(영문) 수원지방법원 2020.5.7. 선고 2018구합73219 판결

1. On December 4, 2017, the Defendant’s disposition of withholding corporate tax (including additional tax) of KRW 35,515,550 for the Plaintiff, KRW 33,416,750 for the year 2012, KRW 33,416,750 for the year 2013, KRW 238,713,470 for the year 2014, and KRW 111,71,60 for the corporate tax withholding disposition (including additional tax) for the year 2015 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

Purport of claim

The same shall apply to the order.

Reasons

1. Details of the disposition;

A. On April 13, 2012, the Plaintiff concluded a contract with Hungary Corporation B (B; hereinafter “B”) to obtain a right to use a semiconductor software product (hereinafter “instant software”) and pay a royalty for the use thereof (hereinafter “instant contract”).

B. The Plaintiff paid B the royalty totaling KRW 1,996,175,219 (hereinafter “instant royalty”) to B from 2012 to 2015 under the instant contract. The Plaintiff applied Article 12(1) of the Convention between the Government of the Republic of Korea and the Government of the Republic of Hungary for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Income (hereinafter “Korea-Hungary Tax Treaty”) with respect to the instant royalty income, deeming that the imposition of tax on the instant royalty income was in Hungary, and filed an application with the Defendant for non-taxation from the source of income.

C. After conducting a tax investigation with respect to the Plaintiff, the Central Tax Office: (a) deemed that B constitutes a formal nominal owner or Do Governor; (b) deemed that the actual owner of the royalty income of this case is a U.S. corporation C (C; hereinafter referred to as “C company”); and (c) applied the Korea-Hungary Tax Treaty to “the Convention between the Republic of Korea and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and the Encouragement of International Trade and Investment” (hereinafter referred to as “Korea-Hungary Tax Treaty”); and (d) applied the limited tax rate of 15% pursuant to Article 14(1) of the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and the Encouragement of International Trade and Investment between the Republic of Korea and the United States of America, on December 4, 2017.

D. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on March 2, 2018, but was dismissed on September 10, 2018.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 2, and 3 (including branch numbers; hereinafter the same shall apply), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Since the beneficial owner of the royalty income of this case owns and exercises the legal, substantial control and management rights over the royalty income of this case, taxation should be exempted in the Republic of Korea pursuant to Article 12 of the Korea-Hungary Tax Treaty. On the contrary, the instant disposition taken on the premise that C is the beneficial owner is unlawful as it violates the Korea-Hungary Tax Treaty.

(b) Related statutes;

It is as shown in the attached Form.

1) The concept of "beneficial owner" is introduced into the OECD Model Tax Treaty. Article 32 of the Korea-Hungary Tax Treaty and the OECD Model Tax Treaty does not clearly define the concept of beneficial owner. Article 32 of the Vienna Convention on the Law of 1969 (referred to as the "Convention" hereinafter) provides that "if the meaning of the treaty is ambiguous or ambiguous, it may depend on supplementary means, including the negotiation records of the treaty and the circumstances at the time of conclusion of the treaty, to determine its meaning." The OECD periodically publishes a note for the uniform interpretation of the tax treaty based on its model and issued it to the other party for the purpose of the uniform interpretation of the treaty. It is important for the OECD to review the concept of "beneficial interest" as an important reference for the interpretation of the Convention and the provisions of Article 32.

2) Article 12(1) of the Korea-Hungary Tax Treaty provides, “The royalty paid to a resident of the other Contracting State who is a beneficial owner of the royalty shall be imposed only in that other Contracting State, if the resident is the beneficial owner of the royalty.” Accordingly, even if the royalty income corresponding to the domestic source income under the Corporate Tax Act of Korea is a royalty income, if it is paid to a resident of Hungary who is a beneficial owner of the royalty, it shall not be imposed in Korea. In full view of the history and context of the introduction of the foregoing provision of the Convention, the beneficial owner has a right to use and benefit without any legal or contractual obligation to transfer the royalty income to the other person. Such beneficial owner shall be determined by comprehensively taking into account all the circumstances, such as the substance and status of the business activities related to the pertinent income, the details of the actual use and operation of the income (see Supreme Court Decision 2017Du33008, Nov. 15, 2018).

