Whether a domestic permanent establishment exists

Rodboard, information receiver, place of education, etc. are merely ancillary and ancillary activities, and such place of installation is not a domestic permanent establishment that can be seen as an important business activity.

Article 11 of the Value-Added Tax Act

Article 9 of the Korea-US Tax Convention

1. The defendant's appeal shall be lodged.

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

3. The order of the court of first instance shall be corrected to "2. 1........." in paragraph 1, "205.......................................... or

1. Purport of claim

On February 9, 2004, January 5, 2005, or February 1, 2005, the Defendant revoked all the imposition of each value-added tax as stated in the separate sheet against the Plaintiff on February 1, 2005 (the phrase "paragraph 1 of the claim stated in the written complaint of this case" appears to be a clerical error in the statement of imposition of each value-added tax in light of the cause of the claim of this case and evidentiary materials, etc.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

The court's explanation of this case is identical to the statement of the reasons for the first instance court's decision, except that "the plaintiff on February 1, 2005, was subject to the imposition of each value-added tax as stated in the attached Form No. 6 and 7 of the first instance court's decision "the imposition of each value-added tax (hereinafter "the disposition of this case") was made on February 9, 2004; January 5, 2005; or February 1, 2005, as stated in the attached Form No. 420 of the attached Form No. 4 of the disposition of this case". Thus, the court's explanation of this case is identical to the statement of reasons for the imposition of each value-added tax (hereinafter "the disposition of this case") against the plaintiff on February 1, 2005."

Therefore, the judgment of the court of first instance is justified, and the defendant's appeal is dismissed as it is without merit, and the judgment of the court of first instance is delivered with the assent of all participating Justices on February 1, 2005, since it is obvious that the defendant's appeal is a clerical error in the text of the judgment of the court of first instance "2.9.2.1.5 or February 1, 2005."

[Seoul Administrative Court 2005Guhap35391, August 26, 2007]

1. The Defendant’s disposition of imposition of value-added tax against the Plaintiff on February 1, 2005 shall be revoked in entirety.

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

The same shall apply to the order.

1. Details of the disposition;

A. A partnership-type company with the main office at ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ has been providing financial information services, such as allowing access to a financial database, analyzing financial products, and providing comprehensive news services.

B. On February 15, 1996, ○○○ concluded an international broadband service contract with the Plaintiff (it refers to the company that runs the key communications industry, the general telecommunications industry, and the value-added telecommunications business, etc. established on December 31, 1993) and received the value-added service from the Plaintiff to deliver the instant service to Korea (hereinafter “instant service”). From 1998 to 2003, the Plaintiff received the price for supply of the instant service from ○○○ through a foreign exchange bank from 1998 to 2003, but the supply of the instant service was deemed to be subject to zero-rate tax, and did not file a return by collecting and paying a separate value-added tax from ○○○○ on the transaction.

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

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

E. Meanwhile, according to the notice of the result of the tax investigation by the ○○ Regional Tax Office, the Defendant deemed that the ○○○○○ had operated a permanent establishment in Korea by using human resources and physical facilities, etc., which are its subsidiaries, and operated the business in Korea. On the agreement between the Plaintiff and the ○○○○○○○, the Plaintiff deemed that the instant service, which the Plaintiff agreed to directly provide the instant service to the ○○○○○○○○○○○○○, was actually provided to the domestic business place, and thus, the Plaintiff excluded the application of zero tax rates on the consideration for the service received by the Plaintiff, and on February 1, 2005, imposed imposition of each value-added tax (hereinafter “instant disposition”).

D. On April 29, 2005, the Plaintiff appealed to the National Tax Tribunal for the adjudication on April 29, 2005, but the National Tax Tribunal dismissed the Plaintiff’s request on August 10, 2005.

[Grounds for Recognition] Unsatisfy, A1-1-10, 2

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) Plaintiff

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

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

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

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

(2) Defendant

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

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

(C) Even if a business activity conducted in a household equipment, ○○○○, or ○○○ office, etc. does not individually constitute an essential and important part of the ○○ business, if all the activities performed at the above physical facilities are combined, such combined activities may be deemed to constitute an essential and important part of the ○○ business. As such, the permanent establishment in the Republic of Korea of ○○○ may exist at the seat of the ○○○ office at the seat of the ○○ office, etc.

