Whether a domestic permanent establishment exists

The street, studioberg receiver, place of education, etc. are merely auxiliary and preliminary activities, and such place of installation is not a domestic permanent establishment that can be seen as an important business activity.

Article 56 (Domestic Business Place of Foreign Corporations)

1. The Defendant’s disposition of imposition of corporate tax and value-added tax on October 15, 2004, shall be revoked in all of the disposition of imposition of each corporate tax and value-added tax stated in the

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

As set forth in the text.

1. Details of the disposition;

The following facts are not disputed between the parties, or may be acknowledged in combination with the whole purport of the pleadings in the descriptions of Gap evidence 1 through 14, Gap evidence 2, Eul evidence 20-1 through 3, Eul evidence 1-5, and Eul evidence 2-1 through 9:

A. The Plaintiff is a partnership-type company with the main office in the U.S. ○○○○○○○○○○ 731, and is engaged in the service of selling and providing financial information services by electronic means, such as allowing access to financial information database, analyzing data for evaluating financial products, and providing comprehensive news for all global customers (hereinafter “instant service”). The Plaintiff is a domestic subsidiary with 10% investment by the Plaintiff for the purpose of database business, special category telecommunications business, etc., in which ○○○○○○○○ ○○○ ○○ ○○ ○○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 15 floor at the principal office’s domicile, and has concluded a service contract with the Plaintiff and provided services, such as installing, maintaining, and repairing domestic financial information collection and information delivery devices, etc.

B. The Plaintiff: (a) did not have a permanent establishment under Article 8 of the Convention between the Republic of Korea and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and the Encouragement of International Trade and Investment (hereinafter “Korea-U.S. Tax Convention”); and (b) did not report separate corporate tax on service charges received from customers; (c) the value-added tax was not collected and paid; and (d) the Plaintiff’s domestic customer deemed the Plaintiff to have no domestic place of business under the Value-Added Tax Act and paid the value-added tax by proxy to the

C. As a result of the regular tax investigation conducted from July 22, 2002 to September 16, 2002, 000, ○○○ Local Tax Service rendered a regular tax investigation conducted on non-KEL, the Defendant notified the Defendant of the result of the tax investigation conducted on December 11, 2002, on the ground that the Plaintiff provided information collection and information transmission equipment in accordance with the Plaintiff’s service contract and received service charges from the Plaintiff does not have a permanent establishment in Korea, by applying the zero-rate tax rate under Article 11(1)4 of the Value-Added Tax Act on the ground that the Plaintiff did not have a permanent establishment in Korea. However, as a result of the investigation conducted on the Plaintiff’s business activities, it appears that the Plaintiff had an obligation to pay corporate tax, etc. on the income, etc. acquired from the Plaintiff’s business activities in Korea, and the Defendant reported the Plaintiff of the business registration under the Plaintiff’s name of the Plaintiff’s permanent establishment in the name of the Plaintiff’s business, and imposed the Plaintiff’s total amount of 10% and 50%.

D. The plaintiff was dissatisfied with the disposition of this case and filed an appeal with the National Tax Tribunal on January 11, 2005, but the National Tax Tribunal dismissed the plaintiff's appeal on September 23, 2005.

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) Plaintiff

(A) The Plaintiff is the ownership of the Nod Equipment and Blstberg receiver, which the Plaintiff used for providing the instant service to domestic customers, and the Plaintiff merely uses it through a service contract with non-KEL for the Plaintiff’s business activities, and there was no exclusive disposal right or right to use the said equipment. The Plaintiff’s transfer of information through the said equipment is merely an information transmission device, not an essential and important activity of the Plaintiff’s business, but merely an auxiliary and ancillary activity, not an essential and important activity of the Plaintiff’s business. Thus, it cannot be deemed that the Plaintiff’s permanent establishment exists at the location of the Nod Equipment and Blstberg receiver.

(B) Although the employees of the Plaintiff’s ○○ Branch visit the Republic of Korea intermittently in customer offices, non-KEL offices, etc., they conduct promotion and publicity activities for the instant services and educational activities for customers, such activities cannot be deemed as an essential and important business activity for the Plaintiff’s business. Moreover, it cannot be deemed that there was the Plaintiff’s permanent establishment in the customer offices, non-KEL offices, etc., which have been intermittently performed, and as such, it cannot be said that there was the Plaintiff’s permanent establishment in the customer offices, non-KEL offices, etc.

