(a) laws and regulations applicable to the business year in which the profits and losses of a corporation of a Contracting Party accrue under the Korea-U.S. Tax Convention

(b) The business year to which the profit or loss belongs, where the profit or loss cannot be included under Article 17(8) of the former Corporate Tax Act in a long-term contract;

(c) Method of calculating the degree of completion of construction by Article 17 of the former Corporate Tax Act and Article 37 of the Enforcement Decree of the former Corporate Tax Act;

(a)In the Convention between the Government of the Republic of Korea and the Government of the Republic of France for the Abstention of Heavy Taxation and the Prevention of Tax Evasion, Article VII provides only that the taxation authority shall be allocated and adjusted properly between the two countries on business income and that of the Contracting Parties on the business year in which the profits and losses of the juristic person of the Contracting Parties accrue, and there is no provision regarding the business year in which the profits and losses of the juristic person of the Contracting Parties accrue. Accordingly, it shall

B. In the case of a long-term contract where profits and losses cannot be appropriated according to the degree of completion of construction prescribed by the Presidential Decree pursuant to Article 17(8) of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994), when it is deemed reasonable to determine the business year to which profits and losses accrue in accordance with the principle of confirmation of rights and obligations, the business year to which profits and losses accrue shall be recognized in accordance with the principle of confirmation of rights and obligations

C. In the long-term contract, the business year to which profits and losses accrue should not be recognized by classifying the business year by the type of payment, but should be recognized in a lump sum by contract. Thus, the degree of completion of construction under Article 17 of the former Corporate Tax Act and Article 37 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 14468 of Dec. 31, 1994) should not be calculated by classifying by the type of payment, not by the type

A. Article 7 of the Convention between the Government of the Republic of Korea and the Government of the Republic of France for the Avoidance of Heavy Taxation and the Prevention of Tax Evasion, Article 54(1)(b) of the Corporate Tax Act. Article 17(1) and Article 17(8) of the former Corporate Tax Act (amended by Presidential Decree No. 4804 of Dec. 22, 1994), Article 37 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 14468 of Dec. 31, 1994)

[Defendant, Appellant] Jinkyl (Attorney Lee Jae-chul et al., Counsel for defendant-appellant)

The director of the tax office

Seoul High Court Decision 93Gu564 delivered on February 3, 1994

The appeal is dismissed.

The costs of appeal are assessed against the plaintiff.

We examine the grounds of appeal by the Plaintiff’s attorney.

Article 7 of the Convention on the Avoidance of Double Taxation and the Prevention of Tax Evasion on Income between the Government of the Republic of Korea and the Government of the French Republic provides for business income in Article 7 only the contents of appropriate allocation and adjustment between the two countries regarding the business year of accrual of profit and loss. Since there is no provision regarding the business year of accrual of profit and loss of the Contracting Parties, it shall be in accordance with the domestic laws and regulations of the Contracting Parties. Article 54 (1) of the Corporate Tax Act provides that the total amount of income generated from sources in each business year of a foreign corporation with a domestic place of business shall be calculated by applying the provisions of Articles 9 through 21 as prescribed by the Presidential Decree. Article 17 of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994) provides that the business year of accrual of profit and loss shall be included in the business year of accrual of profit and loss, and it shall be reasonable that the corporation should include the total amount of income generated from each business year of the construction contract in excess of the long-term fixed period of the contract.

Meanwhile, Article 17(8) of the former Corporate Tax Act and Article 37 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 14468 of Dec. 31, 1994; hereinafter the same) of the National Tax Service's taxation standard for the construction and sale of plants (12630-487, Nov. 23, 198) shall be calculated on the basis of the amount of completion of the construction of plants in accordance with the provisions of Article 17(8) of the former Corporate Tax Act and Article 37 of the former Enforcement Decree of the same Act. However, in calculating the amount of revenue of a foreign company that operates the construction and sale of plants, an agreement is made on the payment terms such as the timing and method of payment under the contract for construction and sale of plants, and where it is deemed reasonable to pay the amount of revenue of the relevant company for each business year in accordance with the above agreement, it shall be deemed reasonable to recognize the amount of payment for each business year to be made by the relevant contractor in accordance with Article 77(1) of the former Corporate Tax Act.

In addition, in the long-term contract, the business year of accrual of profit and loss should not be recognized by the type of payment, but should be recognized by the contract in a lump sum, so the degree of completion of construction under Article 17 of the former Corporate Tax Act and Article 37 of the Enforcement Decree of the same Act should not be calculated separately by the type of payment.

However, according to the facts and records established by the court below, the contract of this case is a contract for the purpose of ensuring that the non-party comprehensive steel company (hereinafter referred to as the "competit steel company") newly constructs an industrial complex in the luminous steel station and reasonably operates the industrial complex. The plaintiff formed a consortium with the non-party Hanwon Industrial Co., Ltd. to become a joint contract party to the seller's joint contract at the same time as the seller's representative. At the same time, the contract is for the purpose of ensuring that the contracted factory is operated as a whole and appropriately and efficiently. The plaintiff's implementation of the contract is ① factory design and engineering services, ② parts necessary for factory construction, ③ engineering and supervision services in the construction site, ④ all design, documents and teaching services necessary for factory construction and operation, ⑤ training services for the construction personnel, etc., and the contract is a contract for construction and performance of all types and performance methods established by the plaintiff as the main contractor of the contract for construction work in the Republic of Korea for more than 7 months. According to the records, the contract is a contract for construction of this case.

Under the circumstances, the business year of accrual of earnings under the contract of this case which is a corporation of the Republic of French and has a permanent establishment in Korea shall not be recognized as a type of payment, but shall be recognized as a whole. The degree of completion of construction under Article 17 (8) of the former Corporate Tax Act and Article 37 of the Enforcement Decree of the same Act shall not be calculated separately for each type of payment, but shall be calculated as a whole. In the same purport, when the court below recognizes the business year of accrual of supervisory services of this case for the business year 1986, it cannot be confirmed that the contract of this case was paid under Article 37 of the former Enforcement Decree of the Corporate Tax Act and Article 15 of the Enforcement Decree of the same Act (amended by Ordinance of the Prime Minister No. 492 of March 30, 195), since the contract of this case and the amount of payment under the above Article 8 of the former Enforcement Decree of the Corporate Tax Act for each type of payment cannot be recognized as a type of payment under the above provision of payment under the contract of this case No. 7 of the former Enforcement Decree.

There is no reason to discuss this issue.

Therefore, the appeal is dismissed and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Cho Chang-tae (Presiding Justice)