National High Court Decision 2006No1342 (Law No. 85, 2007.05)

Requirements for the transfer income of equity shares recognized as domestic source income of a foreign corporation

When a foreign corporation obtains income from the transfer of stocks of a corporation with a total amount of 50% or more as of the beginning date of the business year to which the transfer date belongs, it shall be subject to taxation as domestic source income regardless of whether the requirements for stock ratio

The contents of the decision shall be the same as attached.

Article 93 (Domestic Source Income of Gu Corporate Tax Act)

Article 122 (Scope of Domestic Source Income)

1.Each request of the plaintiff shall be accepted.

2. The costs of lawsuit shall be borne by the plaintiff.

The Defendant revokes the imposition of capital gains tax of KRW 1,675,521,340 (including additional taxes) as against the Plaintiff on December 15, 2005.

1. Details of the disposition;

A. ○○○ Fund III was established on July 200, and composed of the Plaintiff, ② ○○ Fund III (U.S.) EL (AAAAAAAAPP, L.P) and ③ ○○○ Fund III (BaAAAAAAAAPP, L.P, and L.P) (hereinafter collectively referred to as ○○ Fund III) (hereinafter collectively referred to as ○○ Fund III).

B. The Plaintiff is a juridical entity in a community country established under the laws of the Republic of Korea, which is established to provide them with opportunities to make investments in terms of the welfare of its global officers and employees (○○ Fund III (U.S.) as a limited partnership in the United States established under the laws of the Republic of Korea, and ○○ Fund II (U.S.) is a partnership in which the U.S. investors invested as a partnership, and ○○○ Fund II (U.S.) is a limited partnership in a community country established under the laws of the Republic of Korea.

A partnership in which they invested as a partnership.)

(c) ○○○ Fund III established a high-tier holding company by contributing common funds for the purpose of investing in real estate in Korea, through which Belgium (hereinafter referred to as “Belgium”) was changed to BB Hrings SA, and CA after its establishment; hereinafter referred to as “SH”). At ○○○ Co., Ltd. (hereinafter referred to as “○○○○○ ,” changed its title to ○○○ ,” ; hereinafter referred to as “the ○○ 1”)’s entire shares were transferred from 00 ○○○-dong 737 land and ○○ 537 on its ground, and purchased ○○ 500 building on its ground (hereinafter referred to as “Belgium, ○ 100, 500, 97, 90, 97, 90, 196, 50, 196, 50, 196, 50, 196, 196, 196, 405, 5, 5, 5, and 5, 3000.

E. On December 15, 2005, SH was merely a conduit company established for the purpose of tax avoidance without the right to control and manage actual income and assets, and thus, the Korea-U.S. Tax Treaty does not apply to the transfer income of the stocks of this case, and the transfer income substantially belongs to ○○○ Fund III, which was incorporated by Law No. 9267, Dec. 26, 2008; hereinafter the same shall apply). Among them, SH imposed the income tax of this case on the Plaintiff pursuant to Article 132(10) of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 18706, Feb. 19, 2005; hereinafter the same shall apply) No. 932(10) of the Corporate Tax Act (amended by Presidential Decree No. 18706, Feb. 19, 2005; hereinafter the same shall apply) and imposed the remaining amount of the capital gains tax of this case on the Plaintiff.

[Ground of recognition] The facts without dispute, Gap evidence Nos. 1, 2, 13, 14, 15, 31, 32, Eul evidence Nos. 2, 4, 5, 7, 8, 9 (including above disaster No. 15, Gap's 15th class No. 3 and unification) and the whole purport of the pleading

2. The parties' assertion

A. Summary of the plaintiff's assertion

1) Application of the principle of substantial taxation to the Plaintiff. The actual owner of the instant stock transfer income is deemed the Plaintiff.

The following is illegal for the following reasons.

(a)The Korea-Belgium Tax Treaty is the resident state with respect to the transfer income of the shares of the Belgium resident;

The tax treaty only provides that the right to impose tax shall be granted to the Belgium, and there is no particular exception provision. The tax treaty is a special law on domestic tax law, and it should be strictly interpreted in light of the principle of no taxation without law. According to the provisions of the Vienna Convention on the Law of Treaties, the text of the treaty should be interpreted in accordance with its ordinary meaning. The purpose of the treaty is to facilitate mutual exchange and investment by restricting the taxation of the source country and granting predictability for international transactions. Therefore, the tax authorities in the source country should apply the source of funds to foreign investors, and thus it is contrary to the principles of interpretation of the treaty.