(C) Even if all business activities are combined with the above street equipment and studio receivers, and the place of education, such combined activities cannot be deemed as an essential and important act for the provision of the instant service. Therefore, the Plaintiff’s permanent establishment in the Republic of Korea cannot be deemed to exist.

As such, the instant disposition taken by the Defendant on the premise that the Plaintiff did not have a permanent establishment in the Republic of Korea is unlawful.

(D) Even if the Plaintiff’s permanent establishment in Korea exists, the Defendant, in accordance with Article 8(2) of the Korea-U.S. Tax Convention, should calculate the income to be reverted to the Plaintiff’s permanent establishment by proving the income to be reverted to each of the enterprises under similar transaction circumstances, which are deemed as independent business entities of the Plaintiff’s permanent establishment and the Plaintiff’s head office. However, even if the calculation of income to be reverted under the Korea-U.S. Tax Convention is lawful, it is unlawful to impose the instant disposition on the Plaintiff’s permanent establishment taking charge of only a part of the information transmission activities of the instant service, 50% of the income acquired from the domestic customer, in view of the empirical rule as to the ability to generate income. Thus, the instant disposition on the premise of the income reverted to

(E) In addition, the Plaintiff’s domestic customer did not have a domestic place of business under the Value-Added Tax Act and collected value-added tax and paid it by proxy to the Plaintiff pursuant to Article 34 of the Value-Added Tax Act, which constitutes double taxation and thus is unlawful.

(2) Defendant

(A) The business operated by the Plaintiff is not merely a sales business of electronic information but also a business of facilitating information and communications, such as allowing software use, providing information, leasing equipment, e-commerce, and providing communication functions using a studioberg network. The Plaintiff’s permanent establishment is deemed to exist at a place where the Plaintiff’s equipment, studlerg receiver, etc. is located, with the lease of Nodrid equipment, studlerg receiver, and non-casesel and ○○○○○○○○ (hereinafter “PS”) as its subordinate agent or performance assistant. As such, the Plaintiff’s permanent establishment is deemed to exist.

(B) The employees of the Plaintiff’s Hong Kong Branch were staying in Korea for a long time and engaged in sales promotion and educational activities for customers at the office, etc. of non-KEL, etc., as well as engaging in a specific and important part of the Plaintiff’s business by performing the role of inducing customers to enter into a contract by holding consultations with customers on the price terms and conditions of the instant service and the terms and conditions of the use of equipment. Therefore, the Plaintiff’s permanent establishment is located in the office

(C) Even if business activities carried out in household equipment, studiobberg receiver or non-KEL office individually do not correspond to the essential and important parts of the Plaintiff’s business, the combination of all acts carried out in the above physical facilities can be deemed as the essential and important parts of the Plaintiff’s business, and thus, the Plaintiff’s permanent establishment is located at the location of the above dial equipment, etc.

(D) In calculating the taxable income belonging to the Plaintiff’s permanent establishment in Korea, the Defendant requested the Plaintiff to submit a detailed statement of the relevant store expenses in order to calculate the expenses to be deducted from the total income amount of the Plaintiff’s domestic permanent establishment pursuant to Article 8(3) of the Korea-U.S. Tax Convention, but the Plaintiff failed to submit it, making it difficult to calculate the income belonging to the permanent establishment by the distribution method of the principal office expenses. Accordingly, it was inevitable to calculate the income belonging to the domestic permanent establishment by the profit division method under Article 5(1) of the Adjustment of International Taxes Act and Article 4(1) of the Enforcement Decree of the same Act. In addition, in calculating the income belonging to the domestic permanent establishment, the calculation method of the corporate tax in this case is lawful since it is difficult to calculate the operating income ratio of the Plaintiff’s domestic permanent establishment by applying the operating income ratio of the Plaintiff’s headquarters to the total income amount acquired from the Plaintiff’s domestic customers.

