Busan District Court Decision 2008Guhap2614 ( October 16, 2010)

National High Court Decision 2007Da2918 (O. 21, 2008)

The Plaintiff, a corporation, is merely a formal company established to avoid exercising the right of taxation in Korea.

The Plaintiff, Malaysia, a corporation, is merely a formal company established to avoid exercising the power to impose tax on Korea. Therefore, the actual holders of the capital gains of this case shall be limited to corporations established by the Global Investment Bank in the United States and limited partnerships.

2010Nu3916 Revocation, etc. of Disposition of Refusal to Request for Reduction of Corporate Tax

XX

Head of Suwon Tax Office

Busan District Court Decision 2008Guhap2614 Decided July 16, 2010

October 19, 2012

November 9, 2012

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The defendant's rejection disposition against reduction of corporate tax of 000 won for the plaintiff on April 30, 2007 shall be revoked.

1. Details of the disposition;

A. On September 5, 2006, the Plaintiff is a corporation Malaysia, and on which September 5, 2006, transferred 2,370,000 accounts (79% of the total number of withdrawal units as of December 31, 2005, hereinafter “the instant equity shares”) of YY limited liability companies and OP limited liability companies (hereinafter “acquisition corporations”) to acquire gains on transfer of 00 won, and the transferee corporations withheld and paid 000 won corporate tax on the said transfer gains at the district tax office having jurisdiction over the district tax on October 10, 206.

B. 1) On March 31, 2007, Article 13 of the Convention between the Government of the Republic of Korea and the Government of Malaysia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “the Convention”) provides that income from the transfer of equity shares shall be imposed only in the country where the transferor’s residence is located. Since the Plaintiff’s residential country is Malaysia, the Plaintiff filed a report on the tax base of corporate tax for the transfer of equity shares belonging to the year 2006, and filed an application for a refund of KRW 00,000,000,000,000,000 won.

2) On April 30, 2007, the Defendant: (a) cannot be confirmed that the Plaintiff’s residential country is Malaysia; and (b) the Plaintiff is not the actual owner of the Malaysia income; (c) refunded KRW 00 million corresponding to the difference between the withholding tax rate and the corporate tax rate; and (d) refused to refund the remainder of KRW 000 (hereinafter “instant disposition”).

[Ground for recognition] Unsatisfy

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Article 13(4) of the Korea-U.S. Tax Treaty provides that profits accruing from the transfer of equity shares shall be imposed only in the Contracting State in which the transferor is a resident, and does not require that the transferor shall be the actual owner of the capital gains. Thus, the Plaintiff constitutes the transferor prescribed in the above provision, and the Defendant did not apply the above tax treaty on the ground that the Plaintiff is not the actual owner of the capital gains.

Even if Article 13(4) of the Tax Treaty applies only to cases where the transferor is a person to whom capital gains substantially accrue, since the investment banks, such as GG and MM, such as the United States, etc., raise funds from investors in each of the countries around the world and invest, the country with which investors’ residence and the investment holding company, SPC (special purpose corporation) are established are different. The plaintiff is an investment holding company established within Malaysia, the investment banks established within Malaysia, the reason for the investment conditions of which are reasonable by the above investment banks, and entrusts the local corporation with the ordinary business affairs without having full-time officers and employees in Ra. The plaintiff is the actual owner

Therefore, the instant disposition is unlawful.

2) According to the resolution of correction of the corporate tax base and tax amount (No. 1) of April 30, 2007 against the Plaintiff prepared by the Defendant prior to the instant disposition, the Defendant calculated the Plaintiff’s corporate tax base for the year 2006 as KRW 000 on the transfer income reported by the Plaintiff, and calculated the calculated tax amount and the total tax amount on the basis thereof, and then “tax amount for the next notice” as KRW -00 on the basis of the Defendant’s disposition or its circumstance itself, it is clear that the Plaintiff is the transferor of the instant equity shares, and if the Plaintiff is not the actual owner of the transfer income, as alleged by the Defendant, the Plaintiff’s income is KRW 0, and thus, the corporate tax withheld and paid should be refunded more.

(b) Related statutes;

This is the same as the relevant Acts and subordinate statutes.

(c) Fact of recognition;

1) The Plaintiff is a foreign corporation that does not have a place of business in Korea. On February 12, 2008, the head of the internal tax office of Malaysia issued to the Plaintiff a resident certificate (Evidence 5-3) indicating that the Plaintiff is a resident for tax purposes in the business year (from January 1, 2006 to December 31, 2006) of Malaysia.

2) 미국 내 글로벌 투자은행 MM(MM)와 GG(GG)는 영국령 케이만 아일랜드에 SS(SS Inc), AA 홀딩 컴퍼니(AA Holding Company)라는 법인들을, GG는 미국 델라웨어 주에 TT 리얼 에스테이트 펀드 2000 엘피(TT Real Estate Fund 2000 L.P.), WW스트리트 리얼 에스테이트 엘피 XIII(WW Street Real Estate L.P. XIID, WW패럴랠 리얼 에스테이트 엘피 XIII(WW Parallel Real Estate L.P. XIID라는 유한 파트너십들을 각각 설립하였다.