(B) In addition, Article 14(1) and (2) of the Framework Act on National Taxes calls for prevention of abuse of treaties under domestic law in order to exclude the application of treaties since the territory of the Republic of Korea is not a court of tax laws and regulations that are expected to be the Constitution of the Republic of Korea, nor a legal binding force is stable, and thus, it cannot be a legal basis for different application of tax treaties. The substance over form principle under Article 14(1) and (2) of the Framework Act on National Taxes does not fall under the general provisions of domestic law and does not fall under the provisions for prevention of abuse of treaties. Accordingly, tax treaties in the status of special laws cannot be applied to domestic law. Since the OECD's position on the basis of the change of its previous position in 203, which the defendant invoked, the substance of the changed state is not applicable to the establishment of the existing treaty, and thus, it cannot be acknowledged that the substance and substance of the Plaintiff's investment treaty was not applicable to the establishment of the existing treaty.

2) Even if the subject of reversion of the stock transfer income of this case is deemed as a plaintiff under the substance over form principle

For the following reasons, imposing capital gains tax on the Plaintiff is illegal.

Since the domestic source income of a non-resident under Article 93 subparagraph 7 of the Corporate Tax Act, which the defendant uses as a taxation requirement, is income prescribed by the Presidential Decree as capital gains under Article 94 of the Income Tax Act, it shall meet the requirements for capital gains under Article 94 (1) 4 (c) of the Income Tax Act. However, in order to fall under the capital gains under Article 94 (1) 4 (c) of the above Act, the requirements for stock ratio under Article 158 (1) of the Enforcement Decree of the Income Tax Act as well as the requirements for stock ratio under Article 158 (1) of the Enforcement Decree of the Income Tax Act. In other words, one stockholder and other stockholders must transfer 50/10 or more of the total amount of stocks of the corporation to one stockholder and other persons than the stockholder. However, the investment ratio of the plaintiff is merely 2% and does not meet the requirements for stock transfer ratio and 50% stock transfer ratio.

B. Summary of the defendant's assertion

The defendant asserts as follows the grounds for the disposition of this case premised on the fact that the actual owner of the stock transfer income of this case is the plaintiff et al.

1) According to the OECD’s OECD note amended in 2003, when a tax treaty is abused by establishing a conduit company for the purpose of tax avoidance through treaty acceptance, the benefits under the tax treaty may be denied by applying the principle of substantial taxation under the domestic law.

2) However, in the case of SH, no substantial business activity was established for the purpose of tax avoidance without justifiable business purpose and no substantial control and management right over the acquisition and disposal marginal profit of the instant shares is available, since it cannot be deemed the subject of actual attribution of the capital gains of the instant shares, the Korea-Belgium Tax Treaty cannot be applied.

3) Meanwhile, since the Plaintiff is the subject of actual attribution of the capital gains of the instant shares, it constitutes a taxpayer on the said capital gains in light of the substance over form principle. Since the Plaintiff’s country of residence did not enter into a tax treaty, the Plaintiff was taxed on the domestic source income in accordance with the domestic tax law.

However, the Plaintiff, a non-resident, satisfies the asset ratio requirement under Article 93 subparag. 7 of the Corporate Tax Act and Article 132(10)2 of the Enforcement Decree of the Corporate Tax Act as of the starting date of the business year to which the transfer date belongs, which should be at least 50/100 of the total amount of assets of the relevant corporation, and thus, it constitutes a domestic source income requirement under Article 93 subparag. 7 of the Corporate Tax Act without the need to meet the asset ratio

3. Relevant statutes;

Article 93 (Domestic Source Income of Gu Corporate Tax Act)

Article 122 (Scope of Domestic Source Income)

4. Judgment

A. Whether the tax treaty and the principle of substantial taxation are applied

1)Relationship between tax treaties and domestic tax laws

Article 6 (1) of the Constitution of the Republic of Korea provides that "any treaty promulgated and any generally accepted international law shall have the same effect as that of a domestic law," so a tax treaty, which is concluded with the consent of the National Assembly, shall have the same effect as that of a law, and in the legal relationship governed by a tax treaty, the treaty shall have the same effect as that of a domestic law, and such treaty shall take precedence over

On the other hand, the tax treaty is concluded to prevent double taxation and tax avoidance and to create the conditions of international trade by adjusting the authority to impose taxes on a certain country in relation to a certain transaction, etc. Therefore, in principle, the tax treaty does not create an independent authority to impose taxes, but functions as allocating or restricting the authority to impose taxes established under the tax laws of each country. Therefore, the matters concerning the occurrence of the authority to impose taxes are governed by the tax laws of each country, but the final place of the authority to impose taxes shall be determined by applying the tax treaty to the matters which the tax law and treaty requests differently from the domestic tax law.

As above, a tax treaty is subject to the regulation of the right to impose taxes already established under the domestic tax law, so in applying a tax treaty to the taxes of a Contracting State of a Contracting State, unless otherwise defined in the tax treaty or the context requires a different interpretation, it shall be deemed that the tax treaty has the meaning contained in the provisions of the domestic tax law, which serves as the basis for

In addition, Article 3 of the Korea-Belgium Tax Treaty is also set forth.