(E) A person who paid value-added tax on behalf of the Plaintiff pursuant to Article 34 of the Value-Added Tax Act is not the Plaintiff’s customer, but the Plaintiff is obligated to pay value-added tax, as a matter of course, if the Plaintiff’s permanent establishment exists in Korea and the instant service is subject to value-added tax, so that the value-added tax paid by the Plaintiff’s customer can be refunded through legitimate procedures later, and the Defendant’s imposition of value-added tax on

(b) Fact of recognition;

The following facts may be acknowledged in light of the above evidence as follows: Gap evidence 3 through 6, Gap evidence 8 and 9, Gap evidence 12 through 15, Gap evidence 25-1 through 3, Gap evidence 26-1 through 4, Gap evidence 27, Gap evidence 28-1, Gap evidence 29-1 through 3, Gap evidence 29-1 through 3, Eul evidence 30, Eul evidence 3 through 7, Eul evidence 10 through 12, Eul evidence 13-1 through 5, Eul evidence 14-1 through 3, Eul evidence 14-1 through 18, Eul evidence 18, and the whole purport of this court's on-site inspection and pleading:

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

The instant service is ordinarily conducted through the collection and processing of information by which information collection personnel in all countries around the world collect information and news about each country’s financial markets and send them to the Plaintiff’s headquarters in the U.S., through the process of verifying, properly modifying, editing, and analyzing the accuracy of the information by the Plaintiff’s headquarters, and through the compilation process, to the Plaintiff’s customers via the Plaintiff’s database, news information and analysis data stored in the host computer or via the Internet network or through the delivery and delivery of information provided through the general Internet network. However, such as the division of company’s shares, etc., an imminent information of each country, like time, should be provided real-time by the information collection personnel immediately from the Plaintiff’s own computer database to the entire world’s customers.

(2) Conclusion of contracts and contract terms for the instant service

The New York Contract Team of the Plaintiff’s head office concluded a contract on the supply of the instant service with the Plaintiff’s domestic customers by using the standardized studs contract as follows. The main contents of the standardized studs bus contract include ① The Plaintiff’s use of buds program data for customers; ② the Plaintiff’s use of buds program software and buds program reception equipment (15 studs panel, PC) directly or through a third party’s agent; ② the customer provides this case’s service-related tax and public charges; ② the customer provides this case’s service-related tax and public charges; ② the customer’s imposition or request of an exchange or other information service or information source on the screen through this case’s service; charges for the installation, removal or other modification of this case’s equipment; ③ the Plaintiff’s use of the information for the purpose of entry and re-issuance of the approved information under the terms and conditions of the Plaintiff’s own computer, and ③ the Plaintiff’s use of the information for the purpose of entry and re-issuance of the information.

(iii)a summary of the Round equipment and budio receiver;

(A) In the process of providing the instant service at the New York’s headquarters, Nowon-gu equipment is a device that transmits data, such as financial information, to the customers in an intermediate way through the digital transmission of such data, and is a device that sets the direction of information transmission in a more small and small size so that the data with a large capacity can be transmitted to the customers by dividing it into a device that can adjust the direction of information transmission. The device consists of a device that stores the function of a core device, a device that can save the function of a key device, and operates the device again, a device that can use the device again in a digital transmission method, from an Arabic to an Arabic signal method, a device that performs the function of mutually altering from an Arabic to the customers in a digital way, and that does not simply constitute a modified device, such as a device card, which serves as a whole regulating the function of each of the above equipment, and it does not constitute a modified device, and it does not constitute a device that is delivered from a computer in the U.S.’s own function, such as a corrected device.

(B) Budioberg receiver is a computer terminal established in the office of the customer to whom the instant service was provided, consisting of computer main body, producer monitoring, keyboard, and router, and is used as a medium for dial equipment and also performs functions as a general computer such as document work or Internet connection.

(C) In a case where a customer receives information through the above ods equipment and studs, etc., he can receive prompt and stable information services compared to the receipt of information through the general Internet network. In the event of hacking and other security problems, and where errors occur, he can easily check which Plaintiff Company caused errors to the customer, and thus, he can promptly receive correction of errors.

(D) Since the Plaintiff’s domestic customer does not necessarily require the use of Nos. 1 and 20% of the Plaintiff’s customers to receive the instant service, the Plaintiff’s customer uses the instant service via a general Internet network rather than via a dedicated line using Nos. 20% of the Plaintiff’s customers. Moreover, 60% of the Plaintiff’s customers are not via a budberg receiver, and the Plaintiff’s 60% of the Plaintiff’s customers uses the instant service by installing a budber software on their personal computers.