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

(b) Fact of recognition;

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

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

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

The contract team of the ○○○○○○○○○○ Head Office provides customers with the service of this case, either directly or through a third party, using the standardized form of contract as follows. The main contents of the standardized contract are ① ○○○○○○○○○○○○○○○○○○○○ (○○○○○○○○○○○○○○○○○○○○○○) allowing customers to use the service data, and ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○). ② A customer’s consent to the present program or modification of the approved data.

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

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

(B) ○○○○○○ is a computer device established in the office of the customer receiving the instant service, consisting of computer main body, producer monitoring, keyboard, and downloader, etc., and is used as a medium for Rod equipment, not only for transmitting and receiving the instant service, etc. but also for performing functions as a general computer such as document work or Internet connection.

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

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

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

(A) On March 1, 1996, ○○○○ entered into a service contract with ○○○○○○, a subsidiary company, on information collection and information transmission. The main contents of the contract are ① providing low-malm services for collecting and providing domestic financial and industrial information related to the operation of the news reporting station for ○○○○○○○○○○○○○○○ by employing at least one-day or part-time employee, or entering into a franchise contract with ○○○○○○○○○○○○○○○○○, and ② providing ○○○○○○○○○○○ customers with information collection and information delivery. ③ ○○○○○○ provides ○○○○○○○○○ with information collection and information delivery, and ③ ○○○○○○ has to pay an amount equivalent to 10% of employees’ wages and related taxes, general expenses, office expenses related to news, communications expenses, expenses for food, payment, expenses for meals, expenses for accounting, and other management expenses, including 10% of general accounting and management expenses.

(B) Pursuant to the above service contract, ○○○○○○ purchases information delivery equipment from ○○○ or a third party, and directly installs spons, which is one of the equipment, in the Plaintiff’s business place designated by ○○○○○○○○○○○○. Equipment such as ○○○○○○○○○ received equipment, etc., upon entering into a subcontract with the Plaintiff, have the Plaintiff install each customer’s office and maintain and repair it. Furthermore, ○○○○○○○○○○○○○○○○○ collected basic information on the domestic financial market and sent it to ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○’s main database, and ○○○○○○○ received an amount equivalent to 10% of the commission for the service, etc. from ○○○○○ to pay for the service performance.

(5) Concluding a service contract between ○○ and ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○

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

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

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

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

(B) On February 15, 1996, ○○○ entered into a service contract for the maintenance and repair of remote communications services for domestic customers of ○○○○○○○○○○, and for terminal equipment necessary therefor. The main contents are ① The Plaintiff’s provision of the instant services to the domestic customers of ○○○○○○○○ through facilities for the operation of the Plaintiff’s remote communications services, ② the Plaintiff’s provision of the instant services through communication equipment such as street equipment, etc. during the contract period, and the Plaintiff’s installation and maintenance of equipment with respect to the instant services to the domestic customers of ○○○○○○○○○○○, while the contract period expires, ③ the Plaintiff secured adequate office space for the maintenance of equipment and facilities necessary for the provision of services to the domestic customers of ○○○○○○○○, and the Plaintiff must have sufficient human resources for the proper operation of the equipment and systems necessary for the provision of services, ④ the Plaintiff’s provision of information to ○○○○○○○, including the Plaintiff’s photograph and its parts.

(C) On January 1, 1996, ○○○○○ entered into a service agreement with the Plaintiff for the supply, maintenance, and repair of drid equipment, and ○○○○○○○○○○○○○○○○○○○. The main contents thereof are as follows: ① The Plaintiff operates drid equipment so as not to cause inconvenience to domestic customers in using the instant service during the contract period; the Plaintiff imported equipment in the name of ○○○○○○○○○○○○○○○○○○; ② the Plaintiff installed equipment in the Plaintiff’s office; ② the ○○○○○○○○○ provides the Plaintiff with services for the operation, maintenance, repair, etc. of drid equipment, including assembly, installation, etc. of drid equipment; the Plaintiff performed general maintenance, maintenance, and repair services for ○○○○○○○○○○○○○○○○.

