Whether a permanent establishment exists by combining street equipment, receivers, educational facilities, etc.

Inasmuch as a combination of the business activities such as simple delivery of information through Rod Equipment, and promotion and educational activities conducted in customer offices, etc., such combined activities cannot be deemed as an essential and important business activity, it cannot be deemed that a permanent establishment exists in Korea.

Article 8 of the Korea-U.S. Tax Convention (Business Income)

Article 11 of the Value-Added Tax Act

1. The Defendant’s imposition of the value-added tax for the first period of February 1, 2005 against the Plaintiff on February 1, 2005 (7,612,770 won, value-added tax for the second period (6,009,950 won) shall be revoked in entirety.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. “○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ ○○○○○○○ ○○○○○ ○○○○ ○○○ ○○ ○○ ○○ ○○ ○ ○○ ○○ ○ ○○ 2, etc., providing financial information services (hereinafter “instant services”) through electronic means, such as allowing access to ○○○ ○○ ○○○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○”).

C. ○○○○ does not have a permanent establishment under Article 8 of the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income between the Republic of Korea and ○○○○○○○○, and the Encouragement of International Trade and Investment (hereinafter referred to as the “Korea-U.S. Tax Convention”), and thus, no separate corporate tax was filed on the service cost received from customers. Likewise, value-added tax was also collected and paid. ○○○○’s domestic customer did not have a domestic place of business under the Value-Added Tax Act by deeming that the ○○○○○ had no domestic place of business under the Value-Added Tax Act, and paid value-added tax by proxy

D. As a result of conducting a regular tax investigation with respect to ○○○○○ from July 22, 2002 to September 16, 2002, ○○○○○○○○○○○ has a duty to provide services to information collection and information transmission equipment according to a service contract with ○○○○○○○○○○○○○, and to report value-added tax on the cost of services received from ○○○○○○○○○○○○○○ on the ground that ○○○○ does not have a permanent establishment in Korea, on the ground that ○○○○ received from ○○○○○○○○ was a foreign corporation, by applying zero-rate tax rate under Article 11(1)4 of the Value-Added Tax Act. However, as a result of conducting an investigation with respect to ○○○’s business activities, it appears that ○○○○○ has operated an essential and important business activity in Korea using ○○○’s human resources and material facilities, and thus, the head office notifies ○○○○○○’s income.

“On the other hand, according to the notice of the result of the tax investigation of ○○ Regional Tax Office, the Defendant: (a) deemed that ○○○○ has operated a permanent establishment in Korea by using human resources and physical facilities, etc., which are its subsidiaries; and (b) deemed that ○○○○○ and the Plaintiff actually provided the instant services, which are agreed to provide directly to ○○○○○ and the Plaintiff, to ○○○○○○○○○ and the domestic business place; (c) deemed that ○○○ and the Plaintiff actually provided the instant services to ○○○○○○○○○○○; (d) excluded the application of zero tax rates on the consideration for the services received by the Plaintiff on February 1, 2005; and (e) rendered the disposition of imposition of value-added tax (hereinafter “instant disposition”). The Plaintiff dissatisfied with the instant disposition of imposition on April 29, 2005, dismissed the Plaintiff’s request for a judgment by the National Tax Tribunal under the Presidential Decree No. 17670, Aug. 1, 2005.

[Grounds for Recognition] Unsatisfy, A1-1-3, 2

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) Plaintiff

(A) The ○○○○○○○○○○○○○○○○○○○ proprietor used to provide the instant service to a domestic customer, and the ○○○○○○○○○○○○○○○○○○○ is merely a use of the instant service contract with the ○○○○○○○○○○○○○○○○, and there was no exclusive disposal right or right to use the said equipment, and the ○○○○○○○○○○○ is merely an information transmission device, not an essential and important act of the ○○○○○○○○ business, but merely an auxiliary and ancillary act, not an auxiliary and ancillary act, and thus, cannot be deemed as having a permanent establishment in the Republic of Korea at the place of the ○○○○○○○○○○○○○○○○○.

(B) Although ○○○○○○○○○○○’s employees visited the Republic of Korea on a intermittent basis and conduct promotion and public relations activities for the instant service at customer offices, ○○○○ offices, etc., such activities cannot be deemed as an essential and important business activity of ○○○○○ business. Moreover, it cannot be deemed that ○○○○○○○○○○○ office, etc., which conduct intermittent activities, has exclusive and exclusive disposition rights or rights to use ○○○ office, customer offices, ○○○ office, etc., and therefore, it cannot be said that ○○○○ office, etc., as seen above, had a permanent establishment in ○○ office, etc.