3) Meanwhile, the principle of substantial taxation under Article 14(1) of the Framework Act on National Taxes applies to the interpretation and application of tax treaties having the same effect as the Act, barring any special provision excluding such principle. Therefore, even if a person is a beneficial owner of royalty income, such application may be denied if it is recognized as abuse of treaty pursuant to the principle of substantial taxation under the Framework Act on National Taxes. In other words, where the nominal owner of property is not capable of controlling and managing 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 application of tax treaties according to the nominal name shall be denied and the income on the property shall be deemed reverted to the person who actually controls and manages the property (see, e.g., Supreme Court Decisions 2012Du1646, Jul. 10, 2014; 2015Du2451, Jul. 14, 2016).

4) A taxpayer may arbitrarily choose to take any legal form in order to achieve a specific economic purpose in carrying out economic activities, and the tax authority shall respect the legal relationship arising from the legal form chosen by the taxpayer, barring special circumstances, such as where the ownership of income subject to taxation is a nominal title and there is another person to whom the income actually accrues, barring special circumstances (see Supreme Court Decisions 2015Du49320, Apr. 7, 2017; 2018Du57452, Jan. 31, 2019). In addition, where the ownership of income subject to taxation pursuant to Article 14(1) of the Framework Act on National Taxes is merely nominal and there is another person to whom the income actually accrues, the beneficial owner of income is liable to pay tax. The burden of proof in a lawsuit seeking the revocation of a disposition imposing tax is the tax authority, and this is likewise applicable to cases where a dispute is raised as to whether the ownership of income and the actual ownership accrue (see Supreme Court Decision 2018Du35025, Jun. 28, 2018).

(d) Facts of recognition;

The following facts may be recognized by comprehensively taking into account the respective descriptions of Gap's evidence Nos. 1, 4, 5, 6, 7, 10, 12, 13, 14, 16, 17, 19, 2 and 3, and the whole purport of the arguments and arguments.

1) C is a company that has a number of intellectual property rights related to the manufacture of semiconductors, and is engaged in various fields of business, such as electronic design automation (EDA) and picon IP (referring to the field of intellectual property business developed and owned by the Siopon Group in connection with semiconductor industry).

2) A company B is a Hungary limited liability company established by Ireland Corporation D (D, hereinafter referred to as “D”) which is a subsidiary of Cr. C. on July 14, 2006. Since October 2006, B is a corporation that runs various product wholesale business, hardware and software wholesale business, etc. based on service business and fee-based service business promoting various economic activities by having an office in Hungary E. from October 2006.

3) On August 30, 2008, Category B entered into the instant license agreement with C company and SILON IP TPEOOGY LICE AEMENT (hereinafter “instant license agreement”) and Pursuant to the said agreement, B was granted the license for re-working of the instant license in 11 countries, including Israel, Korea, Australia, and Hungary, from C company. On October 9, 2008, B held a board of directors at the Hungary office, and commercialized the licenses related to the instant license in the relevant region, and agreed to pay C company the said royalty to pay 36% of the net sales to B company.

4) The main contents of the instant contract concluded with B on April 13, 2012 are as follows.

F.The F.I.D. F. F. F. F. F. License Agreement with A.D. (hereinafter referred to as “B.”) shall be incorporated into and made out of part of the integrated circuits on July 26, 2007 upon the conclusion of the Agreement with B(hereinafter referred to as “C”). The effective date of this Agreement shall accrue on the date of the following final signature if no provision is made on April 13, 2012 or on the date. The granting of the rights shall be subject to the world in accordance with the terms and conditions of each purchase agreement accepted by this Agreement and by B, and shall grant non-exclusive and transferable licenses without the right of Br. 2.1 L.C. 4 of the Agreement with the aim of manufacturing and selling the integrated circuits without the right of Br. 4 of the Agreement and the following terms and conditions of each purchase agreement accepted by B.C. 2 of the Agreement: To design, design, or verify the joint circuits and the right to reproduce the software within the scope of the license and the software within the scope of the license and the following terms of the license:

Based on Article 2 of the contract of this case, the Plaintiff was permitted to use the real-mixed IP from B and paid the instant usage fee to B pursuant to Article 4.