(D) Pursuant to each of the above services agreements with ○○ and ○○○○○, the Plaintiff imported and maintained, maintained, and managed od equipment in the Plaintiff’s office, and imported and managed ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○’s customer office

(7) Activities at ○○○○○○ Branch

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

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

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

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

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

[Grounds for Recognition] Gap 1-10, Eul 1-12 (including each number), the purport of the whole pleadings

C. Relevant provisions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

○ Article 5 of the OECD Model Tax Convention

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

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

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

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

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

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

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

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

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

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

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

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

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

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

○ Application of Article 11 of the former Value-Added Tax Act (amended by Act No. 7007 of Dec. 30, 2003)

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

1. Exported goods;

2. Services supplied overseas;

3. International navigation services by ships or aircraft; and

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

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

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

○ Payment by proxy under Article 34 of the former Value-Added Tax Act (amended by Act No. 7007 of Dec. 30, 2003)

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

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

Article 26 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 18207 of Dec. 30, 2003) Scope of other goods, services, etc. for foreign exchange earnings.

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

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

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

(b) Business services;

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

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

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

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

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

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

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

D. Determination

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

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

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

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

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

(A) As seen earlier, ○○○○○○○○○○○○○○○○○ and a third party’s purchase of ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○’s equipment and installation of ○○○○○○○○○○○○○○○○○○’s office designated by the Plaintiff, through a subcontract with the Plaintiff, to maintain, repair, and manage ○○○○○○○○○○○. In addition, as a consideration for the provision of services, 110% of the cost of providing services, including employees’ wages, and the amount equivalent to 110% of the cost of repairing ○○○○○○○○○○○○○○○○○○○○○○○○’s equipment and equipment for which ○○○○○○○○○○○○○○○’s equipment and equipment had an exclusive control over ○○○○○○○○○○’s equipment and equipment, and the Plaintiff’s equipment and maintained ○○○○○.

(B) Next, as seen earlier, the business activity of ○○○○○○ is merely a device that merely receives and transmits information from ○○○○○○○○○○○○○○○○○’s employees to intermediate intermediate intermediate intermediate to deliver it to ○○○○○○○○○○○○○○○○○○○○○’s head office by collecting financial information, etc., and verifying and analyzing the accuracy of information received by ○○○○○○○○○○○○○○○○○○○○○○○○○’s head office’s head office, and provides the three steps of delivery of information provided to ○○○○○○○○○○○○’s head office through ○○○○○○○○○○’s equipment and receipt of modified information to ○○○○○○○○○○○○○’s main equipment and information received through ○○○○○○○’s equipment and information received through ○○○○○’s digital equipment and information received through ○○○○’s digital equipment.

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

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

(C) Therefore, even if ○○○○ or an employee of the Plaintiff performed the business activities of ○○○○○ by installing, maintaining, and managing ○○○○ or a certain part of ○○○○○○ by performing a service contract with ○○○○○○○○, such business activities are merely incidental and auxiliary activities in light of the contents of ○○○’s business activities, and thus, cannot be deemed as the existence of ○○○○○ domestic permanent establishment under the Korea-U.S. Tax Convention.

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

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

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

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

(6) Sub-committee

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

3. Conclusion

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

Details of Disposition of Imposition

Sub-Items :

Between the world and the world;

Amount of tax:

Value-added Tax

Second period of the business year 1998

6,721,880 won

Second period of the business year 1999

13,439,220 won

200 Business Year 1

12,189,260 won

200 Business Year 2

12,191,610 won

201 Business Year 1

13,004,870 won

201 Business Year 201

12,510,550 won

202 The First Period of Business Year 2002

11,672,180 won

202 Business Year 200

10,504,920 won

203 Business Year 1

9,192,250 won

203 Business Year 200

8,669,560 won