(C) Even if a combination of the foregoing od equipment and the business activities through the ○○○○○○○, the place of education, etc. is combined, such combined activities cannot be deemed as an essential and important act to provide the instant service. Therefore, the permanent establishment of ○○○○ cannot be deemed to exist in the Republic of Korea.

(D) As such, since ○○○○ does not have a permanent establishment in the Republic of Korea, the supply of the instant service is subject to zero tax rate as foreign exchange earnings for nonresidents, etc. who have no domestic place of business as prescribed in Article 26(1)1 of the Enforcement Decree of the Value-Added Tax Act. Even if a permanent place of business exists, the supply of the instant service is subject to zero tax rate as foreign exchange earnings for nonresidents, etc. who have a domestic place of business as prescribed in Article 26(1)1-2 of the Enforcement Decree of the Value-Added Tax Act.

(2) Defendant

(A) The business operated by ○○○ is not merely a simple digital information sales business, but also an information and communications hub such as allowing software use, providing information, leasing equipment, providing telecommunications services using an electronic commerce network, and providing ○○○○○○○○○○ network. Since ○○○ was performing the essential and important activities of ○○○○ and the Plaintiff as its subordinate agent or performance assistant, it can be deemed that ○○○○○○○○ has a permanent establishment in the place where ○○○○○○○ received equipment is located.

(B) ○○○○○○○○○○○○○○ employees staying in Korea for a long time and engaged in promotion and educational activities for customers at the office of ○○○○○○○○, etc., as well as conducting a specific and important role of inducing customers to enter into a contract, such as holding consultations on the price conditions of the instant service and the terms and conditions of the use of equipment. As such, the permanent establishment of ○○○○○○○○○○○○ may exist at the office of ○○○○○, etc.

(C) Even if a business activity conducted in the ○○○○○○○○ Office, etc. as above does not individually constitute an essential and important part of the ○○○○ Business, if a combination of all acts performed at the above physical facilities constitutes an essential and important part of the ○○○ Business, the combination of such activities may be deemed as an essential and important part of the ○○○ Business. Therefore, at the seat of the ○○○○○○○○ Office, at the above location of the ○○○ Office equipment

(D) Since ○○○○ has operated a permanent establishment in the Republic of Korea by using the human resources and physical facilities of ○○○ and the Plaintiff, etc., which are its subsidiaries in Korea, the instant service, which was agreed to provide directly to ○○○○○○○ under the contract between the Plaintiff and the Plaintiff, is deemed to have actually been provided to ○○○○○○’s domestic business place, and thus, the instant disposition of taxation of this case imposed on the Plaintiff after the Plaintiff excluded the application of the zero tax rate on the consideration for the service received by the Plaintiff.

(b) Fact of recognition;

(1) Creation, processing, and delivery of the instant service

The instant service is conducted through the process of collecting and processing information that ○○○○’s head office enters into the database of ○○○○ computer through the process of verifying, properly modifying, editing, and analyzing the accuracy of the information when information collection personnel of each country’s financial markets collect and transmit the information to ○○○○○○○ head office, and through the editing process, to the customers of ○○○○○ through the database stored in the prime computer, news information, and analysis, or through the transmission of information through the prime Internet network, and through the delivery of the database, news information, and analysis data, such as the division of company’s stocks. However, an urgent information, such as the division of company’s stocks, should immediately be provided to the customers of the entire world by entering the information collection personnel of each country into the prime computer database of ○○○○○○○○, and providing real-time information to the customers of the entire world.

(2) Conclusion of contracts, contractual terms, etc. for the instant service

The contract team of ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○) directly or through a third party’s agent for the instant services. ② A customer’s key content of the instant contract is to impose, remove, or modify the approved information for the purpose.

