Seoul Administrative Court-2014-Gu Partnership-54189 ( April 17, 2015)

Whether a public offering trust fund listed in Germany is a foreign corporation under the Corporate Tax Act.

A public trust-type fund listed in Germany can not be a foreign corporation under the Corporate Tax Act.

Article 98 of the Corporate Tax Act

2015Nu42918 Revocation of Disposition of Corporate Tax Imposition

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BB Director of the Tax Office

Seoul Administrative Court Decision 2014Guhap54189 decided October 17, 2015

January 29, 2016

1. The defendant's appeal is dismissed.

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

1. Purport of claim

The Defendant’s disposition of imposing corporate tax of KRW 103,686,790 for the year 2008, corporate tax of KRW 70,702,850 for the year 2009, corporate tax of KRW 66,465,860 for the year 2010, and corporate tax of KRW 816,813,090 for the year 2012, is revoked.

2. Purport of appeal

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

1. Details of the disposition;

A. Status of the parties

On November 29, 1966, the Plaintiff is a German limited-liability company (Gesscencenchmit Haftung, weak GmbH) established for the purpose of operating an investment fund under the Investment Law of the Federal Republic of Germany (hereinafter referred to as " Germany"). BB fund is a listed and public investment model fund established in accordance with the German Investment Law on October 28, 2002.CC Co., Ltd (hereinafter referred to as "CC") was established on October 11, 1999 for the purpose of building lease business, etc., and around February 23, 2012, the Plaintiff was dissolved on July 23, 2012 after its sale.

B. Payment of dividend and taxation

During the period from September 2008 to June 2012,CC remitted 23,816,57,72 won, excluding 113,954,822 won of corporate tax and local income tax specially collected by applying the limited tax rate of 5% under Article 10(2)(a) of the Convention between the Republic of Korea and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (hereinafter referred to as the “Korea- Germany Tax Treaty”), to the German bank account in the name of BB Fund.

However, on December 3, 2012, the Defendant excluded the application of the limited tax rate of 5% under Article 10(2)(a) of the Korea- Germany Tax Treaty, and issued a disposition of collecting KRW 2,418,08,080,000,000,000,0000,0000,000,000,0000,0000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,0000,000,000,000,000,000,0000,000,000,000,000,000.

On December 17, 2012, on the premise that the Plaintiff is an oligopolistic shareholder under Article 39(1)2 of the Framework Act on National Taxes, the Defendant appropriated the remaining assets ofCC for KRW 2,418,080,940 among the above collected amounts, and notified the Plaintiff of the payment of KRW 1,05,00,00 in total, KRW 1,686,790 in corporate tax for the year 2008, KRW 70,702,850 in corporate tax for the year 2009, KRW 66,465,860 in corporate tax for the year 2010, KRW 816,813,090 in total, KRW 1,057,68,590 in corporate tax for the year 2012 (hereinafter “instant disposition”).

(c) Procedures of the previous trial;

On March 7, 2013, the Plaintiff, who was dissatisfied with the instant disposition, filed a request for adjudication with the Tax Tribunal on March 7, 2013, but did not receive notice of the decision of adjudication within 90 days, and filed the instant lawsuit on March 2, 2014.

[Ground of recognition] Unsatisfy, Gap evidence 1 to 5 (including the paper number; hereinafter the same shall apply)

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Claim that BB fund is not a taxpayer under the Corporate Tax Act

BB Fund is not liable to pay taxes under the Corporate Tax Act, so the instant collection disposition againstCC based on the premise that BB Fund is liable to pay taxes under the Corporate Tax Act is unlawful, and the instant tax disposition based on the premise that the instant collection disposition againstCC is valid is also unlawful.

2) The assertion that the 5% limited tax rate under the Korea- Germany Tax Treaty shall apply to the dividend income of this case

○ The Plaintiff, a corporation that is not a formal corporation, but a corporation that has a substance without a purpose to avoid taxes, acquired the shares ofCC and received the instant dividend income, and thus, the beneficial owner of the instant dividend income under the Korea- Germany Tax Treaty is the Plaintiff. Therefore, 5% of the limited tax rate should be applied on the instant dividend income by deeming that the requirements for share by 25% under Article 10(2)(a) of the Korea- Germany

○, even if the beneficial owner of the instant dividend income is a BB fund, the BB fund is unable to acquire the shares of theCC directly due to the restriction under the German Investment Law, so there is no purpose of tax avoidance because it was acquired in the name of the Plaintiff. The meaning of the “direct possession” under Article 10(2)(a) of the Korea- Germany Tax Treaty does not necessarily mean that the “direct possession” of the same is in the position of shareholders. Therefore, the BB fund satisfies the equity requirement of Article 10(2)(a) of the Korea- Germany Tax Treaty, and thus, 5% of the limited

B. It is as shown in the relevant statutes and the Plaintiff’s articles of incorporation (including the German Investment Act, the German Corporate Tax Act, and the Korea- Germany Tax Treaty).

