Twit-Link Pteti (Attorneys Kim Su-soo et al., Counsel for the defendant-appellant-appellee)

The Head of the District Tax Office (Law Firm, Attorneys Gangnam-gu et al., Counsel for the defendant-appellant)

April 24, 2014

Seoul Administrative Court Decision 2012Guhap10673 decided May 24, 2013

1. The defendant's appeal is dismissed.

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

1. Purport of claim

The Defendant’s disposition of imposing corporate tax of KRW 2,803,592,540 against the Plaintiff on July 2, 2010 shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Quotation of judgment of the first instance;

The reasoning of the judgment of the court of first instance is partially dismissed as follows, and the reasoning of the judgment of the court of first instance is identical to that of the judgment of the court of first instance except for the addition of the judgment of the defendant as to the argument at the appellate court as follows. Thus, it shall be cited in accordance with Article 8(2) of the Administrative Litigation Act and the main sentence of

○ Parts 1-2 and 4 from the last parallel to the second parallel. (The plaintiff withdrawn this part of the claim)

“9,000,000 US dollars” in paragraphs 8(4) and 3 to 4 of this Article is deemed to read “6,80,000 US dollars”, and “9,000,000 US dollars” in conduct 10 is deemed to read “2,200,000 US dollars”.

○ 11-24 deleted 22-24.

○○ The 13th page “Fmsda” in the 10th page shall be read as “fmsda”.

The "place of actual management" in the 14th 6th 6th , is "place of actual management", and the "Cukyang Project" in the 9th 10th 10th , is "Cukyang Industry".

○ 16 The term “two or more” shall be read as “receiving person”.

The 18th 10th 10th 18th 10th , “The method of repayment”, “the meeting of the board of directors” from the bottom to “the meeting minutes of the board of directors”.

Pursuant to paragraph 2 of Paragraph 4 of Article 20, the term “non-party 2” shall be changed to “non-party 4”.

The "63.1 million" of the 7 Neamo Code under paragraph 30(al) is "6,310,000."

○ Parts from the 31st to the 4th end shall be deleted.

○ Parts 4-1 to 12-2 of the Income Tax Act shall be deleted.

The "representative director" in the 45th 10th am shall be regarded as "actual representative director".

○ 49-6-7-7-out-out-out-out-out-out-out-out-out-out-out-out-out-out-out-out-out-out.

The contents of this judgment "related Acts and subordinate statutes" shall be added to the "related Acts and subordinate statutes" of not more than 65.

2. Judgment on the defendant's assertion

A. The defendant's assertion

In the appellate trial, the defendant asserts that the disposition of this case on the premise that the plaintiff's actual management place was constituted a domestic corporation because the plaintiff had been located in Korea in the business year 2009 is lawful. ② Even if the plaintiff is not a domestic corporation, the plaintiff constitutes a foreign corporation operating a permanent establishment in Korea, and the corporate tax that the plaintiff can impose on the foreign corporation exceeds the tax amount imposed by the disposition of this case. Accordingly, the disposition of this case is additionally lawful.

B. Determination

1) As to the first argument (whether it is legitimate as a taxation on a domestic corporation with a place of actual management in Korea)

The evidence cited in the judgment of the first instance court cited above and the evidence cited in the judgment of the appellate court, Gap evidence Nos. 196, 199 through 204 (including a serial number), and Eul evidence No. 89, which cited the following circumstances that can be recognized by comprehensively considering the overall purport of the pleadings, shall not be seen as constituting a domestic corporation that had had a place of actual management in the business year 2009. Thus, the disposition of this case based on the premise that the disposition of this case is unlawful, and therefore the plaintiff's first argument cannot be accepted.

A) After its establishment in Singapore in 2000, the Plaintiff mainly engaged in information and communications services in Singapore by 2008. In 2009, the Plaintiff promoted energy projects in Kenya and real estate investment projects in the United States and Singapore, other than the instant SS Claim Investment Business.

