The early trial 2015-west-2618 ( December 08, 2015)

The withholding of this case is governed by the Korea-Luxembourg Treaty, not the Korea-Switzerland Treaty, and the limited tax rate to be applied to the dividends of this case is 10% (state failure).

1. In light of human and physical facilities, the withholding of this case is a Do government company, and the Korea-Luxembourg Treaty shall apply to the withholding of this case. 2. The same meaning as the beneficial owner and the direct ownership is the same, and the tax rate applicable to the dividends of this case under the Korea-Luxembourg Tax Treaty is 10% (the national plaque).

Actual taxation under Article 14 of the Framework Act on National Taxes and International Trade under Article 2-2 of the Adjustment of International Taxes Act

2016Guhap5995 Claim for the Revocation of Disposition of Imposition of Corporate Tax (Withholding)

00. Bosch Rexroth Inc.

00. Head of tax office

Some of the national holidays

on October 24, 2017

on 04 October 07, 2017

1. As to February 2, 2015, the Defendant limited to the Plaintiff:

(a) Disposition of imposition of the corporate tax withheld for the business year 2010,000 won; and

B. Each disposition of imposing corporate tax of KRW 6,947,380,000 for the amount of corporate tax withheld for the business year 2013 shall be revoked in excess of KRW 3,473,690,00.

2. The plaintiff's remaining claims are dismissed.

3. One-half of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

Cheong-gu Office

The disposition of imposition of corporate tax of KRW 6,947,380,000 on February 2, 2015 by the Defendant against the Plaintiff for the business year of 2013 shall be revoked.

1. Details of the disposition;

A. The Plaintiff is a corporation that is established in the Republic of Korea on August 5, 1987 and engages in the manufacture and sale of optical products.

B. On October 6, 2009, 100% of the Plaintiff’s shares were acquired by Luxembourg Elecreronal, Sarl (hereinafter “AZ Emcreronal,”) around 2004, and Switzerland sarro (Sar) was given to the Luxembourg corporation (AZ Elecreronic, Swez) AG, and hereinafter “the gift of this case”).

C. The Plaintiff distributes to Switzerland the first dividends of KRW 10,450,000 (hereinafter “the first dividends”) on July 8, 2010, ② the second dividends of KRW 69,473,800,000 on March 15, 2013 (hereinafter “the second dividends”) and combined with the first dividends, hereinafter “the instant dividends”) to the Defendant: “the Government of the Republic of Korea and Switzerland for the Avoidance of Double Taxation with respect to the first dividends” of KRW 30,50,00, the tax rate of KRW 10,045,00,000, and KRW 10,000,000 (hereinafter “the second dividends”); the tax rate of KRW 30,50,000,000, KRW 20,000, KRW 10,000, and KRW 28,01,00,000, respectively, the tax rate of KRW 30,018.

D. Regarding this, the Defendant: “The beneficial owner of the instant dividends is not the Switzerland corporation, but the Luxembourg corporation.” As such, not the Korea-Switzerland Tax Treaty, with respect to the instant dividends, the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital between the Government of the Republic of Korea and the Government of Luxembourg (hereinafter “Korea-Luxembourg Tax Treaty”) shall be applied; “The beneficial owner of the instant dividends does not directly own 25% or more of the Plaintiff’s shares paid the instant dividends, and thus, the said 15% limited tax rate under Article 10(2)(a) of the Korea-Luxembourg Tax Treaty should be applied not only to the limited tax rate of 10% under Article 10(2)(a) but also to the limited tax rate of 10,500,000 won (=10,400,500, 3000, 3000, 4000, 50, 506, 4050).

E. On April 30, 2015, the Plaintiff filed an appeal with the Tax Tribunal on the instant disposition, but was dismissed on December 8, 2015.

[Ground of recognition] Unsatisfy, Gap evidence Nos. 1, 2, 4, and 5, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Since Switzerland, who is a resident of Switzerland, is the beneficial owner of the instant dividend, the limited tax rate under the Korea-Switzerland Tax Treaty shall apply to the instant withholding. Accordingly, the instant disposition was unlawful on a different premise.

2) If “A”, who is a resident of Luxembourg, is deemed to be the beneficial owner of the instant dividend in accordance with the substance over form principle, the logic is consistent, and the Plaintiff’s shares shall be deemed to have been held directly. According to the Korea-Luxembourg Tax Treaty, if the beneficial owner owns 25% or more of the corporation’s capital, the limited tax rate is 10%, and the disposition of this case by applying the limited tax rate to 15% is unlawful.