(3) Outline of the Nod equipment and the ○○○○ receiver

(A) In the process of providing the instant service at the ○○○○○○○ head office, a device that transmits data, such as financial information, to the customers via an intermediate transmission. Round, which is a device that adjusts the direction of the transmission of information, is a device capable of transmitting the data in a more small capacity and so that the data can be transmitted to the customers by dividing the data into a more small size, such as a device, a device that stores core devices, and a device that stores core devices, and operates or enables the device to be operated again in a digital way, the signal of the data, from an Arabic to an Arabic signal method, is composed of a device that performs the function of mutually altering the data from an Arabic to a digital method, and the entire system function of regulating the function of each of the above equipment as a whole, and is not simply transmitting the data to the customer by receiving the modified data from the data itself.

(B) ○○○○○○ is a computer device established in the office of the customer receiving the instant service, consisting of computer main body, producer monitoring, keyboard, drama, etc., and is used in transmitting and receiving the instant service, etc. between ○○’s prime computer and the provider of the instant service, and also performs functions as a general computer such as document work or Internet connection.

(C) In a case where a customer receives information by using the aforementioned ods equipment and devices, ○○○○○○○○, etc., he/she may receive prompt and stable information services compared to the receipt of information via the general Internet network, and in a case where a hacking or other security problem is resolved and an error occurs, he/she may receive prompt correction of error.

(D) Since ○○○○’s customers’ use of the instant service does not necessarily require ○○○○○○○’s customer to receive the instant service, 20% of the customers are using the instant service via a general Internet network rather than via an exclusive line using od equipment. Moreover, 60% of the customers of ○○○○’s use of the instant service is not via ○○○○○○, but via ○○○○’s personal computer.

(4) Conclusion of a service contract between ○○ and ○○○○○

(A) On March 1, 1996, ○○○○ entered into a service contract with ○○○○○○, a subsidiary company, on information collection and information transmission. The main contents of the contract are ① providing low-malm services for collecting and providing domestic financial and industrial information related to the operation of the news reporting station for ○○○○○○○○○○○○○○○○ by employing one or more employees or concluding a franchise contract, and ② providing ○○○○○○○○○○○○○○○○○ customers with information collection and information delivery. ③ providing ○○○○○○○○○○○○ with information collection and information collection and information delivery, and ③ providing ○○○○○○○○○○○ with information collection and information collection and information delivery without any separate cost claim. In return for the provision of services, the amount equivalent to 10% of employees’ wages and related taxes, general expenses, office expenses related to news, related equipment, communication expenses, expenses, food, payment, service charges, and other expenses equivalent to 10% of general accounting and management expenses, etc.

“(B) Pursuant to the above service contract, ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ KRW 16666, supra.

(A) On February 1, 199, ○○○○○○○○ and ○○○○○○○○○○○○○○, a subsidiary of ○○○○○○○○○○○○, concluded a service agreement with one or more liaison offices to employ one-day or part-time reporters as employees, or to collect news and relevant information on ○○ and financial markets by using a franchise so as to enable ○○○○ to use such information for ○○○○○ and financial markets, and to receive expenses and service fees required for the operation of the liaison office in return for providing such information.

(B) As of December 31, 2001, the liaison office employs eight professional reporters as of December 31, 2001 to gather news from domestic finance and industry-related news, and send it to ○○○○. The liaison office receives an amount equivalent to 110% of the expenses incurred in connection with the performance of the above services from ○○○○○.

(6) Conclusion, etc. of each service contract between ○○ and ○○, ○○, and ○○ and ○○○.

(A) As a value-added telecommunications business operator under the Telecommunications Business Act, ○○, etc. is an independent third-party company that has no capital investment relationship with ○○○ or ○○○○○, etc., and provides additional communications services, etc. to ○○○, ○○○○, and other small and medium enterprises in addition to ○○○ and ○○○○, and ○○○,

(B) On February 15, 1996, ○○○○ entered into a service contract on the maintenance and repair of remote communications services for domestic customers and terminal equipment necessary therefor. The main contents of ○○○○○○○○○ provides the instant services to its customers through facilities for the operation of remote communications services, such as ○○○○○, etc.; ② during the contract period, ○○○○○, etc. provides the instant services to its customers via ○○○○○○’s communications equipment, such as dial equipment, etc.; ③ provides the activities related to the installation and maintenance of equipment with respect to the instant services to its domestic customers during the contract period; ③ secure an adequate office space for the maintenance of ○○○○○○○○’s computer room and equipment; ③ provide the pertinent services to its customers, such as ○○○○, etc., with adequate operation of equipment and system; and ④ provide the Plaintiff’s own information and training on its own, including the Plaintiff’s own list or cost necessary for the lease of the services.

