Seoul High Court 2009Nu25271 (Law No. 20106.09)

early 2007west2489 ( October 17, 2008)

The principle of substantial taxation is also applied to tax treaties as it is, and the actual person to whom the transfer income of this case belongs is the plaintiffs (permanent corporation).

The substance over form principle is applied to the interpretation and application of the tax treaty, unless there are special provisions excluding it, and the actual person to whom the transfer income of this case belongs under the substance over form principle shall be deemed to be the plaintiffs (permanent corporation). In the case of a foreign corporation, if only the asset ratio requirement of a domestic real estate and multi-owned corporation's stock transfer, the ratio ratio requirement, and the asset ratio requirement of a stock transfer ratio are satisfied, the domestic

Article 14 of the Framework Act on National Taxes, Article 93 of the Corporate Tax Act

Article 132(10)2 of the Enforcement Decree of the Corporate Tax Act

2010Du15179 Revocation of Disposition of Imposing Corporate Tax

더 XXXXXXXXX 컴퍼니

Head of the tax office;

Seoul High Court Decision 2009Nu25271 Decided June 9, 2010

April 26, 2012

The appeal is dismissed.

The costs of appeal are assessed against the Plaintiff.

The grounds of appeal are examined.

1. As to the grounds of appeal Nos. 1, 3, and 4

A. The substance over form principle under Article 14(1) of the former Framework Act on National Taxes (amended by Act No. 8830 of Dec. 31, 2007) refers to the person to whom the income, profit, property, transaction, etc. belongs, if there is a separate person to whom the income, profit, and transaction, etc. belong, unlike the nominal owner, should be the person to whom the income, profit, property, and transaction belongs. Thus, the nominal owner of the property is not the person to whom the property belongs, but the nominal owner is not the person to whom the property, and there is another person who actually controls and manages the property through the control, etc. over the nominal owner, and if the disparity between the nominal owner and the real owner arises from the purpose of tax evasion, the income on the property shall be deemed to have been reverted to the person who actually controls and manages the property and shall be the person to whom the property belongs (see Supreme Court en banc Decision 2008Du8499, Jan. 19, 2012).

B. The lower court acknowledged the following facts based on the evidence of employment.

1) AAAAB BB Ⅰ (hereinafter referred to as "AAI") and AAAAB BB II EL (hereinafter referred to as "AAⅡ") were established for investment in real estate in Korea, and study each country's tax system such as Belgium (hereinafter referred to as "Belgium") where tax avoidance can be possible in order to design an investment structure that could avoid tax burden on real estate investment return from the time of its establishment.

2) In the process, AAAAA Ⅰ and II established in AAAB BB B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B BEE, a Belgium corporation, through AAAAAB BB B B BEE, and AABB B B B BEE, a Belgium, for the purpose of applying Article 13(3) of the Convention between the Republic of Korea and the Republic of Belgium that the Korean Government is not able to impose any taxation on capital gains accruing from the transfer of stocks in Korea belonging to the Belgium corporation (hereinafter referred to as the “Korea-Belgium Tax Treaty”).

3) Accordingly, on February 1, 2002, the corporation of this case acquired approximately KRW 000 of the entire stocks (hereinafter “instant stocks”) of DoDDCC Specialized in the Asset-Backed Securitization Act (hereinafter “CCC”) from ELADDD CCC on February 1, 200, and purchased and owned the CC as the principal agent, on September 9, 2004, the corporation acquired approximately KRW 00,00 by selling the instant stocks to the U.K. corporation, a U.K. corporation, for approximately 00 won.

4) All the purchase price of the instant shares and the purchase price of the instant real estate were paid by AAA I and II in the name of the instant Belgium corporations. All the process of acquiring and transferring the instant shares and of purchasing the instant real estate was led by AA I, II, and their investment advisory companies.

5) It is difficult to see that the instant Belgium corporations are practically engaged in economic activities within the Belgium, and there is no evidence to acknowledge that there was an independent economic interest with respect to the investment in the instant real estate established for the purpose of substantially running a business other than the purpose of tax avoidance using Article 13(3) of the Korea-Belgium Tax Treaty.

6) The Plaintiff, a transferee of the instant shares, did not withhold corporate tax on the instant transfer income at the time of paying the instant Belgium to the instant Belgium corporations on the ground that the income from the transfer of shares under Article 13(3) of the Korea-Belgium Tax Treaty is stipulated to be taxed only in the country of residence of the transferor.

