District Court-2017-Gu Partnership-1375 ( December 06, 2018)

Cho Jae-2016-China-3136 ( October 30, 2017),

If a person is a dual resident, the determination must be made as to which country’s resident under the provisions of the tax treaty.

If a person falls under a person liable to pay income tax, etc. under foreign laws because he/she is both a domestic resident and a foreign resident under the Income Tax Act, it shall be determined in accordance with the treaty concluded with the country in which the person is deemed a resident of

Article 2 of the Enforcement Decree of the Income Tax Act and Determination of Domicile

2019Nu30647 global income and revocation of disposition

○ ○

○ Head of tax office

Suwon District Court Decision 2017Guhap13375 Decided December 06, 2018

oly 17, 2019

.08.30

1. The defendant's appeal is dismissed.

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

1. Purport of claim

First, the Defendant’s imposition of global income tax of KRW 23,750 (including additional taxes), global income tax of KRW 122,90 (including additional taxes), global income tax of KRW 209, global income tax of KRW 40,610 (including additional taxes), global income tax of KRW 40,614,930 (including additional taxes), global income tax of KRW 367,680,750 (including additional taxes), global income tax of KRW 310,760,220 (including additional taxes), global income tax of KRW 31,768,470 (including additional taxes) for the year 2008, KRW 208, KRW 2067, KRW 360, KRW 2097, KRW 207, KRW 20647, KRW 2097, KRW 2097, KRW 208, KRW 209, KRW 20647, and KRW 20947, including additional taxes for the year 2016.

2. Purport of appeal

The judgment of the first instance is revoked. All of the plaintiff's claims are dismissed.

1. Details of the disposition;

The court's explanation on this part is the same as the corresponding part of the judgment of the court of first instance, and thus, this part is cited in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

2. Whether the instant disposition is lawful

A. The parties' assertion

1) The plaintiff's assertion

The plaintiff asserts that the disposition of this case was unlawful primarily for the following reasons and sought the cancellation of the disposition of this case.

A) The Plaintiff is a person residing or working in a foreign country who has an occupation that requires him/her to continue residing in a foreign country for more than one year, and thus, there is no address in Korea.

B) Even if the Plaintiff is a domestic resident under the Income Tax Act, the Plaintiff constitutes a domestic resident under the Income Tax Act, and thus, the Plaintiff is subject to the Convention between the Government of the Republic of Korea and the Government of ○○○○○○ Government for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea-○○ Tax Treaty”). The Plaintiff has a permanent residence in ○○○○, the center of the Plaintiff’s significant interests is ○○○, and the Plaintiff’s ordinary residence is ○○○, and the Plaintiff’s ordinary residence is deemed ○○○, and thus,

C) Therefore, the instant disposition, based on the premise that the Plaintiff is a domestic resident under the Income Tax Act, is unlawful.

2) The defendant's assertion

The Defendant asserts that the instant disposition is lawful for the following reasons.

A) The Plaintiff is a domestic resident under the Income Tax Act in light of objective facts of living relationship, such as whether a family living together in Korea and an asset located in Korea.

B) Even if the Plaintiff’s domestic income constitutes a resident of ○○○ Income Tax Act, the Plaintiff has a permanent residence in Korea. Since the Plaintiff’s major interest is Korea, the Plaintiff ought to be deemed a resident of the Republic of Korea under the Korea-Japan Tax Treaty.

C) Therefore, the instant disposition imposing the global income tax on the Plaintiff, a domestic resident under the Income Tax Act, is lawful.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) Whether a person is a domestic resident under the Income Tax Act

Article 1 (1) 1 of the former Income Tax Act (Amended by Act No. 9897, Dec. 31, 2009); Article 1-2 (1) 1 of the former Income Tax Act (Amended by Act No. 12852, Dec. 23, 2014); Article 1-2 (1) 1 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 22034, Feb. 18, 2010; Presidential Decree No. 26067, Feb. 3, 2015; hereinafter the above former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 26067, Feb. 3, 2015); Article 2 (1), (3), and (4) 1 of the former Enforcement Decree of the Income Tax Act (Amended by Act No. 9897, Dec. 31, 2009); and comprehensively considering the structure and contents of each of the above former Enforcement Decree, the following domestic residents’ arguments.

A) Article 1(1)1 of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009); Article 1-2(1)1 of the former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014; hereinafter the same shall apply) provides that all of the former Income Tax Act means an individual who has a domestic address or a domicile for at least one year.

In addition, Article 2 (1) of the former Enforcement Decree of the Income Tax Act provides that an address under the former Income Tax Act shall be determined based on objective facts of living relationship, such as the existence of a family living together in Korea and of an asset located in Korea, and Article 2 (3) provides that if an individual living in Korea has a family living together in Korea and is deemed to reside in Korea for not less than one year in view of his occupation and property status (Article 2 (4) 1, and Article 2 (4) 1 of the former Enforcement Decree provides that if an individual living in Korea has a family living together in Korea and is deemed to have been residing in Korea for not less than one year, he shall be deemed to have no address in Korea.