B. Relevant statutes

The entries in the attached Table-related statutes shall be as follows.

C. Facts of recognition

1) The Switzerland is a Switzerland corporation established on December 23, 2003, which is a vice-chairperson on its corporate register, and is registered in the board of directors Dor. Adres Moll, Maatlas Bluge, representative director, Madrew Poll. However, among them, Mic Andre Poll is residing in the United Kingdom, not Switzerland, and Matas Buge and Dr. Andres Moll is an attorney-at-law belonging to Pracs, a Switzerland law firm of Switzerland. Meanwhile, the money paid to the above directors in the business year 2010, 2013 is merely KRW 16,00,000, KRW 100,000, KRW 190,000, KRW 190,000.

2) Although Switzerland has Matlas Buge attorney-at-law's office located in the office of a legal entity, the office of Switzerland is not posted, there is no resident employee of Switzerland, and there is no data that Switzerland paid the price for the use of the above attorney-at-law's office.

3) The Plaintiff did not have paid dividends since Eul Island acquired the Plaintiff’s entire shares in around 2004. The Plaintiff donated the entire Plaintiff’s shares to Switzerland immediately before the dividend of the first dividend was paid.

4) There is no data to recognize that Switzerland served as a holding company by coordinating and controlling the Plaintiff’s business activities (i.e., the Switzerland opened a board of directors to deliberate and resolve on the countermeasures following the notice of tax notice given by the tax authorities in Korea in relation to the corporate tax subject to withholding tax on the dividend of this case, and on the interim dividend payment related to Ghana, etc. with respect to the corporate tax subject to withholding tax on the dividend of this case, and only performed the business related thereto), Switzerland does not have any other income except for the dividend income from the Plaintiff, and the interest on the loan to B, and does not engage in any particular profit-making activity.

5) After the Switzerland became the parent company, the Plaintiff was provided with the services for strategic establishment, supply and demand of raw and secondary materials, plans for financing and receipt, legal advice including taxation, use of the management information system, etc., and did not exchange and request the Plaintiff’s specific e-mail related to the Plaintiff’s work with the director of the E-mail group and the director of the E-mail group E-mail related to the Plaintiff’s work (the Defendant did not request the Plaintiff to exchange the Plaintiff’s specific e-mail payment related to the Plaintiff’s work, including the data of this case, but not request the Plaintiff to exchange the data of this case and the e-mail payment for the purpose of establishing the e-mail after Switzerland donated 100% shares of the Plaintiff to 10% of the Plaintiff’s shares (the Defendant did not request the Plaintiff to submit the e-mail payment related to the Plaintiff’s work).

6) Guidein still holds the shares of affiliates, etc. of the Asian group located in the Asian region, including Japan, China, other countries, Hong Kong, etc. even after the instant donation.

7) After receiving the first dividend, Switzerland first handled it as a loan, and then remitted it to Ga Doz, but replaced the said loan with the dividend in 2011, even after receiving the second dividend 69,473,800,000 won, it lent it to Dozzzzzzzzzzzzzzzary, and then lent 79,923,800,000 won (the aggregate of the instant dividends received from the Plaintiff in a manner that does not exercise the right to return the loan, + KRW 10,450,000 (the first dividend + KRW 69,473,80,000).

8) In accordance with the Plaintiff’s payment of the instant dividends, Switzerland 643,790 Swiss Franc ( KRW 771,556,563 if converted into KRW 1,198.46 on December 31, 2010), 4,673,725 Swiss Franc ( KRW 5,492,327,93 if converted into KRW 1,175.15 on December 31, 2013), but, in the business year 2013, Switzerland Switzerland Switzerland converted into KRW 5,492,327,933 if it was converted into KRW 1,175.15 on December 31, 2013), the corporate tax actually paid pursuant to the provisions of the credit for the income dividends paid by Switzerland was both KRW 2010 and KRW 00 in the business year 2013.