2) Principles of interpretation made on foreign tax laws and regulations

Article 38 of the Act provides that all citizens shall have the duty to pay taxes under the conditions as decided by the Act, and Article 59 provides that the items and rates of taxes shall be determined by the Act, thereby adopting the principle of no taxation without the law. In determining the requirements for taxation, tax exemption, etc., the principle of no taxation without the law shall be provided by the Act enacted by the National Assembly, which is the representative body of the people, and shall be strictly interpreted and applied to the enforcement of the Act. Such a rule of interpretation is guaranteed in accordance with Article 6(2) of the Constitution of the Republic of Korea.

It will also be required for foreigners.

Articles 26, 27, and 31 of the Vienna Convention on the Law of Treaties to which Korea has acceded as well as Articles 26, 27, and 31 thereof

In addition, the treaty must be observed and the domestic law should not be invoked in such a way as to justify the non-compliance of the treaty, and the text of the treaty must be interpreted in good faith according to its ordinary meaning and in accordance with its ordinary meaning.

Therefore, in the case of a tax treaty which is a kind of tax law, the expansion or analogical application of administrative convenience is not allowed.

3) The domestic legal ground for the principle of substantial taxation

However, Article 11(1) of the Constitution provides that all citizens shall be equal before the law. Any person shall not be discriminated against in all areas of political, economic, and cultural life on the basis of gender, religion or social status. The principle of tax equality is an original expression of the principle of equality under the above Constitution or the prohibition of discrimination. Therefore, in granting tax legislation, the State must establish laws so that the burden of tax can be equally distributed among the people, and the State is obliged to equally treat all the people in interpreting and applying the tax law. The lower part of the legal system to realize the ideology of tax equality is the principle of substantial taxation under Article 14 of the Framework Act on National Taxes. In addition, the principle of tax equality is equal in accordance with the ideology of justice, and the principle of realization of tax justice in the course of legislative process or enforcement of the tax law by equally treating the principle of equality and inequality (the Constitutional Court Order 8Hun-Ma398 delivered on July 21, 198).

Therefore, the constitutional principle of tax equality cannot be an exception to the application of a tax treaty having the same effect as the law. In addition, such application cannot be deemed to violate the principle of strict interpretation of the tax treaty to foreigners. In applying the principle of substantial taxation to foreigners, international law at the time of application in accordance with Article 6(2) of the Constitution and the contents of a treaty with the country of nationality of foreigners should be considered. Such interpretation is consistent with the principle of equality or the principle of tax equality under the Constitution with respect to substantial refusal, not mechanical and formal equality.

4) As to OECD Notes

As the OECD established a company on the document at a tax haven place that is not related to the real transaction for the purpose of tax avoidance through changes in the crepan tax treaty, and received taxes on capital transaction income, such as interest, dividend, stock gains, etc. through the form of transaction, the OECD started from 1999 through the international discussion of the OECD Harmful Tax Forum that began to take measures to regulate the act of tax avoidance using the tax haven.

Therefore, the OECD's OECD Model Convention, which is a standard for interpreting its tax treaty, provides for the basis for the prevention of abuse of rights by widely dealing with the main contents of the OECD Model Convention, the method of preventing the avoidance of tax avoidance, and the master's degree related to treaties. Article 1 of the OECD Model Convention, and Article 7 of the OECD Model Convention, the basis of the Convention on the Prevention of Double Taxation, is to promote exchanges between goods and services, capital and human resources by preventing international double taxation.The Convention on the Prevention of Double Taxation also provides that the purpose of the Convention is to avoid tax avoidance and tax evasion, and Article 22-24 of the OECD Model Convention provides that "the substance over form principle" of domestic law of each country, which is defined in its domestic law, is not a standard for the prevention of abuse of rights, but a standard for the interpretation of the OECD Model Convention, which is a general rule for the prevention of abuse of rights under its domestic law, and is not a standard for the establishment of a treaty and its domestic law, which does not have any influence.

(v) interpretation of the Korea-Belgium Tax Treaty;

A) 1. The purpose and structure of the Belgium Tax Treaty

As can be seen from the percentage of the treaty, the Korea-Belgium Tax Treaty is clear in the text of the Treaty that it was concluded between the Government of the Republic of Korea and the Government of the Belgium for the avoidance of double taxation and the prevention of tax evasion with respect to income. Thus, the purpose of the Treaty cannot be limited to simply the prevention of international double taxation, thereby promoting the exchange of goods, services, etc., and it deals with the important purpose of the Treaty like the prevention of double taxation and the avoidance of historical double taxation.

In addition, Article 4 (3) of the Korea-Belgium Tax Treaty provides that if a person other than an individual is a resident of both Contracting States due to the reasons under the provisions of paragraph (1) above, he shall be deemed to be a resident of the Contracting State in which his actual market value is located. Article 13 (1) of the same Treaty provides that profits accruing from the transfer of property other than that under paragraphs (1) and (2) above may be taxed in the Contracting State in which the property is located. Paragraph (3) of the same Article provides that profits accruing from the transfer of property other than that under paragraphs (1) and (2) above shall be taxed only in the Contracting State in which the transferor is a resident. Meanwhile, Article 3 (2) of the same Treaty provides that "any term not otherwise requested by a Contracting State in the application of this Convention shall have the meaning to be promulgated in the law of the Contracting State related to the tax subject to this Convention unless the context otherwise requires.