(4) The conclusion, etc. of a service contract between the Plaintiff and non-Kel

(A) On March 1, 1996, the Plaintiff entered into a service contract for information collection and information transmission with non-KEL, a subsidiary company. The main contents of the contract are ① the Plaintiff’s employment of at least one employee on a fixed-day or part-time basis, or the Plaintiff’s employment of employees on a fixed-time basis, and the collection and provision of domestic financial and industrial information related to the operation of the news station for Blstberg news by entering into a franchise contract, ② the Plaintiff’s establishment and maintenance of Blstlerg receiver and the provision of services related to its maintenance and repair without any separate claim, ③ the Plaintiff’s provision of services to the Plaintiff’s employees and related taxes, office rent and related general expenses, news-related equipment expenses, communication expenses, food expenses, payment fees, service charges, accounting and legal services expenses, and other expenses, and the amount equivalent to 10% of the U.S.’s depreciation of equipment, etc. under the corporate accounting standards, etc.

(B) Under the above service contract, non-KEL purchased information delivery equipment, etc. from the Plaintiff or a third party, and installed Switzerland, which is one of its equipment, at the business location designated by the Plaintiff, in direct installation of Switzerland, and the equipment such as Blstberg receiver, etc., upon the subcontract with the SPS, have the SPS established at the customer’s office and maintained and repaired it. In addition, the employees in charge of information collection of non-KEL collected basic information on the domestic financial market and sent it to the Plaintiff of New York, and sent it to the Plaintiff’s headquarters to the Defendant’s processing, editing, and analysis to enter the information into the Plaintiff’s main computer database. Non-KEL receives from the Plaintiff the amount equivalent to 10% of the U.S. staff’s wages and related taxes, news-related expenses, news-related equipment, office rent and related equipment, communication expenses, food expenses, payment fees, and service fees for SP.

(5) The conclusion, etc. of a service contract between the Plaintiff and ○○○○○○○○ (hereinafter referred to as “non-KEL○○○”).

(A) On February 1, 1999, the Plaintiff entered into a service agreement with the non-KEL, non-KEL, the subsidiary company in the U.S. (hereinafter referred to as the "Liaison Office") to employ one or more paper or part-time reporters as employees, or to collect news and relevant information on the Korean economy and financial markets by using the franchise, and to collect such information so that the Plaintiff can use such information for the World Information Services, and to receive expenses and service fees required for the operation of the contact office in return for such provision.

(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 Plaintiff. The contact office receives an amount equivalent to 110% of the expenses incurred in relation to the performance of the above services from the Plaintiff.

(6) Conclusion, etc. of each service contract between the Plaintiff and SPS, SP and SPS

(A) As a value-added telecommunications business operator under the Telecommunications Business Act, SP is an independent third-party company that has no capital investment relationship with the Plaintiff or non-KEL and provides GE, Worldcom and other small and medium enterprises other than the Plaintiff, and provide additional telecommunications services.

(B) On February 15, 1996, the Plaintiff entered into a service contract on the maintenance and repair of remote communications services for the Plaintiff’s domestic customers and terminal equipment necessary therefor. The main contents of the contract are ① The Plaintiff’s provision of the instant service to the domestic customers through facilities for the operation of remote communications services, ② the Plaintiff’s provision of the instant service to the domestic customers, ② the operation of the Plaintiff’s installation and maintenance of equipment with respect to the provision of the instant service to the domestic customers during the contract period; ③ the Plaintiff’s provision of the instant service to the domestic customers, ③ the Plaintiff is equipped with adequate office space for the maintenance of equipment and system necessary for the provision of services to the domestic customers; ③ the Plaintiff is equipped with adequate human resources for the proper operation of equipment and system necessary for the provision of services; ④ the Plaintiff is to provide the Plaintiff’s proper services to the domestic customers in return for the lease or acquisition of circuits in connection with the provision of services; ④ the Plaintiff is to provide the Plaintiff’s office fee to the Plaintiff’s fee to the Plaintiff’s office or service fee to the Plaintiff’s fee.

(C) On January 1, 1996, non-KEL entered into a service agreement for the supply, maintenance, and repair of the No.S. equipment, budio receiver. The main contents of the agreement are ① Operation of No.S. to ensure that domestic customers do not inconvenience the use of the instant service during the contract period, and the Si A.S. shall import equipment in the name of non-KEL and operate equipment within the scope of operation established by non-KEL. ② Non-KL shall install equipment in the office of the Si A.S. and perform the services for the operation, maintenance, repair, etc. of equipment, including assembly, installation, etc. of No.S. equipment, and the Si P.S. shall perform the general maintenance, maintenance, and repair of Budioberg receiver, and shall receive service fees from non-K for the installation, maintenance, and repair of equipment as above.

