The case holding that the money paid by a domestic telecommunications business operator to a foreign telecommunications satellite business operator or a foreign telecommunications business operator for the use of a telecommunications satellite or Internet network does not constitute "income from the use of equipment or other tools" under Article 93 subparagraph 9 (c) of the former Corporate Tax Act, one of the domestic source income liable for corporate tax payment by a foreign corporation.

Article 93 Subparag. 9 of the former Corporate Tax Act (amended by Act No. 7005 of Dec. 30, 2003); Article 132(6) of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 18174 of Dec. 30, 2003) (see current Article 132(2)11 of the former Enforcement Decree of Corporate Tax Act)

KT Co., Ltd. (Attorneys Lee Im-soo et al., Counsel for the defendant-appellant)

The Head of Sung-nam Tax Office (Law Firm Law School, Attorneys Doh-il et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2004Nu18841 delivered on November 8, 2005

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

Article 5(1)9 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998; hereinafter “former Corporate Tax Act before its amendment”) and Article 93 subparag. 9 of the former Corporate Tax Act (amended by Act No. 7005 of Dec. 30, 2003; hereinafter “former Corporate Tax Act”) provide that “if any of the following assets, information, or rights is used in Korea or is paid in Korea, the price shall be one of the domestic source incomes for which a foreign corporation is liable to pay corporate tax.” Article 5(1)9 of the former Corporate Tax Act and Article 93 subparag. 9 of the former Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 198) provide that “The price shall be determined by Presidential Decree No. 1258 of the former Corporate Tax Act (amended by Presidential Decree No. 2013, Dec. 31, 1998; hereinafter “former Act”).

After recognizing the facts as indicated in its reasoning based on its adopted evidence, the lower court concluded a contract with an overseas satellite service provider to use a service of transmitting broadcasting or telephone, etc. via a specific frequency band with the said overseas telecommunications satellite service provider for the use of the Plaintiff’s Internet network, and concluded a contract with an overseas telecommunications service provider to use a service of transmitting voice data through a submarine cable, board cable, or spons, etc. The lower court determined that it is difficult to view that the Plaintiff’s use of an overseas satellite telecommunications satellite or satellite telecommunications satellite that the Plaintiff’s use of the aforementioned telecommunications satellite or satellite telecommunications satellite is not a “the entity that controls and operates telecommunications satellite or satellite control or Internet network” (hereinafter referred to as “foreign corporations”) solely based on the premise that the Plaintiff’s use of the aforementioned telecommunications satellite or satellite telecommunications satellite, etc. is not a “the Plaintiff’s use of telecommunications satellite or satellite,” which appears to be a “the Plaintiff’s use of telecommunications satellite or satellite for the use of the relevant overseas telecommunications satellite or satellite,” rather than the Plaintiff’s use of the instant telecommunications satellite or satellite.

In light of the above relevant laws and records, the above judgment below is just and acceptable, and there is no error in the misapprehension of legal principles as to the concept of "user income", the validity of the OECD Model Convention, or the violation of the rules of evidence as alleged in the ground of appeal by the defendant.

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Nung-hwan (Presiding Justice)