(b)the interpretation of the transferor in Article 13 of the Korea-Belgium Tax Treaty;

As seen earlier, in order to determine the legal meaning of the transferor and transferor as stipulated in Article 13(3) of the Korea-Belgium Tax Treaty, the conflict should be in accordance with the principle of strict interpretation in accordance with the principle of no taxation without law. In the case of strict interpretation, the expansion or analogical application of administrative convenience beyond the meaning of the person who is possible, is not allowed. However, within the possible meaning of the person, the systematic and logical interpretation method that clearly expresses the ordinary logical failure of the person in question in accordance with the legal systematic relationship that takes into account the legislative intent and purpose of the provision in question within the scope of the person who is possible, is the most adjacent to the essential contents of the provision, and thus, it is in line with the principle of no taxation without law.

In other words, the interpretation of the taxation law without the principle of no taxation without the law is interpreted as a legal basis, barring any special circumstances, barring special circumstances, and it is not permitted to expand or analogically interpret the taxation law without any justifiable reason. The substance over form principle, which is the derived principle of tax equality, is one of the general principles concerning the application of the taxation law, and even if Article 14 of the Framework Act on National Taxes does not specify it clearly, it cannot be denied the existence of the substance over form principle as the constitutional principle. Thus, the interpretation of the taxation law should not be regarded as violating the principle of no taxation without the law. Although the legal form chosen by the parties should be respected, the purpose of selecting the law is erroneous in the avoidance of tax avoidance, and the application of the taxation law on the premise that the substance over form principle is not in accordance with the principle of no taxation without the law, and it is difficult to say that the application of the taxation law to the parties to the above treaty is in accordance with the general provisions of the tax treaty and its application with the principle of no taxation without the law in good faith.

6) Sub-determination

As seen above, the substance over form principle, along with the purport of Article 13 of the Belgium Tax Treaty, with the principle of no taxation without law and interpretation of a treaty, the basis and content of the substance over form principle, one. The purpose of the Belgium Tax Treaty is to establish and the purport of Article 14 subparag. 1 of the Framework Act on National Taxes. In full view of the fact that the principle of substance over form principle is to realize the principle of fairness and satisfaction with the burden of taxation burden, and is applied clearly to both residents and non-residents under domestic law. (1) The principle of substance over form can be considered as the basis of interpretation unless it expands or expandss the meaning of the gate itself in interpreting the provisions of a tax treaty between the countries. (2) The Korea-Belgium Tax Treaty provides for taxation requirements, non-taxation and tax exemption requirements against the persons and corporations of the Republic of Korea and the Belgium, and the Defendant, who is the tax authority, recognizes the actual offender and the person to whom income accrued, as the resident of the Belgium under the Belgium Tax Treaty, and determines the income tax over the Plaintiff’s tax treaty established under domestic law.

Therefore, the interpretation of the treaty must be strict, and it cannot be the standard for the interpretation of the treaty.

on the premise that this case’s stock transfer income belongs to Korea-Belgium Tax Treaty and this case’s stock transfer income

We do not accept the Plaintiff’s assertion that it does not apply.

B. The actual person to whom the transfer income of the instant shares belongs

1) Article 14 of the Framework Act on National Taxes provides for the principle of substantial taxation as to the attribution of income, transaction, etc. subject to taxation. The issue of whether a taxpayer may choose one of the various lawful and effective legal relations in order to achieve the uniform economic purpose is the matter of his/her own choice in consideration of the degree of bearing the relevant expenses, such as the efficiency tax, etc. achieved by the purpose. Thus, if a taxpayer selects one of them and forms the legal relationship, the contents and scope of the tax arising therefrom must be decided individually in accordance with the legal relationship (see, e.g., Supreme Court Decision 200Du963, Aug. 21, 2001). In order to impose tax on the pertinent transaction according to the method of economic observation or the principle of substantial taxation, regardless of its legal form, the taxpayer’s individual and specific provisions are required under the principle of no taxation without law (see, e.g., Supreme Court Decision 95Nu5301, May 10, 1996).