(C) On January 1, 1996, ○○○○ entered into a service contract with ○○○○○○○○○○○○○○○○, to supply, maintain, and repair drid equipment, and maintain ○○○○○○○○○○○○○○○○. The main contents thereof are ① (a) operate drid equipment, etc. so that domestic customers do not cause inconvenience to using the instant service during the contract period; (b) operate equipment within the scope of operation established by ○○○○○○○○○○○○○; (c) install equipment in the Plaintiff’s office; and (b) operate, maintain, and repair the equipment, including assembling, installing, maintaining, and repairing dial equipment; and (d) perform general maintenance and repair services for ○○○○○○○○○○○○, etc.; and (c) receive service fees for the installation, maintenance, and repair of the said equipment from ○○○○○.

(D) Pursuant to each of the above services agreements with ○○○ and ○○○○○, ○○○, etc., ○○○○, etc., install, maintain, repair, and manage ○○○○○○○○○○○○○○, etc., by importing and managing an appropriate number of ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ in real time, and install, maintain, and manage ○○○○○○○○○○○○○○’s customer office.

(7) Activities at ○○○○○○ Branch

(A) The head of ○○○ has its own branch, ○○○, ○○○, ○○○, and ○○○, a major hub for the business of the Asia and the Pacific region, and each branch has sales-related sectors. Such branch organization is in charge of not only information collection and provision of information about its jurisdiction, but also sales-related support, such as sales-related support, fee claim and collection management, personnel affairs, finance, and accounting support to the relevant company.

(B) On December 31, 2001, 2001, the ○○○○○○○○○’s branch has four employees in charge of the operation of the ○○○○○○○ branch. A business employee in charge of the ○○○ branch visited ○○○○○ branch on a intermittent basis to visit customers’ office or a hotel, and provides customers with education and training on contractual terms, such as support and information fees, such as the introduction of the instant service, etc., for domestic customers and potential customers, and for customers at the office of ○○○○○○○○.

(C) Upon receipt of an order from a potential customer to conclude a service contract, the ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ Branch shall immediately deliver it to the contract-related team, and the contract-related team of the ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○

(8) Corporate tax of ○○○, ○○○○○, etc. and payment of value-added tax

○○○ did not pay corporate tax or value-added tax on the service cost received from domestic customers on the ground that there is no permanent establishment in Korea. Domestic customers of ○○○ have collected value-added tax on the service cost paid to ○○○○○ under Article 34 of the Value-Added Tax Act and paid it on behalf of ○○○○○○. The Plaintiff paid corporate tax on the income acquired by ○○○○○, ○○○○, and the Plaintiff paid corporate tax on the service cost received from ○○○○, by applying zero tax rate to the service cost received from ○○○○○.

[Grounds for recognition] Gap 1-13, Eul 1-12 (including each number), the purport of the whole pleadings

C. Relevant provisions

Article 8 of the Korea-U.S. Tax Convention

(i)the industrial or commercial profits of a resident of a Contracting State shall be exempted from taxes imposed by that other Contracting State, unless the resident engages in industrial or commercial activities in that other Contracting State through a permanent establishment located in the other Contracting State, unless the resident engages in such activities in the industry or commercial activities in that other Contracting State. If the resident engages in such activities, it may be taxed by that other Contracting State on the industrial or commercial profits of the resident, but shall be taxed only on the profits accruing to the permanent establishment;

(ii) If a resident of a Contracting State engages in industrial or commercial activities in the other Contracting State through a permanent establishment located in the other Contracting State, if the head of the fixed business is assumed to be an independent business entity exclusively engaged in the same or similar activities and exclusively traded with a resident of a permanent establishment under the same or similar conditions, the industry or commercial profit belonging to the permanent establishment shall belong to the said permanent establishment in the respective Contracting State.