(D) Under each of the above service agreements between the Plaintiff and non-KEL, S. S. S., install, maintain, and manage No. S. equipment within the S. office, and maintain, repair, and manage Budlers’ equipment, and manage the appropriate number of vehicles by importing Budlers’ equipment as inventory, through the network called the EDI system electronically connected with the Plaintiff’s Hong Kong Branch and non-KEL, etc., in real time, and install, maintain, and manage Budlers’ equipment in the Plaintiff’s customer office.

(7) Activities of Plaintiff Hong Kong Branch

(A) The Plaintiff has its own branch in Hong Kong, Singapore, and Spanish, 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 the region under its jurisdiction, but also sales-related support activities such as promotional activities such as advertisement and publicity, and education on the method of using information to customers, and sales-related support activities such as education on the method of using information to customers.

(B) The Plaintiff’s Hong Kong branch in Korea has four Korean employees in charge as of December 31, 2001. The Korean employees in charge of Hong Kong branch visit Korea intermittently to Korea at the customer’s office or hotel, and conducts education and training on the method of using equipment, etc. to customers at the office of non-casesel, by providing information on contractual terms, such as support and publicity such as the introduction of the instant service, information service fees, etc., and information service fees, etc.

(C) The Plaintiff’s Hong Kong Branch shall, upon receiving an order concerning the conclusion of the contract for the services of the Defendant’s potential customers, immediately deliver it to the contract-related team of the Plaintiff’s headquarters, and the contract-related team of the Plaintiff’s headquarters shall directly conclude the contract with the customer by way of signing the contract by mail after review and approval on all transaction conditions, such as price, payment method, rights and obligations between the parties to the contract, and incentives list, etc.

(8) Payment of corporate tax and value-added tax by Plaintiffs, BKEL, etc.

The Plaintiff supplied the instant service to domestic customers and did not pay corporate tax and value-added tax on the grounds that there is no permanent establishment in Korea for the service cost received. The Plaintiff’s domestic customers collected value-added tax from the service cost that the Plaintiff pays to the Plaintiff under Article 34 of the Value-Added Tax Act and paid it on behalf of the Plaintiff. The Plaintiff paid corporate tax on the income acquired by the respective businesses and paid the value-added tax by applying the zero tax rate to the service cost received by the Plaintiff.

C. Determination

(1) Article 2 of the Corporate Tax Act provides that a foreign corporation with a domestic source income is obligated to pay corporate tax under the Corporate Tax Act on such income, and lists domestic source income in accordance with each subparagraph of Article 93 of the same Act. In light of the methods and contents of supplying the service of this case as seen earlier, income that the Plaintiff provided to domestic customers and received from the service of this case shall be deemed domestic source income and its domestic source income.

However, Article 8 (1) of the Korea-U.S. Tax Convention provides that "if a resident of a Contracting State does not engage in an industrial or commercial activity in the other Contracting State through a permanent establishment located in the other Contracting State, he/she shall be exempted from taxes by that other Contracting State, unless he/she is engaged in an industrial or commercial activity in the other Contracting State through a permanent establishment located in the other Contracting State, he/she shall be exempted from taxes under domestic law in relation to the profits (income) acquired domestically in relation to the supply of the service of this case by the plaintiff, unless there is an activity through a permanent

Furthermore, there is no liability to pay the value-added tax due to the absence of a domestic place of business under the Value-Added Tax Act (However, the person to whom the service is provided is liable to collect the value-added tax pursuant to Article 34 of the Value

Therefore, the first issue in this case is whether the income acquired by the Plaintiff from running the business of this case was made through the establishment of a permanent establishment in Korea.

(2) 한편 한미조세협약 제9조 (1)항은 '고정사업장'에 대하여, 어느 체약국의 거주자가 산업 상 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 정보수집을 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 원고의 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 하기위하여는, 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 자가 그 고정된 사업장소를 통하여 예비적·보조적 활동이 아닌 '본질적이고 중요한 사업 활동이 수행'될 것 등이 요구된다고 할 것이다.

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

(3) Whether the Plaintiff’s permanent establishment exists at the location of the Round equipment and bleep receiver.

