[1] The meaning of “beneficial owner” under Article 10(2)(a) of the Agreement 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, and the standard for determining whether

[2] The case holding that in a case where a German limited liability company Gap, a public investment model fund established under the German Investment Act, acquired 100% of the shares issued by Byung limited liability company, a Korean corporation, which runs real estate rental business as investment funds of Eul fund Eul, and Byung paid income generated from the lease of a building to Gap company as dividends, and paid withheld corporate tax by applying the limited tax rate of 5% under Article 10 (2) (a) of the Agreement 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, Gap paid the withheld corporate tax to the tax authority by applying the limited tax rate of 5% under Article 10 (2) (b) of the said Treaty, and the tax authority notified Eul company Eul to collect corporate tax withheld for the pertinent business year by applying the limited tax rate of 15% under the premise that the beneficial owner of dividend income is Eul, and notified Eul company Byung to pay the above corporate tax as the second taxpayer of Byung company Byung, in light of all circumstances, the dividend income paid to Byung corporation directly owned the shares.

[1] Articles 4(1) and 10(2)(a) of the Agreement 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 / [2] Articles 4(1) and 10(2)(a) and (b) of the Agreement 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 / [2] Articles 2(1)2 (see current Article 3(1)2 and (5) (see current Article 3(4)), 93 subparag. 2 and 98(1)2 of the former Corporate Tax Act (Amended by Act No. 11124, Dec. 31, 2011); Articles 14(1) and 39(1)2(a) of the former Framework Act on National Taxes (Amended by Act No. 11124, Dec. 31, 2011>

[1] Supreme Court Decision 2018Du38376 Decided November 29, 2018 (Gong2019Sang, 217)

1. Abshoe Korea Ltd. and one other (Attorneys Ba-man et al., Counsel for the plaintiff-appellant)

Yeongdeungpo District Tax Office (Law Firm LLC, Attorneys Southern Dong-dong et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2015Nu34733 decided December 10, 2015

All appeals are dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Article 4 of the Agreement 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 “Korea- Germany Tax Treaty”) provides that “a resident of a Contracting State” in the main sentence of paragraph (1) refers to a person liable to pay taxes in that State pursuant to the law of that State according to his/her address, domicile, location of the head office or principal office or other standards of a similar nature. In addition, Article 10(2)(a) of the Korea- Germany Tax Treaty provides that, where a recipient is a beneficial owner who is a resident of the other State, and directly owns 25% or more of the shares of the corporation that pays dividends, the taxation of the source State on the dividends shall not exceed 5% of the total amount of dividends. Accordingly, where a Korean corporation pays dividends to a beneficial owner corporation as a German resident, the withholding tax rate of Korea on the dividend income shall be limited to 5% notwithstanding the provisions of the Corporate Tax Act. In full view of the context of the aforementioned provisions and its context, the beneficial owner shall be determined.

2. The reasoning of the lower judgment and the record reveal the following facts.

A. A. The plaintiff A.S. A. B. MbH (hereinafter "Plaintiff A.I.D.") is a German limited company established on November 1966 for the purpose of creating and managing an investment fund in accordance with the German Investment Act on collective investment schemes around November 1, 1966. (name of fund state (name of fund omitted; hereinafter "○○○ Fund") [name of fund (name of fund omitted; hereinafter "the fund"]] around 2002, the plaintiff A.I.D. Investment Fund established pursuant to the German Investment Act and distributed profits from the investment in the global real estate to ordinary investors, and the real estate rental business company (hereinafter "Plaintiff A.I.D.") located in Yeongdeungpo-gu Special Metropolitan City Building Asset-Backed Securitization Korea Co., Ltd. (hereinafter "Plaintiff A.S.") is established in accordance with the Yeongdeungpo-gu Act on Asset-Backed Securitization (hereinafter "O.S.A.") is established in accordance with the Asset-Backed Securitization Act.