5) According to the labor-related reports submitted by B to the Statistics Korea Statistics Office of Hungary, in the case of B, from 2012 to 2015, 12-1.1.3 billion won per year was spent while the Hungary had been stationed in the office of Hungary with 11-12 human resources and serving in the office of Hungary. The organization of B is classified as order management, accounting and finance, sales support, and sales support. The organization of B is classified as three to five employees working in each department.

6) B entered into a contract on September 27, 2012 with the French listed company, a 2000 U.S. dollars 145 million, based on the profits earned from the EDA business and the actual container IP business. In addition, B made a decision to hold a board of directors on February 11, 2014 to accept H with Belgium companies and accepted 100 million U.S. dollars 25.5 million US dollars.

7) As of 2015, B paid 3,366,153HUF as office rent for the year 2015. According to B’s financial statements and profit and loss statements for the business year 2012-2015, B made annual sales of approximately KRW 400 billion, and B’s net profit per fiscal year, excluding expenses and taxes, is KRW 20 billion to KRW 80 billion. In addition, B made annual payments to the LA tax authority in the business year 2,754, 394, HUF, HUF, 2,716,788, 152, 367, HUF, 2014, 2015, 205, 200 billion.

E. Determination

In light of the above relevant legal principles and the facts of recognition, ① Whether B constitutes a beneficial owner of royalty income under Article 12(1) of the Korea-Hungary Tax Treaty, and ② Whether the application of the Korea-Hungary Tax Treaty with respect to royalty income under the substance over form principle under the Framework Act on National Taxes may be denied.

1) Whether B is a beneficial owner of royalty income under Article 12(1) of the Port-Hungary Tax Treaty

In full view of the above facts and the purport of the entire arguments, and the following circumstances revealed, B shall be deemed to have enjoyed the right to use and benefit from the pertinent royalty income without any legal or contractual obligation to transfer it to another person. Therefore, it is reasonable to view B as a resident of the Korea-Hungary Tax Treaty, who is a resident of the Korea-Hungary Tax Treaty, as the beneficial owner of royalty income under Article 12(1) of the said Treaty.

A) While seeking to establish a legal entity to conduct business in Asian, Middle East, and Europe, C decided to establish a legal entity in Hungary by comprehensively taking into account low labor costs, geographical advantages, tax reduction effects, etc. Accordingly, Dr, a subsidiary of Cr. established B and invested USD 20,250,000 in capital.

B) B directly received the instant royalty from the Plaintiff on the basis of the instant contract entered into in its own name, and paid the amount equivalent to 36% of the pertinent royalty to C in return for obtaining the license to implement the instant software after receiving the instant royalty. The remainder of the royalty income of B was used in research and development, purchase of intangible assets, interest expenses, repayment of debts, etc. Since November 2014, B did not pay the royalty under the instant license agreement to C Company.

C) B held a board of directors at the Hungary’s office to conduct a major decision-making related to the business, carried out an independent accounting, and paid taxes to the tax authorities. B bears half or more of the income received as service costs.

D) When comprehensively taking into account all the circumstances such as the developments leading up to the establishment of B, the relationship of use and profit-making, there is no evidence to prove that B lawfully established and surviving B had a legal or contractual obligation to transfer the royalty income received from the Plaintiff to C.

2) Whether the application of the Korea-Hungary Tax Treaty with respect to the pertinent royalty income under the principle of substantial taxation under the Framework Act on National Taxes can be denied

In light of the facts acknowledged earlier and the following circumstances revealed by comprehensively taking account of the overall purport of the pleadings, it is difficult to deem that B had no ability to control and manage the royalty income of this case against B, and that C actually controlled and managed the royalty income of this case by exercising control over B. Moreover, it is difficult to deem that the establishment of B company was derived solely from the purpose of evading Korean taxes under the principle of substantial taxation under the Framework Act on National Taxes. Accordingly, it is difficult to deny the application of the Korea-Hungary Tax Treaty to the royalty income of this case under the principle of substantial taxation under the Framework Act on National Taxes.

A) B was granted a license for real-mixed IP re-working through the instant license agreement in 2008 and received royalties for providing and providing the instant software to customers, including the Plaintiff. Furthermore, while holding most of the royalty income, B retains the right to share research and development expenses incurred by C and commercialization of intangible assets created through research and development activities to a third party. Therefore, B appears to have practically controlled and managed the royalty income of this case.

