Suwon District Court-2015-Gu Partnership-60601 ( December 22, 2015)

It is difficult to deem that a foreign corporation falls under a withholding agent of corporate tax on such income as a domestic source income.

It is difficult to deem that the Plaintiff’s payment of royalty income as domestic source income to a foreign corporation under Article 98(1) of the former Corporate Tax Act constitutes a withholding agent of corporate tax on such income

Article 98 of the former Corporate Tax Act (Special Cases concerning Withholding or Collection for Foreign Corporations)

2016Nu33423 Revocation of Disposition of Corporate Tax Imposition

RRter Korea Ltd.

○ Head of tax office

Suwon District Court Decision 2015Guhap60601 Decided December 22, 2015

2016.08.24

2016.21

1. Revocation of a judgment of the first instance;

2. The Defendant’s respective dispositions of collecting corporate tax for the business year 2007 on April 4, 2012 against the Plaintiff are revoked. The Defendant’s respective dispositions of collecting corporate tax for the business year 2007, corporate tax for the business year 2007, corporate tax for the business year 2007, corporate tax for September 5, 2012, corporate tax ○○○○, corporate tax for the business year 2008, corporate tax ○○, and corporate tax for the business year 2009, respectively.

3. All costs of the lawsuit shall be borne by the defendant.

It is as shown in the order (the application for modification of the purport of the claim made on September 16, 2015 and each of the imposition dispositions stated in the petition of appeal on September 16, 2015 are deemed to be a clerical error in the collection disposition, and all of the collection dispositions are corporate tax

1. Details of the disposition;

The reasoning for this part of this Court is that the corresponding part of the judgment of the court of first instance (from No. 8 to No. 5) is the same as that of the corresponding part of the judgment of the court of first instance (from No. 8 to No. 4), and thus, this part is cited in accordance with Article 8(2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act

○ PP in the 12th sentence of the first instance court's 3th sentence, "P", and "purchase" in the 14th sentence, respectively, shall be read as "PP" and "purchase, regardless of purchase".

○ Under the 4th election of the first instance court, the term “from the rwitter” was added to “from the rwitter”, “from the rwitter located in Hong Kong after 2010,” “from the 4th election of the first instance court, from the rwitter”, “from the rwitter’s subsidiaries”, “from the rwitter’s subsidiaries”, “from the 5th election of the rwitter’s subsidiaries” and “ from the 8th election of the first instance court, from the 1st election of the first instance court.”

○ On April 4, 2012, the first instance court rendered a notice of tax payment concerning corporate tax of KRW 229,334,561 on April 4, 2012 and corporate tax of KRW 337,059,606, corporate tax of August 1, 2012, and KRW 603,95,345, corporate tax of KRW 362,947,352, corporate tax of KRW 362,947,352, corporate tax of KRW 209, KRW 133,69,805, corporate tax of KRW 207 and corporate tax of KRW 362,947,352, corporate tax of KRW 209 and corporate tax of KRW 13,695,805, corporate tax of each of the above corporate tax of KRW 2010 (hereinafter referred to as “instant tax payment notice becomes final and conclusive as corporate tax collection at the same time”).

○ In addition, “Nos. 11 and 12” is added to the fifth to fourth to fourth [based grounds for recognition] judgment of the first instance court.

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

1) Since each tax notice on the instant disposition does not state the tax rate, which is the essential entry of the tax notice under the National Tax Collection Act, the instant disposition is unlawful.

2) The Plaintiff is not a withholding agent of the usage fee that the Plaintiff received from the PP, since the entity that paid the royalty to the PP pursuant to the instant contract is not the Plaintiff, but the Plaintiff is not a withholding agent of the usage fee that the PP received. Therefore, the instant disposition based on the premise that the Plaintiff’s royalty paid to the PP constitutes a withholding agent is unlawful.

B. Summary of the defendant's assertion

1) The Plaintiff, a withholding agent, appears to be fully aware of the rate of withholding tax which is legally prescribed, and it is apparent that there was no impediment to the decision on whether to appeal or not to appeal the instant disposition, and that the tax rate applied when the calculated tax is divided into the tax base is automatically calculated, etc., each tax notice on the instant disposition cannot be deemed unlawful.