B) Around January 2009, the Plaintiff introduced investment opportunities for the acquisition of the CSS bonds from the representative director, Nonparty 3, the representative director, and purchased the CSS bonds through his brokerage and good offices. Nonparty 3, around October 2008, obtained information from the investment fund of Hong Kong on the disposal of overseas convertible bonds, etc. issued by the Korean listed company, and then directly visited Hong Kong and arranged to negotiate on the terms and conditions of trading, such as CS Hong Hong Kong Branch and bond price, and arranged and arranged the purchase thereof.

C) The CSS bonds were held by the CSR Hong Kong branch in the global financial crisis. Among them, it was a condition for Korean residents to purchase the bonds en bloc because many of the claims that Korean residents could not purchase. Nonparty 3 arranged and arranged the purchase in physical color with the Plaintiff, Singapore corporation, and accordingly, the Plaintiff purchased the CSS bonds at a low price due to a single-time investment.

D) In connection with the purchase of SS claims, Nonparty 1 exchanged opinions with Nonparty 2 (2 omitted) and Nonparty 4 (3 omitted) using the Plaintiff’s e-mail account (2 omitted) servers in Singapore. Nonparty 1 was staying in the United States for 18 days from December 13, 2008 to December 30, 208 and for 21 days from January 15, 2009 to February 4, 2009 and agreed to obtain the consent of Nonparty 5, the Plaintiff’s shareholder, with respect to the purchase of SS claims, and then borrowed USD 150,000,000, a part of the purchase price of SS claims, from each link operated by Nonparty 5, U.S. corporation (Maagle U.S. LLC) around that time, agreed to purchase e-mail claims with Nonparty 2, 4, etc.

E) The Plaintiff had purchased CSS bonds through the above process. The purchase order for CSS bonds was sent by the RBS Hong Hong Kong Branch on behalf of the Plaintiff to CS Hong Kong Branch, and the payment was made through the euro PP. On February 23, 2009, the Plaintiff exchanged documents related to CS Hong Hong Kong Branch and Fax, and then received a sales contract principal and a written confirmation from the CS Hong Hong Kong Branch to the Plaintiff’s Singapore main office.

F) The Plaintiff was entrusted to B&A with the collection of CS claims, and B&A completed most of the CS claims collection by means of collecting claims and receiving reimbursement from the issuing company from around September 2009 in Korea. In that process, Nonparty 2 was in the process reported by B&A and the representative director from Nonparty 3 on the status related to the collection of CS claims and confirmed it again, and carried out the business of reporting the collection of CS claims to Nonparty 1, and the disclosure related to CS claims. Since CS claims were issued by KOSDAQ listed companies, there was a high possibility of recovery, so there was no special duty to manage the issuing company separately, other than the business of notifying the time and the specific repayment method.

G) AWnb was transferred to the Hong Kong branch account in the name of the Business Partners HK Ltd. established by Nonparty 3 in Hong Kong as the price for the performance of the above services.

H) In light of such circumstances as the process of purchasing and collecting CSS bonds, essential and important parts relating to the investment of CSS bonds shall be deemed to be the business of purchasing at a low price any investment information available for the Plaintiff to take over the CSS bonds offered to domestic non-residents, such as the Plaintiff at the Hong Kong Hong Kong Branch, a large investment bank. Such business affairs may be deemed to have been conducted by Nonparty 1, the representative director of the Plaintiff, a Singapore, using the Plaintiff’s e-mail account server in Singapore, or through foreign financial institutions, etc. outside the United States, Hong Kong, and Singapore, etc. As such, it cannot be said that the Plaintiff had a place where the management or commercial decision was actually made in the course of performing the CSS bond investment business within Korea.