(A) As seen earlier, under the service agreement entered into with the Plaintiff, non-KEL purchases Nos. 1 and blives reception equipment from the Plaintiff and the third party, and direct installation of Nos. 1 and maintenance, repair, and management of Blves reception equipment in the office of the Plaintiff’s designated by the Plaintiff, through the subcontract with the Silves, and then maintain, repair, and management of the Blves reception equipment. In addition, the Plaintiff is paid 10% of the cost of service, including the cost of service, paid to the Plaintiff’s employees, and the cost of depreciation in accordance with the U.S. corporate accounting standards for Nos. 110% of the cost of service, including the cost of service, paid to the Plaintiff’s employees, and the cost of service, as well as the cost of service, to the Plaintiff’s exclusive reception and maintenance of Nos. 1 and blves reception equipment, and the Plaintiff’s actual installation and maintenance of Nos 1 and blves reception equipment from the Plaintiff’s office.

(B) Next, as seen earlier, the Plaintiff’s business activities are conducted by collecting and analyzing financial information from all countries around the world to the U.S. head office, and verify and analyze the accuracy of the information received by the Plaintiff’s head office in the U.S. and the Plaintiff’s information processing and analysis, and are conducted at three stages of delivery of information provided to customers through Round equipment and studs reception equipment. Among them, Rods equipment is not simply a device for collecting and modifying information processed and modified from the U.S.’s main computer to intermediate intermediate intermediate to deliver it to its customers. The Plaintiff’s business activities are merely a device for collecting and analyzing information from all countries around the world to the U.S. head office, and it cannot be seen as a device for collecting and delivering information from the Plaintiff to the Plaintiff’s main office (which is a device for collecting and delivering information to the Plaintiff’s main office). From the perspective of the fact that the information received from the Plaintiff’s main office can not be seen as a device for collecting and using the Plaintiff’s information’s information’s main information storage and value-added equipment.

On the other hand, the defendant asserts that since the contents of the service provided by the plaintiff to the customers include not only the provision of information but also the provision of equipment leasing, the use of software, and the provision of communication function using the Budioberg network and receives comprehensive fees therefor, it is essential to create these profits, the budio receiver that the plaintiff provided to the customers is performing the essential business activity as a permanent establishment.

In the conclusion of the contract for the service of this case, there is no dispute between the parties that the plaintiff provided a studio receiver for the smooth delivery of the service to ordinary customers and received the fees from the service of this case. However, the main purpose of the studio receiver is to receive the information provided by the plaintiff, and the plaintiff provided a communication function using the studio server network in addition to the plaintiff's provision of a studio receiver to the customers, it is nothing more than an incidental to the service of this case, even if the plaintiff received the fees for the equipment or service of this case including the service of this case, it is nothing more than an incidental to the service of this case, and even if the plaintiff received the fees for the use of the equipment or service of this case from the service of this case, it cannot be viewed as a permanent establishment for the purpose of acquiring business profits. Therefore, the defendant's argument on this point is without merit.

(C) Therefore, even if the Plaintiff’s business activities were performed by the employees of non-Kel or CPS, by installing, maintaining, and managing the same in accordance with the service agreement with the Plaintiff, such business activities are merely incidental and auxiliary activities in light of the Plaintiff’s business activities, and thus, cannot be deemed as the Plaintiff’s permanent establishment in the Republic of Korea under the Korea-U.S. Tax Convention.

(4) Whether the Plaintiff’s Hong Kong Branch employees have permanent establishment at the place of activity

On the other hand, the Korean employees in charge of the plaintiff Hong Kong's Hong Kong branch visited Korea, to promote activities such as advertising and publicity of the service of this case at the customer's office, etc., to guide the potential customers about terms and conditions of the contract, such as information usage fees, and to provide education and training on the usage of equipment, etc. to customers. However, as seen above, the above acts cannot be deemed as the fundamental and important business activities of the plaintiff's business, and there is no evidence to support that the plaintiff had continued exclusive control or right to use with respect to the customer's office, non-KEL office, etc. where the business activities of the employees of the plaintiff Hong Kong branch were conducted. Thus, it cannot be deemed that the plaintiff has a permanent establishment in the Republic of Korea in the customer's office, non-KEL office, etc. where the business activities of the plaintiff Hong Kong branch were conducted.

(5) The combined act cannot be deemed as an essential and important business activity of the Plaintiff’s business even if combined with office to determine whether a permanent establishment exists, promotion and educational activities, etc. consisting of office to determine whether a permanent establishment exists, office to non-KEL office, etc., and the combined act cannot be deemed as an essential and important business activity. Therefore, the Plaintiff’s permanent establishment at the place where the foregoing activity is performed cannot be deemed as located

(6) Sub-committee

Therefore, even if the profit received by the Plaintiff in the course of performing the instant project is domestically source, it cannot be deemed that there is a domestic permanent establishment under Article 8 (1) of the Korea-U.S. Tax Convention. Thus, the instant disposition imposing tax on the Plaintiff on the premise that the Plaintiff exists a domestic permanent establishment is unlawful without further examining the remaining points.

