Seocho 2012west 2198 ( October 17, 2014)

Whether a German asset management company is a beneficial owner of the Korea-Japan Tax Treaty

It cannot be deemed that the asset management company was established for the purpose of tax avoidance, and it is a beneficial owner because it directly holds the stocks of the domestic company.

Article 10 of the Korean Tax Treaty

2014 Gohap 54196 Revocation of Corporate Tax Collection Disposition, etc.

1. AA limited liability company;

2. BBM beta;

Head of Yeongdeungpo Tax Office

December 10, 2014

on 15, 2015

1. On January 2, 2012, the Defendant’s disposition of collecting corporate tax withheld for the business year 2007, KRW 695,297,590, corporate tax withheld for the business year 2008, KRW 767,346,510, corporate tax withheld for the business year 2009, KRW 782,540,840, corporate tax withheld for the business year 2009, KRW 762,526,070, corporate tax withheld for the business year 2010, and KRW 9,451,041,060, total corporate tax withheld for the business year 2010, KRW 12,458,752,070 is revoked.

2. The Defendant’s imposition of KRW 12,458,752,070 on January 26, 2012 on Plaintiff BBM as the secondary taxpayer of the Plaintiff AA limited liability company and revoked all of the imposition disposition of KRW 12,458,752,070 on each of the corporate tax listed in paragraph 1.

3. The costs of lawsuit shall be borne by the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. Status of the plaintiffs

1) On August 26, 2004, Plaintiff A AA limited liability company (hereinafter referred to as “Plaintiff A”) acquired a limited liability company established under the Asset-Backed Securitization Act, and engaged in real estate rental business by acquiring 000 buildings located in leisure Dong-dong, Yeongdeungpo-gu, Seoul (hereinafter referred to as “instant building”) and was dissolved on April 1, 201 after the sale thereof around May 201.

2) On November 29, 1966, Plaintiff BBM BD (hereinafter “Plaintiff DII”) holds 100% of the shares issued by Plaintiff AA in its name as a German limited company established for the purpose of managing an investment fund under the Investment Trust Act of Germany.

3) TheCC Global (hereinafter referred to as the “AA Fund”) shall distribute to investors the profits accruing from the operation of the Fund with a listed and public model investment fund established in accordance with the German Investment Law around 2002.

B. Payment of dividend and taxation

1) From September 1, 2007 to October 2010, Plaintiff A paid KRW 124,587,520,720 (hereinafter “instant dividend income”) to AA Fund, applying Article 10(2)(a) of the Agreement between the Republic of Korea and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (hereinafter “Korea-Japan Tax Treaty”), and applying the limited tax rate of KRW 5,63,069,105 and local income tax (including resident tax prior to January 1, 2010 but referring to as local income tax), with withholding KRW 566,306,912, and paying the remainder of KRW 118,358,144,703 to the Defendant, as the account number of the German bank account in the name of the German Fund (hereinafter “D29, 207”).

2) However, the Defendant: (a) applied the limited tax rate of 15% as stipulated in Article 10(2)(b) of the Korea- Germany Tax Treaty to the Plaintiff DII on January 2, 2012; (b) applied the limited tax rate of 15% as stipulated in Article 10(2)(b) of the Korea- Germany Tax Treaty; (c) imposed corporate tax withheld for the business year of 2007 767,346,510; (d) corporate tax withheld for the business year of 2008 782,540,840; (e) corporate tax withheld for the business year of 2009 762,526,070; (e) corporate tax withheld for the business year of 209 762,526,070; and (e) imposed corporate tax withheld for the business year of 2010 9,451,041,060; and (e) imposed corporate tax withheld for 12,458,7070

3) In addition, on January 26, 2012, pursuant to Article 39(1)2 of the Framework Act on National Taxes on January 26, 2012, the Defendant: (a) designated Plaintiff DII as the secondary taxpayer of Plaintiff A; and (b) imposed upon Plaintiff DII each disposition of imposition of KRW 12,458,752,070 (hereinafter collectively referred to as “instant disposition”).