However, as seen earlier, the constitutional principle of no taxation without law and the interpretation standard of a treaty between countries;

In full view of the purport and content of the principle of substantial taxation under Article 14 of the Framework Act on National Taxes, the purpose of the Korea-Belgium Tax Treaty and the purport of the tax exemption provisions on non-residents, etc., a corporation recognized as a resident of the Belgium in the Republic of Korea to conduct business transactions in the Republic of Korea and to obtain an exemption from taxation under the Korea-Belgium Tax Treaty with respect to source of income pursuant to the said Tax Treaty must be a transferor determined by Article 13 of the Korea-Belgium Tax Treaty. Here, in determining the meaning of "transferor", the interpretation of the principle of substantial taxation should be limited to the extent consistent with the purpose of preventing double taxation or tax avoidance and not contrary to the text of the Treaty. Thus, if a non-resident with nationality other than Belgium establishes a corporation in the Belgium for investment purpose and operates a business with the purpose of capital acquisition in the name of the Republic of Korea, only such domestic corporation's own business activities are not normal in the Belgium for the purpose of financing and its actual role in the transaction within the Republic of Korea without independent economic interest and business objectives, and thus, the entity of the Belgium and its original tax treaty should only be deemed as a taxpayer.

On the premise of such legal consideration, we examine whether the transaction entity of the transfer of shares of this case or the actual owner of the transfer income is the subject of the transfer of shares of this case.

(ii) personal death.

A) Since ○○ Fund began its activities in 1995, it has been engaged in investment activities in Korea since 700 throughout the world, and around 50 trillion won have been engaged in investment activities in Korea since 1999. As ○○ Fund III, from September 26, 2000, it specifically sought ways to avoid capital gains tax, etc. at the time of real estate investment in Korea.

(B) On July 20, 200.7.20, 200.20. 20, ○○ Fund III established Korea Capital I, Ltd, and in order to manage its investment together. This company served as a superior holding company for investment made at the stage of ○○○ Fund III, and the company established SH as its subordinate investment holding company on June 14, 201 by investing its name capital in the Belgium, and as its subordinate investment holding company, JJJJJJJJJJJJJJJJJJJJ (JJJJJJJJJJJJJKKKKKKKKKK), KMK III (KKKKKKK), MMM III (MMMMMMMM) and all of them were appointed by residents of ○○○○ Investment Association.

(d)G 3G 3G 2 KH 2, Inc. acquired 99 U.S. dollars 29,70 shares at the time of the establishment of SH 2, 300 shares (other than 3GG 3,00 shares at the time of the establishment of SH 3,00 shares) additionally acquired 39,760 U.S. dollars (46,648,00 shares) shares at the time of the investment of SH on June 20, 201 to 360 U.S. dollars 36,000 shares (46,648,00 shares) at the time of the establishment of ○○ 5,00 KH 2, 300 shares (3G 2,000 shares). On the other hand, 300 U.S. shares were purchased from ○ 5,000 shares (3G 5,000 shares shares).

F) On June 18, 2001, ○○ Fund III (U.S.) decided to purchase ○○○○○○ Fund III (U.S.) from the N Industry Development Co., Ltd. to allow transfer of the purchaser’s status to the terms and conditions of the contract. Accordingly, ○○○○ Fund III (U.S.) acquired the status of the transferee of the sales contract from ○○○○ Fund III (U.S.). Since then, ○○○○ Fund III (U.S.) paid a purchase price of approximately KRW 530 billion in the name of ○○○ Enterprise on two occasions on or around July 9, 2001, and then paid the construction cost on or around July 21, 2001, and then completed the construction project and acquired the ownership thereof.

G) On June 21, 2001, SH issued KRW 516,875 shares of ○○○○ Building (10,000 won per share) at KRW 100,000 per share to use in purchase price of the ○○○○ Building, as a single shareholder, acquired 516,875 shares of new shares issued at ○○○○○ Fund III, and paid KRW 51.687,50,000 won of the acquisition price of new shares with the funds of ○○○ Fund III. The said capital increase and other outstanding shares issued at KRW 18.91,000 from domestic financial institutions KRW 3.6 billion, paid the purchase price and necessary expenses of the ○○○○ Building Building with the loans of KRW 3.96 billion from domestic financial institutions.

However, among the above capital increase, USD 40 million was transferred directly to ○○○○ Fund III. Meanwhile, on June 19, 2001, 2001, ○○○ Fund III concluded a sales contract for the building at ○○○○○○○○○○○○○, etc., ○○○○○○○○○ Fund III and ○○○○○○○○○○○○○○○○○○ (U.S.) shall take over the purchase right of ○○○○○○○○○ Building, Jun. 21, 2001 from ○○○○○ Fund III, and ○○○○○ Fund III shall transfer 39,759,615, US$19,278,846 under the pretext of SH’s capital increase to ○○○○○○ Fund III, and ○○○○ Fund shall transfer 201 U.S. dollars to 181,601, respectively.

H) After December 5, 2002, SH used 4.80,000 shares of ○○○○○ (10,000 won per share) to offer new shares to 100,000 won per share and to repay the above bonds and loans. The ○○ Fund III, as an existing shareholder through SH, acquired 480,00 shares of new shares issued at ○○○○○○, and paid 48 billion shares of the acquisition price (4,00,000 US dollars). When the bonds issued by ○○○○, the total amount of principal and interest was allocated to ○○ Fund III through AAAAAAAAAAA International Financial Balance (Idland) through the U.S. and Do community in proportion to the initial shares of investment.