B) In light of the structure, contents, etc. of Article 2(1), (3), and (4)1 of the former Enforcement Decree of the Income Tax Act, it is reasonable to view that the address under the former Enforcement Decree of the Income Tax Act is a concrete provision on the domicile under Article 2(1) of the former Enforcement Decree of the Income Tax Act, which is determined based on the objective facts of living relationship, such as the existence of a family living together in Korea and of an asset located in Korea. If Article 2(4)1 of the former Enforcement Decree of the Income Tax Act is applicable, it shall not be deemed that the provision on the legal fiction of non-resident regardless of the objective facts of living relationship. Therefore, as alleged by the Plaintiff, since the Plaintiff’s residing or working abroad who ordinarily requires continuous residing abroad for 1 year or longer, it is not a non-resident under the Income Tax Act.

C) Meanwhile, the address under the former Income Tax Act should be determined on the basis of objective facts, such as the existence of a family living together in the Republic of Korea and of assets located in the Republic of Korea. ① The Plaintiff completed the resident registration with his wife, his father, son, etc., using ○○○○-ro 12 and ○○○○-dong ○○○○ ○○ ○○ ○ (hereinafter “instant apartment”) in the Republic of Korea, and the Plaintiff owned the instant apartment. ② The Plaintiff entered the Republic of Korea from 208, which is the taxable period for the instant disposition, to 2013, and appears to have lived with the family living in the Republic of Korea while residing in the Republic of Korea. ③ In addition to the instant apartment, the Plaintiff owned 21-7 large 354 square meters in △△△△△, △△△△-2624 square meters in the Republic of Korea, and ④ the Plaintiff received the Plaintiff’s income from ○○○, the Plaintiff is a domestic resident under the Income Tax Act.

2) Whether ○○○○○ Resident under the Income Tax Act is a resident

○○○○○○ Articles 1, 2, 3, and 7 of the main text of the Income Tax Act and the structure and contents thereof are as follows: (a) evidence Nos. 1, 3, 23-1, and 2 of the evidence Nos. 1, 23-2; and (b) evidence Nos. 1, 23-2, and the overall purport of the pleadings, it is reasonable to deem that the

A) Article 1 of the Korea-○○ Tax Treaty provides that this Convention shall apply to a person who is a resident of either or both Contracting States, and the main text of Article 4(1) provides that, for the purposes of this Convention, a resident of either Contracting State shall include a person liable to pay taxes in accordance with his/her address, residence, head office or principal office, place of management, or any other similar criteria under the laws of that Contracting State.

B) Meanwhile, Article 1 of the main text of the ○○ Income Tax Act provides that a taxpayer shall be either an individual or a corporation liable for tax payment under this Act, a resident shall be a natural person who has a domicile in the State for at least 183 days, a natural person who resides in the Republic of Korea for at least 12 months, a natural person whose central place of interest is located in the Republic of Korea, a corporation established under the ○○○ Act, or a corporation

C) However, the Plaintiff, while working for the instant company from 208 to 2013, resided in ○○ from 2013 to 183 days a year, constitutes an individual liable to pay taxes under the ○○ Income Tax Act.

D) The defendant asserts that ○○○ Income Tax Act excludes benefits, wages, allowances, etc. from those subject to its application, and that the plaintiff did not have the income tax liability and did not have the tax amount actually paid. Thus, the plaintiff does not constitute ○○○ resident.

However, inasmuch as a tax treaty assumes a person liable to pay taxes on the basis of his/her domicile, residence, head office or principal office, place of management, or other similar standards in the resident state, the determination of whether a person liable to pay taxes under the laws of a Contracting State is liable to pay taxes ought to be made based on whether an abstract and comprehensive tax liability arises, rather than the place of actual taxation (see, e.g., Supreme Court Decisions 2013Du7711, Mar. 26, 2015; 2015Du5134, 55141, Jul. 11, 2017).

In this case, in light of the health stand, ① as seen earlier, the Plaintiff is an individual who is a ○○○ resident under the Income Tax Act, ② Article 2 of the ○○○ Income Tax Act provides that taxpayers’ tax shall be imposed on taxable income for the preceding year’s taxable income for the preceding year, and Article 3 provides that the gross income generated from domestically-run activities shall be included in the income generated in Korea, and Article 7 provides that taxable income shall be determined based on the gross income generated from all transactions conducted by taxpayers excluding the subject of deduction and the amount of loss under Article 10 of this Act. In light of the above, it is reasonable to deem that the Plaintiff has an abstract and comprehensive tax liability to pay the income tax determined based on the gross income generated from the activities conducted at ○○○○○○, and even if the Plaintiff did not pay the income tax pursuant to other provisions of the ○○○ Income Tax Act, it is deemed exempted from the tax liability, and it cannot be deemed that the Plaintiff did not constitute the Plaintiff’s abstract and comprehensive tax liability. Therefore, the Defendant’s above assertion has

