[1] In a case where a software introduced by a domestic corporation from a foreign corporation is not simply imported goods, but is so know-how or its technology, whether the cost of its introduction can be collected as corporate tax against a domestic corporation, which is a domestic source income of a foreign corporation (affirmative)

[2] Requirements for establishing non-taxable practices under Article 18(3) of the Framework Act on National Taxes

[1] Article 5 (1) of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994) provides that "domestic source income" in Article 53 refers to income stipulated in any of the following subparagraphs. Article 55 (1) of the former Corporate Tax Act provides that "where assets, information or rights falling under any of the following items are used in Korea or the price is paid in Korea, the relevant consideration and the income arising from the transfer of the assets, information or rights, and (b) item (b) provides "information on industrial, commercial or scientific knowledge, experience or skilled knowledge, experience or skilled knowledge." Article 55 (1) of the former Corporate Tax Act provides that "user fee" in subparagraph (b) refers to "all know-how," and it refers to a price for using non-public technological information on invention, technology, manufacturing method, management method, etc., which is adopted by a domestic corporation from a foreign corporation, and if the software is not simply imported from the foreign corporation, it constitutes a foreign corporation's domestic source income under Article 59 of the Act:

[2] In order for a non-taxable practice under Article 18(3) of the Framework Act on National Taxes to be established, there must be an objective fact that has not been taxed over a considerable period of time, and a tax authority should not impose tax due to any special circumstance despite its knowledge that it can impose tax on the matter. Such public opinion or intent must be expressed explicitly or implicitly, but in order to establish an implied expression of taxation, there must be circumstances that the tax authority expressed its intent not to impose tax on the state of non-taxation for a considerable period of time, unlike mere omission of taxation.

[1] Article 5 (1) 9 (b) of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994) (see current Article 93 subparagraph 9 (b)) and Article 59 (see current Article 98) / [2] Article 18 (3) of the Framework Act on National Taxes

[1] Supreme Court Decision 94Nu15653 decided Apr. 11, 1995 (Gong1995Sang, 1901) Supreme Court Decision 97Nu4005 decided Dec. 12, 1997 (Gong1998Sang, 341) / [2] Supreme Court Decision 95Nu10181 decided Nov. 14, 1995 (Gong1996Sang, 98) Supreme Court Decision 96Nu17486 decided Jul. 11, 1997 (Gong197Ha, 2546)

Korea Electric Power Corporation (Attorney Kim Young-sub et al., Counsel for the plaintiff-appellant)

Samsung director of the tax office (Attorney Go Young-deok, Counsel for defendant-appellant)

Seoul High Court Decision 96Gu3021 delivered on June 19, 1997

Of the part concerning the disposition of corporate tax collection for the business year of 1991, the part concerning the cost for the introduction of the LOADD-PL US software paid to the IMC Software Co., Ltd. (BMF SOFWRE INC.) is reversed, and this part of the case is remanded to the Seoul High Court. The remaining appeal by the plaintiff is dismissed.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate brief not timely filed).

1. Regarding ground of appeal No. 1

Article 5 (1) of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994; hereinafter "the Act") provides that "domestic source income" in Article 55 (1) of the former Corporate Tax Act refers to income falling under any of the following subparagraphs, and Article 53 provides that "where assets, information or rights falling under any of the following items are used in the Republic of Korea or the price is paid in the Republic of Korea, the relevant consideration and income accruing from the transfer of the assets, information or rights, and (b) "industrial, commercial or scientific knowledge, experience or know-how" in subparagraph (b) of the above provision refers to " normal know-how" in subparagraph (b) of the above provision refers to compensation for use of non-public technological information on invention, technology, manufacturing method, management method, etc., so if the aforementioned software was not simply imported from a foreign corporation, but rather imported from the foreign corporation, it can be determined that the domestic corporation is a person liable for collecting royalties or technology income under Article 595 of the Act (see Supreme Court Decision 194.5Da194597,945, etc.

According to the reasoning of the judgment below, since the Plaintiff introduced CABD software from Sypt Co., Ltd. (CABD) on October 24, 1989, and paid US$ 383,700 (Korean Won 259,871,500) as the price for its introduction, the court below determined that it was not only the fact that the Plaintiff was paid to each of the above corporations for five times until February 25, 1991, and that the price for its introduction was paid to each of the above corporations for the purpose of maintaining and improving the usage fees and usage fees of the software, but also the fact that the Plaintiff was not entitled to heavy taxation on income between the Republic of Korea and the United States of America, and that it was not possible for the Plaintiff to establish the CABD software at the time of its introduction and improvement, and that it constitutes a specific amount of 3 years of usage fees and usage fees for each of the following reasons: the Defendant’s introduction of the CAD software, which is a small and unspecified software management contract, and the content of the 12.

First, in light of the records and legal principles as seen earlier, the above recognition and judgment of the court below is just and acceptable, and there is no error of law such as misunderstanding of legal principles as to user fee income, incomplete hearing, and inconsistency of reasoning as otherwise alleged in the ground of appeal.

In relation to the introduction of each of the above software, it cannot be deemed that know-how or its technology has been introduced unless there is any industrial re-produced by being provided with the language chart that expresses the relevant program. However, know-how or its technology is not limited to the production method of the program. Therefore, there is no reason for it.

Then, according to the reasoning of the judgment below, the software is a commercial software which is developed for the purpose of efficient operation of database under the ABM-type computer system and is purchased by the plaintiff without any special education or training in connection with its introduction. Thus, the introduction of the above software is not merely an introduction of know-how or its technology, but merely an importation of the product. Nevertheless, the court below erred in the misapprehension of legal principles as to the introduction of the above software, which affected the conclusion of the judgment, by failing to exhaust all necessary deliberations. The court below did not err in the misapprehension of legal principles as to the introduction of the above software.

The part of the grounds of appeal assigning this error is with merit.

2. Regarding ground of appeal No. 2

In order to establish a non-taxable practice under Article 18(3) of the Framework Act on National Taxes, there must be an objective fact that has not been taxed over a considerable period of time, and there must be an intent that the tax authorities will not impose taxes due to any special circumstance with the knowledge that the tax authorities could impose taxes on the said matter, and such public opinion or intent should be expressed explicitly or implicitly, but in order to establish an implied indication, there must be circumstances to deem that the tax authorities expressed their intent not to impose taxes on the state of non-taxation for a considerable period of time, unlike a mere omission of taxation (see, e.g., Supreme Court Decisions 95Nu10181, Nov. 14, 1995; 96Nu17486, Jul. 11, 1997).

The court below's decision is just in the above legal principles and there are no errors in the misapprehension of legal principles as to non-taxation practices in the case where the price for the introduction of the software falls under the royalty income.

The remaining grounds of appeal are without merit because they are based on the establishment of non-taxable practices.

Therefore, among the part concerning the disposition of the corporate tax collection for the business year belonging to the court below of 191, the part concerning the cost of the introduction of the LOAD-PL US software paid to the IMC Software Co., Ltd. (BMF SOFWRE INC.) is reversed, and this part of the case is remanded to the court below, and the remaining appeal is dismissed. It is so decided as per Disposition by the assent of all participating judges.

Justices Song Jin-hun (Presiding Justice)