[Based on the recognition] Gap evidence 2, 5, 6, 9-1 through 11, Gap evidence 17-5, 10, Eul evidence 1, 3, 4, Eul evidence 2-1 to 5, video, and the purport of the whole pleadings

D. Determination

1) A beneficial owner of the instant dividend

A) The taxation treaty is established for the purpose of the Avoidance of Double Taxation and the prevention of Fiscal Evasion by coordinating the issue of taxation between the Contracting States, and thus, rather than establishing the taxation right, and functions to allocate or restrict the already established taxation right under the tax laws of a Contracting State. Therefore, in order to apply the tax treaty, the person to whom the income is attributed should be identified as a resident of the Contracting State. The determination of the person to whom the income is attributed ought to be based on the interpretation of the tax

The substance over form principle under Article 14(1) of the Framework Act on National Taxes refers to a person to whom the nominal owner is not a taxpayer, if there is another person to whom such income, profit, property, transaction, etc. belongs differently from the nominal owner. Therefore, the nominal owner of the property does not have the capacity to control and manage it, and there is another person who substantially controls and manages it through the control, etc. over the nominal owner, and where the disparity between the nominal owner and the real owner arises from the purpose of tax evasion, income on the property shall be deemed reverted to the person who actually controls and manages the property and shall be deemed as the person who actually controls and manages the property (see Supreme Court en banc Decision 2008Du8499, Jan. 19, 2012). This principle applies to the interpretation and application of a tax treaty having the same effect as the law, unless there is any special provision excluding this (see Supreme Court Decision 2011Du12917, Sept. 26, 2013).

B) In light of the following circumstances revealed by taking full account of the facts acknowledged earlier, Switzerland is merely a Do government company established to obtain the Switzerland resident qualification for the purpose of evading taxes, and it is reasonable to view that the beneficial owner of the instant dividends is “A” who is a resident of Luxembourg. Therefore, the instant withholding tax in this case ought to be governed by the Korea-Switzerland Tax Treaty, not the Korea-Switzerland Tax Treaty.

(1) At the time of receiving the instant dividends, Switzerland did not hold physical facilities as a holding company since it did not have a separate resident employee at the same time while the office of the attorney-at-law listed as the director was located at the time of receiving the instant dividends.

(2) The instant shares, which were the basis of the instant dividends received by Switzerland, were donated to 100% by Switzerland, and cannot be deemed that Switzerland had engaged in any economic activity or effort to acquire the instant shares.

(3) Switzerland received the instant dividend and paid it as the title of dividends, etc. to live in full, and did not control and manage the instant dividend.

(4) Not only transferred the instant shares to Switzerland, which did not play a role as a holding company without any particular profit-making activity immediately before the Plaintiff’s initial dividend was implemented, but also did not perform the role as a holding company even after the transfer.

(5) Switzerland became a wholly owning parent company against the Plaintiff as the instant donation and delivered the instant dividends received from the Plaintiff to Eul. There is no evidence suggesting that Switzerland had a reasonable purpose of running a business in the form of receiving the instant shares free donation from Eul, a wholly owning parent company, and distributing the dividend income received from the Plaintiff to Eul again, and it is difficult to evaluate that the instant donation led to the reorganization of the business structure or the change of business activities of Eul's business activities.

(6) Article 10(2) of the Korea-Switzerland Tax Treaty and Article 10(2) of the Korea-Luxembourg Tax Treaty provide that "if the beneficial owner directly owns at least 25 percent of the capital of a corporation paying the dividends, it shall not exceed 10 percent of the total amount of dividends, and in other cases, 15 percent of the total amount of dividends." Thus, there is no difference in the tax rate when he directly receives the instant dividends from the Plaintiff as of the time of the payment of the first dividends.

However, Article 28 of the Korea-Luxembourg Tax Treaty provides that "this Convention shall not apply to holding companies within the meaning of the Special Act of Luxembourg, the current Special Act of 31 July 1929, and the Act and subordinate statutes enacted by Luxembourg on December 17, 1939, or any similar Act enacted by Luxembourg after the signature of this Convention." Thus, if the tax authority of Korea determines that Eul constitutes holding companies under the above provision, if Eul directly receives dividends from the Plaintiff, it seems that there was a risk of being subject to withholding corporate tax with the withholding tax rate of 20% under the Corporate Tax Act of Korea if Eul directly receives dividends from the Plaintiff (However, it appears that Eul did not submit materials to consider that the Defendant also falls under holding companies under the above provision, and that the Defendant did not have confirmed the above materials. Accordingly, it is difficult to view that Switzerland did not have any tax evasion or any other tax evasion purpose other than the tax evasion purpose in the case of this case, other than the tax evasion purpose of this case.