I) Meanwhile, on November 26, 2002, the HAK president, the subsidiary company of the ○○ Fund, stated a plan to avoid capital gains tax on the ○○○ Building through a change in the company structure of SH, such as the content that the Belgium company can be maintained in the Belgium and the Belgium company can be avoided if the SH company structure is changed to SA&SCA (Belgium law).

(j) ○○○ Fund III decided to change the structure of SH from Belgium under the Belgium Act to SCA as one of the measures to avoid tax when collecting investment proceeds in connection with the future ○○○○ Construction. On March 5, 2005, “AAAAAAAAAAAAAAAAAAAAPPPPR, a Belgium, appointed JJ as its permanent representative. The above LSM purchased part of the shares of SH, made its general liability shareholders, and appointed them as SH’s statutory directors. In addition, on February 14, 2003, it was a tax-free dividend income to be used by a shareholder of Luxembourg to maximize the investment shares of SH, but on the other hand, it is a tax-free dividend income to be used by a shareholder of Luxembourg to be converted into Luxembourg, and on the other hand, a shareholder of Luxembourg who owns its own shares to be converted into Luxembourg's investment shares.

k) While ○○○ Fund III was planned to maximize investment profits in preparation for sale of ○○○ Building by changing the governance structure of ○○○ Fund III as above, on June 10, 2003, ○○ Fund III advisory committee (○○○ Fund III advisory committee) was held in the U.S. legal branch on the legal branch of the U.S. on June 10, 2003, ○○○ Fund III was not present during the meeting as a shareholder of ○○○○ Fund III (JJ did not attend as a representative of ○○ Fund III). At that time, ○○○ Fund executives of ○○○ Fund reported to the effect that the investor’s question was planning to sell ○○○○○ Fund’s building around the end of 2004, and that the sale price of ○○ Fund’s ○○ Fund would have been more than KRW 90 billion in the form of sale of ○○ Building, a tax-related party of ○○ Fund, but not in the form of sale of ○○ Building.

l) The JJ has delegated most of the practical affairs in the Republic of Korea, including the opening of SH’s account with respect to the transfer of the instant shares, to MM, E-M, E-U, and Y, a related party of HAK, and HAK was in charge of the management of assets and general affairs. The HAK was mainly engaged in ○○○○○ Fund and its subsidiaries’ negotiations related to the disposal of the instant shares.

(m) On December 17, 2004, SH received the total amount of the instant shares from a Singapore corporation as SH’s won account on December 28, 2004 after temporarily setting the said amount as KRW 3,38.7 billion, and transferred the total amount of the stock sales price to SH’s won account on the same day to SH’s foreign account. Upon confirmation of the financial statements of ○○○○○○○, recommended in a sales contract with Singapore corporation, SH received KRW 12,391,149,508 of the additional settlement amount as SH’s won won account on February 24, 2005. On the same day, the amount was converted to USD 12,418,830 of the said amount on the same day.

"하) 이와 관하여 2004.12.29경 HAK의 곽○주, 이QQ 등과 LSCM의 R RRRR 등 ○○○펀드 관계인 간의 매각대금 관련 이메일에는 이 사건 BBBB Global Holdings, Ltd.'(Bermuda 소채, 'BBBB REOC Hold CO Ltd, 등이 소유하고 있으며, LSCM의 지분 전부를 소유하고 있다. 이하 'LSCM,라 한다)를 거쳐 곧 펀드 실체(fund entities)로 이동할 것이라는 취지가 기재되어있다.",거) 이 사건 주식 양도와 관련한 성공보수는 ○○○펀드 본사의 임원들과 MMM M 퉁이 수취하였을 뿐, SH 및 LSCM의 대표자얀 JJJ JJ 및 LSCM의 이사 등은 성공보수를 따로 받지 않았다.

(p) In the case of ○○○ Construction, the assets at the time of the transfer of the instant shares did not specifically exist in addition to the ○○ Building, and did not engage in business activities other than the sale of the ○○ Building, and there was no fact that SH historical history ○○○ Building had engaged in business activities other than the acquisition and transfer of the shares.

(q) SH is an investment holding company established for the purpose of investing in the ○○ Building, which was immediately liquidated upon the termination of the investment, and the income from investment in the created funds was distributed to investors in the form of liquidation distribution, along with the audience. However, upon a resolution of the board of directors, approximately KRW 200 million, including the above transfer proceeds, was lent to lsGH on the ground of 6% per annum. The remainder was liquidated on March 31, 2005 on the ground of the achievement of investment purpose (SH’s acquisition of shares and the contribution relationship at the time of transfer of the instant shares are as shown in attached Table 1.2).

