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| TITLE | Supreme Court Decision 2017Du59253 Decided December 28, 2017【Revocation of Disposition Withholding Corporate Tax, etc.】 [full Text] |
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| Summary | |
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[1] Person liable for tax on the income derived from a property in cases where: (i) the person to whom the income from the property nominally accrues lacks the capacity to control or manage property; (ii) there is another person who substantially controls or manages the property by means of governance, etc. over the nominal owner; and (iii) the disparity between name and substance arises from the intent to avoid tax (held: the person who substantially controls or manages the property) Whether the same doctrine holds true to the interpretation and application of a tax treaty (affirmative in principle) [2] In a case where: (a) a private equity fund formed by such investors as Company A, which is a limited partnership established under Delaware (U.S.) law and composed of partners with limited liability, acquired the shares of a bank via Company B established under Belgium law; (b) thereafter, said bank provided dividend payouts to Company B on several occasions while the shares owned by Company B were kept by Company C based on a direct custodian service agreement it concluded with Company B; (c) as Company B’s administrator, Company C paid the withheld amount of corporate tax on said dividend payouts by applying a limited tax rate of 15% pursuant to Article 10(2) of the Convention between the Republic of Korea and the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, and provided the outstanding amount to Company B; and (d) the competent tax authority denied the application of such limited tax rate, and subsequently, issued a notice of correction to the amount of corporate tax withheld on the dividend income accrued during each fiscal year by applying a withholding tax rate of 25% or 20% for the relevant fiscal year as prescribed under the Corporate Tax Act, the Court affirming the lower judgment deeming said disposition as justifiable, on the ground that the dividend income was not attributable to Company B [3] In cases where a foreign unincorporated association or foundation, or other foreign organization, is a for-profit organization distributing to its members the income derived from domestic sources as provided under Article 119 of the former Income Tax Act or Article 93 of the former Corporate Tax Act, method of taxation of the income incurred, and, in such case, standard for determining whether the organization may be deemed a foreign corporation [4] Whether a person paying domestic source dividend income, following the investigation as to whether there is another person to whom such income substantially accrues, is liable for withholding corporate tax from that person (affirmative in principle) Whether this same doctrine holds true in cases where the existence of another person to whom income substantially accrues could not be known even based on data gathered by the person paying domestic source income after faithfully investigating the process of transactions or income payments (negative) [5] Meaning of “a person acting as a partner or fiduciary” and “only to the extent that the income derived by such person is subject to United States tax as the income of a resident” as prescribed under the proviso of Article 3(1)(b)(ii) of the Convention between the Republic of Korea and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and the Encouragement of International Trade and Investment Standard for determining whether constituent members are liable for tax in the United States |
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