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 9, Eul evidence Nos. 1 through 7 (including each number), the purport of the whole pleadings

2. The plaintiffs' assertion

A. In order to deny the legal owner and recognize the beneficial owner in accordance with the principle of substantial taxation under the Korea-Japan Tax Treaty, it should be recognized that the nominal owner who does not actually perform his duties for the purpose of evading tax. However, the Plaintiff DII, who received the instant dividend income, is a corporation that is not a mere Do Governor, but a clear entity, and Plaintiff DII or AA Fund did not have the purpose of evading tax, and thus, Plaintiff DII constitutes the beneficial owner on the instant dividend income. Accordingly, as to the instant dividend income, Plaintiff DII shall apply the limited tax rate of 5% by deeming that the said dividend income satisfies the 25% share requirement under Article 10(2)(a) of the Korea- Germany Tax Treaty based on Plaintiff DII

B. Even if the beneficial owner of the instant dividend income is deemed a AA fund, unless Plaintiff DII is recognized as a beneficial owner, in applying Article 10(2) of the Korea-Japan Tax Treaty, the holder of the shares issued by Plaintiff A shall be deemed a AA fund. AA fund is limited to acquisition of Plaintiff A’s shares as a combination with Plaintiff DII by virtue of the limitation under the German Investment Law, and the subject that recognized the instant dividend income as the first income is also a AA fund. Accordingly, AA fund satisfies the equity requirement under Article 10(2)(a) of the Korea- Germany Tax Treaty, and thus the limited tax rate of 5% should be applied.

C. In order to be an oligopolistic shareholder who is liable for secondary tax liability under the Framework Act on National Taxes, the rights to the stocks must be exercised practically. However, deeming the beneficial owner of the instant dividend income as a AA Fund, rather than Plaintiff DII, and deeming Plaintiff DII as the substantial shareholder is in itself contradictory to imposing secondary tax liability. As alleged by the Defendant, if Plaintiff DII is merely an asset management company and AA Fund is not a legal entity, so it is not possible to become a shareholder of the income under the tax treaty, the actual individual investors shall be deemed as the shareholder of Plaintiff A, and they do not constitute an oligopolistic shareholder who is liable for the secondary tax liability.

D. Therefore, the instant collection disposition and disposition, which were conducted on a different premise, should be revoked in entirety as it is unlawful.

3. Relevant statutes and treaties.

Attached Form is as shown in the attached Form.

4. Determination

A. Provisions of the Korea- Germany Tax Treaty

Article 10(1) and (2) of the Korea-Japan Tax Treaty provides that dividends paid by a corporation which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other Contracting State at the same time, and at the same time, a corporation paying such dividends may also be taxed in accordance with the laws of that Contracting State, a resident: Provided, That the proviso to Article 10(2) of the Korea- Germany Tax Treaty provides that, if the beneficial owner of the dividends is a resident of the other Contracting State, the tax imposed by the Contracting State, a resident, shall not exceed 5% of the total amount of dividends if the beneficial owner directly holds 25% or more of the corporate capital of the corporation paying the dividends, and the total amount of dividends in all cases, shall not exceed 15% of the total amount of dividends if the beneficial owner of the dividends owns 25% or more of the corporate capital of the corporation paying the dividends directly (Article 20(1) and (2) of the Korea-Japan Tax Treaty). The purport of the aforementioned provision is to facilitate direct investment between the two countries by restricting the imposition of dividend income in the

(b) the meaning of beneficial owner;

1) In order to apply 5% of the limited tax rates stipulated in Article 10(2)(a) of the Korea- Germany Tax Treaty, the beneficial owner must meet certain equity requirements. The meaning of the beneficial owner does not have any definition in the Korea- Germany Tax Treaty, domestic tax law, etc.

2) Original beneficial owner is a concept derived from the Trust Act of the United Kingdom, and it was unreasonable that a third country resident who did not enter into a tax treaty receives benefits from the tax treaty on the ground of the nominal owner or his agent, etc. However, on the ground that it was unfair, the concept of income and capital established by the Organization for Economic Cooperation and Development (hereinafter “the OECD”) at the request of the United Kingdom was introduced in Articles 10(2), 11(2) and 12(1) of the Model Tax Treaty on Income and Capital (hereinafter “Moelax Convention”). However, the model agreement did not stipulate the definition of beneficial owner as to the income and capital. However, this model agreement was presented to a third country resident who was not a beneficial owner. However, other countries of the United Kingdom, other than the United Kingdom, do not have to be deemed to have accrued to the principal or a person who was not a nominal owner, and thus, need to be understood to have accrued to the principal. Therefore, the concept of income that belongs to the principal or a person who was not a nominal owner.