(c) Fact of recognition;

1) The Plaintiff, as a asset management company, manages real estate funds or infrastructure funds, etc. and provides investment advisory services related thereto. The size of assets as of December 31, 2010 is equivalent to 66,712,110 (including stocks and non-determined interest rates) and the profits from which a corporate tax return was filed in 2010 are 219,345,939.

2) Article 2(2) of the German Investment Act provides that “AB fund is an investment fund under the German Investment Act and has no separate decision-making body.” Article 2(2) of the German Investment Act provides that “a group of domestic investment assets consisting of asset management companies in accordance with the laws and regulations governing the legal relations between an asset management company and investors for investors” and Article 30(1) provides that “a property belonging to a fund shall be owned by an asset management company or jointly owned by an investor.” Furthermore, the German Investment Tax Act considers that an investment fund as a “special purpose foundation” under the German Corporate Tax Act, which is an unlimited taxpayer, and is exempt from corporate tax and business tax on such income. Meanwhile, on November 30, 2011, the German Investment Fund was proved to be a resident by the National Tax Service in Germany as a German resident under Article 4 of the Korea- Germany Tax Treaty.

3) As to the instant dividend income, BB fund reported to the German tax authorities on its own income.

4) The instant dividend income was deposited into the account in the name of BB Fund. The said account is the Plaintiff’s account opened on behalf of the Plaintiff on September 25, 2002. On the other hand, Magdong stated “the amount received” column as “B Fund” when transferring it to the said account.

[Ground of recognition] Unsatisfy, Gap evidence Nos. 7 through 17 (including virtual number), the purport of the whole pleadings

D. Determination

1) The defendant's ground for disposition of this case

The Defendant deemed BB fund as a taxpayer under the Corporate Tax Act, and deemed BB fund’s corporate tax on the dividend income of this case as subject to withholding tax, and imposed the instant tax collection disposition on BB fund. Moreover, the Plaintiff deemed the secondary taxpayer of BB fund as the secondary taxpayer of BB fund, and issued the instant tax disposition on the amount that the Plaintiff was not collected from BB fund.

2) Whether the BB fund constitutes a taxpayer under the Corporate Tax Act

A) Article 1 of the former Corporate Tax Act (amended by Act No. 11607, Jan. 1, 2013) at the time when the corporate tax subject to withholding becomes final and conclusive (amended by Act No. 11607, Jan. 1, 2013) defines a foreign corporation liable to pay taxes for domestic source income as “a corporation with its head office or principal office in a foreign country (limited to where

Where a foreign unincorporated association, foundation or other organization acquires domestic source income as provided for in the Corporate Tax Act and distributes such income to its members, if it can be deemed a foreign corporation under the Corporate Tax Act, it shall become a taxpayer for domestic source income and collect corporate tax from its members. If it cannot be deemed a foreign corporation under the Corporate Tax Act, the income tax or corporate tax shall be collected from its members as to the income amount distributed to each of them as a foreign corporation according to the status of its members. In addition, whether an organization can be deemed a foreign corporation under the former Corporate Tax Act shall be determined based on whether it can be deemed a separate entity from its members under Korean private law, in light of the contents of the laws and regulations of the country established, and the substance of the organization, unless otherwise provided for in the former Corporate Tax Act (see, e.g., Supreme Court Decision 2011Du4411, Jul. 11, 2013).

B) However, in the case of BB fund, it is deemed a special purpose foundation in the German Investment Tax Law, and it does not constitute an organization granted under the German law, and does not own property in its name, and since it does not have any decision-making body or any business execution body in addition to the Plaintiff, it cannot be deemed that it constitutes an entity subject to separate rights and obligations independent of the members of an organization under the private law of Korea. Therefore, the disposition of this case on the premise that BB fund does not constitute a foreign corporation with a tax liability under the Corporate Tax Act, and it does not constitute a foreign corporation with a tax liability under the Corporate Tax

3) Since the instant disposition should be revoked on the grounds of the foregoing illegality, the instant disposition is not further determined on the Plaintiff’s remaining arguments.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be accepted in its entirety on the grounds of its reasoning, and the judgment of the court of first instance is just and the defendant's appeal is dismissed as it is without merit, and it is so decided as per Disposition.