그리고 위 법인들과 유한 파트너십들은 우리나라에 있는 부동산에 투자할 목적으로 공동출자하여 말레이시아 라부안에 EE Ⅱ 프라이빗 엘티디 (EE Ⅱ Private Ltd, 이하 '머서 Ⅱ')를 설립하였는데, EE Ⅱ의 소재지 는 '말레이시아 라부안 QQ PPPP TTT WWW 0 레벨 0&0로트', 이사회 회의록 상의 대표자는 'MM 윌리'로 원고와 같다.

3) The Plaintiff and EE II did not have an office or a resident employee in Malaysia, and delegated the establishment agency, keeping documents, keeping legal reports, and payment of fees to a company specializing in the foregoing business (trade name: HCOMPN SDBD; hereinafter referred to as “agency”) to a company specializing in the foregoing business in Malaysia.

In addition, in the location of the Plaintiff and EE II, the said agency company and its employees were located, and on the wall surface of the present agency, there was a list of customer companies, i.e., the said agency companies, including the Plaintiff and EE II, who are engaged in the said business.

4) All officers of EE II were officers and employees of GG and MM, other than Malaysia residents, and EE II did not pay wages, etc. to those officers and employees, other than Malaysia, who are the representative director of the agency company and the representative director of EE II. The main duties of EE II were those of GG and MM, such as J Standards.

5) As a result of the Seoul Regional Tax Office’s investigation, Malaysia’s Malaysia’s Malaysia’s 2-3 companies are established as EE-Ⅱ, not only can the expenses be limited to three million won, but also its shareholders’ secrets are legally guaranteed, so many foreign private equity funds were established within D to avoid exercising the power to impose taxes in Korea prior to investing in Korea, so-called Do government-owned companies (a bypass company established for only tax avoidance purposes without real income or assets ownership and management rights) in D.

[Ground of recognition] Facts without dispute, Gap evidence 5-1 to 3, 3-2, the purport of the whole pleadings

D. Determination

1) As to the first argument

The principle of substantial taxation under Article 14(1) of the former Framework Act on National Taxes (amended by Act No. 8830 of Dec. 31, 2007) refers to a person to whom income, profit, property, transaction, etc., belongs, if there is any other person to whom such income, profit, property, or transaction, etc., belongs differently from the nominal owner, the nominal owner of the property shall be the person to whom such income, etc., actually belongs, rather than the nominal owner. Thus, the nominal owner of the property has no ability to control and manage the property, and there is another person who substantially controls and manages the property through the control, etc. over the nominal owner, and the disparity between the nominal owner and the substance arises from the purpose of tax evasion, the income on the property shall be deemed to have been attributed to the person who actually controls and manages the property, and the latter person shall be the person to whom such income belongs (see, e.g., Supreme Court en banc Decision 2008Du8499, Jan. 19, 2012).

Based on the above legal principles, we examine the facts of this case, i.e., the following circumstances, i.e., ① the formal company EE Ⅱ and the Plaintiff’s representative and location are identical, i.e., the mutual name is similar, ② the Plaintiff is included in the list of trust companies managing EE Ⅱ; ③ the Plaintiff is also deemed to have been engaged in the business of establishing, registering, maintaining, etc. by employees of trust companies without resident employees or offices at the location; ④ The Malaysiabubuan is a representative tax have place where many foreign private equity funds are used as the place of establishment of the Do government company to avoid the exercise of Korea’s taxation right prior to investing in Korea, and thus, the Plaintiff is merely a formal company established to avoid the exercise of Korea’s taxation right, as shown in E E Ⅱ, and thus, the Plaintiff’s assertion on the premise that the transfer of investment shares belongs to the Plaintiff’s limited partnership, etc. is not reasonable.

2) As to the second argument

According to the statement in Eul evidence No. 1, it is recognized that the plaintiff's decision on the tax base and amount of corporate tax (determination/revision) of April 30, 2007 against the plaintiff was written in 000, 000, 000, 000, 000, -00, -000, - - 000.

However, it cannot be confirmed that the Plaintiff’s residential country is a Malaysia, and that the Plaintiff is not a person to whom the transfer margin of this case belongs, and this is clearly made that the person to whom the transfer margin of this case belongs is not the Plaintiff. In light of the reasons for the disposition and the circumstances of the disposition, it is stated in the above corporate tax base and tax amount resolution as above, and even if 00 won was refunded to the Plaintiff, it cannot be deemed that the Defendant recognized the Plaintiff as the person to whom the transfer margin of this case belongs.

In addition, the plaintiff asserts that if the plaintiff is not the person to whom the transfer marginal profit of this case belongs, the corporate tax withheld and paid by the transferee corporation shall be deemed to have been withheld and paid from the person to whom the transfer marginal profit of this case belongs, so there is no reason to refund the corporate tax withheld and paid to the plaintiff.

Therefore, the plaintiff's assertion on this part is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed due to the lack of reason, and the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed. It is so decided as per Disposition.