Whether foreign tax credit is applied

In light of the fact that the transfer of copyright pursuant to the contract of this case made in China is deemed subject to the imposition of Chinese tax, etc., the amount of withholding tax of this case is not recognized as the amount of foreign corporate tax to be deducted.

Article 57 (Foreign Tax Credit)

Article 94 of the Enforcement Decree of the Corporate Tax Act

2018Guhap76903 Revocation of Disposition of Corporate Tax Imposition

AAA, Inc.

O Head of tax office

April 18, 2019

May 30, 2019

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The disposition of imposition by the Defendant against the Plaintiff on January 10, 2018 shall be revoked for the year of 2016.

1. Details of the disposition;

A. The Plaintiff is a corporation established on May 26, 2003 for the purpose of producing and distributing animation, and a venture business which develops character, such as animation △△, and holds the copyright thereof.

B. On October 28, 2015, the Plaintiff entered into a copyright transfer contract with BB animation limited company (hereinafter “B”) located in China to transfer the domestic copyright, etc. of △△ middle to BB within KRW 0 million (hereinafter “instant contract”).

C. On June 3, 2016, the Plaintiff received KRW 00 million from BB under the instant contract, and caused BB to pay KRW 000,000 (hereinafter “instant withholding tax amount”) by means of withholding tax around June 17, 2016. The instant withholding tax amount was reported as a foreign tax amount under Article 57(1) of the former Corporate Tax Act (amended by Act No. 1608, Dec. 24, 2018; hereinafter the same) and was deducted from the Plaintiff’s corporate tax amount for the business year 2016.

D. On January 10, 2018, the Defendant denied the said tax credit, deeming that the instant withholding tax amount does not fall under the amount of foreign corporate tax under Article 57(1) of the former Corporate Tax Act and Article 94(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 29529, Feb. 12, 2019; hereinafter the same), and thus, denied the said tax credit, and notified the Plaintiff of the correction and notification of the KRW xx of the corporate tax for the business year when the pertinent withholding tax amount reverts to the Plaintiff (hereinafter “instant disposition”).

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on March 13, 2018, but the Tax Tribunal dismissed the Plaintiff’s appeal on June 4, 2018.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1, 2, 3, Eul evidence No. 1 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Unlike the description in the tax payment statement (No. 2) the amount of withholding tax of this case paid by BB to the Chinese tax authorities, the corporate income tax of the Plaintiff’s income from the transfer of copyright is the tax base.

is the amount.

Therefore, the instant tax withholding amount should be deducted as a foreign corporate tax pursuant to Article 57(1) of the former Corporate Tax Act and Article 94(1) of the former Enforcement Decree of the Corporate Tax Act, and the instant disposition that mainly focuses on the entry of the said tax payment statement called “increased tax” is unlawful against the substance over form principle and the provisions of the

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Article 57(1) of the former Corporate Tax Act provides that where a domestic corporation’s tax base for each business year includes income generated from sources in a foreign country, and the amount of foreign corporate tax prescribed by Presidential Decree on such income generated from overseas sources is paid or payable (hereafter in this Article, referred to as the “amount of foreign corporate tax”), the amount of foreign corporate tax may be deducted. Article 94(1)1 of the former Enforcement Decree of the Corporate Tax Act provides that the amount of foreign corporate tax imposed on the income, etc. of a corporation

As can be seen, Article 57(1)1 of the former Corporate Tax Act provides that the amount of foreign corporate tax may be deducted from the amount of corporate tax for the pertinent business year in order to adjust international double taxation, by setting the limit of deduction as “amount calculated by multiplying the amount of corporate tax for the pertinent business year by the ratio of income generated from overseas to the tax base for the pertinent business year,” and allowing the deduction of the amount of foreign corporate tax only within the scope of the amount of corporate tax to be paid in Korea on income generated from overseas sources. This is intended to prevent the occurrence of foreign corporate tax, as part of the corporate tax to be paid on income generated from overseas sources, if the amount of foreign corporate tax is allowed to be deducted in whole in the source country where income generated from overseas is more than that of Korea (see Supreme Court Decision 2014Du5613, Mar. 26, 2015)

2) On the other hand, there is no evidence to acknowledge that the Plaintiff’s tax amount imposed on the corporate income, etc. as the tax base under Article 94(1)1 of the former Enforcement Decree of the Corporate Tax Act was paid or payable to the Chinese tax authority. Thus, the Plaintiff’s foreign tax amount to be deducted as a foreign tax amount is not recognized.

Unlike the entry in the certificate of tax payment, the Plaintiff asserts that the withholding tax amount of this case is the corporate income tax base based on the Plaintiff’s income. However, according to the Eul evidence 2, the Chinese tax authorities recognized that the withholding tax amount of this case was withheld at source by applying 6% of the tax rate to the "increased tax amount, which is the tax item corresponding to the value-added tax in Korea on June 17, 2016," and further, it included the intangible assets sold within the Chinese border as stipulated in Article 1 of the Provisional Ordinance on the Inheritance and Gift Tax of People’s Republic of China (hereinafter “Additional Ordinance on the Inheritance and Gift Tax”), and the transfer of copyright under the contract of this case in China is also deemed subject to the value-added tax of China (no evidence was submitted to the Plaintiff’s assertion that the transfer of copyright, which is a series of domestic production, is not subject to the value-added tax of China). In light of the above principle, the tax rate stated in the above certificate of tax payment is limited to the Plaintiff’s assertion that it is irrelevant to the tax rate of this case.

In addition, the Plaintiff asserts that it is necessary to calculate the reasonable amount of foreign corporate tax by applying Article 57(1) of the former Corporate Tax Act, in light of the circumstance that copyright transfer under the instant contract does not constitute a taxable object of domestic value-added tax, the time when the foreign corporate tax amount on the Plaintiff’s overseas source income is deducted and the purport of prohibiting double taxation, etc. However, the Plaintiff’s assertion cannot be accepted in this case where the taxation of corporate income tax on

3) Therefore, the Plaintiff’s claim of this case, premised on the existence of foreign corporate tax amount paid by the Plaintiff to the Chinese tax authorities in relation to the instant contract, is without merit.

3. Conclusion

Therefore, the plaintiff's claim is dismissed. It is so decided as per Disposition.