B) B appears to have been engaged in normal business activities with human and physical facilities in Hungary. B is annually audited by a foreign accounting corporation, and upon exercising the power to dispose of all income, including the pertinent royalty income, the B is holding a board of directors to carry out a major decision-making in its own name, such as employment of executives and employees, conclusion of investment policies and support services contracts, and acquisition of foreign companies.

C) B is carrying out business with its own department related to ordering management, accounting and finance, and sales support, and at least 10 countries enter into a direct contract with their customers, thereby obtaining user fees income, and the amount of annual proceeds is also reasonable.

D) As to this, the Defendant asserts that B is subject to the direction control of C company at the time of carrying out the project, there is no engineering engineer for intellectual property rights, such as actual container IP, in B, and the duties performed by B are merely signing the contract in the form and sending it to the customer company, such as the Plaintiff, etc., by e-mail, which is merely simple labor and simple labor. Therefore, the Defendant asserts that B is merely a conduit company for the purpose of tax avoidance.

However, the fact that the beneficial owner or the actual owner of royalty income is determined by whether the recipient of the income can actually control and manage it with the authority to use, profit from, and dispose of such income. It does not necessarily require technical ability to develop, maintain, and repair intellectual property rights which serve as the basis of income through his/her employees’ activities. Even if the C is involved in the conduct of the business of the B, this cannot be deemed an exceptional case in light of the close relationship between the B and C, in light of the relationship between the B and the C, it cannot be deemed as a matter of course. In this case where there is no additional circumstance by which it can be inferred that there is no ability to control the pertinent income, such as directly transferring the income to the upper-tier investors without the nominal owner, or remitting it from the account of the nominal owner without any internal procedure to the parent company, and there is no additional circumstance by which it is presumed that B is a mere authorized company as alleged by the Defendant.

E) In addition, the defendant asserts that B had filed a lawsuit seeking revocation of the disposition of rejection of corporate tax against the head of the same tax office (Seoul High Court Decision 2014Nu58510 Decided April 14, 2015), and that the beneficial owner of royalty income has been confirmed, but the above decision dealt with the major issues of whether B and C should determine who is the party to the contract in the circumstances where B and C are written as the party to the contract, which are the basis for payment of the royalty, and the above decision is lawful, since it is obvious that B and the party to the contract are both parties to the contract and the party to whom B were entitled to receive the royalty income of this case, the above decision is different from those of the first instance judgment of the relevant case (Seoul High Court Decision 2014Nu58510 Decided 20, July 2, 2015) from which the owner of the pertinent royalty income of this case was not a party to the tax treaty, as long as it is acknowledged that there is no other evidence to acknowledge that B and/L income of this case is a party to the pertinent tax treaty.

F) Ultimately, it is difficult to deem that B was incapable of controlling and managing the pertinent royalty income as the nominal owner of the pertinent royalty income. In light of its purpose of establishment, details of establishment, activities after establishment, etc., the disparity between name and substance does not reach the extent, and solely establishing B does not appear to have arisen from the purpose of evading taxes imposed by the Republic of Korea under the Korea-Hungary Tax Treaty. Furthermore, even though the circumstance that C’s establishment of B may result in partial reduction of tax burden on royalty income, or that the environment of Hungary, such as a relatively low tax rate under the tax treaty, etc., falls under any of the factors considered on the place of establishment, such circumstance alone, cannot be denied the application of the Korea-Hungary Tax Treaty under the principle of substantial taxation under the Framework Act on National Taxes with respect to the instant royalty income (only on the sole ground that tax reduction is one of the purpose of establishment). If B is deemed as the beneficial owner of the royalty income of this case solely on the ground that B was not the beneficial owner of the instant corporate establishment, it is unreasonable to compel the taxpayer to make a decision in a more direction to impose taxes by infringing on the freedom of legal form).

3) Sub-determination

Therefore, B is the beneficial owner of the pertinent royalty income, and as such, it cannot be denied the application of the Korea-Hungary Tax Treaty under the substance over form principle under the Framework Act on National Taxes, the pertinent royalty income should be subject to Article 12 of the Korea-Hungary Tax Treaty, and the instant disposition taken on a different premise should be revoked.

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.