7) On December 18, 2006, the Defendant issued the instant disposition imposing corporate tax and additional tax on the Plaintiff on the ground that the instant Belgium corporations were merely a nominal company established for the purpose of tax avoidance, and thus, they cannot be the actual owner of the instant capital gains, and that Article 13(3) of the Korea-Belgium Tax Treaty is not applicable to the actual owner of AAA I and II, which are English corporations, and that they are not the actual owner of the instant income, and that the Plaintiff should withhold corporate tax on the instant capital gains from AA I and II and pay them.

C. Based on such factual basis, the lower court: (a) premised on the premise that the principle of substantial taxation may be considered as the standard for interpreting and applying the provisions of the tax treaty; and (b) determined that the corporations of the instant Belgium only performed the role of the transaction parties in the form of transaction with respect to the acquisition and transfer of the instant stocks; (c) the actual subject is AAA I, II; and (d) the disparity between such form and substance arises solely from the purpose of tax avoidance; (b) the actual owner of the instant capital gains shall be deemed AAA I, I, and II pursuant to the principle of substantial taxation, and Article 13(3) of the Korea-Belgium Tax Treaty shall not be applied to them

D. Examining the above legal principles and related regulations and records, the judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the principle of substantial taxation and the interpretation and application of the Korea-Belgium Tax Treaty, as otherwise alleged in the ground of appeal.

2. Regarding ground of appeal No. 2

Article 23(1) of the Korea-Belgium Tax Treaty provides that "no citizen of a Contracting State shall bear any tax or any other tax or any other requirement related thereto, regardless of whether he/she is a resident of the other Contracting State, which is bearing or bearing a burden by a national of the other Contracting State under the same circumstances as that of the other Contracting State, regardless of whether he/she is a resident of the other Contracting State." Such principle of non-discrimination shall not be discriminated against in taxation solely on the ground that there is a difference of nationality when a national of a Contracting State is in the same situation as or performs the same activity as that of the other Contracting State (see, e.g., Supreme Court Decision 2006Du5175, Jun. 11, 2009).

The court below held that the principle of non-discrimination under the tax treaty is prohibited in imposing taxes, and under the principle of reciprocity no more unfavorable treatment than that of the nationals of the other country in the same situation in the other country, and that in order to apply this principle, the nationals and foreigners in one country must be in the same situation in the other country. The court below held that the corporation of this case cannot be deemed to be in the same situation and the domestic asset securitization company, which is subject to taxation, as the corporation of this case, as the corporation of this case, without the purpose of tax avoidance, as the corporation of this case, as the corporation of this case, are placed in the same situation. Thus, the corporation of this case shall not be deemed to be the person to whom the transfer income of this case belongs and the corporation of this case shall not be deemed to be the person to whom the transfer income of this case belongs and shall not be deemed to be the person

In light of the above provisions, legal principles, and records, the judgment of the court below is just, and there is no error of law such as misunderstanding of legal principles as to the principle of non-discrimination under tax treaty as

3. Regarding ground of appeal No. 5

Article 94 (1) 4 (c) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006; hereinafter the same) provides that "income from the transfer of assets as prescribed by the Presidential Decree in consideration of the shareholder composition of a corporation which issued stocks or investment certificates (hereinafter referred to as "stocks, etc.") as one of the capital gains of a resident, the status of real estate held, or the type of business held, etc." Article 158 (1) 1 of the Enforcement Decree of the Income Tax Act provides that "one of the assets of the corporation shall be 50/100 or more of the total assets of the corporation, and the total amount of the stocks, etc. owned by one shareholder and his specially related persons among the total amount of stocks, etc. of the corporation shall be 50/100 or more (the stock ownership ratio requirement), and Article 94 (1) 4 (c) of the former Income Tax Act provides that "where one shareholder and his specially related persons transfer 50/100 or more of the total stocks, etc."

In addition, Article 93 subparagraph 7 of the former Corporate Tax Act (amended by Act No. 9267 of Dec. 26, 2008; hereinafter the same) provides that "income prescribed by the Presidential Decree, which is capital gains under Article 94 of the Income Tax Act (excluding income under Article 94 (1) 3 of the same Act) as one of the domestic source income of a foreign corporation" and Article 132 (10) 2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19328 of Feb. 9, 2006; hereinafter the same) provides that "income under Article 94 (1) 4 of the Income Tax Act. In this case, "stocks, etc." among the total assets of the relevant corporation as of the starting date of the business year to which the date of transfer belongs, shall be "stocks, etc. listed or registered on the securities market (excluding stocks, etc. listed or registered on the securities market) in which the total amount of real estate and rights thereto is more than 50/100 percent."