3. Conclusion

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

Details of Disposition of Imposition

Sub-Items :

Taxation Period

Amount of tax:

legal person:

197 Business Year

From January 1, 1997 to December 31, 1997

105,897,880 won

198 Business Year 1998

From January 1 to December 31, 1998

368,998,190 won

199 Business Year 199

From January 1, 1999 to December 31, 1999

653,363,590 won

200 Business Year

From January 1, 200 to December 31, 200

843,796,00 won

201 Business Year

From January 1, 2001 to December 31, 2001

903,594,790 won

Consolidateds

2,875,650,450 won

Value-added Tax

Second period of the business year 1997

179,415,540 won

198 Business Year 1

311,297,310 won

Second period of the business year 1998

354,018,090 won

199 Business Year 1

612,397,430 won

Second period of the business year 1999

722,081,680 won

200 Business Year 1

797,204,950 won

200 Business Year 2

82,337,280 won

201 Business Year 1

1,044,740,980 won

201 Business Year 201

1,097,174,680 won

Consolidateds

6,000,667,940 won

Finally.

Relevant statutes

Korea-U.S. Tax Convention

Article 8 (Business Income)

(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 said other Contracting State. If the resident engages in such activities, taxes may be imposed on the industrial or commercial profits of that resident on the industrial or commercial profits of that other Contracting State, but shall be imposed only on that profit belonging 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 permanent establishment is assumed, on the same or similar condition, to be an independent enterprise engaged in the same or similar activity and exclusively traded with a resident of a permanent establishment, the industry or commercial profit belonging to the permanent establishment shall belong to 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. The activity includes the conduct of manufacturing, commercial, insurance, banking, financial, agricultural, fishery or mining activities and the lease of personal property (including vessels or aircraft) of the type of vessel or aircraft, the provision of services and operation of vessels or aircraft.

An employee or an independent qualification that an individual performs a personal service does not include in the service.

"(6)" means income from industrial or commercial activities, and income, dividends, interest, royalties (as provided in Article XIV(4)), and capital gains from real estate and natural resources: Provided, That this shall apply only where the recipient, who is a resident of a Contracting State, substantially relates to a permanent establishment that is located in the other Contracting State, regardless of whether such income has been obtained from industrial or commercial activities, the factors to be considered to determine whether the property or rights are substantially related to the permanent establishment shall include whether the property or rights are being used in or for industrial or commercial activities through the permanent establishment, and whether the activities carried out through the permanent establishment were material factors in the acquisition of such property or rights. For this purpose, whether such property or rights have been appropriated through such a permanent establishment or income.

(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.

Article 9 (permanent Establishment)

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

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

⒜ 지점 ⒝ 사무소 ⒞ 공장 ⒟ 작업장 ⒠ 창고 ⒡ 상점 또는 기타 판매소 ⒢ 광산 · 채석장 또는 기타 자연자원의 채취장 ⒣ 6개월을 초과하여 존속하는 건축공사 또는 건설 또는 설비공사

(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:

The use of facilities for the storage, display or delivery of goods or merchandise belonging to a resident in a group, and the storage, display or delivery of goods or merchandise belonging to a resident for the purpose of delivery;

The inventory of goods or merchandise belonging to the resident for the purpose of processing by others;

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

e. the holding of a fixed place of business for advertisement, provision of information, scientific research, preliminary or auxiliary activities for residents;

⒡ 6개월을 초과하여 존속하지 아니하는 건축공사 또는 건설 또는 설비공사의 보유

(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 enter into a contract in the name of the resident and to regularly exercise that authority in the other Contracting State, provided that the exercise of that authority is not limited to the purchase of goods or merchandise on the account of the resident.

The Minister of Education, Science and Technology shall hold in the other Contracting State the inventory of goods or merchandise belonging to the resident who complies with or delivers regular orders by such agent.

(5) In the case of (3) the resident of a Contracting State has a fixed place of business in the other Contracting State, regardless of the siffe, siffe, and siffe, in the case of subparagraph (3) above, the resident of a Contracting State has a fixed place of business in the other Contracting State, and the goods or merchandise has been processed by another person in the other Contracting State or (whether it has been purchased in the other Contracting State or not in the other Contracting State) or he purchases in the other Contracting State ( not that goods or merchandise has to be processed outside the other Contracting State) or where all or part of the goods or merchandise has been purchased in the other Contracting State, he 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 or agent acting in a normal way 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 person (any person provided for in Article XI (special 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 exists 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.