(3)In determining the industrial or commercial profits of a permanent establishment, expenses relating to the reasonable profit, including expenses for business management and general management, shall be allowed at cost deductions, regardless of whether they arise within the Contracting State in which the permanent establishment is located or in other places;

(iv)for the account of a resident of a Contracting State, profits shall not accrue to the permanent establishment of that resident solely on the account of purchases of goods or goods by the resident of the other Contracting State or by the resident of the said permanent establishment;

(5)"Industrial or Commercial Activities" means the active conduct of commerce or business. These activities include the conduct of manufacturing, commercial, insurance, banking, finance, agriculture, fishery or mining activities, and the lease of personal property (including vessels or aircraft) and of the type of vessel or aircraft operation, provision of services, and lease of types of personal property (including vessels or aircraft). It is not included as employee or independent qualification that an individual performs a personal service.

(6) The term "industrial or commercial profit" means income derived from industrial or commercial activities and income, dividends, interests, royalties (as provided for in Article XIV(4)), and capital gains derived from real estate and natural resources, provided that such income is substantially related to the permanent establishment in which the recipient, who is a resident of a Contracting State, is located in the other Contracting State, regardless of whether it is obtained from industrial or commercial activities.

(b)The factors to be considered to determine whether the property or rights are practically related to the permanent establishment shall include whether the property or rights are being used in or for the industrial or commercial activity through the permanent establishment, and whether the activities undertaken through the permanent establishment were material factors in the acquisition of the property or rights or income. For this purpose, due consideration shall be given to whether such property or rights or income has been appropriated through the permanent establishment.

(7) In the event that industrial or commercial profits include items of income that are otherwise treated in paragraph (1) of another provision of this Convention, except as otherwise provided in that paragraph, the provisions of paragraph (1) of the same Article shall replace the provisions of this Convention.

○ Permanent establishment of Article 9 of the Korea-U.S. Tax Convention

(1)For the purposes of this Convention, the term "permanent establishment" means a fixed place of business in which a resident of any Contracting State is engaged in industrial or commercial activities;

(2) The term "fixed place in business" includes, but is not limited to:

(a) Construction or construction or installation of a branch (b) office (c) factory (d) store (f) store or any other store (g) mine, Quarrying or any other place of natural resources collection which remains in existence for more than 6 months;

(3)Notwithstanding paragraphs (1) and (2) above, the permanent establishment shall not include a fixed place of business in which only one or more of the following is used:

(a)the use of facilities for the storage, display or delivery of goods or merchandise belonging to a resident;

(b) the holding of a stock of goods or merchandise belonging to a resident for storage, display or delivery purposes;

(c)the holding of stock of goods or merchandise belonging to a resident for the purpose of processing by others;

(d)the holding of a fixed place of business for the purpose of purchasing or collecting goods or merchandise for residents;

(e)the holding of a fixed place of business for advertising, providing information, scientific research, or similar activities of a preliminary or auxiliary nature for residents;

(f)the holding of building works or construction or facility works not in existence for more than six months;

(4) Even if a resident of a Contracting State does not have a permanent establishment in the other Contracting State pursuant to paragraphs (1) through (3) of this Article, if he is engaged in commerce or business in the other Contracting State through:

(a) has the right to conclude a contract in the name of that resident and regularly exercises that authority in that other Contracting State, provided that the exercise of that authority is not limited to the purchase of goods or merchandise on the account of that resident;

(b)the agent holding in the other Contracting State the inventory of the goods or merchandise belonging to that resident that such agent complies with or delivers orders regularly;

(5) Notwithstanding paragraphs (3) (a), (c) and (d) above, where a resident of a Contracting State has a fixed place of business in the other Contracting State, and goods or merchandise is processed by another person or purchased in the other Contracting State (a) or (b) where it is purchased in the other Contracting State (not to be processed outside the other Contracting State) or where all or part of such goods or merchandise is sold by a resident or for use, consumption or disposal in the other Contracting State, that resident shall be deemed to have a permanent establishment in the other Contracting State.

(6)Notwithstanding the provisions of paragraphs (4) and (5) above, a resident of a Contracting State shall not be deemed to have a permanent establishment in that other Contracting State solely on the ground that he or she is engaged in industrial or commercial activities through an intermediary, a general consignee, or any other agent acting in a normal manner as an intermediary, a general consignee, or any other independent agent in the other Contracting State.

(7)The fact that a resident of a Contracting State is a special related person (any person as defined in Article XI (special related person) with a resident of the other Contracting State or a person engaged in industrial or commercial activities in the other Contracting State ( through, or by any other means) shall not be considered in determining whether a resident of that Contracting State has a permanent establishment in the other Contracting State.