"3) On November 27, 1987, the OECD adopted a report on the use of this Convention and the Domination Company. The report suggested that, in order to prevent the abuse of a tax treaty, the OECD Model Treaty Notes amended in 2003 should reflect the position of the above report, the term "beneficial owner" in Section 12 of Article 10 and Section 8 of Article 11 and Section 4 of Article 12 and the term "beneficial owner" should not be used in a narrow mechanical sense, but should be understood as "beneficial owner" in a narrow mechanical sense, including double taxation and the prevention of tax evasion, and the applicable and objective of the Convention, and should not be seen as "beneficial owner" in any other treaty. The term "beneficial owner" in Article 10 and "the person who has no further authority" in Article 12 Section 12, Section 8 and Section 4 of the Convention shall not be construed as "the beneficial owner" and "the manager shall not be construed as "the owner" in any other treaty.

"4) On April 23, 2010, OECD published a report on "assigning the benefits of the Tax Treaty on the Income of the Collective Investment Organization", and the contents of the report are reflected in the OECD Model Convention Notes as amended in 2010, and in Note 6.8 of Article 1, "collective investment organization" owns by many shareholders, engages in decentralization of securities, and is subject to regulation on the protection of investors in the country where the establishment was made, and the collective investment organization meeting these definition requirements in June 14, 201, defined as "the manager of the collective investment organization has the discretion to manage its assets" and "the beneficial owner of the income accrued from its assets".

5) The OECD Model Treaty note is not generally accepted international law but is a standard of interpretation that recognizes international authority regarding a tax treaty concluded between OECD member countries. Since the Korea- Germany Tax Treaty was concluded on March 10, 200 by referring to the OECD Model Treaty, the foregoing content presented by the Note to the OECD Model Treaty can be referred to as one guideline in interpreting the concept of beneficial owner as stipulated in the Korea- Germany Tax Treaty.

6) Meanwhile, Article 14(1) of the Framework Act on National Taxes provides that "where the ownership of income, profit, property, act or transaction subject to taxation is merely nominal and there is another person to whom such income, profit, property, act or transaction belongs, the person to whom such income, or transaction actually belongs shall be liable as a taxpayer; where the corporation to which all or part of the income, or business legally accrues is different from the corporation to which such income, in fact accrues, this Act shall apply to the corporation to which such income, in fact accrues; and Article 2-2(1) of the Adjustment of International Taxes Act provides that "where the person to which such income, profit, property, act or transaction belongs is different from the nominal one, the person to which such income, or transaction belongs shall be liable as a taxpayer." Article 14(2) of the same Act provides that "In cases where there is a person to whom such income, profit, or transaction belongs differently from the nominal one, the principle shall be applied to the person to whom such income, such as income, etc., belongs to the person who actually controls and manages the property, 2019.

7) In full view of the elements of the concept of "beneficial owner" as seen above, the background leading up to the introduction of the OECD Model Treaty into the OECD, the changing process of the interpretation of the Compact on the concept of "beneficial owner", the concept of the subject of actual attribution of income derived from the substance over form principle under the Korean tax law, and the fact that if a corporation is recognized as the subject of actual attribution of income under the Korean tax law, the corporation shall be deemed as the owner of the income, and the fact that recognizing the subject of actual attribution of income as the owner of the income is difficult to be allowed in relation to the principle of no taxation without law, such other corporation shall be deemed as the owner of the income, and it is reasonable to interpret that the scope should be recognized as the subject of actual attribution of income under the Korean tax law at least in order to be recognized as the subject of actual attribution of income under the Korean tax law.

8) However, when interpreting the concept of a beneficial owner as above, it would be the same result even if no corporation is a corporation to which the tax treaty applies if it is not the actual owner of income. However, the concept of a beneficial owner in a country to which the actual owner of income is liable as a taxpayer would not have any special meaning since the establishment of the OECD Model Treaty in 1977, which was raised as a problem from the time of the establishment of the OECD Model Treaty, and the legal principle that the status of a party to the tax treaty applies to the nominal owner of income in relation to the relationship with the principle of no taxation without law at the time when the Korea- Germany Tax Treaty was concluded is not established properly, and thus, in such situation, the concept of a beneficial owner would have been achieved and could have played a considerable role in preventing abuse of the treaty. The interpretation and application of the tax treaty would make it difficult to interpret the concept of a beneficial owner in light of the uniform interpretation of the existing legal principle that the principle of substantial taxation can be applied to the concept of a new tax treaty.

C. Status, etc. of Plaintiff DII and AA Fund

As to the instant case, the following facts may be acknowledged in full view of the purport of the entire pleadings in the descriptions of health care units, Gap evidence Nos. 7 through 18 (including each number of branches in the case).