In addition, since a tax treaty can be amended at any time, and a company actually engaged in business activities moves to a nominal company in the future, whether the disparity between name and substance arises from the purpose of tax avoidance should be determined according to the tax treaty or the substance of the company at the time of the establishment of the Do government company, not by fixing it according to the tax treaty or the substance of the company at the time of the issue of tax avoidance. As such, the tax rate of the Korea-Switzerland Tax Treaty and the Korea-Luxembourg Tax Treaty at the time of the payment of the second dividend differs depending on whether the beneficial owner should be deemed to be the Switzerland, and there is a difference in tax payment depending on whether the second dividend is deemed to be the Switzerland (as seen later at the time of the payment of the first dividend, the application of the Korea-Switzerland Tax Treaty or the applicable tax rate of the Korea-Luxembourg Tax Treaty is identical to 10%, so it can be deemed that there is no purpose of tax avoidance. However, even if so, the conclusion in favor of the plaintiff in this part is not changed).

2) Whether Article 10(2)(a) of the Korea-Luxembourg Tax Treaty is applied

A) Article 10(1) of the Korea-Luxembourg Tax Treaty provides that a corporation which is a resident of a Contracting State may be taxed in that other Contracting State on dividends paid to a resident of the other Contracting State. Article 10(2) of the said Treaty provides that the dividends may be taxed in the Contracting State in which the corporation paying the dividends is a resident. However, if the recipient is a beneficial owner of the dividends, the taxes imposed thereon shall not exceed the following: (a) if the beneficiary is a corporation (excluding partnership) that directly owns 25% or more of the corporation’s capital stock of the corporation paying the dividends, the amount of dividends shall be 10% of the total amount of dividends and 15% of the total amount of dividends in other cases. The purport of the said provision is to allow taxation in all the country of residence and source country on dividends and to facilitate the double taxation, but if the beneficiary is a beneficial owner of the dividends, it shall be deemed that the corporation directly owns the dividends within the scope of the limited tax rate of international investment and that 15% more of the total amount of dividends are paid.

B) (1) Article 10(2) of the Korea-Luxembourg Tax Treaty provides that "the beneficial owner shall be granted a license." As long as the beneficial owner's meaning is deemed as an beneficial owner of income under the substance over form principle, it conforms to the language and text that "direct ownership" of the above provision is also deemed as "beneficial ownership." (2) The purpose of establishing the tax preferential provision in most tax treaties is to give preferential investment to the direct investment for the purpose of management participation and to adjust economic double taxation on dividend income by applying a low tax rate on dividend between corporations. (3) If the taxpayer was changed as a result of the application of the substance over form principle, the provisions of the tax treaty should also be applied in consideration of such change, and since the statement on the model tax treaty of the United States is deemed as the beneficial owner's direct ownership and the limited tax rate should be applied to the company, which is a resident of the Contracting State, and as such, it is not necessary to interpret the tax treaty as "the beneficial owner's direct ownership and the dividend tax rate of the Plaintiff."

C) Accordingly, the limited tax rate applicable to the instant dividends is 10%.

3) Scope of revocation

In a lawsuit seeking revocation of taxation, the subject matter of adjudication is whether the tax base and tax amount imposed and notified by the tax authority are objectively existing. In a case where the tax base and tax amount recognized by the disposition of taxation are excessive compared to the legitimate tax base and tax amount, the disposition of imposition is unlawful only to the extent exceeding the legitimate tax base and tax amount (see Supreme Court Decision 88Nu6504, Mar. 28, 1989).

As seen earlier, the limited tax rate applicable to the instant dividends is 10%. As such, the amount of the justifiable tax on the instant dividends is 0 won (=1,045,00,000 won paid for the first dividends - (10,450,000 won for the first dividends x limited tax rate of 10%). The amount of the justifiable tax on the second dividends is 3,473,690,000 won (=69,473,80,000 for the second dividends x limited tax rate of 10%). The amount of the justifiable tax on the second dividends is 3,473,690,000 won (i.e., 69,473,80,000 won for the second dividends - limited tax rate of 10%)

Therefore, among the instant dispositions, ① the disposition imposing corporate tax of KRW 522,500,00 for the amount of corporate tax withheld for the business year 2010 and ② the disposition imposing corporate tax of KRW 6,947,380,00 for the amount of corporate tax withheld for the business year 2013, the amount exceeding KRW 3,473,690,00 for the said amount of corporate tax shall be revoked as unlawful.

3. Conclusion

Therefore, the plaintiff's claim of this case is justified within the scope of the above recognition, and the remaining claim is dismissed as it is without merit. It is so decided as per Disposition.