(8) The principles of paragraphs (1) through (7) above shall apply to determining whether a permanent establishment is located in any country other than a Contracting State for the purposes of this Convention or whether a person other than a resident of any Contracting State has a permanent establishment in any Contracting State.

○ Article 5 of the OECD Model Tax Convention

(1) For the purposes of this Convention, the term "permanent establishment" means a given place where the business of one enterprise is wholly or partly carried on;

(2) The term "permanent establishment" includes especially:

(a) The place of management (b) the place of business (d) the factory (f) the place of business (f), the place of business, or the place of business (f), the place of business, or any other place of collection of mineral resources;

(3) A permanent establishment shall be established only if the construction site, construction or installation continues to exist for more than 12 months.

(4) Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include:

(a)the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

(b) the holding of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

(c) the holding of stock of goods or merchandise belonging to the enterprise solely for processing by another enterprise;

(d)the maintenance of a specified establishment solely for the purpose of purchasing goods or merchandise for the enterprise or collecting information;

(e) the maintenance of certain establishments for the purpose of carrying out only preliminary or auxiliary activities for the benefit of the enterprise;

(f)the maintenance of a given establishment solely for the conduct of the combined activities referred to in items (a) through (e), provided that the overall activity of a given establishment resulting from the conduct of such combined activities is of a preliminary or auxiliary nature;

(5) Notwithstanding the provisions of paragraphs (1) and (2), an enterprise shall be deemed to have a permanent establishment in respect of its activities performed by it in that country, if the person works for a company - other than an independent agent to which paragraph (6) applies, and exercises at all times its authority to conclude contracts in one Contracting State, with the right to conclude contracts in its name; provided that even if the activity of the person is undertaken through a particular business place, it shall be limited to the activities referred to in paragraph (4), not to be a permanent establishment.

(vi)the sole reason that an enterprise carries on business through an intermediary, a general consignee, or any other independent agent in a Contracting State is not deemed to have a permanent establishment in that Contracting State, except when the enterprise is engaged in the ordinary course of business;

(7)The sole fact that a company which is a resident of a Contracting State is controlled or controlled by a company which is a resident of another Contracting State or a corporation which is engaged in the business in another Contracting State (by means of permanent establishment or by any other means) shall not become a permanent establishment of a company of another Contracting State.

○ Application of Article 11 of the Value-Added Tax Act

(1) zero tax rates shall apply to the supply of goods or services falling under any of the following subparagraphs:

1. Exported goods;

2. Services supplied overseas;

3. International navigation services by ships or aircraft; and

4. Goods or services for earning foreign currency other than those as referred to in subparagraphs 1 through 3, which are prescribed by the Presidential Decree.

(2) In applying paragraph (1), if an entrepreneur is a nonresident or a foreign corporation, the zero tax rate shall apply only where the entrepreneur grants the same tax exemption to a resident or domestic corporation of the Republic of Korea.

(3) Matters necessary for the scope of goods and services under paragraph (1) shall be prescribed by Presidential Decree.

○ Payment by proxy under Article 34 of the Value-Added Tax Act

(1) A person who receives a supply of service from a person falling under any of the following subparagraphs (excluding cases where the supplied service is supplied for a taxable business) shall collect the value-added tax at the time of payment of the price, and pay it to the head of the competent tax office having jurisdiction over the place of business or domicile under the conditions as prescribed by the Presidential Decree by applying mutatis mutandis Articles 18

1. A nonresident or a foreign corporation that has no domestic business place under Article 120 of the Income Tax Act or Article 94 of the Corporate Tax Act (hereafter in this Article, referred to as the “domestic business place”); and

Article 26 of the Enforcement Decree of the Value-Added Tax Act, Scope of foreign exchange earnings and services

(1) Goods or services for earning foreign currency referred to in Article 11 (1) 4 of the Act, shall be as follows:

1. Any of the following goods or services supplied to a nonresident or foreign corporation having no domestic place of business in the Republic of Korea, which is paid in Korean currency at a foreign exchange bank:

(a) Goods delivered to a domestic entrepreneur designated by a nonresident or foreign corporation, which are used for a taxable business of the entrepreneur concerned;

(b) Business services;

(c) Leasing intangible property rights among finance and insurance businesses;

(d) Communications business (excluding small-scale delivery business);

(e) Warehouse business within bonded areas among transportation business;

(f) News providing business and film industry (excluding movie theater operation business and video watching room operation business) among service business related to entertainment, culture and sports;

(g) A comprehensive product brokerage business, among commodities brokerage business;

(h) Other similar goods or services prescribed by the Ordinance of the Ministry of Finance and Economy.