OECD Model Tax Convention

Article 5 (permanent Establishment)

(1) For the purposes of this Convention, the term "permanent establishment" means a given place where a business of one enterprise is partially deemed to be exclusively carried on.

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

⒜ 관리장소 ⒝ 지점 ⒞ 사무소 ⒟ 공장 ⒠ 작업장 ⒡ 광산, 유정 또는 개스정, 채석장 또는 기타 천연자원의 채취장소

(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:

Use of facilities solely for the purpose of storage, display, or delivery of goods or merchandise belonging to the enterprise;

Holding stocks of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

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

maintenance of a certain workplace solely for the purpose of purchasing goods or goods or collecting information for an enterprise

e. the maintenance of a certain establishment for the purpose of conducting only preliminary or auxiliary activities for the enterprise

⒡ ⒜목 내지 ⒠목에 언급된 복합적 활동의 수행만을 위한 일정사업장소의유지, 단 그러한 복합적 활동의 수행으로부터 초래되는 일정사업장소의 전반적인 활동이 예비적이거나 보조적인 성격의 것이어야 함.

(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.

Corporate Tax Act

Article 93 (Domestic Source Income)

Domestic source income of a foreign corporation shall be classified as follows:

5. Income generated by a business operated by a foreign corporation (including income taxable as domestic source business income under tax treaties) as prescribed by the Presidential Decree: Provided, That this shall not include income under subparagraph 6;

Article 94 (Domestic Business Place of Foreign Corporation)

(1) Where a foreign corporation has a fixed place in which all or part of its business is conducted in the Republic of Korea, it shall be deemed having

(2) The domestic business place as referred to in paragraph (1) shall be considered to include the places falling under any one of the following subparagraphs:

1. Branches, offices, or places of business;

2. Store and other fixed selling places;

3. A place of work, factory, or warehouse;

4. Places of construction, sites of construction, assembly, or installation works which exist in excess of six months, or places where supervisory activities related thereto are performed;

5. Places falling under any of the following items where services are provided by employees:

(a) Place where services are rendered for a period exceeding 6 months in total during a period of 12 months in which such services continue to be provided;

(b) Place where services of similar kind are continually and repeatedly provided for not less than 2 years, in the case of not exceeding 6 months in total from among 12-month period during which a provision of services is continued;

6. Places for exploration and gathering of mines, Quarryings, or submarine natural resources and other natural resources (including places located on the seabed and subsoil of the submarine areas adjacent to the coast of Korea outside the territorial sea where the Republic of Korea exercises sovereignty under international law);

(3) Even where a foreign corporation does not have a fixed place under the provisions of paragraph (1), where it has a person who repeatedly exercises the authority to conclude contracts on its behalf in Korea or a similar person as prescribed by the Presidential Decree operating its business, the location of that person's place of business (where there is no place of business, it shall be his domicile, and where there is no place of residence, it shall be

(4) No domestic business place as referred to in paragraph (1) shall include the following places:

1. Fixed places used by a foreign corporation only for the simple purchase of assets;

2. Fixed places used by a foreign corporation only for storage and holding of assets not for the purpose of selling;

3. Fixed places used by a foreign corporation for advertisement, publicity, gathering and providing information, market research, and other places used in order to conduct such preparatory and supporting business activities;

4. Fixed places used by a foreign corporation only in order to have its own assets processed by another person.

Enforcement Decree of the Corporate Tax

Article 132 (Scope of Domestic Source Income)

(2) The term "those determined by Presidential Decree" in subparagraph 5 of Article 93 of the Act means the income falling under any of the following subparagraphs from any business operated domestically from among those provided for in Article 19 of the Income Tax

9. For a foreign corporation operating a business in Korea and abroad other than those under subparagraphs 1 through 8, the estimated income generated in connection with the business in Korea, judged in consideration of the revenue amount and expenses generated in Korea and other reasonable factors if, among the income generated in Korea and abroad, the related businesses were separated into the business in Korea and businesses abroad and the separate businesses functioned independently, and transactions took place between them under normal transaction conditions;

Value-Added Tax Act

Article 11 (Application of zero Tax Rate)

(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.

Article 34 (Vicarious Payment)

(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 with 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”);

Finally.