E. E.P Korea Co., Ltd. (Law Firm Yang Hun-Hun, Attorney Lee Ho-ju, Counsel for defendant-appellant

Head of the District Tax Office and 1 other (Law Firm Gyeongsung, Attorney Kim-dilution, Counsel for the plaintiff-appellant)

October 16, 2009

Seoul Administrative Court Decision 2006Guhap21764 Decided December 31, 2008

1. The defendants' appeal is dismissed.

2. The costs of appeal are assessed against the Defendants.

1. Purport of claim

The imposition of corporate tax of 200 business year 21,330,130, corporate tax of 201, corporate tax of 200, and corporate tax of 2,136,661,410 on October 1, 2004 and the imposition of the Defendant Seoul Regional Tax Office (hereinafter “the head of the Defendant”) against the Plaintiff on October 5, 2004 by the Head of the Seoul Regional Tax Office (hereinafter “the head of the Defendant”). The notice of the transfer income amount of 46,450,633, as of October 5, 2004, the notification of the transfer income amount of 4,897,103,00 won as of October 1, 202, the notification of the transfer income amount of 1,496,098,244 won as of October 202, the notification of the transfer income amount of 202,282,72,747, 2014, the notification of the transfer income amount reverted to 36146

2. Purport of appeal

The part of the judgment of the first instance against the defendant shall be revoked, and the plaintiff's claim corresponding to the above revocation shall be dismissed.

1. Quotation of judgment of the first instance;

The reasons for the court's explanation on this case are as follows: "If an international transaction between Korea and Germany takes place, the basis provision is not Article 4 of the Act, but Article 9 of the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital between Korea and the Federal Republic of Germany," it should be determined through interpretation of Article 9 of the above Treaty. Furthermore, the above Treaty is in accordance with Article 9 of the OECD Model Tax Treaty, and its interpretation should be in accordance with the OECD Transfer Guidelines. Article 9 of the above Treaty provides that the Defendants' assertion that the above provision would not have any effect of "in the case of an enterprise under Article 8 of the Enforcement Decree of the Civil Procedure Act," "in the case of a trade between Korea and Germany," and Article 2 of the same Act (excluding the case of an enterprise under Article 8 of the Civil Procedure Act, and that it would not have any effect on the transfer of its management or capital, or that it would not have any effect on the transfer of its business profit or indirect profit."

2. Additional matters to be determined;

The Defendants asserted that the method of calculating the excessive royalty of this case does not conform to the net trade profit ratio method as stipulated under Article 4 subparagraph 2 of the Enforcement Decree of the Act, but this constitutes “a method deemed reasonable in light of the substance and practice of other transactions” as stipulated under subparagraph 3 of Article 4 of the same Act, and thus, it is lawful method of calculating

However, as seen earlier, Article 4 subparag. 2 of the Enforcement Decree, which was enforced at the time of each of the dispositions in this case, provides that the arm’s length price shall be calculated based on the net trade profit ratio calculated by applying the “international trade between third parties” as the comparative trade. However, the Defendant Administrator calculated the arm’s length price of the pertinent royalty based on the net trade profit ratio calculated by applying the “domestic trade between third parties” as the comparative trade in violation of the above provision. The Plaintiff did not directly engage in research and development activities, and only engages in sales activities with a sales right granted by a third party, and the Plaintiff does not have the sales right granted by a third party, and it is difficult to view that the transaction of the pertinent comparative company, which is directly engaged in research and development activities and sales activities, are similar to the conditions and conditions of the pertinent comparative company, and

3. Conclusion

Therefore, the judgment of the court of first instance is justified, and the appeal by the defendants is dismissed, and it is so decided as per Disposition.

Judges Cho Jong-chul (Presiding Judge)