Seoul High Court 2014Nu51052 (20 August 20, 2015)

Business activities providing various conveniences for casino games are essential and important business activities, and the office shall be deemed to be a permanent establishment in the Republic of Korea.

The service provided by the Plaintiff includes providing various conveniences for games at a casino, and it can be deemed that the chips exchange service performed against the disease is a meaningful part of the business activities. Therefore, it is reasonable to view that the Plaintiff’s employees’ activities performed in the casino office constitutes an essential and important business activities. Thus, this office constitutes a permanent establishment in the Republic of Korea.

Article 94 of the Corporate Tax Act: Domestic Business Place of Foreign Corporation

2015Du51415 Revocation of Disposition of Imposing Corporate Tax, etc.

AA

The Intervenor joining the Plaintiff

BB

K Director of the Korean Tax Office

Seoul High Court Decision 2014Nu51052 Decided August 20, 2015

July 14, 2016

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1.Article 5(1) of the Convention between the Republic of Korea and the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter referred to as the "Tax Convention") provides that "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partially carried on," while paragraph 4 of the same Article provides that "permanent establishment" shall not include: (e) "the maintenance of a fixed place of business for the purpose of carrying on other activities having a preparatory or auxiliary nature for the enterprise"; and (f) "the maintenance of a fixed place of business for the purpose of carrying on other activities having a preparatory or auxiliary nature for the enterprise" and only the combined activities referred to in subparagraph 5 (a) through (e) shall have a fixed place of business for the purpose of carrying on the business. However, the overall activities of the fixed place of business due to such combination must have the characteristics of preliminary or auxiliary nature."

In light of the language, purport, etc. of the above provisions, where an employee or a person under instructions of the Philippines corporation performs essential and important business activities, not preliminary or auxiliary business activities, through a fixed place of business, such as domestic buildings, facilities, or equipment, etc., for the Republic of Korea where a permanent establishment of the Philippines corporation exists, the said provisions shall apply to cases where an employee or a person under instructions of the said corporation performs essential and important business activities, not preliminary or auxiliary business activities. Whether such activities are essential or important shall be determined by the nature and scale

The decision should be made in comprehensive consideration.

2. On June 30, 2007, the court below, citing the reasoning of the judgment of the court of first instance, entered into a contract (Junket A; hereinafter referred to as the "contract of this case") with the plaintiff's assistant intervenor operating a casino exclusive for foreigners on June 30, 2007, and the plaintiff's assistant intervenor, instead of soliciting and arranging casino customers, to pay 70% of the money lost by the plaintiff's assistant intervenor as a recruitment fee (hereinafter referred to as "sales amount") to the plaintiff's assistant intervenor.

② The Plaintiff received a total of 000 won from the Intervenor from July 2007 to December 31, 2010 as solicitation fees, but did not report and pay taxes thereon. ③ The Defendant: (a) opened an office in a part of the building located in 000 - 00 - 00 - 00 - 000 - 00 - (hereinafter “instant office”); and (b) decided the instant office as the Plaintiff’s permanent establishment in the Republic of Korea on the ground that the office was engaged in activities such as the solicitation of casino customers, game support, and joint settlement of game expenses; (c) acknowledged the instant office office as the Plaintiff’s domestic permanent establishment; (b) the sum of the subscription fees received from the Plaintiff’s Intervenor, 00 won (from July 1, 2007 to December 31, 2007:00 ; (c) the business year in 2009 to 200 - 00 - 2010 to 207 -201.

Then, the lower court determined that the key part of the service provided by the Plaintiff to the Plaintiff’s Intervenor in accordance with the instant contract is that the Defendant’s key part of the casino games in this case by inviting the Plaintiff to be recruited and sent to the Plaintiff to the Plaintiff, and that the Plaintiff’s actual recruitment is merely a fixed place of business in the Republic of Korea with the authority to dispose of or use the betting tickets. However, the Plaintiff’s and the Plaintiff’s Intervenor’s source of profit to be acquired under the instant contract is the money that the Plaintiff recruited from the casino (junket and casino) operated by the Plaintiff’s Intervenor (hereinafter “the instant casino”). Accordingly, the Plaintiff’s failure to provide the instant casino games is determined depending on how much the Plaintiff recruited the betting tickets. The lower court determined that the Plaintiff’s essential part of the service provided to the Plaintiff’s Intervenor in this case is an essential part of the instant casino games, and that the Plaintiff’s ancillary service was carried out overseas, and that the Plaintiff’s primary and essential work was carried out overseas, and that most expenses were spent overseas, and that the Plaintiff’s and its employees’s ancillary service and the Plaintiff’s employees’s.

3. However, it is difficult to accept the above determination by the court below for the following reasons.

A. The evidence duly admitted by the lower court reveals the following facts.

1) Article 6(2) of the instant contract refers to the amount of internships (in the case of the Plaintiff’s assistant intervenor’s business, 10,000 won, 1,000 won, 1,000 won, 1,000 won, 1,000 won, 1,000 won, 1,000 won, or 0 billion won, 1,000 won or more, or 1 year’s sales and 1,000 won, in the case of a casino customer’s casino customer’s business with chips) on the part of the Plaintiff’s assistant intervenor’s business. The above conditions may be adjusted through mutual consultation after one year.

If any of the above conditions is not achieved, the contract terms must be re-consultationd.

2) GG Group’s books recruited by the Plaintiff in Asian areas other than China, Taiwan, Hong Kong, the Philippines, and Japan were deposited in the accounts of the Plaintiff or the Plaintiff’s related company before leaving Korea.

3) The Plaintiff placed the Plaintiff’s employees in the instant office and provided chips to the chips recruited by the Plaintiff, and handled their duties, such as hotel, airport, and casino business guidance.

4) At the time of 2010, the instant office had seven books, seven computer units, one credit cooperative for cash storage, one credit cooperative for chips for chips, three cashnets, one for the attendance card size, and one for the Plaintiff’s 15 employees were in office as three for a day.

B. The above legal principles and the following facts revealed as follows. ① Services provided by the Plaintiff to the Plaintiff’s Intervenor pursuant to this case’s contract do not merely provide the Plaintiff’s simple solicitation and intermediation of the tickets abroad, but also include various conveniences for the Plaintiff’s participation in the instant casino. As such, the final objective of the Plaintiff’s participation is to raise sales above a certain amount of money. The sales of the Plaintiff’s assistance intervenor are directly linked to the amount of solicitation fees to be allocated from the Plaintiff’s assistance intervenor. ② Accordingly, the Plaintiff’s employees conducted various business of providing various conveniences for the Plaintiff’s participation in the instant casino without any inconvenience, and such business was directly necessary to increase the sales of the Plaintiff’s assistance intervenor. ③ In particular, allowing the Plaintiff’s participation in the instant casino to deposit money to the Plaintiff’s overseas account instead of a large amount of gambling funds in Korea, and thus, the Plaintiff’s participation in the Plaintiff’s activities in the instant casino constitutes an essential element of the Plaintiff’s participation in the Plaintiff’s participation in the instant casino constitutes the Plaintiff’s participation in the instant office.

C. Nevertheless, the lower court determined that the instant disposition was unlawful on the ground that the instant office did not constitute the Plaintiff’s permanent establishment solely based on its stated reasoning. In so doing, the lower court erred by misapprehending the legal doctrine on the interpretation of the permanent establishment as prescribed by Article 5(1) of the instant Tax Convention, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.