[Reasons for Recognition] Unsatisfy, Gap evidence 2, Gap evidence 13 to 17, Gap evidence 23 to 25

Evidence, Gap evidence 31, 33, 34, 39, 40, Eul evidence 2, Eul evidence 5 through 19, Eul evidence 21, 23, 24-4, Eul evidence 26 through 28 (the evidence No. 15-1, including above numbers, No. 3) and the purport of the whole pleadings, and the purport of the whole pleadings.

3) Sub-decisions

A) In full view of the fact that, along with recognized facts, SH and its superior holding companies had no specific data on the fact that they had engaged in substantial economic activities in their hub countries other than the investment purpose of ○○ Building, the following circumstances can be determined.

① ○○○ Fund III was established for investment in real estate in Korea, and was established at the time of establishment, to seek ways to avoid capital gains tax on investment in real estate in the future, and to realize this, the Belgium and other countries’ taxation systems including Korea, and the institutions, etc. displayed on various investment benefits under the Company Act were studied and reviewed. In order to design the optimal investment structure to obtain tax exemption under the Tax Treaty with Korea, the laws and institutions of the investment hub countries, including Korea and Belgium, were analyzed.

② As a result of this study and analysis, ○○ Fund III: (a) established Belgium solely in accordance with the Korea-Belgium Tax Treaty for the purpose of being subject to tax exemption from Korean Cheongbu’s domestic capital gains; (b) purchased ○○○○ Building on the ground of its principal agent; and (c) subsequently, established a high holding company such as lsM and lsI, and replaced the investment subject with ○○ Fund III for the purpose of tax evasion, such as creating a high holding company with a benefit of tax exemption, such as Belgium and lsI, in order to maximize its investment profit; and (d) changed its investment governance structure from ○○ Fund III to the investment of ○○○○ Building to the investment subject of ○○○○ Building.

③ The acquisition and capital increase of ○○○○ Construction, the purchase and purchase funds of ○○○ Construction, all of which consist of SH as the principal agent in form, and the principal agent in charge of transferring the shares of ○○ Construction. However, such investment governance is merely a formal construction of ○○ Fund III in accordance with the investment structure and governance designed in advance to avoid tax on the transfer margin from the investment of ○○○ Construction. In substance, the purchase funds of ○○○ Construction, including ○○○○○ Fund III, were directly paid the name of ○○○○ Fund III by ○○○○○ Fund III, and was in charge of managing ○○○○○ Fund’s officers or executives, etc. under the direction of ○○ Fund in charge of managing ○○○○ Fund or ○○ Fund up to the entire process of ○○○ Fund acquisition, management, and transfer of the shares of ○○○ Construction.

④ SH and its superior holding companies are corporations under the control of ○○ Fund III, which were established or used for the purpose of receiving tax benefits from the country, which is the hub of ○○○○ Fund III through formal investment and management of ○○○○ Building, and there was no other objective or activity in the country, which became the hub. There was no independent economic interest as to the investment in ○○○ Building. After the instant stock transfer, the transfer of investment profits, including investment profits, was done formally, and the transfer proceeds, including investment profits, was conducted through SH bank account, but was liquidated by ○○ Fund III and distributed to individual investors of ○○○ Fund III.

⑤ All executives of SH and their superior holding companies are persons who are related to ○○ Fund or persons appointed and appointed by ○○ Fund.

B) In full view of these circumstances, the Plaintiff’s assertion to the effect that Article 13 of the Korea-Belgium Tax Treaty shall apply to the transfer of the instant shares and the subject of the benefit accrued therefrom, as the Plaintiff et al. is practically ○○ Fund III, regardless of its formal transaction title or the person to whom the benefit accrued.

(c) Whether taxation can be made under Article 93 subparagraph 7 of the Corporate Tax Act;

1) Details of the statutory provisions

Article 93 subparagraph 7 of the Corporate Tax Act provides that a foreign corporation's domestic source income shall be the income prescribed by the Presidential Decree as transfer income under Article 94 of the Income Tax Act (excluding income under paragraph (1) 3 of the same Article) (excluding income under paragraph (1) of the same Article). Article 132 (10) 2 of the Enforcement Decree of the Corporate Tax Act provides that a corporation's stocks or equity shares (excluding stocks or equity shares listed or registered on the securities market) of the total assets of the corporation as of the date of commencement of the business year in which the date of transfer falls, notwithstanding Article 158 (1) of the Enforcement Decree of the Income Tax Act.

Meanwhile, Article 94 (1) 4 (c) of the Income Tax Act provides that the transfer of assets, such as land subject to capital gains, etc. shall include income accruing from the transfer of assets prescribed by the Presidential Decree in consideration of the composition of stockholders of the corporation which has issued stocks, etc. or investment certificates, the holding status of real estate, or the type of business, etc. shall be deemed capital gains. The income accruing from the transfer of assets prescribed by the Presidential Decree shall be deemed capital gains. In this context, the assets prescribed by the Presidential Decree are generated from the transfer of assets under the Presidential Decree. Article 158 (1) 1 of the Enforcement Decree of the Income Tax Act provides that the ratio of the total value of assets under Article 94 (1) 1 and 2 of the Income Tax Act to one stockholder and other stockholders of the corporation shall be 50/100 or more of the total amount of stocks, etc. of the corporation in question to one stockholder and other stockholders of the corporation and the other stockholders transfer 50/100 or more of the total amount of stocks, etc. of the corporation in question.