2) It is apparent that the Plaintiff’s production and sale of products using the PP’s intellectual property is clear, and the Plaintiff’s purchase price paid by the RP chips includes the amount equivalent to the usage fee to be paid to the PP. Accordingly, the Plaintiff constitutes a withholding agent for the above usage fee in accordance with the principle of substantial taxation.

C. Relevant statutes

It is as shown in the attached Form.

D. Determination

1) Whether the duty payment notice regarding the instant disposition is unlawful

A) Article 9(1) of the former National Tax Collection Act (amended by Act No. 10527, Apr. 4, 201; hereinafter the same) provides that “When the head of a tax office or the head of a Si/Gun intends to collect national taxes, he/she shall issue a notice specifying the taxable year, tax item, tax amount, grounds for calculation, payment deadline, and place of payment of national taxes to the taxpayer.” Such provision on a tax payment notice of the National Tax Collection Act is unlawful unless special circumstances exist, by accepting the principle of due process under the Constitution and the basic principles of the Administrative Procedures Act in the area of the collection disposition, and by allowing the tax authority to take a careful and reasonable collection disposition excluding a person, and by allowing the taxpayer to notify the taxpayer of the details of the collection disposition in detail, and by allowing the taxpayer to make a decision on whether to object of objection and to make an appeal for objection. Therefore, the collection disposition is unlawful (see, e.g., Supreme Court en banc Decision 201Du3814, Oct. 18, 20194).

On the other hand, if it is evident that a taxpayer was not affected by the determination of whether he/she is dissatisfied with the disposition or by the notice of tax notice, etc. sent by the tax authority, the defect of the tax notice can be deemed as cured or to be cured. However, the document that can supplement the defect of the tax notice in advance is limited to that that that the tax notice can be delivered to the taxpayer prior to the delivery of the tax notice in accordance with statutes, etc., and that the necessary matters to be stated in the tax notice should be properly stated (see, e.g., Supreme Court Decisions 2005Du5505, Oct. 13, 2005; 2014Du4434, Mar. 20, 2015).

B) Comprehensively taking account of the evidence evidence Nos. 2 and 7 as a whole, the tax base and calculated tax amount of each of the above principal taxes are stated in the calculation basis of each of the tax notice regarding the disposition of this case, but the tax rate is either 0.00% or it is an art disturbance. In the event that the director of the Central District Tax Office notifies the Plaintiff of the results of the tax investigation and the estimated notified tax amount on April 4, 2012, it can be acknowledged that the tax base and calculated tax amount were stated in the "income amount attached to the notice of tax investigation, details of calculation of the tax base and tax amount," and that the tax rate was omitted.

C) Examining the above facts in light of the legal principles as seen earlier, each tax notice on the instant disposition contains any defect in not properly stating the grounds for calculation of the tax amount under Article 9(1) of the former National Tax Collection Act by omitting the tax rate, and as a result of the tax investigation, each of the above tax notice’s defects are omitted, and thus, it cannot be deemed that each of the above tax notice’s defects were supplemented or corrected. Accordingly, the instant disposition

2) Whether the Plaintiff constitutes a corporate tax withholding agent for the royalty that the PP received under the instant contract

In addition, the Plaintiff’s legal relationship on the supply of PP chips between the Plaintiff and the Plaintiff and the Plaintiff appears to be substantially the same as the legal relationship between the Plaintiff and the Plaintiff, and the Defendant did not separately assert the RP chip; thus, the Plaintiff and the Defendant are indicated only as “R chip” in this case) even if all of the rights of the PP patent, etc. related to the PP chips are registered in the Republic of Korea (see Supreme Court Decision 2012Du18356, Nov. 27, 2014). In full view of the circumstances examined below, it is difficult to deem that the Plaintiff’s disposal of the pertinent income as the Plaintiff’s domestic source income under the former Corporate Tax Act (Amended by Act No. 10423, Dec. 30, 2010; Act No. 9267, Dec. 26, 2008; Act No. 9813, Dec. 1, 2018) is unlawful.

A) The relationship between the Plaintiff and the RR and the PP chips payment relationship

(1) The following facts may be acknowledged in full view of the overall purport of the pleadings in each of the above evidence and evidence Nos. 6, and evidence Nos. 8 and 9.