3) Determination of the status of dual residents under the Korea-U.S. Tax Treaty

If a certain individual falls under both a domestic resident and a foreign resident under the Income Tax Act and constitutes a person liable to pay income tax, etc. under the other country’s law, it may be imposed twice on the same income. To prevent such double resident, a tax treaty between countries is concluded and a separate provision is established. If a person liable to pay taxes is recognized as a dual resident, the determination of whether the person is deemed a national of any country, as prescribed by the tax treaty concluded with the country concerned (see Supreme Court Decision 2014Du13959, Feb. 26, 2015)

Article 4(2) of the Korea-○○ Tax Treaty provides that, where an individual is a resident of both Contracting States pursuant to paragraph (1), the status of the individual shall be determined as follows, and item (a) shall be deemed a resident of the Contracting State which has a permanent residence available to him/her. If the individual has a permanent residence available to him/her in both Contracting States, he/she shall be deemed a resident of a Contracting State with a more close economic relationship (central point of interest), and further, if he/she cannot make a determination pursuant to item (b), (c), and (d) in succession, he/she shall be deemed a resident of the ○○ Tax Treaty.

Here, permanent residence refers to all types of residence that can be continuously used at any time as a place of residence for purposes other than short-term stay, such as travel or business trip. As such, circumstances, such as the ownership or lease of a residence, etc. do not need to be considered in determining the permanent residence. In the event such permanent residence exists in both Contracting States, whether the following criteria for determining the residence of a dual resident under the Korea-○○ Tax Treaty is the center of significant interest, namely, where the Contracting States are more closely related to the individual’s personal and economic status, and, in full view of the family relationship, social relations, occupation, political and cultural activities, place of business, place of property management, etc., the degree of the relationship between the two Contracting States is more deep (see Supreme Court Decision 2018Du60847, Mar. 14, 2019).

In light of the following circumstances, which are acknowledged by comprehensively considering the overall purport of the pleadings as to this case’s health team, Gap’s health team, Gap’s 1, 2, 3, 6, 8, 9, 10, 12 through 16, 19, Eul’s evidence Nos. 23-1, 2, and Eul’s evidence Nos. 10, and Eul’s video No. 10, the plaintiff has a permanent residence in Korea and ○○○, but it is reasonable to view the plaintiff’s personal and economic relationship as ○○, not the Republic of Korea, since the contracting parties with which the plaintiff’s personal and economic relationship are more closely related to

A) The Plaintiff established the instant company for the purpose of civil engineering works, etc. around July 2005 after departing from the Republic of Korea to the ○○○ in 2005, and served as the general manager of the instant company until July 2019 after being appointed as the general manager.

B) The Plaintiff resided in the office of the instant company located in ○○○○○○ (hereinafter “○○○○”). From 2005 to 2019, the Plaintiff sent most of the hours to ○○○○○○○○○○○○, and stayed in the instant ○○○○○○○○. The Plaintiff, the head of the Plaintiff, South Korea, also left the instant ○○○○○○○○○○○○. Since 2012, the Plaintiff, △△△△△△, as well as the Plaintiff, continued to reside in the instant ○○○○○○○○○○. Therefore, the instant ○○○○○○ was not a place for the Plaintiff’s short-term stay, but a residential place for

C) As a general manager of the instant company, the Plaintiff, as a general manager of the instant company, has employed a large number of workers at ○○○○○○○○, directed the construction site, and bought construction equipment on behalf of the instant company. The Plaintiff was paid benefits from the instant company during the Plaintiff’s work at the instant company. Moreover, the Plaintiff was performing various external activities at ○○○ by taking office as the ○○○ ○○ ○○ ○○ ○○○ ○○ ○○○ ○○○○

D) From 208 to 2013, the taxable period of the instant disposition, the Plaintiff stayed in Korea from 2008, 2009, 31, 2009, 38, 2011, 45, 2012, 2013, and 51. During the foregoing period, the Plaintiff’s number of days of stay in Korea was average of 328 days, while the number of days of stay in Korea was 37 days. The Plaintiff’s number of days of stay in Korea was limited to most of the days of stay in Korea from 208 to 2013, and there was no evidence to deem that the Plaintiff was engaged in social activities or business activities in Korea.

E) The Plaintiff owned only the instant apartment building in Korea, 221-7 square meters in Do-dong 221-7, 354 square meters in △△△-2, △△△-2, △△-Do, △△△△, and thus, it seems that the Plaintiff could have sufficiently managed the domestic source income in ○○○○.

D. Sub-committee

Since the Plaintiff is a resident of the Republic of Korea-○○ Tax Treaty, the instant disposition based on the premise that the Plaintiff is a domestic resident under the Income Tax Act shall be revoked on an unlawful basis.

3. Conclusion

Therefore, the plaintiff's primary claim of this case is justified, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed as it is without merit, and it is so decided as per Disposition.