1-2. Services falling under any of the items of subparagraph 1 from among goods or services supplied in Korea under a direct contract with a foreign nonresident or foreign corporation where a nonresident or foreign corporation has a domestic place of business, and which receive the price in Korean currency from the relevant foreign nonresident or foreign corporation through a foreign exchange bank;

D. Determination

(1) Article 8 (1) of the Korea-U.S. Tax Convention provides that a resident of a Contracting State’s industrial or commercial profit shall be exempted from taxes under that other Contracting State, provided that the resident is not engaged in industrial or commercial activities in that other Contracting State through a permanent establishment located in the other Contracting State, unless the resident is engaged in the industrial or commercial activities in that other Contracting State. As such, ○○○○ is exempt from taxes under domestic law, unless there is no activity through a permanent establishment in the Republic of Korea in connection with the provision of the instant service, unless there is an activity through a permanent establishment in the Republic of Korea in the Republic of Korea in accordance with the said treaty, and thus

Therefore, the first issue in this case is whether ○○○ received income from running the business of this case through the establishment of a permanent establishment in Korea.

(2) 한편 한미조세협약 제9조 (1)항은 '고정사업장'에 대하여, 어느 체약국의 거주자가 산업상 또는 상업상의 활동에 종사하는 사업상의 고정된 장소를 의미한다고 정의하고, 제2항은 그와 같은 '사업상의 고정된 장소'에 해당하는 예시로서 ⓐ 지점, ⓑ 사무소, ⓒ 공장, ⓓ 작업장, ⓔ 창고, ⓕ 상점 또는 기타 판매소, ⓖ 광산 · 채석장 또는 기타 자연자원의 채취장, ⓗ 6개월을 초과하여 존속하는 건축공사 또는 건설 또는 설비공사를 규정하고 있으며, (3)항은 그와 같은 '사업상의 고정된 장소'에 해당하지 않는 예시로서 ⓐ 거주자에 속하는 재화 또는 상품의 보관 · 전시 또는 인도를 위한 시설의 사용, ⓑ 저장 · 전시 또는 인도목적상 거주자에 속하는 재화 또는 상품의 재고보유, ⓒ 타인에 의한 가공목적상 거주자에 속하는 재화 또는 상품의 재고보유, ⓓ 거주자를 위한 물품 또는 상품의 구입목적상 또는 정보 수집을 위한 사업상의 고정된 장소의 보유, ⓔ 거주자를 위한 광고, 정보의 제공, 과학적 조사 또는 예비적 또는 보조적 성격을 가지는 유사한 활동을 위한 사업상의 고정된 장소의 보유, ⓕ 6개월을 초과하여 존속하지 아니하는 건축공사 또는 건설 또는 설비공사의 보유를 각 규정하고 있는바, 이 사건에 있어서 ○○○의 국내 고정사업장의 존재여부를 판단함에 있어서는 이러한 한미조세협약상의 고정사업장에 관한 정의나 예시규정이 우선적으로 적용되어야 한다고 할 것이고, 위 각 규정들에 비추어 보면, 외국 법인의 국내 고정사업장이 존재한다고 하기 위하여는, ① 국내에 외국 법인의 사업 활동을 수행하기 위하여 사용되는 건물, 시설 또는 장치 등의 '고정된 사업장소가 존재'하여야 하고, ② 외국 법인이 그 사업 장소에 대하여 '처분권한 또는 사용권한'을 가지고 있어야 하며, ③ 외국 법인의 직원 또는 그 지시를 받는 자에 의하여 그 고정된 사업장소를 통하여 예비적 · 보조적 활동이 아닌 '본질적이고 중요한 사업 활동이 수행'될 것 등이 요구된다고 할 것이다.

Therefore, this paper examines whether ○○○○’s domestic permanent establishment exists in relation to the instant business activities in accordance with the foregoing requirements.