1) AA fund constitutes an investment fund under the German Investment Law. Here, the fund refers to an investment asset pool composed of asset managers and investors according to the terms and conditions governing the legal relations between the asset management company and investors (Article 2(2) of the German Investment Act).

2) On November 30, 201, AA Fund was issued a resident certificate (Evidence A7) stating that it is a German resident from the German tax authority on March 10, 2000 to the extent as defined in Article 4 of the Korea-Japan Tax Treaty, and that the tax code number is 047 220 738555. However, AA Fund is exempted from corporate tax and business tax on such income pursuant to Article 11(1) of the German Investment Tax Act, and distributes dividends from its management to investors.

3) Plaintiff DII is an asset management company and a limited liability company, the main purpose of which is to manage and operate an investment fund pursuant to Article 2(6) of the German Investment Act, and runs the business of managing and operating real estate funds, infrastructure funds, etc. and providing investment advisory services, etc. incidental thereto. Plaintiff DII, as a asset management company, owns assets belonging to the fund solely or jointly with investors pursuant to Article 30(1) of the German Investment Act.

4) As of December 31, 2010, Plaintiff DII has made a management decision through the board of directors. As of December 31, 2010, Plaintiff DII owned 66,712,110 shares of 31,857,657 shares and non-fixed interest rate securities are included therein. In 2010, Plaintiff D II accounts for the largest of Plaintiff D’s revenues (219,345,939 shares) is due to asset management commission (110,160,000 shares) and sales premium (109,186,000 shares). In addition, Plaintiff DII reported the corporate tax on the above income to the German tax authority.

(5) On the other hand, on September 25, 2002, the instant account deposited with dividend income was opened at DBk, and the person in charge of the said bank prepared a notarized statement (Evidence No. 16 of the AB) stating that the instant account was opened by the Plaintiff DII on behalf of the Plaintiff AB, and that the account was opened by the Plaintiff DII on behalf of the Plaintiff AB, and that the account owner is identified as the owner of the instant account, but the Plaintiff DII confirmed that the instant account was ownership of the instant account. In addition, even a copy of the foreign currency remittance request for the instant account (Evidence No. 17 of the AB), the Plaintiff DII did not include the instant dividend income in his own profit, and the Fund reported that the instant dividend income was included in the German tax authorities by including it in its own profit.

7) The relevant contents of the articles of incorporation of Plaintiff DII are as follows.

4. Operation of the fund;

1. The company shall purchase assets in its name for investors with careful care, among its business operators;

corporation may operate this. The corporation shall, regardless of whether it is the entrusted bank, recognize its obligations and exclusively investors

shall act for the soundness of profit and market.

2. The Company shall have the right to purchase and resale assets with the money deposited by investors and to make investments in other places. In addition, the Company shall have the right to hold legal negotiations arising from the management of assets.

3. The company shall determine whether to sell real estate assets or shares of a real estate company in accordance with appropriate business operations (the first sentence of Article 9 (1) of the Reading Investment Act). The effects of sale after suspension of repurchase of beneficial rights under Article 12 (5) shall be on sale.

shall not be received.

8) The relevant provisions of the German Investment Law are as follows:

Article 2 (Definitions)

(2) Pursuant to the provisions of the fund governing the legal relationship between the German Investment Law and the Asset Management Company and the investor, the fund means a group of domestic investment assets organized in accordance with the contract law managed by the Asset Management Company for investors.

(6) The Asset Management Company means a domestic company with the main purpose of operating a set of domestic investment assets or a set of EU invested assets as well as personal investment management.

Article 30 (Fund)

(1) In accordance with the provisions of the fund, the property belonging to the fund is owned by the asset management company or jointly owned by the investors. The fund must be necessarily separated from the property of the asset management company.

(2) It belongs to any other fund, such as that the Asset Management Company is based on the right to belong to the fund, acquired through legal transactions related to the fund, or received by the person entitled to the fund in return for the right to belong to the fund.

Article 31 (Disposition Rights, Trust Management Affairs, and Furnishing Security)

(1) The Asset Management Company shall have the right to dispose of the property belonging to the Fund in its own name in accordance with the German Investment Law and the Fund regulations and to exercise the rights belonging to the Fund.

9) The relevant provisions of the German Corporate Tax Act are as follows.