Meanwhile, although the Plaintiff’s business was conducted in the Republic of Korea through B&A, it appears that CS bonds are for convenience in recovery due to the relationship that is issued by KOSDAQ-listed companies, and its business contents are diversely mechanical and repetitive business (in the event that the amount of CS bonds is not high, there was no need to perform the duty of recovery in the Republic of Korea, but there was no need to conduct the duty of recovery in the Republic of Korea. However, the amount of CS bonds is large in relation to the quantity of CS bonds, so it seems that the Plaintiff had performed the duty of recovery in the Republic of Korea, and this does not change in the nature of the duty of recovery.) The Plaintiff’s actual management place of the business cannot be said to have been transferred in the Republic of Korea (in 2006, the Plaintiff acquired overseas convertible bonds issued by the domestic company from Hong Kong as one-time investment similar to the investment of CS bonds in the Republic of Korea as the method of operating surplus funds in the Republic of Korea. However, even in this case, there was no office or less employees employed in the Republic of Korea, and still carried on the business within Singapore).

2) As to the second argument (whether it is legitimate as a taxation on a foreign corporation operating a business with a permanent establishment in Korea)

A) Article 7(1) of the Korea- Singapore Tax Convention provides that “The profit of an enterprise of a Contracting State shall be imposed only on the Contracting State, unless the enterprise runs a business in the other Contracting State through a permanent establishment located in the other Contracting State. In the event that the enterprise runs a business as seen earlier, it may be imposed on the other Contracting State only on the part belonging to the said permanent establishment out of its profits.” Article 5(1) provides that “The term “permanent establishment” means the fixed place of business in which the enterprise runs exclusively or partially, means the business.” Meanwhile, Article 5(3) of the Korea- Singapore Tax Convention provides that “The use of facilities solely for the purpose of storage, display or delivery of goods or goods belonging to the enterprise is deemed not to include the following: (a) provides “the use of facilities for the purpose of the business for which the enterprise is located in the other Contracting State, or facilities for which the enterprise is located in the Republic of Korea with an essential nature and essential nature of the business activities, or facilities for which the enterprise is located in the Republic of Korea and Singapore (see Article 20(3).9).2).

In this case, the aforementioned facts and facts revealed by the first instance court's judgment, i.e., the collection of the CSS claims, which were performed in Korea. However, it appears that the CSS claims issuing company is a domestic company and its contents are for convenience in recovery, and it is difficult to view the Plaintiff's inherent and important business activities related to CSS claims as mechanical and repetitive business activities. In this regard, Nonparty 2 was entrusted with CSS claims collection services, and Nonparty 2 was merely engaged in ancillary activities such as reporting or public notice services, and Nonparty 2 and C&T's representative director did not have any objective evidence that Nonparty 3 performed the duty of collecting CSS claims in Korea before September 2009 (see, e.g., Non-Party 1, Non-Party 3, Non-Party 2, and Non-Party 6, Non-Party 1, Non-Party 2, Non-Party 2, and Non-Party 6, Non-Party 9, Non-Party 2, Non-Party 3, Non-Party 3, and Non-Party 3, Non-Party 2, etc.).

B) Meanwhile, Article 7(1) of the Korea- Singapore Tax Convention provides that where an enterprise of a Contracting State operates a business in the other Contracting State through a permanent establishment, only the portion which may accrue to the other Contracting State among its profits may be taxed in the other Contracting State. Article 7(2) provides that “Where an enterprise of a Contracting State operates a business in the other Contracting State through the permanent establishment located in the other Contracting State, the said permanent establishment shall be engaged in the same or similar activities under the same conditions, and where it is assumed that the enterprise of the other Contracting State is an independent enterprise entirely independent of the enterprise having the said permanent establishment, and the expected profit to be acquired by the permanent establishment belongs to each Contracting State.” Therefore, even if the Plaintiff operated the permanent establishment in Korea, the profit taxable on the Plaintiff shall be limited to the portion which may accrue to the Plaintiff’s permanent establishment within the above meaning, and there is no method or evidence to determine such profit, the amount of the Plaintiff’s corporate tax imposed on the Plaintiff cannot be seen as falling short of the amount of profit accrued to the Plaintiff’s domestic tax base of this case.

3. Conclusion

Since the judgment of the first instance is justifiable, the defendant's appeal is dismissed as it is groundless.

[Attachment Omission of Related Acts]

Judges Kim Dong-ok (Presiding Judge) Gyeong-gu