B. The Plaintiff’s New York acquired 100% of the Plaintiff’s issued shares (hereinafter “instant shares”) with ○○ Fund’s investment funds. From September 2007 to October 2010, the Plaintiff Company paid KRW 124.5 billion to the Plaintiff’s dividends (hereinafter “instant dividend income”) on the instant building lease of the instant building. The Plaintiff Company paid the withheld corporate tax by applying the limited tax rate of 5% under Article 10(2)(a) of the Korea-Pacific Tax Treaty to the Defendant at source by applying the limited tax rate of 5% under Article 10(2)(a) of the Korea-Pacific Tax Treaty, and remitted the remaining amount to the account of ○○○○○○○○ △○ (hereinafter “instant account”).

C. Under the premise that the beneficial owner of the instant dividend income is the ○○ Fund, the Defendant: (a) applied the 15% limited tax rate under Article 10(2)(a) of the Korea- Germany Tax Treaty on the ground that the ○ Fund failed to meet the requirements for the 5% limited tax rate under Article 10(2)(b) of the same Treaty; (b) rendered each disposition of collecting corporate tax in notice of corporate tax withheld for the business year of 2007 through 2010 (hereinafter “instant collection disposition”); and (c) the Defendant also designated the ○ Fund as the secondary taxpayer under Article 39(1)2(a) of the former Framework Act on National Taxes (amended by Act No. 11124, Dec. 31, 201) on the ground that the beneficial owner of the instant dividend income constitutes the person who actually exercises the right to the instant stocks; and (d) rendered the instant disposition of imposing the said corporate tax on the Plaintiff’s Republic of Korea- Germany (hereinafter “instant disposition”).

D. On behalf of the ○○○ Fund, on which the assets belonging to the Fund, including the instant shares and the instant dividend income, could not be owned in its own name, the Plaintiff Company owned the investment assets under the name of the ○○ Fund, disposed of the investment assets belonging to the ○○ Fund, or owned and exercised rights derived therefrom. The Plaintiff Company as a shareholder of 100% of the ○○ Fund, made a business decision on the lease of the instant building, and opened the instant account for the ○○ Fund by designating the ○○ Bank as the ○○ Fund, and the said authority and duties were in accordance with the German Investment Act. Moreover, the Plaintiff Company transferred the instant dividend income to the instant account in accordance with the decision of the 100% shareholder of the 100th shareholder of the ○ Fund.

E. The Plaintiff E.S.C. L. L.S. L.S. L.S. L.S. L.S. L.C. L. L. L.S. L. L. L.S. Tax Report was written with Plaintiff E.S. E.S. E.C. Investment Tax Law.

3. We examine the above facts in light of the legal principles as seen earlier.

A. In full view of the following circumstances: (a) the establishment purpose and business history of Plaintiff Scarma Loan; (b) ○○ Fund’s investors and investment targets; (c) the process of opening the instant account; (d) the performance of its business affairs regarding Plaintiff Scarma Loan’s ○○ Fund; and (e) the payment of the instant dividend income to Plaintiff Scarma Fund; and (c) the German resident, taking into account the German laws and regulations on Plaintiff Scarma Loan and ○○ Fund, etc., the instant dividend income, which was paid in the instant case, shall be deemed to have been enjoying the right to use and benefit from the instant dividend income as a beneficial owner without bearing any legal or contractual obligation to transfer the instant dividend income to other persons, including the ordinary investors of ○○ Fund. Accordingly, Article 10(2)5(a) of the Korea- Germany Tax Treaty shall apply since the instant dividend income paid to Germany, a beneficial owner who directly owned the instant shares, was paid.

B. In full view of the adopted evidence, the lower court determined that the instant disposition, which applied the 15% limited tax rate under Article 10(2)(a) of the Korea- Germany Tax Treaty, was unlawful on the ground that the said dividend income should be subject to the 5% limited tax rate under Article 10(2)(a) of the Korea- Germany Tax Treaty. Such determination by the lower court is justifiable, and contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the beneficial owner or direct possession under

4. Therefore, all appeals are 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 on the bench.

Justices Kim Jae-hyung (Presiding Justice)