(3) Whether a permanent establishment of ○○○ exists at the seat of the ○○○○○○○○○○○○○○ received equipment

(A) As seen earlier, ○○○○○○○○○○○○○○ and a third party with the authority to purchase ○○○○○○○○○○○○○○○○○○○○○○○○○○○○ and directly install ○○○○○○○○○○○○○’s office, and, based on the Plaintiff’s subcontract, have the Plaintiff install ○○○○○○ office to maintain, repair, and manage the ○○○○○○○○. In addition, as a consideration for providing services, the amount equivalent to 110% of the cost of cost, including service fees, paid to the Plaintiff, and the amount equivalent to 110% of the cost of repairing ○○○○○○○○○○○○○○○○○○○○○○○○○○○○’s business with its main equipment and equipment, and the Plaintiff concluded a service contract on installation, maintenance, and repair of ○○○○○○○○○ and its main equipment and equipment, and maintained the ○○○○○.

(B) Next, as seen earlier, the business activities of ○○○○○○○○ through the instant ○○○○○○○○○○○○○○○○○○ Equipment are merely a device that merely receives and transmits information from ○○○○○○○○○○○○○○’s employees to intermediate intermediate intermediate to the customers, and thus, provides that “○○○○○○○○○○○○○○○○○○○”’s business activities are carried out by collecting and analyzing each country’s financial information, and the accuracy of information received by ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○’s headquarters’s head office, which does not constitute a three-dimensional type of delivery of information provided to the customers through the ○○○○○○○○○’s digital equipment.

In this regard, the defendant asserts that the contents of the service provided by ○○○ to customers include not only the provision of information but also the provision of equipment leasing, allowing the use of software, and providing communication functions using ○○○ network, and receiving a comprehensive consideration therefor. Thus, the defendant asserts that the ○○○○○○○ received the service provided by ○○○○ to customers is an essential device for the creation of these profits, and thus, it is an essential business activity as a permanent

In the conclusion of the contract on the service of this case, ○○○○○ provides an ordinary customer with a receiver for smooth delivery of the service and received the user fee including the service of this case, although there is no dispute between the parties concerned, ○○○○○○○○○○ received the information provided by ○○○○○○○○○, in addition to providing ○○○○○○ receipt to the customer, and even if ○○○○○○ provides the telecommunication functions using the software or using the network, it is nothing more than that incidental to the service of this case, and even if ○○○○○ received the user fee for the equipment or service of this case including the service of this case, it is nothing more than that incidental to the service of this case, and even if ○○○○○○○ received the user fee for the equipment or service of this case, it cannot be deemed as a permanent establishment for acquiring the profit of business of this case, the Defendant’s assertion on this point is without merit.

(C) Therefore, even if an employee of ○○○○ or ○○○○○○, etc., performed the business activities of ○○○○○○○○ by installing, maintaining, and managing them in accordance with a service agreement with ○○○○○○○○○, such business activities are merely incidental and auxiliary activities in light of the content of the business activities of ○○○○○○, and thus, cannot be deemed as having a permanent establishment in the Republic of Korea under the Korea-U.S. Tax Convention.

(4) Whether a permanent establishment exists at an activity site of ○○○○ branch employees

The fact that ○○○○○○○○○○○○○ Branch visited ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○’s office, etc., where the said activities were carried out with a certain degree of exclusive control or authority to use the said activities. As such, it cannot be deemed that there was a permanent establishment in the Republic of Korea.

(5) Whether a permanent establishment exists by combining od equipment, ○○○○ recipient, place of education, etc.

Inasmuch as a combination of business activities, such as simple delivery of information carried out through od equipment, and promotion and educational activities carried out at the customer’s office, ○○○○ office, etc., such combined activities cannot be deemed as an essential and important business activity of ○○○○○○ business, it cannot be deemed that ○○○○○○ permanent establishment exists at the place where such activities are carried out.

(6) Sub-committee

Therefore, even if ○○○○ received profits in the course of performing the instant project from a domestic source, it cannot be deemed that there is a domestic permanent establishment under Article 8(1) of the Korea-U.S. Tax Convention. Thus, on the premise that ○○○○’s domestic permanent establishment exists, deeming the instant service was actually provided to ○○○’s domestic place of business, and thus, the instant tax disposition, which excluded the Plaintiff from the application of the zero tax rate, is unlawful without any need to further examine the remainder of

3. Conclusion

Therefore, the plaintiff's claim of this case is justified, and it is so decided as per Disposition with the assent of all participating Justices.