The appeal is dismissed.

The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Article 57(1)1 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter the same) provides for a method of deducting the amount of foreign corporate tax from the amount of corporate tax for the pertinent business year, where income generated from overseas is included in the tax base of a domestic corporation for each business year, if the amount of foreign corporate tax paid or payable on such income generated from overseas is included, within the limit of credit.

In addition, Article 57 (3) of the former Corporate Tax Act provides that the amount equivalent to the corporate tax reduced or exempted on the relevant foreign source income in the counterpart to a tax treaty shall be deemed the foreign corporate tax amount subject to the said tax credit within the scope prescribed by the relevant tax treaty.

It is stipulated in individual treaties on the deduction of tax paid abroad.

Article 23(3) of 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”), which was concluded in 2006, replaced by Article 5(1) of the Second Protocol of 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 “the Second Protocol”).

Article 23(1)(a) of the Korea-China Tax Treaty (amended by Article 4 of the Protocol No. 2) provides that “The taxes paid by one Contracting Party referred to in Article 23(1)(a) of the Korea-China Tax Treaty shall be deemed to include taxes that would have had to have been paid if there had been no other relevant legal provisions on tax incentives for the reduction, exemption, or the promotion of economic development.” In the latter part, Article 10(2) for the purpose of this paragraph.