Ulsan District Court 2013Guhap554 ( November 07, 2013)

Cho High Court Decision 2012 Deputy 1391 ( December 18, 2012)

Tax withholding for a person who actually reverts income in the form of a Do-based corporation is legitimate.

(See the judgment of the court of first instance) The plaintiff is merely a Do government company, and the defendant's disposition refusing to correct the plaintiff's corporate tax is legitimate because AA, which is not subject to the Korea-Nether Tax Treaty pursuant to the substance over form principle, constitutes the transferor as the actual owner of the transfer income of this case.

Actual taxation to international trade under Article 2-2 of the Adjustment of International Taxes Act;

2013Nu21083. Revocation of revocation of revocation of corporate tax rectification

AA

O Head of tax office

Ulsan District Court Decision 2013Guhap554 Decided November 7, 2013

June 11, 2014

July 23, 2014

1. The plaintiff's appeal is dismissed.

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

Purport of claim and appeal

The judgment of the first instance shall be revoked. The defendant's refusal to rectify the amount of corporate tax withheld on December 14, 201 to the plaintiff on December 14, 201 shall be revoked.

1. The issues of the instant case and the judgment of the court of first instance

A. The issues of the instant case

The key issue of the instant case is (1) whether the substance over form principle can be applied to the transfer of the instant shares; (2) If the substance over form principle applies to the transfer of the instant shares, whether the actual owner of the income accrued from the transfer of the instant shares is the person who actually reverts; and (3) whether the instant disposition, which excluded the benefits of the Korea- Netherlands Tax Treaty by denying the substance from the view of the Plaintiff as an intentional company, violates the principle of non-discrimination as prescribed in Article 24(1) of the Korea-

B. Judgment of the court of the first instance

1) As to the issue ①, the court of first instance determined that the principle of substantial taxation can be applied as a matter of course to the interpretation of the tax law in accordance with the principle of equality of taxes under the Constitution, which is a principle of constitutional basis, and it shall not be an exception to the application of the tax treaty having the same effect as that of the law. In the text of the Korea-Nether Tax Treaty, the “prevention of tax evasion” is also declared as the purpose of the treaty, the contents of Article 3(1) of the Korea-Nether Tax Treaty, and the tax treaty does not have independent authority to impose taxes, but does not have a function of allocating or restricting the tax right established by the tax law of one Contracting State. Thus, the first determination as to whether a specific tax treaty is applicable can be applied to the transfer of stocks of this case by taking into account the fact

2) The court of first instance held as follows: “The court below determined as follows: “BB is merely a conduit company created solely for the purpose of avoiding Korean tax evasion in relation to the acquisition and transfer of shares to CCC, the number of employees employed by the Plaintiff, the details of the Plaintiff’s business activities after the establishment, the entity raising CCC’s investment funds, and BB that did not explain reasonable grounds to take investment structure establishing the Netherlands until it bears a relatively high dividend income tax on stock transfer income; and it is difficult to deem that there was a substantial change from the time when the Plaintiff was established to the time when the transfer of shares was made in relation to BB or CCC; and it is reasonable that BB is merely a conduit company created solely for the purpose of evading Korean tax evasion in relation to the acquisition and transfer of shares to CCC, and the actual person to whom the income accrued from the transfer of shares in this case is deemed BB.”

3) As to the issue third, the court of first instance held that “The Plaintiff’s application of the principle of substantial taxation is not a result of discrimination based on nationality, but cannot be deemed to be under the same situation between the Plaintiff and the domestic special purpose corporation in light of the content and form of the Plaintiff’s business, and thus, the instant disposition cannot be deemed to be a violation of the principle of non-discrimination under the Korea- Netherlands Tax Treaty.”

2. The judgment of this Court and the citing the judgment of the first instance court

A. The substance over form principle is that, in cases where there is another person to whom the income, profit, property, act, or transaction belongs, unlike the nominal owner, the nominal owner is not the person to whom the income, profit, or transaction belongs, but the actual owner is the person to whom the income, etc. belongs. Thus, in cases where the nominal owner of the property lacks the ability 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 to have been reverted to the person who actually controls and manages the property and shall be the person to whom the property is liable to pay taxes (see, e.g., 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, e.g., Supreme Court Decisions 2010Du166666, Apr.

B. Comprehensively taking account of all the facts and circumstances acknowledged by the first instance court in relation to the Plaintiff’s business purpose, activity details, status between BB or CCC, etc., the Plaintiff is merely a conduit company that performed only the role of the transaction party in the form of the transfer of shares. Since the disparity between such form and substance is derived solely from the purpose of tax avoidance, it is reasonable to deem that the actual owner of the income accrued from the transfer of shares in the instant case should be deemed BB in accordance with the principle of substantial taxation, and that BB is a corporation of the UAE (UAE) and the Korea- Netherlands Tax Treaty cannot be applied.

C. The principle of non-discrimination under Article 24(1) of the Korea-U.S. Tax Treaty ought to be ensured that a national of one Contracting State does not suffer any disadvantage in taxation solely on the ground that the nationality differs in cases where a national of the other Contracting State is in the same situation as that of the other Contracting State or performs the same activity. However, as the Plaintiff, a corporation aiming at tax avoidance of source income in the Republic of Korea through abuse of a tax treaty cannot be deemed to be in the same situation as a special purpose corporation, such as a domestic special purpose company, etc., which is subject to taxation, as a person to whom income is attributed without such purpose of tax avoidance. Thus, the Plaintiff cannot be deemed to be deemed to be the person to whom the income accrued from the transfer of stocks in this case belongs, and the BB shall not be deemed to be the person to whom the income actually accrues (see Supreme Court Decision 2010Du194

D. Therefore, even if considering the Plaintiff’s assertion as supplement or supplement in the trial and examining the entries of Gap evidence Nos. 19, 20, 21, and 22-1, 2, 3, and 23 through 26, the judgment of the court of first instance is justifiable. The reasoning of the judgment of the court of first instance is the same as the reasoning of the judgment of the court of first instance except for those added above, and thus, it is cited as it is in accordance with Article 8(2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit, and the judgment of the court of first instance is just in conclusion, and the plaintiff's appeal is dismissed as it is without merit.