Whether a foreign corporation constitutes domestic source income such as damages received from a domestic corporation (negative)

If a foreign corporation receives damages, etc. from a domestic corporation, the foreign corporation's claim for damages, etc. shall not be deemed to be a "property in Korea as prescribed by Article 122 (7) 1 or 7 of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 13803, Dec. 31, 1992)." Thus, the foreign corporation's damages, etc. received shall not be deemed to be a "compensation or economic profit in Korea" related to assets in Korea as prescribed by the above

Article 55(1)11 of the former Corporate Tax Act (Amended by Act No. 5033, Dec. 29, 1995); Article 122(7)1 and 7 of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 13803, Dec. 31, 1992; see current Article 122(7)1 and 8)

Supreme Court Decision 85Nu880 Decided June 9, 1987 (Gong1987, 1153) Supreme Court Decision 95Nu15438 Decided September 24, 1996 (Gong196Ha, 3232)

Korea Overseas Construction Co., Ltd. (Law Firm Han-dong Law Office, Attorneys Yu-hee et al., Counsel for the defendant-appellant)

The Director of Gangnam District Office

Seoul High Court Decision 96Gu14335 delivered on December 12, 1997

The appeal is dismissed. The costs of appeal are assessed against the defendant.

We examine the grounds of appeal.

1. Article 55 (1) of the former Corporate Tax Act (amended by Act No. 5033 of Dec. 29, 1995) lists domestic source income that a foreign corporation is liable to pay corporate tax, and stipulates income prescribed by the Presidential Decree other than that provided for in subparagraphs 11 through 10, and Article 122 (7) of the former Enforcement Decree of the Corporate Tax Act (amended by the Presidential Decree No. 13803 of Dec. 31, 1992; hereinafter referred to as the "Enforcement Decree") provides that "income prescribed by the Presidential Decree" referred to in Article 55 (1) 11 of the former Enforcement Decree of the Corporate Tax Act refers to income falling under any of the following subparagraphs, and subparagraph 1 provides that "the insurance money, compensation or damage compensation received in relation to real estate and other assets or business operated domestically, and subparagraph 7 provides that "income provided in relation to the human resources or assets provided domestically, other than those provided in subparagraphs 1 through 6, is omitted."

According to the court below's legal determination, when constructing sewage plant in Slkhobar, the plaintiff entered into a license agreement with the non-party company "Advis N.V." (hereinafter the non-party company) on November 8, 1978 on the "Advis Docul biological acid equipment" which is a patent technology related to the sewage treatment system owned by the non-party company between the non-party company and the non-party company, and the non-party company did not pay the above patent technology despite its use. The non-party company did not pay the above royalties. The non-party company received the royalty from the International Arbitration Court for arbitration on March 19, 191, the non-party company received the payment of damages from the non-party company's pre-payment expenses, the attorney's fees for delay, the plaintiff's share in the arbitration expenses, the non-party company's damages from the non-party company's domestic law, and it cannot be viewed as the non-party company's damages from the non-party company's domestic law's damages claim 2. 97.

Although the reasoning of the judgment of the court below is somewhat inappropriate, the conclusion that the non-party company cannot be viewed as domestic source income, is just, and there is no error in the misapprehension of legal principles or incomplete deliberation as alleged in the grounds of appeal.

In addition, General Rules 6-1-29, 54 of the Corporate Tax Act provides that the scope of domestic source income as prescribed by Article 122(7)1 of the Decree includes the following compensation for delay or damages paid by a foreign corporation having no domestic place of business due to a trade (export). 1. Compensation for delay arising from a violation of a supply designation term under a supply contract for goods is compensation for the damage arising from a commercial activity 2. Compensation for delay that has been paid in accordance with the said contract. However, this provision provides that the compensation for losses in this case shall not be deemed domestic source income on the grounds of the above basic provisions, since it cannot be recognized as a legal effect as a guidance within the tax office, and the compensation for losses received by a foreign corporation under the Corporate Tax Act shall not be deemed domestic source income on the ground that it stipulates the compensation for losses as other income which is one of domestic source income. There is no reason for both

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

Justices Final Young-young (Presiding Justice)