In full view of the language, legislative purport, etc. of each of the above provisions, Article 93 subparag. 7 of the former Corporate Tax Act, citing the provisions of Article 94(1)4(c) of the former Income Tax Act with respect to domestic source capital gains of a foreign corporation, thereby citing the provisions of Article 94(1)4(c) of the former Income Tax Act, the real estate transfer income or its equivalent nature among capital gains is subject to the application of a differential high tax rate as income tax, and the specific scope thereof is prescribed separately by Article 94(1)4(c) of the former Income Tax Act in order to flexibly reflect the unique legislative purpose and change of circumstances, etc. different from those of Article 94(1)4(c) of the former Income Tax Act, and it is interpreted that the comprehensive provision does not include Article 94(1)3 of the former Income Tax Act.

Therefore, unlike Article 158 (1) 1 of the former Enforcement Decree of the Corporate Tax Act, Article 132 (10) 2 of the former Enforcement Decree of the Corporate Tax Act is "Notwithstanding the provisions of Article 158 (1) of the former Enforcement Decree of the Income Tax Act, it shall be deemed that only the asset ratio requirement stipulated in Article 158 (1) 1 of the former Enforcement Decree of the Income Tax Act and the asset ratio requirement stipulated in Article 158 (1) 1 of the former Enforcement Decree of the Income Tax Act should be excluded from all the asset ratio requirement, stock ratio requirement and stock transfer ratio requirement, and Article 158 (1) 1 of the former Enforcement Decree of the Income Tax Act and Article 158 (1) 2 of the former Enforcement Decree of the Income Tax Act are more wide than the scope of delegation under Article 158 (1) 1 of the former Enforcement Decree of the Income Tax Act, and Article 93 (1) 1 of the former Enforcement Decree of the Corporate Tax Act shall not be deemed to have exceeded the scope of delegation under Article 930 of the former Enforcement Decree of the Corporate Tax Act.

In light of the above provisions and legal principles, although the judgment of the court below is somewhat insufficient in its reasoning, it is just to conclude that the transfer income of this case constitutes income under Article 93 Item 7 of the former Corporate Tax Act by rejecting the plaintiff's assertion that Article 132 (10) 2 of the former Enforcement Decree of the Corporate Tax Act is null and void, and there is no error in the misapprehension of legal principles as to interpretation and application under Article 132 (10) 2 of the

4. Regarding ground of appeal No. 6

Under the tax law, where a taxpayer violates various duties, such as a return and tax payment, without justifiable grounds, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, an additional tax is an administrative sanction imposed as prescribed by the individual tax law, and the taxpayer’s intent or negligence is not considered, and it is unreasonable for the taxpayer to not know his/her duty, or to expect the taxpayer to fulfill his/her duty, etc., unless there is a justifiable reason not to do so (see, e.g., Supreme Court Decisions 96Nu18076, Jul. 24, 1998; 201Du1622, Apr. 28, 201).

The lower court rejected the Plaintiff’s assertion that there was justifiable grounds for exemption from additional tax, on the ground that the Plaintiff’s substantial transferor of the instant shares was not a corporation but a corporation AAAAAAAAAAA and II, and the Plaintiff’s investment advisory company and the Plaintiff’s investment advisory company had discussed about the composition of transaction structure of the instant real estate in the course of investing in the instant real estate, and that in the process, it would be better for the Plaintiff to acquire the instant real estate in the form of securities to avoid tax burden due to the sale of real estate in AAA I and II, although the Plaintiff intended to trade in the form of real estate in the form of real estate transaction. In the course of the Plaintiff’s purchase of the instant shares, the Plaintiff’s advisory company appears to have sufficiently known the fact that the actual transferor of the instant shares was not a corporation of the instant Belgium, but a corporation of the instant Belgium, on the ground that it was attributable to the Plaintiff on the ground that the Plaintiff did not withhold capital gains tax while paying the transfer price of the instant real estate and did not withhold capital gains tax.

In light of the above legal principles and the records, the judgment of the court below is just, and in particular, according to the records, it is reasonable to reject the plaintiff's assertion as to the application for non-taxation and exemption under the Korea-Belgium Tax Treaty, since the purport of the plaintiff's correction or decision may be made in accordance with the relevant law if the contents of the application are different from the facts, and there is no error of law such as misunderstanding of legal principles as

5. Conclusion

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 on the bench.