In a case where Party B, a corporation of the Kingdom of Saudi Arabia, was a shareholder or representative director of Party A, and the tax authority deemed that Party B omitted a global income tax return on the benefits, etc. received from Party B, and thus imposed global income tax, the case holding that Party B becomes a taxpayer under the Income Tax Act because it is treated as a domestic resident under the Convention between the Government of the Republic of Korea and the Government of the Kingdom of Saudi Arabia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect

Article 1(1)1 of the former Income Tax Act (Amended by Act No. 9897, Dec. 31, 2009); Article 1-2(1)1 of the former Income Tax Act (Amended by Act No. 12852, Dec. 23, 2014); Article 2(1), (3)2, and (4)1 of the former Enforcement Decree of Income Tax Act (Amended by Presidential Decree No. 22034, Feb. 18, 2010); Article 2(1), (3)2, and (4)1 of the former Enforcement Decree of Income Tax Act (Amended by Presidential Decree No. 26067, Feb. 3, 2015); Article 2(1), (3)2, and (4)1 of the former Enforcement Decree of Income Tax Act (Amended by Presidential Decree No. 26067, Feb. 3, 201

Plaintiff (Law Firm, Kim & Lee LLC, Attorneys Cho Il-young et al., Counsel for the plaintiff-appellant)

Samsung Head of Samsung Tax Office

Seoul High Court Decision 2015Nu42901 decided March 16, 2016

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

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

1. Regarding ground of appeal No. 1

A. Article 1(1)1 of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009; hereinafter the same shall apply) and Article 1-2(1)1 of the former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014; hereinafter the same shall apply) provide that "resident means an individual who has a domicile in the Republic of Korea or has a domicile in the Republic of Korea for at least one year." Further, Article 2(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010; hereinafter referred to as "Enforcement Decree of the Income Tax Act") provides that "at the same time as the former Enforcement Decree of the Income Tax Act provides that "at the same time, a family living together with his/her domicile in Korea requires continuous living in Korea, such as whether he/she has an occupation in Korea;" Article 2(1) of the former Enforcement Decree of the Income Tax Act provides that "at least 1 year shall be determined within Korea."

B. After compiling the adopted evidence, the lower court acknowledged the facts as indicated in its reasoning. In light of the following, the Plaintiff’s resident registration with his spouse from 2007 to 2010, which is the taxable period of the instant case, and stayed in Korea for 188 days annually; the Plaintiff did not own tangible assets within the Kingdom of Saudi Arabia (hereinafter “Saudi Arabia”); on the other hand, the Plaintiff owned a large number of real estate in Korea; and on the other hand, the Plaintiff did not constitute “where the Plaintiff continues to reside abroad for 1 year or longer” as provided by Article 2(4)1 of the Enforcement Decree of the Income Tax Act, it cannot be deemed that the Plaintiff constitutes a domestic resident under the Income Tax Act during the instant taxable period, and the Plaintiff’s assertion that it ought to be viewed as a non-resident under the Income Tax Act pursuant to Article 2(4)1 of the Enforcement Decree of the Income Tax Act.

C. Examining the reasoning of the judgment below in light of the above provision and relevant legal principles and records, the judgment of the court below is just, and there is no error in the misapprehension of legal principles as to resident criteria under the Income Tax Act or the violation of

2. Regarding ground of appeal No. 2

A. The main text of Article 4(1) of the Convention between the Government of the Republic of Korea and the Government of the Kingdom of Saudi Arabia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea-Sa Tax Treaty”) provides that “for the purposes of this Convention, a resident of a Contracting State shall include a person liable for tax payment in accordance with his/her address, residence, head office, principal office, place of management, or any other similar criteria under the laws of the Contracting State,” and Paragraph (2) of the same Article provides that “where an individual is a resident of both Contracting States pursuant to the provisions of paragraph (1), the status of the individual shall be determined as follows; and (a) the same individual shall be deemed a resident of the Contracting State having a permanent residence available to him/her. Where the individual has a permanent residence available in both Contracting States, his/her personal and economic relationship shall be deemed a resident of the Contracting State with a more close relationship.”

B. After compiling the adopted evidence, the court below acknowledged the facts as stated in its decision. The plaintiff is a so-called "foreign resident" who is a resident of Saudidi under the Income Tax Act at the same time as a domestic resident under the Income Tax Act, and the plaintiff's permanent residence is both Korea and Saudidi. The plaintiff's period of stay in Korea has much longer than the period of stay in Saudidi; the plaintiff and his spouse's major property are in Korea; most of the income accrued from Saudidi corporations are transferred to Korea and used in domestic living relations, such as living expenses of the plaintiff and their family; and a large number of decision-making related to Saudididi corporations are considered to have been made domestically. In light of the above, the court below determined that the disposition of this case was legitimate on the premise that the plaintiff's major transaction partners of Saudidi corporations are foreign corporations established by Korean companies and major decision-making related to Saudidididi corporations, which are more closely related to the plaintiff's human and economic relations should be treated as the Republic of Korea.

C. Examining the reasoning of the judgment below in light of the above provision and relevant legal principles and records, the judgment of the court below is just, and there is no error of law that affected the conclusion of the judgment by misapprehending the legal principles as to the criteria for determining the center of important interests as prescribed by the Korea-Sadi Tax Treaty, violating the rules

3. As to the third ground for appeal

The allegation in the grounds of appeal on this part is only a final appeal and cannot be a legitimate ground of appeal. Furthermore, in light of the relevant legal principles, the lower court did not err by misapprehending the legal principles as to non-taxable practice, as otherwise alleged in the grounds of appeal.

4. 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.

Justices Jo Hee-de (Presiding Justice)