(A) The Plaintiff, as a result of the supply of the PP chip to the RP, paid to the RP chis an amount calculated by adding a certain amount (hereinafter referred to as “additional amount”) to the unit price for purchasing the PP chip from the PP (hereinafter referred to as “purchase unit price”). The additional amount added to the purchase unit price was US$ 12, US$ 8, US$ 4, 2008 from the quarter of April 208 to the quarter of April 2009 and US$ 4, from 2010 to the quarter of April 2009.

(B) At each quarter, the Plaintiff submitted data on the items, quantity, net sales price, etc. of the products manufactured and sold by the Plaintiff using the above PP chips to the RP, and the RR based on the above data received from the Plaintiff under the instant contract, the Plaintiff prepared and submitted to the PP a royalty set stating the items, quantity, net sales price, and usage fees of the license products manufactured and sold by the Plaintiff as an affiliated company, and paid the royalty corresponding to the PP within 30 days after the end of each quarter (the amount equivalent to 6.5% of the net sales price of the license products).

(C) Meanwhile, around June 2008 to November 2008, the Plaintiff purchased goods with a PP chip inside the KR and exported them from Russia and Venera from December 2008 to January 2009. At the time, the Plaintiff calculated the fee for the above sales amount and withheld corporate tax on the royalty income while directly paying it to PP on January 2009.

(2) In full view of the following circumstances: (a) the time when the Plaintiff, appearing in the above facts, paid the amount calculated by adding the additional amount to the purchase price of the RP chips to the RP to the RP for the supply of the PP chips; (b) the method and timing for calculating the usage fee for the intellectual property of the PP chips paid to the PP pursuant to the instant contract by the RR; and (c) the RRr paid the PP user fee to the PP in accordance with Article 5.3 of the instant contract, regardless of the specific usage fee paid by the RR to the PP, it is reasonable to deem that the Plaintiff paid the amount calculated by adding the additional amount to the purchase price for the PP chips to the PP; and (b) the Plaintiff did not pay the royalty for the intellectual property related to the PP chips to the PP.

(3) Although the Plaintiff’s price for the supply of the above PP chips paid to the Plaintiff is included in the portion corresponding to the royalty that the Plaintiff paid to the PP. The Plaintiff has withheld corporate tax while paying the PP in the previous other transaction. Although the Plaintiff submitted data such as the net sales price each quarter in order to calculate the royalty to be paid to the PP under the instant contract, there is no evidence to deem that the RP is merely a kind of conduit for tax evasion. In this case, there is no evidence to support that the Plaintiff and RRter are merely a kind of conduit for tax evasion, the Plaintiff’s each contractual relationship and implementation thereof between the Plaintiff and RRter and the PP, and the intent of the parties who selected the above method, disregarding the Plaintiff’s intention to pay the PP usage fee to the Plaintiff through the R chis, it is difficult to view it as equal to the Plaintiff’s payment of the royalty to the PP immediately.

B) Whether the Plaintiff’s obligation to withhold related to the above usage fee is fulfilled

According to Article 98 (1) of the former Corporate Tax Act, a person who pays a foreign corporation a royalty income as a domestic source income shall withhold corporate tax at the time of payment and pay it to the district tax office having jurisdiction over the place of tax payment by the 10th of the

However, according to the above facts, the Plaintiff cannot determine the royalty amount to be paid to the PP according to the method stipulated in the instant contract at the time of paying the price for the supply of the PP chips to the RP. While considering the Plaintiff as the withholding agent of the above royalty income as to the instant disposition, the withholding tax amount is not the amount that the Plaintiff paid to the RP but the amount of the Plaintiff’s net sales price of the RR products within the relevant quarter within 30 days after the end of each quarter and calculated based on the amount paid to the PP, the difference may occur in the year to which the corporate tax is withheld, and the essence of the withholding tax system to ensure convenient taxation and securing tax by withholding at the source of income generated from the RP at the time of payment (see, e.g., Supreme Court Decisions 2006Du7904, Mar. 12, 2009; 2013Du10267, Jan. 14, 2016).

3. Conclusion

Therefore, the plaintiff's claim of this case seeking the cancellation of the disposition of this case is justified, and the judgment of the court of first instance is unfair with different conclusions, so the court of first instance shall accept the plaintiff's appeal and decide to cancel the judgment of the court of first instance and cancel the disposition of this case as per Disposition.