Early High Court Decision 201Du2686 ( December 30, 2011)

Provision of incidental know-how should be viewed as the price for personal services, which is the main part.

Although high-level technological and non-public technological information is likely to have been partially disclosed or transferred during the course of providing a service, so long as it is deemed that the provision of such know-how was incidental to the course of providing a personal service, the design price of this case should be viewed as the price for personal service, which is the main part of the

Article 93 of the Corporate Tax Act

2012Guhap731 Revocation of a disposition rejecting rectification of corporate tax

AA

The Director of Incheon Tax Office

January 17, 2014

February 14, 2014

1. The Defendant’s refusal to rectify the Plaintiff’s corporate tax on May 2, 2011 is revoked.

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

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff is a German corporation that operates a business that operates the design, implementation, and completed industrial facilities related to chemical, oil refining, and establishment of factory facilities of other industries.

(b) The Plaintiff constituted a consortium with the BB industry on June 16, 2007 and entered into a consistent steel processing contract with theCC Co., Ltd. (hereinafter referred to as the “CC Co., Ltd.”). - The term “CC Co., Ltd. with respect to the purchase of plants 1 and 2 and gas refining plants” (CC SETL COE COMPPPPY INTTRAL SCETRAL PEEPE PUTRALS PEETRAL ACT - Co., Ltd., Ltd., 1 and 2 and Gasrefinant Pv Pv 1 and 2 and Gas Pfinant

(3) The plaintiff, 200, 200, 100, 200, 200, 200, 200, 200, 200, 200,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,0000,0000,000,000,000,0000,000,000,0000,000,000,0000,000,000,000,000,000,000,000,000,000,000,000,000,000.

[Ground of recognition] Unsatisfy, entry of Gap evidence 1 to 5 (including branch numbers in case of additional number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

"The design price of this case is that the Plaintiff received design and engineering services for each plant facility of this case (hereinafter "the service of this case") for the supply of human resources services, and it does not receive the Plaintiff's know-how for each plant facility of this case. Therefore, the Defendant has no authority to impose tax on the Plaintiff, who did not have a permanent establishment in Korea under the Korea- Germany Tax Agreement, on the design price of this case, which is the price for personal services."

It is as shown in the attached Form.

(c) Fact of recognition;

(1) The heat studs used in the steel plate for automobiles can be produced only through the nuclear reactor process. The CCTV has installed only the electrical process equipment in the existing and has failed to produce the steel plate for automobiles. Accordingly, the CCTV independently produced the steel plate for automobiles and promoted the construction of consistent steel mills (which have both the process of manufacturing, steel, and pressure) including the solid process equipment for the purpose of vertical integration.

(2)CC Co., Ltd. entered into the instant contract with the Plaintiff among the above companies, taking into account the following factors: (a) the Plaintiff had at least 2,00 stories in the design and construction of chemical, refining, and industrial plants; (b) the market occupation was up to 80%; and (c)CC Co., Ltd. intended to construct at least 7m plants; and (d) DD, EE, FF, etc., the Plaintiff’s competitor, had no experience of construction of plants up to 7m; and (d) the Plaintiff had experience of construction up to 8.4m.

(3) The main contents of the instant contract are as follows.

Article 3 Scope of Contracts

3.1 Description of work

"The supplier shall provide the goods and services listed below in accordance with the terms and conditions of this Agreement, and every content conforms to the definition of "the work to be fully defined in the terms and conditions of this Agreement", "(a) the supply of equipment as described more detailed in the contract history and drawings attached in addition C to this Agreement", "(b) the supply of plant design and engineering", "(c) the provision of contractual history and the detailed supervision services as specified in Article VII", and "performance guarantee and acceptance inspection", "the provision of supervision services as specified in Article XIV", "the provision of supervision services as specified in Article XIV", and "the performance guarantee and acceptance inspection."

14.1 Performance guarantee;

(a) The supplier shall guarantee that the work to be provided by a operating unit will demonstrate the performance guaranteed in Chapter III, as the procedures, methods, processes, and inspection conditions set out in the terms and conditions of the contract.

Article 28 Confidentiality and Disclosure of Information

28.1 Application

The Party that receives information in connection with the negotiation and implementation of the contract shall treat as confidential information any oral or written information and information disclosed directly or indirectly by the public ("public party") through any form of document ("receiving Party"), which falls under letter, note, set aside, beer, plan, plan, details, design and any other form of document falling under Article 28.2 ("HH") and Article 28.2 ("H") as confidential information, and shall not disclose such information to a third party."

Pursuant to Article 28.4, no information recipient shall:

(a) any person other than an employee, legal counsel, auditor or subcontractor, GG, HH and other consortiums, which requires information for the purposes of this contract and which, for the purpose of strictly complying with the obligation to keep confidential information of the information, discloses any confidential information directly and indirectly without the prior written approval of the person disclosing the information, to any person than the supplier, legal counsel, auditor or subcontractor, GG, HH and other consortiums;

(b) uses or make copies of confidential information other than the purposes of this contract.

