of promoting international investment under the differential limited tax rate is to promote international investment, the tax rate of 10% under the latter part of the instant provision shall not be deemed as the deemed tax rate.

④ As in the instant case, the latter part of the instant provision applies in cases where only 5% of the tax was paid in the source countries with the differential limited tax rate as seen earlier. While the limited tax rate is 10%, both countries pay 100% of the tax in the case of the former, while in the case of the former, only 95% of the tax in the two countries should be paid. Such inequality of taxation should be strictly recognized in accordance with the relevant provisions of the Corporate Tax Act and the Korea-China Tax Treaty. However, in light of the language, structure, purport, etc. of the aforementioned provisions, even in cases where the tax was paid upon the application of the limited tax rate, the latter part of the instant provisions are deemed to exist, and the latter part of the instant provisions are deemed to be 10% of the tax amount, or it is difficult to deem that the latter part of the instant provisions, regardless of the main sentence of the instant provision, clearly stipulate that the tax amount deemed to have been paid in China, is 10% of the tax amount.

⑤ The Plaintiff asserted that, before January 1, 2008, even if the Plaintiff did not pay the tax to China, it would be subject to a foreign-capital invested tax credit of 10% in Korea, while it would be subject to unreasonable discrimination because it would not receive the benefits of foreign-capital invested tax credit in Korea even though it paid the tax of 5% after January 1, 2008. However, this is only an issue that arises because China revised its policy to pay 10% of the total amount of the tax on the dividend income of foreign-capital invested companies as of January 1, 2008. Furthermore, it is difficult to readily conclude that the Korean government could have abolished the foreign-capital invested companies on July 1, 2008 on the sole ground that China’s economy developed on July 4, 2006 under the Second Protocol.

C) Therefore, the Plaintiff’s assertion that foreign tax credit for the additional 5% tax rate under the instant provision should be granted in addition to foreign tax credit directly cannot be accepted.

B. As to the violation of the principle of protection of trust

1) The plaintiff's assertion

The National Tax Service, through the book "Tax Guidance for Enterprises entering China" in 2008, expressed the public opinion that when a domestic corporation receives dividends from a Chinese subsidiary on or after January 1, 2008, the domestic corporation can apply foreign tax credit if it receives dividends from earned surplus funds. On August 23, 2011, the National Tax Service’s authoritative interpretation explicitly expressed that it constitutes foreign tax credit in cases where the amount of tax has been reduced or exempted in accordance with Article 27 of the Income Tax Act and Article 91 of the Enforcement Ordinance of the same Act, the disposition rejecting the Plaintiff’s request for correction, unlike the above public opinion, is in violation of the principle of trust protection.

2) Determination

A) The tax authority’s name of the public opinion that is the subject of taxpayer’s trust, and the taxpayer’s name of the opinion that is the subject of taxpayer’s trust is not a cause attributable to the taxpayer, and the taxpayer committed an act that is trusted and what is the subject of taxpayer’s interest. In a case where the tax authority’s disposition contrary to the opinion list results in a violation of taxpayer’s interest, the principle of trust protection may be applied to the tax authority’s act (see, e.g., Supreme Court Decision 2003Du7620, Apr. 27, 2006)

B) In addition to the statements in Gap evidence Nos. 12, 13, and 15, the purport of the entire pleadings is as follows: (a) the Korean parent company holding not less than 25% of the Chinese subsidiary's shares in the "tax guidance for entering China" published by the National Tax Service in September 2008, which was received from the Chinese subsidiary, shall be subject to the application of 5% of the limited tax rate under the Korea-China Tax Treaty to the dividend income that is received from the Chinese subsidiary, and shall be withheld in China.

For 5% paid directly in Korea, through 'direct foreign tax credit', and this company

The provision stated that the difference between 10% of the deemed tax rate and 5% of the actual tax rate shall be deemed to have been paid to China, and thus, the tax credit shall be deemed to have been applied to it. On August 30, 2008, where the National Tax Service participated in the National Tax Service, it is recognized that the five percent of the tax rate withheld in China is directly foreign tax credit, and the five percent of the remaining five percent shall be deemed to have been deemed to have been deemed to have been the foreign tax credit. However, in light of the fact that the Plaintiff reported the foreign tax credit only for five percent of the tax amount directly paid to China when it reported the corporate tax for the business year 201, and that it is difficult to deem that the Plaintiff did not have any reliance on the tax guidance or any other act of the above Plaintiff in violation of the principle of protection of the news, etc.

Therefore, we cannot accept this part of the plaintiff's assertion.

4. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.