[1] The meaning of the substance over form principle under Article 14(1) of the Framework Act on National Taxes / Whether the substance over form principle applies to the interpretation of tax treaties having the same effect as the Act (affirmative in principle)

[2] The meaning of the non-discrimination principle as stipulated in Article 24(1) of the Convention between the Government of the Republic of Korea and the Government of the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention

[1] Article 14(1) of the Framework Act on National Taxes / [2] Article 24(1) of the Convention between the Government of the Republic of Korea and the Government of the Kingdom of the Netherlands for the Avoidance of Double Taxation and

[1] Supreme Court Decision 2011Du3159 Decided April 11, 2013 (Gong2013, 873) / [2] Supreme Court Decision 2010Du15179 Decided April 26, 2012

Athal Royal Royal Royal Rob (Law Firm Sejong, Attorneys Kim Yong-dam et al., Counsel for the plaintiff-appellant)

Head of Donggsan Tax Office

Busan High Court Decision 2013Nu21083 decided July 23, 2014

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

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

1. As to the grounds of appeal Nos. 1 and 2

A. The principle of substantial taxation under Article 14(1) of the Framework Act on National Taxes is that, in cases where there is a person to whom the income, profit, property, transaction, etc. belongs, different from the nominal owner, the beneficial owner is the person to whom the property belongs, if there is another person to whom the income, profit, property, or transaction belongs. Therefore, in cases where the nominal owner of the property is not capable of controlling and managing the property, and there is another person who substantially controls and manages the property through the control, etc. over the nominal owner, and the disparity between the nominal owner and the real owner arises from the purpose of tax evasion, the income on the property shall be deemed to have been reverted to the person who actually controls and manages the property, and the said person shall be the person to whom the property is liable for tax payment, barring any special provision (see Supreme Court Decision 2011Du31

B. The lower court: (1) held 100% shares of the Republic of Korea, and established for the purpose of investing in the oil-related projects among the countries around the world; (2) held 100% of the shares issued by the Intellectual Property Tax Association (IPIC), and held 9.93% of the shares issued by the Plaintiff, who is the Netherlands corporation, and held 9.93% of the shares issued by the Plaintiff, who is the Republic of Korea; (3) on August 12, 2010, the Plaintiff: (a) held 10% of the shares issued by Hyundai Industries Co., Ltd. (hereinafter referred to as the “NIC”); (b) held 9.93% of the shares issued by the Republic of Korea, which are located in the Netherlands corporation; and (c) held 30% of the shares issued by the Government of the Republic of Korea and the Defendant for the purpose of transferring 40% of the shares to the Defendant on the ground that Hyundai Industries Co., Ltd. (hereinafter referred to as the “NIC”); and (d) transferred shares to the Defendant 23030.

Furthermore, the lower court, on the premise that the principle of substantial taxation may be used as a standard for interpreting and applying the provisions of the tax treaty, determined that the Korea-Ne Tax Treaty cannot be applied to the income accrued from the transfer of stocks of this case on the ground that the Plaintiff only performed the role of a transaction party in the form of a transaction party with respect to the transfer of stocks of this case, and its substantial subject is IPIC, and the disparity between the form and substance arises solely from the purpose of evading taxes under the application of the Korea-Ne Tax Treaty.

In light of the above provisions, legal principles, and records, such determination by the court below is just, and there is no error in the misapprehension of legal principles regarding the scope of application of the principle of substantial taxation, the standards for determining the beneficial owner, and the interpretation and application of Article 14(4) of the Korea-N

2. Regarding ground of appeal No. 3

A. Article 24(1) of the Korea-Ne Tax Treaty provides that “A citizen of a Contracting State shall not be subject to any taxation or other related requirements or any more heavy taxation or requirement related thereto, regardless of whether he/she is a resident of the other Contracting State, under the same conditions as that of the other Contracting State.” Such principle of non-discrimination provides that “if a national of a Contracting State is in the same situation as, or performs the same activity as, a national of the other Contracting State, the other Contracting State shall not be subject to any discriminatory disadvantage in taxation solely on the ground that his/her nationality differs (see Supreme Court Decision 2010Du15179, Apr. 26, 2012, etc.).

B. The lower court determined that the Plaintiff cannot be deemed to be in violation of the principle of non-discrimination as stipulated in the Korea-Net Tax Treaty on the ground that the Plaintiff, like the Plaintiff, cannot be deemed to be in the same situation as the special purpose corporation, such as the domestic special purpose company, etc., which is subject to taxation, as the owner of income without such purpose of tax avoidance, on the grounds that the corporation established with the purpose of tax avoidance on income generated from sources in the Republic of Korea through abuse of a tax treaty, did not regard

In light of the above provisions, legal principles, and records, the judgment of the court below is just, and there is no error by misapprehending the legal principles on the non-discrimination principle under the tax treaty.

3. Conclusion

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 on the bench.

Justices Kim Shin (Presiding Justice)