[Ground of recognition] Facts without dispute, entry in Gap's subparagraph 1, purport of whole pleadings

D. Determination

(1) Article 93 subparag. 6 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter the same) stipulates that income generated from the provision of personal services in Korea as prescribed by the Presidential Decree shall be deemed domestic source income of a foreign corporation. Article 93 subparag. 9 of the former Corporate Tax Act stipulates that the form of copyright, patent, trademark, design, model, drawings, secret formula or processes, films and tapes for radio, television broadcasting, and other similar assets or rights (a) shall be included in the formula or processes, and information on industrial, commercial or scientific knowledge and experience or know-how (b) where the price is paid in Korea by a foreign corporation and the income generated from the transfer of such rights shall be deemed domestic source income for which the foreign corporation is liable to pay corporate tax.

Article 7 (Business Profits) of the Korea- Germany Tax Agreement provides that, with respect to the profits of an enterprise of a Contracting State, unless the enterprise performs its business in the other Contracting State through a permanent establishment located in the other Contracting State, only those taxes may be imposed in that other Contracting State if the enterprise is taxed only in that Contracting State and if the enterprise performs its business as shown in its former part, those taxes may be imposed only on the enterprise's profits, and Article 12 (User Fee) provides that the fees paid to a resident of the other Contracting State may be imposed in that other Contracting State (Paragraph 1), and that the fees shall be imposed in that other Contracting State on the royalty paid to the resident of the other Contracting State (Paragraph 1). This provides that, with respect to copyrights, patent rights, trademark rights, designs or new designs, drawings, the use or use right of industrial, commercial or academic equipment, or any kind of payment received in return for industrial, commercial or academic experience (Paragraph 3).

In full view of the above provisions, it is not possible to impose a domestic tax on the business profit, which is the price of personal services, on the plaintiff who does not have a permanent establishment in the Republic of Korea, and a domestic tax can be imposed on the royalty, which is the payment for all kinds of money received in return for information on industrial, commercial or academic experience.

(2) In the case of the introduction of technical services by a foreign corporation, it constitutes a personal service under Article 55 (1) 6 of the Corporate Tax Act in the case where the performance of duties is performed with specialized knowledge or special skills normally owned by the same kind of service provider, taking into account the parties to the contract for the provision of services, the purpose of the contract, the content and nature of the contract, and the consideration relationship, unless the services are not transferred to the public. Even if certain technical information is transferred in the introduction of technical services, the transfer of technical information is limited to incidental transfer for other purposes, not to the main purpose, but to the acquisition of technical information, and it cannot be viewed as a consideration for the transfer of technical information, which does not have the nature of the cost for the technology, etc. listed in Article 12 of the Korea-Japan Tax Convention (see Supreme Court Decision 92Nu494 delivered on November 13, 192).

In full view of the above legal principles and the following circumstances, the design price of this case falls under the price for the provision of personal services, and thus, the design price of this case does not fall under the price for the provision of personal services, and thus, is not subject to the source quota. The plaintiff's assertion is with merit.

① The main purpose of the instant contract is to supplyCC steel with each plant facility of the instant case, and the instant service is to design and prepare drawings inevitably accompanying the supply of each plant facility of the instant case.

② Even if the instant service requires high technical skills, it cannot be readily concluded that the same kind of service provider is unable to perform with ordinary professional knowledge or special skills, and no other specific evidence exists to deem otherwise.

③ The provisions on the confidentiality of the instant contract impose on both parties the duty of confidentiality in partnership, and the contents also are typically used in general service contracts or sales contracts.

④ In the case of services premised on the provision of know-how, the price is much higher than the amount calculated by adding ordinary profits to the expenses incurred in the performance of the services, taking into account the royalty of know-how. However, considering that the instant services were performed over a long period of about two years and six months, design drawings, etc. made with respect to each plant facility of this case up to about 10,375, and accounting firm III did not consider the difference between the design cost of this case and the design cost of this case as OOOO and the indirect cost of the engineering as OOOO, and the indirect cost of the design of this case as OOO is deemed to be about 9.9% of the design cost of this case, namely, the Plaintiff’s opinion that the indirect cost of the design of this case is to be assessed as about the estimated profit of the Plaintiff as about 9.9% of the design cost of this case, and most of the design cost of this case was paid as compensation for actual expenses, it cannot be deemed that the design cost of this case is excessively higher than the price for personal services.

⑤ According to the contents of the instant contract, the term “works (works) provided by a supplier” is subject to performance guarantee (Article 14.1 of the instant contract) and includes the instant work (Article 1.1, Article 3.1 of the instant contract). The Plaintiff, in figures, guarantees the performance and function of each of the instant plants at a certain level (Evidence 10 of the instant contract) and promises to compensate for damages if performance or function does not reach a certain level (No. 11 of the instant contract) and guarantees the performance and performance of the instant service. The above guarantee contents are incidental to the nature of the instant contract rather than the supply of know-how. 6. Article 93-1327(4)1 of the General Rules of the Corporate Tax Act provides that, if a domestic corporation provides information or technology support for the introduction of a contract concluded with a foreign corporation, the information or technology support and the part of the instant work are deemed to constitute an incidental part of the instant contract, and the Plaintiff shall be deemed to have a high level of technical or technological assistance in the process of providing information or technology support.

Thus, the plaintiff's claim of this case is justified and accepted.