2) The history of amendment of the statute

Since December 22, 1974, Article 93 subparagraph 7 of the Corporate Tax Act continued without any particular change in the contents of capital gains under the Income Tax Act since Act No. 2792, it was revised as capital gains under Article 94 of the Income Tax Act (excluding income under paragraph (1) 3 of the same Article) as prescribed by the Presidential Decree.

On the other hand, in applying Article 55(1)7 of the Corporate Tax Act to the above provision, where the Enforcement Decree of the Corporate Tax Act provides for the taxation of the transfer income of the corporation’s stocks mainly composed of real estate in the tax treaty by Presidential Decree No. 15564, Dec. 31, 1997, “other assets under Article 94 subparag. 5 of the Income Tax Act shall, notwithstanding the provisions of Article 158(1) of the Enforcement Decree of the Income Tax Act and Article 124-3(9) of this Decree, be the stocks (excluding those listed at the Korea Stock Exchange and equity shares under each subparagraph of Article 157(5) of the Enforcement Decree of the Income Tax Act) or equity shares of a corporation whose total value of assets under subparagraphs 1 and 2 of Article 94 of the Corporate Tax Act is 50/100 or more of the total assets of the corporation as of the first day of the business year to which the transfer date belongs, and the above provision was amended by Presidential Decree No. 1703, Dec. 29, 20000 and 4 of the Act.

However, in full view of the legislative history of the argument, the above provisions were newly established in order to enable a foreign corporation to impose corporate tax if the capital gains of the foreign corporation subject to tax treaties meet the asset ratio requirements, stock ratio requirements, stock transfer ratio requirements, and stock transfer margin requirements under the former provisions of the Act and subordinate statutes, and thus, the scope of the taxation right granted by the tax treaty was reduced because corporate tax cannot be imposed if the capital gains of the foreign corporation subject to tax treaties were not fully satisfied the asset ratio requirements among the three requirements. Accordingly, the above provisions were amended in order to enable the foreign corporation to impose corporate tax if the capital gains of the foreign corporation subject to tax treaties meet the asset ratio requirements among the above three requirements. The capital gains of the foreign corporation subject to tax treaties, as well as the capital gains of the foreign corporation subject to tax treaties, as well as the capital gains of the foreign corporation subject to tax treaties, are also amended in order to enable the

On the other hand, the above provision was maintained without any change in its contents until it was amended by Act No. 9267 of Dec. 26, 2008 and included in the contents of the Presidential Decree. Accordingly, the amendment made by the Corporate Tax Act as of December 30, 2003 is to provide the basis for statutory delegation with respect to the contents of the relevant provisions of the Presidential Decree.

3) Interpretation of statutes

In light of the legislative history of the above above, Article 132(10) of the Enforcement Decree of the Corporate Tax Act provides that "any stocks, etc. among other assets under Article 94(1)4 of the Income Tax Act shall be the stocks or equity shares (excluding stocks or equity shares listed or registered on the securities market) of a corporation whose total value of assets under Article 94(1)1 and 2 of the Corporate Tax Act is not less than 50/100 of the total amount of assets of the relevant corporation as of the starting date of the business year to which the transfer date belongs, notwithstanding the provisions of Article 158(1) of the Enforcement Decree of the Corporate Tax Act, among the other assets under Article 94(1)4 of the Income Tax Act in the application of the provisions of subparagraph 7 of the same Article, Article 132(10) of the Enforcement Decree of the Corporate Tax Act shall be construed as the requirements for capital gains recognized as domestic source income of a foreign corporation under its delegation of Article 94(1)4 of the Income Tax Act.

Therefore, when a corporation receives income from the transfer of stocks or investment shares of a corporation whose total assets amount under Article 94 (1) 1 and 2 of the Income Tax Act, such as land, buildings, superficies, etc. among its total assets as of the starting date of the business year to which the transfer date belongs, it shall be subject to taxation as domestic source income under Article 93 (7) of the Corporate Tax Act regardless of whether the requirements for stockholding ratio of the appeal under Article 158 of the Enforcement Decree of the Income Tax

4) Sub-determination

Ultimately, although the Plaintiff, a foreign corporation, obtained income under Article 93 subparag. 7 of the Corporate Tax Act by transferring ○○ Construction and shares, which are most assets, even though the investment disposition on ○○ Construction is merely 2% of the total assets, and thus, the instant disposition under the above provision is lawful, and the Plaintiff’s assertion in all other parts is without merit.

5. Conclusion

Therefore, the plaintiff's claim is without merit, and it is so decided as per Disposition.