§ 1.(Unlimited Liability for Tax Payment)

(1) The following corporations, associations, or foundations which have a place of management or address in Korea are liable to pay unlimited corporate tax:

5. An unincorporated association, institution, foundation, or private law or other special purpose foundation;

D. A beneficial owner of the dividend income of this case

In light of the following circumstances, it is reasonable to view the beneficial owner of the instant dividend income as Plaintiff DII in light of the overall purport of the pleadings. However, as seen earlier, the fact that Plaintiff DII directly holds 100% of the shares issued by Plaintiff AA, as seen earlier, the limited tax rate of 5% under Article 10(2)(a) of the Korea- Germany Tax Treaty shall apply to the instant dividend income. Accordingly, the instant tax collection disposition and disposition based on the different premise are unlawful, and thus all of them are revoked.

1) Plaintiff DII is difficult to view it as an artificially small entity for the purpose of evading taxes by clarifying its substance, such as holding and receiving a considerable asset management commission, as an asset management company that has been operated in November 1, 1966 and has been operated for not less than 40 years.

2) The source of the funds managed and operated by Plaintiff DII stipulates that the assets belonging to the fund shall be owned by the asset management company or the joint ownership of investors. As such, AA Fund seems not to be able to directly acquire the stocks of Plaintiff A and to indirectly hold them through Plaintiff DII. As such, Plaintiff DII merely obtained the stocks issued by Plaintiff A under its own name due to the restriction under the German Investment Act, and did not commit any tax avoidance act, such as establishing a company via a third country favorable to the application of taxes.

3) In addition, if the AA Fund owned the shares issued by the Plaintiff AA directly, it was ordered that the 5% limited tax rate set forth in Article 10(2)(a) of the Korea- Germany Tax Treaty would be applied. Rather, the Plaintiff DII selected the indirect ownership method through Plaintiff DII, thereby at risk of being subjected to the 15% limited tax rate. As such, Plaintiff DII’s holding of Plaintiff A’s shares is deemed to be due to the limitation under the German Investment Act, and it is difficult to confirm any other intent of tax avoidance.

4) According to the articles of incorporation of Plaintiff DII, Plaintiff DII has the right to invest an amount deposited in the company on behalf of investors, separate from its own assets, and to purchase and operate assets in its own name on behalf of investors with due care as a prudent business operator. In addition, investors have the right to purchase and resale assets with the money deposited by them, and to negotiate legal matters arising from the rights to invest and asset management in other places.

5) The instant dividend was transferred to the bank account opened by Plaintiff DII for the AA Fund, and was confirmed by the bank manager that the ownership of the said account was the Plaintiff DII. Above all, Plaintiff DII is the subject of business decision-making, etc., as a shareholder of Plaintiff A. In full view of these circumstances, it is sufficient to view that Plaintiff DII had legal and substantial rights to the shares issued by Plaintiff A and its rights (including the instant dividend income).

6) In relation to this, Article 31(1) of the German Investment Act explicitly states that the asset management company, such as Plaintiff DII, disposes of the property belonging to the fund under its own name in accordance with the German Investment Law and the Fund regulations, and has the right to exercise the right to exercise the rights belonging to the fund.

7) The dividend income is reverted to the owner of the shares, and the owner of the shares is, in principle, the nominal owner of the shares. AA fund is not in a position to claim dividend payment against Plaintiff A as a shareholder, but is the sole subject to exercise only Plaintiff D II, a shareholder. Therefore, insofar as Plaintiff DII received the instant dividend income through the bank account with which Plaintiff A’s right to withdraw, it is reasonable from an economic and substantial perspective to deem that the instant dividend income belongs to Plaintiff DII once it was granted through the bank account with which Plaintiff DII was a shareholder of Plaintiff A.

8) AA fund is a collective investment scheme established for the purpose of economic benefits of investors, and Plaintiff DII is an asset management company that collects investment profits from the management of the fund, instead of paying the investment profits to AA fund. However, in the case of Plaintiff AA, since Plaintiff D II was established as a direct shareholder by using the funds from AA fund, the dividend paid by Plaintiff AA is naturally reverted to Plaintiff DII. Since Plaintiff D II later transfers it to A Fund, or where Plaintiff A II transfers it to the Fund without going through Plaintiff D II, it is merely a method that Plaintiff DII pays profits from the agreement to AA fund, a trust, and it does not mean that Plaintiff AA paid dividends to the shareholders of the AA fund.

5. Conclusion

Since the plaintiffs' claims are well-grounded, all of them are accepted, and the costs of lawsuit are assessed against the defendant who has lost. It is so decided as per Disposition.